GROSS FIXED CAPITAL IN THE USSR 1940-55

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01046A000500110001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 54
• Document Creation Date: November 9, 2016
• Document Release Date: December 2, 1998
• Sequence Number: 1
• Publication Date: December 20, 1957
• Content Type: REPORT

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%~ %..,0 INT I UP C. 01440140" N? 74
RESEARCH AID
GROSS FIXED CAPITAL IN THE USSR
1940-55
CIA/RR RA-22
20 December 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
%-0 w
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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C-0-N-F-I-D-E-N-T-I-A-L
RESEARCH AID
GROSS FIXED CAPITAL IN THE USSR
1940-55
CIA/RR RA-22
(ORR Project 32.1104)
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FOREWORD
The major objectives of this research aid are to develop estimates
of total Soviet gross fixed capital, to determine some of its major
components, and to analyze its growth and structure during 19)+0-55.
Estimates of total gross fixed capital are important in the study of
Soviet capabilities for production of capital goods and of economic
growth. The estimates developed in this research aid are by no means
complete. For reasons stated in the text, these estimates cover in
detail neither the nonindustrial sectors of the Soviet economy nor the
years before 1940. They do cover, however, the total Soviet economy
and some important branches of it. This research aid, therefore, is
a partial foundation for analysis of Soviet growth and of total gross
fixed capital in the nonindustrial sectors.
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CONTENTS
Page
Summary and Conclusions . . . . . . . . . . . . . . . 1
I. Introduction . . . . . . . . . . . . . . . . . .
II. Accounting Practice . . . . . . . . . . . . . . .
A. Fixed Capital . . . . . . . . . . . . . . . . 5
B. Depreciation of Fixed Capital . . . . . . . . 7
C. Repair . . . . . . . . . . . . . . . . . . . 9
III. Size . . . . . . . . . . . . . . . . . . . . . 10
IV. Structure . . . . . . . . . . . . . . . . . . . . 13
V. Prospects for Future Growth . . . . . . . . . . . 17
Appendixes
Appendix A. Glossary . . . . . . . . . . . . . . . . 21
Appendix B. Methodology . . . . . . . . . . . . . . 25
Appendix C. Gaps in Intelligence . . . . . . . . . . 45
Appendix D. Source References . . . . . . . . . . . 47
Tables
1. Total Gross Fixed Capital of the Socialist Sector
in the USSR, According to Alternative Sources,
Selected Years, 1928-1+0 . . . . . . . . . . . . 10
2. Total Gross Fixed Capital and Major Components
in the USSR, in Rubles, 191+0-55 . . . . . . . . 12
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Page
3. Distribution of Total Gross Fixed Capital in the
USSR, in Percentages, 1940 and 1946-55 . . . . . 14
4. Index of Gross Fixed Capital in the USSR, Selec-
ted Years, 1940-55 . . . . . . . . . . . . . . . 14
5. Distribution of Gross Industrial Productive Fixed
Capital in the USSR, by Branch of Industry,
Selected Years, 1940-54 . . . . . . . . . . . . 16
6. Distribution of Gross Industrial Productive Fixed
Capital in the USSR, by Type of Fixed Capital,
Selected Years, 1940-54 . . . . . . . . . . . . 17
7. Index of Gross Industrial Productive Fixed Capital
in the USSR, by Branch of Industry, 1950 and
1954 ...................... 18
8. Total Gross Fixed Capital Investment in the USSR,
1918-55 . . . . . . . . . . . . . . . . . . . . 27
Data for Comparison of Magnitudes of Alternative
Total Gross Fixed Capital Series with Total
Gross Investment in Fixed Capital in the USSR,
1928-40 . . . . . . . . . . . . . . . . . . . . 28
10. Price Index for Total Gross Investment in Fixed
Capital in the USSR, 1925-55 . . . . . . . . . . 29
11. Data for Computation of Total Gross Fixed Capital
in the USSR, 1940-55 . . . . . . . . . . . . .
12. Annual Depreciation Rates for Gross Fixed Capital
in the USSR . . . . . . . . . . . . . . . . . . 37
13. Index of Gross Industrial Productive Fixed Capital
in the USSR, Selected Years, 1940-55 . . . . . . 40
14. Data for Computation of Gross Industrial Produc-
tive Fixed Capital in the USSR, 1940 and
1946-55 . . . . . . . . . . . . . . . . . . . . 42
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CIA/RR RA-22 C-O-N-F-I-D-E-N-T-I-A-L
(ORR Project 32.1104)
GROSS FIXED CAPI'T'AL IN THE USSR*
1940-55
Summary and Conclusions
Total gross fixed capital** in the USSR increased from 773 billion
1955 rubles*** in 1940 to 951 billion rubles in 1950 and 1,453 billion
rubles in 1955, showing a steadily increasing average annual rate of
growth since 1944.**** Productive fixed capitalt increased by 34 per-
cent during 1940-50, and its share of the total increased from 58 to
63 percent in the same period. By 1955, productive fixed capital
amounted to approximately 67 percent of the total.
Since 1940 the fastest growing sector of the economy has been the
industrial sector. In 1955, industrial productive fixed capital was
171 percent greater than in 1940, fixed capital in agriculture 94 per-
cent greater, and fixed capital in transportation and communications
56 percent greater. Industrial productive fixed capital, which amounted
to 29 percent of total fixed capital in 1940, increased to 37 percent
* The estimates and conclusions contained in this research aid
represent the best judgment of ORR as of 15 September 1957?
** Fixed capital, or basic funds (osnovnyye sredstva), is the stock
of durable physical instruments of production used for more than one
accounting period. The term fixed capital as used in this research aid
refers to gross fixed capital unless otherwise indicated. For a more
detailed discussion of fixed capital and for definitions of other terms
used in this research aid, see the glossary, Appendix A.
*** Ruble values are given in terms of 1 July 1955 rubles throughout
this research aid unless otherwise indicated. Ruble values may be con-
verted to 1955 US dollars by a ruble-dollar ratio of 4 to 1.
**** The periods for which average annual rates of growth are given
are from year end to year end, inclusive -- for example, 1942-45 for a
period of average annual rate of growth means from the end of 1942 to
the end of 1945. This measurement does not hold true, however, for
any other dates given in this research aid -- for example, except in
cases of average annual rates of growth, 1942-45 means from the begin-
ning of 1942 to the end of 1945.
t For a discussion of types of fixed capital, see II, p. 5, below.
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in 1950 and 42 percent in 1955. Productive fixed capital outside in-
dustry, which also amounted to about 29 percent of total-fixed capital
in 1940, has retained a relatively-stable share -- about 25 to 26 per-
cent -- since 1950. In 1954, machine building and metalworking was the
largest branch of industry, with 25 percent of the industrial fixed
capital. The next two branches in size were electric power (11 percent)
and ferrous metallurgy (9 percent).
During 1950-54, all industrial productive fixed capital increased
by 54 percent. Fixed capital in individual branches of industry in-
creased-as follows: building materials 92 percent; electric power 88
percent; petroleum 80 percent; coal 76 percent;-ferrous metallurgy,
chemicals, and light industry 54 percent; machine building 37 percent;
and food processing 37 percent.
The Sixth Five Year Plan (1956-60) places considerable emphasis on
the replacement of obsolete equipment in industry. The official recog-
nition of obsolescence is something of a departure from the past. Much
of the equipment which will be retired by 1965 was installed during
World War II, when investments* were abnormally low. Therefore, it
will be possible until about 1965 for the USSR to maintain the growth
of its total fixed capital while replacing some of its existing obsolete
assets. It is likely that after 1965 a continuous, widespread program
of modernization will be a deterrent to the growth of total fixed capi-
tal.
1. Introduction.
Fixed capital is distinguished from working capital by the tendency
of fixed capital to retain its form during numerous accounting periods
and by the special accounting_problems which result from its durability.
The most crucial problem in fixed capital accounting is the determi-
nation of the original value of items of fixed capital and of the por-
tion of an item of fixed capital that is used up during a given account-
ing period.
* The term investment as used in this research aid refers only to in-
vestments in fixed capital.
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C-O-N-F-I-D-E-N-T-I-A-L
Fixed capital derives its value from its ability to generate income.
Therefore, the theoretically correct valuation of fixed capital is the
present (discounted) value of the future net incomes which it will pro-
duce. It is extremely difficult to value fixed capital practically on
the basis of capitalization of income. A number of alternative measures
have been used to approximate the value of fixed capital. Some of these
measures are based on current market price, on cost of reproduction, and
on original cost. For some purposes, one of these alternative measures
may be preferable to the capitalization method of valuation. For example,
in studies of long-run economic growth, estimates of undepreciated fixed
capital measured in terms of costs of reproduction in constant prices
may give the best approximation of an index of productive capacity. The
reasons for this position will be elaborated below after the discussion
of depreciation.
The portion of an item of fixed capital used up during a given acr
counting period may be approximated. The amount of decline in the value
of fixed capital during a given period is termed depreciation. The
theoretically correct determination of depreciation follows from the
correct valuation of the fixed capital at a given point in time.
It was stated above that the theoretically correct valuation of
fixed capital is the discounted value of the future net incomes which
the fixed capital will produce. At the start of operation of an item
of fixed capital, this valuation will be equal to all of the discounted
net incomes which the item produces throughout its service life. At a
subsequent point in time the valuation will refer to the sum of dis-
counted net incomes which the item of fixed capital will produce in its
remaining service life. The correct depreciation between two points
of time then will equal the valuation of the fixed capital at the first
point less its valuation at the second point.
It is impossible to compute precisely the depreciation in a given
period, because it is impossible to determine precisely the correct
valuation of fixed capital at a point of time. Some of the various
approximate measures of depreciation used in actual accounting prac-
tice are the straight-line method, the declining-balance method, and
the annuity method.
The straight-line method is probably the most widely used deprecia-
tion method. It is the simplest method to apply, although it may be
somewhat less accurate than alternative methods. The basic assumption
in the straight-line method is that depreciation is divided equally
among the years of service life of fixed capital.
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The other methods of depreciation imply changing annual deprecia-
tion charges against fixed capital. Some methods indicate a declining
amount of depreciation in each subsequent year -- for example, the de-
clining-balance method. Others indicate an increasing amount -- for
example, the annuity method.
It was stated above that a fixed capital series in constant prices
may give the best approximation of an index of productive capacity.
The productive capacity of any-factor of production may be defined as
the maximum annual production which the factor will yield in combina-
tion with stated quantities of other factors. The productive capacity
of fixed capital, therefore, is properly measured by the production
which it will yield in each year. It is customary, however, to measure
fixed capital by its total value.
Problems requiring measurement of net income or the valuation of
productive services remaining in a stock of fixed capital may besolved
by the use of estimates of depreciated fixed capital.
The use of estimates of fixed capital to measure growth of capacity
is valid if the productive services rendered in each year by a given
stock of fixed capital are approximately equal. In the absence of ac-
curate knowledge, it is assumed for this research aid that capital re-
pair offsets depreciation sufficiently for estimates of gross fixed
capital to be used.
A-major weakness of the estimates presented in this research aid
is a failure to take account of the obsolescence of fixed capital.
In a dynamic economy, obsolescence becomes a major problem. In the US,
business and government authorities recognize obsolescenceas a con-
tinuing process. The US Internal Revenue Service allows business firms
to set their depreciation rates sufficiently high to cover "normal"
obsolescence. In the USSR, however, until recently, the officials have
refused to recognize the existence of obsolescence in a socialist econ-
omy-
It is impossible in this research aid to make adequate adjustment
for obsolescence in estimates of the fixed capital for the USSR. Some
of the implications of obsolescence, however, should be mentioned. Ob-
solescence may occur as a result of shifts either in supply conditions
or in the demand structure in a given market or economy. Supply con-
ditions may shift because of changes in natural (including human) re-
sources or technical changes; the demand structure may shift because
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.of changing tastes. Undoubtedly, the most important cause of obsoles-
cence of fixed capital has been technical innovations. Many of these
innovations have resulted from shortages of labor and high costs of
labor.
The usefulness of estimates of fixed capital as a direct measure
of productive capacity depends on the constancy of the capital-capacity
ratio.* In a dynamic economy the over-all capital-capacity ratio may
remain constant, may increase, or may decline. Changes in this over-
all ratio may result from technological changes in individual branches
of the economy or from different rates of growth in branches of the
economy which exhibit different capital-capacity ratios. The useful-
ness of estimates of fixed capital increases if estimates are available
for significant sectors and branches of the economy.
In the special case of the USSR it is assumed that the output-capac-
ity ratio is relatively stable.** Therefore, historical estimates of
fixed capital add little or nothing to our knowledge of historical pro-
ductive capacity if an adequate output series is available. Output and
capital series, however, combined with data on other factors of produc-
tion, may be employed in projections of output or capacity for future
years.
II. Accounting Practice.
A. Fixed Capital.
An arbitrary division is made between fixed and working capital
in Soviet accounting practice. In practice, Soviet accounts include
in fixed capital (1) those objects which have a useful life of 1 year
or more, regardless of their values, and (2) individual items of fixed
This discussion is in terms of capital-capacity ratios rather than
capital-output ratios because the latter fluctuate with changes in the
degree of use of capital. The concept of capacity is itself somewhat
elusive. Capacity must be defined rigidly if the use of capital-capa-
city ratios is to be significant.
X This statement refers to the absence of sharp cyclical or random
shifts in the output-capacity ratio but is not meant to imply that there
is no gradual increase in the ratio because of more efficient use of
fixed capital. Changes of the former type reflect influences other
than changes in productivity.
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capital valued at 300 rubles'per unit,* J** or more, regardless of
their useful lives (until 1951, the limit was 200 rubles per unit). The
classification of fixed capital according to-function is not uniform
among the various sectors and branches of the Soviet economy. The
greatest intrasectoraluniformity is found within the industrial sec-
tor, where many branches use the following grouping J:
1. Productive Fixed Capital.
a. Buildings (shops, offices, warehouses, and the like).
b. Other structures.
c. Power machinery.
d. Production machinery.
e. Transmission installations (power lines, pipelines,
and the like).
f. Mobile transportation facilities (locomotives, rolling
stock, trucks, and the like).
g. -Tools and attachments.
h. Housekeeping inventory.
i. Reserve fixed capital (including only composite machines
and the like). Items such as individual machine parts
for repair are considered working capital.
2. Nonproductive Fixed Capital.
a. Housing (including hotels, dormitories, and the like).
b. Buildings for cultural and communal purposes (schools,
hospitals, municipal and trading enterprises, and the
like).
c. Equipment and other items required for cultural and
communal purposes.
* There are two important exceptions to the minimum-value rule. The
first is that agricultural machines and implements; adult working, beef,
and dairy cattle; and adult poultry are part of fixed capital regardless
of unit value. The second is that since January 195+ the Ministry of
Trade (Ministerstvo Torgovli), the Central Union of Consumer Coopera-
tives (Tsentral'nyy Soyuz Potrebitel'skoy Kooperatsii -- Tsentrosoyuz),
and other unspecified ministries and agencies have been allowed to
carry on the working capital accounts equipment valued at not more than
500 rubles per unit.
** For serially numbered source references, see Appendix D.
-6--
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Most of the categories of fixed capital listed above are used
also in the various nonindustrial sectors of the economy. Additional
categories which are peculiar to some of the nonindustrial sectors are
as follows:
1. Agricultural machines, implements, and farming inventory.
2. Adult draft and dairy animals, and animals bred for
meat, hides, wool, and the like (excluding those being
fattened for slaughter).
3. Long-term planting (orchards, vineyards, certain medic-
inal and technical crops, parks, and the like).
4. Investments made to exploit the subsoil for land
betterment, drainage, and irrigation projects.
Some items are counted in fixed capital upon formal acceptance
by the purchasing enterprise. They are completed new buildings and
other structures, installed new equipment, and completed alterations
to fixed capital which increase its value. Equipment not requiring
installation, tools, equipment assigned to the reserve, and adult ani-
mals are counted upon their receipt at the enterprise. Investments in
long-term planting; improvements in plots of land, subsoil workings,
forests, and water parcels; and geological exploration directly con-
nected with a construction project are counted at the end of the year
during which the investments were made.
Fixed capital is carried in the USSR at full original cost.
For assets acquired by an enterprise from a contracting supplier, the
valuation is the actual expenditure including the cost of delivery and
installation. Fixed capital made by an enterprise for its own use is
valued at its actual cost of production. Fixed capital received free
of charge from another enterprise is carried by the receiving enterprise
at the same value at which the transferring enterprise carried it. J
B. Depreciation of Fixed Capital.
Because fixed capital, by definition, is used during several
accounting periods, an estimate of the value of fixed capital which
is used up during a given accounting period (depreciation charge) must
be included by an enterprise in the cost of operations for the period.
Depreciation charges for fixed capital in the USSR generally cover both
capital repairs and complete replacement. No allowance is made for
obsolescence. J
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The following depreciation formula, used in most sectors of
the Soviet economy, is based on the straight-line depreciation method:
N = 100 (P+R 0)
PL
where N = the annual rate of depreciation,
in percent;
P = the full original cost of the
average fixed capital during
the year;
R = the projected cost of all capi-
tal repairs throughout the ser-
vice life of the fixed capital;
0 = the estimated salvage value of
the fixed capital at the end of
the service life; and
The depreciation charge is computed as a percentage of the average
value of the fixed capital for the year. The value of both new and re-
tired fixed capital is prorated according to the portion of the year dur-
ing which the respective fixed capital operates. Y/
Depreciation charges are not made for all fixed capital in the
Soviet economy. The categories for which no charges are made are the
following:
1. Fixed capital held in reserve or storage ?/;
2. Fixed capital of organizations financed entirely from
the state or local budgets /;
3. Fixed capital of kolkhozes 10 ;- and
4+. Adult farm animals before the time they are worked. 11
Historically, depreciation practice in the USSR has developed
in three distinct stages. Before 1930 there were no national regula-
tions setting rates for the various branches of the economy.
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In June 1930 the Supreme Council of the National Economy (Vys-
shiy Sovet Narodnogo Khozyaystva -- VSNKh), USSR, established by decree
depreciation rates for the various branches of the economy. Individual
rates were set for several classes of fixed capital. Moreover, the in-
tensity of use of fixed capital was considered. 12
In January 1938, new depreciation rates were decreed by the
Council of Peoples Commissars (Sovet Narodnykh Komissarov -- SNK),
USSR. SNK was the successor to VSNKh in terms of the right to fix
depreciation rates. These rates were established for various peoples
commissariats but were not differentiated by branch of economy or by
class of fixed capital. For the first time, SNK specified for each
peoples commissariat percentages of the depreciation charges which
were to be allocated for capital repair. i2/
Some changes have been made in depreciation rates since 1949.
No comprehensive data about the new rates, however, are available. It
is likely that for most sectors current rates do not differ greatly
from those in use before World War II. 14+
The depreciation charges of an individual enterprise in the
USSR may be passed on to other enterprises. That part of the charges
which represents the depreciation of the original investment in an
asset is allocated in full to the financing of the enterprise if the
charge does not exceed the limit of investment set for the enterprise.
If that part of the charge exceeds the limit of investment for the
enterprise, the excess amount is transferred to the organization at
the next higher level for distribution to other enterprises. 11 A
similar procedure governs the use of that part of depreciation charges
allocated to capital repair.
C. ReZair.
1. Current.
Repairs other than capital repair are sometimes grouped
together as current repair. Such repair is on a smaller scale than
capital repair and has as its objective the maintenance of fixed capi-
tal in operating condition. Under current repair would be included
such activities as regulation of equipment and repairs to prevent break-
downs. 16
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2. Capital.
Before 1938, capital repair was treated in Soviet accounting
as part of investment. Capital repair is now a distinct category not
included in plans for investment. _L1
Capital repair is financed generally from depreciation
charges. For those enterprises financed entirely from the state or
local budgets, the budget itself is the source of funds for capital
repair. Profits of the national economy were a supplementary source
of-financing capital repair in at least 1940 and 1949. 18 Since 1938
a definite percentage of the depreciation charges-for each peoples
commissariat and subsequently for each ministry has been allocated to
capital repair.
Fixed capital in the USSR is carried on the books at the
full original cost. Expenditures for capital repair are treated as
an offset to depreciation. These expenditures do not affect the fixed
capital account but only the depreciation account. J
Soviet publications contain some information about the size and
composition of fixed capital in the USSR during the plan years, 1928-40.
Data showing the total fixed capital of the socialist sector in the
USSR in several key prewar years are shown in Table 1.
Total Gross Fixed Capital of the Socialist Sector
in the USSR, According to Alternative Sources J
Selected Years, 1928-40
Year of
Ruble Value
1928
1932
1937
19)40
1933 J
51.0
91.7
192.1
N.A.
1945 J
140.0
285.0
564.0
709.0
a. All values refer to fixed capital existing at
the ends of the years.
b. 20
c. 21
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Differences between the two series in Table 1 should be reconcil-
able on the basis of price changes and, perhaps, adjustments in the
coverage of the data. An attempted reconciliation* indicates that the
fixed capital series in 1933 prices is reasonably consistent with pre-
war investment data but not with the postwar investment data and the
official indexes of growth of fixed capital since 1940. The fixed
capital series in 1945 prices, however, agrees with the postwar data
but not with the prewar data on investment.**
In the absence of postwar data on fixed capital in terms of value,
the 709.0,billion rubles for 1940 shown in Table l' has been used as a
base for estimating the total fixed capital in the USSR during 1940-55-
The method* is to add the estimated gross additions of fixed capital in a
given year to the fixed capital existing at the beginning of the year
and to deduct the estimated retirements and losses of fixed capital
during the wartime years 1941-42. The resulting estimate of fixed cap-
ital at the end of a given year then becomes the base for estimating
the fixed capital existing at the end of the following year. The esti-
mates are shown in Table 2.****
The estimates shown in Table 2 indicate that total fixed capital
in the USSR declined during the German invasion of 1941-42 to about
75 percent of the 1940 total of 773 billion rubles. In the 13 years
from 1943 to the end of the Fifth Five Year Plan (1951-55), total fixed
capital increased by about 135 percent.
Since 1944 the annual rate of growth of fixed capital has been
rising steadily. Estimated average annual rates for three signifi-
cant periods are as follows:
Years
Average Annual Rate of Growth
(Percent)
1942-45
5.5
1945-50
6.8
1950-55
8.9
* For detailed methodology, see Appendix B.
** Because inconsistencies in the prewar data prevent the development
of a continuous series for 1928-55, the following analysis deals only
with the estimates for 1940-55.
* P. 10, above.
**** Table 2 follows on p. 12.
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Total Gross Fixed Capital and Major Components
in the USSR, in Rubles
1940-55
Billion 1 July 1955 Rubles
Non- Non-
Year ,~
Industrial J industrial Total J productive =/ Total
1940 223 222 445
1941 N.A. N.A. N.A.
1942 N.A. N.A. N.A.
1943 N.A. N.A. N.A.
1944 N.A. N.A. N.A.
1945 N.A. N.A. N.A.
1946 223 N.A. N.A.
1947 247 N.A. N.A.
1948 275 N.A. N.A.
1949 310 N.A. N.A.
1950 352 245 597
1951 394 262 656
1952 437 285 722
1953 489 304 793
1954 541 336 877
1955 604 371 975
328
773
N.A.
582
N.A.
582
N.A.
619
N.A.
650
N.A.
683
N.A.
724
N.A.
773
N.A.
827
N.A.
885
354
951
367
1,023
387
1,109
412
1,205
445
1,322
478
1,453
a. Taken from Table 1 _,, p. 42, below, and rounded.
b. Obtained as residual.
c. For methodology, see Appendix B.
d. Taken from Table 11, p. 31, below, and rounded.
Total Soviet fixed capital regained its prewar (1940) level in 1947.
By the end of the Fourth Five Year Plan (1946-50) it was 23 percent
greater than in 1940 and by the end of the Fifth Five Year Plan 88 per-
cent greater than in 1940.
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IV. Structure.
Changes in the structure as well as in the size of fixed capital
of the USSR during 1940-55 are useful in the assessment,of Soviet eco-
nomic strength. Data published in the 1956 statistical handbook of
the USSR 22 permit a partial examination of the structure of postwar
fixed capital. Estimates of some important components of total fixed
capital are shown in Table 2.* Total fixed capital is divided into
productive and nonproductive components. Productive fixed capital is
subdivided into industrial and nonindustrial components.** Table 3P
which is based on Table 2,* shows the percentage distribution of
fixed capital, by major component. Table 3 indicates that productive
fixed capital, which was about 58 percent of total fixed capital in
1940, increased to 63 percent in 1950 and to about 67 percent in 1955.
Industrial productive fixed capital, which amounted to about 29 per-
cent of total fixed capital in 1940, increased to 31 percent of the
total in 1946 and to 42 percent in 1955. Productive nonindustrial
fixed capital, which also amounted to about 29 percent of the total
fixed capital in 1940, has amounted to about 25 to 26 percent of the
total since 1950.
The relative share of industrial productive fixed capital in total
productive fixed capital increased from 50 percent in 1940 and 59 per-
cent in 1950 to about 62 percent in 1955. The indexes of fixed capital
published in the 1956 handbook ?.I are shown in Table 4.****
Table 3 indicates that, despite severe war losses, the USSR finished
the Fourth Five Year Plan (1946-50) with 23 percent more total fixed
capital than in 1940. As would be expected, productive fixed capital
has grown more rapidly in the postwar years than has nonproductive fixed
capital. Of productive fixed capital, that in the industrial sector has
grown more rapidly since 1940 than that in the nonindustrial sector.
P. 12, above.
Although some of the basic data exist for estimating productive
fixed capital in the agricultural and the transportation and communi-
cations sectors, these data are a first approximation and it is not
considered feasible to attempt estimates for them. For a detailed
methodology on estimating these components, see Appendix B.
Table 3 follows on P. 14.
Table 4 follows on p. 14.
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Table 3
Distribution of Total Gross Fixed Capital in the USSR
in Percentages
1940 and 1946-55 a/
Year Industrial Nonindustrial Total
1940 29 29 58
1946 31 N.A. N.A.
1947 32 N.A. N.A.
1948 33 N.A. N.A.
1949 35 N.A. N.A.
1950 37 26 63
1951 39 26 64
1952 39 26 65
1953 40 25 66
1954 41 25 66
1955 42 26 67
Nonproductive
Total
42
100
N.A.
100
N.A.
100
N.A.
100
N.A.
100
37
100
36
100
35
100
34
100
34
100
33
100
a. Derived from Table 2, p. 12, above. Because of rounding, percent-
ages may not add to correct totals.
Index of Gross Fixed Capital in the USSR
Selected Years, 1940-55
1940 = 100
Type of-Fixed Capital 1940 1950 1954 1955
Productive 100 134 197 219
Industrial 100 158 243 271
Agricultural 100 105 169 194
Transportation and communications 100 117 146 156
Nonproductive 100 111 140 150
Total 100 123 171 188
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During 1950-55, productive fixed capital increased by about 63 per-
cent; and agricultural fixed capital increased by about 85 percent,
which was a higher rate than the increase (72 percent) in industrial
fixed capital.
The distribution of productive fixed capital, by branch of indus-
try and by type of fixed capital, shown in Tables 5 and 6,* is only an
approximation because the percentages given in the source are based on
valuations at original cost. Nevertheless, the estimates seem to give
a fair picture of the increase of fixed capital for individual indus-
tries.** Table 7*** shows an index of growth for industrial branches,
based on the data underlying Tables 5 and 6. The branches of industry,
with the exception of the category of residual, are listed in order
according to rates of increase from 1940 to 1954.
During 1940-54, industrial productive fixed capital increased by
143 percent. Fixed capital in ferrous metallurgy increased at about
the same rate as that for all industry. Fixed capital in four other
branches of industry increased at a rate exceeding that for all indus-
try. The branches were, in order of-largest growth, coal, petroleum,
construction materials, and electric power. In the heavy industrial
group, fixed capital in only the machine building and chemical indus-
tries increased at a lower rate than that in all industry. Fixed capi-
tal in the combined residual industries (see footnote c to Table 7***)
increased at about the same rate as that in all industry, whereas fixed
capital in the light and food industries increased at a lower rate.
During 1950-54, productive fixed capital increased by about 54 per-
cent. Fixed capital in the coal, petroleum, construction materials,
and electric power industries increased at a higher rate than that in
all industry. The construction materials and electric power industries,
however, replaced the coal and petroleum industries, respectively, with
the highest rates of growth. Fixed capital in ferrous metallurgy, in
the chemical industry and in light industry increased at about the same
Tables 5 and 6 follow on pp. 16 and 17, respectively.
The validity of the analysis of rates of growth in individual
industrial branches depends partly on the constancy of the definitions
of the branches. Although it is not certain, the data on the branches
appear to have been adjusted for major organizational changes.
# Table 7 follows on p. 18.
P. 18, below.
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Distribution of Gross Industrial Productive Fixed Capital
in the USSR, by Branch of Industry a/
Selected Years, 1940-54
Billion July 1955 Rubles
Branch of Industry
1940
1950
1954
Heavy industry
Ferrous metallurgy
20.0
31.7
48.7
Coal
8.9
24.6
43.3
Petroleum
8.9
21.1
-37.9
Electric power stations and networks
20.0
31.7
59.5
Chemical
/
15.6
17.6
27.1
_.
Machine building and metalworking c/
62.4
98.5
135.3
Construction materials
8.9
14.1
27.1
Other/ 1/
37.9
63.3
92.0
Subtotal
182.6
302.6
470.8
Light and food processing industries
Light
15.6
17.6
27.1
Food processing
24.5
31.7
43.3
Subtotal
40.1
4
70.4
Total
222.7
351.9
541.2
a. Derived from Table 14, p~ below. Quantities-reflect the
rounding of original data and may not add to the totals shown.
b. Including the rubber-asbestos industry.
c. It is not known whether the defense (conventional weapons) in-
dustry is included in Machine building and metalworking or in Other.
d. Including the following industries: lumber, nonferrous metal-
lurgy, paper, and construction.
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Table 6
Distribution of Gross Industrial Productive Fixed Capital
in the USSR, by Type of Fixed Capital J
Selected Years, 1940-54
Billion July 1955 Rubles
Type of Fixed Capital 1940 J 1920 1954
Buildings
1111
4
98.5
146.1
Installations
.
80.9
135.3
Power equipment
20.0
28.2
48.7
Production equipment
69
0
95.0
135.3
Transmission facilities
.
1.
14.1
27.1
Transportation facilities
13.4
24.6
32.5
Instruments, implements, and other
industrial productive fixed capital
8.9
10.6
16.2
222.7
351.9
45 1.2
a. Based on percentages given in source
b. Figures for 1940 are based on percentages for 1939?
rate as in all industry during 1950-54, whereas fixed capital in the
machine building, in the food processing, and in residual industries
increased at a lower rate.
V. Prospects for Future Growth.
An objective of the Soviet Sixth Five Year Plan (1956-60) is the
following:
To carry out on a wide scale measures for increased stand-
ards of production in all branches of industry on the basis
of the further development of electrification, complex mech-
anization, and automation, introduction of modern and high-
productive equipment and advanced technology, and the exten-
sive replacement and modernization of obsolete equipment. 25/
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H
c3
H
Cd
Iii
4-3
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N- O H
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w c
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rc) H
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0
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LC\ II
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N-00 ON co Lf\ M M LI\ Lr\ --I- U-\ -t U-\
HHHHHHHHHHHr-iH
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00 N 0 O\-:t H N- N- N-- Lr\ N--
I- i- MNNNHHHNNHN
N- N- 00 CO co co a\ M M N M :YO
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 Approved For Release 1999/09/08 : CIA-RDP79SO1046A000500110001-4
The problem of the obsolescence of fixed capital has now received
official attention on a large scale. This change in the official view
is related to the drive to increase the productivity of labor, a drive
which has received emphasis throughout the postwar years.
During 1956-60, agriculture is envisiored as being the most favored
sector in terms of the relative gain in investment just as it was in
the Fifth Five Year Plan (1951-55). Industry., of course, still will
get the major share of investment funds. If the plan for investment in
industry is met, industrial productive fixed capital should increase by
about 60 percent.
It is impossible to estimate accurately the effect of the new em-
phasis on technological change and replacement during 1956-60. On the
basis of very rough estimates, it appears that total fixed capital (in-
cluding nonproductive fixed capital) will increase by about 55 percent
by 1960 if the plan for investment is met and if the emphasis on techno-
logical change does not result in retirements of existing fixed capital
earlier than anticipated. The period from 1957 to about 1965 is a favor-
able time for the USSR to modernize because it will be replacing much of
the equipment which went into service during World War II, when invest-
ment was abnormally low. It will be possible for the USSR thus to modern-
ize to some extent without any increase in the ratio of retirements to
investment.
It is almost certain that in the years after 1965 replacements of
fixed capital will require a substantially larger share of Soviet in-
vestment for several reasons.
1. Average annual investment, which grew at a very rapid rate
from 1943 through the early postwar years, has been increasing generally
at a declining rate throughout the postwar period.
2. Investment in short-lived fixed capital has accounted for
a substantially larger percentage of investment since World War II than
previously. A continuation of this trend is implied in a statement of
Bulganin that "large allocations are being made for new, more efficient
equipment. Though capital investment generally is being increased 67
percent, appropriations for new machinery and equipment will increase
80 percent." 26
3. The recognition of the obsolescence of fixed capital will
result in shorter service lives for many items of fixed capital. The
Council of Ministers (Sovet Ministrov), USSR, has directed a general
- 19 -
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revision of amortization rates to be completed by 1959. The new rates
will be set sufficiently high to cover the obsolescence of fixed capi-
tal. =.L1 The above factors indicate a reduction in the rate of growth
of fixed capital in the immediate future.
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C-O-N-F-I-D-E-N-T-I-A-L
APPENDIX A
GLOSSARY
Any discussion of gross fixed capital in the USSR entails the use
of numerous technical terms. The technical terms used in this research
aid are defined in this glossary.
Accounting period. Any period of time for which economic flows (pro-
duction, costs, income, and the like) are totaled.
Annuity method. A method of computing depreciation of an asset which
provides a series of equal periodic amounts including depreciation allow-
ances and interest on the depreciated value of the asset for each period
throughout the service life of the asset.
Asset. The stock of economic goods and claims to economic goods of an
economic unit. The terms fixed assets and fixed capital may be used
interchangeably.
Capacity. The maximum production possible from a given combination of
productive resources in specified quantities under stated conditions of
operation during a given period (usually 1 year).
Capital-capacity ratio. Tee value of the fixed capital required in an
industry or economy for each unit of annual capacity measured in terms
of value.
Capitalization of income. The process of determining the present value
of a given amount of income due at some future date. This process in-
volves discounting the income from the maturity (collection) date back
to the present time by some known or expected rate of interest.
Capital repair. In Soviet accounting terminology, relatively large-
scale renovating projects involving the replacement of a large number
of parts or of the most important parts of an item of fixed capital. 28
The object of capital repair is to restore the item of fixed capital
to full working power. If the object of renovation is to increase the
capacity of tie item of fixed capital, such renovation is termed capital
reconstruction rather than capital repair. 29/
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C-O-N-F-I-D-E-N-T-I-A-L
Current market price. In this research aid, the price at which an item
of fixed capital would sell at a given time.
Declining balance method. A method in which the annual depreciation of
an asset is computed as a constant percentage of the net value of the
asset.
Depreciation. The amount of decline in the value of a fixed asset dur-
ing a given period.
Depreciation charge. The amount of depreciation which is charged as a
cost of production during a given period.
Depreciation rate. The ratio of the annual depreciation charge to the
gross or net value of the asset or assets against which the chargeis
made.
Factors of production. The productive services of economic resources.
Fixed assets. See Fixed capital.
Fixed Capital. The -stock of durable, physical instruments of production
that is used for more than one accounting period. In this sense the term
instruments of production is defined broadly to include such social over-
head capital as housing which is necessary to, but not used directly in,
production. In Soviet terminology, this social overhead capital is
termed nonproductive. The terms fixed capital, stock of fixed capital,
and fixed assets may be used interchangeably.
Gross fixed capital. The total value of fixed capital without any de-
duction for depreciation.
Gross investment. As used in this research aid, the output of fixed
capital during a given period of time -- usually 1 year.
Income. Goods and services produced in -a given period.
Net fixed capital. The depreciated value of fixed capital.
Nonproductive fixed capital. In Soviet accounting terminology, fixed
capital which is used for social and cultural purposes but not used
directly in the productive process -- for example, houses and educa-
tional buildings.
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Obsolescence of fixed capital. The functional supplantation of fixed
capital by superior substitutes or supplantation because of a decrease
in demand for its products.
Original cost. In this research aid, the cost of fixed capital when it
first enters service.
Output-capacity ratio. The value of output in an industry during a
given period of time divided by the capacity of the industry during
the same period of time.
Present (discounted) value. The value of a sum due at the end of a
given number of periods as determined by discounting the sum from the
due date back to the present by a stated rate of discount per period.
Productive fixed capital. In Soviet accounting terminology, fixed cap-
ital which is used directly in the productive process.
Reproduction cost. In this research aid, the cost of reproducing a
given stock-of fixed capital in prices of the current year or some other
specified period.
Retirements. The value of fixed capital removed from service in a
given period.
Service life. The economic life of an item of fixed capital.
Stock of fixed capital. See Fixed capital.
Straight-line method. A method of computing depreciation of an item
of fixed capital which provides equal periodic depreciation allowances
that accumulate to the original cost of the item of fixed capital, less
the salvage value, by the end of its service life.
Working capital. Resources used in a productive process which are con-
sumed within a short time, usually in one accounting period.
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C-O-N-F-I-D-E-N-T-I-A-L
APPENDIX B
METHODOLOGY
1. General.
The 1956 statistical handbook J2J published in the USSR contains
two categories of data which give a basis for estimating the value of
fixed capital in the USSR. First, there is a set of indexes of fixed
capital shown in Table )+,* covering the following categories: total
fixed capital, productive fixed capital, industrial productive fixed
capital, agricultural productive fixed capital, transport and communi-
cations productive fixed capital, and nonproductive fixed capital.
Second, there is an investment series, giving total investments during
1918-55, as shown in Table 8.**
The general equation used in the estimation of fixed capital is
derived as follows:
Sb+N=xSb
xSb - Sb=N
N
(1) Sb = x-1
where Sb = fixed capital at the end of the base
year, valued in prices of a given
year;
N = the net additions to the fixed capi-
tal accumulating from the end of the
base year of the period to the end
of the terminal year of the period.
N is valued in the prices of the
same year used in the valuation of
Sb ; and
* P. 14, above.
** Table 8 follows on p. 27.
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x = the numerical expression of the
amount of fixed capital at the end
of the terminal year of the period,
relative to Sb.
When both Sb and x are known, fixed capital stock at the end of the
terminal year (St) can be determined by equation (2), St = xSb.
Both the indexes of total fixed capital and investment data cover
all the years of the Five Year Plans.
2. Total Fixed Capital.
The first problem in estimation of total fixed capital is establish-
ing a base. There is no figure for total fixed capital for any year
since 1940. For the prewar plan years, there are two-fixed capital
series. The data from the two series are shown in Table 9.*
Little is lnown about the coverage and accounting procedures used
in the development of the two fixed capital series shown in columns
(1) and (3) of Table 9. According to the sources, both series include
the socialist sector but do not include livestock. If the coverage of
the two series were identical, adjustment to a common price base would
make the series identical. A comparison of columns (1) and (3) of Table
9 shows, however, that the adjusted series in column (1) runs approxi-
mately three times that of column (3). This result indicates that cover-
age of the two series might not have been identical or that the price
index, shown in Table 10,x' used to adjust these series to prices of
1 July 1955 is erroneous.
A comparison of the net additions to fixed capital with a series of
gross additions may also be made on the basis of Table 9. Net additions
in columns (2) and (4+) were derived from the data for fixed capital in
columns (1) and (3), respectively. Gross additions were estimated from
the official Soviet investment series, shown in Table 10, and a Soviet
source L2J which states that gross additions to fixed capital amounted***
Table 9 follows on p. 28.
Table 10 follows on p. 29. The price index in Table 10 is based
on the ratios of investments in current prices of a given year to in-
vestments for the same year in prices of 1 July 1955?
XXX Continued on p. 30.
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Total Gross Fixed Capital Investment in the USSR J
1918-55
Billion 1 July~55 Rubles
Total
Total
Year and Period
Excluding Kolkhoz
Kolkhoz
Including Kolkhoz
1918-28
17.0
17.0
1929
7.6
0.4
8.0
1930
12.7
1.0
13.7
1931
18.4
0.7
19.1
1932
21.6
0.7
22.3
1J33
16.0
1.1
19.1
1934
23.7
1.3
25.0
1935
27.8
1.7
29.5
1936
38.1
2.3
40.4
1937
33.8
2.7
36.5
1938
35.1
2.v
37.9
1939
40.8
3.3
44.1
1940
43.2
4.0
47.2
1941
37.4
3.1
40.5
1942
23.0
2.2
25.2
1943
23.1
2.8
25.9
1944
31.7
3.9
35.6
1945
39.2
3.7
42.9
1946
46.8
4.8
51.6
1947
50.8
5.9
56.7
1948
62.1
6.2
68.3
1949
76.0
5.2
81.2
1950
90.8
6.9
97.7
1951
102.1
8.5
110.6
1952
113.8
9.9
123.7
1953
119.2
10.9
130.1
1954
140.3
13.3
153.6
1955
149.9
18.8
168.7
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to
to
W 41
U2 O
0
C~`2 O
4H
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Price Index for Total Gross Investment
in Fixed Capital in the USSR
1925-55 a/
1950
= 100
Industrial
Total
1925
44
62
1926
48
68
1927
47
66
1928
45
64
1929
43
62
1930
43
61
1931
60
66
1932
74
73
1933
62
82
1934
85
81
1935
74
80
1936
85
76
1937
62
80
1938
N.A.
83
1939
N.A.
68
1940
71
72
1941
N.A.
66
1942
N.A.
66
1943
N.A.
69
1944
N.A.
75
1945
75
75
1946
82
82
1947
86
86
1948
91
91
1949
121
121
1950
100
100
1951
98
98
1952
92
92
1953
93
93
1954
91
91
July 1955
81.4
81.4
a. The price index for total state investment and post-
war industrial investment is based on source . The
index for prewar industrial investment is base on
source /. In computing this index, rubles of 1 July
1955 were used.
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 Approved For Release 1999/09/08 : CIA-RDP79SO1046A000500110001-4
to 73.5 and 89.8 percent of investments,* respectively, in the periods
of the First Five Year Plan (1928-32) and the Second Five Year Plan
(1933-37). Columns (4) and (5) appear to check reasonably well. Al-
though the difference between gross additions and net additions in
1932-37 appears somewhat high (35.4 billion rubles), this difference
might conceivably approximate retirements plus investment items not
counted in fixed capital.
Comparison of columns (2) and (5) of Table 9, however, indicates
gross inconsistencies between the unofficial series of fixed capital
in column (1) and the official series in column (3).
Because the data in column (3) of Table 9 appear to agree-reason-
ably well with the investment information, the possibility of using
the 1937 figure (190.8 billion 1 July 1955 rubles) for fixed capital
as a base will be tested further. The recently published official in-
dex U J shows an increase of 23 percent in total fixed capital during
1940-50. This figure is used below in a test of the 1937 base.
The following assumptions are made for the purpose of this test:
a. The ratio of net additions of fixed capital to gross invest-
ments in 1938-40 was the same as the ratio in the Second Five Year Plan
(see Tables 8 and 9**); and, in 1941 and 1943-50, gross additions were as
shown in Table 1l.***
b. According to unofficial figures 40 war losses in 1941
amounted to about 30.3 percent of fixed capital in 1940. In 1942,
war losses plus retirements were just equal to gross additions of fixed
capital.
c. Retirements in 1943-50 were the same as shown in Table 11.
Trial computation of fixed capital in 1950 is in chronological
order, as follows (in 1 July 1955 prices): fixed capital (190.8 billion
* Gross additions are less than investments in a given year because
some
of the investments are added to fixed capital in a
later year
--
for
the
example, when a structure is completed and formally
enterprise for which it is built.
accepted by
* Pp. 27 and 28, respectively, above.
Table 11 follows on p. 31.
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 Approved For Release 1999/09/08 : CIA-RDP79SO1046A000500110001-4
r~ O L;
(D E-~ a) o
r-i r
H o
r1
cd
P4
O
0
~i
0
a3
W
N cO CO O IIR -7 N N l1OO of u\ m~u}~ u~ rn
N~00 H 0% 0~ N r-- Nco 0 N O0 NU\
u\ u\\O C- r-co ON O H m
r r-i
O N\O Nm TO
H 0 C- 0 m O, O\ m C-\O
ON mmm u\ If\\O
0 0 0 0 0 0 0 0
rn --t
U\ ,f\ N N \O 0 0 0 -~' O N
0000000OOOU C-0\000 0
-t IO N ID A co 0 O\- (Ij
cn r1 r- 0 (n 0 O\ nico
. _:I, m m m _t v\ u\
C NN NNC-
H\O C-\O co O\
-:I, CM H MOD
O -G- ri
co
O\O cmmH ..7
0
d. 00000 01
OO N rl O\~ -3
N to\,O\O H N
C-c0 O\H 0
- \O N m N C O\ u\. O
m H ri - O\ C- ri O\ ri
-7 . m N N m u\ u\ C-
C-
u\ N -O O\OO
ri L \0
ri N lO
m HH rHirI u\ 00
rnrn a\ rnrnrnArnrn
rirl A ri ririH r i H H
HNC *u\
u\ u\ u\ u\ u\
O\ O\ O\ O\ O\
rIIi H rlri
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0
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rubles) in 1937 plus net additions (85.6 billion rubles*) during 1938-40
minus war losses (83.7 billion rubles**) during 1941 plus gross additions
(43.4 billion rubles*) during 1941 minus retirements (3.2 billion ru-
bles***) during 1943-50 plus gross additions (371.9 billion rubles*)
during 1943-50 yield fixed capital (604.8 billion rubles) in 1950.
This computation indicates that the total stock increased between
1940 and 1950 by about 119 percent, compared with the increase of 23
percent indicated in the official index.
It is concluded that the prewar base used for postwar estimates
of fixed capital must be much higher than the above figure if consis-
tency with other postwar data is to be maintained. The only prewar
bases available at higher figures are the unofficial figures for fixed
capital shown in Table ll.**** Although this fixed capital series fails
to agree with the 1928-37 investment data, it is consistent with the
deflated series for post-1940 investment and with other information
about the wartime and postwar years.
The inconsistencies in the prewar data preclude a continuous fixed
capital series from 1928 to 1955. The estimates of total fixed capital
which are developed below use as a base the 1940 unofficial data from
column (1) of Table 9t -- 772.8 billion 1 July 1955 rubles.
It is difficult to estimate the value of Ntt because little-is known
about retirements of fixed capital in the Soviet economy. Consequently,
* It was assumed (p. 30, above) that the ratio of net additions of
fixed capital to gross investment in 1938-40 was the same as the ratio
in 1933-37 and that, in 1941 and 1943-50, gross additions were as shown
in Table 11 (p. 31, above).
** It was assumed (p. 30, above) that war losses in 1941 amounted to
about 30.3 percent of the 1940 fixed capital and that, in 1942, war
losses plus retirements were just equal to gross additions of fixed
capital.
*** It was assumed (p. 30, above) that retirements in 1943-50 were
the same as shown in Table 11 (p. 31, above).
**** P. 31, above.
t P. 28, above.
tt All symbols used in the discussion are identical with those de-
fined in 1, p. 25, above. All the value data are presented in Table
11, p. 31, above.
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equation (2)* will be employed in the estimation of total postwar fixed
capital. The elements of the equation are established as follows:
a. The fixed capital (Sb) at the end of the base year (1940)
is assumed to be 772.8 billion rubles, in prices of 1 July 1955. This
is the unofficial figure, given in Table 9, converted from 1945 prices
by means of the index in Table 10.*'
b. The indexes of total fixed capital for 1940, 1950, 1954,
and 1955 were 100, 123, 171, and 188, respectively.
c. If Sb equals 772.8, the following values of St are estab-
lished: 950.5 for 1950, 1,321.5 for 1954, and 1,452.9 for 1955.
Net additions to the fixed capital for several periods may be
determined as follows, from equations (1) and (2)*:
N=xSb Sb
N=St Sb
From this formula the following values are found for N:
Period N
1941-50
1951-54
1955
177.7
371.0
131.4
* See 1, p. 25, above.
P. 28, above.
xxy, P. 29, above.
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C-O-N-F-I-D-E-N-T-I-A-L
Estimates of -fixed capital for the interim years are also derived
as follows by application of equations (1) and (2):
xSb = Sb + N
St = Sb + N
Because value of N is known only for the periods indicated above, its
value for the shorter periods must be estimated from the following
equation:
(3) N = G - (R+W)
where G = gross additions to fixed capital in
the current year or period;
R = fixed capital retired from service
during the current year or period;
and
W = war losses of fixed capital during the
current year or period.
Estimates of the elements in equation (3) will be made, first, for
1940-55. The following assumptions govern the computations:
a. "Normal" gross additions to fixed capital in a given year
are equal to one-half the sum of investments in fixed capital during
the 2 years preceding.* This lag assumption was determined purely on
the basis of trial and error. A lag of 1 year was clearly too short
for consistency with the other data, and a lag of 2 years was clearly
too great.
* For 1950 and earlier years a deduction of 5 percent was made from
the investment data to adjust for items which were counted in investments
but not in fixed capital. The adjustment for lag was made in order to
arrive at "normal" gross additions.
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b. Estimated war losses of fixed capital are based on a state-
ment 41 that "as a result of occupation, fixed capital of socialist
enterprises declined during the second half of 1941 by 215 billion
rubles (in 1945 prices) and remained virtually at that level in 1942."
From this statement, it was estimated that losses of fixed capital in
1941 amounted to 234.4 billion 1 July 1955 rubles and in 1942 to G - R.
For reasons stated below, the actual value of R in 1942 is assumed to
have been zero. Consequently, in 1942, W was equal to G.
c. From equation (3), the value of R may be determined as
follows:
R = G - (N+W)
Because G, N, and W can be established for 1940-55, the value of
R for that period may be obtained as a residual. For 1940-55, the com-
putation for determining retirements is'as follows: G (1,006.3 billion
rubles) for 1941.55 minus the sum (956.1 billion rubles) of N and W
yields the retirements (50.2 billion rubles) for 1941-55.
For the distribution of the retirements among individual years,
fixed capital is conceived as consisting of two categories: long-
lived capital, which will be referred to as "structures," and short-
lived capital, referred to as "equipment."
Data on Soviet investment are reported for "construction and in-
stallation work" and for "equipment, tools, and the like." During the
prewar plan years, construction and installation averaged about 80 per-
cent of total costs of investment. To estimate retirements, the cost
of installing equipment should be considered part of the investment in
equipment. Precise data on the proportion of investment going to equip-
ment, including installation, are not available for all prewar plan
years. Scattered data for the early 1930's however, indicate that the
percentage was about 30 to 40 percent. / On this basis, it is
assumed that the proportion of investment going to equipment, including
installation, amounted to one-third of the total investment.
Estimation of retirements from data on investment requires an esti-
mate of the service life of fixed capital. It is assumed in this re-
search aid that the average life of equipment is approximately 20 years,
which is, of course, an extremely rough estimate of life of equipment
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in the USSR. This estimate is 3 years longer than the estimated aver-
age service life of US equipment* and is intended to reflect the Soviet
tendency to keep equipment in operation for a longer time.
Although some data are available concerning Soviet depreciation
rates (primarily those established in 1938), these data are difficult
to analyze because they are composite rates which reflect individual
rates for various classes of fixed capital with greatly different ser-
vice lives. The determination of composite rates requires data on the
rates for each class of fixed capital as well as on the percentage of
each class in total fixed capital. The determination of service lives
for each class of fixed capital from composite depreciation rates or
composite service lives requires similar data for each class of fixed
capital.
A rough estimate was made of the implied service life of structures,
and equipment was estimated to have a service life of 20 years. For
this purpose, a rough estimate of the weights of equipment and struc-
tures in terms of fixed capital in 1940 was made. An estimate then was
made of the sector composition of the fixed capital. Composite depre-
ciation rates, by sector, as shown in Table 12,** were then applied to
the percentages of total fixed capital in the appropriate sectors. The
average service life for structures thus obtained was approximately
three times that estimated for equipment. This result is accepted as
reasonable because the ratio of the service life of structures to that
of equipment is also 3 to 1 in the US.
The war losses of fixed capital in 1941 and 1942 amounted to approx-
imately one-third of total fixed capital existing in mid-1941. It is
assumed that the relative losses of fixed capital of all ages were equal.
Because much equipment was evacuated to safe areas before the German
attack in 1941, however, it is further assumed that losses of equipment
were relatively smaller than losses of structures. Consequently, esti-
mated retirements of equipment in any year Y (on the assumption of a
"normal" service life) would be equal to investment in equipment in the
year Y minus 20 less losses of equipment which entered service in the
year Y minus 20. It is assumed that retirements of equipment for 1941-55
* Studies of the fixed capital of all US business indicate an average
life of 17 years for equipment and of 50 years for structures. /
** Table 12 follows on p. 37. It should be noted that rates used are
those for replacement and not the total rates for depreciation which
include an allowance-for capital repair.
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C-O-N-F-I-D-E-N-T-I-A-L
Annual Depreciation Rates for Gross Fixed Capital
in the USSR a
Sector of the Economy
Replacement
Capital
Repair
Total
Heavy industry /
3.2
2.4
5.6
Machine building industry b
3.3
2.2
5.5
Defense industry J
2.9
2.6
5.5
Forest industries b
3.0
3.0
6.0
Light industry b
1.9
3.6
5.5
Food processing industry b
3.2
2.8
6.0
Local industry
Republic and oblast industry J
2.3
3.3
5.6
Rayon industry J
2.0
4.0
6.0
State procurement /
3.2
2.8
6.0
~
Communal services e
2.7
3.3
6.0
State farms J
Trade
3.0
4.0
7.0
Buildings and structures gl 2.0 3.0 5.0
Commercial equipment / 0 12.0 12.0
Railroads h 0.5 6.0 6.5
Construction industry J 2.0 4.5 6.5
a. All rates are those established in 1938 unless otherwise
indicated.
b. 44
c. 4
d.
e.
f.
g. J
h. These rates were in effect in 1952. The date of establish-
ment is uncertain. ;_/ ~~~
i. The rates were established in 1945. L/
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C-O-N-F-I-D-E-N-T-I-A-L
equal 80-percent of the investments in equipment in the years 1918-35,
or 41 billion rubles. Because retirements for 1941-55 were 50.2 billion
rubles,* retirements of structures for the period would equal 50.2 bil-
lion minus 41.0 billion, or 9.2 billion rubles. Retirements of struc-
tures were allocated to individual years in the same ratios as were re-
tirements of equipment.
The above procedure assumes a constant service life for each class
of fixed capital throughout 1941-55. It is likely, however, that war
losses and wartime production requirements necessitated some deferment
of retirements and a more rapid completion of investment projects. The
data in Table 12** indicate that some adjustment actually occurred dur-
ing the war and immediate postwar years. For example, estimates of
fixed capit-al already derived indicate that the net additions to the
stock during 1941-50 were 177.7 billion rubles. When net additions
are computed from "normal" values of G. W, and R,** the resulting
figure is 145 billion rubles. For 1951-55, the net additions derived
from the stock series are 502.4 billion rubles and 535.1 billion com-
puted from the "normal" factors. Consequently, for estimating the
fixed capital of the interim years, the following modifying assumptions
were made:
a. No retirements were made during the war years.
b. After 1942 the period of completion of fixed capital was
shortened so that G was equal to the investment of the previous year.
From 1949 to 1954 the period of completion was lengthened. By 1954
this period was back to normal. Estimates of total fixed capital are
shown in Table 11.****
3. Total Productive and Nonproductive Fixed Capital.
Official indexes of fixed capital which were published recently 52/
allow a breakdown between productive and nonproductive fixed capital.
For the purpose of making the breakdown, the following symbols are
employed:
See p. 35, above.
** P. 37, above.
MXX P. 34, above.
X"M P. 31, above.
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Sy = total fixed capital at the end of year y.
Py = productive fixed capital at the end of year y.
Uy = nonproductive fixed capital at the end of year y.
The official indexes, shifted to a 1950 base, follow:
1940
1950
1951
1952
1953
1954
1955
Sy
81.3
100.0
139.0
152.8
Py
74.6
100.0
110.0
121.0
133.0
147.0
163.4
Uy
90.1
100.0
126.1
135.1
By definition, Sy = Py + Uy. The values of Sy, given in Table ll,*
are 950.5 billion rubles for 1950 and 1,452..9 billion rubles for 1955.
The official indexes give relationships between 1950 and 1955. The
following relationships have been established:
a. P1950 + U1950 = 950-5
b. 1.634 P1950 + 1.351 U1950 = 1,452.9
These two equations are solved simultaneously as follows:
b.
1.634
P1950
+ 1.351
U1950 =
1,452.9
c.
1.351
P1950
+ 1.351
U1950 =
1,284.1
Thus
0.283
P1950
=
168.8
P1950
=
596.5
Estimates of Py for 1940 and 1951-55 are obtained by multiplication
of P1950 by the index. For each year, Uy is obtained as a residual be-
cause Uy equals Sy - Py. The resulting estimates are given in Table 2.
P. 31, above.
Derived by multiplying a by 1-351-
P. 12, above.
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4. Industrial Productive Fixed Capital.
Official Soviet data permit the construction of an index of indus-
trial productive fixed capital with a postwar base. An index for se-
lected years, 1940-55, is given in Table 13.
Table 13
Index of Gross Industrial Productive Fixed Capital
in the USSR
Selected Years, 1940-55
19+0 = 100
Year Index
1940
100 a~
1952 196 J
1946
100
1954 243 a
195
1
158
1955 271 1
195
177 1/ b
b. 5.~
C.
There is no base figure for industrial-fixed capital. Such a figure
may be derived, however, by equation (1).*
The value of the percentage increase in fixed capital (x) may be
determined for several postwar periods from Table 13. Net additions
(N) must be estimated. The period of the estimate is 1947-52, and the
following assumptions apply:
a. Gross additions to industrial productive fixed capital (G)
during 1947-52 areequal to investments in industrial productive fixed
capital during 1946-51, inclusive.
b. Investments in industrial productive fixed capital in 1946-51
averaged 85 percent of total industrial investments during the same
period.**
* See 1, p. 25, above.
** This assumption is based on data on Soviet industrial investments
from source.
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c. Retirements (R) in 1947-55 equaled investments in industrial
equipment in 1927-35 minus 20 percent for estimated war losses. It is
assumed that retirements of industrial structures were negligible, be-
cause the structures being retired were erected when industry in Russia
was a small part of the economy. The total retirements of industrial
equipment for the period were distributed among the individual years in
the same proportions that the total retirements of equipment in the
economy were distributed.* Two additional figures are available from
Soviet sources. Industrial investments were 46.4 billion current ru-
bles in 1948 Z/ and 320 billion 1950 rubles in 1946-51. 1=!
With the known data and the foregoing assumptions, certain relation-
ships, useful in the computation, must follow:
a. The sum of gross additions during 1947-52 in 1955 prices,
is 221.4 billion rubles (see column (3) in Table 14**1.
b. The total net additions for 1947-52, in 1955 prices, are
equal to gross additions less retirements, or 213.8 billion rubles.
The data required to establish a base figure are included in Table
14. The following procedure was used:
a. From Table 14, net additions in 1947-52 were 213.8 billion
b. The industrial productive fixed capital in 1952 was 1.96
times that in 1946 (from Table 13"*).
c. Substitution in equation (1) * gives the following:
2 ~.._
51946 - 1 8
0.96
= 222.7
d. Once the base was established the estimates of fixed capital
in 1940 and 1950-55, excluding 1953, were derived by multiplication of
the base by the index in Table 13. The estimates are shown in column (6)
in Table 14.**
See 2, p. 26, above, and Table 11, p. 31, above.
* Table 14 follows on p. 42.
P. 40, above.
See 1, p. 25, above.
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Cd