THE SLOWDOWN IN SOVIET INDUSTRY 1976-82

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R001001580064-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 67
• Document Creation Date: December 21, 2016
• Document Release Date: July 9, 2008
• Sequence Number: 64
• Publication Date: June 1, 1983
• Content Type: REPORT

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Central Intelligence Agency
Office of the Deputy Director for Intelligence
DDI #5102-83
13 July 1983
NOTE TO: Director of Central Intelligenc
Deputy Director of Central Intelligence
Executive Director
FROM : Deputy Director for Intelligence
Given the volume of papers we are publishing
now there is always the danger that you may not
see or may not read papers of special importance.
The attached is such a paper. Its analysis
of enormous importance for both the USSR and
the US. The problems it describes in part are
responsible for the slow down in the rate of
growth in military procurement. It is, in fact,
a laying out of the situation that confronts
Andropov with respect to the economy. If he
could read it, the sheer magnitude of the
problem might do him in.
Attachment:
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Directorate of Confidential
Intelligence
The Slowdown in
Soviet Industry,
1976-82
A Research Paper
Confidential
SOV 83-10093
June 1983
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National Security Unauthorized Disclosure
Information Subject to Criminal Sanctions
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Directorate of Confidential
Intelligence
The Slowdown in
Soviet In
1976-82
A Research Paper
was prepared by
consultant to th
Division, Office of Soviet Analysis. It was
coordinated with the National Intelligence Council.
queries are welcome and may be
directed to the Chief, Soviet Economy Division,
SOYA,
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Summary
Information available
as of 4 May 1983
was used in this report.
The Slowdown in
Soviet Industr
1976-82
In trying to revive Soviet economic growth, the new leadership under
General Secretary Andropov must contend with an especially difficult set
of problems in industry. Industrial growth, which has been decelerating
since World War II, slowed unusually sharply during 1976-82. Annual
growth in industrial production averaged over 9 percent during the 1950s,
6.4 percent during the 1960s, and 5.9 percent in 1971-75. In 1976-80 the
annual rate was only 3.2 percent, and it slowed to 2.4 percent in 1981-82.
Even more dramatic was the slump in productivity?the efficiency with
which combined inputs of capital and labor are used. Despite strenuous
efforts, the Soviets have been unable to halt this deterioration, and factor
productivity declined at an average annual rate of 1.2 percent during 1976-
82. Prospects for turning the situation around in the rest of ,the 1980s are
not good. Although industrial growth in 1983 probably will be above
1982's low 2.2 percent, a continued downward drift in industrial growth
and productivity is likely.*
The surprising slowdown, which occurred within about 18 months in all of
the 10 major branches of industry, stemmed from several key factors and
many lesser ones. It was precipitated by a path-breaking investment
decision?made by the government in 1975 and incorporated in the 1976-
80 Five-Year Plan Directives?to try a new strategy for economic growth.
Output gains were to depend mainly on improved efficiency (intensive
growth); in the past, most of the growth in output had been achieved simply
by massive increases in new plant and equipment and mobilizing more
workers (extensive growth).
The decision was implemented vigorously in 1976?the first year of the
new five-year plan?through a sharp cutback in the rates of growth
planned for total new fixed investment and for industrial output. The
planners evidently believed that if they reduced the pressure for ever
greater output for a while, the industrial sector could raise its efficiency
and improve the quality of its products, paving the way for an upsurge in
industrial growth rates in subsequent years. But events went awry, and the
planned temporary retreat turned into a rout.
* This paper investigates the principal causes of this dramatic turn in Soviet fortunes by ex-
amining the experience of each major industrial branch and assessing the interdependencies
involved. The findings rest largely on a series of industrial case studies by the Office of Sovi-
et Analysis. The approach is partly quantitative, in that it involves extensive analysis of sta-
tistical time series, but mainly qualitative, relying on a mass of reporting from the Soviet
press and other sources.
111
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The new strategy threw into sharp relief serious shortcomings in the
investment process, and these played an important role in the industrial
slowdown. Along with slowing investment growth, the strategy concentrat-
ed on renovating existing plants rather than building new ones. The
scramble for allocations that ensued severely weakened the government's
control over investment projects. A reallocation of investment in midplan
(to finance a crash program to develop energy in West Siberia) made
matters worse. The results were an upsurge in the volume of unfinished
construction, a large falloff in additions to capacities, and many useless
renovations that increased neither capacity nor efficiency. In general, the
replacement of old machinery with new, more efficient types moved no
faster than before.
Aside from these mistakes in investment planning, industrial growth was
seriously damaged by the convergence of three critical constraints, which
Soviet policy failed to head off. The first, and possibly most decisive, was a
growing shortage of several key raw materials?iron ore, steel, lumber, and
nonmetallic minerals. These (and other) shortages developed largely as a
consequence of long-continued building of large facilities for producing
intermediate and final products, to the relative neglect of investment in
developing the supplies required for full use of those capacities. In
particular, the planners had failed to take adequate account of the rapidly
growing share of investment needed simply to offset depletion in the
extractive industries. Growth of output of extractive raw materials, which
had been slowing for many years, fell sharply after 1975.
Shortages of these critical inputs, along with deterioration of their quality,
began to limit growth of production first in steel, forest products, and
construction materials, and then in the processing industries themselves?
chemicals, machinery, and paper. In addition, poor harvests in 1975 and
again in 1979-82 led to raw materials shortages in consumer goods
industries.
A second major constraint was in the supply of energy. Although many
years of debate over energy development strategies showed some attention
to the subject, the planners apparently did not realize how fast the problem
was developing or the huge resources that would be required to cope with
it. As fuel shortages began to plague the industrial sector after 1975, the
planners responded with conservation campaigns?largely unsuccessful?
and the crash program in West Siberia. Coal, which is both a raw material
and a fuel, proved to be a particularly serious constraint. Its worsening
quality and reduced availability adversely affected the production of
electricity, with power outages, brownouts, and other malfunctions becom-
ing frequent and damaging to efficiency, product, and equipment in most
branches of industry in varying degree.
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In addition, the electric power network operated under increasing strain as
its reserve capacity decreased?a consequence of past failures to add new
capacity. Unreliability in fuel and power supply became widespread,
causing particular difficulty in the severe winter of 1978/79 and again in
1981/82.
Rapidly developing bottlenecks in rail transportation proved to be a third
serious constraint on industrial growth and efficiency. Frequent failure of
the railroads to meet shipment schedules led to intermittent plant shut-
downs, production-line disruptions, and idle machines and workers. After
years of relative investment neglect and improper investment allocations,
the railroads finally neared the point of breakdown. Freight density, which
had increased by 27 percent in 1971-75, essentially stagnated in 1976-80.
That is, the railroads had reached the limit of their capacity to move ever
more freight with their existing lines and technology. The leadership's
growing alarm over the worsening transport situation was reflected in
several decrees, some increase in investment, and (in 1982) the dismissal of
the Minister of Railroads and designation of a Politburo member to oversee
the sector.
Other developments added to the difficulties and took their toll on
industrial growth:
? Military priorities. The priority claim of the military on production, fuel
supplies, and transportation is a permanent burden, and the strain was
worsened in 1979-82 by suddenly accelerated military demands on
transport to convey men and material to Afghanistan and to facilitate the
protracted large-scale troop maneuvers in western Russia that were part
of the Soviet response to the events in Poland. The industrial slowdown
almost certainly played a role in halting the growth in military procure-
ment after 1975.
? Changes in the rules of the game. Managerial staffs of enterprises were
burdened as never before by frequent changes in the rules governing
incentives, with multiple campaigns to conserve on everything at once,
with orders to join one or another large-scale experiment to test some new
working arrangement, with pressure to reorganize or merge enterprises,
and with accelerating demands to set up auxiliary farms and (in heavy in-
dustry) to produce more consumer goods. The constant change in the
rules increased uncertainties and made incentive schemes less useful in
stimulating efficiency. The administrative overkill, coupled with the
operational difficulties faced by producers, surely weakened incentives
for innovation. Finally, problems in motivating and disciplining workers
also were evident?but whether they became more difficult in this period
is hard to say.
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o Growing difficulties in planning. The ability of Gosplan to plan (forecast)
industrial growth with reasonable accuracy became progressively worse
during 1976-82 for many key products as well as for overall growth. By
CIA measures, industrial growth has failed to meet planned targets in
every year since 1973?and by growing margins.
o Foreign trade rigidities. Rigidities in the conduct of foreign trade (five-
year bilateral agreements in CEMA trade and a financial conservatism
that blocked additional hard currency debt) limited any effort to use
imports to alleviate domestic shortages.
Most of the unfavorable developments that converged to slow industrial
growth and productivity during 1976-82 will continue to do so for the rest
of the 1980s, and may intensify. According to the five-year plan, industrial
investment will grow more slowly in 1981-85 than it did in 1976-80, but in-
dustrial output is to grow more rapidly?by 4.7 percent per year instead of
the 3.2 percent achieved in 1976-80. Except perhaps for oil and gas,
however, planned investment will be insufficient to create the capacities
needed to achieve that accelerated growth in output. The current plan
retains the policy of devoting the bulk of new investment to renovating
existing facilities; this means, under Soviet conditions, that much of it may
be wasted, as apparently it was during the last plan period.
Given the severity of present imbalance between the supplies of raw
materials and energy and the capacities to produce finished goods,
shortages are likely to continue, and the quality of many raw materials
probably will deteriorate. In particular, the likely slow growth of steel
production will constrain the growth of machinery and hence of investment
and perhaps also weapons production. Good harvests, if they come, will
raise growth rates in the food processing branch, but not much in industry
as a whole. The railroads will continue to operate under severe strain;
indeed, there is no clear indication that the planners have even agreed on
how to attack their accumulated problems.
Four other factors will add to industry's strained situation: greatly reduced
availability of labor as a consequence of demographic factors; the contin-
ued sizable priority claim of the military on materials, investment, and
transportation; accelerated pressure on enterprises to economize on all
resource inputs simultaneously; and incentive schemes of Byzantine com-
plexity. Although the campaign recently launched by Andropov to impose
discipline on one and all may have favorable effects initially, such tactics
seem unsuited to the long-range task of solving chronic productivity
problems. Major systemic reforms, which might provide a solution in the
long run, are not on the leadership's agenda as yet. Even if launched, they
would be unlikely to boost industrial growth and productivity for many
years.
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Sluggish industrial growth will slow the growth of GNP through the 1980s.
The Soviets will probably adjust to this, as they have already in the past, by
dealing fairly evenhandedly with the three major claimants?consumption,
defense, and investment, allocating roughly similar shares of annual GNP
increments to each. Such "muddling through" should enable them to
maintain some forward momentum for consumption, to continue upgrading
weapons capabilities, and to support growth with additional investments.
Alternative strategies not only would be risky, but probably could not be
even carried out.
The Soviets also will continue to import technology from the West to
relieve shortages in critical areas such as finished steel and oil and gas
equipment. However, the real growth in purchases will be constrained both
by slower growth of hard currency earnings and by continued Soviet
reluctance to pile up debt to the West.
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Contents
Page
Summary iii
The Statistical Record of Performance 1
Causes of the Great Industrial Slowdown, 1976-82 6
The Causes in Brief 6
The Growth Strategy That Boomeranged 8
The Strategy in Industry 8
Effects of the Strategy 9
Growing Shortages of Raw Materials 12
The Pinch in Coal Supplies 13
The Steel Vise 13
Agricultural Shortfalls 14
Energy Constraints 14
Transportation Snarls 16
Other Important Impediments to Industrial Growth 18
Military Priorities 19
Foreign Trade Rigidities 19
Changes in the Rules of the Game 19
Outlook 21
The Growth Strategy?More of the Same 23
Supplies of Key Raw Materials 24
Energy Supplies 27
Breaking Transportation Bottlenecks 28
Other Important Factors 29
Labor 29
Foreign Trade 29
Planning and Incentives 29
Outlook for Production and Productivity 30
Implications for Soviet Behavior 30
Appendixes
A.
How Individual Branches of Industry Fared 33
B. Annual Percentage Growth in Outputs, Inputs, and Productivity in 55
Soviet Industry, 1971-82
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Figure
Growth in Output, Inputs, and Productivity in Soviet Industry 4
Tables
1.
Average Annual Rates of Growth of Output, Inputs, and 2
Productivity in Soviet Industry, 1961-82
2. Annual Growth in Output, Inputs, and Productivity in Soviet 5
Industry, 1971-82
3. Gross Addition of New Capacities and Investment in Soviet 11
Industry, 1966-80
4. USSR: Distribution of Industrial Investment by Branch, 1961-81 15
5. USSR: Average Annual Rates of Growth of Industrial Production 17
and Freight Transportation
6. Planned and Actual Growth Rates in Soviet Industry, 1971-82 22
7. USSR: Average Annual Rates of Growth of Industrial Production, 24
1971-82, and Planned Rates for 1981-85
8. Growth Rates in Nonferrous Metals
35
9. Average Annual Growth of Production in the Chemicals Branch 43
10. Average Annual Percentage Rates of Growth in Three Wood 47
Products Categories
11.
Average Annual Percentage Rates of Growth of Construction 48
Materials Output
12. Performance of the Light Industry Branch
50
13. Performance of the Food Processing Branch
52
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The Slowdown in
? Soviet Industry,
1976-82
The Statistical Record of Performance
Soviet industrial production has grown more slowly in
each successive five-year period since 1950. Industrial
growth averaged 9.2 percent in the 1950s, and factor
productivity improved rapidly during the decade.'
During 1961-75, production growth continued to slow
progressively, and productivity growth rates, although
far below those of the 1950s, were improving. Table 1
shows the data by five-year periods for industry as a
whole and for 10 major branches. Although the
slowdown in growth of output during 1961-75 oc-
curred in most of the branches, the patterns were
quite diverse. Growth patterns for labor and capital
inputs and factor productivity also varied considerably
among branches, the growth of inputs dropping con-
siderably in most cases and total productivity rising.
A clear break in these trends and patterns occurred in
1976-80 (the 10th Five-Year Plan), and the new
situation has persisted through 1982 (see figure).
Average annual growth of total industrial output
dropped sharply?from 5.9 percent in 1971-75 to
3.2 percent in 1976-80 and to 2.4 percent in 1981-82.
Similar abrupt falloffs in five-year average growth
rates occurred in all branches except light industry.
Moreover, the sharp deterioration in growth began in
1976, the first year of the new five-year plan, for
industry as a whole and for all branches except
electric power and light industry.
Thus, the overall industrial growth rate fell from
6.4 percent in 1975 to 4.0 percent in 1976 (by far the
sharpest fall in percentage points in any year since
1956?when the growth rate was twice as high). The
slide in growth rates between 1975 and 1976 in the
eight branches ranged from 0.9 percentage point for
'Unless otherwise indicated, growth rates are based on the CIA
index of industrial production (SPIDER). A full description of the
nature and derivation of this index is given in USSR: Measures of
Economic Growth and Development, 1950-80, US Congress, Joint
Economic Committee, Washington, 1982, pp. 169-244. Productivi-
ty of capital and labor combined, termed "factor productivity," is
calculated using a Cobb-Douglas (linear homogeneous) production
function. Annual growth rates for labor and capital and the weights
used to combine them are given in appendix B.
1
construction materials to 6.4 percentage points for
food processing. In both electric power and light
industry, spared the first year, the abrupt falloff in
growth took place a year later?in 1977, when per-
formance in the other branches and in industry as a
whole stabilized or improved a little.
Besides the marked downward deviation from trend
displayed in nearly all branches and in industry as a
.whole, three other notable developments character-
ized industrial growth in 1976-82. First, while the
pattern is not uniform, growth rates for the branches
of industry tended to fluctuate more widely than in
earlier quinquennia. (An exception is the food process-
ing branch, where annual growth rates have always
been erratic because of the volatility in agricultural
output.) Second, in industry as a whole and in most
branches, once the break in trend occurred, perform-
ance continued to deteriorate along the new, steeply
declining trend line.
Third, the sharp falloff in growth of output in indus-
try and its branches in 1976-82 was associated statis-
tically with a modest reduction in the growth of inputs
(capital stock and man-hours of labor) and an absolute
decline in the productivity of these inputs (see figure).
In industry as a whole during 1976-80, the growth of
capital stock slowed by only 1 percentage point
compared with 1971-75, and the growth rate of man-
hours rose slightly. Together, they increased consider-
ably faster than output, so that factor productivity
declined by 1.2 percent annually (it had grown by
1 percent annually during 1971-75). The growth of
capital stock dropped moderately in all branches
except fuels, where it rose a little. The growth of man-
hours speeded up somewhat in all branches except
machinery and chemicals, where growth of labor
inputs slowed by nearly 1 percent annually, and forest
products, where man-hours declined a bit more slow-
ly. The growth of capital and labor inputs combined
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Table 1
Average Annual Rates of Growth
of Output, Inputs, and Productivity
in Soviet Industry, 1961-82
Percent
1961-
65
1966-
70
1971-
75
1976-
80
1981-
82
1961-
65
1966-
70
1971-
75
1976-
80
1981-
82
Total industry
Electric power
Output
6.6
6.3
5.9
3.2
2.4
Output
11.5
7.9
7.0
4.5
2.8
Inputs
Inputs
Labor
2.9
3.1
1.5
1.6
0.8
Labor
5.4
3.5
1.5
2.3
1.9
Capital
11.4
8.8
8.7
7.7
7.3
Capital
13.4
10.3
7.9
6.1
5.7
Total
6.9
5.7
4.9
4.5
3.9
Total
10.2
7.6
5.3
4.6
4.2
Productivity
Productivity
Labor
3.5
3.1
4.4
1.6
1.5
Labor
5.8
4.3
5.5
2.2
0.8
Capital
-4.4
-2.3
-2.6
-4.2
-4.6
Capital
-1.7
-2.1
-0.8
-1.5
-2.8
Total
-0.3
0.5
1.0
-1.2
-1.4
Total
1.2
0.3
1.6
-0.1
-1.4
Ferrous metals
Machinery
Output
7.2
5.1
4.0
1.0
-0.5
Output
7.2
7.0
8.0
5.0
3.6
Inputs
Inputs
Labor
2.9
2.0
0.1
0.4
1.0
Labor
6.1
4.1
2.8
1.8
0.7
Capital
11.7
8.7
7.7
6.4
5.7
Capital
11.4
9.8
10.6
9.6
8.5
Total
7.1
5.2
3.7
3.3
3.2
Total
7.7
5.7
5.1
4.1
3.0
Productivity
Productivity
Labor
4.2
3.0
3.9
0.6
-1.5
Labor
1.0
2.8
5.0
3.1
2.9
Capital
-4.0
-3.4
-3.4
-5.0
-5.8
Capital
-3.6
-2.5
-2.4
-4.2
-4.5
Total
0.1
-0.1
0.3
-2.2
-3.6
Total
-0.5
1.2
2.8
0.8
0.6
Nonferrous metals
Chemicals
Output
7.7
7.5
5.9
2.3
1.0
Output
12.0
8.9
8.6
3.6
2.8
Inputs
Inputs
Labor
5.7
2.0
0.1
0.7
0.7
Labor
9.2
4.9
2.2
1.4
1.2
Capital
11.6
8.8
8.7
7.8
7.2
Capital
17.6
13.0
10.6
9.1
8.8
Total
8.5
5.2
4.2
4.1
3.7
Total
12.9
8.5
5.8
4.7
4.5
Productivity
Productivity
Labor
1.8
5.4
5.8
1.5
0.4
Labor
2.5
3.8
6.3
2.2
1.6
Capital
-3.5
-1.2
-2.6
-5.1
-5.7
Capital
-4.8
-3.6
-1.8
-5.0
-5.5
Total
-0.8
2.1
1.6
-1.7
-2.6
Total
-0.8
0.4
2.6
-1.1
-1.6
Fuels
Wood, pulp, and paper
Output
6.3
5.0
5.0
3.1
1.8
Output
2.6
2.9
2.6
-0.3
1.8
Inputs
Inputs
Labor
-0.8
0.2
-1.2
0.2
1.9
Labor
-0.7
0.3
-0.6
-0.4
0.4
Capital
7.5
6.9
7.7
7.9
8.8
Capital
11.1
6.9
8.3
6.5
6.1
Total
2.7
3.0
2.5
3.4
4.8
Total
2.8
2.3
2.1
1.7
2.1
Productivity
Productivity
Labor
7.1
4.8
6.3
3.0
-0.1
Labor
3.3
2.5
3.1
0.1
1.4
Capital
-1.1
-1.7
-2.5
-4.4
-6.4
Capital
-7.7
-3.8
-5.3
-6.4
-4.1
Total
3.5
1.9
2.4
-0.3
-2.9
Total
-0.2
0.6
0.5
-1.9
-0.2
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Table 1 (continued)
Percent
1961-
65
1966-
70
1971-
75
1976-
80
1981-
82
1961-
65
1966-
70
1971-
75
1976-
80
1981-
82
Construction materials
Productivity
Output
5.4
5.8
5.4
1.2
0.0
Labor
1.8
3.7
2.6
2.0
1.4
Inputs
Capital
-6.0
-1.2
-5.5
-3.4
-5.2
Labor
0.7
3.4
1.4
0.8
-0.1
Total
-0.7
2.1
0.0
0.3
-0.8
Capital
14.6
8.2
9.7
7.0
5.3
Food processing
Total
5.2
5.0
4.1
2.8
1.7
Output
6.9
5.8
3.9
1.1
2.4
Productivity
Inputs
Labor
4.6
2.3
4.0
0.3
0.1
Labor
1.9
2.4
0.7
0.6
0.5
Capital
-8.1
-2.3
-3.9
-5.4
-5.0
Capital
11.5
7.6
7.1
5.7
5.8
Total
0.2
0.8
1.3
-1.6
-1.7
Total
6.2
4.8
3.6
3.0
2.9
Light industry
Productivity
Output
2.6
7.2
2.7
2.7
0.9
Labor
4.9
3.4
3.2
0.4
1.9
Inputs
Capital
-4.2
-1.6
-3.0
-4.4
-3.2
Labor
0.8
3.4
0.1
0.6
-0.5
Total
0.6
1.0
0.3
-1.8
-0.5
Capital
9.2
8.4
8.7
6.3
6.5
Total
3.4
5.0
2.7
2.4
1.7
Note: Total factor productivity is calculated using a Cobb-Douglas
(linear homogeneous) production function. Inputs of labor and
capital are weighted with their respective income shares in 1970 as
estimated in the derivation of GNP at factor cost in that year. All es-
timates for 1982 are preliminary.
fell moderately in all branches except fuels, where it
speeded up from 2.5 percent per year in 1971-75 to
3.4 percent per year in 1976-80. Growth of inputs was
more rapid than that of output in all branches but
machinery and light industry.
Thus, factor productivity declined in eight of the 10
branches at average annual rates ranging from 0.1
percent in electric power to 2.2 percent in ferrous
metallurgy; productivity growth fell by over two-
thirds in machinery and rose only slightly in light
industry. In contrast, no branch had registered a
decline in productivity during the preceding five-year
plan period. In fact, productivity gains were larger in
1971-75 than they had been in the 1960s, in industry
as a whole and in nearly all of its branches. Following
the abrupt falloff during 1976-80, factor productivity
deteriorated further in both 1981 and 1982.
3
The startling contrast between the first and second
half of the 1970s in productivity of resource use in the
industrial sector shows up most vividly in the data on
year-to-year changes during 1971-82 given in table 2.
Data for the years 1976-82 are studded with minus
signs, whereas only a handful appear in the years
1971-75.
Again, the decisive year was 1976, when productivity
in industry slumped badly, with declines in four of the
10 branches, large falloffs in growth in four others,
and an increase in only one-electric power. There-
after, productivity in industry as a whole declined
erratically in each subsequent year, as it did in ferrous
and nonferrous metallurgy and in construction mate-
rials. Productivity fell in eight out of 10 blanches in
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Growth in Outputs, Inputs, and Productivity in Soviet Industry
Percent
Legend
?Output
?Input
?Productivity
Industry
?3
?6
?9
1 1 1 1 1 1 1 1 1 1 1 1
Nonferrous Metals
?3
?6
?9
1 1 1 1 1 I 1 1
Ferrous Metals Fuels
9
3
Le'
?
?3
?6
?9
Le,:\
I 1 1 1 1 1 1 1 1
Chemicals
?6
1 1
?9
Construction Materials
Electric Power
?6
1 1 1 1 1 1 1i 1 1 1 1
?9
Machinery
9
6
3
?3
?6
1 1 1
?9
Food Processing
?6 V ?6
1i I 1 i i1 I 1
80 82a ?9 1971 75 80 82a
?9
1971 75
a Preliminary.
589661 6-83
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?6
1 1 1 1 1 1 i 1 1
?9
Wood, Pulp, and Paper
9
6
?3
?6
?9
1 1 1 1 1 1 111
Light Industry
9
?3
?6
1 1
?9 1971 75
80 82a
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Table 2
Annual Growth in Output, Inputs, and
Productivity in Soviet Industry, 1971-82
Percent
1970 1971
(Weight)
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982 a
Total industry
Output 100.0
6.1
5.1
5.7
6.3
6.4
4.0
4.0
3.3
2.1
2.8
2.5
2.2
Productivity
0.6
0.3
1.5
1.3
1.5
-1.2
-0.5
-0.9
-2.2
-1.1
-1.6
-1.3
Ferrous metals
Output 7.2
3.8
3.3
4.0
4.2
4.4
2.7
0.7
2.2
0.0
-0.5
-0.1
-0.9
Productivity
-0.7
0.6
1.1
-0.5
0.9
-1.9
-2.4
-0.7
-3.1
-2.7
-3.7
-3.5
Nonferrous metals
Output 3.9
7.2
5.4
6.1
6.2
4.6
2.9
2.6
2.1
2.4
1.4
1.3
0.8
Productivity
2.6
1.3
2.1
1.9
0.3
-1.9
-1.2
-1.2
-1.9
-2.5
-2.4
-2.8
Fuels
Output 9.8
4.7
4.8
4.9
4.9
5.8
3.7
4.2
3.2
2.9
1.8
1.5
2.1
Productivity.
1.4
3.5
3.4
1.8
2.1
1.3
2.5
-1.1
-1.4
-2.5
-3.3
-2.4
Electric power
Output 6.8
8.1
7.1
6.8
6.7
6.6
6.9
3.6
4.7
2.9
4.5
2.5
3.0
Productivity
1.1
2.1
1.6
1.7
1.6
2.1
-1.1
0.9
-2.0
0.0
-1.7
-1.0
Machinery
Output 31.4
8.2
7.3
8.0
8.1
8.4
5.7
5.7
5.0
4.3
4.1
3.4
3.8
Productivity
2.0
2.5
3.5
2.8
3.0
1.5
1.0
0.8
0.0
0.9
0.1
1.1
Chemicals
Output 6.3
8.1
6.7
9.0
9.5
9.7
4.8
5.2
3.6
-0.2
4.7
4.0
1.6
Productivity
0.6
1.6
3.9
3.3
3.7
0.0
0.5
0.5
-5.3
-1.1
-0.7
-2.6
Wood, pulp, and paper
Output 7.7
2.8
2.0
2.7
1.8
3.6
-0.1
0.3
-0.4
-2.9
1.7
2.3
1.4
Productivity
0.1
0.7
0.8
-0.5
1.4
-1.7
-1.6
-1.9
-4.8
0.4
-0.4
-0.2
Construction materials
Output 6.5
6.5
5.1
6.1
4.8
4.6
3.7
3.1
3.3
-4.6
0.5
1.4
-1.4
Productivity
0.9
1.6
2.1
0.6
1.2
0.1
0.5
0.0
-7.1
-1.6
-0.3
-3.0
Light industry
Output 8.0
4.5
0.7
2.8
2.6
2.9
4.1
2.5
2.6
1.8
2.3
1.9
-0.1
Productivity
0.6
-0.9
0.1
-0.7
0.9
0.7
0.1
0.8
-0.4
0.2
0.0
-1.5
Food processing
Output 9.5
2.5
3.3
0.8
7.9
5.2
-1.2
4.0
-1.1
3.1
0.7
1.9
2.8
, Productivity
-0.4
-0.2
-2.3
2.9
1.6
-4.4
0.3
-3.2
0.4
-2.1
-1.2
0.2
a Preliminary.
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1979, 1981, and 1982 and in six out of 10 in 1980.
Productivity turned negative in the long-favored
chemicals branch in 1979 and stagnated in the ma-
chinery branch.
Causes of the Great Industrial Slowdown, 1976-82
The Causes in Brief
Several major factors and many minor ones brought
about the dramatic drop in the growth rate of indus-
trial output in the 10th Five-Year Plan; their relative
contributions cannot be measured quantitatively. The
drop was precipitated by a decision?announced by
Gosplan Chairman Baybakov in early December
1975?to cut sharply the growth rate planned for
industrial output in 1976 to more than 2 percentage
points below the rates planned and achieved in 1975.
Simultaneously, Baybakov announced that the
planned growth of total new fixed investment was to
be cut to less than half the rate of increase shown for
1975. Both cutbacks affected virtually every industri-
al branch in varying degree.
In fact, achieved growth rates of both output and
investment dropped abruptly in 1976?but the up-
surge in growth and productivity planned for the rest
of the plan period never came. For one thing, the
planners had given the production system a shock
from which it never recovered and had set in motion
processes in the sphere of investment that proved ,
seriously adverse. Specifically, the concentration of
investment on renovating existing enterprises?a key
part of the new investment strategy?not only en-
gaged most enterprises in the investment process, thus
hampering the flow of production at least temporarily,
but also produced an investment mix that neither
added proportionately to new capacity nor replaced
much old technology with efficient new varieties. For
another thing, a substantial reallocation of industrial
investment was made suddenly in midplan (1978) to
fund a crash program to develop oil and gas resources
in West Siberia.
In devising and launching this new growth strategy
(which was intended to yield a decisive increase in the
efficiency of resource use and improvement in the
quality of products), the planners evidently overlooked
the severity of three looming constraints that threat-
ened future production. The first, and possibly most
critical, constraint was in the supply of several basic
raw materials and intermediates?iron ore, coal, steel,
lumber, and nonmetallic minerals. Widespread short-
ages were about to appear, largely as the consequence
of long-continued investment in manufacturing capac-
ities to the relative neglect of developing the raw
materials supplies essential to full use of those capaci-
ties. In particular, the planners did not adequately
note that each year's neglect of the extractive indus-
tries increased the share of investment that would
eventually be needed to offset depletion. Shortages of
extractive raw materials, along with an apparent
worsening of their quality, began to limit output
growth first in steel, lumber, and construction materi-
als, and then in the processing industries themselves?
chemicals, machinery, and paper. Poor harvests in
1975 and again in 1979-82 led to raw materials
shortages and reduced growth in food processing.
The second looming constraint was in energy. Despite
many years of debate about the need for "big" energy
strategies,2 the planners apparently did not correctly
gauge the speed with which this constraint was devel-
oping or appreciate how costly it would be to cope
with. As fuel shortages began to plague the industrial
sector, the planners responded with conservation cam-
paigns and the crash program in West Siberia. Coal,
which serves both as raw material and as fuel
throughout industry, proved to be a particular con-
straint, reducing the quality of electric power. Power
outages, brownouts, and other malfunctions became
damaging in varying degrees to product, equipment,
and efficiency in most branches.
Third, despite warnings from specialists, the planners
chose to ignore the fact that the railroads, which carry
the vast bulk of industrial freight and large quantities
of coal and oil products, were strained to the verge of
breakdown?the legacy of parsimonious investment
improperly allocated and of the apparent belief that
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freight densities could be raised forever. Rail bottle-
necks began to appear early in the plan period and
worsened to the point of near crisis in the particularly
severe winter of 1978/79. Industrial production was
continually hampered as raw materials arrived late
and finished products piled up awaiting transport. A
leading Soviet transportation specialist had warned in
1976 that the railroads would prove to be the Achilles'
heel of the 10th Five-Year Plan. He was right.
Several other important developments added to the
troubles of an industrial sector already suffering from
cutbacks in investment and the planners' neglect of
these three growing constraints. Planners continued to
give high priority to military production and trans-
port, and the strain on an already taut situation was
made worse by unexpected military demands arising
from the invasion of Afghanistan and the large-scale
army maneuvers that figured in the Soviet response to
the events in Poland. Rigidities in the conduct of
foreign trade (five-year bilateral agreements in the
case of CEMA trade and financial conservatism
blocking additional hard currency debt) hampered the
use of trade to alleviate domestic shortages. Finally,
managerial staffs of industrial enterprises were bur-
dened as never before by the need to deal somehow
with frequent changes in the rules governing incen-
tives, with campaigns to conserve on everything at
once, with orders to join one or another large-scale
experiment to test some new working arrangement,
with pressure to form new organizational arrange-
ments, and?in the case of heavy industry?with
escalating demands to produce more consumer goods.
In sum, the sharp downward break in the trend of
industrial growth rates came in 1976 and was precipi-
tated by the planners, thinking to reinvigorate indus-
trial production and accelerate productivity gains by
allowing a brief period of reduced tautness to encour-
age efficiency mechanisms and to build up reserve
stocks.' An alternative hypothesis?that the planners
fully perceived the seriousness of the looming con-
straint on growth and deliberately slowed the econo-
my to meet it?seems less likely, since decisive action
to deal with rapidly developing energy and transporta-
tion problems were not taken until late in 1977. The
A good discussion of this strategy is given in an article by two
Soviet investment specialists. See lzvestiya Akademii Nauk Seriya
Ekonomicheskaya, No. 6, 1982, pp. 66-76.
7
Confidential
break, when it came, was reinforced by the swift
joining of the three lurking constraints?in raw mate-
rials, energy, and transportation?that were the cul-
mination of many years of bad investment decisions.
These difficulties were further compounded by the
persistence of the familiar malfunctionings of the
administrative system. The chickens finally had come
home to roost.
The factors described above seem sufficient, there-
fore, to account for the abrupt deterioration in indus-
trial performance that began in 1976. They had their
effect on both management and labor.
The sudden cutback in planned growth of output in
1976 and a lesser cut in investment allocations for
1976-80 surely persuaded industrial managers to re-
double their efforts to maintain a safety factor to
ensure their meeting even those reduced plans for
growth of output. They probably tried even harder to
obtain a cushion of raw materials and labor, perhaps
to offset the less-than-expected investment. These
managerial attitudes would have been reinforced over
time by three factors: (1) much press discussion about
impending general labor shortages, (2) the burgeoning
problems with supplies, energy, and transportation,
and (3) the adjustment of plans for both outputs and
inputs during the year to take account of the growing
difficulties.
At the same time, the many disruptions to the
production process in factories must have made the
workers feel helpless and indifferent. In addition,
plants that actually decreased production kept their
workers on the payroll anyway, not only as a safety
factor but also because of a systemic constraint
against dismissing workers through no fault of their
own and against their will.4 That retention, in itself,
reduced labor productivity.
For a discussion of this systemic feature, see David Granick,
"Soviet Use of Fixed Prices: Hypothesis of a Job Rights Con-
straint," in Steven Rosefielde (ed.), Economic Welfare and the
Economics of Soviet Socialism, Cambridge, Cambridge University
Press, 1981, pp. 85-104.
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An alternative or additional explanation for the slow-
down might also be advanced?that a substantial part
of it results from a "social factor." This concept
emphasizes prevalent absenteeism, alcoholism, labor
turnover, and shirking, along with erosion of incentive
in workers who cannot find desired goods and services
on which to spend wages. These manifestations have
been discussed widely in recent years under the
headings of "declining worker morale," "growing
pessimism," and "worsening quality of life." One
prominent Soviet economist asserts in the open press
that at least half of the slowdown in labor productivity
is the result of the "social factor."
But to attribute much of the recent dramatic slow-
down to a "social factor," one would need evidence
that worker discipline worsened greatly after 1975.
There are many allegations of laxity, but it is far from
certain that matters worsened; Soviet press sources, in
fact, state that rates of labor turnover and absentee-
ism, while still "too high," have been decreasing since
1970.5 Although the growth of per capita consumpt ion
has slowed along with that of the economy, the
government also has managed since 1976 to maintain
work incentives by providing increases in goods and
services sufficient to approximately match the growth
of the population's incomes. With the harvest failures
of 1979-82, however, widespread food shortages have
appeared, especially for meat, spawning queues, black
markets, and some local rationing. No doubt worker
frustration has risen as a consequence.
The Growth Strategy That Boomeranged
The Strategy in Industry. In early December 1975,
Gosplan chairman Nikolay Baybakov detailed a radi-
cal new strategy for dealing with two chronic prob-
lems of the economy and industry?inefficiency in the
use of resources and poor quality of the products. The
L. Kostin, a first deputy director of the State Committee on Labor
and Social Problems, states that during the 1970s the average loss
of worktime per worker per year declined from 2.9 days to 1.7 days
in industry and from 4.1 days to 2.7 days in construction. Labor
turnover rates in the two sectors dropped by 24 percent and 31
percent, respectively. In 1980-81, labor turnover declined almost as
much as in the previous seven or eight years. Intrashift losses and
losses related to excused absence have also decreased. See
Khozyaystvo ipravo, No. 11, 1982, p. 34. Another source states
that labor discipline has not worsened in recent years. In the 1970s,
losses due to unexcused absences decreased by 2.5 percent per year
and the share of excused absences was cut in half. See Ekonomi-
cheskaya gazeta, No. 48, 1982, p. 13.
Confidential
new approach (embodied in the 10th Five-Year Plan)
was to sharply reduce the planned growth in new fixed
investment?in the economy and in industry. This
strategy was in line with that earlier announced by
Brezhnev for the plan, and its implementation was
begun vigorously in 1976. The change probably had
several motivations, but the most important ones seem
to have been:
? A determination to arrest the decline in the output/
capital ratio, which had accelerated in industry in
1971-75.
? A conviction that lower growth targets, by easing
the pressure on managers, would enable them to use
resources more efficiently and to turn out better
quality products.
? A belief that slower growth of investment would
reduce plan tautness, allow accumulation of inven-
tories, and substantially improve the efficiency of
the investment process.
? A belief that if investment growth (with its high
demands on machinery and construction resources)
was reduced, the economy could reach a better
balance between the growth of these branches and
the growth of raw materials supporting them.
Managerial incentive structures were simultaneously
reoriented to achieve similar ends.
In Baybakov's words, "the targets for 1976 are per-
meated with the idea of improving the efficiency and
quality of all work. National economic proportions,
the buildup of production potential, and the distribu-
tion of resources all are subordinated to this goal."
For the first time, ministries were given specific
targets for raising the technical level of production
and for producing items that would merit the state
Seal of Quality. The plan for 1976 scheduled an
industrial growth rate of 4.3 percent, well below either
the 6.7 percent planned for 1975 or the 6.4 percent
attained. In an even more drastic move, the planners
scheduled increases of only 3.5 percent in total new
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fixed investment and 2.5 percent in construction;
these rates were less than half as great as the in-
creases planned and achieved in 1975.
Apparently the strategy for 1976 had not been finally
agreed upon in good time, however, for Baybakov's
statements reveal considerable confusion and incon-
sistency in the specifics of implementation:
? From the incomplete plan data published for 1976,
it appears that growth targets were cut back from
those planned for 1975 for machinery, electric
power, chemicals, and construction materials, but
not for fuels and raw materials, perhaps reflecting
an effort to overcome past lags in these products.
? The machinery output goal, though lower, still
reflected an increase over 1975's growth?despite a
drastic reduction in planned investment growth.
? Although Baybakov projected large increases in
planned growth of investment in some branches of
industry (notably in chemicals, machinery, and the
light and food industries), actual investment alloca-
tions turned out entirely otherwise, suggesting a
major plan correction.
Overall, planned industrial investment, which had
increased by 8.8 percent in 1975, increased by 4.3
percent in 1976. All branches received large cutbacks
in growth, except for ferrous metals, where invest-
ment had declined in 1975. Investment actually de-
creased in the construction materials and consumer
goods branches, while the growth rate dropped from
20 percent to 7 percent in the machinery branch.
Along with the reduction in growth, the new invest-
ment strategy in general called for concentrating
investment on projects that were already near comple-
tion, in order to maintain substantial growth in
industrial plant and equipment. Put differently, the
backlog of unfinished construction was to be cut in a
major way. Moreover, the bulk of industrial invest-
ment (64 percent in 1976) was to be allocated to
reconstruction, expansion, and renovation of existing
enterprises, instead of to construction of new ones,
and the share of equipment in the investment mix was
to be raised substantially.
9
Confidential
The planners, acutely aware of the labor crunch
approaching in the 1980s and of the continuing slide
in the productivity of capital, may have considered the
10th Five-Year Plan a particularly auspicious oppor-
tunity to launch an all-out push for "intensive" or
efficiency-generated growth (intensifikatsiya). By So-
viet measures, industrial growth had remained high
during the Ninth Five-Year Plan (1971-75)-7.5 per-
cent annually, not much lower than the 8.5 percent
during 1966-70. More important, annual labor pro-
ductivity advance had speeded up a little?from 5.8
percent to 6.0 percent. For the most part, the physical
goals of the Ninth Five-Year Plan had not been badly
underfulfilled, and the plan for 1975 was being met in
such key sectors as fuels, major kinds of chemicals,
and machinery?and also in railroad freight turnover
and investment. During 1971-75, by Soviet measures,
annual growth rates for the fuels and ferrous metals
branches generally were holding above 5 percent, and
those for the so-called progressive sectors?chemicals
and machinery?were holding above 10 percent.
Although during the 1970s the planners talked about
the growth of raw materials sectors being inadequate
to meet the demand, there is no evidence that they
anticipated critical shortages. Theoretically, the deci-
sion to slow investment would in itself reduce the
demand for final products and produce the hoped-for
adjustment among sectoral growth rates.
Effects of the Strategy. The slowdown in industrial
growth planned for 1976 (possibly accompanied by
more than proportional reductions in material input
allocations) was reflected immediately in the perform-
ance of industry in January and in successive months
during 1976. For the year as a whole, industrial
growth dropped to 4.0 percent, not far from the 4.3
percent planned. All branches but electric power and
light industry shared in the downturn, but large
shortfalls from planned growth occurred in the most
"progressive" branches?machinery and chemicals.
As indicated above, the slowdown of 1976 was sup-
posed to be temporary?that is, to form an efficient
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base for an upsurge in later years to accomplish the
1976-80 Plan's goal of an average annual growth of
6.5 percent. Instead, the planned retreat turned into a
rout, as industrial growth stagnated and then de-
clined, with factor productivity growth turning nega-
tive in 1976 and remaining so.
The sudden large cutback in growth of industrial
investment, coupled with a crash reallocation toward
Siberian oil in midplan and the push for concentrating
investment in existing enterprises, proved highly dis-
ruptive.' Moreover, the policy of concentrating invest-
ment on nearly finished projects failed: investment
had risen by 22.3 percent by the end of 1980, but
unfinished construction in industry had risen by 29.5
percent.' The concentration of investment in renova-
tion of existing enterprises was intended to limit the
demand for labor and to speed up the replacement of
old machinery with modern machinery of greater
productivity.
In the implementation of this seemingly sensible
strategy, events went awry. Because it was easier to
do and also more profitable for construction organiza-
tions, much renovation that was done turned out to
involve mostly expansion and reconstruction, with
little replacement. Also, with slowed growth of invest-
ment and machinery production, as well as continued
pressure to produce more output, enterprises kept old
capital in operation as long as possible, so, retirement
rates for machinery and equipment, a low 2.3 percent
in 1976, were only 2.5 percent in 1980. Industrial
investment was associated with a large drop in add)-
tions of new capacity: additions in 1976-80 were
smaller in 28 out of 39 industrial categories than in
1971-75 (table 3).
The scramble after a share of the investment pie led
to a situation in which the authorities were losing
control over investment projects; over 80,000 industri-
al establishments were being built or renovated in the
'This section has benefited from a study by the Soviet emigre
economist Boris Rumer. See The Dynamics of the Capital Coeffi-
cient of USSR Industrial Output: Investment Process in Soviet
Industry, Final Report to National Council for Soviet and East
European Research, 1982, pp. 1-47.
'This comparison may be somewhat in error because investment
data are reported in so-called comparable prices and unfinished
construction data are reported in prices actually paid. The relation-
ship between the two sets of prices is not clear.
Confidential
late 1 970s. Proliferation of localized investment proj-
ects disrupted production and lured away production
workers. The machinery industry proved unable to
satisfy the increased demand for modern equipment,
imports were insufficient to fill the gap, and the
investment process became more strung out. With
increasing competition for slower growing investment
funds, the imbalances between investment in raw
materials and in final goods capacities could not be
corrected, even if the planners had foreseen the
magnitude of the problem and had taken fully into
account the rapid rise in investment costs per unit of
capacity.
The falloff in additions to new capacities in 1976-80,
especially for provision of raw materials, was evident-
ly a constraining factor on growth of production and
efficiency in that period. According to a leading
Soviet specialist writing in a major economic journal,
part of the gains of the preceding plan had been
realized through an increased use of capacity. How-
ever, by 1975 the utilization rate generally exceeded
90 percent everywhere, making further increases in
output from that source nearly impossible because of
rapidly rising unit costs associated with such high-
capacity usage. In his view, most sectors were operat-
ing under capacity strain at the start of 1976. There-
after, a drop in utilization rates set in, at first due to
the accelerated need to take out overloaded equipment
for repair and to seemingly greater difficulties in
operating newly commissioned installations, many of
which were not really completed. Later, significant
declines in use of capacity began to arise in a number
of branches because of shortages of raw materials
("interbranch and intrabranch disproportions" in So-
viet parlance) and the disruptions brought about by
reconstruction and renovation programs at existing
plants.
This situation was particularly evident in steel, fertil-
izer, and finally machinery, as initial shortages of one
critical raw material started a chain reaction. The
failure to substantially increase capacity additions in
the extractive branches was particularly serious, since
a large and growing share of annual additions must go
merely to offset depletions.
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Table 3
Gross Addition of New Capacities and Investment in Soviet Industry, 1966-80
Branch
New Capacities
Total Investment a
(Billion rubles)
1966-70
1971-75
1976-80
1966-70 1971-75
1976-80
Ferrous metals
9.93
12.90
15.20
Iron ore (million tons)
120.5
131.5
134.0
Crude steel (million tons)
18.1
10.9
14.3
Rolled metals (million tons)
14.3
12.2
7.4
Steel tubing (million tons)
2.5
2.4
1.9
Fuels (coal)
7.24
8.34
9.76
Coal (million tons)
95.1
114.2
90.4
Coal cleaning (million tons)
59.4
34.4
42.5
Electric power (million kilowatts)
54.6
58.1
54.0
13.63
17.00
19.39
Machinery
22.44
37.72
53.92
Turbines (million kilowatts)
4.3
5.6
3.1
Transformers (million kilowatts)
28.2
20.6
10.3
Excavators (thousand units)
5.2
6.7
13.6
Metalcutting lathes (thousand units)
21.5
25.4
12.8
Forge-press machines (thousand units)
8.1
7.9
12.9
Automobiles (thousand units)
423.9
973.9
244.5
Roller bearings (million units)
179.5
208.4
124.9
Tractors (thousand units)
121.0
70.6
113.8
Grain combines (thousand units)
12.0
22.5
38.5
Chemicals
10.99
15.62
22.16
Fertilizer (million tons of standard units)
33.2
38.0
39.3
Sulfuric acid (million tons)
4.2
8.6
9.7
Caustic soda (thousand tons)
1,221
1,038
505
Chemical fibers (thousand tons)
151.2
349.4
262.9
Synthetic resins and plastics (thousand tons)
706
981
150.5
Tires (million units)
8.3
12.9
13.2
Wood, pulp, and paper
5.73
7.72
9.10
Lumber (million cubic meters)
4.6
5.3
4.5
Cellulose (million tons)
2.2
2.1
0.9
Paper (thousand tons)
502
509
271
Cardboard (thousand tons)
1,359
803
350
Construction materials
6.31
8.46
9.23
Cement (million tons)
17.4
20.7
11.0
Asbestos roofing (million standard units)
1,302
1,264
597
Reinforced concrete structures/parts
(million cubic meters)
24.2
29.4
25.5
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Table 3
Gross Addition of New Capacities and Investment in Soviet Industry, 1966-80 (continued)
Branch
New Capacities
Total Investment a
(Billion rubles)
1966-70
1971-75
1976-80
1966-70 1971-75
1976-80
Light industry
5.28
7.03
8.48
Hosiery (million pairs)
294.1
52.6
44.1
Knitwear (million pieces)
410.3
162.5
63.5
Leather shoes (million pairs)
149.0
67.4
21.6
Spindles installed (million units)
3.1
2.2
2.0
Looms installed (thousand units)
47.6
41.6
17.5
Food processing
9.31
11.57
13.40
Granulated sugar (thousand tons per day)
682
861
545
Meat (thousand tons per shift)
2.2
4.1
3.1
Dairy products (thousand tons per shift)
12.4
12.3
9.4
Cheese (tons per shift)
312.6
260.9
92.8
Vegetable oil (thousand tons per day)
4.4
2.8
4.1
a Investment data are in constant 1973 prices.
Source: Narkhoz, 1980, pp. 328-29, 338.
Growing Shortages of Raw Materials
In an ever-widening circle, shortages of raw materials
have hampered industrial production over the past
several years. The problem is virtually universal.
Shortages of iron ore, coking coal, and scrap metal
contributed in a major way to the near stagnation in
steel production. Shortages of rolled steel products
eventually contributed to the large decline in the
growth of machinery production; and this decline
(along with the effect of shortages of steel and
building materials on construction) retarded the in-
vestment process. The railroads complained that they
were not receiving enough steel rails.
Shortages of coke and refinery byproducts curtailed
production of certain important chemicals, leading to
curtailed production in others of the interdependent
chemicals subbranches. Part of the chemicals branch
was hurt by shortages of cellulose, caused in part by
declining timber production. Declining timber pro-
duction was the principal factor in the near collapse of
growth in the woodworking and pulp and paper
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subbranches. Difficulties in obtaining various nonme-
tallic minerals depressed growth in basic chemicals,
fertilizers, and construction materials (notably in the
cement industry, a key supplier to producers of other
kinds of construction materials). Difficulties in obtain-
ing various chemical fibers and dyes hampered opera-
tions of textile and footwear plants, as did the deterio-
rating quality of raw cotton and leather. Production of
electricity was adversely affected by growing short-
ages and worsening quality of coal. Finally, periodic
interruptions in supplies of agricultural raw materials
led to the greatly reduced performance of the food-
processing branch, despite massive imports in recent
years.
The problems with extractive raw materials (coal,
ores, and nonmetallic minerals) reflect the culmina-
tion of two major factors. First, Soviet investment
allocations for many years have favored the building
of processing facilities, the larger the better, at the
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expense of developing the sources of raw materials
required for their operation. Coal, iron ore, phosphate
rock, and quarry materials are notable examples of
long-continued neglect. Second, the costs of extract-
ing such raw materials have been skyrocketing, as
older sources are depleted and new sources must be
sought. Moreover, the share of investment allocations
needed merely to offset depletions has been rising
rapidly.
Meanwhile, the quality of coal and ores has been
deteriorating as the highest yielding sources are used
up, and this further increases the need for investment
in various kinds of initial processing operations. The
relative neglect of such enrichment facilities to im-
prove the physical and chemical properties of the coal
has added to the burden of the railroads, compelling
them to transport billions of tons of debris, and raised
costs for users. Finally, because of inadequate atten-
tion to costs, too much of the available investment has
been allocated to already developed facilities at the
expense of developing new ones. (Shortages of agricul-
tural raw materials, in contrast, stem mainly from a
run of poor weather in 1979-82.)
The impact of raw materials shortages on production
and productivity in individual branches of industry is
discussed in appendix A. Here, we elaborate with
respect to two of the most critical materials?coal, as
both a raw material and a fuel, and steel.
The Pinch in Coal Supplies. Declining growth in
production of coal and its deteriorating quality were
especially hard on production and productivity in
electric power and ferrous metallurgy during 1976-
82.8 These two branches consume, respectively, almost
one-half and one-fifth of total raw coal output. Coal
shortages also were reported to have hampered opera-
tions of cement and chemicals plants and of electrified
railroads. Shortages of coal, but especially its deterio-
rating quality, contributed substantially to the power
outages and frequency deviations that plagued electric
13
power supply. These shortcomings, in turn, impaired
the industrial performance of power customers. Short-
ages of coal also frustrated Soviet plans to raise the
share of coal in total fuel consumption during 1976-
80.
Steel production was constrained by inadequate sup-
plies of coking coal, which comprises about one-fourth
of total raw coal production. After rising by 16 million
tons during 1971-75 and 5 million tons in 1976,
production of coking coal stagnated in 1977 and
dropped by 8 million tons in 1978-80. This decline
helped to foil plans to raise efficiency in steel produc-
tion by greater use of basic oxygen furnaces instead of
the obsolete open-hearth furnaces (which still account
for the bulk of capacity). The basic oxygen furnace
produces steel at lower cost, but it requires about
50 percent more pig iron per ton of steel. Coking coal
is a major raw material for pig iron production.
The Steel Vise. The near collapse in the growth of
rolled steel products in 1976-82?a mere 3.4 percent
for the period?has constrained growth in the ma-
chinery and metalworking branch, and consequently
growth in the machinery and equipment component of
investment.' Shortages of steel have also limited
growth of construction and may have contributed to a
slowed growth of military production. The problem is
not merely of slow-growing total steel supplies but
also of the snail's pace at which the industry has been
shifting its mix of final products to meet the rapidly
rising requirements?both civilian and military?for
high-quality and specialty steels to produce such
modern products as automobiles, aircraft, consumer
durables, large-diameter pipe, and an array of ad-
vanced weapons systems.
The imbalance between the steel turned out by basic
producers and that required by their customers stems
from long-continued investment allocations to crude
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steel capacities rather than to finishing capacities.
Even in the late 1970s, about nine-tenths of total
investment in the steel sector was earmarked for
facilities to boost crude steel production.
After a drop of 1.9 percentage points in 1976, the
growth rate for machinery remained stable for one
year and then gradually declined to less than
4 percent in 1981-82; the growth of steel production
dropped sharply although erratically. The government
was able to sustain the growth of machinery produc-
tion for a time, partly by increasing imports of rolled
ferrous metals and curtailing the growth of steel
exports. The bulk of the imports are high-quality steel
products from the West, which have claimed a steadi-
ly rising share of Soviet hard currency imports.
During 1976-81, hard currency imports of steel prod-
ucts rose by 37 percent and totaled $17.4 billion; in
real terms imports rose 23 percent.
Faltering steel production also held back investment,
which both through construction and new equipment
is a major consumer of steel. The USSR succeeded in
meeting its investment plan for 1976-80, but did so in
part by importing machinery and equipment, as well
as steel products. During that period it imported a
total of 10-15 billion rubles' worth of machinery and
equipment annually, roughly one-fifth of annual in-
vestment in equipment. The bulk of such imports
came from Eastern Europe, but the Soviets also
continued to import large amounts from the West.
Imports rose from $4.6 billion in 1975 to $6 billion in
1980, but dropped to $4.5 billion in 1981. The
investment plan was not met in 1981, reflecting the
impact of low growth in steel and machinery produc-
tion and slower growth of imports?along with the
usual snags in the construction process.
Agricultural Shortfalls. The USSR had a poor har-
vest in 1975, a bumper crop in 1976, average harvests
in 1977 and 1978, and poor ones in 1979-82. Despite
large imports of grain, sugar, and some other prod-
ucts, shortages of agricultural raw materials contrib-
uted importantly to the falloff in production and
productivity growth in 1976-82 in food processing
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and, to some extent, in light industry. Their impact on
overall industrial performance in 1976-82, however,
was not large, as the tabulation indicates:
Average Annual Rates of Growth
Production Factor
Productivity
Total industry
2.9 ?1.3
Industry (excluding light
and food branches)
3.2 ?1.4
Imports of grain and other foodstuffs affected indus-
trial production indirectly, however. The need to
transship them from seaports added to the burdens of
the railroads and may have diverted cars from trans-
port of other industrial raw materials and finished
products. On the other hand, the normal demands on
the railroads for transport of farm products probably
were reduced in 1979-82 as a consequence of poor
crops. The net effect of these offsetting factors is hard
to assess.
We conclude, therefore, that agricultural shortfalls
can account for little of the greatly worsened perform-
ance of industry as a whole in 1976-82. Such factors
as shortages of coal, steel, and energy, increasing
railway congestion, and planning mistakes were far
more important.
Energy Constraints
In the second half of the 1970s, industrial production
and productivity began to be hurt by growing tautness
in supplies of fuel and power, manifested in particular
in increased irregularity of supply. Total energy sup-
ply to the economy (measured in tons of standard fuel)
grew at an average of 4 percent annually during 1976-
80, a little less than the nearly 5 percent annually
during 1971-75. The falloff started in 1976, with
steady declines in growth each year thereafter, to
2.4 percent in 1981. Growth was 2.7 percent in 1982.
The industrial sector consumed an estimated 53 per-
cent of final energy consumption in 1980, about the
same as in 1970. Energy use per ruble of industrial
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Table 4
USSR: Distribution of Industrial Investment by Branch, 1961-81
Percent
25X1
1961-65
1966-70
1971-75
1976-80
1975
1976
1977
1978
1979
1980
1981
Total industry
100.0 ?
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Ferrous metals
8.9
8.3
7.6
6.9
7.2
7.2
7.2
6.7
7.1
6.6
6.1
Nonferrous metals
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Fuels
19.7
19.6
19.1
21.5
19.2
19.3
20.2
21.5
22.2
24.0
25.1
Coal
7.1
6.0
4.9
4.4
4.4
4.3
4.3
4.5
4.5
4.5
4.4
Oil
9.5
9.2
9.4
12.0
9.8
10.0
10.6
11.6
12.9
14.3
16.0
Gas
2.3
3.7
4.3
4.7
4.6
4.5
4.8
4.9
4.5
4.7
4.2
Electric power
11.6
11.3
10.0
8.8
9.4
9.3
8.4
8.6
8.7
9.0
8.8
Machinery
14.6
18.6
22.1
24.7
24.2
24.8
24.8
24.6
24.5
24.7
25.4
Chemicals
9.1
9.2
9.2
10.1
9.7
9.8
10.5
11.8
9.9
8.6
7.7
Wood, pulp, and paper
5.7
4.9
4.7
4.1
4.5
4.4
4.5
4.2
3.9
3.7
3.8
Construction materials
6.0
5.7
5.5
4.1
4.8
4.1
4.4
4.0
4.2
4.0
4.0
Light industry
3.5
4.5
4.3
3.9
4.1
4.3
3.9
3.7
3.7
3.8
3.8
Food processing
9.1
8.5
7.7
6.1
7.6
6.6
6.1
5.8
6.1
6.1
6.1
Other
11.9
9.6
9.6
9.7
9.3
10.3
9.8
9.2
9.7
9.4
9.4
Sources: Percentages for th
-
data in ennctant 1Q71 nrire
Percentages for 1981 are given in Narkhoz 1922-1982,
p. 371. The 1981 data include small amounts of investment made by
collective farms: data for other years exclude such investment.
output (value added in 1970 prices) was stable in
1976-80, whereas it had risen by roughly 4 percent
during 1971-75.
Evidence of shortages of fuel and electricity began to
appear in 1976-77, along with leadership concern
about their actual and potential effects on industrial
growth. Actions to cope with the continued slowdown
in growth of coal, oil, and electric power included
numerous decrees issued beginning in 1977, many
conservation campaigns, and crash efforts to increase
production of fuels, buttressed by a huge increase in
investment for development of oil supplies, focusing
on West Siberia (table 4). Stiff new fines were
imposed on excessive fuel consumption by industrial
enterprises, and controls over the distribution of oil
and gas were centralized in a new State Committee.
Finally, increasing efforts (largely unsuccessful) were
made to get industrial users, particularly power
plants, to switch from oil to gas or coal.
15
As production growth rates for energy continued to
drop, the disruptive impact of energy shortages and
power interruptions increased. The situation was par-
ticularly bad in the harsh winters of 1978/79 and
1981/82. The effects were widespread. Sporadic
shortages of fuels and power were blamed for the
precipitous fall in growth of cement production in the
late 1970s; the impact has been especially severe in
winter. Power outages also have led to production
losses in many branches, as well as costly damage to
equipment. Interruptions of supplies of natural gas
disrupted the production of ammonia in some plants
in 1978-79. Power outages and shortages of crude
petroleum and gas used as raw materials curbed the
growth of output of synthetic resins, synthetic fibers,
plastics, and chemicals used in medicines and food
supplements. Power outages, gas cutoffs, and short-
ages of gasoline also are reported to have interfered
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with production of agricultural products, notably milk
and meat, and affected the health of animals in large
livestock complexes.
In one way or another, almost all branches of industry
have been hurt by deficiencies in the supply of
electricity. Power outages, brownouts, and frequency
irregularities were common after 1975 and were often
cited as causes of production shortfalls. Moreover, the
quality of electricity supply deteriorated seriously,
primarily as a result of the increasing tautness under
which the power distribution system was operating.
With reserve capacities dwindling and demand grow-
ing everywhere, the system has had to operate more
frequently at maximum capacity, increasing the risk
of power-plant failure. This precarious situation
stemmed from the failure to add new capacities in
previous periods. More than ever, the branches of
industry have had to compete with other consumers
and with each other for power, presenting the power
network managers with an increasingly difficult jug-
gling act and causing some rationing. Finally, though
the falloff in growth rate of electric power output was
not out of line with that for industry as a whole, a
growing amount of the power produced was being lost
in transmission-7.9 percent in 1975 and 8.3 percent
in 1980?and thus was not available to consumers.
The decreased quality of electricity supply is reflected
in the growing share of power that is supplied at
below-standard frequency and voltage. In 1973 supply
was at below-standard frequency for 4.6 percent of
calendar time; in 1977 this share was 80 percent. And
in 1975, the power system operated with reduced
(below-standard) voltage one-seventh of the time; by
1978 the share was one-half. In addition, actual power
outages occurred more often, as a result either of
rationing attempts or of power-plant failures. The
declining quality of coal, which accounts for more
than one-third of fuel usage in power plants, contrib-
uted to the failures by increasing the damage to
equipment and the strain on the power network.
Such irregularities cause serious losses. Deviations
from voltage and frequency standards damage equip-
ment, ruin small electric motors, disrupt continuous
processes, spoil products, and raise costs. Soviet
sources assess the damage from reduced quality of
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power at over 1.7 billion rubles annually. The irregu-
larities also increase the use of electricity: consump-
tion of electricity per ruble of industrial production
rose somewhat during 1976-80, whereas it had de-
clined during 1966-75. The industrial branches most
affected probably were metallurgy, machinery, and
chemicals, which together consumed an estimated 38
percent of total production of electric power in 1980.
Ironically, coal production also suffered, because in-
creased mechanization of coal mines greatly raised
the demand for electricity.
Transportation Snarls
A substantial, although unquantifiable, share of the
blame for the falloff in industrial growth during 1976-
82 must be assigned to growing bottlenecks in the
transportation of both raw materials and finished
products.w A mass of anecdotal evidence for all
branches of industry points to intermittent plant
shutdowns, production-line disruptions, machines and
workers idle for lack of raw materials, and pileups of
finished products on loading docks. The principal
culprit was the railroads, which carry nearly all coal,
lumber, and ores, the vast bulk of metallurgy and
machinery products, and about two-fifths of petro-
leum products. According to an article in a major
economics journal, Gosplan research institute esti-
mates the yearly losses due to unmet transport needs
at 6.5 billion rubles in industry and over 4 billion
rubles in agriculture. Table 5 illustrates the perform-
ance of transport relative to industrial output.
For decades Soviet railroads have been hauling a
rapidly growing volume of industrial freight without
undue difficulty, because the network was expanding
and the density of its use was rising rapidly. Freight
density (ton-kilometers of freight per route km) in-
creased 23 percent in 1966-70 and 27 percent in 1971-
75.
By 1975, however, the railroads had reached the limit
of their capacity to move ever more freight on the
existing network with existing technology. The contin-
ued attempts to push the intensity of use even further
' This section draws heavily on work by Holland Hunter and
Deborah A. Kaple, in particular on their "Transport in Trouble," in
Soviet Economy in the 1980s: Problems and Prospects, US Con-
gress, Joint Economic Committee, Washington, D.C., 1982, part I,
pp. 216-241.
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Table 5
USSR: Average Annual Rates of Growth of Industrial
Production and Freight Transportation a
Percent
1966-70
1971-75
1976-80
1981-82
Industrial output
6.3
5.9
3.2
2.4
Total freight
6.7
6.3
3.5
1.8
Railroad freight
5.0
5.3
1.2
0.4
1975
1976
1977
1978
1979
1980
1981
1982
Industrial output
6.2
4.0
4.0
3.3
2.1
2.8
2.5
2.2
Total freight
5.4
4.5
3.7
5.6
0.6
3.3
2.5
1.2
Railroad freight
4.5
1.8
1.1
3.0
-2.3
2.7
1.8
-1.0
a Freight is measured in ton-kilometers.
clogged the system's arteries, rendering it accident
prone, and severely reduced its efficiency. In 1976-80
freight density essentially stagnated, freight train
kilometers per engine-day and freight car kilometers
per car-day dropped by nearly 10 percent, and labor
productivity leveled off. Excessive freight density
causes transport irregularities, limits mobility and
maneuverability, adds to turnaround time, and re-
duces train speeds. In the late 1970s, turnaround time
increased by a day to reach 10 days (against a norm of
six days), and average freight train speed fell by 3 km
per hour. Abnormal freight pileups and delays in
deliveries became evident in 1976 and increased in
severity thereafter.
In 1979 the railroads' growing strain, aggravated by
severe winter weather, brought congestion in the
freight yards of a number of railroads to such a
critical level that traffic declined rapidly and emer-
gency steps had to be taken. A similar situation
apparently also occurred in 1982. All this impaired
industtial growth.
The railroads' problems are deep seated and critical.
They are rooted in past investment priorities and
imbalances in development of facilities. The share of
the railroads in total investment as well as in transport
and communications investment, declining steadily
for several decades, has not been sufficient to keep
17
them abreast of growing transport needs. Besides, the
investment mix and the quality and mix of rolling
stock were poor. The planners focused on building
new rail lines (the BAM is a notable example), on
double-tracking existing lines, and on electrifying the
most heavily burdened lines. But they neglected devel-
opment of yard capacities, especially at junction
points, seeming to believe they could increase line
densities without expanding terminals and marshaling
yards.
During the 1970s, moreover, production of diesel
locomotives stagnated, output of rails rose only 7
percent, and production of freight cars actually de-
clined-by 3 percent annually after 1976. Imports of
railroad equipment, which are substantial and come
mainly from Eastern Europe, declined after 1974,
perhaps reflecting Soviet optimism about success of
their planned program to expand domestic production
capabilities. Production of spare parts for locomotives
generally was less than half of that planned, so that a
substantial number of engines were perennially idled
and awaiting repair. The total number of freight cars
in the inventory may be adequate, but there are far
too few specialized cars. Decrepit standard boxcars
are often used to transport items such as grain and
fertilizer, for which they are unsuited, with conse-
quent large losses in transport.
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The problems of the railroad equipment industry in
1976-82 are similar to those plaguing machinery
industries in general, with the added factor that its
high-quality steel and production facilities may be
preempted for military needs; most freight cars are
made in plants that also produce military goods. Over
40 percent of freight trains are pulled by diesel-
electric locomotives, which have become increasingly
unreliable; they are said to be "delicate" and complex,
hard to maintain, and prone to break down. New
freight cars are shoddy; for example, hopper doors
reportedly spring open when ore is loaded.
Other circumstances have compounded these difficul-
ties. The amount of freight transported in the Soviet
Union is excessive for a country at its level of
industrial development, even granting that geographi-
cal factors make much long-distance shipping neces-
sary. A Soviet transportation specialist, writing in the
open press, recently calculated that the annual volume
of total transport (apparently by rail) per capita in the
USSR is 14.4 tons, compared with 6.3 in the United
States, and 3.6 in the European Economic Communi-
ty. He asks, "Why is it that we are always transport-
ing and transporting and are unable to call a halt?"
The reasons seem to be that established freight rates
are low and unrelated to real costs; incentives to keep
costs down are weak; and, with production organized
in vertical hierarchies, each prefers to deal with units
in its own hierarchy rather than with outsiders.
Although Gosplan set up an Interdepartmental Com-
mission for the Rationalization of Freight Shipments
in 1972, ton-kilometers of freight transported by all
modes have usually increased faster than either GNP
or industrial output.
Moreover, the railroads themselves are becoming
increasingly parochial, favoring their own regions and
dragging their feet on cooperation with one another.
In the mid-1970s there were 26 railroads and 172
divisions, while at the end of 1982 there were 32 and
185. Railroad managers complain that in recent years
a growing share of their workers has been diverted
from line operations to repair work and to construc-
tion. Neither the railroads nor their customers have
much incentive to care for freight cars, which often
are shuffled from place to place dirty and in need of
repair, handled carelessly, and damaged in loading
and unloading.
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In addition, primary materials are often shipped in
unprocessed form, adding greatly to the transport
burden, and matters seem to be getting worse instead
of better. For instance, a Soviet press source states
that in 1980, 24 percent of shipped coal that had been
mined underground consisted of rocks and debris,
compared with 21 percent in 1965, and that usable
ore made up only 34 percent of all ore shipped,
against 40.8 percent in 1965. Finally, "campaigns" or
suddenly announced new priorities?today for grain,
tomorrow for coal, and always for the military?snarl
the movement of freight.
The leadership has been viewing the transportation
bottlenecks with growing alarm in recent years. At
least five major decrees have addressed the problem.
The first one, adopted in February 1977, directed the
Ministry of the Railroads to speed up work on track
and roadbed improvement and also raised the sector's
investment priority a bit. In 1979 another decree
increased financial penalties on both railroads and
customers for improper handling of freight cars and
ordered a quicker turnaround. A party resolution of
March 1980 demanded that party cadres step up their
efforts to straighten out the mess in railroad transpor-
tation. A general decree issued in 1980 dealt with
transport in 1981-85, and another, adopted in Decem-
ber 1982, spelled out measures to improve manage-
ment and incentives.
Commissions for Coordination of Transport have been
established under Republic Councils of Ministers,
without notable impact. In late November 1982 the
Minister of Railroads was replaced, and Politburo
member Geydar Aliyev was given special responsibil-
ity for overseeing the railroads.
Other Important Impediments
to Industrial Growth
Many other factors also hampered productivity
growth in industry during this period." We discuss
here the three important factors generated by the
policymakers in Moscow.
" For a listing of these factors, see Herbert S. Levine, "On the
Possible Causes of the Deterioration of Soviet Productivity Growth
in the Period 1976-1980," in US Congress, Joint Economic Com-
mittee, Soviet Economy in the 1980s: Problems and Prospects,
Washington, D.C., 1982, part I, pp. 153-168.
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Military Priorities. The overriding priority accorded
to defense has complicated an increasingly difficult
situation in the industrial sector. Military machinery
accounts for perhaps 25 percent of total value added
in machinery and a roughly similar share of common-
use durables such as trucks; the military share in
construction output is about 10 percent. In both
machinery and construction, military orders not only
have priority but also absorb a disproportionate share
of high-quality materials and labor.
Possibly even more important, military requirements
have an unquestioned priority claim on fuel supplies
and on railroad and truck transport facilities. When
industry, construction, and transport are all operating
under severe strain, as in 1976-82, this military
priority is even more burdensome. The normal de-
mands of the military on transport, in particular,
increased sharply during 1979-81 with the invasion of
Afghanistan and the protracted, large-scale troop
maneuvers that were part of the Soviet response to
events in Poland. This delays civilian industrial ship-
ments, and late delivery of raw materials and the
accumulation of finished products disrupt production
flows, with chain-reaction effects throughout the in-
dustrial sector.
Foreign Trade Rigidities. Partly for political reasons,
the Soviet Union has made a set of specific trading
arrangements with various countries, and these block
one way of dealing promptly with domestic shortages
and rising costs of raw materials and energy. Over
half of the USSR's total trade is controlled by five-
year trade agreements with other Communist coun-
tries. Changing reciprocal delivery patterns in the
middle of a plan period is always extremely difficult
and cannot be done quickly. Several bureaucracies in
Moscow must agree that foreign trade can solve a
given domestic problem, and then the government
must seek agreement from a foreign partner with its
own bureaucratic procedures. Except for some price
adjustments for oil and some assistance to Poland, the
USSR did not alter its commitments to other socialist
countries in 1976-80, and the only cutbacks made in
1981-82 were in oil deliveries.
If a potential solution involves hard currency pay-
ments, the political and economic tradeoffs have to be
assessed, agreement reached, and sources of supply or
19
sale obtained. During 1976-81, the Soviet Union did
indeed raise its hard currency imports substantially?
a policy facilitated by earnings generated from the
huge increase in the international price of oil and
some other commodities. Imports in those six years
nearly doubled in real terms compared with the
preceding six years. Imports of machinery and equip-
ment made up nearly one-third of the total and
imports of ferrous metals about 15 percent.
Nonetheless, when faced with trade deficits and a
rising foreign debt after 1977, Soviet authorities chose
to curtail the growth of imports rather than to
increase debt, even though Western banks and gov-
ernments probably would have financed the much
larger imports that their business firms were eager to
supply. Thus, financial conservatism (and perhaps also
concern about "excessive" dependence on Western
capitalist countries) deterred the Soviets from import-
ing goods as a way of easing some domestic
difficulties.
Despite growing shortages of raw materials for steel-
making, the USSR continued to be a net exporter of
iron ore (pellets), coking coal, and scrap steel, mainly
to other Communist countries. It continued to export
agreed quantities of timber, even though shortages
were constraining the planned growth of output in
domestic woodworking and paper factories.
The goods received in return for these exports proved
useful, no doubt. But the point is that Soviet planners,
as they try to alleviate domestic problems, have only
limited flexibility to make adjustments, given the
policymakers' reluctance to contract a large hard
currency debt.
Changes in the Rules of the Game. To an extent never
witnessed in a previous five-year plan period, the
planners flailed about during 1976-80 in search of
ways to improve the "economic mechanism." 12 Their
actions added to the burden of enterprise managerial
staffs, already hard pressed simply to obtain enough
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supplies to keep production going. During 1976-82,
the government issued decree after decree changing
the rules of the game: rules for determining incentive
funds, to be "stable" for the whole 1976-80 period,
and revision of those rules within the first year; new
rules for determining managerial bonuses, and revi-
sions in those rules; procedures for enforcing counter-
planning, and changes in them; and so on.
At the same time, the planners engaged groups of
enterprises in economic experiments to test new kinds
of success indicators, new approaches to planning the
wage fund, new approaches to profit sharing, new
ways of financing research and development pro-
grams, and new schemes for saving labor, electricity,
materials, and the like. In addition, enterprises were
pressured to amalgamate into large combines, to form
labor brigades in their work force, to manufacture
consumer goods of some kind, and to establish subsid-
iary farms to supply food to workers.
In the bureaucracy itself, more and more coordinating
committees and councils were set up to oversee this or
that worsening regional or intersectoral problem. Fi-
nally, campaignomania was much in evidence?for
"thrift," conserving fuel, saving electricity, collecting
scrap metal and paper, ferreting out waste, and
uncovering "hidden reserves."
The demand on the time and energy of managerial
staffs to adjust to the successive revisions in planning
and administration was not trivial. The constant
change in the rules increased uncertainties and made
incentive schemes less useful in stimulating efficiency.
The administrative overkill, coupled with the objec-
tive difficulties faced by producers, surely weakened
incentives for innovation. Even by the statistics offi-
cially used to gauge "scientific and technical pro-
gress," performance deteriorated during 1976-80:
? The number of new technologies introduced rose at
only half the rate of the previous five years.
? The number of new models of machines continued
to decline.
? The number of pieces of equipment modernized rose
by only 12 percent, despite the effort to focus
investments in that area.
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In contrast, the number of products awarded the State
Seal of Quality in 1980 was a startling 52,300?more
than four times the 12,000 in 1975. This might
suggest that the complex new procedures to certify
product quality?with their considerable demands on
the time of managerial staffs?had achieved out-
standing results. But one would also expect consumer
complaints about quality to diminish, efficiency to
improve with all those "high-quality" machines and
industrial goods, and Soviet manufactures to sell
better in Western markets. This did not happen.
During the late 1970s Gosplan's task of compiling and
enforcing economic plans became increasingly com-
plex and difficult. For one thing, the decision radically
to slow the growth of output and investment in itself
made planning more difficult because of the need to
allocate smaller increments among ever more vocal
claimants. The decision to shift some investment and
labor to energy development, taken in 1977, added to
the difficulties, which were intensified after 1978 by
the need to cope with weather-related shortfalls in
agriculture.
Adding to Gosplan's task was the decision to "im-
prove" planning by grafting onto the traditional meth-
od of planning (by branch and region) a separate
method of planning for, and distributing of materials
to, a growing number of special programs. Specifical-
ly, Gosplan has been made a quasi-ministry for a
rapidly rising number of large special projects, to
which materials and equipment are allocated directly
by Gosplan itself rather than by the ministries nor-
mally responsible for that general kind of project.
Such special projects numbered 136 in 1970, 173 in
1975, and 303 in 1981. In 1979-80, Gosplan was
reorganized to help it cope with this growing burden.
The ability of Gosplan to plan (forecast) industrial
performance with reasonable accuracy became pro-
gressively worse during 1976-82, even by Soviet offi-
cial (inflated) measures. By those measures, the plan
for growth in industrial output during 1960-75 was
met in all but three of the 16 years-1964, 1969, and
1972. The reported performance generally exceeded
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the announced plan by 1 percentage point or more. In
contrast, the plan was not met in any of the years
1979-82, even by official measures." Table 6 depicts
the situation in industry during 1976-82. Large devi-
ations from planned outcomes also occurred with
respect to industrial labor productivity and freight
turnover.
Even more significant, perhaps, was the planners'
growing difficulty in forecasting physical output of
such key products as coal, crude steel, finished steel,
fertilizer, and cement. It is not surprising, given the
poor agricultural record, that Gosplan's forecasts for
light industry and food processing were far off the
mark.
The picture presented by official data is thus one of
failure of plan "discipline"?a failure that must have
dismayed both the planners and the political leader-
ship. By CIA measures, industrial growth has failed
to meet its planned target in every year since 1973?
and by growing margins. Major midplan revisions
evidently were made in the annual plan each year
from 1979 through 1982: the government announced
that the annual plans had been met, even though the
reported actual growth of output in each year was
well below the officially published plan. The plan
fulfillment report for 1981 revealed that 13 of the 30
listed ministries and administrations had failed to
meet their output plans. Only three failed to do so in
1982?but in that year it was an "amended" plan that
was reported "fulfilled." Industrial growth was re-
ported as 2.8 percent, while the originally announced
target had been 4.7 percent.
Outlook
Most of the unfavorable developments that converged
to slow industrial growth during 1976-82 will continue
to do so during the rest of the 1980s, and they may in-
tensify. Consequently, industrial growth will probably
Announced growth rates are believed to be reasonably accurate
reflections of actual intentions and may properly be compared with
CIA ex post measures of growth of output. Soviet official ex post
measures of growth are believed to be seriously biased upward as a
conseauence of double-counting and dicouiced nrire inflatin
continue to trend downward. Planned growth of in-
dustrial investment has been reduced for 1981-85?it
is to be 23 percent higher than it was in 1976-80,
whereas in that period it was 30 percent higher than
in 1971-75. For industrial output, however, planned
growth is to accelerate?to 4.7 percent per year from
the 3.2 percent achieved in 1976-80. (In 1981-82, the
average annual rate of increase of industrial output
was only 2.4 percent.)
Except perhaps in oil and gas, planned investment will
be inadequate to add capacities needed for planned
growth in output, especially in the extractive
branches, where both depletion rates and investment
costs will continue to rise rapidly. Retaining the policy
of concentrating the bulk of new investment on
renovating existing enterprises, under Soviet condi-
tions, means that much of this investment may be
wasted, as it apparently was in the previous plan with
the same policy.
These considerations, given the severity of the already
existing imbalances in raw materials and energy
supplies relative to finishing capacities, indicate that
raw materials and energy shortages and a deteriora-
tion in the quality of many materials will continue. In
particular, slow growth of steel production will con-
strain growth of machinery and hence of investment.
Good harvests, if they come, will raise growth rates in
food processing appreciably, and to a small extent in
industry as a whole. The railroads will continue to
operate under severe strain; indeed, there is no clear
indication that the planners have even agreed on how
to attack the long-developing problems of that sector.
Finally, industry's strained situation will be com-
pounded by reduced availability of labor, by contin-
ued difficulties in planning, and by administrative
pressures on everyone to "save" on everything at once.
Although the ongoing campaign to enforce plan and
labor discipline may have favorable effects initially,
such tactics can hardly be suitable as a long-run
solution to the USSR's productivity problems. Sys-
temic reform is not on the leadership's agenda as yet
and, even if launched, would take many years to bear
fruit in terms of boosting economic growth and
productivity?as 15 years of the Hungarian minire-
form have shown.
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Table 6
Planned and Actual Growth Rates
in Soviet Industry, 1971-82
Percent
1971-75
1971
1972
1973
1974
1975
1976-80
1976
1977
1978
1979
1980
1981
1982
Total
Planned
8.0
6.9
6.9
5.8
6.8
6.7
6.5
4.3
5.6
4.5
5.7
4.5
4.1
4.7
Reported
7.4
7.7
6.5
7.5
8.0
7.5
4.5
4.8
5.7
4.8
3.4
3.6
3.4
2.8
CIA
5.9
6.1
5.1
5.7
6.3
6.4
3.2
4.0
4.0
3.3
2.1
2.8
2.5
2.2
Ferrous metals
Planned
5.1
4.8
Reported
5.1
5.3
4.8
5.5
4.3
5.8
1.9
4.7
1.5
2.9
0.0
0.7
0.0
CIA
4.0
3.8
3.3
4.0
4.2
4.4
1.0
2.7
0.7
2.2
0.0
-0.5
-0.1
-0.9
Nonferrous metals
Planned
8.4
4.6
Reported a
CIA
5.9
7.2
5.4
6.1
6.2
4.6
2.3
2.9
2.6
2.1
2.4
1.4
1.3
0.8
Fuels
Planned
5.8
4.5
Reported
5.9
6.1
5.7
5.4
5.9
6.4
3.0
3.8
4.3
3.5
1.3
2.0
1.9
CIA
5.0
4.7
4.8
4.9
4.9
5.8
3.1
3.7
4.2
3.2
2.9
1.8
1.5
2.1
Electric power
Planned
7.9
5.6
Reported
7.1
8.5
7.3
6.8
6.4
6.0
5.0
7.8
3.3
5.1
3.6
5.3
2.2
CIA
7.0
8.1
7.1
6.8
6.7
6.6
4.5
6.9
3.6
4.7
2.9
4.5
2.5
3.0
Machinery
Planned
11.4
9.2
Reported
11.6
11.5
11.7
12.1
11.3
11.6
8.2
9.2
9.0
8.7
7.6
6.2
5.9
CIA
8.0
8.2
7.3
8.0
3.1
8.4
5.0
5.7
5.7
5.0
4.3
4.1
3.4
3.8
Chemicals
Planned
11.5
10.2
Reported
10.5
10.5
9.1
11.7
11.2
10.7
5.7
7.9
6.7
5.3
3.5
5.3
5.5
CIA
8.6
8.1
6.7
9.0
9.5
9.7
3.6
4.8
5.2
3.6
-0.2
4.7
4.0
1.6
Wood, pulp, and paper
Planned
5.8
4.3
Reported
5.2
6.1
4.7
4.5
5.2
5.7
1.5
2.3
3.0
1.5
-1.4
2.2
3.6
CIA
2.6
2.8
2.0
2.7
1.8
3.6
-0.3
-0.1
0.3
-0.4
-2.9
1.7
2.3
1.4
Construction materials
Planned
7.1
5.4
Reported
7.2
8.5
6.4
6.9
5.6
6.9
1.9
3.5
2.7
2.6
-0.6
1.3
1.9
CIA
5.4
6.5
5.1
6.1
4.8
4.6
1.2
3.7
3.1
3.3
-4.6
0.5
1.4
-1.4
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Table 6 (continued)
Percent
1971-75
1971
1972
1973
1974
1975
1976-80
1976
1977
1978
1979
1980
1981
1982
Light industry
Planned
6.6
4.9
Reported
4.6
6.6
2.8
3.6
3.6
5.0
3.4
4.0
3.1
3.7
2.1
3.5
2.7
CIA
2.7
4.5
0.7
2.8
2.6
2.9
2.7
4.1
2.5
2.6
1.8
2.3
1.9
-0.1
Food processing
Planned
6.2
4.4
Reported
5.4
5.3
3.8
4.6
7.9
4.9
1.4
-1.5
4.7
1.5
2.2
0.7
1.4
CIA
3.9
2.5
3.3
0.8
7.9
5.2
1.1
-1.2
4.0
-1.1
3.1
0.7
1.9
2.8
a The Soviets do not report the output of nonferrous metals.
Sources: Planned growth rates either were directly reported or were
calculated by CIA based on a sample of reported data. Reported
growth rates are given or calculated from data given in Narkhoz
1975, pp. 196-197; Narkhoz 1978, p. 38; Narkhoz 1980, p. 127;
Narkhoz 1922-82, p. 156. CIA data are from tables 1 and 2; those
for 1982 are preliminary.
The Growth Strategy-More of the Same
As revealed in the plan for 1981-85, the growth and
investment strategy launched in the preceding plan is
to be maintained. Total investment in 1981-85 is
scheduled to be only 10.4 percent above the total for
1976-80, a rate of increase pared down to little over
half the rate that was planned and achieved in 1976-
80. In contrast, industrial production is to speed up-
from 3.2 percent annually in 1976-80 to 4.7 percent in
1981-85. Substantially faster growth is planned for all
branches except electric power, where growth is to
slow markedly (table 7). To meet those goals, industri-
al labor productivity is to rise by 23 percent. The gain
realized in 1976-80 was 8.5 percent by CIA measures
and 17 percent by Soviet measures.
Industrial investment is scheduled to rise by
23 percent in 1981-85 over that of the preceding five
years. This is more than twice the growth rate
planned for total investment in the economy in the
same period, but it is well below industry's 30-percent
gain in 1976-80 over 1971-75. Continuing the trend
begun in the late 1970s, the fuel and energy branches
are to be given priority. Investment is scheduled to
rise by 63 percent in oil (excluding pipelines), 120
23
percent in gas, 20 percent in coal, and 20 percent in
electricity. As now, the lion's share of these alloca-
tions is to go to developing resources in the Eastern
regions. In the other industrial branches, investment
in fertilizer production is to rise by 11 percent, in
machinery "substantially," and in ferrous metallurgy
by 30 percent. Given these stated priorities, invest-
ment in the remaining branches will necessarily grow
very slowly or decline.
Specific investment allocations have been announced
for several branches of industry. When these alloca-
tions are matched with (1) planned rates of growth of
output and (2) information about past trends in
capital/output ratios, they are shown in most cases to
be inadequate to the tasks." In the case of oil and gas
extraction, the USSR may be unable to implement
fully the huge increments planned for investment and
the crash programs under way. In general, it appears
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Table 7
USSR: Average Annual Rates of
Growth of Industrial Production, 1971-82,
and Planned Rates for 1981-85
Percent
1971-75
1976-80
1981-82
1981-85
Total industry
5.9
3.2
2.4
5.0
Ferrous metals
4.0
1.0
-0.5
2.8
Nonferrous metals
5.9
2.3
1.0
4.0
Fuels
5.0
3.1
1.8
2.3
Electric power
7.0
4.5
2.8
2.3
Machinery
8.0
5.0
3.6
7.0
Chemicals
8.6
3.6
2.6
5.7
Wood, pulp, and paper
2.6
0.3
1.8
3.4
Construction materials
5.4
1.2
0.0
3.4
Light industry
2.7
2.7
0.9
3.5
Food processing
3.9
1.1
2.4
4.2
Note: Percentages are based on CIA's industrial production index.
Growth rates planned for 1981-85 are CIA estimates based on
Soviet-announced growth rates in value terms or for a sample of key
products. The Soviets have announced an overall growth rate of 4.7
percent for 1981-85.
that the planners are not sufficiently taking into
account the rapid rise in investment costs per unit of
capacity (showing the same blind spot as they did in
the preceding five-year plan). This rise is nearly
universal, particularly in the extractive and energy
sectors. It means that industrial growth is likely to fall
well below the planned figure-if only because of the
mismatch between production targets and planned
growth and allocation of investment.
Meanwhile, the investment allocation strategy of the
1970s is still being followed:
? Investment is to be concentrated on fewer projects.
? The volume of unfinished construction is to be
brought down from 87 percent to 65 percent of
annual capital investment.
? The bulk of investment in industry is to be devoted
to renovation of existing enterprises.
There is every reason to suppose that this blueprint
will run into the same obstacles in the 1980s as in the
late 1970s and that the USSR will suffer a further
curtailment in the addition of new capacities without
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offsetting benefits in terms of increased output from
existing capacities. (The addition of new capacities in
1981 was below the average annual additions in 1976-
80 in all but nine of 43 reported categories.)
The authorities expect to obtain additional output by
using capacities at higher rates, and they claim a
slight improvement in this regard in 1981. As a recent
Gosplan collegium report recognized, however, the
key to continued success will be elimination of the
present widespread imbalances between raw materials
supplies and finished goods capacities. Press and other
sources indicate that raw materials shortages of vari-
ous kinds continued to be a major factor in industrial
performance in 1981-82. The collegium directed
Gosplan departments to come up with suggestions on
ways of improving capacity use rates and speeding up
mastery of new capacities, and to submit these sug-
gestions as part of plan documentation for 1983.
Although the evidence is fragmentary, there is no
clear indication that investment allocations are being
restructured radically enough to overcome the noted
imbalances. The process would be lengthy in any case,
since the imbalances have been accumulating for over
two decades.
We have no clues as to the investment policies that
will be pursued in the 12th Five-Year Plan (1986-90).
In the past two years there has been considerable
debate in the press as to whether the growth of
investment should be speeded or slowed and on the
sectoral priorities that should govern its allocation.
The outcome of this debate might be reflected in
decisions to revise the plans for 1984-85, but it is more
likely that any change in strategy will be revealed in
the directives for the 1986-90 Plan.
Supplies of Key Raw Materials
Shortages of essential raw materials are likely to limit
industrial growth for several years at least; they will
certainly keep production in 1985 well below plan.
Most critical, perhaps, are steel and chemicals. Slug-
gish growth of steel production will constrain growth
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of the machinery industries?the, suppliers of equip-
ment for investment, consumer durables, and weap-
ons. Reduced growth of chemicals production will
hamper production in a variety of industries to which
it provides raw materials. Slow growth of construction
materials output will be a further drag on investment.
Steel. Barring a radical change in Soviet investment
and foreign trade policies, domestic steel production
will continue to be limited by inadequate supplies of
raw materials and hence will fall far short of the 2.8-
percent average annual growth planned for 1981-85;
production actually fell in 1981-82. Because depletion
rates will rise for both iron ore and coking coal, the
share of investment needed to replace depleted mines
will mount. The average ore content of raw ore is also
likely to fall, necessitating greater investment in
beneficiating plants.
The present imbalance between raw material supplies
and steelmaking capacities is the legacy of long-
continued investment priority for steelmaking, to the
relative neglect of raw materials. Correction of this
imbalance will take many years, and as yet there are
no signs that investment priorities are being altered to
that end. Although investment in ferrous metallurgy
in 1981-85 is scheduled to be some 30 percent above
that in 1976-80 (against a 12-percent rise in 1976-80
compared with 1971-75), a substantial share of the
larger increment will be absorbed by rising costs per
unit of capacity at all stages of production.
Moreover, the Soviets intend to double the share of
the steel sector's investment that is devoted to finished
rolled steel production, particularly adding new facili-
ties to make cold rolled steel, tinplate, large diameter
pipe, and transformer steel. While this capacity is
badly needed, it requires greater energy and labor
inputs than other steel production does.
Production of coking coal probably will continue to
decline, because much of the investment planned for
the coal industry will go to development of the
Ekibastuz and Kansk Achinsk basins, which do not
produce coking coal. Larger shares of investment in
both steel and coal also are going for the control of air
and water pollution. Meanwhile, Soviet plans to boost
25
scrap metal procurements will require considerable
additional investment in processing facilities and will
further strain railroad capabilities.
Unless the Soviets resort to large-scale imports, raw
material availabilities will seriously limit attempts to
improve the efficiency of steelmaking?that is, to
raise the share of steel smelted in basic oxygen and
electric arc furnaces, the dominant process in all other
major steelmaking countries. Even though unit costs
are lower and yields higher, the basic oxygen furnace
requires 50 percent more pig iron per ton than does
the obsolete open-hearth process, and electric arc
furnaces require twice as much scrap per unit of
output. In addition, such a shift in basic processes
requires the construction of new facilities, which takes
years. As for scrap supplies, a fundamental reorgani-
zation of the entire collection process would seem to
be required to boost supplies substantially for steel
mills.
Shortages of steel, in turn, mean that existing steel-
making facilities must be kept in operation, even if
they are old and obsolete. This raises repair bills,
siphons off investment, and adds to the already large
number of workers engaged in auxiliary work, includ-
ing repair. Unless the Soviets can find the means to
break the raw materials constraint on both production
and modernization, productivity growth in the ferrous
metallurgy sector is unlikely to recover to its earlier
levels.
The USSR could economize on raw materials and
make more final steel products if it could raise the
yield?the number of tons of rolled products per ton
of crude steel. The yield in 1981 was 69 percent, a
ratio that has changed little since 1950. The principal
way to raise the yield is to increase the share of
continuously cast steel in the total." It was the Soviets
who developed the continuous casting process, but
they did not adopt the technology widely. In 1980 this
process accounted for over half of steel production in
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Japan and Western Europe, about one-fifth in the
United States, and only 11 percent in the USSR.
Soviet sources estimate that continuous casting raises
the yield by about 12 percent and provides substantial
savings in energy and labor. Plans call for the share of
continuously cast steel to more than double by 1985, a
feat that would require as much new casting capacity
as was introduced in 1966-80. However, the Soviet
plans for total production of crude and rolled steel in
1985 seem inconsistent with the goal for continuous
casting, because they imply little improvement in
yield.
Chemicals. The plan for 1981-85 schedules an in-
crease of 30 to 33 percent in chemicals production (a
19.4-percent increase was achieved in 1976-80).
Growth in 1981-82 was less than half the rate needed
to meet this ambitious plan.
In general, the prospects for a substantial upturn in
the growth rate of chemicals production and a rever-
sal of the decline in productivity depend on two tasks:
(1) providing operating plants with raw materials and
reliable power supplies and (2) straightening out the
present mess in the branch's investment program.
Performing the first task depends in part on the
prospects for petroleum refining, coke byproducts,
and electricity supply and in part on the success of the
second.
Investment allocations to the chemicals branch in
1981-85 have not been announced, but surely will not
grow at past rates. The huge amount of investment
poured into the industry in the 1970s (including a
mass of foreign technology) and the nature of its
present malaise suggest that the planners have tried to
go too far much too fast. At present, the branch has
considerable excess capacity for end products and
perhaps even for some intermediates (ammonia, for
example). Rather than scheduling large amounts of
additional capacity (as in fertilizer), the industry's
managers probably would be better served if the
planners focused on developing appropriate raw mate-
rial supplies, notably sulfur and phosphates, and the
needed support facilities and on using existing plants
more effectively.
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Construction Materials. Output of construction ma-
terials is scheduled to increase by 17 to 19 percent in
1981-85, well above the 6-percent increase achieved
in 1976-80. Cement production is to rise from 125
million tons in 1980 to 140-142 million tons in 1985.
In 1981-82 output of construction materials essential-
ly stagnated and production of cement declined.
The many factors that contributed to the large drop in
production and productivity in the construction mate-
rials branch are rooted deeply in the system, its
priorities, and its operating methods?and are likely
to persist. Investment allocations to the branch as a
whole in 1981-85 have not been announced, but the
cement subbranch is to get 1 billion rubles; this is an
increase of 11 percent, whereas the increase for
industry as a whole is 23 percent.
With the sharply rising investment costs that are
inevitable, addition of new capacities will be slow, and
the inefficiencies associated with an aged capital stock
will persist. The construction materials branch will
have few resources to use for mechanizing the numer-
ous labor-intensive auxiliary processes that prevail;
and this constraint guarantees the persistence of labor
shortages.
Unless fuel and power supplies can be made more
reliable, their limitations will also continue to hamper
production of construction materials. Plans for ce-
ment production call for the use of much less energy
per unit of output. This goal is to be accomplished in
part by a planned halt in the shift to higher grades of
cement (which require more energy to produce) and in
part by an increase in the share of dry-process cement
in total output from 14.6 percent in 1980 to 16.9
percent in 1985. But conversion to the dry process will
put a greater strain on raw materials, require large
investment outlays, and take several years.
With the investment allocations in prospect and the
focus on saving energy, the branch will be unable to
improve its raw material supply position appreciably.
The plan to use more metal wastes and fly ash instead
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of rock products will run afoul of probable continued
slow growth in metallurgy and electric power, along
with transport constraints. The probable slow growth
of cement production, in turn, will continue to con-
strain growth in other construction materials sub-
branches and in the construction industry as well.
Energy Supplies
Soviet plans call for growth of 2.3 percent in total
output of fuels annually in 1981-85, somewhat less
than the 3.1 percent achieved annually in 1976-80.'6
In physical terms, a total increase of 8.2 percent is
scheduled for coal production, 4.4 percent for oil, and
44.8 percent for gas. All of the factors that caused
productivity growth to decline precipitously after
1977 will still be operating in 1981-85 and beyond.
Growth of capital stock, especially in the oil extrac-
tion and gas sectors, will accelerate as a result of the
65-percent rise in investment planned for the fuels
industry as a whole. Allocations are scheduled to
increase by 20 percent in the coal sector, 63 percent in
oil, and 120 percent in gas. Large increments are also
scheduled for construction of oil and gas pipelines.
In all three subbranches, however, rapidly rising
shares of investment must go simply to offset deple-
tion of old mines and wells. Investment costs per unit
of new capacities will continue to rise, because coal
and oil extraction are encountering less favorable
geologic conditions and because most new capacities
must be developed in the harsh and costly environ-
ment of the USSR's eastern regions. There are no
clear signs as yet that sufficient investment is going to
upgrade gas storage and distribution facilities, the
inadequacy of which caused serious problems in 1978-
82.
Soviet policymakers appear to have decided also to
allocate to fuel production whatever labor it seems to
need to keep supplies growing at acceptable rates.
Employment in the fuels industry, which declined
during 1971-77 and rose sharply during 1978-82, has
27
been absorbing ever larger shares of total industrial
employment. If it continues to rise at the rates of
1978-82 and if investment plans are carried out, total
labor and capital inputs in the fuels branch will rise
faster than in 1976-80 (3.5 percent annually). Given a
planned annual growth of only 2.3 percent in output,
one can conclude that the planners themselves are
anticipating a continued drop in productivity. Even
their relatively modest production goals for fuels may
be too ambitious, particularly for coal, since the
conditions that constrained production in the latter
part of the 1970s are likely to deteriorate even
further.
Slow growth of coal production continues to cause
problems in the steel, chemicals, and electric power
industries. Almost all of the gains in output of raw
coal in 1981-85 will come from Ekibastuz and Kansk-
Achinsk, where the heat content of coal is less than
that in older basins. Hence, the decline in the average
heat value of coal will continue. The average quality
of coal also will continue to deteriorate because
Elcibastuz coal is full of rock and debris, and Kansk-
Achinsk coal is subject to spontaneous combustion
and to freezing in transport and storage. The technol-
ogy for dealing with these problems is for the most
part still on the drawing board; indeed, decisions
about the best long-run strategy for capitalizing on
the huge Kansk-Achinsk reserves have yet to be
taken.
Problems with the supply of electricity also seem
likely to create difficulties for industrial enterprises.
The revised 11th Five-Year Plan calls for output of
electricity to rise to 1,555 billion kilowatt-hours in
1985, 3.7 percent annually. New capacity totaling
68.9 million kW is to be introduced, 21.3 million kW
of which is to be nuclear power capacity. A pro-
nounced shift in the structure of fuel use is planned,
with the share of coal to rise from 37.3 percent to 39.6
percent, that of oil to drop from 35.7 percent to 25.9
percent, and that of gas to rise from 24.2 percent to
31.5 percent. In 1981-82, electricity production rose
by an average of 2.8 percent, and new capacity
totaling 10.4 million kW was commissioned in 1981.
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The 1981-85 investment plan for electric power is
unrealistic. The planned commissioning of new capac-
ity (27 percent more than that achieved in 1976-80),
coupled with an estimated increase in total investment
(20 percent over that of 1976-80), implies a reduction
in investment costs per unit of new capacity to the
level experienced in 1971-75. However, unit costs in
1976-80 were 23 percent higher than in 1971-75.
Because of the large share of nuclear and coal-fired
power plants in planned capacity and rising capital
costs in general, the cost of a unit of capacity is bound
to rise further. Unless investment funds are boosted
substantially, the Soviets cannot expect to add more
new units than they did in 1976-81. Moreover, the
investment program may be jeopardized by shortages
of equipment; production of turbines, generators, and
steam boilers fell in 1976-81.
Given these murky prospects for growth in capacity,
production of electric power promises to be well below
plan in 1985. The system will continue to operate
under strain, despite the reduced growth in demand
associated with lower economic growth. Hence, prob-
lems with quality of electricity are likely to continue
to plague customers, especially if the relative share of
coal-fired plants is raised as planned.
Breaking Transportation Bottlenecks
The 11th Five-Year Plan schedules an increase of 3.7
percent annually in total freight traffic and 2.7
percent annually in railroad freight traffic, both
measured in ton-kilometers. Since industrial output is
scheduled to rise much more rapidly than this, the
plan implies a considerable reduction in the volume of
freight per unit of output. Specifically, the plans call
both for a reduction in tonnage relative to industrial
output and a halt to the long-term increase in average
distance of shipments (it rose 7 percent during the
1970s). The planners evidently expect the railroads to
overcome their difficulties: total freight carried is
scheduled to rise more than twice as rapidly as it did
in 1976-80.
Although total allocation of investment to transport
has not been announced, the railroads are to get an
increase of 22 percent?over twice the increase
planned for total investment. With this investment,
the railroads are to add 3,600 km of new lines, 5,000
km of second tracks, and 6,000 km of electrified lines
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and to provide 15,000 km of lines with automatic
signaling systems. These planned additions are about
the same as those made in 1976-80, but the proposed
22-percent rise in investment outlays seems inade-
quate, given the rapid rise in costs. In 1976-80 the
cost of adding 1 km of line rose by 58 percent and that
of 1 km of second track by 43 percent.
Although the plan calls for an increase in the capaci-
ties of railway stations and junctions, there is no sign
that overriding priority is being given to that task;
rather, the focus seems to be on adding tracks. The
Soviet transportation expert who correctly predicted
the bottlenecks of the past five-year plan maintains
that, unless yard capacities are radically upgraded,
the clogging of the railroads that was observed in
1979 will become chronic.
The new plan has begun badly. Growth rates of total
freight traffic and railroad freight in 1981-82 were far
below the planned average. Railroad traffic declined
in 1982 and the efficiency of performance worsened,
according to statements in the plan fulfillment report.
In addition, the plans for construction of railroad
facilities were seriously underfulfilled in 1981 and
reported to have been behind schedule in 1982.
The difficulties of the railroads are particularly se-
vere. Congestion on key routes and at major terminal
districts has lowered average freight train speeds,
raised freight car turnaround time, and increased the
number of accidents. Projects are under way for
electrifying and double tracking heavily burdened
lines, building some short bypass lines, lengthening
station tracks, and increasing yard capacities, but
they have not yet begun to relieve congestion. The
system needs to get balance among motive power,
rolling stock, and line and terminal facilities?a prob-
lem difficult to solve in the short run and under strain.
Initially, the new leadership has given much attention
to the transport sector?replacing personnel, extend-
ing the 1979 reforms to the sector, and holding high-
level meetings. Meanwhile, the campaign to enforce
discipline is being actively conducted, along with
another campaign to enlist industrial enterprises and
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other shippers in the repair of damaged freight cars.
Nonetheless, the severe problems encountered in
1981-82 show how difficult it will be to turn the
situation around. Hence, continued transport snarls
can be expected to dampen industrial growth.
Other Important Factors
Labor. In the 1980s the industrial sector will have to
contend with yet another strain?a greatly reduced
availability of additional labor." According to the
plan, industrial employment is to rise by roughly 0.5
percent annually in 1981-85; it rose 0.8 percent
annually in 1981-82. In the 1980s as a whole the
overall labor force will rise at only about the planned
0.5 percent?half the rate of the 1970s. This means
that industry will face fierce competition with other
sectors for labor. Industrial employment is likely to
rise no more than 1 percent annually, and much of the
increment probably will go to provide a work comple-
ment for new .enterprises and to man the crash energy
development programs. Regional imbalances in labor
supply will complicate the problem.
Industrial managers now are being put under severe
pressure to stabilize or reduce their work force.
Already, incentives have been tied to meeting plans
for labor productivity (among several other targets),
employment ceilings have been imposed in annual
plans and penalties established for failure to meet
them, a universal Shchekino-type laborsaving scheme
has been authorized, and brigade forms of labor
organization in factories are being vigorously pushed.
Retaining a qualified labor force, enhancing work
incentives, and maintaining work discipline will pose
grave difficulties for industrial managers during the
rest of the decade.
Foreign Trade. Imports could provide some relief for
domestic difficulties, particularly in the case of fin-
ished steel products, chemical feedstocks, and selected
kinds of machinery and equipment. However, the
Soviets evidently intend to pursue conservative trade
policies at least through 1985. The share of trade with
socialist countries is scheduled to rise, and the growth
of trade with other countries is to slow markedly.
Although the USSR has cut back on deliveries of oil
29
and perhaps some other materials to Eastern Europe,
its commitment to those countries remains large. Any
major adjustments to augment domestic supplies by
cutting back exports would present difficult political
problems. The East Europeans have been reluctant to
increase their investment in CEMA resource develop-
ment projects in the USSR again, as they did in the
1970s, and no new projects were scheduled in the
1981-85 Plan.
Imports from the West are likely to increase more
slowly in the rest of the 1980s than in the 1970s. Hard
currency earnings will be curtailed by a continued fall
in oil exports, the failure of gas exports to completely
offset those losses, and the poor prospects for exports
of other commodities." With Western cooperation,
the USSR could, of course, finance a stepped-up
import program by raising its foreign debt, but its
past conservatism and the uncertain attitude of West-
ern lenders suggest that this option will not be taken
up. In any event, the planners may believe that,
except for critically needed energy-related technology,
their current need is to absorb the Western technology
already imported and to use it more efficiently.
Planning and Incentives. The foregoing discussion of
investment and growth prospects in key branches of
industry indicates that the 11th Five-Year Plan is
perhaps even less realistic than was the 10th. Planned
investment allocations for most key branches are
clearly inconsistent with output goals, even under
reasonably optimistic assumptions about trends in
capital/output ratios. The original plan targets for
industrial growth in 1981 and 1982 were missed by
wide margins. The investment plan for 1981 was not
met, and a planned cutback in 1982 turned into an
increase of 2 percent.
The industrial plan for 1982 evidently was radically
changed some time during the year, and the plan for
1983 sets the lowest growth target for industrial
output in Soviet history. This may be a planners'
reaction to the shortfalls of the preceding four years
measured by official indexes.
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The recent planning failures stem partly from the
unexpected tenacity of objective factors?successive
poor harvests, stagnating steel production, transporta-
tion bottlenecks, and electric power failures. However,
the central planning process itself is being greatly
complicated by decisions that many large programs
will be planned and managed separately from the
routine sectoral plans. The burden on the central
bureaucracy has been greatly increased, particularly
affecting Gosplan, which is more and more acting as a
quasi-ministry. Current indications are that this ap-
proach will continue, along with the many inefficien-
cies stemming from overcentralization.
It seems also that the new regime will try to enforce
the complex planning and incentive arrangements set
forth in the July 1979 decree, as modified by decrees
in 1981-82 and changes that became effective in
1983.'9 These measures, which substantially increase
central control over enterprises and establish incentive
schemes of extreme complexity, are not likely to
improve the efficiency of resource use in industry.
Indeed, by adding to (he burden on enterprise mana-
gerial staffs and further eroding incentives, they could
make matters worse. Already, Soviet economists are
pointing out many quirks in the new measures and
proposing changes.
Along with the attempt to implement new rules of the
game, the regime has launched a major campaign to
enforce discipline on both workers and managers.
These measures, which may be welcomed by many
people, could have some short-run positive effects on
output and productivity. If the past is any guide,
however, the campaign will peter out. In any event,
the basic problems that industry faces in the 1980s
are not particularly amenable to solution by cam-
paigns for discipline.
Outlook for Production and Productivity
This detailed qualitative analysis of the causes of the
dramatic slowdown in industrial growth in 1976-82
and the prospects for turning the situation around
strongly supports the assumptions that have recently
been embodied in CIA's econometric model of the
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Soviet economy.' The model's projection is based on
the assumption that the trends in industrial factor
productivity observed in 1976-80 will continue
through the 1980s. The analysis on which this paper is
based suggests that this assumption is warranted, for
the adverse features that caused factor productivity to
slump badly in 1976-82 are deeply imbedded and are
likely to continue.
According to the model's results, output seems likely
to grow at best only about 2 percent annually in the
1980s (baseline case), a bit more rapidly in the first
half than in the second half. Industrial output rose by
2.5 percent in 1981 and 2.2 percent in 1982. Growth
will probably pick up a little in 1983, perhaps in part
as a result of initial favorable effects of the new
leadership's discipline campaign but also because
1982's low growth stemmed partly from poor weather
and a particularly poor performance in the first five
months. Since mid-1982, production of most industri-
al commodities has picked up on a seasonally adjusted
basis. On balance, however, the rates of increase
under Andropov are no higher than they were in the
last months of Brezhnev's stewardship, and about the
same as the trend rates of growth in 1978-82.
The growth of the capital stock will continue to slow
as a result of reduced investment growth; and labor
inputs also will grow more slowly, because of the
inevitable sharply reduced growth of the labor force
as a whole. Continuation of these trends implies an
increase of about 3.5 percent annually in combined
capital and labor inputs and an average annual
decline of productivity of well over 1 percent, as was
the case in 1976-82.
Implications for Soviet Behavior
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The slow pace of industrial growth that we project for
the 1980s (about 2 percent per year) will seriously
limit growth in other sectors and in the economy as a
whole, since industry accounts for nearly half of
Soviet GNP. Its slowness will be a drain on the rest of
the economy because industry supplies indispensable
materials and energy and because it produces the
steel, machinery and equipment, and construction
materials required for investment. Similarly, it will
limit the USSR's ability to boost living standards
substantially and to accelerate military production.
Finally, slow industrial growth will constrain the
growth of exports, curtailing the use of foreign trade
as a means of lifting industry out of its doldrums
(assuming no large-scale largess from the West).
Although other responses are possible, the present
Soviet leadership (or party-dominated successors of
the same generation) will most likely try to adjust to
slower economic growth and will return to traditional
methods as they seek to recover the earlier growth
path. This means tinkering with planning, organiza-
tion, and incentives and enforcing greater "discipline"
in the economy and society. If this kind of "muddling
through" is to be viable, it will have to deal rather
evenhandedly with the three major claimants on
resource allocations?consumption, defense, and in-
vestment?by allocating roughly similar shares of the
annual increments in output to each one. In fact,
the USSR has already been accommodating in more
or less this way to the marked slowdown in growth
during 1976-82.
Alternative strategies not only would be risky, but
probably could not even be carried out. To maintain
work incentives and preserve domestic tranquillity,
the government needs to provide some forward mo-
mentum in consumption. Any major effort to acceler-
ate defense or investment would immediately threaten
this momentum; it would also require allocations of
labor, steel, materials, and machinery that could not
be provided from domestic sources. As regards invest-
ment, some growth probably is required to sustain
economic growth. But the USSR is already making a
huge investment effort, and its most imperative need
31
Confidential
is to radically raise the return from it, in terms of
increased output. As for defense, the effort is already
so large that substantial upgrading of weapons sys-
tems can occur (and has been occurring) even with
reduced rates of growth in military spending.
As noted above, imports could relieve some domestic
shortages, particularly in the case of high-quality
finished steel products, chemical feedstocks, and se-
lected kinds of machinery and equipment, most nota-
bly for oil and gas development. However, future
imports will be constrained by much more slowly
growing hard currency earnings and also by the likely
continuation of Soviet reluctance to accumulate debt
to the West (and?at least in the near term?by the
reluctance of Western banks to increase their expo-
sure in the USSR).
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Appendix A
How Individual Branches
of Industry Fared
In the preceding section we considered the major
reasons for the marked production slowdown in indus-
try as a whole. That overall analysis derived from
analysis of the factors that shaped the performance of
each of the 10 major branches of industry. In this
section we briefly describe the record of production
and productivity growth in each branch in 1976-82
and assess the main factors that explain that record.
The figures discussed are those in tables 1 and 2 and
appendix B.
Ferrous Metals
Performance
The average annual growth of production in ferrous
metallurgy, which carries 7.2 percent of the total
weight in the CIA industrial production index
(SPIOER), fell from 4 percent in 1971-75 to 1 percent
in 1976-80. Corresponding rates for factor productivi-
ty are 0.3 percent and -2.2 percent. Output stagnated
in 1981 and declined in 1982 by nearly 1 percent.
Because labor and capital inputs almost held their
own in 1976-82, the deceleration in the growth of
output reflected a pronounced reduction in the pro-
ductivity of those inputs. The sharp falloff in growth
of both production and productivity occurred in 1976.
Crude steel production in 1982 was only 6 million tons
above the 1976 level, whereas output in 1975 was 25
million tons higher than in 1970. Corresponding gains
in output of finished rolled steel were 3 million and 18
million tons. For iron ore, the most critical raw
material in steelmaking, the respective gains are 9
million and 38 million tons.
Factors Influencing Performance
If even the small productivity gain of 1971-75 had
been maintained, growth of production in ferrous
metallurgy would have increased 3.7 percent annually
in 1976-80 instead of the 1 percent actually achieved.
What went wrong? Unexpected shortfalls in availabil-
ity of three critical raw materials (iron ore, coking
33
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coal, and scrap metal) account in large part for the
slide. But transportation difficulties played a major
role, too.
Output of iron ore, which had risen steadily by about
8 million tons annually in 1971-75, increased only
6.3 million tons in 1976 and dropped in 1979 and
1981; the average annual increment in 1976-82 was
only 1.5 million tons. After many years of sustained
gains, production has essentially leveled off in the
Urals, Krivoy Rog, and the Kursk Magnetic Anoma-
ly?three areas that together account for about four-
fifths of total production.
Even worse, the quality of the ore began to deteriorate
at a faster rate. Thus, the average ferrous content of
working deposits dropped from 50 percent in 1950 to
44 percent in 1970 and to 35 percent in 1980. Almost
nine-tenths of Soviet ore must now be enriched, an
expensive process that eats up about 70 percent of
total investment in the iron ore sector. In addition,
iron ore mines were being depleted at an increasing
rate, so that in 1976-80 three-fourths of the new
capacities commissioned served merely to offset deple-
tion of old mines. Investment allocations were inade-
quate to offset rising depletion rates and provide
sufficient additional capacities.
longer delays
were being encountered in getting newly commis-
sioned mines into full production. For example, new
mines with a scheduled annual capacity of 12 million
tons of ore were commissioned at Krivoy Rog and
Kursk in 1976; in 1979 these mines were producing
4.5 million tons.
Although reserves are large and conveniently near the
blast furnaces, coking coal supplies became a major
fetter on pig iron production and hence also on crude
steel production in 1976-82. Production, which in
1971-75 rose every year for a total gain of 16 million
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tons, stopped climbing in 1977 and declined every
year thereafter. Output began to fall in the Donets
and Kuznetsk basins, which account for nearly three-
fourths of coking coal production. The reasons for the
decline are those advanced above in the discussion of
the coal industry.
About half of Soviet steel is smelted in furnaces using
scrap metal, which is much cheaper to use than pig
iron (according to Soviet calculations). That share
changed little in the 1970s because scrap was in short
supply. There were plans to emphasize production of
electric steel, which costs less to produce than open-
hearth steel, but its share remained at 10 percent of
total steel production during 1976-80, largely because
of scrap shortages. The shortages also constrained
production in open-hearth furnaces, where scrap is
interchangeable with pig iron; production of pig iron,
in turn, was hampered by shortages of its main
ingredients?iron ore and coking coal.
Scrap shortages do not seem to stem from lack of
scrap metal, but rather from chronic problems in
collecting and processing it. These problems evidently
worsened in the last half of the 1970s, calling forth a
party-government decree in 1980 demanding action to
set matters right. The oft-cited difficulties include
shortages of sorting equipment, few and poorly quali-
fied workers, and fragmented responsibility. Assign-
ments for scrap collection are parceled out among
dozens of ministries, which accord them low priority.
The creation in 1978 of a specialized all-union associ-
ation for collection of steel scrap has not solved the
problem.
The overloading of the rail transport system in the
latter half of the 1970s had a particularly serious
effect on ferrous metallurgy. The industry relies on
railroads almost exclusively for delivery of its raw
materials, which are bulky and must be transported
increasing distances. Soviet steel plants typically oper-
ate with much lower inventories than Western plants
(seven days' supply of coal and 15 of iron ore), so even
a brief transport interruption will slow production.
With the changing geographic patterns of supply, the
average distance of iron ore shipments has continued
to rise, straining the already overtaxed rail network.
For example, steel furnaces in the Urals now must
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obtain about one-fourth of their iron ore from Kursk,
over 1,000 km away, or from the Kola Peninsula and
the Ukraine, even farther. West Siberian mills also
are becoming more dependent on long-distance ship-
ment of ore.
Similar transport requirements prevail for coking
coal. Thus, rapidly falling output in the Donets basin
has forced the shipment of coal from the Kuznetsk
basin to blast furnaces in the Ukraine, a distance of
about 3,500 km. Transportation bottlenecks also have
delayed the shipment of scrap metal.
Nonferrous Metals
Performance
Nonferrous metals carry 3.9 percent of the 1970
value-added weight in SPIOER." Production had
grown at an average annual rate of 7.5 percent in the
1960s and 5.9 percent in 1971-75, but grew by only
2.3 percent per year in 1976-80. Table 8 shows growth
rates for subbranches of the industry.
The substantial drop in growth rates affected all but
two of the subbranches. For the branch as a whole,
the deceleration began in 1975, when growth fell to
4.6 percent after reaching 6.2 percent in 1974. The
growth rate dropped by a similar amount to 2.9
percent in 1976 and then declined fairly steadily to
less than 1 percent in 1982.
Growth of capital stock in nonferrous metallurgy fell
by almost 1 percentage point in 1976-80, and labor
inputs actually increased.23 Thus, the slower growth of
output reflected a large deterioration in productivi-
ty?from an average annual increase of 1.6 percent in
1971-75 to an average annual decline of 1.7 percent in
1976-80. In 1980-82, annual declines in productivity
were well over 2 percent.
" Estimates of productivity in nonferrous metals are tenuous, since
capital stock data are not published and must be guessed from
fragmentary information. Employment must be estimated indirect-
ly from plan fulfillment data for the Ministry of Nonferrous
Metallurgy, which is thought to be responsible for the bulk of
nonferrous metals production.
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Table 8
Growth Rates in Nonferrous Metals
Percent
1970
Weight
Average Annual Rates
of Growth
1971-75
1976-80
Aluminum
27.1
7.4
2.9
Copper
23.2
5.4
2.2
Nickel
14.3
8.9
1.7
Zinc
10.3
3.5
0.2
Lead
8.5
2.8
0.7
Tin
5.9
3.6
0.7
Molybdenum
3.2
2.0
2.7
Titanium
2.0
8.4
3.4
Magnesium
1.7
4.1
1.2
Tungsten
1.6
3.2
2.4
Mercury
0.9
2.8
1.3
Cadmuim
0.8
3.5
0.3
Antimony
04
1.7
1.5
Factors Influencing Performance
By and large, the factors contributing to the much
impaired performance of nonferrous metals in 1976-
82 are similar to those affecting ferrous metallurgy.
The basic activity consists of the extraction and
smelting of a variety of ores. As with iron ore, the cost
of extracting nonferrous ores has been rising rapidly.
Costs are high anyway, because substantial shares of
most metals are mined and processed in Siberia and
Kazakhstan. Although reserves are estimated to be
huge, current production is being obtained from poor-
er and less favorably situated mines at greater depths.
In addition, the average grade of ore is decreasing.
According to Soviet press statements, the average
grade of copper and zinc ores mined since the mid-
1960s has decreased by about 50 percent and that of
lead by about 40 percent.
New mines are being developed, but development of
large new underground mines often takes 10 to 15
years. Old mines meanwhile are being depleted rapid-
ly, so that a large and growing share of investment
merely offsets depletion. Investment for nonferrous
metals in 1971-75 was 49.3 percent greater than in
35
1966-70-rising considerably faster than investment
for industry as a whole. Data for 1976-81 are not
available, but growth of investment in the nonferrous
metals branch may have decreased, as it did in the
residual category of which the branch is a component.
Judging from the fragmentary information at hand,
production and productivity in nonferrous metals were
affected by the problems that plagued industry in
general. Since smelting involves continuous opera-
tions, irregularities of supply of ores and fuels and
fluctuations in quality of electricity reduced output
and damaged equipment. Sporadic shortages of raw
materials needed for processing (many of them im-
ported) arose because of bottlenecks in railroad trans-
portation. Finally, the branch experienced consider-
able delays in assimilating imported equipment.
Fuels
Performance
Production of fuels, with 9.8 percent of the value-
added weight in SPIOER, rose more slowly (3.1
percent annually) in 1976-80 than in 1971-75
(5 percent annually). Inputs of labor and capital com-
bined grew substantially faster in 1976-80, however;
thus, all of the falloff in growth stemmed from a
radical turnabout in productivity, which dropped 10
percent during 1978-82. Growth of fuels output
dropped to less than 2 percent in 1981-82 and produc-
tivity declined by nearly 3 percent annually.
Growth of production fell off in all major components
of the fuels industry except gas, in which average
annual growth rates climbed from 8 percent in 1971-
75 to 8.5 percent in 1976-80." Growth rates in oil
extraction dropped from 6.9 percent to 4.2 percent,
with a concomitant deceleration in growth of oil
refining. Coal production increased by only 2.4 per-
cent during 1976-82-much less than its gain of 12.3
percent in 1971-75. It was the performance of coal
that dragged down growth rates for both production
In Soviet statistical reporting, the fuels industry comprises coal,
oil extraction and refining, natural gas, peat, oilshale, and other
minor fuels.
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and factor productivity in the fuels sector, but the
other fuels did not do well either. Average annual
growth in their production declined from 6.8 percent
to 4.8 percent; productivity apparently deteriorated
far more sharply, falling by nearly 10 percentage
points in 1976-80 after rising by 13 percentage points
in 1971-75. In 1981-82, average annual growth of
production of fuels other than coal fell to about 2
percent, and productivity continued to be sharply
negative.
Factors Influencing Performance
The oil and gas industries have 54 percent of the 1970
value-added weight for the fuels branch.' The reasons
for the dramatic slump in productivity in the oil and
gas subbranches (including oil refining) are evident. In
the case of oil, annual increments to production
continued to drop because older fields in the Western
regions and the Volga-Urals are in decline, and
production in West Siberia was not growing fast
enough to prevent a steady slide in the growth rate of
total output. In particular, production from the
USSR's largest field (Samotlor in Tyumen' Oblast,
which accounts for roughly one-fourth of total pro-
duction) is now in decline and new fields there have
been small and more difficult to develop. Oil refining
is constrained by slower growth in supplies of crude
oil. Annual growth rates for gas remain high, but
there have been reports of lags in constructing gas
plants and pipelines and difficulties in expanding gas
consumption as rapidly as the production potential
warranted.
The deterioration in productivity in the last half of the
1970s is partly the consequence of the government's
crash program to arrest these unfavorable develop-
ments by greatly increasing allocations of labor and
investment. In the middle of the 10th Five-Year Plan,
the government began a major reallocation of indus-
trial investment in favor of oil. Total investment in oil
in 1976-80 was 65 percent higher than in 1971-75.
Annual investment rose from 3.8 billion rubles in
1975 to 6.8 billion in 1980 and to 8 billion in 1981.
Oil's share in total industrial investment jumped from
10 percent in 1976 to 16 percent in 1981. Large
amounts also were invested in oil pipelines.
" The discussion of oil and gas relies heavily on the following
source: J. Richard Lee and James R. Lecky, "Soviet Oil Prospects,"
in US Congress, Joint Economic Committee, Soviet Economy in a
Time of Change, Washington, D.C., 1979, vol. I, pp. 581-599.
Confidential
A large and growing share of investment in the
development of new production capacity, however, did
not provide additional oil. The share required merely
to offset rapidly rising depletion of old wells was 45.8
percent in 1961-70, 65.8 percent in 1971-75, and (by
Soviet forecasts) 74 percent in 1976-80 and 87 percent
in 1981-85.
Moreover, investment costs per unit of additional
capacity have been rising rapidly, in part because
development in the West Siberian fields is more
costly. The crash program in 1977 to accelerate
drilling in West Siberia diverted thousands of drillers
from the older fields. It continued in 1978-82, with
mounting costs in providing equipment, transporta-
tion, and related infrastructure. "Shockwork" takes
its toll in efficiency, and the measured productivity
drop in the fuels branch in 1976-82 probably reflects
this fact, inasmuch as oil extraction accounts for more
than one-fifth of employment and over half of the
capital stock in the fuels branches exclusive of coal.
We have too little information to assess the role of oil
repining in the falloff in productivity in the fuels
branch. Output was constrained, of course, by slower
growing supplies of crude oil. The technology-inten-
sive refining sector probably had the same problems
with transportation, equipment deliveries, delayed
startup of new plants, and power shortfalls as did
industry as a whole.
The gas industry faced difficulties similar to those in
oil extraction. An increasing share of output is coming
from West Siberia-41 percent in 1981 (13 percent in
1975). As in oil, the investment costs of gas extraction
rise and difficulties multiply as the production focus
moves eastward. The energy strategy announced in
1977 (all hands to Siberia!) also affected gas, but to a
lesser extent. Its investment priority was raised a
little; investment in gas took 4.7 percent of total
industrial investment in 1976-81, against 4.3 percent
during 1971-75. Substantial additional amounts were
invested in pipelines, and the amount devoted to that
purpose may have risen abruptly after 1977.
In any event, the decision made in December 1977 to
accelerate gas extraction from the Urengoy field (and
to build the pipelines and other infrastructure on a
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crash basis) enabled the USSR to meet the upper
limit of an ambitious target for gas production?but
increased capital costs even more. Because the domes-
tic machinery industry could not supply equipment
and pipe in the quantity and quality required, the
Soviets had to spend considerable hard currency for
Western equipment.
The coal industry, with 42.6 percent of the value-
added weight in the fuels branch, contributed impor-
tantly to the falloff in growth and productivity in
Soviet industry, both directly and indirectly, because
of its great importance as both fuel and raw material.
Value added in the coal industry rose scarcely at all
during 1976-82, whereas it had increased by 12.3
percent in 1971-75. Man-hours decreased by about 5
percent in 1976-81, and capital stock grew by roughly
13 percent; corresponding percentages for 1971-75
are 9 percent and 25 percent. Labor productivity rose
only about 5 percent, capital productivity declined by
perhaps 12 percent, and factor productivity was nega-
tive after 1977, whereas it had grown by perhaps 10
percent during 1971-75.
The downturn in output growth came in 1976, that of
productivity probably in 1978. In amounts, output of
coal rose by about 11 million tons in 1976 and 1977
and by 1.5 million tons in 1978, and then declined in
1979, 1980, and 1981. In 1981, coal output was less
than 3 million tons above the level of 1975, and
production of coking coal had fallen by some 6 million
tons. The total increment in annual output during
1976-81 was just 3 million tons, and the average
calorific value per ton of coal fell somewhat. Output
rebounded in 1982 but did not reach the level
achieved in 1978.
The poor production record for coal since 1975 result-
ed from a steady decline in output in the western coal
basins, particularly the large Donets basin, and sharp-
ly reduced growth after 1978 in output from eastern
basins. Production declined after 1978 in the Kuzne-
tsk basin, the country's second largest. Only one
major basin, Ekibastuz, showed substantial gains in
output; but here the coal has only 60 to 70 percent as
much heat content as Donets and Kuznetsk coal, and
none of it is suitable for coking.
37
The falloff in productivity growth in coal mining
stems above all from an accelerated deterioration of
mining conditions; this is especially rapid in the
Donets and Kuznetsk basins, which in 1980 accounted
for nearly half of total production and nearly three-
fourths of the output of coking coal. In these (and, to a
lesser extent, other older basins) coal miners each year
are taking coal from thinner seams in deeper and
gassier mines. In the Donets basin, for example,
average mine depth nearly doubled and the average
thickness of coal seams declined almost 25 percent
during 1967-77. Despite a relatively short workweek,
the grim working conditions made it difficult to
attract and retain miners. Lack of amenities created
similar problems for miners in the eastern regions.
Labor shortages, coupled with greater diversion of
workers to ancillary tasks such as repair and construc-
tion, suggest that existing capacities were not exploit-
ed to their potential.
Difficulties with equipment also seemed on the in-
crease, causing breakdowns and excessive repair costs.
In one large mine, for example, several million tons of
coal were lost in 1979 because one of the largest
elevators was out of service for almost one-third of the
year. Shortages and poor quality of mining equipment
and safety gear hampered production, especially in
the Donets and Kuznetsk regions. Interruptions in,
and the uneven quality of, electricity supplies also
held down coal production.
Other reasons for the falloff in the growth of coal
production in 1976-82 are (1) a continued (though
decelerating) fall in man-hours, part of which stems
from the reduction in the workweek in underground
mines, and (2) a halving of the growth of capital stock.
The latter resulted not from a slower pace of invest-
ment, but from sharply reduced gross commissioning
of new mines?from a total of 114.2 million tons of
capacity in 1971-75 to 90.4 million tons in 1976-80.
Only 5.1 million tons were added in 1981. (As in oil, a
rapidly growing share of these new capacities merely
offsets depletion of old capacities. During 1976-80 the
average annual depletion was 15 million tons of
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capacity?it had been 7 million tons a decade earli-
er?and annual gross commissionings of new mines
averaged 18 million tons.) Investment costs rose
sharply, as did the volume of unfinished construction,
and the period needed to bring newly commissioned
mines to capacity apparently increased. The rebound
in coal production in 1982 was associated with a jump
in employment. Also, higher wages and better work-
ing conditions for coal miners were introduced in
1982.
Electric Power
Performance
Electric power has 6.8 percent of the total weight in
the SPIOER. During 1976-82, output of electric
power grew only about half as fast as it did in 1971-
75, and more erratically. The rate of increase of
capital stock fell moderately while that for labor
turned upward. As a consequence, the growth of
factor productivity in the branch was negative in
1976-82. In addition, the quality of electricity sup-
plied to consumers deteriorated seriously, as reflected
in power outages, erratic drops in voltage, and fluctu-
ations in frequency. The growth rates of both output
and productivity turned down markedly in 1977, a
year later than in most other branches.
Factors Influencing Performance
In 1971-75 productivity gains accounted for 23 per-
cent of the growth in electric power production. If
that ratio had held in 1976-80, output would have
risen by 6 percent annually instead of the actual 4.5
percent. Why did productivity growth fall off so
much?
Electric power production is highly capital intensive
and depends on the total capacity of power stations
and on output per unit of capacity. During 1971-76,
output per unit of capacity climbed by 1.5 percent
annually, whereas by 1980 it had fallen below the
1976 level. This turnabout was partly the result of the
increasing strain under which the power network was
operating and partly the result of factors related to
raw materials and transportation.
Confidential
Annual additions to new (and presumably more pro-
ductive) capacity were only about 4 to 5 percent of
total capacities in the late 1970s, whereas they had
been over 10 percent in the 1960s. Because of failure
to meet plans for introduction of new capacity in
1976-80 (61 million kilowatts planned, 54 million kW
completed) and the continued high demand for power,
old plants were kept in operation instead of being
retired on schedule. Plants with 25 million kW of
capacity were slated for retirement in 1976-81, but
only 6 million kW were actually retired. Obsolete
plants now make up about 10 percent of total capaci-
ty, and their operation is marked by more frequent
power outages and higher operating costs. Moreover,
low retirement rates and smaller net addition to stock
imply an increasingly aged capital stock, which re-
quires much more repair and leads to partial or total
shutdown of individual power plants.
Power outages were another result of the increased
strain on reserve capacity?that is, on the system's
ability to meet peak demand. In 1980 only 6 percent
of total capacity of the unified power system (which
controls about 97 percent of total Soviet capacity) was
available for such purposes; this was well below the 10
to 11 percent available in 1970 (and below the 1980
plan of 11-percent reserve capacity). The number of
hours per year when the maximum capacity of the
system was used increased from 6,150 in 1970 to
6,230 in 1975 and to 6,560 in 1980?against a
planned maximum use of 6,150 hours.
This reduction in relative reserve capacities (given
continued strong demand) resulted in delayed equip-
ment repair, an erosion of performance, and frequent
use of old units that are inefficient and prone to break
down. The operation of marginal facilities requires
more repair crews, a factor that helps explain the
continued high growth of the branch labor force-2.2
percent annually in 1976-82, when that of industry as
a whole was 1.4 percent.
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Another reason why capacities were ineffectively used
was the growing difficulty with fuel, which makes up
about 60 percent of the electric power sector's pur-
chases of materials. Deliveries were inadequate for
one thing; and to make matters worse they were
erratic, and the coal delivered was of lower quality.
Some of the shortfalls in fuel delivery were caused in
turn by the railroads' difficulties in handling ship-
ments of coal and oil?difficulties that increase in the
winter, when power plants depend especially on coal.
The power system has become more vulnerable to
transportation failures because it still relies heavily on
coal (37.3 percent of the total fuel requirements of the
Ministry of Electric Power system in 1980), which
increasingly has to be hauled long distances from
Kazakhstan and Siberia to offset the decline in
production in European Russia.
The electric power sector has also been constrained by
production shortfalls in coal mines and the declining
quality of the coal produced. In 1980 electric power
consumed almost 27 percent of total coal production,
and coal accounted for 37 percent of total fuel use.
(The share of coal in total fuel consumption by electric
power plants had dropped from 44 percent in 1975,
despite the plan to raise it.)" During 1976-80 the
energy value of coal used to generate electricity fell by
4 percent on average, but the energy value of Donets
coal, used extensively in Ukrainian power plants, fell
by 20 percent. A drop in the heat value of coal
becomes a drop in the effective capacity of power
plants fired by coal. Ekibastuz coal, which fuels about
30 percent of generating capacity in Kazakhstan and
the Urals, has a high content of rock and debris.
These damage coal-handling equipment, forcing
emergency shutdowns of power plants.
Other factors detracting from the efficiency of elec-
tric power generation capacities have to do with flaws
in the quality and design of new equipment and
components supplied to the sector. Press criticisms of
the quality of equipment are chronic; whether matters
got worse in the latter part of the 1970s is hard to say.
In view of the numerous reported difficulties in
building power plants in that period, it seems likely
26 These data relate to plants subordinate to the Ministry of Electric
Power, which produces 90 percent of all power generated from
fossil fuels.
39
that there were growing delays in bringing up to
capacity the units actually put in place. The Minister
of Electric Power refers to "unfinished construction"
as one main reason for the underutilization of newly
installed capacities. Overall, the value of unfinished
construction in this branch exceeded annual invest-
ment in every year from 1975 to 1981, and by
growing amounts?by 0.4 billion rubles in 1975 and
by 1.8 billion rubles in 1981.
Machinery
Performance
Output in the machinery branch of industry, which
had risen at an average annual rate of 7 percent in
1966-70 and 8 percent in 1971-75, increased by
5 percent per year in 1976-80." Factor productivity
growth sprinted from 1.2 percent annually in 1966-70
to a remarkable 2.8 percent in 1971-75, and then fell
to 0.8 percent in 1976-80. Although growth rates for
both output and productivity in the machinery branch
exceeded those for industry as a whole, their sharp
falloff in 1976-80 contributed substantially to the
deterioration in overall industrial performance since
the branch has a weight of 31.4 percent in the index of
Soviet industrial production.
The slump in growth of machinery in the last half of
the 1970s was associated with a modest decline of
1 percentage point in both capital and labor inputs
and a fall of 2 percentage points in the growth of
productivity. In 1981-82 the growth of production
averaged only 3.6 percent, and productivity growth
continued to slow.
The decline in growth of machinery output in 1976-80
compared with 1971-75 occurred in each of the three
major subbranches?producer durables, consumer du-
rables, and military weapons. Among the subbranches
of the civilian machinery component, the speed of the
James Grant, "Soviet
ng Imports," in US
Congress, Joint Economic Committee, Soviet Economy in a Time
of Change, Washington, D.C., 1979, vol. I, pp. 554-580.
? ? 1 ? ? ?
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decline varied considerably. It was most rapid in
automobiles, agricultural and transportation machin-
ery, electrotechnical machinery, and metallurgical
and mining equipment.
The year 1976 was the turning point for machinery as
a whole and for each of the three major subbranches.
The pattern of falloff was quite diverse among the
individual subbranches of civilian machinery, howev-
er, and even more so among individual products. In a
few subbranches (precision instruments and metallur-
gical and mining machinery and equipment) there was
no decisive turning point. The downturn occurred in
1975 for automobiles and agricultural machinery and
in 1974 for transportation machinery and equipment.
For machine tools, the downturn did not occur until
1979.
In the machinery branch as a whole, after the initial
abrupt decline in growth from 8.4 percent in 1975 to
5.7 percent in 1976, growth remained stable in 1977,
slid to 3.4 percent in 1980, and rebounded a little in
1982. The pattern was diverse among the sub-
branches. Once the growth rate dropped off signifi-
cantly, it failed to recover appreciably in nearly all of
the subbranches.
Factors Influencing Performance
Although percentage growth of resources was smaller
than in 1971-75, the machinery and metalworking
branch continued to be supplied liberally with invest-
ment funds and labor in 1976-80. Total investment
increased by 16.7 billion rubles and amounted to 24.7
percent of total industrial investment (compared with
14.8 billion rubles and 22.1 percent in 1971-75). The
branch's share rose to 25.4 percent in 1981.
A clearly substantial share of investment in the
branch consisted of imported machinery and equip-
ment, although precise data are lacking. The machin-
ery branch as a whole was little touched by the
reallocation of industrial investment in favor of oil
extraction that occurred in 1978-82. Employment
grew at about 2 percent annually, faster than in any
other branch except electric power. Thus, it appears
that the supply of investment funds and workers was
not an important cause of the drop in growth of
production. The press does refer, however, to short-
ages of machine tool operators as a reason for failure
to master new capacities on schedule.
Confidential
The machinery branch was affected more than most
others by the campaign to concentrate investment on
renovating old plants rather than constructing new
ones: the share of renovation in total machinery
investment was 71 percent in 1975 and 80 percent in
1980. The fragmentary data on addition of new plants
reveal a mixed picture. Relative to 1971-75, additions
to capacities were higher for production of excavators,
forge press equipment, tractors, and grain combines
and lower for turbines, transformers, metal-cutting
machine tools, automobiles, and bearings.
The principal raw materials for machinery production
are supplied by the metallurgical industries, mainly in
the form of rolled products. Ores and metals consti-
tute the single largest item of purchased intermediate
products for virtually all subbranches of machinery
and metalworking: in 1972 purchases of ores and
metals made up over half of the total in six of 26 sub-
branches, 30 to 50 percent in seven subbranches, 20 to
29 percent in nine others, and 13 to 19 percent in the
rest. (These figures exclude subbranch purchases of
their own products.)
The rapidly deteriorating performance of the metal-
lurgical industries, particularly the steel industry,
curtailed both the quantity and the quality of output
of the machinery branch. In particular, the domestic
steel industry could not supply the mix and quality of
products that the machinery industries required if
they were to upgrade their own output?a task they
were being pressed as never before to accomplish. The
Soviets were able to hold the growth of machinery
output above 5 percent for a few years through large
imports of rolled steel products of modern vintage,
mostly purchased from the West. Imports proved
insufficient, however, to compensate for declining
domestic output of rolled steel; in 1979-82, shortages
of metal were cited frequently as a cause for failure to
meet machinery output plans.
The productivity of machinery plants also was eroded,
albeit sporadically, by the economy's general prob-
lems with electric power and the distribution of oil
and gas. The machinery and metalworking branch
consumes 11 percent of all the electricity used in
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industry, 13 percent of the oil, and 9 percent of the
gas. Bottlenecks in freight transportation also imped-
ed operations in machinery plants, interfering with
raw material supplies and with shipments of final
products to other machinery producers.
Primarily dependent on metal, the subbranches of
machinery and metalworking also depend on one
another. In particular, nearly all the others are sub-
stantial purchasers from two of the subbranches?
electrotechnical and "other machinery" (mainly cast-
ings, forgings, stampings, and radio and electrical
apparatus). It seems likely that deficiencies in one
subbranch cause shortfalls in others. In particular, the
growth of output slowed especially in 1976-80 in the
electrotechnical subbranch, which is the second- or
third-largest supplier (after metallurgy) for most of
the other subbranches. Growth rates dropped consid-
erably (perhaps in response) for "other machinery,"
the other major supplier.
Productivity in machinery plants suffered from two
other important factors. The first was the appearance
of underused capacities of one kind or another, mainly
because the Soviets were building processing plants
faster than they were expanding production of the raw
materials and other inputs needed to operate them at
capacity. For a variety of reasons, they were also
having trouble bringing new capacities into full
operation.
Moreover, even though overall capacity utilization
rates for machinery have remained high (90 percent or
better), there is evidently a substantial and growiti
amount of idle equipmen
the shift coefficient of use of metalworking
equipment has declined in 11 machinery ministries
since 1975. A common explanation given for idle
equipment is lack of qualified workers. Also, it is
evident that when capacity is underused, for whatever
cause, the workers remain on the payroll, driving
down the figures on labor productivity.
A final factor that probably accounts for some of the
drop in productivity growth in the machinery indus-
tries is the efforts that were supposed to be made to
change product mixes, reduce metal use, and modern-
ize the design of machines?all in order to raise the
efficiency of the industries purchasing machinery for
41
investment and to increase the satisfaction of consum-
ers purchasing durables. A push for better, newer,
more efficient machines was in a sense the centerpiece
in the effort to improve product quality and efficiency
throughout the economy. To permit these changes, the
growth rate planned for machinery in 1976-80 was
cut back from that planned for the preceding five-year
plan, and detailed programs for modernizing the
structure and quality of output were laid on the
responsible ministries.
By way of example, we can cite the machine tool
subbranch, which the Soviets label the "core" of the
entire machinery and metalworking branch because
the quality and efficiency of tools determine the
ability of producers of more complex machines and
machine sets to modernize them and to work more
efficiently. Soviet machine tool production is numeri-
cally the largest in the world, but its structure (and
hence the stock) is antiquated by comparison with that
of the West. The product mix is dominated by simple,
standardized metalcutting tools, whereas Western
production contains much larger shares of metalform-
ing tools (for example, forge-presses). These are much
more flexible to use and waste much less metal. In
1980 the USSR had 20 forge-press machines per 100
machine tools in its park, up from 17 in 1962; in the
United States and Japan the equivalent number was
about 31.
The Soviets have been altering the product mix at a
glacial pace for years. In 1976-80 their output of
metalcutting machine tools finally began to decline,
while output of forge-press machinery rose 13.3 per-
cent. Even so, in 1980 they produced nearly four times
as many of the former as of the latter. The Soviets
also have been trying to master production of modern
numerically controlled machine tools. These made up
0.8 percent of total production in 1970, 2.4 percent in
1975, and 4.1 percent in 1980. Soviet numerically
controlled tools, however, are obsolete and inefficient
by Western standards.
Writing in 1979 in the leading government news-
paper, the Minister of the Machine Tool Industry
criticized the haphazard approach to planning and
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developing the machinery sector. Reciting a litany of
problems, he declared that a "disproportion" had
arisen during 1961-75?the machine tool subbranch
had been expanded "with no consideration" for the
requirements of the rest of machine building and
metalworking or for the machine tool industry's share
in the fixed assets of other machinery branches, thus
slowing down efforts at renovation. Nonetheless, in-
vestment allocations to the machine tool industry in
1979 were cut 25.6 percent from those originally
planned. Output of tools has increased far faster than
the training of workers, so that there are 26 percent
more lathes than lathe operators and 60 percent more
milling machines than machine operators. It has
proved difficult to organize the production of machine
tools in sets (and supplied with auxiliary equipment),
as sought by customers to raise efficiency, because of
the persistent practice of planning and allocating tools
in units. Finally, the product mix of plants producing
machinery for specialized branches of industry, such
as food processing, has been planned without properly
taking into account the customers' requirements.
The stress on changing product mixes and improving
product quality put pressure on the area of greatest
comparative disadvantage for Soviet machinery pro-
ducers. Both goals are likely to disrupt production,
require relatively more labor, and demand upgraded
material inputs from other producers. At the same
time, machinery producers were being required to
implement investment programs involving reconstruc-
tion and reequipment of their physical plant?poten-
tially highly disruptive to smooth production flows.
Both programs took their toll on production and
productivity growth?and the benefits evidently were
disappointing. Despite a plethora of statistics showing
large increases in the share of high-quality products in
total output in machinery ministries, complaints from
users continued unabated, and machinery exports to
the demanding markets of the West (except for ships
and cars built with Western technology) remained
miniscule. Moreover, machinery plants replaced their
own equipment as slowly as before: annual retire-
ments remained at the 2-percent level. Despair over
the sector's progress produced a major party-govern-
ment decree in August 1978 demanding that it mod-
ernize itself with dispatch.
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Chemicals
Performance
The chemicals branch, although it represents only 6.3
percent of SPIOER in terms of its value-added
weight, contributed disproportionately to the slump in
growth of industrial production and productivity in
the second half of the 1970s." The branch grew by 8.6
percent annually in 1971-75 but only 3.6 percent
annually in 1976-80, while combined factor produc-
tivity rose 2.6 percent annually in the first half of the
1970s and declined by 1.1 percent annually in the
second. Production and productivity growth rates
deteriorated further in 1981-82. Growth in capital
stock fell moderately, and growth in labor inputs
slowed substantially. All but one of the subbranches
shared in the large drop in the growth of production,
as shown in table 9.
Although investment allocations to industry as a
whole declined in 1979-80, total investment in the
chemicals branch increased at about the same pace in
1976-80 as in 1971-75. The branch's share in total
state industrial investment therefore increased from
9.2 percent to 10.1 percent. In marked contrast to
most other branches of industry, the chemicals branch
had a relatively small share (about 65 percent) of its
investment allocated to reconstruction and renovation
of existing enterprises. The figure for total new
capacities commissioned in 1976-80 increased over
that for 1971-75 for the production of fertilizers,
sulfuric acid, synthetic resins and plastics, and tires.
In three products where introduction of new capaci-
ties was smaller, unusually large amounts had been
introduced in the previous two five-year periods.
For the branch as a whole, the value of unfinished
construction increased 75 percent in 1971-75 and 51
percent in 1976-80?the worst record in all of indus-
try. In 1980, unfinished construction was nearly
double the value of investment.
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Table 9
Average Annual Growth of Production
in the Chemicals Branch
Percent
Weight
1971-75
1976-80
Total chemicals
100
8.6
3.6
Mineral chemicals
'5
11.7
5.7
Basic chemicals
35
9.4
3.3
Dyes
2
?1.3
1.8
Synthetic resins and
plastics
7
11.2
5.1
Chemical fiber
9
8.9
4.3
Organic and synthetic
chemicals
12
5.9
4.7
Paints and lacquers
6
5.9
?1.7
Rubber products
19
8.4
3.1
Synthetic rubber
5
9.7
5.3
Factors Influencing Performance
The two main causes of the dramatic downturn in the
performance of the high-priority chemicals branch
seem to have been an array of problems relating to
raw materials and extraordinary difficulties in mas-
tering new capacities. Contributing factors were
shortages of raw materials and fuel, irregularity of
gas and electricity supply, and insufficient transport
facilities.
With respect to raw materials inputs, the subbranches
of the chemicals industry are highly interdependent.
Thus, purchases from other chemicals subbranches
make up over half of total external materials pur-
chases in synthetic resins and plastics and in rubber
products. They contribute from one-fifth to over two-
fifths in nearly all the rest. The principal external
sectors providing key raw materials are electric pow-
er, petroleum refining, and coke products.
A large body of press reporting has cited shortages of
raw materials as a critical factor in the drop in growth
rates throughout the industry. The high level of
interdependence among the subbranches assures that
slackened growth in any one of them will quickly
produce a chain reaction. In fact, every subbranch
except synthetic fiber and dyes experienced a large
43
fall in growth rates (3 to 7 percentage points) in 1976.
In most cases, growth rates continued to decline; a
rebound occurred in 1980, only to be reversed in 1981
and 1982.
The raw materials problem is examined in more detail
below for two interdependent subbranches (chemical
fibers and synthetic resins and plastics) and for one
important product (fertilizer).
About half the production of the chemical fiber
branch consists of synthetic fibers, for which the
principal raw materials (intermediate) are synthetic
resins. The synthetic resins subbranch, which ships
20 percent of its gross output to the chemical fiber
subbranch, had a dramatic drop in its growth rate.
The other major product of the chemical fiber sub-
branch is artificial fibers, which use as essential
materials sulfuric acid, caustic soda, and cellulose?
all of which experienced sharply reduced growth in
1976-80. According to many statements in Soviet
publications, the quality of raw materials for both
synthetic and artificial fibers was poor.
Production of synthetic resins and plastics depends
directly on intermediate products obtained primarily
from the organic and synthetic chemicals subbranch
and to a lesser extent from the mineral chemicals and
basic chemicals subbranches. Production of these
intermediates depends, in turn, on coking byproducts
and byproducts obtained from petroleum refining and
gas extraction. The same intermediates are also in
demand by other sectors, yet the output of the
principal subbranch involved?organic and synthetic
products?experienced slower growth.
The raw materials problem has also affected produc-
tion of fertilizer, both phosphate (very important in
raising grain yields) and nitrogen. Phosphate fertiliz-
ers accounted for 26 percent of total production
(measured in nutrient units) in 1976-80. The growth
of production was less than one-fourth of the increase
originally planned for the period. Production was
seriously constrained by insufficient supplies of phos-
phate rock and sulfuric acid. The USSR has large
reserves of phosphates and some sulfur, but output
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currently is obtained from poorer grade sources and at
increasing cost. Phosphates are mined mainly in the
remote Kola Peninsula and in Kazakhstan, where
working conditions are difficult, opening of new mines
is time consuming, and the nutrient content of the ore
has steadily decreased. The increasing cost of mining
sulfur has led the USSR to try to obtain it as a by-
product of natural gas recovery and metal smelting, a
task that has also proved to be time consuming.
The principal raw material for nitrogen fertilizer,
accounting for over 41 percent of total output, is
natural gas, which is required for making the interme-
diate?ammonia. Interruptions in gas supplies have
curtailed production of ammonia, particularly in the
winter of 1978/79. The loss of gas supplies from Iran
also interfered somewhat with ammonia and fertilizer
production in Transcaucasia.
A problem common to all raw materials for fertilizers
is the failure to coordinate the opening of new fertiliz-
er plants with provision of appropriate capacities for
production of intermediates and their raw materials.
Coordination is critical for a sector undergoing rapid
expansion, such as the chemicals branch.
Various subbranches were plagued by shortages of
essential raw materials obtained from branches out-
side the chemicals industry. For example, coke by-
products provide important ingredients for production
of dyes, synthetic rubber, organic and synthetic prod-
ucts, and mineral chemicals; but production of coke
was severely constrained by the decline in coking coal
output after 1976. Decline in output of cellulose after
1978 created problems for producers of chemical
fibers. The fall in production of vegetable oil after
1975, coupled with slow progress in shifting to use of
synthetic raw materials (glycerine, for example) con-
strained production of paints and lacquers, as well as
organic and synthetic products.
Lack of sufficient packaging materials often either
held up shipment of fertilizers or caused large losses
from forced shipment in bulk. Bulk shipments were
held up because of shortages of specialized freight
cars or wasted by the use of ordinary boxcars. Similar
problems were prevalent for consumer-related chemi-
cal products such as detergents.
Confidential
Difficulties in commissioning new facilities and bring-
ing them up to rated capacity were widespread
throughout industry, but seemed to afflict the chemi-
cals branch particularly. One reason, probably, was
the extremely rapid growth of the capital stock. This
growth was faster in the chemicals branch than in any
other during the whole 1960-80 period and was
second only to that in machinery in 1976-80. Another
reason, especially important in the recent period, is
the concerted effort to expand facilities in the eastern
regions or establish new ones there, nearer to newly
expanding sources of energy. A third factor was that
the expansion program used a relatively large share of
foreign technology, which caused particular difficul-
ties in assimilation into the domestic routine."
In 1976-80 the capital stock in the chemicals branch
rose by 9.1 percent annually. During the period, 39.3
million tons of fertilizer capacity (standard units) were
commissioned, raising total capacity by more than
one-third.3? For a variety of reasons?related to raw
materials, labor supply, and equipment?most new
facilities were operating far below capacity. Overall,
the use of fertilizer production capacity declined from
81 percent in 1975 to about 69 percent in 1980,
according to our calculations?an extension of data
compiled by Professor Philip Hanson, a Western
Soviet specialist.
Capacities for producing 1.5 million tons of synthetic
resins and plastics were introduced in 1976-80, ex-
ceeding by more than 50 percent those added in 1971-
75. Much of this new capacity represented construc-
tion of large specialized facilities to produce newer
kinds of products and intermediates; it takes much
longer to master such facilities than smaller ones
using older technologies. Similar considerations apply
to chemical fibers, where new capacity additions also
were large. In both subbranches the rates of capacity
use evidently declined, as it did in fertilizer plants,
and for similar reasons.
" Even with the recent massive buildup of its chemical production
capabilities, the USSR remains a large and growing net importer of
chemicals. In 1980, imports from the West alone totaled $1.6
billion.
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An important factor contributing to underuse of
commissioned capacities for production of final prod-
ucts was a pervasive failure to provide the new
facilities with required sources of raw materials, gas,
electric power supply, and transport. Speaking to a
party plenum about the existence of idle fertilizer
plants, Brezhnev said in November 1979, "It turns
out that there are shortages of raw materials and gas.
What were they thinking about earlier? Why did they
allocate money for the construction of factories, if
they were not sure they could be able to operate? We
are entitled to put these matters before Comrade
Kostandov (Minister of the Chemical Industry) and
the State Planning Committee." Much anecdotal
evidence supports Brezhnev's assertions about the
mismatch between end-product capacities and capaci-
ties for required material inputs. Plant capacity was
also idled by shortages of skilled workers and by high
labor turnover.
Difficulties in commissioning and assimilating capaci-
ties seem to have been most acute in Siberia, where a
great many facilities are being built. This is an effort
to raise the region's share in total chemical output,
which was only about 10 percent in 1980. Projects in a
variety of subbranches were begun there in the 1970s,
and most of them are not yet in operation.
Imports played a large role in the expansion of the
chemicals industry in the 1970s. Purchases of equip-
ment for the industry rose from 2.1 billion rubles in
1971-75 to 7.6 billion rubles in 1976-80, some two-
thirds coming from the West. Purchases of Western
technology contributed perhaps one-fifth or more of
total investment in 1976-80. Western technology has
figured most prominently in the investment programs
for the fertilizer, synthetic resins and plastics, and
synthetic fibers subbranches. There is ample evidence
of Soviet difficulties in coping with an infusion of
foreign technology on such a scale, with fertilizer and
ammonia facilities being leading examples. These
difficulties, reflected in a huge backlog of unfinished
construction, probably explain why imports of chemi-
cal equipment were cut back by more than 30 percent
in 1981.
45
As already noted, the activities of the chemicals
branch are highly energy intensive. In 1972 it used,
for either fuel or raw materials, 13.1 percent of
industrial consumption of gas (in heat-equivalent
units), and in 1980 it used an estimated 15 percent of
industrial consumption of electricity.
Troubles caused by intermittent gas deliveries, espe-
cially after 1978, interfered with production. Chemi-
cal plants also were hampered by irregularities in
electric power supplies, which sometimes shut plants
down partly or completely, damaged equipment, and
spoiled products. Because chemical plants use contin-
uous processes, they are especially vulnerable to dam-
age from fluctuations in voltage. Even brief power
outages can produce serious damage to equipment and
products. Like other branches, the chemical branch
was affected by the overloading of railroad capacities
and shortages of freight cars (especially clean tank
cars) and the consequent delays both in receiving raw
materials and in shipping finished products.
Wood, Pulp, and Paper
Performance
The forest products branch, which had been a drag on
industrial production and productivity growth in the
1960s and early 1970s, became an anchor in the
second half of the 1970s. In 1981-82 the branch's
performance improved considerably but was still well
below that of the first half of the 1970s. The branch
carries 7.7 percent of the value-added weight in
SPIOER. Production actually declined at an average
annual rate of 0.3 percent and productivity at nearly
2 percent per year in 1976-80. (The comparable fig-
ures for 1971-75 were average annual gains of 2.6
percent and 0.5 percent, respectively.) Man-hours
declined throughout the 1970s, but at a slower rate in
the latter half. Capital stock also grew markedly more
slowly in 1976-80, reflecting an absolute decline in
investment and a reduction of the branch's share in
total industrial investment from 4.7 percent to 4.1
percent.
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The forest products branch comprises five sub-
branches, shown below with their relative shares in
1970 value added:
Logging
37
Lumber and woodworking
34
Furniture
15
Pulp and paper
13
Wood chemicals
1
Available data permit calculation of factor productivi-
ty measures for logging, lumber and woodworking
(including furniture), and pulp and paper (table 10).
The results show that the greatly worsened perform-
ance of the branch in 1976-80 reflects swift deteriora-
tion of performance in all three categories, but espe-
cially in the pulp and paper branch. Growth of output
in the woodworking branch would have been much
slower, except for the inclusion of the relatively fast-
growing furniture sector.
Factors Influencing Performance
Problems with the supply and delivery of raw materi-
als evidently were the principal cause of the poor
record of the forest products branch in the last half of
the 1970s. The logging subbranch (in which growth
has been slow for many years) provides the principal
raw material to the lumber and woodworking sub-
branch, and one or the other of these two supplies the
other three. In 1972 the logging subbranch supplied
54 percent of the purchases of the lumber subbranch,
30 percent of those of the pulp and paper subbranch,
and 58 percent for wood chemicals. Within the lum-
ber and woodworking subbranch, the lumber sector
supplied 49 percent of material purchases for the
plants of the woodworking sector and 32 percent of
those for furniture factories. The decline of output in
logging in 1976-80, along with continued net exports
of roundwood, severely limited wood supplies for the
other subbranches.
Although forests cover a third of Soviet territory, 70
percent are located in Siberia and the Far East. The
most accessible forested areas have already been
exploited, and reforestation is being neglected?forc-
ing recourse to new forests, ever more remote and
costly to exploit. A specialist in Gosplan's Economics
Institute said in a press article in 1982 that "in the
past five years" (presumably 1977-81) the Ministry of
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Timber, Pulp and Paper and Wood Processing Indus-
try put into operation only half as many lumbering
areas as had been planned and that the areas aban-
doned exceeded those brought into production by 25
percent. (The ministry manages somewhat over half of
total Soviet logging activity.)
Logging enterprises depend on government forestry
services to preserve and maintain the forests. Govern-
ment expenditures for forestry maintenance, however,
increased only 1.8 percent in real terms during 1976-
80?considerably less than the increase of a little over
4 percent in 1971-75. The logging process itself
suffered from inadequate and unskilled labor, poor
quality of machinery, and perennially slipshod prac-
tices. To meet their plan goals, for example, loggers
often cut oversize trees, damaging their machinery.
Chronic labor shortages, the result of bad working
conditions, have evidently become worse in recent
years.
Transportation problems complicated matters greatly
for the forest products branch. In 1978-79, large
shortfalls in deliveries of wood to pulp and paper
plants resulted from tieups on the railroads, which
handle the vast bulk of shipments. The shortfalls left
most pulp and paper enterprises without reserve
stocks, forcing them to rely almost exclusively on day-
to-day deliveries. The burden on railroads is com-
pounded by the Soviet practice of shipping undressed
logs, a reluctance to float them down rivers even when
this is feasible, and a deliberate decision by Gosplan
to restrict the use of ships for transporting timber. At
the other end, shortages of railroad cars are reported
to have caused such pileups of finished paper, that
mills have had to stop production.
The press has often cited fuel and energy shortages as
reasons for shortfalls in performance in the forest
products branch. Inadequate supplies of gasoline
hamper logging and lumbering. Pulp and paper mills
have experienced temporary shutdowns as a result of
interruptions in electricity supply (because they oper-
ate on continuous flows) as well as damage to machin-
ery and products in process as a result of power
fluctuations.
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Table 10
Average Annual Percentage Rates of Growth
in Three Wood Products Categories
Logging
Lumber and
Woodworking,
Plus Furniture
Pulp and Paper
1971-75
1976-80
1971-75
1976-80
1971-75
1976-80
Output
0.8
?2.2
3.2
0.7
5.0
0.5
Inputs
0.9
0.7
2.7
2.2
3.4
3.3
Productivity
?0.1
?2.9
0.5
?1.5
1.6
?2.7
Productivity in the forest products branch was affect-
ed by the cutback in investment growth and the
manner in which investment was used. The cutback
was accompanied by a large drop in the growth of
domestic production of machinery for the branch, and
imports probably did not increase at all in real terms.
Some three-fourths of new investment was allocated
to reequipping and reconstructing existing enterprises.
In the pulp and paper subbranch in 1976-80, the new
capacities added were less than half those added in
the previous five years.
Press reporting suggests that, despite billions of rubles
of investment, the average age of the capital stock is
rising and much of it is obsolete. Most sawmill
equipment is said to be over 30 years old. One Soviet
press source states that while 4,000 modern sawmills
could handle the timber that is cut each year, the
USSR employs 135,000 one- and two-story gang mills
to do the job. To take the bark from logs, the Soviets
use chain debarkers, which remove a good share of the
wood as well. Spare parts are in short supply; for
example, in 1979 the Soviet press reported that only a
third of the blades required in machines for chipping
wood for paper were supplied, causing frequent idling
of chipping machines. Finally, there is much com-
plaint that new machinery supplied to the logging and
paper sectors is little or no better than the equipment
it replaced?but at double or triple the price.
47
Construction Materials
Performance
The construction materials branch, with eight sub-
branches and 6.5 percent of the SPIOER weight,
contributed to the abrupt falloff in both production
and productivity in industry as a whole during 1976-
80.3' Productivity growth in the branch exceeded the
all-industry average during 1961-75 but fell below it
in 1976-80. Average annual growth of output fell
much more sharply in construction materials?from
5.4 percent in 1971-75 to 1.2 percent in 1976-80--
than in industry as a whole. In 1981-82, production
stagnated and productivity continued to decline.
Available data permit a calculation of factor produc-
tivity for one important subbranch (glass and porce-
lain products?one-eighth of the total branch weight)
and for the other seven branches combined. Produc-
tivity rose in the glass and porcelain sector in 1976-80,
but fell markedly in the rest of the branch. Growth
rates of output were sharply lower in all eight sub-
branches in 1976-80, as table 11 shows. In most
subbranches the falloff began in 1976.
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Table 11
Average Annual Percentage Rates of Growth
of Construction Materials Output
Weight
1971-75
1976-80
Cement
7.8
5.6
0.5
Concrete
27.3
5.8
1.2
Wall materials
18.2
2.3
-1.6
Asbestos cement
1.6
5.8
-1.0
Roofing materials
1.2
5.7
-0.5
Construction ceramics
2.6
4.9
2.2
Other construction
materials
28.7
6.1
1.2
and porcelain
12.6
7.3
4.2
(-Hass
Growth of both employment and the capital stock
declined during 1976-80. Total investment (including
that in glass and porcelain) in 1976-80 was 9.7 billion
rubles, or 4.3 percent of total industrial investment,
whereas the comparable figures were 9.5 billion ru-
bles and 5.5 percent in 1971-75. Essentially un-
changed investment, along with rising investment
costs and continued stress on renovating and reequip-
ping existing plants, led to a large cutback in the
addition of new capacities-in the case of cement,
from almost 21 million tons in 1971-75 to 11 million
tons in 1976-80.
Factors Influencing Performance
Shortages of raw materials and irregular supplies of
fuels and power were the most important causes for
the abrupt slowing of production and productivity
growth in the construction materials branch. The
seven subbranches other than glass and porcelain are
linked by closely intertwined input/output relation-
ships. The key subbranch is cement, which sells over
60 percent of its product to the six other construction
subbranches. Growth of production of cement
dropped from 6.5 percent in 1975 to 1.9 percent in
1976 and continued to fall thereafter. Improving the
quality of cement caused a small part of the slowdown
(it is more costly and difficult to produce high-grade
varieties), but most of it resulted from mounting
difficulties with raw materials and power.
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Quarry materials are the principal ingredient in ce-
ment. In construction, as in other branches, Soviet
investment policy has favored construction of finished
product capacity to the relative neglect of developing
the requisite raw materials. To be economical, cement
plants should be located near a quarry with ample
reserves. The standard is 50 years of reserves in the
United States but only 25 years in the USSR-and
even that rule is often violated in practice. Worse still,
Soviet policy favors construction of plants with capac-
ities of 2 to 3 million tons per year-four times the
size of the average US cement plant. When these
huge plants exhaust the nearby quarries, they must
bring in their heavy, bulky materials from elsewhere,
adding to the railroads' already heavy burden and
making themselves vulnerable to delays in shipments.
In addition, the quality of the quarry products has
been deteriorating as marginal sources are exploited,
and having to prepare the low-quality materials for
use in cement kilns adds to delays and increases costs.
Although industrial byproducts (blast furnace slag,
nonferrous wastes, and fly ash) can be used as raw
materials for cement, their quantity, too, has fallen
off with the drop in growth rates in the metals and
electric power branches.
shortages of chemical additives and serious
problems with supplies of refractories, which are used
to reline rotary kilns to protect them from intense heat
and that have now been placed on a list of "deficit"
products.
Irregularity in deliveries of fuels and power pushed
down cement production and probably hurt other
subbranches as well. Purchases of fuels and electricity
make up nearly one-fourth of the materials purchases
of cement plants, making the industry heavily energy
intensive. At present, gas provides 60 percent of fuel
needs, with coal and oil supplying most of the remain-
der. Limitations of gas storage and distribution net-
works have caused production losses for cement
plants.
More important, however, have been shutdowns
caused by irregularity in the supplies of electricity.
Lack of power stops the grinding of materials, and,
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when heating fails, the kiln must shut down immedi-
ately. Sporadic shutdowns of this kind are particularly
harmful, because they shorten the life of the already
scarce refractory kiln lining, causing more frequent
breakdowns and costly repairs.
Problems with capital equipment also have worsened.
Over half of the cement kilns are over 20 years old,
and many of the huge new ones that the Soviets favor
operate inefficiently and probably never should have
been built. A shift to dry-process technology, in
predominant use in Western countries, has slowed to a
crawl and is beset with technological difficulties. The
amount of repair work has skyrocketed with the aging
of the capital stock and, particularly, the growing
share of huge kilns. Shutdowns for repair (and delays
in repair because of shortages of labor and materials)
have taken their toll on production and efficiency.
he downtime
for large-size kilns has risen 30 to 40 percent since
1974, and that the poor quality of repair work has
made breakdowns and industrial accidents more
frequent.
Snail's pace growth in cement supplies has con-
strained the production of precast concrete: growth
rates for this subbranch dropped almost as steeply as
those for cement. Other limiting factors have been
shortages of steel reinforcing materials and of crushed
stone. The latter problem has caused the concrete
plants of some construction administrations to operate
only one-fifth of the time in recent years.
The inadequate production and poor quality of rock
products is attributed to: past failure to allocate
sufficient investment; a fetish of developing large
deposits, to the neglect of numerous, accessible small
ones; lack of suitable machinery for crushing and
extraction, forcing the use of machinery designed for
coal extraction; and fragmentation of administrative
responsibility for construction materials.
Growing bottlenecks in transportation also have re-
stricted output in the construction materials branch.
Because of irrational location patterns, more materi-
als must be transported longer distances, with large
losses along the way. A Soviet press source states that
one-eighth of all cement produced is lost in the
process of storage and transport. In the case of
49
cement, transport losses have been aggravated by
shortages of special cement cars, and additional losses
occurred because storage space was inadequate. In-
vestment in storage capacities, as in raw materials,
has been slighted in favor of building more and ever
larger kilns.
Light Industry
Performance
Table 12 provides data on the performance of light
industry and its three subbranches during 1966-80.
The branch accounts for 8 percent of the weight in the
industrial production index.
Light industry's performance was consistently poor in
all three subbranches throughout the 1970s, in
marked contrast to its good record in 1966-70. The 25X1
growth of output and productivity in the sewn goods
subbranch was substantially better in the last half of
the 1970s than in the first half, whereas the opposite
was true of the other two. Since there was no overall
deterioration in the performance of the branch in
1976-80, it did not contribute to the worsened per-
formance in industry as a whole. Therefore, this
discussion focuses on the reasons for the branch's
relatively poor record during 1971-80.
In 1981-82, however, the growth of output in light
industry (0.9 percent) dropped well below that of
industry as a whole (2.4 percent). Factor productivity
in light industry declined in those two years.
Factors Influencing Performance
In light industry the growth rate of capital stock was
somewhat higher in 1971-75 than in 1966-70 and then
dropped?from 8.7 percent per year to 6.3 percent.
The decline resulted mainly from a halving of invest-
ment growth (from 36 percent to 17 percent). Never-
theless, the increase in the stock was large-51
percent in 1971-75 and 36 percent in 1976-80. The
textile subbranch accounted for over three-fifths of all
investment in the branch. Newly commissioned capi-
tal assets represented 39 percent of the initial (1970)
value of the stock; those introduced in 1976-80 repre-
sented 35 percent of the 1975 value of the stock.
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Table 12
Performance of the Light Industry Branch
Percent
Output
Inputs
Factor Productivity
1966-70
1971-75
1976-80
1966-70
1971-75
1976-80
1966-70
1971-75
1976-80
Light industry
7.2
2.7
2.7
5.0
2.7
2.4
2.1
0.0
0.3
Textiles
4.8
2.7
1.8
3.6
2.5
2.3
1.2
0.2
-0.5
Sewn goods
12.2
3.5
4.5
6.2
3.3
2.0
6.0
0.2
2.5
Leather, fur, and footwear
5.3
0.6
0.7
4.4
2.5
2.4
0.9
-1.9
-1.4
In contrast to the 1960s, the great bulk of recent
investment in light industry has been directed toward
reconstructing and reequipping existing enterprises
rather than building new ones. The refurbishing share
rose from 40 percent in 1970 to 64 percent in 1975
and 75 percent in 1980-by far the most rapid rise in
all of industry. The inevitable disruptions accompany-
ing such reconstruction likely contributed to the poor
record of the branch in the 1970s. Moreover, the
modified investment pattern and reduced growth was
accompanied by a large reduction in commissionings
of new capacities.
Investment evidently was directed less toward enhanc-
ing capacity than toward improving product quality,
saving labor, reducing other costs, improving plant
layouts and working conditions, and generally mod-
ernizing an aged capital stock. As a consequence,
shortages of capacities per se may have added to the
branch's problems. A number of press sources state
that this was the case, citing specifically a shortage of
spindles as a reason for failure to meet output goals
for cotton cloth. Equipment shortages are a perennial
complaint of managers of plants in the shoe
subbranch.
Most equipment for the branch is now produced in the
Ministry of Light and Food Machinery, set up in
1965. Production doubled during the 1970s, amount-
ing to 766 million rubles in 1980. In addition, a
substantial amount of equipment is imported, princi-
pally textile equipment from Czechoslovakia and East
Germany. Imports have more than doubled in real
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terms since 1970; they accounted for nearly one-
fourth of total branch investment during 1976-80 and
over one-third of that in the textile subbranch.
The press provides a mass of complaints about the
provision of equipment for light industry. The minis-
try responsible seldom meets plans for production;
production and imports together fall short of demand.
The ministry produces no spare parts for old equip-
ment, so plants must make their own. The quality of
new equipment is poor, and its prices (relative to
productivity) are rising. Much of the imported equip-
ment is not state of the art, requires raw materials of
better quality than is available domestically, and
therefore fails to boost productivity. Finally, the low
priority accorded to implementing the branch's invest-
ment projects is cited as a reason for long delays in
their completion.
Difficulties in attracting and retaining a qualified
work force were also evident. Total employment in
light industry rose 4.2 percent in the 1970s-far
below its 28-percent rise in the 1960s. About 80
percent of those employed are women. Average wages
are the lowest among major branches of industry-in
1980, 80 percent of the all-industry average. Roughly
half of all light industry workers are in the sewn goods
subbranch, where wages are about 74 percent of the
all-industry average and where the share of women is
highest. Working conditions in the light industries are
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poor, marked by hazardous machinery, excessive
noise, high temperatures, tension, dust, and multiple
shifts. As a consequence, the labor force is of relative-
ly low quality and labor turnover is high.
It is not clear, however, that these chronic problems
became worse in the 1970s. Shortages of labor were
commonly cited as causes of production shortfalls in
new and expanded enterprises. According to the Min-
ister of Light Industry, in 1976-81, 21 to 22 percent of
all new jobs in his plants were unfilled, as against 18
to 19 percent in industry as a whole. The Soviets are
allocating considerable investment funds to improving
working conditions in the factories, and recent govern-
ment decrees have had a similar aim.
It has proved difficult to assess the contribution of
raw materials availabilities to the reduced perform-
ance of light industry in the 1970s. Except in the case
of flax for linen fabric, quantities of agricultural raw
materials in themselves do not seem to have been a
serious problem. Press accounts complain not so much
about shortages as about the deteriorating quality of
raw materials, particularly cotton. This requires tex-
tile plants to clean the fibers, reducing final output
per ton procured and raising production costs. In the
case of hides to be processed into leather, the press
reported both quantitative shortages and poorer
quality.
An evaluation of these data should take into account
that, in general, the Soviets have been shifting slowly
toward the use of synthetic fiber in cloth and artificial
leather for shoes. With respect to raw materials
purchased from the chemical industry, there were
many allegations of shortages of synthetic fiber and
thread, dyes, plastic materials for shoes, and tannin
for leather.
The Soviets import sizable quantities of raw materials
and semifabricates for the textile industry, notably
wool, yarns and thread, and hides. The volume of
these imports rose steadily during the 1970s, except
for hides, purchases of which declined somewhat.
Imports of synthetic yarn, negligible in 1970, grew
rapidly, with those in 1980 almost double those in
1979. The Soviets export large amounts of cotton
51
fiber. Despite widespread complaints about shortages
of cotton fabrics at retail, cotton exports rose steadily
throughout the 1970s in real terms.
Food Processing
Performance
Although its weight in total value added in industry is
small (9.5 percent), the food branch contributed to the
falloff in both production and productivity growth in
industry in the 1970s, especially in 1976-80. Output
declined in 1976-80 in four subbranches engaged in
processing agricultural products?meat, sugar, vege-
table oil, and fruit and vegetable processing.
The food processing branch comprises 10 sub-
branches. Calculations of input and productivity
measures can be made for four of these, which
together make up 48.1 percent of the branch weight.
The results are given in table 13 along with those for
the branch as a whole. The table shows output data
alone for the six subbranches for which productivity
measures cannot be obtained because of lack of data
on labor and capital. The decline in growth of output
in the 1970s occurred in all subbranches except bread.
During 1976-80, two subbranches?flour and confec-
tionery?improved somewhat, but otherwise perform-
ance deteriorated, sometimes badly.
Three of the four subbranches for which productivity
calculations can be made had worse records during
1976-80 than did the food branch as a whole. (Produc-
tivity in these branches declined by 2.3 percent and in
the six other branches by only 1.3 percent.) The slip in
growth of output between 1971-75 and 1976-80 also
was much greater in the four branches.
Growth of production picked up in 1981-82 to an
average annual rate of 2.4 percent, and the decline in
productivity slowed appreciably. The improved per-
formance resulted in part from better harvests of
fruits and vegetables and continued imports of grain
and sugar.
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Table 113
Performance of the Food Processing Branch
Percent
Output
Inputs
Factor Productivity
1966-70
1971-75
1976-80
1966-70
1971-75
1976-80
1966-70
1971-75
1976-80
Total
5.8
3.9
1.1
4.8
3.6
3.0
1.0
0.3
-1.8
Fish
6.8
7.8
2.3
5.7
4.2
2.9
1.1
3.6
0.7
Meat
6.7
7.3
-0.8
5.4
5.0
3.5
1.2
2.3
-4.3
Dairy
9.8
4.0
1.1
5.9
4.7
3.5
3.9
-0.7
-2.5
Sugar
-1.5
0.4
-0.5
1.6
1.5
2.0
-3.1
-1.1
-2.5
Flour
3.4
0.4
2.0
Bread
1.2
1.8
1.5
Confectionary
4.6
2.3
3.5
Vegetable oil
-0.1
3.5
-5.2
Fruits and vegetables
7.9
6.6
-0.7
Beverages
8.5
2.7
1.7
Factors Influencing Performance
The large decline in production and productivity
growth in 1976-82 had its origin in inadequate sup-
plies of raw materials and a deterioration in their
quality. Raw and auxiliary materials account for over
80 percent of food production costs, and about 70 to
75 percent of raw materials come from agriculture,
directly or indirectly. Agricultural output changed
little in 1976-80; and the first year of the period
followed a disastrous harvest in 1975 that forced
down output and productivity in the food branch in
1976.
To stave off an even worse decline in food processing,
the government greatly increased imports of grain (to
shore up meat production), sugar, and oilseeds. Even
so, output declined in 1976-80 in the meat, sugar, and
vegetable oil subbranches. The fish catch declined in
1976-80, mainly as a consequence of international
restrictions on Soviet access to foreign waters. Re-
duced supplies of raw fruits and vegetables contribut-
ed to the drop in output in fruit and vegetable
processing and to the large drop in growth of produc-
tion of alcoholic beverages.
Compounding the problems with supplies of raw
fall in the sugar content and general condition of
sugar beets, the oil content of sunflower seeds, and the
sugar content of grapes.
While battling raw materials problems, the food
processing branch had to adjust to a dramatic reduc-
tion in the growth of investment in 1976-80-a mere
3 percent more than in 1971-75-and to a campaign
to concentrate new investment on reconstruction and
reequipment of existing plants. This policy, coupled
with the low priority of the branch, produced a large
rise in unfinished construction and a large drop in
additions to new capacities.
Numerous complaints about the domestically pro-
duced equipment provided to the branch suggest that
efficiency was little enhanced by its installation in
either new or old facilities. An industry spokesman
stated in 1979, for example, that 45 to 50 percent of
domestically produced equipment was obsolete when
acquired. The branch also had considerable difficulty
in assimilating imported equipment. Inadequate stor-
age, refrigeration, and transport facilities were often
cited as causes for large losses in both raw materials
and finished products.
materials was
' 1 1 ? .
many of them
a
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Employment expanded slowly in the 1970s, although
a little faster in the second half. Its fairly stable
growth despite wide fluctuations in output suggests
that workers are kept on the payroll regardless of
what is happening to production, with much underem-
ployment. (The press reports large amounts of down-
time due to interruptions in the flow of raw materials).
Labor-hoarding is understandable in a branch whose
wages are the second lowest in all of industry, where
working conditions are often unpleasant, and where
manual labor is prevalent. The food industry has low
prestige as well, which helps to explain statements
that labor shortages were the main cause of the slow
assimilation of new capacities.
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Appendix B
Annual Percentage Growth in Output,
Inputs, and Productivity in
Soviet Industry, 1971-82
1970
Weight
1971
1972
1973
1974
1975
1976
1977
1978
1979 1980
1981
1982a
Total industry
Output
100.0
6.1
5.1
5.7
6.3
6.4
4.0
4.0
3.3
2.1 2.8
2.5
2.2
Inputs
Labor
52.4
2.0
1.1
0.6
2.0
1.7
2.2
1.5
1.7
1.3 1.1
0.9
0.7
Capital
47.6
9.4
9.0
8.3
8.3
8.6
8.8
8.1
7.0
7.9 7.1
7.8
6.9
Total
100.0
5.5
4.8
4.2
4.9
4.9
5.3
4.6
4.2
4.4 3.9
4.1
3.6
Productivity
Labor
4.0
4.0
5.1
4.3
4.7
1.7
2.5
1.6
0.7 1.7
1.6
1.5
Capital
-3.1
-3.6
-2.4
-1.8
-2.0
-4.4
-3.7
-3.5
-5.4 -4.0
-4.9
-4.3
Total
0.6
0.3
1.5
1.3
1.5
-1.2
-0.5
-0.9
-2.2 -1.1
-1.6
-1.3
Ferrous metals
Output
7.2
3.8
3.3
4.0
4.2
4.4
2.7
0.7
2.2
0.0 -0.5
-0.1
-0.9
Inputs
Labor
51.7
0.0
-0.2
-0.4
1.1
0.0
1.4
0.3
-0.2
0.0 0.8
0.7
1.2
Capital
48.3
9.6
6.1
6.5
8.8
7.4
8.4
6.4
6.5
6.8 4.0
7.2
4.1
Total
100.0
4.5
2.8
2.9
4.7
3.5
4.7
3.2
3.0
3.2 2.3
3.8
2.6
Productivity
Labor
3.8
3.6
4.4
3.1
4.5
1.3
0.4
2.5
0.0 -1.3
-0.8
-2.1
Capital
-5.3
-2.6
-2.3
-4.1
-2.8
-5.3
-5.3
-4.0
-6.4 -4.3
-6.8
-4.9
Total
-0.7
0.6
1.1
-0.5
0.9
-1.9
-2.4
-0.7
-3.1 -2.7
-3.7
-3.5
Nonferrous metals
Output
3.9
7.2
5.4
6.1
6.2
4.6
2.9
2.6
2.1
2.4 1.4
1.3
0.8
Inputs
Labor
51.7
0.1
-0.4
-0.2
0.9
0.1
1.3
0.3
-0.2
1.2 1.1
0.2
1.1
Capital
48.3
9.2
9.2
8.5
7.8
9.0
8.8
7.6
7.1
7.9 7.3
7.6
6.7
Total
100.0
4.4
4.1
3.9
4.2
4.3
4.9
3.8
3.3
4.4 4.1
3.7
3.8
Productivity
Labor
7.1
5.9
6.3
5.2
4.5
1.6
2.2
2.2
1.2 0.3
1.0
-0.3
Capital
-1.9
-3.5
-2.2
-1.5
-4.1
-5.5
-4.7
-4.7
-5.2 -5.5
-5.9
-5.5
Total
2.6
1.3
2.1
1.9
0.3
-1.9
-1.2
-1.2
-1.9-2.5
-2.4
-2.8
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Annual Percentage Growth in Output,
Inputs, and Productivity in
Soviet Industry, 1971-82 (continued)
1970
Weight
1971
1972
1973
1974
1975
1976
1977
1978
1979 1980
1981
1982 a
Fuels
Output
9.8
4.7
4.8
4.9
4.9
5.8
3.7
4.2
3.2
2.9 1.8
1.5
2.1
Inputs
Labor
57.0
-0.6
-3.6
-2.2
-0.5
0.2
-1.3
-3.1
2.8
1.3 1.3
1.9
1.9
Capital
43.0
8.8
7.2
6.4
7.9
8.3
7.6
8.3
6.3
8.5 8.5
9.2
8.4
Total
100.0
3.3
1.2
1.4
3.0
3.6
2.4
1.6
4.3
4.4 4.4
5.0
4.6
Productivity
Labor
5.3
8.1
7.3
5.4
5.6
5.1
7.6
0.4
1.5 0.4
-0.4
0.2
Capital
-3.7
-2.3
-1.4
-2.8
-2.3
-3.6
-3.8
-3.0
-5.2 -6.2
-7.0
-5.8
Total
1.4
3.5
3.4
1.8
2.1
1.3
2.5
-1.1
-1.4 -2.5
-3.3
- 2.4
Electric power
Output
6.8
8.1
7.1
6.8
6.7
6.6
6.9
3.6
4.7
2.9 4.5
2.5
3.0
Inputs
Labor
39.0
2.3
0.3
0.2
2.0
2.7
1.6
2.2
2.3
3.0 2.4
1.5
2.3
Capital
61.0
10.0
8.0
8.2
6.8
6.4
6.7
6.4
5.3
6.3 5.9
6.1
5.3
Total
100.0
6.9
4.9
5.0
4.9
4.9
4.7
4.7
4.1
5.0 4.5
4.3
4.1
Productivity
Labor
5.7
6.8
6.5
4.6
3.8
5.2
1.4
2.3
-0.1 2.1
0.9
0.7
Capital
-1.7
-0.8
-1.4
-0.2
0.2
0.2
-2.7
-0.6
-3.2 -1.4
-3.4
-2.1
Total
1.1
2.1
1.6
1.7
1.6
2.1
-1.1
0.9
-2.0 0.0
-1.7
-1.0
Machinery
Output
31.4
8.2
7.3
8.0
8.1
8.4
5.7
5.7
5.0
4.3 4.1
3.4
3.8
Inputs
Labor
69.9
3.4
2.3
2.0
3.3
3.1
1.9
2.1
2.2
2.0 1.0
0.9
0.5
Capital
30.1
12.6
10.0
10.0
9.9
10.5
9.5
11.2
8.9
9.7 8.5
9.1
7.9
Total
100.0
6.1
4.6
4.3
5.2
5.3
4.1
4.7
4.2
4.3 3.2
3.3
2.7
Productivity
Labor
4.6
4.8
5.9
4.7
5.2
3.8
3.6
2.7
2.2 3.0
2.5
3.3
Capital
-3.9
-2.5
-1.8
-1.6
-1.9
-3.4
-4.9
-3.6
-4.9 -4.0
-5.2
-3.8
Total
2.0
2.5
3.5
2.8
3.0
1.5
1.0
0.8
0.0 0.9
0.1
1.1
Chemicals
Output
6.3
8.1
6.7
9.0
9.5
9.7
4.8
5.2
3.6
-0.2 4.7
4.0
1.6
Inputs
Labor
55.3
2.3
1.0
2.0
2.7
2.8
1.6
1.3
0.4
2.3 1.2
1.1
1.3
Capital
44.7
14.1
10.1
8.8
10.3
9.7
8.8
8.9
6.4
9.4 11.9
9.4
8.1
Total
100.0
7.4
5.0
5.0
6.0
5.8
4.8
4.7
3.0
5.4 5.9
4.7
4.3
Productivity
Labor
5.7
5.6
6.9
6.6
6.7
3.2
3.9
3.2
-2.5 3.5
2.9
0.3
Capital
-5.3
-3.1
0.2
-0.7
0.0
-3.7
-3.4
-2.7
-8.8 -6.4
-5.0
-6.0
Total
0.6
1.6
3.9
3.3
3.7
0.0
0.5
0.5
-5.3 -1.1
-0.7
-2.6
Confidential 56
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Approved For Release 2008/07/09: CIA-RDP85M00364R001001580064-0
Confidential
Annual Percentage Growth in Output,
Inputs, and Productivity in
Soviet Industry, 1971-82 (continued)
1970
Weight
1971
1972
1973
1974
1975
1976
1977
1978
1979 1980
1981
1982 a
Wood, pulp, and paper
Output
7.7
2.8
2.0
2.7
1.8
3.6
-0.1
0.3
-0.4
-2.9 1.7
2.3
1.4
Inputs
Labor
69.5
-0.2
-1.2
-1.0
-0.2
-0.3
-0.3
-0.2
-0.6
0.0 -0.7
0.8
0.0
Capital
30.5
9.5
7.1
8.8
8.1
8.1
6.4
7.1
6.6
6.7 5.8
7.2
5.1
Total
100.0
2.7
1.3
1.9
2.3
2.2
1.7
1.9
1.5
2.0 1.3
2.7
1.5
Productivity
Labor
3.0
3.2
3.7
2.0
3.9
0.3
0.6
0.2
-2.9 2.3
1.5
1.4
Capital
-6.1
-4.8
-5.6
-5.8
-4.1
-6.0
-6.3
-6.5
-9.0 -3.9
-4.6
-3.6
Total
0.1
0.7
0.8
-0.5
1.4
-1.7
-1.6
-1.9
-4.8 0.4
-0.4
0.2
Construction materials
Output
6.5
6.5
5.1
6.1
4.8
4.6
3.7
3.1
3.3
-4.6 0.5
1.4
-1.4
Inputs
Labor
66.5
2.6
0.8
0.3
1.7
1.4
1.3
0.3
1.1
0.8 0.6
-0.2
0.0
Capital
33.5
11.6
9.0
11.5
9.1
7.3
8.3
7.2
7.6
6.6 5.1
5.6
5.0
Total
100.0
5.5
3.5
3.9
4.1
3.4
3.6
2.6
3.2
2.7 2.1
1.7
1.6
Productivity
Labor
3.8
4.3
5.8
3.1
3.2
2.4
2.8
2.1
-5.3 -0.1
1.6
-1.4
Capital
-4.6
-3.6
-4.8
-4.0
-2.5
-4.2
-3.8
-4.0
-10.5 -4.4
-4.0
-6.1
Total
0.9
1.6
2.1
0.6
1.2
0.1
0.5
0.0
-7.1 -1.6
-0.3
-3.0
Light industry
Output
8.0
4.5
0.7
2.8
2.6
2.9
4.1
2.5
2.6
1.8 2.3
1.9
-0.1
Inputs
Labor
68.3
1.0
-1.1
-0.3
0.9
-0.2
2.4
0.4
-0.2
-0.1 0.6
-0.1
-0.9
Capital
31.7
10.5
7.8
9.6
8.8
6.7
5.7
7.1
6.1
7.3 5.4
6.5
6.5
Total
100.0
3.9
1.6
2.7
3.3
2.0
3.4
2.5
1.8
2.2 2.1
1.9
1.4
Productivity
Labor
3.5
1.9
3.2
1.7
3.0
1.7
2.2
2.8
1.8 1.7
2.0
0.8
Capital
-5.4
-6.5
-6.2
-5.6
-3.6
-1.4
-4.3
-3.3
-5.2 -2.9
-4.3
-6.2
Total
0.6
-0.9
0.1
-0.7
0.9
0.7
0.1
0.8
-0.4 0.2
0.0
-1.5
Food processing
Output
9.5
2.5
3.3
0.8
7.9
5.2
-1.2
4.0
-1.1
3.1 0.7
1.9
2.8
Inputs
Labor
53.8
1.2
0.4
-0.2
1.7
0.4
0.5
1.5
-0.1
0.7 0.7
0.6
0.3
Capital
46.2
5.0
7.2
7.1
8.8
7.3
6.8
6.4
5.0
5.1 5.4
6.2
5.3
Total
100.0
2.9
3.5
3.1
4.9
3.5
3.3
3.7
2.2
2.7 2.9
3.2
2.6
Productivity
Labor
1.3
2.8
0.9
6.1
4.7
-1.6
2.5
-1.0
2.4 0.0
1.3
2.5
Capital
-2.4
-3.7
-6.0
-0.7
-1.9
-7.4
-2.2
-5.8
-1.9 -4.5
-4.0
-2.4
Total
-0.4
-0.2
-2.3
2.9
1.6
-4.4
0.3
-3.2
0.4 -2.1
-1.2
0.2
a Preliminary.
57
Confidential
Approved For Release 2008/07/09: CIA-RDP85M00364R001001580064-0
Confidential
Confidential
Approved For Release 2008/07/09: CIA-RDP85M00364R001001580064-0
Approved For Release 2008/07/09: CIA-RDP85M00364R001001580064-0