SOVIET ECONOMIC PROSPECTS FOR THE SEVEN YEAR PLAN PERIOD 1959-65

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001400150002-7
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 44
• Document Creation Date: December 27, 2016
• Document Release Date: May 28, 2013
• Sequence Number: 2
• Publication Date: July 1, 1959
• Content Type: REPORT

N? 92
SOVIET ECONOMIC PROSPECTS
FOR THE SEVEN YEAR PLAN PERIOD
1959 - 65
CIA/RR 59-27
July 1959
CENTRAL INTELLIGENCE AGENCY
SECRET
/~-1279'7
 This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
 S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
SOVIET ECONOMIC PROSPECTS FOR THE SEVEN YEAR PLAN PERIOD
1959-65
CIA/RR 59-27
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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Page
Summary and Conclusions . . . . . . . . . . . . . . . . . . 1
I. Background . . . . . . . . . . . . . . . . It
II. Main Features of the Seven Year Plan . . .. . . . . . . . 5
III. Problems of Economic Expansion . . . . . . . . . . . . . 14
'A. Trends in Labor Supply . . . . . . . . . . . . . . . 14
B. Investment Considerations . . . . . . . . . . . . . 17
C. Institutional Considerations . . . . . . . . . . . . 27
D. Role of Foreign Trade . . . . . . . . . . . . . . 31
IV. Probable Results of the Seven Year Plan . . . . . . . . 33
A. Estimated Growth of Gross National Product,
1958-65 . . . . . . . . . .
B. Comparison of Gross National Product in the USSR
and the US . . . . . . . . . . . . . . . . . . .
C. Projections of Industrial Growth'. . . .
D. Projections of Agricultural Production . . . . . . .
E. Prospects for Consumption . . . . . . . . . . . . .
1. Planned and Actual Annual Rates of Growth in Soviet
Industry, Selected Years, 1951-65 . . . . . . . . . . . . 7
2. Planned and Actual Production and Annual Rates of
Growth in Soviet Industry, by Selected Commodity,
Selected Years, 1951-65 . . . . . . . . . . . . . 9
3. Production and Implied Average Annual Rates of Growth
in, Soviet Light Industry; by Selected Product, 1958
Actual and 1960 and 1965 Plan . . . . . . . . . . . . . 11
it. Indexes of the Productivity of Capital in the USSR,
Selected Years, 1951-65 . . . . . . . . . . . . 18
5. Average Annual Increases in Output and Additions to
Capacity in the USSR, by Selected Commodity, 1952-58
.Actual and 1959-65 Plan . . . . . . . . . . . . . . . 20
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6. Structure of State Capital Investment in the
USSR, by Economic Sector, 1952-58 Actual
and 1959-65 Plan . . . . . . . . . . . . . .
7. Distribution of Gross National Product in the
USSR and the US, by End Use, 1958 . . . . . . 34
8. Value of Gross National Product, at Market
Prices, in the USSR and the US, Selected
Years, 1950-65 . . . . . . . . . . . . . . . . 3 4
USSR and US: Comparisons of Output of Energy,
Output of Cement, and Crude Steel Capacity,
Selected Years, 1950-65 . . . . . . . . . . . . .
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 SOVIET ECONOMIC PROSPECTS FOR THE SEVEN YEAR PLAN PERIOD*
122,9-65
The post-Stalin regime in the USSR has guided the Soviet economy
through a difficult 6-year period of experimentation and innovation
with only a slight decline in rates of economic growth. Rewarded
for its efforts by notable successes in some problem areas, the
regime has tackled the forthcoming 7-year period with a confidence
apparently undimmed by the embarrassment of the economic difficul-
ties which led to the abandonment of the Sixth Five Year Plan
(1956-60). Although the Seven Year Plan (1959-65) realistically
calls for slightly lower growth rates than those of past plans, the
leadership has repeatedly expressed optimism about overfulfillment
of many of its goals. At least some of this confidence appears to
have a sound basis in the new plan, which has corrected some of the
grosser mistakes of earlier planning.
The prospects for the well-being of the Soviet economy have been
enhanced by a threefold approach to the problem of removing the in-
compatibilities between resource availabilities and output targets
which plagued the short-lived Sixth Five Year Plan. Goals have been
lowered, investment in problem areas has been increased to alleviate
resource deficiencies, and numerous steps have been taken to obtain
a more efficient use of resources, both material and human. Although
these actions probably have contributed to the general strength of
the economy, they also are the source of the major uncertainties in
assessing the likelihood of the success of the USSR in its bid for
significant overfulfillment of the Seven Year Plan goals.
The degree of realism achieved in the goals of the Seven Year
Plan for industrial output does not appear to have been equaled in
agriculture. Resource allocations in the plan appear to support
an average annual increase of 8 to 10 percent in industrial output
and thus appear adequate to meet the plan goal of 8.6 percent. The
agricultural program, however, seems less certain of supporting the
required annual increase of 8 percent in gross agricultural output --
a rate equal to that reported during the past 7 years which included
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 July 1959.
 considerable gains from the new lands and corn programs. The like-
lihood of substantial underfulfillment of the agricultural goal
raises the question of how determined the regime might be to realize
the announced objectives in this sector -- how tempted they might be
to divert additional resources from other areas to agriculture.
The size of the investment program of the Seven Year Plan is suf-
ficient to offset the gradually declining efficiency of capital which
will continue to accompany the substitution of capital for labor in
the economy. Furthermore, the investment plan provides a considerable
increase in the portion of investment going to the recent problem
areas, the raw materials industries. The major uncertainties of the
program are whether or not it can be carried out on schedule, con-
trary to the experience of the last few years, and whether or not
its composition will result in enough labor saving to permit the
more slowly growing labor force to meet the requirements of the out-
put goals of the Seven Year Plan.
Continuing expansion of the building materials industries should
prevent a recurrence of the shortages which contributed to the lag
in construction activities in 1956 and 1957. Further corrective
measures in the construction industry, such as the recent organiza-
tional and wage changes, should also contribute to the task of sup-
plying the necessary new plant capacity for the Seven Year Plan.
The probability of meeting the Seven Year Plan requirements for
labor-saving machinery and equipment is less certain. The civilian
machine building industry, with a slightly smaller share of total
investment, must meet an accelerating demand for labor-saving ma-
chinery. In spite of the emphasis placed upon automation and mech-
anization, management incentives in the machine building industries
are still more favorable to mass production of standard machines
than to job-lot production of advanced-design, specialized machines
bearing greater possibilities for labor saving.
Other measures continue to-be taken which will contribute to
the fulfillment of the Seven Year Plan labor requirements. The in-
dicated level of agricultural investment, now that the labor-
absorbing new lands and corn programs are completed, appears ade-
quate to permit the release of some labor to nonagricultural ac-
tivities. This probable development, in conjunction with the
additional young workers made available by the educational reform
now in progress, should augment the natural increase in the number
of workers and employees nearly enough to meet the planned labor
requirement of 12 million additional persons. Furthermore, an all-
out effort is being made to increase participation in the labor
force of the adult population, particularly women. The continuing
program for reducing the average workweek from the 47 hours prevailing
 in 1956 to 41 hours in 1960, 40 hours beginning in 1962, and further
reductions beginning in 1964, will undoubtedly strain efforts to
meet labor productivity goals. To avoid the necessity of above-plan
additions to the labor force in the event of shortfalls in produc-
tivity goals, the leadership could slow down the move toward the
shorter workweek. Such factors as the intensified program of re-
placement of obsolescent equipment and the rising proportion of tech-
nically trained workers in the labor force will help raise labor pro-
ductivity.
The quest for greater efficiency in the utilization of resources
has led to the creation of a substantially different institutional
environment for the Seven Year Plan from that of previous planning
periods. Organizational changes of the past 2 years in industry,
construction, and agriculture have been aimed at obtaining the effi-
ciency of a high degree of personal initiative while preserving a
high degree of central control in carrying out centrally determined
goals. Although the fear of diluting central control generally has
tended to deprive the regime of any large gains from this source, it
is likely that experiments along these lines will be continued. The
concern for greater efficiency in resource utilization also has led
to a new interest in linear programing and to measures to improve
the criteria of investment choice, both of which have added a sense
of urgency to recent controversial discussions about needed reforms
in the.price system.
Somewhat the wiser from experiencing the economic difficulties
of the past few years, the leadership may be reconciled to some
diminution in growth rates. But the Seven Year Plan gives every in-
dication that beneath the aura of propaganda regarding consumer wel-
fare, the regime will manage to forge ahead toward its goal of
eventually overtaking the US economy. Although this is not likely
to occur as rapidly as Khrushchev would make the world believe, the
Seven Year. Plan probably will result in an average annual increase
in Gross National Product of 6.0 to 6.5 percent compared to an aver-
age growth rate of about 7.0 percent annually during the past 7 years --
a rate which is still nearly double the long-run growth trend of the
US economy.
 I. Background
The Seven Year Plan (1959-65) is the first in the history of
Soviet economic planning which was designed to fill a vacuum left
by the abandonment of a previous plan. The withdrawal of the Sixth
Five Year Plan (1956-60) after its first year of operatim was the
result of the emergence of forces tending to reduce the pace of
economic expansion at a time when the leadership was broadening its
economic commitments. The failure of the leadership to recognize
earlier (a) that the rapid growth experienced during the Fifth Five
Year Plan (1951-55) was based in part upon nonrecurring gains and
(b) that the maintenance of such high rates in the future could in-
volve more costly capital-output relationships led to a perpetuation
in the Sixth Five Year Plan of certain planning mistakes already
committed in the earlier period. The unrealistic expectations which
lay behind these planning mistakes had led, in turn, to fairly ex-
plicit promises by the leadership for substantial continuing gains
to the Soviet consumer. These new commitments, added to the continu-
ing burden of heavy industrial expansion, magnified the political
seriousness of the threatened reduction in rates of over-all economic
expansion -- rates which, in spite of the problems appearing in 1956,
still showed promise of remaining far above those of Western countries.
Following the death of Stalin, a dominant attitude among the
leaders was that the Soviet economy could support some improvement
in the welfare of workers and peasants. Differences in degree and
method, and possibly motive as well, were overshadowed by the basic
similarity of the views of Malenkov and Khrushchev, both of whom saw
the importance of raising the levels of agricultural output and hous-
ing. Their major disagreement -- the degree to which consumer durables
should be pushed -- did not diminish greatly the collective impact of
their programs, which by 1956 represented a significant new claim on
a resource base which suddenly was not growing in accordance with the
prevailing theory of unlimited internal reserves.
The crisis of late 1956, compounded of short-run domestic short-
ages of steel, energy, and cement and of disruption of normal Soviet
economic relationships with the European Satellites, focused attention
on the fundamental inadequacy of existing planning policies. The
leadership had failed to recognize that consistent failures in con-
struction of planned new capacity in basic industries would force an
early exhaustion of the internal reserves which had permitted the out-
put goals of the Fifth Five Year Plan to be met in spite of the lagging
development of new production capacity. The reality of insufficient
physical resources to meet the requirements of the Sixth Five Year Plan
goals now had to be faced at a time when the prospect of a more slowly
growing labor supply was suggesting the need for more efficient use of
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 available labor resources. The leadership had to (a) increase ef-
ficiency, (b) increase savings and investment at the.expense of
consumption (civilian or military or both), or (c) reduce output
goals.
Previous limited attempts to increase efficiency must have sug-
gested to the leadership that large gains from this source were by
no means certain and, in any event, would require rather drastic
measures and considerable time to implement. For a regime which
had identified itself with increasing consumer welfare, the second
choice -- an increase in investment at the expense of consumption --
was no longer the easy way out as it had been under Stalin. The
third choice, running contrary to the overriding long-run goal of
world economic supremacy, could be tolerated in the short run only
as a temporary concession to reality, to be glossed over as soon as
possible with renewed confidence in future growth prospects, as
was to be demonstrated later by the Twenty-first Party Congress.
In the 2-year period from the 1956 crisis to the launching of
the Seven Year Plan at the January 1959 Party Congress, the Soviet
leadership implemented the decision to embark on all three approaches
to the solution of their problem. The onerous task of reducing short-
run goals was delegated to Pervukhin, who lowered the objectives of
the 1957 plan and attempted to remedy the shortages of new capacity
by reallocating investment in favor of selected critical areas with-
out increasing total investment. Then, in the spring of 1957,
Khrushchev began the display of personal power which was to reach
its zenith 2 years later at the Twenty-first Party Congress. His
proposal for reorganizing industry, felling opponents in its course,
promptly was carried out in the summer of 1957. The quest for more
efficient operation of the economy was broadened in 1958 to include
an equally dramatic program for reorganizing agricultural activity.
The Twenty-first Party Congress in February 1959 took up the task of
reaffirming the long-run growth prospects of the Soviet economy with
a fervor which was in marked contrast to the more modest expectations
exhibited in the 1957-58 annual plans and in Khrushchev's long-range
forecast which was presented in 1957 at the 40th anniversary meeting
of the Supreme Soviet. In comparison with the abandoned Sixth Five
Year Plan, however,' output goals are reduced and investment is to in-
crease partly at the expense of consumption.
II. Main Features of the Seven Year Plan
The Twenty-first Party Congress and, the Seven Year Plan left no
doubt about the main objective of Soviet economic activity. The
obsession with overtaking the US economy in the shortest possible
period of time was the dominant theme of the propaganda barrage which
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surrounded the presentation of the basic outline of a fairly reason-
able plan which appears to have corrected the grosser deficiencies
of the Sixth Five Year Plan. The more realistic provisions of the
new plan promise to lessen the current constraints to rapid economic
growth and to permit substantial progress toward lessening the gap
between Soviet and US industrial production, although the obsession
rather than the promise seems the more likely explanation of the
ecstatic optimism which prompted the leadership's prediction of
overtaking the US in per capita output by 1970.
The Soviet prediction of catching up with US industry by 1970 --
resting upon a fairly realistic assumption of an 8.6-percent average
annual growth rate for Soviet industry but on an unrealistically
high ratio of current Soviet output to US output (50 percent) and an
unrealistically low growth rate for US industry (2 percent) -- be-
comes considerably less spectacular when deflated by the more realis-
tic assumptions of a 40 percent current relationship and an annual
rate of growth for US industry of 4.0 percent. The modified predic-
tion thus obtained, nevertheless, presents the unpleasant prospect
of Soviet industrial output rising from out 40 percent of US out-
put at present to about 60 percent in little more than a decade.
In this context of constant emphasis upon growth and economic com-
petition with the US, the Seven Year Plan and the struggle to over-
fulfill its goals assume an importance even beyond the actual con-
tent of the plan.
The main goals of industry and agriculture in the Seven Year
Plan call for generally slower rates of growth than were visualized
3 years earlier in the Sixth Five Year Plan. Plans for agricultural
growth, still well above probable levels of achievement, nevertheless
show the greatest reduction from the rates postulated in the earlier
planning period. The annual grain harvest by 1965 is expected to be
between 160 million and 180 million tons,* virtually identical to the
earlier expectation of 180 million tons by 1960. The gross output
of virtually all other principal agricultural products is planned
to increase over the 7-year period (1959-65) by identical or smaller
percentages than had been anticipated for the shorter 5-year period
(1956-60).
Plans for over-all industrial growth -- at slower rates than
those prescribed in the Sixth Five Year Plan but higher than the
.relatively low rates planned immediately after the crisis of 1956 --
preserve the traditional pattern of a more rapid growth of producer
goods than of consumer goods (see Table l**). Greater overfulfill-
ment of plans in producer goods than in consumer goods, however, has
* Tonnages are given in metric tons throughout this report.
** Table 1 follows on p. 7.
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Table 1
Planned and Actual Annual Rates of Growth in Soviet Industry
Selected Years, 1951-65
Fifth Five Year Plan
Sixth Five Year Plan
Seven Year Plan
(1951-55)
(1956-60)
(1959-65)
Average
-1956
1957
1958
Average
Average
Planned
12.0
10.5
7.0
7.6
10.5
Actual
13.1
10.7
10.0
10.0
Planned
13.0
N.A.
7.8
8.3
11.2
9.3
Actual
13.8
11.4
11.0
11.0
Consumer goods
Planned
11.0
N.A.
5.9
6.1
9.9
7.3
Actual
11.9
9.4
8.0
7.0
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S-E-C-R-E-T
widened the actual differential rates of growth between the two dur-
ing 1957 and 1958. This development has permitted growth rates in
producer goods to keep pace with the average,annual rate originally
prescribed by the Sixth Five Year Plan, whereas the achieved growth
rate in consumer goods has lagged considerably behind the rate origi-
nally contemplated.
Basic industrial materials industries -- most affected by past
errors in the planning of new capacity -- are to grow more slowly
than had been contemplated in the Sixth Five Year Plan (see Table 2*).
These rates, nevertheless, involve tasks of considerable magnitude.
The planned expansion of ferrous metallurgy by about two-thirds, at
a time when the quality of ore is declining and when difficulty is
being encountered in providing new capacity, will challenge the in-
genuity of the planners. The growing size of the basic industrial
materials base involves steadily larger additions to output in
physical terms -- a circumstance which is not shown by percentage
rates of growth. Thus, in spite of the slowing Soviet industrial
growth rates of the Seven Year Plan, the physical gap between Soviet
and US output of basic industrial materials, which generally in the
past has been widening, will shrink by 1965 (see the chart**).
The chemical industry, which is to triple its output during the
next 7 years, must expand rapidly in relatively new areas of produc-
tion, such as petrochemicals, plastics, and synthetics, as well as
triple its fertilizer output.
The plan for the machine building and metalworking industries
shows an effort to correct the recent capacity bottlenecks in basic
materials industries. Toward this end, plans for rolling mill equip-
ment and equipment for the power-generating and chemical industries
call for rates of increase substantially above past rates. On the
other hand, the planned average annual growth rate for the entire
machine building and metalworking industry is about 10.5 percent,
compared with the average of 17 percent reported for the Fifth Five
Year Plan period and the annual 14 percent experienced since 1955 --
a slowdown which probably reflects the anticipated lower rates of
growth of its principal input, steel. Production of metalworking
machinery will increase at approximately the same rate achieved dur-
ing the last 3 years, but specialized machine tools will increase
at.nearly double the recent rates. Output plans for agricultural
machinery, by contrast, call for substantially lower rates of in-
crease than those achieved during the virgin lands program.
* Table 2 follows on p. 9.
** Following p. 8.
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USSR and US
Comparisons of. Output of Energy, Output of Cement, and Crude Steel Capacity
Selected Years, 1950-65
 Planned and Actual Production and Annual Rates of Growth in Soviet Industry, by Selected Commodity
Selected Years, 1951-65
Commodity
1951-55
Usable iron ore
Million metric tons
Percentage
12.7
Pig iron
Million metric tons
Percentage
11.7
Crude steel
Million metric tons
Percentage
10.7
Finished steel
Million metric tons
Percentage
11.1
Actual
1956
1957
1958
78.1
84.2
88.8
8.8
7.8
5.5
35.8
37.0
39.6
7.0
3.4
7.0
48.6
51.0
54.9
7.0
4.9
7.6
38.0
40.2
42.9
7.0
5.8
6.7
1959
Sixth Five
Year Plan
1956-60
Seven Year
Plan
(1959-65)
92.7
119.6
150 to 160
4.4
7.0
7.8 to 8.8
42.0
53.0
65 to 70
6.o'
9.9
7.3 to 8.5
58.9
68.3
86 to 91
7.3
8.6
6.6 to 7.5
45.9
52.7
65 to 70
7.0
8.5
6.1 to 7.2
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Planned and Actual Production and Annual Rates of Growth in Soviet Industry, by Selected Commodity
Selected Years, 1951-65
(Continued)
Actual
Sixth Five
Seven Year
Year Plan
Plan
Commodity
1951-55
1956
1957
1958
1959
(1956-60
1959-65)
Million metric tons
429.2
463.4
496.0
593.0
600 to 612
Percentage
8.4
10.0
8.0
7.0
N.A.
8.6
2.8 to 3.0
Million metric tons
83.8
98.3
113.0
126.6
135.0
230 to 240
Percentage
Natural gas
13.3
18.0
17.3
15.0
12.0
13.3
10.7 to 11.4
Billion cubic meters
12.1
20.0
29.8
41.1
60.0
150.0
Percentage
9.2
34.4
65.3
49.0
37.9
46.2
26.0
Billion kilowatt-hours
192.0
209.5
233.0
258.0
320.0
500 to 520
Percentage
13.3
13.0
9.1
11.2
10.7
13.5
11.5 to 12.2
Million metric tons
24.9
28.9
33.3
39.0
55.0
75 to 81
Percentage
17.2
11.0
16.0
15.2
17.1
19.5
12.3 to 13.5
- 10 -
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 The consumer goods program in the Seven Year Plan, calling for
average annual increases of 6.0 and 8.0 percent, respectively, in
the light and food industries, will provide noticeable increases in
consumption levels (see Table 3). The housing program, however,
which is to provide 650 million to 660 million square meters of new
housing, or 2.3 times the amount provided in the preceding 7 years,
continues to be the most conspicuous program aimed at the consumer.
Production and Implied Average Annual Rates of Growth
in Soviet Light Industry, by Selected Product
1958 Actual and 1960 and 1965 Plan
Original Sixth
Five Year Plan
Seven Year Plan
Product
1958
(1960)
(1965)
Million yards
331
547
Percentage
7.0
6.0
7.4
Million yards
924
1,624
Percentage
5.0
15.0
8.4
Million pieces
495
940
Percentage
6.9
9.0
9.6
Million yards
6,300
8,4oo to 8,800
Percentage
3.6
4.2
4.2 to 4.9
Million pairs
356
514
Percentage
13.0
9.0
5.5
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 Production of consumer durables, such as household appliances,
is scheduled to increase more rapidly than products of light indus-
try, such as textiles, clothing, and footwear, which are dependent
upon agricultural raw materials supplies. Sales of appliances dur-
ing the next 7 years are to be several times greater than sales dur-
ing the last 7 years; refrigerators, 5.8 times; washing machines,
9.1 times; sewing machines, 2.1 times; and television sets, 4.6 times.
In spite of these large percentage increases, however, the output of
such items at present is so low that 1965 production still will be
far below that of the US on both an absolute and a per capita basis.
The Seven Year Plan provision for 1,940 billion to 1,970 billion
rubles* of state capital investment compared with 1,072 billion rubles
during the last 7 years seems sufficient reason for the emphasis
placed by the Seven Year Plan upon the enormous size of the capital
investment program. Although the annual rate of investment growth
implied by this increase is lower than the average rate achieved
during the last 7 years, the program still represents a very large
investment effort. Total state investment in the Seven Year Plan
will be about 80 percent greater than that of the preceding 7 years.
The Sixth Five Year Plan was to require a 67-percent increase in
total state investment above that in the preceding 5-year period.
An investment program of this magnitude, together with the re-
duced output goals of the Seven Year Plan, suggests that little
difficulty should be encountered in reaching the planned general
level of economic activity. A major uncertainty, however, is
whether or not this tremendous investment effort will be in the
right places to perform the necessary tasks of overcoming the re-
cently experienced problems of growth and at the same time make ade-
quate provision for other essential activities whose investment re-
quirements are more difficult to gauge. How successfully the Seven
Year Plan has dealt with the problem of gauging the strength of
consumer expectations and the problem of satisfying these expecta-
tions is uncertain. A similar problem is inherent in the forces
which determine military requirements. The uncertainties of tech-
nological developments, both domestic and foreign, both cost-saving
and cost-increasing, influence the adequacy of a long-range military
program. Finally, shifts within investment in favor of the indus-
trial sector and heavily in favor of basic materials industries within
this sector pose the difficult planning problem of determining for the
less favored areas a minimum investment program compatible with out-
put goals. The extreme concern expressed in the Seven Year Plan docu-
ment about maximizing possible economies in investment suggests that
the Soviet planners sense the tightness of their investment program.
* The appropriate dollar valuation varies greatly according to the
composition of the goods and services comprising the investment ruble
valuations given in this report. For capital investment in total, but
not necessarily subcategories, a ratio of 6 to 1 is more accurate than
the official rate of 4 to 1.
 The Soviet anxieties about investment economies, which marred
the otherwise extremely optimistic tone of the Seven Year Plan,
perhaps stemmed from a realization that the planned investment level,
which already pressed hard on plans for consumption (both military
and civilian), might not easily be raised further in the event of new
difficulties. There is an implication that the military will receive
less than might have been indicated by the trend suggested by the
Sixth Five Year Plan. Manpower cuts have been made and procurement
of conventional equipment (airplanes, submarines, and the like) has
been cut drastically, at least in 1957-58. Civilian consumption, in
spite of the verbal promises, has been cut; output goals for the
light and food industry, in line with the more realistic appraisal
of prospects for agricultural output, have been reduced more from the
old Sixth Five Year Plan than those for heavy industry. Housing goals
have been maintained, but other social-cultural investment will re-
ceive a declining share of total investment. Khrushchev's boast of
catching up with the US in meat consumption has been quietly dropped.
Reduced agricultural output goals, although still high enough to en-
compass an all-out effort to raise production, are now supported by
investment plans which are largely the responsibility of the kolkhoz.
The adequacy of the Seven Year Plan investment program, particu-
larly in terms of the possibility of overfulfillment of production
goals, will rest in part upon the success of further efforts to in-
crease economic efficiency. Definite opportunities exist for improv-
ing organizational relationships and technological practices beyond
the scope of those measures specifically incorporated in the Seven
Year Plan. Khrushchev's penchant for innovation and his obvious con-
viction of the need for greater efficiency almost certainly will impel
him along new roads in the quest for growth. The organizational and
management changes which have taken place during the last 2 years
(notably the industrial reorganization and the abolition of the machine
tractor stations -- MTS's) probably will be developed further, particu-
larly in agriculture, where perhaps the greatest sources of efficiency
gains lie dormant under present institutional bounds. Technological
roads to greater efficiency, such as the continuing programs for
dieselization and electrification of railroads and for shifting the
fuel balance away from solid fuels toward gas and oil, are likely to
lead to new opportunities for overfulfil]ment of the Seven Year Plan
goals.
This rising concern for efficiency in resource utilization is
also leading to the development of more effective techniques of
measuring the effects and of anticipating the requirements of eco-
nomic plans through a newly awakened interest in linear programing.
At the same time, both academic and government economists are actively
engaged in improving investment-choice criteria. Essential to the
 successful application of both of these reforms is a more meaningful
price system, the realization of which has been a subject of major
controversy among Soviet economists.
It is evident from the Seven Year Plan that the attempt'to obtain
a fuller utilization of labor resources will be broadened. The auto-
mation program, although still impressive, has been divested of some
of the magic ascribed to it by the Sixth Five Year Plan. This tech-
nological innovation as a means of improving the utilization of labor
resources, particularly in industry, has been joined by organizational
innovations in the Seven Year Plan which may bring about a more ef-
ficient distribution of labor between agricultural and nonagricultural
pursuits. Institutional changes promised for agriculture, such as ex-
pansion of interkolkhoz production relations, guaranteed agricultural
wages, and abolition of private husbandry activities of the kolkhozniki,
may supply a badly needed boost in agricultural labor productivity and
release manpower to nonagricultural employment.
Forearmed with a fairly reasonable plan, an open mind toward ex-
periment and innovation, and discernible opportunities for improving
efficiency, the attention of the Soviet leadership during the next 7
years probably will be fixed on maximizing overfulfillment rather
than mere fulfillment of goals. Similarly, the problems of economic
expansion discussed in III, below, except for agriculture, are in some
degree more likely to place a ceiling on Soviet ambitions of overful-
fillment than to threaten the success of the Seven Year Plan.
III. Problems of Economic Expansion
A. Trends in Labor Supply
During the period of the Seven Year Plan the population of
the USSR is expected to increase by approximately 3.6 million annually,
a slightly larger increment than in the recent past. The proportion
of the population in the working ages (15 to 69) will decline during
the period, however, and a larger share of this group. will be under
20 and over 60. Consequently, the annual additions to the labor force
will be smaller than in the past. The total addition during 1959-65
will be 7 million to 8 million* if present labor force participation
* This estimate was made before the release of preliminary data from
the 1959 census. These data will require extensive revision of the
labor force estimates, which probably cannot be carried out satisfac-
torily until more complete census figures are released. A preliminary
calculation indicates that the main effects would be to increase the
number of women in the labor force and decrease the number of men.
The total would also be changed somewhat. The trend as indicated in
the discussion above, however, probably would not be altered signifi-
cantly.
- lk-
 rates prevail and if the past trend toward greater school partici-
pation of youth continues. The reorganization of education now in
process is expected to halt this trend, however, and to have the
effect of adding about 1.5 million persons to the labor force, bring-
ing the total expected addition to 8.5 million to 9.5 million.
The Seven Year Plan calls for the addition of nearly 12 mil-
lion persons to the state sector, raising the total number of workers
and employees from 54.6 million to 66.5 million. Achievement of this
increase -- 2.5 million to 3.5 million above the expected increase in
the total labor force during the period -- will require some transfer
of people from the armed forces or the collective farm sector, or a
significant increase in labor force participation rates, or both.
Some reduction in the size of the armed forces may occur, but the
USSR probably is not counting on supplying much of its civilian labor
requirement in this way.
Recent developments and'prospective plans indicate that an
all-out effort is being made to increase the adult population's par-
ticipation in the labor force, particularly that of women. The need
to recruit women workers is emphasized by the recent census figures,
which reveal that women comprise 55 percent of the population -- con-
siderably more than had been thought. In his speech to the Twenty-
first Party Congress, Khrushchev called for "the inclusion of new
millions of women in the ranks of active builders of a communist
society" and for the creation of "conditions ... which will allow
all women to make use of their rights, knowledge, and their gifts in
productive work." As an integral part of the Seven Year Plan, a num-
ber of measures are to be taken to induce housewives to go to work.
Among these are greatly expanded programs for establishing nurseries,
kindergartens, and boarding schools; an expansion of public catering
and personal service enterprises; and a considerable increase in the
production of household appliances. All of these measures are to be
taken in fields of employment where women already predominate. Plans
also call for the building of factories in small towns and for the
expansion of homework opportunities, especially to provide employment
for women. The adoption of a 5-day workweek -- already in process in
some plants in light industry -- also will make it easier for house-
wives to work, and the scheduled substantial increase in the minimum
wage will make jobholding more worthwhile.
Recent developments and plans for agriculture also imply
greater work participation by members of farm households. Soviet plan-
ners, like the Chinese Communists, have taken note of the seasonality
of agricultural employment and show every intention of trying?to pro-
vide useful work for farmers during slack periods. Plans-to use this
labor include the construction of communal facilities, the production
 of building materials, and the construction and operation of light
industrial enterprises such as food-processing plants, garment shops,
and furniture factories. The planned expansion of such kolkhoz in-
dustry will provide the opportunity for employing otherwise idle
labor resources to increase the supply of consumer goods without
increasing the heavy pressures upon urban housing and other urban fa-
cilities already exerted by other aspects of the Seven Year Plan.
In addition to the labor resources that may be made available
through higher participation rates and a more intensive use of farm
labor, fulfillment of the planned addition to the state sector prob-
ably still will require a net reduction in the agricultural labor
force to meet requirements in urban areas. The investment program
for agriculture, now that the labor-absorbing new lands and corn pro-
grams have been concluded, is large enough to permit a considerable
increase in labor-saving forms of mechanization. Barring the intro-
duction of some new labor-intensive program, agriculture should be
able to release some labor to industry without significantly affect-
ing output.
The planned increase of about 12 million in the worker and
employee force by 1965 should be adequate to meet the labor require-
ments of plans for industrial production during this period, if planned
rates of increase in industrial labor productivity are attained. The
planned average annual increase of 5.5 to 6.0 percent in industrial
labor productivity on a man-year basis during the Seven Year Plan.
period is slightly lower than recent annual increases but, if planned
reductions in working hours are carried out as scheduled, it repre-
sents a higher rate of increase on a man-hour basis than has been
achieved during the past 7 years.
In the past, industrial labor productivity goals frequently
have not been met fully, necessitating above-plan additions to the
industrial labor force, but several features of the Seven Year Plan
will tend to increase the possibility of fulfilling the present pro-
ductivity, goals. In addition to the intensified program of replace-
ment of obsolescent equipment, the regime is striving to maintain
the rate of growth of labor productivity through continual improve-
ment in the welfare of the population and a steady rise in the pro-
portion.of technically educated workers entering the labor force.
In the event of serious shortfalls in labor force or labor produc-
tivity goals, Soviet planners could slow down the program for intro-
ducing a shorter workweek in industry, but determination to carry
out the program on schedule has been exhibited up to the present time.
Since the program was begun in 1956, the average workweek in industry
has been reduced from slightly more than 47 hours to about 44 hours,
with about 8 million workers and employees on a 40- or 41-hour workweek
 by the end of 1958. Changes scheduled for 1959 in the petroleum,
machinery, and metalworking industries and others will bring the
average workweek still closer to the goal of a 41-hour week by the
end of 1960. The Seven Year Plan reaffirmed the original 1960 goal
and set a further goal of 40 hours to be introduced in 1962 and a
general workweek of 35 hours to be introduced starting in 1964.
Soviet statements suggest that the leadership believes the reform
in working hours is proving to be beneficial, indicating that they
would be reluctant to abandon the program.
B. Investment Considerations
The investment cost of achieving the goals of the Seven Year
Plan appears to be anticipated adequately. The new plan has allocated
sufficient over-all investment funds. It also appears that an ade-
quate share of investment has been allocated for the development of
new capacity in the basic materials industries. Failure to recognize
the need for new capacity in these industries was one of the con-
spicuous weaknesses of the Sixth Five Year Plan.
In the Seven Year Plan directive, the investment program is
emphasized, alternatively with plaudits for its enormous size and
exhortations for maximum economies in its execution. The program
calls for total investment of approximately 3 trillion rubles (in-
cluding kolkhoz investment, decentralized investment of enterprises,
and private housing investment). State investment alone is to total
nearly 2.trillion rubles. This large state investment effort, claimed
to be almost equal to total state investment in all the preceding
years of Soviet rule, is symptomatic of the continuing need to sub-
stitute capital for labor if the economy is to be kept growing at
rapid rates:
The substitution of capital for labor is being accompanied
by a declining efficiency of capital which even extensive use of
technological innovation has not been able to offset fully. This
trend, evidenced by an increase in fixed capital relative to gross
national product (GNP) (see Table 4*), seems to have been more than
.adequately allowed for in the Seven Year Plan and hence poses no
obstacle to fulfillment of the plan. It does, however, lend addi-
tional importance to the two greatest uncertainties of the Seven
Year Plan investment program -- whether or not its composition will
result in enough labor saving to permit the more slowly growing labor
force to meet the requirements of the Seven Year Plan output goals
and.whether or not the investment program can be carried out on
schedule, contrary to the experience of the last few years.
 Indexes of the Productivity of Capital in the USSR
Selected Years, 1951-65
1951
1953
1955
1958
1965
GNP a
100
110
132
162
238
Fixed capital
100
118
142
194
310 to 330
Ratio: Change in GNP
100
84
Change in fixed
93
93
72 to 77
capital
Continuing improvement of the raw materials supply situation
will involve heavy investment in the construction of new facilities.
On the other hand, the attempt to minimize labor requirements in in-
dustry will involve a heavy demand for investment in machinery and
equipment both for new plants and for modernization and expansion of
old plants. The emphasis in the Seven Year Plsn upon automation and
mechanization in industry is supported to some extent by the planned
distribution of investment between equipment and construction. The
share of total investment devoted to machinery and equipment during
the Seven Year Plan is to be slightly greater than that of the last
7 years, 33 percent compared with 30 percent.
Failure to.realize this indicated increase in investment in
machinery and equipment in industry during the Seven Year Plan could
result in a repetition of the 1958 experience in which investment
shortfalls in metallurgy and chemicals seem to have been occasioned
at least in part by equipment shortages. The 1959 investment pattern,
in response to these shortages, reveals an attempt to obtain a better
mix of machinery and equipment -- the initial 1959 goal of a 33-percent
increase in capital investment in the engineering industry was revised
upward to 40 percent. Increased availability of supplies of materials
needed by the engineering industry apparently made it possible to in-
crease the effort devoted to this problem in 1959.
The civilian machine building industries in the Seven Year
Plan will barely hold their former share of total -investment at a
time. when the slower growth of the labor force is accelerating the
demand for labor-saving machinery. The Soviet machine building indus-
try, on the basis of past experience, is capable of satisfactory per-
formance in mass production of standard types of machinery and equip-
ment, but labor saving is a question of the design of machinery as
 well as the quantity. Soviet indicators of production success, which
emphasize quantity achievements best obtained from mass production of
standard types of machines, are ill suited to the encouragement of
job-lot production of new, advanced-design, specialized, or custom-
built machines which have greater possibilities for labor saving.
Pressures for immediate production, poor coordination between re-
search and production, and a lack of economic criteria for determin-
ing the effectiveness of such conversion have contributed to this
situation. To the extent that the automation and reequipment pro-
gram falls short of expectations, the manpower and physical plant
requirements of the Seven Year Plan will be greater.
The physical plant requirements of the Seven Year Plan, after
the obvious miscalculations of the ill-fated Sixth Five Year Plan,
almost certainly have been anticipated more realistically. The Seven
Year Plan includes programs for a substantial expansion of plant
capacity in such key industries as coal, steel, cement, and electric
power, which in 1956 caused serious failures in meeting production
targets. A major uncertainty of the new investment program, never-
theless, is whether or not the more realistic assessment of require-
ments for new production capacity are matched by a more realistic
assessment of construction capabilities. The lagging performance in
the completion of projects in many areas by the construction industry
in 1956-57 was avoided in 1958. Construction successes in 1958 seemed
to attest to the effectiveness of corrective measures such as higher
wages in the construction industry and continuing expansion of the
basic materials industries which improved the supply of building ma-
terials. Although construction shortfalls have occurred in some in-
dustries during the first quarter of 1959, continuing corrective
measures suggest that the experience of 1956-57 will be avoided dur-
ing the Seven Year Plan. Nevertheless, the ambitious character of
the plans for new production capacity, compared with achievements of
the last 7 years (see Table 5*), will necessitate a considerable effort
to keep construction plans on schedule.
Nonfulfillment of the targets for new capacity will not neces-
sarily lead to nonfulfillment of production targets for the industries
concerned, but it may have an adverse effect upon the economy as a
whole. For many industries, greater tonnage additions to capacity
than production increases are scheduled by the Seven Year Plan, and
in other industries or sectors of the economy the investment programs
are directed at obtaining operating economies. Thus capacity addi-
tions in the coal industry are planned to exceed production increases
by about 100 million tons, in the apparent expectation that some mar-
ginal workings can be abandoned. Investment in the railroads is
scheduled to increase by approximately 90 percent above expenditures**
* Table 5 follows on p. 20.
** Text continued on p. 22.
- 19 -
 Declassified and Approved For Release 2013/05/28 : CIA-RDP79R01141A001400150002-7
Average Annual Increases in Output and Additions to Capacity in the USSR, by Selected Commodity
1952-58 Actual and 1959-65 Plan
Actual
Average Annual
Planned
Average Annual
Commodity
Unit
(1952-58)
(1959-65)
Additions to capacity
2.3
3.4 to 4.3
Increase in production
2.5
3.6 to 4.4
Ratio: new production
to new capacity
Additions to capacity
1.8
4.0 to 5.1
Increase in production
3.4
4.4 to 5.1
Ratio: - new production
to new capacity
Additions to capacity 30.0 Ja/ * 28.6 to 31.4
Increase in production 35.1 14.9 to 16.6
Ratio: new production
to new capacity 1.17 0.52 to 0.53
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 Declassified and Approved For Release 2013/05/28: CIA-RDP79R01141A001400150002-7
S-E-C-R-E-T
Table 5
Average Annual Increases in Output and Additions to Capacity in the USSR, by Selected Commodity
1952-58 Actual and 1959-65 Plan
(Continued)
Average Annual Average Annual
Commodity Unit (1952-5&) (1959-65)
Electric power.
Additions to capacity
Increase in production
Ratio: new. production
to new capacity
Million kilowatts
Billion kilowatt-hours
4.8 a
19.7 a
4,104
8.3 to 8.6
38.1 to 41.0
4,590 to 4,767
Additions to capacity
1.0
3.3 to 4.1
Increase'in production
2.7
3.2 to 3.9
Ratio: new production
to new capacity
2.7
0.95 to 0.97
 of the last 7 years, although freight. turnover is to increase 40 per-
cent; the capital expenditures largely reflect the conversion to
diesel and electric traction in the expectation of reducing operating
costs. Production targets thus may be achieved in some instances by
not retiring facilities scheduled for retirement or by continuing an
obsolete type of operation in the face of incomplete modernization,
but the implication is that achievement of output targets in this way
will be at a higher resource cost (including labor input) than origi-
nally planned.
In ferrous metallurgy the lag of capacity behind the growth
of production was such that by the end of 1956 some blast furnaces
were curtailing operations because of inadequate ore supplies. In
an effort to restore a balance among the various stages of the in-
dustry, the regime has placed great emphasis upon new construction
in iron ore mining and blast furnaces. Considerable progress has
been made in the construction of new blast furnaces, but only modest
improvement in construction activity in iron ore mining has been
achieved in spite of the large increase in investment allocations.
The most striking changes are in the pattern of investment
for the next 7 years as opposed to the last 7 (see Table 6*). In-
vestment in industry, which is scheduled approximately to double
during 1959-65 compared with 1952-58, is to increase more than the
increase in total investment, raising slightly the share of industry
in the total. By contrast, nonproductive investments of a social-
cultural type will increase more slowly than total investment. The
most pronounced changes within industrial investment are to occur in
ferrous and nonferrous metallurgy, chemicals, petroleum, and gas, and
in the timber, paper, and woodworking industries. These industries,
which received collectively about 180 billion rubles of productive
capital investment during 1952-58, or approximately one-third of in-
dustrial investment, are scheduled to receive up to 500 billion rubles
during the Seven Year Plan, which represents as much as 46 percent of
industrial investment. Other, less emphasized areas of industrial in-
vestment, such as the coal industry, will receive a smaller share than
in the past.
Present priorities leave little further opportunity for shift-
ing investment away from the sectors producing consumer goods to in-
dustries producing investment goods. Housing for the next 2 years at
least will constitute a rising share of total investment. Present
agricultural programs and the labor saving which is urgently needed
will require a growth of agricultural investment approximately equal
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 S-F.-C-R-F-T
Declassified and Approved For Release 2013/05/28: CIA-RDP79R01141A001400150002-7
Table 6
Structure of'State Capital Investment in the USSR, by Economic Sector
1952-58 Actual and 1959-65 Plan
1952-58
1959-65
Actual
Plan
Billion
Percent of Total
Billion
Percent of Total
(Nonagricultural)
Economic Sector
Rubles J
(Nonagricultural)
Rubles J
(Upper Limit)
Nonagricultural
Metallurgy
Machine building
6.4
.(nonmilitary)
66
6.9
118
6.5
Oil and gas
73
7.6
170 to 175
9.6
Coal
Electric power and
61
6.4
75 to 80
4.4
transmission
Construction and con-
7.8
7.1
struction materials
Timber, paper, and
6.4
6.2
woodworking
25
2.6
58 to 6o
3.3'
Chemicals
20
2.1
100 to 105
5.8
Transport
107
11.2
209 to 214
11.8
Light and food industry
Housing and social-
40
4.2
80 to 85
4.7
cultural
260
27.2
455 to 460
25.3
Other J
107
11.2
131 to 141
7.7
Total nonagricultural
957
1,790 to 1,820 J
Agricultural J
S-E-C-R-E-T
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 Declassified and Approved For Release 2013/05/28: CIA-RDP79R01141A001400150002-7
S-E-C-R-E-T
Structure of State Capital Investment in the USSR, by Economic Sector
1952-58 Actual and 1959-65 Plan
a. In 1 July 1955 prices, amended by new uniform evaluations of 1956.
b. The modest growth indicated here for this sector results from the assumption that the upper
limits of the planned ranges will be achieved in the specifically labeled sectors.
c. Derived by subtracting the figure for agriculture from the-grand total. This total does not
correspond with the sums of the range figures, high and low, because the subtotals given by the
Plan are not additive -- that is, some priority shift is provided for. Thus not all branches are
expected to spend maximum amounts simultaneously, .for example.
d. Total investment in agriculture, including kolkhoz investment, will increase from approximately
250 billion rubles to 500 billion rubles.
 to the growth of total investment. The growth in agricultural pro-
duction that is estimated on the basis of presently known Soviet
plans will fall far short of Khrushchev's earlier publicized goal
of catching up with the US in meat production. Adoption of new pro-
grams to increase output -- for example, an extensive use of lime
and fertilizer in the northwestern part of the European USSR -- could
entail a substantial increase in agriculturally oriented investment
at the expense of other sectors of the economy.
Total agricultural capital investment -- state and kolkhoz --
will approximately double to about 500 billion rubles during the
Seven Year Plan compared with about 250 billion rubles during 1952-58.
The transfer of MTS activities to the kolkhozes shifts the dominance
in agricultural investment out of the state sector and into the col-
lective sector of the economy. This transfer affords the Soviet
government the expectation of increased efficiency of utilization of
agricultural equipment, but at the same time it creates a new problem
for the achievement of the desired degree of control over investment
activities.
The estimate in the Seven Year Plan that collective farms
will be able to spend 95 billion rubles for technical equipment out
of the 350-billion-ruble total investment by collective farms in-
dicates that mechanization of agriculture will continue to place
major demands on engineering industries. Although it is difficult
at present to compare this estimated equipment expenditure with for-
mer expenditures during the existence of the MTS system, it appears
to be roughly equivalent to recent levels of investment in agricul-
tural equipment. A major push to retire old agricultural equipment
in 1956, which led to a decline in the stock of some types of equip-
ment in spite of high production in that year, rid the agricultural
equipment park of the most obsolete models. Hence fewer replace-
ments will be needed for the next few years, permitting greater in-
creases in equipment stocks from a given amount of investment. This
possibility, in addition to the probable continuation of the trend
for an increase in the portion of total equipment devoted to labor-
saving types, suggest that the agricultural investment program may
be large enough and labor saving enough to permit a flow of labor
from agriculture to the nonagricultural labor force.
Agricultural investment policies have been affected by the
reduction of opportunities for expanding acreage under cultivation and.
by the heightened necessity to increase yields per acre. Republic
plans indicate that substantial activity is planned in reclamation
and irrigation projects, construction of grain storage facilities,
and animal shelters.
 According to the Party Draft of the Seven Year Plan, total
capital investments in housing and social-cultural activities will
increase from 260 billion rubles. during 1952-58 to a total of 455 bil-
lion rubles during 1959-65. This. increase will result in a slight
drop from 24 percent to 23 percent of total state capital investment.
The major share of investments in this category go to housing, which
will increase from 180 billion rubles during 1952-58 to approximately
323 billion rubles during 1959-65. State housing construction would
thus total about 28 percent of the total state construction activity.
In addition, extensive urban and rural construction is expected to be
undertaken on individual initiative and with some assistance from
state credits. The 1959 plan for 41 billion rubles of state housing
investment approaches the annual average of 46 billion rubles planned
for the 1959-65 period. There is some reason, therefore, to assume
that toward the middle of the plan period the rate of increase for
state housing investment will slacken, permitting a relatively larger
share of the construction effort to go into productive investment,
unless attempts to improve the quality of housing construction raise
the cost of the program.
In 1957, Soviet authorities foresaw a gradual shift in the
area of concentration of capital investment toward the Eastern regions
(including Middle Asia, the Urals, and all of the USSR east of the
Urals). The share of the Eastern areas in total investment was to
rise from the 35 percent received during the Fifth Five Year Plan to
40 percent in the Sixth and ultimately to 55 percent in the Ninth
(which would have occurred during 1971-75). Had this trend been
carried out, the share of the East during 1960-65 would have been
45 percent. The Seven Year Plan (1959-65) calls for more than 40 per-
cent of total investment to go into the area, whereas the area's share
of industrial output is to increase from 26.7 percent in 1958 to 31.0
percent in 1965. Implied growth in industrial production.in the
Eastern regions thus is 110 percent compared with about 80 percent
for the country as a whole.
The desirability and the practicality of the Eastern develop-
ment. program have been discussed and debated in the USSR for many
years. The leadership perhaps has no other alternative action if the
material, fuel, and energy base of the country is to be expanded.
Higher initial development costs in the Eastern regions should be
followed by more favorable cost trends in subsequent years. The
Soviet government, nevertheless, will be under continual pressure to
obtain immediate increases in output by making investments in the
established areas of the country and by foregoing costly overhead
expenditures in the East.
 C. Institutional Considerations
The Seven Year Plan will be implemented in a substantially
different institutional environment than that of previous planning
periods. The impact of the institutional changes of the last 2 years
and of the further changes which are certain to occur during the next
7 years, both in industry and in agriculture, is difficult to quantify.
Yet these changes, which clearly are intended by the Soviet leadership
to improve the functioning of the economy, must be viewed as possible
contributors to the success of the plan.
The success of the new organizational arrangements, in terms
of meeting the centrally determined goals of the Seven Year Plan,
will depend upon how well the authorities have preserved effective
central control and upon the extent to which the new operational
environment may have become more favorable to the development of per-
sonal initiative -- so important in the drive to improve efficiency
and mobilize heretofore unutilized resources.
In industry, central control has been strengthened by the
enhanced role of USSR Gosplan and by the increased participation of
the Party in economic matters at all levels. The new territorial
administrative arrangement -- the regional Councils of National
Economy -- parallels the territorial structure of the Party organi-
zation. Local Party organs have been charged with monitoring local
economic operations, and economic officials can no longer effectively
counter their intervention by direct recourse through ministerial
channels to Moscow. Financial and statistical controls have been re-
vamped to conform to the new structure; statistical offices with their
own channels to Moscow have been established in each economic admini-
strative area to provide the center with independent statistical in-
formation as well as to provide statistical support to the sovnarkhozy.
Adaptations in the Gosbank structure have been made to facilitate
close control of financial flows. Campaigns in mass media have ex-
horted the populace to be vigilant against actions contrary to "general
state interests."
On the other hand, in order to promote initiative, republic
and regional economic organs have been assigned many responsibilities
and functions formerly handled by Moscow ministries and main adminis-
trations. Republic gosplans have been expanded in scope. Authority
for many routine matters has been delegated to sovnarkhoz officials,
but with stress on their expanded responsibility. There has been a
new emphasis on suggestions from workers and administrators of all
levels. Local initiative is now encouraged in matters relating to
"how" centrally determined tasks are to be met.
 Generally speaking, the transition to the new form of indus-
trial administration has been accomplished with little disruption.
Even before this was confirmed by the plan fulfillment report at the
end of 1957, a measure of initial success was suggested by new steps
in the reorganization process. Certain ministries which initially
had been retained, including those closely connected with the mili-
tary, were abolished, and their technical and developmental functions
were transferred to newly established state committees of the USSR
Council of Ministers. In 1958, administrative categories for sup-
ply were redefined, and main administrations for interrepublic sup-
ply were established to replace the supply-sales administrations
which had been merged temporarily within USSR Gosplan. USSR Gosplan
maintained tight control over the distribution of critically scarce
commodities and closely monitored all supply operations, but many
functions, which formerly had involved detailed routine intervention
by USSR Gosplan in supply movements, were assigned to republic gos-
plans and local supply organs.
Some modification was also made in the system for establish-
ing prices. The center, principally by USSR Gosplan action, continued
to determine all important industrial prices as well as prices for
state procurement of agricultural products, but in retail trade sig-
nificant delegations of price-setting authority seem to have been
made. About 45 percent of food and industrial commodities marketed
at retail are to have their prices set by republic or local organs
on the basis of pricing policy determined by the center.
Considerable initiative was encouraged from the localities
in the matter of investments, although the center reserved to itself
all important decisions. A definite pattern of delegation of authority
in this aspect has not yet emerged, however, and discussion of the
problem continues.
Informal statements by various Soviet leaders and articles
appearing in Soviet journals indicate that active consideration is
being given the question of redefining economic areas. The integra-
tion of plans for more than 100 separate'areas poses problems in
administration; the problem is especially acute in the sprawling
Russian Republic (RSFSR) with its 68 sovnarkhozy. Proposals have
ranged from suggestions for four large self-sufficient regions to
suggestions for establishing about 25 or 30 main economic areas. In
the former case, the need for subordinate territorial subdivisions
is clear; in the latter, perhaps, new larger areas might consolidate
some existing regions. In.any case, some intermediate administrative
echelons may be interposed between the republic and the sovnarkhozy.
It is also possible that agriculture may be integrated into the sov-
narkhoz system, as was suggested recently by Academician Strumilin
and others.
 The present system, in any event, clearly is in an interim stage,
and further organizational developments will be forthcoming. These
changes, on the one hand, could be a return to a clearly defined cen-
tral control in which all semblance of "decentralization" is removed
and the rules are made so precise that the center has effectively
eliminated any legal or illegal choice open to lower levels (republic,
Council of National Economy, or enterprise). On the other extreme,
the leadership could decide to introduce more drastic measures to
give greater content to its originally announced intention of de-
volving meaningful decision-making powers.
The reorganization of construction has been analogous to
the industrial organization in many ways. Administration of most
construction sites within an economic region generally has been as-
sumed by a generalized construction trust of the local sovnarkhoz.
These trusts, amalgamating many former small specialized construc-
tion units, were intended to permit savings in administrative per-
sonnel as well as to induce greater efficiency through local special-
ization and timely maneuvering of building materials and labor among
local construction sites.
Perhaps of even greater importance, the reorganization of
construction was intended to counter the tendency to expand the vol-
ume of construction underway without due regard for timely project
completion. This diffusion of the construction effort tied up scarce
resources and delayed the commissioning of important new capacity
upon which industrial expansion depended. With the sovnarkhozy be-
coming responsible for both industrial production and construction,
lagging completions may be reduced although reports of excessive dif-
fusion continue to appear. Correction of this situation may not be
possible without introduction of new criteria for judging plan ful-.
fillment and for awarding bonuses to construction workers.
In agriculture, further significant changes are now being
introduced which perhaps will have a greater impact on production
than those changes already instituted. State control over agricul=
tural activities apparently is not to be weakened. Although the
MTS has been abolished, its political and economic functions gener-
ally are being shifted to other institutions. Many of the general
production, planning, and procurement controls apparently are now
in the hands of a rayon executive committee under a newly created
"inspectorate." Such political control as the MPS formerly exer-
cised probably will be added to the rayon committee's functions.
The important functions of major repair and materials distribution
(fuel, fertilizer, and machinery) will reside in the repair tech-
nical stations (RTS's), which are physically taking over the plant
of the MTS's.
 Collective farm control over most'of the machinery formerly
under the MTS's may prove of some significance in. increasing output.
The former dual and sometimes conflicting decisions by the collec-
tive farm chairman and the MTS director concerning day-by-day opera-
tions of the collective farms will now be avoided. The collective
farm chairman now is free to maneuver machinery in a more timely
manner and has the undivided use of more skilled labor.
The new "single price" system introduced in 1958 seems to
be designed to give enough added income to the kolkhoz to cover
most, if not all, of the cost of operations previously performed by
the MTS's. Its adoption, however, may have removed one of the in-
centive features of the previous multiprice system, under which
higher prices were realized for above-normal yields either through
premiums or purchase prices. Prices are now to be set for individual
rayons after the size of the rayon harvest is known. Lower prices
will be set when yields in a given year are high so that incomes will
be held relatively constant. It is not known what adjustments will
be made for secular increases in yields. On the positive side, there
is the possibility of a more favorable attitude on the part of the
collective farmer toward socialized agriculture because of the elimi-
nation of sharp fluctuations in income from the collective farm.
Some important changes which were initially suggested in the
agricultural reorganization proposals have not been adopted.. The
freedom of choice suggested for the collective farm chairman in the
purchase of MTS machinery and in the negotiation of contracts has not
materialized. Machinery is being transferred with little-regard for
the farm chairman's desires, and the central organs continue to deter-
mine procurement goals. The much-publicized decentralization of plan-
ning of acreages, production, and the like, initiated in 1955, appar-
ently is quite limited in practice. There are few indications that
the changes made thus far have improved the position of the enterprise
manager in Soviet agriculture with regard to his making significant
choices in what and how he will produce. The farm chairman, further-
mote, still has little or no incentive to lower the cost of production
by reducing labor and capital expenditures, because his personal suc-
cess is related almost exclusively to the fulfillment of output goals.
The present move to place collective farms on a khozraschet (cost ac-
countability) basis, along with the movement toward a guaranteed wage
for collective farm labor, should substantially increase the motiva-
tion for the farm chairman to minimize costs. Pressures to minimize
labor inputs might force additional workers away from the collective
farm into urban occupations.
 Soviet foreign trade policy is revealed in the Seven Year Plan
only in terms of a 50-percent increase in trade with Socialist coun-
tries and a readiness to expand trade relations with the rest of the
world. Beyond this, it is probably safe to assume that Soviet trade
policy will continue to subordinate short-run economic gains to the
furtherance of national political objectives -- strengthening Satel-
lite ties with the USSR, promoting Soviet relationships with under-
developed non-Bloc areas, and providing the bulk of the capital im-
ports required for the Chinese Communist industrialization program.
Only in trade with the industrialized countries of the non-Bloc world
will economic considerations tend to dominate Soviet foreign trade
policies.
Total Soviet foreign trade, reported to be valued at 34 bil-
lion rubles in 1958 compared with 33.3 billion rubles in 1957, will
continue to increase during the Seven Year Plan period. The com-
position of Soviet foreign trade will continue to be influenced by
the requirements for maintaining the Soviet empire in Eastern Europe
and the Soviet alliance with Communist China as well as by the re-
quirements of the domestic economy.
Soviet trade with the European Satellites, as indicated by
existing trade agreements, will increase considerably through 1960.
European Satellite exports to the USSR, particularly electric and
chemical equipment to meet expanding Soviet requirements, will in-
crease as the European Satellites begin to repay credits previously
granted them by the USSR. On the other hand, Soviet exports to the
European Satellites of raw materials, particularly iron ore, petro-
leum, and nonferrous metals, will increase during the next 7 years.
Soviet exports of capital equipment to the Satellites, however, will
not substantially increase during the period, with the probable ex-
ceptions of electrical and agricultural machinery.
Recent attempts to increase intra-Bloc economic integration
and specialization probably will be pursued further, particularly
in regard to long-run allocations to exports of basic materials and
bilateral cooperation and subcontracting on an interindustry basis.
The main effect will be reflected in intra-Satellite production and
trade. The USSR itself probably will not become highly involved in
Bloc integration, particularly in specialization schemes, principally
because it already possesses a large and diversified economy which
was developed for purposes of self-sufficiency.
 Soviet trade with Communist China, characterized in the past
by an excess of Soviet exports, recently has shifted to an excess of
Soviet imports as Chinese repayments under terms of previously granted
credits have begun. Soviet exports of machinery and equipment to
Communist China, accounting for as much as one-half of total Soviet
exports to China in recent years, will continue to account for a major
portion of this trade, which is dominated by Chinese requirements for
capital equipment for the industrialization program.
Soviet trade with underdeveloped countries of the non-Bloc
world can be expected to increase during the Seven Year Flan period.
Total credits of more than US $1 billion (excluding military) have
been granted to underdeveloped countries by the USSR, although only
about 20 percent of this amount had been drawn by the end of 1958.
Future drawings upon these credits and new credits which surely will
be granted in the future may entail substantial increases in Soviet
exports of capital goods to these countries. These areas will,
.nevertheless, continue to account for a relatively small part of
total Soviet trade. The slight burden of this trade will remain a
small price to pay for the promise of continuing rich political re-
wards.
Soviet trade with the industrial countries of the West, al-
though small in size, will continue to increase as in the past when
it rose from an import volume of approximately US.$200 million in
1950 to US $575 million in 1956. More than one-third of these im-
ports consisted of machinery and equipment, and another one-third of
metal and metal products. The small volume of this trade under-
states its contribution to the Soviet domestic economy because of
the gains derived from importing machinery and equipment for use as
prototypes and from supplementing domestic production of items such
as electrical machinery, power generating equipment, and ships.
Recent Soviet statements have emphasized a determination to buy more
machinery, particularly chemical machinery.
Soviet exports to the West, primarily industrial raw ma-
terials and fuel, have been motivated by the necessity of paying for
imports and can be expected to increase to the extent that imports
increase. Soviet export sales have been disturbing to Western pro
ducers, particularly as regards aluminum and petroleum, items about
which Western producers have been successful in avoiding undue com-
petition among themselves.
 Declassified and Approved For Release 2013/05/28: CIA-RDP79R01141A001400150002-7
Soviet aluminum production capacity is sufficiently above
domestic needs to permit export sales, but production costs are
high and much of the industry is still located in the Urals, where
fuel is in short supply. Soviet export of petroleum to the West
can be expected to continue to expand because it offers a conven-
ient opportunity for obtaining foreign exchange. The USSR also is
selling increasing amounts of tin, flax, and lumber products to the
industrialized countries of the West for the same reason.
IV. Probable Results of the Seven Year Plan
A. Estimated Growth of Gross National Product, 1958-65
Soviet GNP grew about 40 percent during the years of the
Fifth Five Year Plan (1951-55), or at an average annual rate of
approximately 7 percent compared with an annual GNP growth rate
for the US of 4.3 percent during the same period. The US growth
during these years was substantially higher than the long-run trend
of 3 percent annually. Soviet GNP increased about 5.5 percent in
1957 and about 7.0 percent in 1958, compared with a 9-percent rate
of increase in 1956 which was explained largely by the extremely
good harvest in that year. It is estimated that Soviet GNP will
grow at an average annual rate of 6.0 to 6.5 percent for the period
1958-65, for a total increase of 50 to 55 percent over this period.
The estimated proportions of Soviet GNP by end use in 1958,
with a comparison of those of US end-use components, are shown in
Table 7.* Investment, although growing more slowly than during the
past several years, will continue to increase more rapidly than
total product and will comprise, therefore, a larger share of Soviet
GNP by 1965. Defense is expected to remain about the same propor-
tion of the total. Consumption probably will grow more slowly than
in the 1950-58 period and at a lesser rate than GNP. Although various
consumer services are expected to expand at increasing rates, this
expansion will not be enough to counteract the effect of the rela-
tively slow-growing agricultural production upon consumption.
B. Comparison of Gross National Product in the USSR and the US
The anticipated high rates of growth of Soviet GNP during
the period of the Seven Year Plan will increase the size of the Soviet
economy relative to that of the US (see Table 8**). Soviet GNP, which
in 1950 was a third~of US GNP, increased to 41 percent in 1957. If**-*
* Table 7 follows on p. 34.
** Table 8 follows on p. 34.
*** Text continued on p. 35.
- 33 -
S-E-C-R-E-T
 Table 7
Distribution of Gross National Product
in the USSR and the US, by End Use a/
1958
End Use
USSR J
US -C/
Consumption
61
69
Investment
28
17
Defense
10
11
Administration -
1
3
a.
b.
Adjusted value added.
Gross national product
of 1,367 billion 1957 rubles.
c.
Gross national product
of 397.7 billion 1958 dollars.
d.
Including military foreign aid amounting to approximately
5 percent of defense expenditures.
.Value of Gross National Product,- at.Market Prices,
in the USSR and the US
Selected Years, 1950-65
1950
1955
1956
1957
1963
USSR
a
112
156
170
180
26o to 270
,
US J
USSR as a percent
344
425
435
440
550
1965
290 to 300
590
of US 33 37 39 41 47:to 49 49 to 51
a. Two projections were made for the USSR -- one involving an
estimated annual increase in industrial production of 8 percent
from 1958 to 1965, and the other a 10-percent increase per year
for the same period.
b. The US projection is based on a growth rate of 3 percent per
year between 1956 and 1960 and of 3.7 percent per year between
1960 and 1965, derived from recent estimates by the Joint Economic
Committee.
-34-
S-E-C-R-E-T
Declassified and Approved For Release 2013/05/28: CIA-RDP79R01141A001400150002-7
 the annual growth rate of US GNP is projected at 3.5 percent, ap-
proximately midway between its postwar rate and its..long-run trend,
Soviet GNP will have increased to about half that of the US by 1965.
The comparison of the principal end-use components varies
greatly from the comparison of total GNP of the two countries.
Soviet GNP in 1957 was only 41 percent of US GNP, but defense ex-
penditures measured in dollars in the two countries were approxi-
mately the same in absolute size. Total investment in the USSR was
about two-thirds of that in the US, but investment in industry, min-
ing, and public utilities was 80 to 85 percent as high. On the other
hand, consumption in the USSR amounted to less than a third of that
in the US, although the USSR has a population approximately 20 per-
cent greater..
C. Projections of Industrial Growth
Aggregate industrial production is expected to grow at ap-
proximately 8 to 10 percent per year during the period 1959-65.
Growth of most of the major industrial products will be somewhat
slower than in the past. Production of crude steel will increase
by 6 to 6.5 percent per year compared with 9.5 percent between 1950
and 1957. Production of machinery will expand at rates below those
achieved in the recent past, perhaps 8 to 10 percent per year com-
pared with an estimated average annual rate of 10 to 13 percent be-
tween 1950 and 1957. Prospects for energy output are more promising
as a result of the planned shift in the fuel balance away from solid
fuels. Production of petroleum and natural gas is expected to rise
by 10.5 percent per year between 1958 and 1965, permitting the coal
share of the fuel balance to fall from about 60 percent at present
to less than 45 percent by 1965. Production of coal, in spite of
the radical planned reduction of the coal share of the fuel balance,
is planned to grow nearly 3 percent annually during the next 7 years,
or at about one-half the rate planned for 1958. The increase fore-
seen for output of electric power is below the 13.3 annual average
for 1950-55 but will be adequate to support the anticipated industrial
growth rate.
The average annual rate of increase in agricultural output
during the 1958-65 period is projected at about 4 percent compared
with the average annual rate of 7.5 percent achieved over the 1953-57
period. This slowing trend in future agricultural growth compared
with the remarkable performance over the past 4 years is caused by
several factors.
 Perhaps half of the increase in production during the 1953-57
period came from a 23-percent increase in sown acreage. During the
1958-65 period the total acreage will increase about 11 percent, or
at an average annual rate of only about one-fourth that of the earlier
period. The corn program, which explained part of the sharp rise
since 1953 in the availability of livestock feed, will not contribute
to future agricultural output on the same scale as in the past. Much
of the expansion of corn acreage came about from substituting corn for
sown grasses and other feed crops that produced less feed units per
acre. Most of the opportunities for gainful substitution will have
been exhausted.
In this context, the Seven Year Plan goal of a 70-percent in-
crease in gross agricultural production -- about 8 percent annually --
appears to be impossible of achievement. Some beneficial effects may
be expected from the plan to triple the supply of mineral fertilizer,
to improve the quality of grain, to extend and improve crop rotation
practices, to extend irrigated land in cotton areas, to ameliorate the
soils in the northwestern and western areas of the country, and to
proceed with further institutional reforms. Output gains from these
sources, however, do not show clear promise of duplicating gains of
the last 4 years.
The projected output for 1965 is premised on the continuation
of presently known agricultural programs. The rate of growth, about
4 percent a year, does not appear to be consistent with Khrushchev's
formerly publicized meat production goals, which called for nearly a
10.5-percent average annual increase, nor with his general inclusion
of consumption in the arena of economic competition with the West.
If such a modest rate of increase emerges over the next several years
and it becomes apparent that present programs and resource allocations
are not adequate to sustain the rapid growth of the 1953-57 period, new
campaigns may be initiated with the aim of matching the food production
growth of the earlier period.
E. Prospects for Consumption
The Seven Year Plan continues to exploit the propaganda value
of improvements in consumption levels and continues to treat per
capita consumption as a new area of competition with capitalist coun-
tries. It is clear, however, that the Soviet regime continues to re-
gard consumption primarily as a "cost of production" required to ob-
tain economic growth and military power. This minimum regard for
consumption, which has fostered the development of an economy which
can engage in defense expenditures equal in dollar value to those
of the US and investment outlays two-thirds as large as those of the
US but whose consumption is less than one-third the dollar value of
 consumption in the US, will continue to limit severely the prospects
for a rapid rise in the welfare of the Soviet consumer. The consumer
goods program in the Seven Year Plan is sufficient to narrow or close
the gap between US and Soviet consumption levels in a few limited
areas, and these gains are sure to be proclaimed loudly for their
propaganda value, but over-all per capita consumption in the USSR,
nevertheless, still will be far below that in the US.
Over-all per capita consumption, furthermore, will increase
more slowly during the Seven Year Plan -- perhaps 3.0 or 3.5 percent
annually -- than it did during 1950-57, when notable gains in agri-
cultural output contributed to an average annual increase in con-
sumption of 5 percent. Slower rates of growth in agriculture will
limit the increase in food consumption to about 2.5 percent annually
compared with the average annual rate of 4.0 percent from 1950 to
1957. Slower growth in agricultural industrial crops will limit the
increase in consumption-of manufactured soft goods, such as textiles,
to about 4.0 percent annually, compared with the annual rate of about
8.0 percent during 1950-57, in spite of planned increases in artifi-
cial and synthetic fiber production by the chemical industry. Per
capita consumption of durable goods, starting from a very low level
in 1950, has been increasing at the rapid average annual rate of
23 percent but will increase at a much slower rate of perhaps 10 per-
cent annually during the Seven Year Plan period. The only component
of consumption which will increase more rapidly than in the past is
services, of which urban housing, household fuel and power, and per-
sonal transportation will gain the most rapidly. Even in these areas,
however, planned 1965 consumption levels are still quite low. Achieve-
ment of urban housing goals, for example, will result in an average
living space of only 7 to 7.5 square meters per person, still well
below the Soviet minimum standard of 9 square meters.