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Soviet investments: a study in direct apportioning of financial and material resources MacKenzie, George Alexander 1958

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SOVIET INVESTMENTS: A STUDY IN DIRECT APPORTIONING OF FINANCIAL AND MATERIAL RESOURCES  GEORGE ALEXANDER MACKENZIE B.A., U n i v e r s i t y o f B r i t i s h Columbia, 1956  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS  i n the Department of Slavonic Studies  We accept t h i s t h e s i s as conforming required  t o the  standard  THE UNIVERSITY OF BRITISH COLUMBIA August, 1958  ABSTRACT  The  t o p i c f o r t h i s study was  by Dr. Hans E r n e s t Ronimois, who c e n t r a l i z e d f o r m a t i o n and  suggested t o the w r i t e r  f e l t t h a t the problems of  a l l o c a t i o n of c a p i t a l i n the  U.S.S.R. o f f e r e d a p a r t i c u l a r l y f r u i t f u l In the U n i t e d S t a t e s , o r any  f i e l d f o r inquiry.  other f r e e market  economy, such problems are s o l v e d mainly through the agency of a market system which a l l o c a t e s monetary and resources  material  on the b a s i s of the p r i c e mechanism.  In the  S o v i e t Union, on the o t h e r hand, the c r i t e r i a of the. market have had for  to be ignored i n the face of c e n t r a l plans  i n t e n s i v e development o f heavy I n d u s t r y .  matic mechanism of the market has a r b i t r a r y process  The  auto-  been r e p l a c e d by  the  of apportionment or a l l o c a t i o n e f f e c t e d  through the medium of c e n t r a l i z e d d i s t r i b u t i v e  organizations.  T h i s study d e a l s at some l e n g t h f i r s t w i t h o r i g i n s of investment funds i n the American and economy.  calling  the  the  Soviet  F o l l o w i n g upon t h i s i s s u e , a survey i s made of  the shares of investment funds r e c e i v e d by the s e v e r a l prime i n d u s t r i e s , i . e . , i r o n and  s t e e l , e l e c t r i c power,  machine b u i l d i n g , petroleum, c o a l , r a i l w a y t r a n s p o r t c o n s t r u c t i o n , i n the U n i t e d  S t a t e s and  and  the S o v i e t Union.  F i n a l l y , t h i s study examines v a r i o u s e c o n o m i c a l l y  disruptive  iii.  e f f e c t s o f the S o v i e t a p p o r t i o n i n g technique, by which i s meant the m i s a l l o c a t i o n of f i n a n c i a l and m a t e r i a l r e s o u r c e s i n the U.S.S.R..  These d e f i c i e n c i e s a r e concluded t o  represent a problem the g r a v i t y of which I s s u f f i c i e n t t o make i t s s o l u t i o n a major concern f o r S o v i e t p l a n n i n g authorities.  In p r e s e n t i n g the  this thesis in partial fulfilment  requirements f o r an advanced degree at the  of  University  o f B r i t i s h Columbia, I agree t h a t  the  L i b r a r y s h a l l make  it  and  study.  f r e e l y available f o r reference  I  further  agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying o f t h i s t h e s i s f o r s c h o l a r l y purposes may  be granted by the  Department or by h i s r e p r e s e n t a t i v e .  Head o f  my  I t i s understood  t h a t copying or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l gain  s h a l l not  Department of  be allowed without my  Slavonic  Studies,  The U n i v e r s i t y o f B r i t i s h Vancouver 8, Canada. Date  August 1,  1958  Columbia,  written  permission.  C O N T E N T S  ABSTRACT  i i  LIST OP TABLES  v  CHAPTER I  INTRODUCTION  1  The Role o f the " C o n s t r u c t i o n T r u s t " i n the S o v i e t P l a n o f C a p i t a l Work The Issues of Apportionment II  SOURCES OP FUNDS I n the U n i t e d  8 States  I n the S o v i e t Union III  DESTINATION OF FUNDS AND MATERIAL RESOURCES ...  28  I n the U n i t e d S t a t e s and the S o v i e t Union IV APPENDICES BIBLIOGRAPHY  SUMMARY AND CONCLUSIONS . . .  53 70 100  LIST  OP  TABLES  Table Al  Bl  CI  Dl  D2  El  Fl F2  Page Investments i n F i x e d C a p i t a l and P r o p o r t i o n s Financed from the S t a t e Budget, i n the S o v i e t Union, 1933-1941 and 1946-1950 . . . .  70  The Turnover Tax as a Percentage o f T o t a l Budget R e c e i p t s , i n the S o v i e t Union, 1933-1941 and 1946-1950 . . . .  71  Absolute and P e r c e n t i l e C o n t r i b u t i o n s of Various Sources o f Budget Revenue, I n the S o v i e t Union, 1933-1958  72  Investments i n " T o t a l N a t i o n a l Economy" and R a t i o o f - C e n t r a l i z e d Investments to T o t a l Investments, I n the S o v i e t Union, 1945-1950  76  Investments by P r i n c i p a l Branches o f Industry as a Percentage o f I n v e s t ments by T o t a l Industry, i n the S o v i e t Union, 1947-1950  77  Investments I n Industry and i n Group A Industry, i n the S o v i e t Union, 1929-1942  78  Investments by I n d u s t r i a l M i n i s t r i e s , i n the S o v i e t Union, 1929-1941. . . .  79  Investments by I n d u s t r i a l M i n i s t r i e s , as Percentages o f T o t a l Investments i n I n d u s t r y , i n the S o v i e t Union, 1924-1941  80  Investments I n the I r o n and S t e e l Industry, as Percentages o f T o t a l Investments I n each area and T o t a l I n d u s t r i a l Investments i n each a r e a , i n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1940 and 1946-1950 . . . Investments i n the E l e c t r i c Power I n d u s t r y , as Percentages o f T o t a l Investments i n each area and T o t a l I n d u s t r i a l Investments i n each area, i n the U n i t e d States and the S o v i e t Union, 1929-1940 and 1946-1950 Investments I n the M a c h i n e - B u i l d i n g I n d u s t r y , as Percentages o f T o t a l Investments i n each a r e a , and T o t a l I n d u s t r i a l Investments i n each a r e a , i n the U n i t e d S t a t e s and the S o v i e t Union, 1934-1940 and 1946S1950 Investments i n the Petroleum I n d u s t r y , as Percentages o f T o t a l Investments i n each area and T o t a l I n d u s t r i a l Investments i n each a r e a , i n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1940 and 1946-1950 E s t i m a t e d Investment E x p e n d i t u r e s f o r the Petroleum and C o a l I n d u s t r i e s , i n the U n i t e d S t a t e s , 1936-1940 and 1946-1950 Investments i n the C o a l I n d u s t r y , as Percentages of T o t a l Investments i n each a r e a and T o t a l I n d u s t r i a l Investments I n each a r e a , i n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1940 and 1946-1950 Investments i n R a i l r o a d T r a n s p o r t , as Percentages of T o t a l Investments i n each area and T o t a l I n d u s t r i a l Investments i n each a r e a , I n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1940 and 1946-1950  Investments f o r a l l C o n s t r u c t i o n Purposes as a Percentage of T o t a l Investments, and Investments f o r Urban R e s i d e n t i a l C o n s t r u c t i o n as a Percentage of T o t a l Investments and T o t a l C o n s t r u c t i o n , I n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1940 and 1946-1950 Investment E x p e n d i t u r e s f o r Equipment as a Percentage o f T o t a l I n v e s t ments, i n the U n i t e d S t a t e s and the S o v i e t Union, 1929-1950 Investment E x p e n d i t u r e s f o r I n d u s t r i a l Equipment as a Percentage o f T o t a l I n d u s t r i a l Investments, I n the U n i t e d States and the S o v i e t Union, 1929-1950  With g r a t e f u l appreciation  to  PROFESSOR HANS ERNEST RONIMOIS, Ph.D. (Econ.)  Of the Department o f S l a v o n i c S t u d i e s . i n the U n i v e r s i t y o f B r i t i s h Columbia  whose k i n d l y p e r s o n a l  interest  and s c h o l a r l y a d v i c e have invaluable.  been  CHAPTER I INTRODUCTION  T h i s paper deals w i t h the techniques employed  ina  f r e e and a c o l l e c t i v i s t economy f o r the a l l o c a t i o n o f capital.  I t c o n s i d e r s the o r i g i n of investment funds and  the shares of such funds a l l o t t e d t o s p e c i f i c  industries  i n a major f r e e and a major c o l l e c t i v i s t economy i . e . , the U.S.A., and the TT.S.S.R.; difficulties  and attempts t o a s s e s s the  o f a l l o c a t i o n encountered i n an economy not  u t i l i z i n g the economic  technique of the market  system.  Any s o c i e t y i s r e q u i r e d t o save, i n some manner, a p o r t i o n of I t s c u r r e n t income s h o u l d i t d e s i r e t o form o r fabricate capital.  I n an exchange economy (which a l l  i n d u s t r i a l i z e d s o c i e t i e s must o f n e c e s s i t y b e ) , s a v i n g s f o r investment purposes must assume monetary form.  It  Is a f e a t u r e o f an I n d l v i d u a l i s t i c a l l y planned o r f r e e e n t e r p r i s e system, that the r e q u i s i t e monetary savings t o be used f o r a g i v e n investment scheme commonly I n a market.  originate  I n the U n i t e d S t a t e s , f o r example, funds  f o r investment purposes may be accumulated e i t h e r i n the form of u n d i s t r i b u t e d p r o f i t s o r through the s a l e o f a s t o c k o r bond i s s u e , i n a s e c u r i t i e s market.  I n such a  2.  market numerous bond and s t o c k i s s u e s compete f o r the use o f money c a p i t a l which i t Is the aim of each t o a c q u i r e .  As a  r e t u r n f o r money borrowed i n t h i s way, a p r i c e I n the form of I n t e r e s t i s p a i d the l e n d e r . I n the S o v i e t Union, c o m p e t i t i o n money i s absent  f o r savings and  (as i n d u s t r y Is not allowed  to resort to  long range c r e d i t s ) , and accumulated savings a r e i n f a c t d i r e c t l y apportioned  1  between i n d i v i d u a l c o n s t r u c t i o n j o b s .  That i s t o say, they a r e d i s t r i b u t e d without remuneration among d i f f e r e n t s t a t e p r o j e c t s o f c a p i t a l work.  Thus  i n d u s t r i a l f i r m s pay no p r i c e f o r the investments a l l o t t e d to them.  A l l major c e n t r a l i z e d c a p i t a l c o n s t r u c t i o n i n  the S o v i e t Union Is organized  on the b a s i s o f a S t a t e  Investment P l a n c a l l e d the P l a n o f C a p i t a l C o n s t r u c t i o n which i n c l u d e s the l i s t  of a v a r i e t y of I n d i v i d u a l pro-  jects or construction jobs. made up e i t h e r o f extensions  The p r o j e c t s , i n t u r n , a r e o f the c a p a c i t i e s o f e x i s t i n g  f i r m s , o r the e r e c t i o n and equipping  of new f i r m s .  The  c o n s t r u c t i o n t r u s t s working on approved p r o j e c t s a r e s u p p l i e d w i t h the q u a n t i t y o f b u i l d i n g m a t e r i a l s and equlp^This a p p l i e s t o those savings provided f o r by the State P l a n of C a p i t a l Work. Such savings a r e termed " c e n t r a l i z e d " investments as d i s t i n c t from " n o n c e n t r a l i z e d " investments, which a r e o u t s i d e the S t a t e P l a n o f C a p i t a l Work. C f . Norman Kaplan, C a p i t a l Investments i n the S o v i e t Union, 1924-1951, (Santa Monica, Rand C o r p o r a t i o n , 1952), p. 29.  3.  merit r e q u i r e d by them, f o r which the f i r m s s u p p l y i n g equipment and  these b u i l d i n g m a t e r i a l s f o r the v a r i o u s  j e c t s are remunerated, a t f i x e d p r i c e s , from the Plan.  this pro-  Investment  T h e r e f o r e , whereas the expanding or the newly  e s t a b l i s h e d f i r m s r e c e i v e t h e i r f i x e d c a p i t a l without paying f o r i t ,  the f i r m s s u p p l y i n g  i n d i v i d u a l p i e c e s of  :  this  c a p i t a l are p a i d a p r i c e from a c e n t r a l l y c o n t r o l l e d p o o l of investments. The  apportioning  of c e n t r a l i z e d investments, as s e t  out i n d e t a i l by the State P l a n , Is accomplished through s p e c i a l Investment Banks.  These o r g a n i z a t i o n s a c t as  middlemen i n the n e g o t i a t i o n s conducted between f i r m s s e l l i n g equipment and b u i l d i n g m a t e r i a l s , and i n d i v i d u a l c o n s t r u c t i o n p r o j e c t s r e q u i r i n g such goods and  executed  by the s p e c i a l i z e d c o n s t r u c t i o n f i r m s of the M i n i s t r y of 2 Construction.  The  Banks are a u t h o r i z e d by the c e n t r a l  government t o employ funds apportioned  from a s t a t e con-  t r o l l e d money-pool f o r the purpose of purchasing  equipment  and  building  b u i l d i n g m a t e r i a l s from manufacturers.  m a t e r i a l s and  equipment, assembled f o r any  are t h e n i n c o r p o r a t e d  The  given project,  i n the form of b u i l d i n g s  and  s t r u c t u r e s by a p a r t i c u l a r c o n s t r u c t i o n t r u s t and  finally  a l l o t t e d to a s p e c i f i c i n d u s t r i a l o r g a n i z a t i o n . p Recently r e o r g a n i z e d a t the l e v e l of the economic u n i t s .  Thus territorial-  4.  equipment and b u i l d i n g m a t e r i a l s are bought a t money p r i c e s , 2 but not by the i n d u s t r i a l f i r m s themselves. T h i s d e s c r i p t i o n of the method employed i n the apportioning  of funds and equipment may  be c l a r i f i e d ,  per-  haps, by the c i t i n g of a h y p o t h e t i c a l example of a t y p i c a l proceeding.  Let i t be assumed t h a t the State  Investment  P l a n i n c l u d e s a p r o j e c t i n v o l v i n g the establishment  of a  new  mine w i t h i n the M i n i s t r y of C o a l , and t h a t the p r o j e c t i s t o be f i n a n c e d completely Investment P l a n .  w i t h funds obtained  According  from the  State  t o g e n e r a l p r a c t i c e , the  Gosbank w i l l n o t i f y a branch of the Prombank t h a t the Combine, f o r whom the new granted  Coal  works are being b u i l t , Is t o be  a c c e s s , f o r c a p i t a l work needs, to some p r e d e t e r -  mined sum  of money In the form of an account w i t h  Investment bank.  4  The  c o n s t r u c t i o n t r u s t of the  c o a l combine (or of the M i n i s t r y of C o n s t r u c t i o n ) be n o t i f i e d t h a t t h i s p a r t i c u l a r account has  the given will  then  been opened  T h i s i s a s i m p l i f i c a t i o n of the a c t u a l procedures. Equipment purchases are not I n f a c t always made by a construction trust: i n the case of the machine b u i l d i n g I n d u s t r y , equipment i s sometimes purchased by the cons t r u c t i o n t r u s t but more o f t e n by the o f f i c e s of the machine b u i l d i n g Industry i n a g i v e n a r e a . In any event, the " p r o j e c t " has no f i n a n c i a l r e s p o n s i b i l i t y r e g a r d i n g the a c q u i s i t i o n of i t s f i x e d c a p i t a l . T h e Gosudarstvennii Bank i s the c e n t r a l banking a u t h o r i t y i n the U.S.S.R., w h i l e the P r o m i s h l e n n i i Bank i s what amounts to a s p e c i a l i z e d department of the c e n t r a l bank and c a t e r s to the Investment needs of i n d u s t r y . 4  5.  and  t h a t I t must now  b u i l d i n g t r u s t now  proceed w i t h I t s t a s k s .  becomes r e s p o n s i b l e f o r p u r c h a s i n g ,  the investment banks, the m a t e r i a l s and f o r the p r o j e c t .  Thus the  equipment r e q u i r e d  I t i s f u r t h e r responsible f o r preparing  the work s i t e , assembling the planned b u i l d i n g s and t u r e s as w e l l as i n s t a l l i n g r e q u i s i t e equipment. having  via  been done, the c o n s t r u c t i o n t r u s t then  draws from the s i t e and  strucThis  simply,with-  the completed p r o j e c t , u n f e t t e r e d  by f i n a n c i a l o b l i g a t i o n s , passes under the c o n t r o l and d i r e c t i o n of the m a n a g e r i a l s t a f f of the g i v e n combine. Hence the S o v i e t p l a n t Is b u i l t and  equipped without c o s t i  to i t s e l f . The resources  p r a c t i c e of a l l o c a t i n g funds and on the s c a l e r e q u i r e d by S o v i e t  material  investment  p l a n n i n g g i v e s r i s e t o a number of s p e c i a l and i n t e r e s t i n g problems which may apportionment.  p r o p e r l y be c a l l e d the " i s s u e s " of  The f i r s t group of such i s s u e s p e r t a i n t o  problems concerning  the apportionment of funds between  individual projects.  As  i t i s undoubtedly  t h a t the S o v i e t economy c o u l d simultaneously  inconceivable finance a l l  the plans advanced f o r c o n s i d e r a t i o n to the s t a t e a u t h o r i t i e s i n any the d i f f i c u l t i e s  one  accounting  planning  period, I t follows that  of c h o i c e must be encountered.  bodies must decide which p r o j e c t s are to be g i v e n i n a p a r t i c u l a r programme of c a p i t a l work.  The  Planning priority problem  6.  i n v o l v e s d e t e r m i n i n g which p r o j e c t s a r e o f g r e a t e s t value f o r a s p e c i f i c p e r i o d .  economic  The second problem, which  f o l l o w s on the l a t t e r , i s the d i f f i c u l t y o f d e c i d i n g how t o a l l o c a t e f i n a n c e s so as t o ensure a p r o p e r balance w i t h i n a g i v e n p r o j e c t between grants f o r pure c o n s t r u c t i o n and equipping purposes r e s p e c t i v e l y .  Should the a l l o c a t i o n o f  investment funds n o t be e f f e c t e d a s t u t e l y , then excesses and shortages o f one s o r t o r another a r e bound t o o c c u r i n the economy.  The second group o f i s s u e s concerns problems  r e l a t e d t o the apportionment of i n d i v i d u a l p i e c e s o f equipment.  W i t h the manufacturing c a p a c i t y , and t h e r e f o r e the  s t o c k o f equipment  g i v e n a t any p o i n t I n the apportionment  p r o c e s s , p l a n n e r s a r e c o n f r o n t e d w i t h the t a s k o f p r o p e r l y a p p o r t i o n i n g the e x i s t i n g s t o c k i n an economic In the event t h a t the d i s t r i b u t i o n o f equipment ducted on a proper economic unemployment of equipment  fashion. i s not con-  b a s i s , one can a n t i c i p a t e b o t h  r e s u l t i n g from overapportionraent  and shortages of manufactures r e s u l t i n g from u n d e r a p p o r t i o n ment.  T h i s problem o f improper d i s t r i b u t i o n o f equipment  m a n i f e s t s i t s e l f a t the l e v e l o f the i n d i v i d u a l p r o d u c t i o n l i n e i n the form o f noncomplementarity i n the m e c h a n i z a t i o n of p r o d u c t i o n .  The f i n a l i s s u e o f importance w i t h i n  this  l a t t e r group i s one c o n c e r n i n g the d i f f i c u l t y o f e n s u r i n g t h a t the t o t a l a v a i l a b l e  stocks o f equipment  are a c t u a l l y  not only a l l o c a t e d by c e n t r a l a u t h o r i t i e s , but a l s o  fully  7.  u t i l i z e d by i n d i v i d u a l f i r m s . The  i s s u e s a r i s i n g from S o v i e t procedures  i n dis-  pensing both funds and m a t e r i a l r e s o u r c e s are of supreme importance  t o an a p p r a i s a l of S o v i e t investments.  An  examination of these i s s u e s w i l l be undertaken w i t h r e f e r e n c e to the a c q u i s i t i o n and d i s p o s i t i o n of funds and m a t e r i a l resources.  F o r purposes  of comparison,  data p e r t a i n i n g t o  the U n i t e d S t a t e s as w e l l as the S o v i e t Union are p r e s e n t e d .  CHAPTER I I SOURCES OP FUNDS  Investment i s c a r r i e d on f o r the purpose o f producing f i x e d c a p i t a l .  Fixed c a p i t a l c o n s i s t s of a hetero-  geneous conglomeration of b u i l d i n g s , s t r u c t u r e s and equipment.  Commonly, the ownership o f t h i s s t o c k o f f i x e d  c a p i t a l i s d i v i d e d , w i t h i n an economy, between a p u b l i c and a private sector.  The exact  p r o p o r t i o n of the t o t a l  l o c a t e d i n each s e c t o r v a r i e s w i t h i n d i f f e r e n t l o c a l i t i e s and  countries.  A p r e c i s e cleavage between these two  s e c t o r s of c a p i t a l i s i n p r a c t i c e d i f f i c u l t  to e s t a b l i s h ,  but as t h i s study i s concerned w i t h the g e n e r a l  division  of investment expenditures i n t o these two p a r t s , i t i s not considered  necessary t o d e a l w i t h the more p r a c t i c a l  problem he r e .  1  In g e n e r a l , the d i s t i n g u i s h i n g f e a t u r e s o f the types of savings u s u a l l y formed by a p u b l i c s e c t o r I n an i n d i v i d u a l i s t i e a l l y planned economy a r e a t l e a s t t w o f o l d : they a r e moat f r e q u e n t l y o f such a c h a r a c t e r t h a t t h e i r formation would not be undertaken by the p r i v a t e s e c t o r f o r l a c k of adequate p r o f i t ; the b e n e f i t s which accrue t o a s o c i e t y from such savings a r e c u s t o m a r i l y i n d i s criminate.  9.  A. Extensive  I n the U.S.A.  i n v e s t i n g i s c a r r i e d on w i t h i n both the  p u b l i c and the p r i v a t e s e c t o r s , i n the U n i t e d  States,  a l t h o u g h investment i n the l a t t e r s e c t o r has measurably exceeded t h a t c a r r i e d on I n the former, f o r b o t h prewar and  postwar p e r i o d s . The  f e d e r a l government, the s t a t e s and the m u n i c i -  p a l i t i e s a l l spend l a r g e sums a n n u a l l y  f o r the maintenance  and expansion o f p u b l i c b u i l d i n g s and s e r v i c e s . nothing  approaching a complete l i s t  As,  o f the o b j e c t s o f p u b l i c  i n v e s t i n g c a n be undertaken, only a few items may be mentioned, e.g., b u i l d i n g s accommodating p o s t a l , customs, immigration, p o l i c e and armed f o r c e s s e r v i c e s and c o u r t s of law, highways, b r i d g e s , t u n n e l s work, e t c . .  and land  reclamation  Funds t o f a c i l i t a t e investment w i t h i n the  p u b l i c s e c t o r a r e d e r i v e d d i r e c t l y from government budgets a t the v a r i o u s governmental l e v e l s ; s t a t e and c i t y .  that i s , f e d e r a l ,  Government budgets i n t u r n d e r i v e  their  r e c e i p t s from numerous sources i n c l u d i n g d i r e c t and i n d i r e c t t a x a t i o n , customs d u t i e s , s a l e of government bonds, etc..  W i t h the e x c e p t i o n  resources  o f the war y e a r s , the b u l k o f  f o r a l l government expenditures,  i n c l u d i n g funds  used i n the process o f i n v e s t i n g , has come from c u r r e n t revenue sources.  Higher t a x r a t e s , enlarged  t a x bases,  10.  and  new  forms of t a x a t i o n have r a i s e d tax revenue from  b i l l i o n d o l l a r s i n 1932  to 50.7  b i l l i o n dollars i n  8.3  1950.  Of p r i n c i p a l i n t e r e s t i n the American tax group i s the Income tax, which has  played an i n c r e a s i n g l y Important r o l e as  source of revenue f o r the government s e c t o r . income taxes s u p p l i e d 11.2 revenue;  by 1950,  of t o t a l revenue.  percent  In  a  1932,  of t o t a l government  the income tax was  s u p p l y i n g 40.5  percent  D i r e c t t a x a t i o n i n the S o v i e t Union, as  w i l l be shown, w i t h the e x c e p t i o n  of the war  been as prominent a device  d i r e c t t a x a t i o n i n the  United  as has  y e a r s , has  not  States. I n the U.S.A., i n v e s t i n g i n the p r i v a t e s e c t o r i s of  a f a r g r e a t e r importance than i n the p u b l i c . f i c a n c e of the p r i v a t e s e c t o r may  be a p p r e c i a t e d  c o n s i d e r i n g t h a t throughout the p e r i o d s  percent  l e s s than 47.8  percent  signi-  by  1929-1939 and  1945-1950, o u t l a y s f o r p r i v a t e p r o d u c t i v e c o n s t i t u t e d not  The  and  of a l l o u t l a y s f o r c a p i t a l goods.  f a c i l i t i e s nave as much as  76.1  Maintenance  and  expansion of p r i v a t e c a p i t a l s t o c k i n v o l v e s  for  even more d i v e r s e purposes t h a n are encountered i n the  public sector.  Investing  Such p r i v a t e a c t i v i t y r e s u l t s i n the  J . F r e d e r i c Dewhurst, America's Needs and Resources, (New York, American B o o k - S t r a t f o r d P r e s s , Inc., 1955), p. 583. Dewhurst, America's Needs and  Resources, p.  471.  11.  appearance of new cesalng  and  reconditioned  plants, appliance  and  t e x t i l e and  food  automotive p l a n t s as w e l l  the more b a s i c i n s t a l l a t i o n s such as s t e e l stamping r o l l i n g m i l l s , o i l and example, b l a s t and  gas  r e f i n e r i e s and,  open h e a r t h f u r n a c e s .  c a p i t a l i s by no means e x h a u s t i v e , but Idea of the  States  r  as  and  as a  final  This  list  of  i t does p r o v i d e some  s i g n i f i c a n t c o n t r i b u t i o n made t o t o t a l  ments i n the U n i t e d  pro  invest-  by the p r i v a t e s e c t o r .  The  funds t o f a c i l i t a t e the c r e a t i o n and maintenance of t h i s miscellany  of p r o j e c t s eome from two  sources.  The  first  source i s the f i r m i t s e l f through i t s savings i n the of u n d i s t r i b u t e d p r o f i t s .  The  form  second source i s the  c a p i t a l market through which investment funds are accumul a t e d by the s a l e of stock and  bond i s s u e s .  A  short  d i s c u s s i o n of b o t h sources w i l l i n d i c a t e t h e i r r e l a t i v e share i n t o t a l p r i v a t e  investments.  As would be expected, the volume of p r o f i t s of American c o r p o r a t i o n s period  1929  through 1939.  varied g r e a t l y during  F o r example, the  p r o f i t s of n o n - f i n a n c i a l c o r p o r a t i o n s t o t a l l e d $3,823 m i l l i o n i n 1929, 1932,  rose t o #910  #1,780 m i l l i o n .  undistributed  m i l l i o n by 1935  and  undistributed  w i t h net  f e l l t o #144  income million in  by 1939  stood a t  During the p e r i o d 1941-1945,  corporations  r e t a i n e d more than h a l f of t h e i r earnings a f t e r taxes t h a t by  1945  t h e i r l i q u i d assets  the  amounted t o #40  so  billion.  12.  The volume of funds c o l l e c t e d e x t e r n a l l y f l u c t u a t e d d u r i n g the  p e r i o d 1929-1939, as d i d those c o l l e c t e d  Internally.  The amount of non-current funds from o u t s i d e absorbed by n o n - f i n a n c i a l c o r p o r a t i o n s t o t a l l e d $2,805 m i l l i o n i n 1929. W i t h the onset of the d e p r e s s i o n , the accumulations of nonc u r r e n t funds dropped o f f a n n u a l l y u n t i l 1932 a t which they i n v o l v e d some $338 m i l l i o n .  time  In succeeding y e a r s , non-  f i n a n c i a l c o r p o r a t i o n s i n c r e a s e d t h e i r borrowings so t h a t by 1937 they absorbed $2,795 m i l l i o n .  Both 1938 and 1939 were  years o f reduced a b s o r p t i o n s of non-current f u n d s , but i n the  l a s t prewar y e a r , 1940, t h e r e were i n c r e a s e d e x t e r n a l  borrowings, the t o t a l t a k e n amounting t o $3,783 m i l l i o n . Over a seven y e a r postwar p e r i o d , funds borrowed c o r p o r a t i o n s amounted t o $182 of  so t h a t by the end  1952, c o r p o r a t e debts o u t s t a n d i n g c o n s i s t e d of  billion.  $167  4  Throughout net  billion,  by  the p e r i o d 1929-1950, the f i n a n c i n g of  a s s e t expansion by n o n - f i n a n c i a l c o r p o r a t i o n s from  i n t e r n a l and e x t e r n a l sources r e s p e c t i v e l y , f l u c t u a t e d considerably.  I t i s i n t e r e s t i n g i n t h i s c o n t e x t t o note  t h a t f o r the e n t i r e p e r i o d c o v e r i n g the f i r s t h a l f of t h i s c e n t u r y , s i x t y percent of t h i s expansion r e q u i r e d  external  ^ N a t i o n a l A s s o c i a t i o n of Manufacturers, The American I n d i v i d u a l E n t e r p r i s e System, (New York, McGraw H i l l Co., 1946), v o l . 1, pp. 395-6; D~ewhurst, America's Needs and Resources, p. 921.  13.  financing.  F o r the p e r i o d s w i t h which t h i s study i s  p r i m a r i l y concerned, the p r o p o r t i o n s  of t o t a l f i n a n c i n g of  net a s s e t expansion, undertaken by n o n - f i n a n c i a l from i n t e r n a l sources, v a r i e d from 78 percent  corporations  I n the p e r i o d  1930-1933, t o 49 percent sources accounting  i n the p e r i o d 1946-1949 - e x t e r n a l g f o r the r e s p e c t i v e b a l a n c e s .  B.  I n the U.S.S.R.  As has been p o i n t e d extensive  out above, i n the U n i t e d  States  spending f o r Investment purposes i s c a r r i e d out  w i t h i n both the p r i v a t e and p u b l i c s e c t o r . the c a s e i n the S o v i e t Union.  T h i s i s not  I n the U.S.S.R., the i n v e s t -  i n g process w i t h i n the p r i v a t e s e c t o r I s i n s i g n i f i c a n t . Since the beginning o f the p l a n n i n g  e r a (1928), the b u l k o f  a l l i n v e s t i n g has been c a r r i e d on w i t h i n the p u b l i c s e c t o r . T h i s does n o t mean t h a t there the g e n e r a l c o n t e x t  I s any major d i f f e r e n c e i n  o f investment w i t h i n the U.S.S.R., as  c o n t r a s t e d t o the U.S.A., and does n o t a l t e r the f a c t  that  a v e r y d i f f e r e n t developmental emphasis has c h a r a c t e r i z e d S o v i e t investment I n b a s i c i n d u s t r y .  Blast furnaces, o i l  A Conference o f t h e U n i v e r s i t i e s - N a t i o n a l Bureau Committee f o r Economic Research, C a p i t a l Formation and Economic Growth, ( P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , 1955), p. 146. 5  6  I b i d . , pp. 147-48.  14.  r e f i n e r i e s , t e x t i l e works and automotive p l a n t s , as w e l l as p o s t a l and customs s e r v i c e s , highways and t u n n e l s , e t c . , are a f e a t u r e of c a p i t a l work i n the U.S.S.R. as they a r e i n the U.S.A..  I t does mean, however, t h a t Investment  on  b e h a l f o f the major p a r t of i n d u s t r y i s a f u n c t i o n ©f the p u b l i c s e c t o r i n the S o v i e t Union.  P r i v a t e manufacturers  have been p e r m i t t e d t o e x i s t d u r i n g the p e r i o d o f the p l a n s but t h e i r a c t i v i t i e s have been r e s t r i c t e d t o the s u p p l y of 7  minor i t e m s .  The amount of money spent by the p r i v a t e  s e c t o r f o r investment purposes has hence been n e g l i g i b l e . I n the d i s c u s s i o n of the p u b l i c S t a t e s i t was  sector i n the,United  I n d i c a t e d t h a t the funds used f o r investment  purposes a r e d e r i v e d d i r e c t l y from government budgets.  In  the S o v i e t Union, a s t a t e budget i s a l s o the s i n g l e most Important source of funds f o r Investment purposes i n the Q  public sector.  W i t h the e x c e p t i o n of the war y e a r s ,  between 1933 and 1950 the S o v i e t budget p r o v i d e d from  67.5  t o 86.4 percent of a l l funds used f o r f u r t h e r i n g the prod u c t i o n o f c a p i t a l w i t h i n the U.S.S.R.. I f I t i s kept I n 7 I r o n beds, p o t s , wooden spoons and such a r t i c l e s . 8 F o r d e t a i l s c o n c e r n i n g the v a r i o u s governmental budgets employed i n the U.S.S.R., see Alexander Baykov, The Development of the S o v i e t Economic System. (Cambridge, Cambridge U n i v e r s i t y P r e s s , 1947), p. 385. 9 C f . Table A l i n the Appendices. 9  15.  mind t h a t the State budget of the S o v i e t U n i o n has r e s p o n s i b i l i t i e s than i t s American c o u n t e r p a r t ,  larger  i n s o f a r as  the S o v i e t budget i s the prime source of a l l funds u t i l i z e d f o r c a p i t a l work i n i n d u s t r y , then i t i s a n t i c i p a t e d t h a t  as  a share of n a t i o n a l product, the S o v i e t budget w i l l c o n s t i t u t e a l a r g e r p a r t than w i l l the American budget. i l l u s t r a t e d by the f a c t t h a t i n 1937, r e c e i p t s were 36 percent pared to 17 percent The  This i s  S o v i e t budgetary  of gross n a t i o n a l p r o d u c t , as com-  f o r the U n i t e d  States  i n the  same yeariP  State budget of the U.S.S.R. depends f o r i t s Income  a number of revenue sources, enumerated w i t h r e s p e c t  on  some of which have been:  t o government budgets i n the U.S.A..  A l t h o u g h the primary sources of budgetary revenue a r e . s i m i l a r I n b o t h c o u n t r i e s , the p r o p o r t i o n s  of t o t a l revenue  c o n t r i b u t e d by prime sources are q u i t e d i s s i m i l a r . The most important source of budgetary revenue i n the S o v i e t U n i o n i s the s o - c a l l e d t u r n o v e r  tax.  The  t h i s tax i s d e r i v e d from the o p e r a t i o n t h a t i t s accumulation. goods "turned  Quite  simply,  name of  characterizes  the tax i s a p p l i e d on a l l  over" or s o l d by s t a t e c o n t r o l l e d e n t e r p r i s e s .  I t Is p r o p e r l y r e f e r r e d t o as a s a l e s o r commodity t a x , as such I t s r o l e i s unique, c o n s i d e r i n g of a l l s t a t e revenue i s d e r i v e d from i t .  that a major p o r t i o n Whereas i n the  P r a n k l y n D. Holzman, S o v i e t T a x a t i o n , Harvard U n i v e r s i t y P r e s s , 1955), p. 29. 1 0  and  (Cambridge,  16.  U n i t e d S t a t e s an income (or d i r e c t ) t a x c o n s t i t u t e s the major source o f revenue, i n the U.S.S.R. t h i s r o l e Is assumed by an i n d i r e c t o r commodity tax.  F o r i n s t a n c e , i n the p e r i o d  1928 through 1940, the t u r n o v e r tax p r o v i d e d n o t l e s s t h a n 35.2  percent and as much as 69.7 percent o f t o t a l budgetary  revenue I n the U.S.S.R..  During the postwar p e r i o d , 1946  through 1954, t h i s t a x has c o n t r i b u t e d from 41 p e r c e n t t o 62.1 percent o f a l l Union budget  receipts.  1 1  I t i s obvious,  t h e r e f o r e , t h a t the t u r n o v e r tax i s o f major importance i n the f o r m a t i o n of the budget.  F u r t h e r , as c e n t r a l i z e d  investments i n the S o v i e t economy are m a i n l y i n the form o f non-repayable g r a n t s o r a l l o c a t i o n s from the s t a t e  budget,  the t u r n o v e r tax i s e v i d e n t l y o f paramount importance  inso-  f a r as t h e S t a t e P l a n of c a p i t a l work Is concerned. The employment o f an i n d i r e c t tax as a means o f s i p h o n i n g o f f monies f o r budgetary purposes was not a c c i dental.  W i t h the advent o f the f i r s t p l a n I n 1928, , i t  became most i m p e r a t i v e t h a t the S o v i e t Government guarantee I t s p l a n n i n g a u t h o r i t i e s s u f f i c i e n t money c a p i t a l f o r the p r o j e c t e d investment programmes.  I n view of the e x c e e d i n g l y  h i g h r a t e of investment t h a t was going t o be attempted, i t was obvious t h a t r e l a t i v e l y l a r g e q u a n t i t i e s o f money would have t o be a v a i l a b l e i n the form o f a steady money-flow p a s s i n g Into the c e n t r a l investment fund v i a the s t a t e 11  Gf. Table B l i n the Appendices.  17.  budget.  The fundamental problem c o n f r o n t i n g the government  was how t o provide c o n s i s t e n t l y a money stream o f the r e q u i r e d dimensions.  Keeping i n mind the i n t e r n a t i o n a l  s t a t u s of the S o v i e t Union i n the years  immediately f o l l o w -  i n g World War I , one c a n r e a d i l y a p p r e c i a t e t h a t there c o u l d be no p o s s i b i l i t y o f the S o v i e t y Government being a b l e t o borrow f o r e i g n savings quantities. source  i n e i t h e r constant  or appreciable  Thus the U.S.S.R. was denied access  t o one  o f money c a p i t a l v e r y f r e q u e n t l y r e s o r t e d t o by  developing  economies.  I f i t i s f i n a l l y c o n s i d e r e d t h a t the  e x i s t i n g stocks o f domestic savings were q u i t e unequal t o the t a s k s e n v i s i o n e d then i t becomes apparent t h a t the government o f the S o v i e t Union had but one r e c o u r s e ;  namely,  I n v o l u n t a r y e x a c t i o n s from the p e r s o n a l incomes o f t h e population.  Compulsory s a v i n g was o b v i o u s l y the answer, but i n  the face of the enormous sums r e q u i r e d , v e r y s t r o n g o p p o s i t i o n was t o be a n t i c i p a t e d from the wage earners t a x a t i o n alone be employed.  should  direct  As a means o f c o n c e a l i n g the  extremely heavy e x a c t i o n s t h a t had t o be made, a commodity tax was r e s o r t e d t o .  As a f u r t h e r expedient  f o r securing  more.or l e s s e x a c t l y planned sums, the commodity tax was brought t o bear most h e a v i l y on those  items of consumption  which the b u l k of c i t i z e n s u t i l i z e d ;  t h a t i s , on a r t i c l e s  of I n e l a s t i c demand. "Bread i s t r u l y the s t a f f o f l i f e i n the S o v i e t Union,  18.  and the l a r g e s t s i n g l e item of expenditure o f the p o o r e r 12 families."  I t i s on such b a s i c items as bread and sugar,  and f o r those who d r i n k s p i r i t s , on a l c o h o l , that the t u r n over tax weighs h e a v i e s t .  The t a x r a t e s a p p l i c a b l e t o such  Items were i n 1935, f o r example, g e n e r a l l y i n excess o f 70 percent;  t h a t i s t o say, as a percentage o f t h e p r i c e , the  t u r n o v e r taxes c o n s t i t u t e d more t h a n 70 p e r c e n t  (contrast  these w i t h r a t e s o f l e s s than 40 percent on such Items as 13 x  cream, c h i c k e n s , geese, t u r k e y s and canned f r u i t ) . for  these s e v e r a l commodities  Demand  i s relatively Inelastic;  in  s p i t e o f p r i c e , they w i l l be purchased I n c o n s i d e r a b l e q u a n t i t i e s and w i l l t h e r e f o r e ensure the budget flow of revenue.  o f a steady  As an I l l u s t r a t i o n of the p a r t p l a y e d by  bread p r o d u c t s , sugar and a l c o h o l i n c o l l e c t i o n s f o r t u r n over t a x e s , one may c o n s i d e r t h a t I n 1936, o f 62.7 b i l l i o n r u b l e s r e c e i v e d Into the budget s t a t e d commodities  from these t a x e s , the t h r e e  s u p p l i e d 33.1 b i l l i o n r u b l e s , o r somewhat  Holzman, S o v i e t T a x a t i o n , p. 150; the a u t h o r r e f e r s t o a study, Lohn. P r e i s und Lebenshaltung i n d e r Union d e r S o z i a l l s t i s c h e n Sow.jetrepubliken, ( V l e r t e l j a h r e s h e f t e z u r S t a t i a t i k des Deutschen R e i c h s , v o l . 47, no. 4, B e r l i n , 1939), i n which i t i s eatimated t h a t i n S o v i e t f a m i l i e s whose incomes were t y p i c a l l y 2,600 r u b l e s ( a n n u a l l y ) , expenditures on bread and f l o u r amounted t o more than 25 percent o f t o t a l income. 13 Holzman, S o v i e t T a x a t i o n , p. 151.  19.  more than 50  percent.  Like a l l s a l e s t a x e s , the t u r n o v e r tax Is a markup; t h a t i s , i t i s an a d d i t i o n t o a c t u a l p r o d u c t i o n and costs.  marketing  However, i t does not a f f e c t p r i c e i n the way  that  s a l e s taxes o r d i n a r i l y do i n North America, f o r i n s t a n c e . prices i n state c o n t r o l l e d enterprises f o r e more or l e s s f i x e d .  As  are  planned, and  All there-  a g e n e r a l r u l e , the average c o s t  of each commodity u n i t i s c a l c u l a t e d i n terms of r u b l e s kopeks, but a l l o t h e r c o n s t i t u e n t s  of f i n a l p r i c e  and  are  15 expressed as a percentage. t u r n o v e r tax has  a unique p o s i t i o n ;  to cost f l u c t u a t i o n s . r i s e , the  W i t h i n t h i s framework, the  turnover tax  p o r t i o n of p r i c e i s .  i t i s l a r g e l y Impervious  In the event t h a t a f i r m ' s  costs  do  i s not a f f e c t e d , whereas the p r o f i t s In t h i s way,  the budget i s always  Holzman, S o v i e t T a x a t i o n , p. 72; Baykov, S o v i e t Economic Development, p. 370. I t i s i n t e r e s t i n g t o note t h a t bread products a l o n e c o n t r i b u t e d 21.2 b i l l i o n r u b l e s out of t o t a l turnover tax r e c e i p t s of 62.7 b i l l i o n r u b l e s i n 1936. That t h i s one consumer item c o u l d supply s u c h a l a r g e share of t o t a l t u r n o v e r tax r e c e i p t s r e s u l t s from the p r a c t i c e s of the c e n t r a l government r e s p e c t i n g procurement of g r a i n s u p p l i e s and r e t a i l s a l e of manufactured g r a i n products. By c o m p e l l i n g the c o l l e c t i v e farms t o a c c e p t r e l a t i v e l y low g r a i n procurement p r i c e s , and then subseq u e n t l y c h a r g i n g r e l a t i v e l y h i g h p r i c e s f o r manufactured p r o d u c t s , the s t a t e r e a l i z e s l a r g e revenues f o r the budget by l e v y i n g a heavy I n d i r e c t tax on the r e t a i l e d p r o d u c t s . F o r example, one k i l o g r a m of rye bread s o l e i n 1934 f o r 50 kopeks, w h i l e procurement p r i c e s were s i g n i f i c a n t l y lower; those f o r wheat being about 6 kopeks per k i l o g r a m . C l a s s n o t e s , l e c t u r e s g i v e n by Dr. H. E . Ronimois, a t the U n i v e r s i t y of B r i t i s h Columbia, 1955-56.  20,  a s s u r e d a p o r t i o n of the f i n a l s e l l i n g  price.  The t u r n o v e r tax has r e a l l y o n l y one important drawback.  Because I t Is p r i n c i p a l l y a tax l e v i e d on  bought f o r immediate consumption  commodities  by the p o p u l a t i o n , i f  s i g n i f i c a n t volumes of consumer goods are not f o r t h c o m i n g , r e c e i p t s from the t u r n o v e r tax w i l l n a t u r a l l y drop o f f . T h i s of course i s the exact s i t u a t i o n t h a t developed' a f t e r the German i n v a s i o n of the S o v i e t Union I n 1941. p r o d u c t i o n and s a l e of consumers' goods w;as  The  drastically  reduced and hence revenue from t u r n o v e r taxes on such commodities revenues  f e l l off sharply.  As a means of r e p l a c i n g the  l o s t through the i n e v i t a b l e f a i l u r e of the t u r n o v e r  tax on consumers' goods, the government was  compelled t o  Increase the p r e v a i l i n g rates of d i r e c t t a x a t i o n . ending of h o s t i l i t i e s was  The  f o l l o w e d by a r e t u r n t o prewar  16 p a t t e r n s of r a t e s . A l s o Included w i t h i n the planned p r i c e of each commodity i s a share devoted t o p r o f i t s .  Depending upon  an e n t e r p r i s e ' s i n t e r n a l requirements, a f i x e d  percentage  of planned p r o f i t s i s c a l c u l a t e d as a p r o f i t s tax and i s d i v e r t e d i n t o the budget.  The p a r t i c u l a r r a t e  charged  depends upon the f i r m ' s p l a n of c u r r e n t o p e r a t i o n and p l a n s ^•Srith r e g a r d t o t u r n o v e r tax r a t e s i n g e n e r a l , i t should be noted t h a t the r a t e s a p p l i c a b l e t o p r o d u c e r s ' goods a r e , t y p i c a l l y , lower t h a n those a p p l i e d t o con-sumers' goods.  21  f o r expansion of p r o d u c t i v e percent  capacity.  A maximum r a t e of  of planned p r o f i t s i s l e v i e d as a p r o f i t s tax  81  on  f i r m s whose income exceeds i n t e r n a l requirements i n terms o f expenditures  f o r maintenance and/or expansion of f i x e d  working c a p i t a l .  and  Rates v a r y i n g from 10 t o 81 percent  of  planned p r o f i t s are l e v i e d on f i r m s whose income more o r l e s s meets needs f o r c u r r e n t o p e r a t i o n and planned expansion. A minimum r a t e of 10 percent  i s l e v i e d on the p r o f i t s  of  f i r m s which i n g e n e r a l r e q u i r e budget a s s i s t a n c e i n order c a r r y out t h e i r plans f o r c u r r e n t and The  future  to  operations.  r e a l purpose of t h i s l a t t e r nominal r a t e i s t o permit  the r e g u l a r a u d i t i n g by c e n t r a l a u t h o r i t i e s of a f i r m ' s 17 programme and  progress.  W i t h the e x c e p t i o n math, the p r o f i t s tax has through 1954,  from 8.2  of the war  years and  their after-  c o n t r i b u t e d , i n the p e r i o d  t o 16.2  percent  1937  of t o t a l budget  18 receipts.  While d i r e c t o r income taxes have i n g e n e r a l  p l a y e d a minor r o l e i n S o v i e t t a x a t i o n p o l i c y , they have not been e n t i r e l y d i s c a r d e d .  F i r s t l y , income taxes are a  means of e x a c t i n g f u r t h e r savings Secondly, d i r e c t taxes may  from the  population.  be used as instruments of d i s -  crimination. In North America, income taxes are p a i d 17 Baykov, S o v i e t Economic Development, pp. 374-75. 18 Holzman, S o v i e t T a x a t i o n , pp. 217, 222.  22  s t r i c t l y on the b a s i s o f annual income; s o c i a l p o s i t i o n and o c c u p a t i o n  the i n d i v i d u a l ' s  a r e n o t d i r e c t l y concerned  w i t h the r a t e o f t a x a t i o n imposed.  I n t h e S o v i e t Union,  however, the r a t e o f t a x i s dependent not only on annual income but a l s o on c l a s s of o c c u p a t i o n .  I n 1934, f o r  example, p e t t y b u s i n e s s men e a r n i n g an annual income o f 5,000 r u b l e s p a i d income taxes a t a r a t e seven times  higher 19  than t h a t l e v i e d on common workers employed i n urban During the p e r i o d s  areas.  1930 through 1940, and 1946  through 1954, d i r e c t taxes have been c o n s t r u c t e d approximately 4 t o 10 percent  to y i e l d 20  o f t o t a l budget r e c e i p t s .  I n a d d i t i o n t o d i r e c t income tax, S o v i e t workers were f o r many years o b l i g e d t o purchase government bonds; t h i s p r a c t i c e has now been a b o l i s h e d . "...  i t i s no e x a g g e r a t i o n t o say t h a t almost the  e n t i r e s t a b l e savings  of the U.S.S.R. p o p u l a t i o n a r e i n 21  f a c t i n v e s t e d i n State bonds." the f i r s t F i v e Year P l a n  Prom the i n c e p t i o n o f  (1928), r e c e i p t s from the s a l e of  government bonds have been a permanent f e a t u r e o f annual S t a t e budgets.  Throughout the p e r i o d 1928-1954, monies  Hol t bonds T a x a t i ohave n , p. from the s a»laen ,o fS oS vt ia e te c o79. ntributed on 1 9  approximately  " i b i d . , pp. 217, 222. 21 Baykov, S o v i e t Economic Development, p. 379.  23.  5 t o 14 percent  of t o t a l budgetary r e c e i p t s .  of l o a n d r i v e s i n the S o v i e t Union has  The  promotion  been c o n s i s t e n t l y  c a r r i e d out i n an atmosphere r e m i n i s c e n t  of wartime V i c t o r y  Bond campaigns i n Canada and the U n i t e d S t a t e s .  Under the  I n f l u e n c e of such p r e s s u r e , S o v i e t workers a p p a r e n t l y  have  commonly c o n t r i b u t e d from two  the  State loans.  t o f o u r weeks' wages t o  Lacking the mechanism of a f r e e e n t e r p r i s e  market f o r stocks and bonds, the annual government  loans  are u t i l i z e d f o r the purpose of absorbing much of the popul a t i o n ' s r e s i d u e of income.  F i n a l r e s i d u e of income i n  the form of savings, i f d e p o s i t e d  i n the S t a t e Bank  (Gosbank), i s a l s o u t i l i z e d on b e h a l f of the government by having the banks ( d i s t r i c t branches of the Gosbank) h o l d 22 s t a b l e savings balances Over the course  i n the form of S t a t e bonds. of y e a r s , government bonds i n the  hands of the people have been manipulated i n terms of i n t e r e s t and p r i n c i p a l by the S t a t e , t o the detriment the bondholder.  As  one w r i t e r has  the S o v i e t c i t i z e n has  bondholder over being a  had  observed, "To date  of ...  l i t t l e reason t o p r e f e r being 23  a  taxpayer."  22 Baykov, S o v i e t Economic Development, p. 379. " Holzman, S o v i e t T a x a t i o n , p. 201. S a l e s of S t a t e bonds are c u r r e n t l y r e s p o n s i b l e f o r s u b s c r i b i n g r e l a t i v e l y s m a l l q u a n t i t i e s of money t o the Union budget. C f . Appendices, Table CI, f o r an o u t l i n e o f the r e l a t i v e c o n t r i b u t i o n s made to the budget by p r i n c i p a l c o n t r i b u t i n g sources over the p e r i o d 1931-1958. 23  24.  In a d d i t i o n t o the sources of budgetary a l r e a d y d i s c u s s e d , the budget  revenue  i s a l s o the c o n f l u e n c e of a  miscellany of other exactions.  P r i n c i p a l among the l a t t e r  i s a f e e which i s used t o m a i n t a i n the S t a t e S o c i a l I n s u r ance Fund, and i s l e v i e d I n the form o f a markup over commodity c o s t .  T h i s S o c i a l Insurance Fund c o n s t i t u t e s a  r e s e r v o i r from w h i c h o l d age and s i c k n e s s insurance payments are made.  Among the assortment  budget a r e : peasants  o f o t h e r taxes f e d i n t o the  (a) income taxes payable by i n d i v i d u a l S o v i e t  (a c o u n t e r p a r t o f , t h e income tax payable by the 24  urban p o p u l a t i o n ) ;  (b) Income taxes payable by c o l l e c t i v e  farms, c o - o p e r a t i v e and p u b l i c o r g a n i z a t i o n s ;  (c) r e c e i p t s  from*customs;  and (e) taxes  (d) income from s t a t e f o r e s t s ;  l e v i e d on t h e a t r e and cinema b o x - o f f i c e  receipts.  There a r e a l s o o t h e r sources c o n t r i b u t i n g t o the aggregate p l a n of c a p i t a l c o n s t r u c t i o n ;  these l a t t e r a r e  l o c a t e d a t the l e v e l o f the i n d i v i d u a l s t a t e f i r m and cons i s t of the f o l l o w i n g : (b) the d i r e c t o r ' s f u n d ;  (a) the e n t e r p r i s e p r o f i t s  fund;  and (c) the a m o r t i z a t i o n f u n d .  P r o f i t s a r e , o f c o u r s e , not always  inevitably  forth-  coming from e n t e r p r i s e , and as might be expected, S o v i e t 24 Like the income t a x l e v i e d on urban p o p u l a t i o n s , the income taxes a p p l i e d t o r u r a l p o p u l a t i o n s a r e used as a means of d i s c r i m i n a t i n g between the " s o c i a l i z e d " and "non-socialized" sectors. Currently,.collective-farmers pay a t lower r a t e s t h a n p r i v a t e l y employed farmers. Cf. Holzman, S o v i e t T a x a t i o n , p. 187.  25  f i r m s are s u b j e c t t o the v a g a r i e s attendant upon e n t e r p r i s e wherever conducted.  T h i s d i s c u s s i o n , however, w i l l ignore  the problem of c o s t s , and w i l l c o n s i d e r a l l i n d u s t r i a l f i r m s as i f p r o f i t making were t h e i r common f o r t u n e . I t has been p o i n t e d out t h a t planned p r i c e s i n the U.S.S.R. c o n t a i n among t h e i r s e v e r a l elements devoted t o p r o f i t s .  As was  a share  a l s o noted, the s t a t e  levies  a t a x o n . a l l planned p r o f i t s , the r e c e i p t s from same e n t e r i n g the budget as p a r t of g e n e r a l revenue.  The p o r t i o n of  p r o f i t s remaining a f t e r the p r o f i t s tax has been accounted f o r i s c r e d i t e d t o the e n t e r p r i s e ' s own r e s o u r c e s .  By  law,  the d i r e c t o r ' s fund has a p r i o r c l a i m on a l l such monies c r e d i t e d t o a f i r m ' s account.  The fund a c q u i r e s , a c c o r d i n g  t o decree, from 1 t o 5 percent of planned p r o f i t s and anywhere from 15 t o 45 percent of unplanned  profits  (additional  p r o f i t s r e s u l t i n g from o p e r a t i o n s being conducted a t lower than planned c o s t and producing more than planned  profit).  S i n k i n g funds f o r c a p i t a l are maintained by law i n most areas of the economy, w i t h two important e x c e p t i o n s : (a) c o l l e c t i v e farms, and, s i n c e 1938,  (b) machine t r a c t o r  stations.  A m o r t i z a t i o n r a t e s are s e t by the S t a t e , and are 25 c a l c u l a t e d as percentages of o r i g i n a l c o s t .  Kaplan, C a p i t a l , I n v e s t m e n t s . p.  18  26  In g e n e r a l , the monies c o l l e c t e d i n the l a s t t h r e e funds d i s c u s s e d are used f o r purposes which by law are more or l e s s the preserve o f i n d i v i d u a l f i r m s .  That i s , f i r m s  may c o n s t r u c t d w e l l i n g s , c l u b s and n u r s e r i e s f o r t h e i r employees;  pay bonuses t o d i r e c t o r s and other employees  f o r f u l f i l m e n t and o v e r - f u l f i l m e n t o f planned norms o r quotas;  and f i n a l l y , m a i n t a i n b u i l d i n g s and equipment, and  even add t o t h e i r c a p i t a l s t o c k , p r o v i d e d t h i s i s s p e c i f i e d by p l a n s . One l a s t important source of money f o r investment f i n a n c i n g should be mentioned.  The " i n d i v i s i b l e funds"  of the c o l l e c t i v e farms a r e unique I n s o f a r as they a r e the only savings funds found i n S o v i e t a g r i c u l t u r e .  Each y e a r ,  every c o l l e c t i v e farm i s r e q u i r e d t o d e p o s i t 20 percent o f t o t a l monetary revenue  (from the s a l e o f v a r i o u s  26 "deliveries"  as w e l l as produce a t l o c a l markets) I n an  i n d i v i s i b l e fund.  Expenditures f o r b u i l d i n g s ,  livestock,  A l l c o l l e c t i v e farms a r e compelled by law t o t u r n over t o a s t a t e procurement agency ( z a g o t o v i t i ^ n a l a o r g a n i z a t s i a ) c e r t a i n annual quotas of g r a i n . A basic quota i n the form of a "compulsory d e l i v e r y " i s r e q u i r e d of every c o l l e c t i v e farm. A d d i t i o n a l d e l i v e r i e s i n the form of " c e n t r a l i z e d purchases" a r e r e q u i r e d o f c o l l e c t i v e farms which have had b e t t e r t h a n average h a r v e s t s . For b o t h forms of d e l i v e r i e s , the c o l l e c t i v e farms a r e p a i d a p r i c e s e t by the s t a t e ; the p r i c e f o r c e n t r a l i z e d purchases u s u a l l y being i n excess o f the p r i c e p a i d f o r compulsory d e l i v e r i e s .  27  t o o l s and o t h e r " l i g h t "  equipment are made from t h i s f u n d . 28  C e n t r a l i z e d investments, as p r e v i o u s l y mentioned, r e f e r t o savings p r o v i d e d f o r by the S t a t e P l a n of C a p i t a l Work.  The  s t a t e budget p l u s e n t e r p r i s e s ' own r e s o u r c e s  (mainly r e t a i n e d p r o f i t s and the p a r t of a m o r t i z a t i o n a l l o w 29 ances not d e s i g n a t e d f o r c a p i t a l r e p a i r s )  are the sources  from which these l a t t e r s a v i n g s are drawn. investments  Non-centralized  are f i n a n c e d by money taken from the savings  funds of the c o l l e c t i v e farms, and from the d i r e c t o r s ' funds.  I n Chapter I I I , the investments r e f e r r e d to are  s p e c i f i c a l l y those p r o v i d e d f o r by the S t a t e P l a n of C a p i t a l Work, i . e . , c e n t r a l i z e d  investments.  27 U n t i l v e r y r e c e n t l y (February, 1958), c o l l e c t i v e farms were not p e r m i t t e d t o a c q u i r e and operate p r i v a t e l y heavy a g r i c u l t u r a l equipment i n the form of power operated c u l t i v a t i n g implements, combines, e t c . . A l l heavy e q u i p ment was a s s i g n e d t o implement depots (Machine T r a c t o r S t a t i o n s ) operated by the M i n i s t r y of S t a t e Farms. C o l l e c t i v e farms were r e q u i r e d t o c o n t r a c t w i t h these depots i n order t o u t i l i z e the implements h e l d by them. I n r e t u r n f o r the s e r v i c e s of the M.T.S., the c o l l e c t i v e farms p a i d i n k i n d ; t h a t i s , they d e l i v e r e d quotas of g r a i n i n accordance w i t h t h e i r c o n t r a c t u a l arrangements. CF. note 18, p. 69. 2 8  C f . p. 2.  29 Kaplan, C a p i t a l Investments, p.  32.  " N o n - c e n t r a l i z e d investments are i d e n t i f i e d w i t h investments p r o v i d e d f o r by the decrees on e x t r a - l i m i t investments". C f . I b i d . , pp. 11, 13, 29.  CHAPTER I I I DESTINATION OP FUNDS AND  MATERIAL  RESOURCES  The P l a n o f C a p i t a l C o n s t r u c t i o n , i n the U.S.S.R., i n o l u d e s developmental schemes aimed a t i n c r e a s i n g the a d m i n i s t r a t i v e , m i l i t a r y , i n d u s t r i a l and f a c i l i t i e s of the S o v i e t economy;  agricultural  the funds t o f i n a n c e  t h i s developmental work coming c h i e f l y from the s t a t e budget.  The P l a n of C a p i t a l C o n s t r u c t i o n i s hence an  aggregate p l a n Inasmuch as I t envelopes c a p i t a l work of q u i t e d i f f e r e n t c a t e g o r i e s , f o r example, development i n d u s t r i a l as opposed to  to m i l i t a r y f a c i l i t i e s .  of  In a d d i t i o n  o u t l i n i n g the t o t a l volume of c a p i t a l work o f a l l c a t e -  g o r i e s t o be undertaken i n a g i v e n p e r i o d , the P l a n o f C a p i t a l C o n s t r u c t i o n c o n t a i n s an i t e m i z e d l i s t w i t h i n each c a t e g o r y .  of p r o j e c t s  I t w i l l be a p p r e c i a t e d t h a t the  number of p r o j e c t s i n c l u d e d w i t h i n a g i v e n P l a n of C a p i t a l C o n s t r u c t i o n i s enormous.  As a d i s c u s s i o n  encompassing  t o t a l investment a c t i v i t i e s even i n one c a t e g o r y , not t o mention the P l a n of C a p i t a l C o n s t r u c t i o n as a whole, i s m a n i f e s t l y o u t s i d e the l i m i t s of t h i s study, the d i s s e r t a t i o n w i l l a t t h i s p o i n t , be c o n f i n e d t o an a n a l y s i s of the  29  movements of funds and m a t e r i a l resources w i t h r e s p e c t t o a l i m i t e d s e l e c t i o n of b a s i c i n d u s t r i e s . Tables G l through N l , (See Appendices) present on the Machine B u i l d i n g , E l e c t r i c Power, I r o n and Petroleum, C o a l , R a i l r o a d Transport and  data  Steel,  Construction  I n d u s t r i e s , i n both the U n i t e d S t a t e s and the S o v i e t Union. I n g e n e r a l , the p e r i o d f o r which r e l e v a n t f i g u r e s are  pro-  v i d e d i s 1929-1950 ( e x c l u d i n g the years 1941  through 1945).  The  sums expended  I n d i v i d u a l f i g u r e s i n each t a b l e express  a n n u a l l y by g i v e n I n d u s t r i e s f o r goods and c r e a t e new  s e r v i c e s used t o  c a p i t a l , and t o m a i n t a i n or expand e x i s t i n g  c a p i t a l i n the form of b u i l d i n g s and equipment.  Hence,  the I n d u s t r i e s expending the l a r g e s t p o r t i o n s of funds are a l s o the i n d u s t r i e s u t i l i z i n g the most v a l u a b l e p o r t i o n , i n money terms, of e x i s t i n g savings or m a t e r i a l r e s o u r c e s . The  term "investment"  i s used throughout t h i s s e c t i o n as  w e l l as i n the t a b l e s t o s i g n i f y the amount of money e n t e r i n g the i n v e s t i n g p r o c e s s . gross estimates mies.  Any  tentative.  The  t a b l e s are c o m p i l a t i o n s  f o r Investment expenditures  of  i n both econo-  c o n c l u s i o n s based on t h e i r use a r e , t h e r e f o r e , 1  " S o v i e t investments  were c e n t r a l i z e d  ... and  con-  "^Gf. Appendix D f o r d i s c u s s i o n p e r t a i n i n g t o the c h a r a c t e r of the data presented.  30.  c e n t r a t e d on heavy i n d u s t r y t o an extent not d u p l i c a t e d by c a p i t a l i s t economies." the  2  The major f e a t u r e o f p l a n n i n g i n  U.S.S.R. has been the emphasis on the producers' goods,  i . e . , heavy i n d u s t r y .  By c o n c e n t r a t i n g the b u l k o f a v a i l -  a b l e r e s o u r c e s w i t h i n t h i s f i e l d , planners sought t o develop at  an e x t r a o r d i n a r y pace those i n d u s t r i e s fundamental t o  economic growth.  During the prewar p e r i o d , not l e s s t h a n  66 p e r c e n t , and as much as 88 percent o f t o t a l investment funds were c h a n n e l l e d i n t o heavy i n d u s t r y .  Included w i t h i n  heavy i n d u s t r y a r e the i n d u s t r i e s enumerated above, which w i l l be d e a l t w i t h I n t u r n w i t h r e f e r e n c e t o the percentage of  t o t a l funds devoted t o t h e i r development i n each country;  t h a t i s , the S o v i e t Union and the U n i t e d S t a t e s .  THE IRON AND STEEL INDUSTRY Throughout the p e r i o d 1929-1940, the q u a n t i t y o f money u t i l i z e d f o r c a p i t a l f o r m a t i o n i n the American i r o n and s t e e l i n d u s t r y , as a p r o p o r t i o n o f t o t a l investment i n the n a t i o n a l economy as a whole, v a r i e d from 0.6 p e r c e n t (1934) t o 2.4 4 percent (1937).  F o r the same p e r i o d , the S o v i e t Union  Norman Kaplan, " C a p i t a l Formation and A l l o c a t i o n " , S o v i e t Economic Growth,- (New York, Row P e t e r s o n , 1953), p.83. 3  Cf.  4 Cf.  Appendices, Tables E l , F l , F2. Appendices, Table G l .  31.  i n v e s t e d i n i t s i r o n and s t e e l i n d u s t r y from 2.7 percent (1938) t o 8.8 percent is interesting  (1933) o f i t s t o t a l investments.  t o note t h a t t h e maximum share o f savings  devoted t o the i r o n and s t e e l i n d u s t r y i n the TJnited (2.4$  It  - 1937) was, I n f a c t , n o t even e q u i v a l e n t  States  t o the  minimum share devoted t o the i r o n and s t e e l i n d u s t r y i n t h e S o v i e t Union (2.7$ - 1938).  A comparison of the maximum  shares r e c e i v e d i n each area r e v e a l s t h a t the American figure  i s l e s s t h a n one t h i r d the S o v i e t f i g u r e  (8.8$ - 1933).  In the p e r i o d 1946-1950, the share o f t o t a l i n v e s t ments r e c e i v e d by the i r o n and s t e e l i n d u s t r y i n the U.S.A. c o n s t i t u t e d from 2.0 percent The  (1950) t o 3.8 percent  r e l e v a n t S o v i e t d a t a shows a s l i g h t spread between 9.0  percent  (1950) and 10.2 percent  (1946).  war p e r i o d then, the share o f savings and  (1946).  During t h i s  post-  devoted t o the i r o n  s t e e l i n d u s t r y i n the U.S.S.R. was about three times as  l a r g e as t h e share devoted t o the i n d u s t r y i n the U.S.A.. Of f u r t h e r i n t e r e s t  f o r purposes o f comparison, i s  the p r o p o r t i o n o f t o t a l i n d u s t r i a l investments t h a t  Invest-  ment i n the i r o n and s t e e l i n d u s t r y c o n s t i t u t e d i n b o t h t h e . U.S.A. and the U.S.S.R..  During the p e r i o d 1929-1940, the  share o f t o t a l i n d u s t r i a l investment r e c e i v e d by t h e i r o n and  s t e e l i n d u s t r y i n the U.S.S.R. f l u c t u a t e d between a low  of 7.1 percent  (1938) and a h i g h o f 17.2 percent  The American f i g u r e s show t h e p r o p o r t i o n s  (1934).  as v a r y i n g between  32  2.3  percent  (1934) and 8.3 percent (1930 and 1937).  The y e a r 1935, which may he regarded as r e p r e s e n t a t i v e of a g e n e r a l t r e n d f o r the prewar p e r i o d w i t h r e s p e c t t o investments i n the i r o n and s t e e l i n d u s t r i e s o f the U.S.A. and the U.S.S.R., has been chosen a r b i t r a r i l y f o r s p e c i f i c reasons.  Two o b s e r v a t i o n s have c o n d i t i o n e d the c h o i c e .  F i r s t l y , i t was i n 1935 t h a t American investment  expenditures  i n the i r o n and s t e e l i n d u s t r y regained s t r e n g t h a f t e r t h e r e l a t i v e l y l e a n p e r i o d 1932-1934.  Secondly, the y e a r 1935,  i n the S o v i e t c a s e , was f r e e from extremes as i n d i c a t e d f o r example by the p r o p o r t i o n s f o r the years 1934 (17.2$) and 1938  (7.1$) - these being extremes i n the sense t h a t the  dimensions  o f the data make t h e i r acceptance q u e s t i o n a b l e ,  i n s o f a r , as they depart measurably  from the r e s t  of t h e d a t a .  Table G l shows t h a t the share of expenditures devoted t o the i r o n and s t e e l i n d u s t r y i n the U n i t e d S t a t e s i n 1935 c o n s t i t u t e d 5.8 percent of t o t a l i n d u s t r i a l investments i n that country. percent.  The r e l e v a n t S o v i e t p r o p o r t i o n was 12.6  I n t h i s y e a r then, and as an average  indication  f o r the p e r i o d 1929-1940, the S o v i e t i r o n and s t e e l i n d u s t r y absorbed a share o f i n d u s t r i a l investments  twice as l a r g e  as that absorbed by the American i n d u s t r y . The postwar data on investment  i n the i r o n and s t e e l  i n d u s t r y , as a share of t o t a l i n d u s t r i a l investment, r e v e a l s t h a t the S o v i e t shares were g e n e r a l l y twice as l a r g e as t h e  33  American.  F o r example, the year 1948 shows the American  share t o be 10.2 percent and the S o v i e t share 21.0 p e r c e n t . The c o m p e t i t i v e system o f e n t e r p r i s e i n the U n i t e d S t a t e s , i n the absence o f an upheaval s i m i l a r t o the "Russian R e v o l u t i o n " and n o t w i t h s t a n d i n g has wrought in-American  the 1929-1933 d e p r e s s i o n ,  i n d u s t r y as a whole, and p a r t i c u l a r l y  i n the i r o n and s t e e l i n d u s t r y , constant but r e l a t i v e l y g r a d u a l changes i n c a p a c i t y and technique. data f o r investments expected  Hence, American  i n i r o n and s t e e l making a r e not  t o r e f l e c t the s o r t o f changes which a r e i n h e r e n t  i n the c a p i t a l expenditures making i n the U.S.S.R..  made on b e h a l f o f i r o n and s t e e l  I n the example p r o v i d e d by the  S o v i e t Union, one i s able t o see t h e development of a. major I r o n and s t e e l Industry compressed i n t o a r e l a t i v e l y few short years. Beginning w i t h the f i r s t F i v e Year P l a n , g r e a t a t t e n t i o n was g i v e n t o the development o f basic, i r o n and s t e e l making i n the U.S.S.R..  By b a s i c i r o n and s t e e l  making i s meant the processes  i n v o l v e d i n the s m e l t i n g o f  i r o n ore and the p r e p a r a t i o n of common s t e e l s .  During the  f i r s t F i v e Year P l a n , f o r example, "twenty-five b i g , new modem b l a s t  furnaces"  5  were blown i n .  As development o f  5  Gardner M. C l a r k , The Economics of S o v i e t S t e e l , (Cambridge, Harvard U n i v e r s i t y P r e s s , 1956), p. 253.  34.  the fundamental processes progressed, i t became d e s i r a b l e t o expand not only, p i g i r o n and then s t e e l p r o d u c t i o n , but a l s o the p r o d u c t i o n of a g r e a t assortment ducts.  6  of i r o n and s t e e l pro-  Investments i n the i r o n and s t e e l i n d u s t r y of the  U.S.S.R., as a share of t o t a l i n d u s t r i a l investments,  illus-  t r a t e the g e n e r a l expansion of the more complex p r o c e s s , as a n c i l l a r y manufactures appear, p a r t i c u l a r l y between 1931 1934.  Prom 1935 u n t i l 1940, The  the data are very  Irregular.  e a r l y phases of expansion of the i r o n and  Industry i n the U.S.S.R. were extremely  and  "capital"  steel  expensive.  T e c h n i c i a n s and o t h e r workers took time to master the  intri-  c a c i e s of the l a r g e and complex p l a n t s t h a t had taken shape i n the course of the f i r s t F i v e Year P l a n . 1940,  the developmental  work was  points  until  much l e s s " c a p i t a l " expen-  s i v e , as a g r e a t d e a l of a t t e n t i o n was e f f e c t i v e o p e r a t i o n of the new  From 1933  g i v e n t o the more  facilities.  As one w r i t e r  out:  T h i s p r o d u c t i v i t y d r i v e , which reached i t s climax i n 1936, was o r g a n i z e d under the banner of the w e l l known Stakhanov movement ... Perhaps the most s a t i s f a c t o r y r e s u l t from the p o i n t of view of the S o v i e t l e a d e r s h i p was t h a t the sharp r i s e i n product i v i t y p e r m i t t e d f u l f i l m e n t of the p r o d u c t i o n goals of the Second F i v e Year P l a n w i t h the expenditure o f much l e s s p r e c i o u s c a p i t a l than had been a n t i c i p a t e d . The g o a l s were met w i t h 19 new b l a s t furnaces i n s t e a d of 45, w i t h 86 new open hearths i n s t e a d of 164, and w i t h 49 new r o l l i n g m i l l s i n s t e a d of the 107 c a l l e d "Gardner M. C l a r k , The Economics of S o v i e t S t e e l , p.  91.  35.  f o r i n the Second F i v e Year P l a n . The  h i g h r a t e of investment i n the S o v i e t i r o n  s t e e l i n d u s t r y i n the postwar years t o a great undoubtedly represents  and  extent  expenditures f o r r e c o n s t r u c t i o n .  The German a t t a c k was a c r u s h i n g blow t o the S o v i e t i r o n and s t e e l i n d u s t r y . In one f e l l swoop the enemy o v e r r a n and destroyed sixty-one b l a s t f u r n a c e s , t o t a l l i n g 42,875 cubic meters' capacity. One blow wiped out a c a p a c i t y e q u i v a l e n t t o that w h i c h the S o v i e t s had managed t o b u i l d a t immense c o s t i n twenty-three years f o l l o w i n g the r e v o l u t i o n . 8  Among the other major f a c t o r s c o n t r i b u t i n g t o heavy c a p i t a l expenditures i n the postwar p e r i o d has the emphasis on c o n v e r s i o n  the been  to automatic l e a d i n g systems  on  9 b l a s t and  open h e a r t h f u r n a c e s .  Furthermore and  finally,  the compulsory u t i l i z a t i o n of low grade o r e s ,  particularly  s i n c e 1945,  steel  has  compelled the S o v i e t i r o n and  industry  t o i n v e s t h e a v i l y i n b e n e f i c i a t i o n or e n r i c h i n g e q u i p m e n t THE  ELECTRIC POWER INDUSTRY  As a p r o p o r t i o n of t o t a l investments i n the economy as a whole, investments i n the American e l e c t r i c power 7,C l a r k , S o v i e t S t e e l , pp. 8 9  Ibid  p.  50.  Ibid  p.  261.  10. Ibid  pp.  148-49.  253-55.  10  56.  i n d u s t r y , over t h e p e r i o d 1929-1940, v a r i e d between 2.4 percent  (1934) and 5.8 percent ( 1 9 3 0 ) .  1 1  W i t h the e x c e p t i o n  of the p e r i o d 1934-1936, the share o f t o t a l  investments  devoted t o the e l e c t r i c power i n d u s t r y i n the U n i t e d S t a t e s was a minimum 3 p e r c e n t .  The share o f t o t a l  investments  i n the U.S.S.R. devoted t o the e l e c t r i c power i n d u s t r y throughout  1929-1940 v a r i e d between 2.0 percent,(1940) and  4.3 percent (1929).  The e n t i r e p e r i o d 1934-1940, w i t h  r e s p e c t t o the S o v i e t d a t a , i n d i c a t e s a s e r i e s o f shares s i m i l a r t o those a v a i l a b l e f o r what was a p p a r e n t l y a t r o u g h p e r i o d i n the American e x p e r i e n c e ;  t h a t i s , 1934-1936,  d u r i n g which time the American e l e p t r i c  power i n d u s t r y  r e c e i v e d from 2.4 t o 2.9 percent o f t o t a l For  investments.  t h e years of the postwar p e r i o d i n c l u d e d i n  Table HI, the shares o f t o t a l investment c o n s t i t u t e d by investment i n the e l e c t r i c power i n d u s t r y a r e s i m i l a r f o r both the U.S.A. and the U.S.S.R..  The American shares  range from 2.6 percent (1947) t o 5.2 p e r c e n t (1949), w h i l e those o f the S o v i e t Union v a r y between 4.1 p e r c e n t (1948) and 5.2 percent  (1950).  The d a t a f o r both c o u n t r i e s p e r t a i n i n g t o investment i n the e l e c t r i c power I n d u s t r y as a p r o p o r t i o n o f t o t a l investment r e v e a l s a t r e n d q u i t e d i f f e r e n t t o t h a t d i s p l a y e d •^Cf.  Appendices, Table HI.  37  when investment I n the e l e c t r i c power i n d u s t r y i s t a k e n as a proportion of t o t a l i n d u s t r i a l during  investments.  the prewar p e r i o d , American  For instance,  investment i n the e l e c t r i c  power i n d u s t r y as a share o f t o t a l i n d u s t r i a l  investment  c o n s t i t u t e d as a minimum, 9.1 percent (1934) and as maximum, 23.2  percent (1931)1  whereas, the maximum share i n the  S o v i e t case was 9.6 percent (1929 and 1930).  The p e r i o d  1929-1940 i n d i c a t e s , i n terms of t o t a l i n d u s t r i a l ments, t h a t American  invest-  i n v e s t i n g f o r development o f e l e c t r i c a l  power f a c i l i t i e s was conducted on a s i g n i f i c a n t l y  greater  s c a l e than were s i m i l a r a c t i v i t i e s i n the U.S.S.R..  In  f a c t , the American e l e c t r i c power i n d u s t r y has r e c e i v e d r e l a t i v e l y huge shares o f t o t a l i n d u s t r i a l the p e r i o d s t u d i e d .  investments  over  Note f o r example, that I n f i v e  separate cases t h e e l e c t r i c power i n d u s t r y i n the U.S.A. has r e c e i v e d approximately o n e - f i f t h o f t o t a l investments  (1930, 1931, 1932, 1949 and 1950).  over t h e p e r i o d s t u d i e d d i d the S o v i e t e l e c t r i c i n d u s t r y r e c e i v e such l a r g e shares o f t o t a l  industrial A t no time power  industrial  investments. The data f o r t h e postwar p e r i o d may, i n g e n e r a l , he considered was p e r i o d . industrial Industry  as c o n t i n u i n g Throughout  the t r e n d e s t a b l i s h e d i n the p r e 1946-1950, the share o f t o t a l  investments devoted t o the e l e c t r i c power  i n the U.S.A. rose from a low o f 6.9 p e r c e n t (1946)  38  to a n i g h o f 20.0 percent 1950,  (1949).  the share o f t o t a l i n d u s t r i a l  D u r i n g the p e r i o d 1947Investments r e c e i v e d by  the S o v i e t e l e c t r i c power i n d u s t r y v a r i e d from a low of 8.9 percent  (1948) t o a h i g h of 11.5 percent  (1950).  THE MACHINE BUILDING INDUSTRY Investment data i s sparse f o r the machine b u i l d i n g i n d u s t r i e s o f the U n i t e d S t a t e s and the S o v i e t U n i o n i n the prewar p e r i o d .  The o n l y prewar year f o r which;American  d a t a i s a v a i l a b l e i s 1939.  The f i g u r e s a v a i l a b l e f o r the 12 U.S.S.R. a r e f o r t h e years 1934-1936 and 1939. The p r o p o r t i o n o f t o t a l Investments devoted  to.capi-  t a l work i n the American machine b u i l d i n g i n d u s t r y in,1939 was 2.4 p e r c e n t .  I n the S o v i e t Union,  r e c e i v e d between 4.4 percent of t o t a l investments.  the i n d u s t r y  (1940) and 8.6 percent  (1934)  Through the postwar p e r i o d , i n v e s t -  ment expenditures by the machine b u i l d i n g i n d u s t r y i n the U.S.A. c o n s t i t u t e d from 2.4 percent cent  (1946) o f t o t a l investment  economy.  (1949-1950) t o 5.9 per-  expenditures i n the n a t i o n a l  S o v i e t expenditures i n the machine b u i l d i n g  I n d u s t r y as a share o f t o t a l investments percent (1950) and 6.2 percent  Cf. Appendices,  (1946).  Table 11.  v a r i e d between 4.4  American investment  i n the machine b u i l d i n g i n d u s t r y ,  as a share of t o t a l i n d u s t r i a l investments, was i n 1939.  percent  The r e l e v a n t S o v i e t f i g u r e s f o r the prewar p e r i o d  f l u c t u a t e between 12.4 (1935).  percent  (1940) and 19.2  percent  In the postwar p e r i o d , the machine b u i l d i n g  i n d u s t r y i n the U n i t e d S t a t e s was percent  11.2  (1949) t o 18.2  i n industry.  percent  the r e c i p i e n t of from 9  (1946) of t o t a l Investments  S o v i e t d a t a , f o r the p e r i o d 1946-1950, shows  t h a t the machine b u i l d i n g i n d u s t r y r e c e i v e d from 9.8 cent (1950) t o 12.8  percent  per-  (1947) of t o t a l investments  in  industry.  THE  PETROLEUM INDUSTRY  The p r o p o r t i o n of t o t a l Investments i n the n a t i o n a l economy d i r e c t e d t o c a p i t a l work i n the American  petroleum  i n d u s t r y f o r the years of the prewar p e r i o d c o n s i d e r e d (1936-1940), ranged from a minimum of 4.6  percent  (1940)  13 t o a maximum of 6.8  percent  f o r the prewar p e r i o d be 2.2 (1940).  percent  (1937).  The S o v i e t f i g u r e s  (1929-1940) show the minimum share t o  (1932) and the maximum share 4.8  percent  The postwar years i n the American case  l i t t l e d e v i a t i o n from the prewar experience.  A  present minimal  share of 3.6 percent (1950) i s i n d i c a t e d w h i l e the peak 13 C f . Appendices, Table J l : C f . Appendix E, Table KL.  40,  recorded was 6.4 percent (1948).  Data i n the postwar  p e r i o d f o r t h e U.S.S.R. e x h i b i t s a tendency  on the p a r t o f  the S o v i e t Union t o s u s t a i n prewar emphases on investments i n the petroleum i n d u s t r y . Considered as a share of t o t a l I n d u s t r i a l  investments,  investment expenditures i n the prewar and postwar p e r i o d s i n the U.S.S.R. and the U.S.A. r e v e a l an American  inclination  to c o n c e n t r a t e e x t r a o r d i n a r y q u a n t i t i e s o f investment spending i n the petroleum I n d u s t r y .  W i t h the e x c e p t i o n o f  one year (1940), the S o v i e t Union d i d not spend i n excess of 10 percent of t o t a l i n d u s t r i a l investments i n I t s petroleum i n d u s t r y .  By c o n t r a s t , the U n i t e d S t a t e s con-  s i s t e n t l y spent i n excess o f 15 p e r c e n t .  I n f a c t , the  data f o r s i x separate years i n d i c a t e s t h a t the U n i t e d S t a t e s spent more t h a n 20 percent o f t o t a l i n d u s t r i a l on c a p i t a l work i n the petroleum i n d u s t r y . i n d i c a t i o n of the remarkable  investments  As a f u r t h e r  i n v e s t i n g a c t i v i t y i n the  American petroleum i n d u s t r y , i t may be noted t h a t the shares o f t o t a l i n d u s t r i a l Investment  d i r e c t e d i n the U n i t e d  S t a t e s t o the petroleum i n d u s t r y over the p e r i o d s 1936-1940, and 1946-1950 were approximately two t o t h r e e times  larger  t h a n the r e l e v a n t S o v i e t shares. Although the S o v i e t Union i s the t h i r d  largest  41i  petroleum producer i n the w o r l d j  o i l has p l a y e d a f a r l e s s  important r o l e i n the U.S.S.R. as a source o f energy f o r i n d u s t r y than i t has i n the U.S.A..  15  The reasons f o r  l e s s e r emphasis on the development of the petroleum I n the U.S.S.R. a r e s e v e r a l .  industry  Petroleum e x p l o r a t o r y work i s  extremely expensive, and when a s u b s t i t u t e f u e l i s a v a i l a b l e , planners a r e apt t o be guided by what i s most expedient r a t h e r than by what i s perhaps most prudent. o i l i n d u s t r y i n the S o v i e t Union has c e r t a i n  Moreover, the frailties,  among which a r e "inadequate technology, as regards e x p l o r a 16 tion, drilling  o p e r a t i o n s , r e f i n i n g and t r a n s p o r t .  THE COAL INDUSTRY • The amount o f c a p i t a l f o r m a t i o n t a k i n g p l a c e i n t h e C o a l i n d u s t r y of the U n i t e d S t a t e s , f o r the p e r i o d s t u d i e d , has been s m a l l i n comparison 17 I n the S o v i e t Union.  t o the s c a l e o f such a c t i v i t y  E x p e n d i t u r e s f o r c a p i t a l purposes  i n the American  coal i n d u s t r y r e p r e s e n t e d about 1 percent o f t o t a l investment 14 U n i t e d S t a t e s , L e g i s l a t i v e Reference S e r v i c e o f the L i b r a r y of Congress, Trends i n Economic Growth. (Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1955), p. 152. 1 5  I b i d . , p. 151.  1 6  I b i d . , p. 124.  1 7  Cf.  Appendices, Table L I : C f . Appendix K, Table K2,  42.  expenditures i n the n a t i o n a l economy throughout 1936-1940.  the p e r i o d  S o v i e t expenditures f o r c a p i t a l work i n t h e  c o a l Industry f o r t h e p e r i o d 1929-1939 f l u c t u a t e d between a low and h i g h of 1.3 percent of t o t a l investments  (1936) and 5.2 percent  i n the n a t i o n a l economy.  t r e n d i n the U.S.A. d i f f e r e d  little  (1938)  The postwar  from prewar e x p e r i e n c e .  Peak expenditure amounted t o 1.2 percent  (1947) o f t o t a l  investments w h i l e the low recorded was 0.4 percent  (1950).  S o v i e t expenditures i n the postwar years e x h i b i t a m a g n i f i e d allocation  of investment  r e s o u r c e s t o the c o a l i n d u s t r y .  As a share of t o t a l investment  expenses, investment  i n the  S o v i e t c o a l i n d u s t r y rose and f e l l s l i g h t l y , around a middle f i g u r e of 9 percent. Regarded as a f r a c t i o n of t o t a l i n d u s t r i a l i n v e s t ments, expenditures f o r c a p i t a l purposes  i n the c o a l  i n d u s t r y of t h e U.S.A., f o r the p e r i o d 1936-1940, were minimal (1939).  a t 2.4 percent  (1940) and maximal a t 5.1 percent  I n the course o f the p e r i o d 1929-1939, the  U.S.S.R. d i r e c t e d from 3.6 percent  (1936) t o 13.7 percent  (1938) of t o t a l i n d u s t r i a l investments  Into c a p i t a l forma-  t i o n on b e h a l f of the c o a l i n d u s t r y . The postwar p e r i o d as opposed t o the prewar p e r i o d , in  the U.S.A., was n o t marked by any g r e a t e r emphasis on  c a p i t a l work i n the c o a l i n d u s t r y .  Investment  spending  i n the American c o a l Industry v a r i e d between 2.2 percent  43  (1950) and 3.8 percent c a p i t a l purposes.  (1947) of spending f o r a l l i n d u s t r i a l  S o v i e t d a t a f o r the p e r i o d 1947-1950  r e f l e c t s v i v i d l y an i n c r e a s e d volume of c a p i t a l  formation  I n the c o a l i n d u s t r y of the U.S.S.R. compared t o the prewar  period.  F o r the years o f the postwar p e r i o d , i n v e s t -  ment expenditures I n the S o v i e t c o a l i n d u s t r y absorbed i n each y e a r roughly  o n e - f i f t h o f t o t a l i n d u s t r i a l investment  expenditures. Comparison o f the above data r e v e a l s the f a c t  that  the shares of t o t a l i n d u s t r i a l investments devoted t o the c o a l Industry  i n the U.S.A. were roughly  n i n t h the s i z e o f the r e l e v a n t S o v i e t  o n e - f i f t h t o one-  shares.  Development ©f t h e S o v i e t c o a l Industry,  as i s  obvious from the d a t a , has been a prime c o n s i d e r a t i o n f o r Investment planning  and spending.  f o r the i r o n and s t e e l Industry one  The l a r g e expenditures  i n the U.S.S.R. have been  of the major c o n t r i b u t i n g f a c t o r s n e c e s s i t a t i n g heavy  investment expenditures i n the S o v i e t c o a l i n d u s t r y . Postwar c a p i t a l expenditures by the c o a l i n d u s t r y i n the U.S.S.R. have been e s p e c i a l l y heavy.  Reconstruction  of the European c o a l areas of the S o v i e t Union has been c o s t l y , o f c o u r s e , b u t t h i s i s n o t the only reason.  Coal  mining i n areas which have been mined c o n t i n u a l l y over long periods  of time f r e q u e n t l y tends t o become extremely expen-  sive.  This Is apparently  the S o v i e t experience I n the  Dnieper  region  Before the Second World War Donets c o a l was mined a t depths v a r y i n g from 200 t o 800 meters, w i t h an average depth of 450 meters. T h i s Increases the c o s t s of b r i n g i n g the c o a l t o the s u r f a c e and of m a i n t a i n i n g s u r f a c e i n s t a l l a t i o n s and v e n t i l a t i o n systems. ... The presence of h i g h c o n c e n t r a t i o n s of c o a l gas i n c r e a s e s the hazards of mining and the expenses of v e n t i l a t i o n , and i t i s a c o n t i n u i n g s t r u g g l e t o remove the l a r g e q u a n t i t i e s of underground w a t e r . 1 8  Another major f a c t o r c o n t r i b u t i n g t o h i g h postwar o u t l a y s i n the c o a l i n d u s t r y has been the e f f e c t of wartime mining practices. Under the pressure of war, the b e t t e r c o k i n g c o a l s a t Kuznetsk were r u t h l e s s l y e x p l o i t e d ... The n e c e s s i t y of t u r n i n g out s t e e l behind t h e U r a l s was a q u e s t i o n of l i f e o r death f o r the S o v i e t Union. To maximize output, the b l a s t furnaces needed the best p o s s i b l e coke, and the long r u n e f f e c t on the q u a l i t y of the c o a l reserves had t o be i g n o r e d . The best c o k i n g c o a l was mined s e l e c t i v e l y , and the r e s t was simply l e f t i n the m i n e s . ® 1  I n the f a c e of an i n c r e a s i n g shortage  of h i g h grade  coking c o a l , r e s u l t i n g l a r g e l y from the imperative but n e v e r t h e l e s s extravagant  demands of the war y e a r s , the c o a l  i n d u s t r y has been compelled to an I n c r e a s i n g e x t e n t .  to u t i l i z e  lower grades of c o a l  Forced t o use l a r g e q u a n t i t i e s  of c o a l w i t h h i g h ash, s u l p h u r and phosphorous c o n t e n t ,  1 8  C l a r k , S o v i e t S t e e l , p. 124.  1 9  I b i d . , p. 131.  45.  and y e t o b l i g e d t o supply  b l a s t and open h e a r t h  furnaces  w i t h c o a l s o f low ash, sulphur and phosphorous c o n t e n t , the S o v i e t c o a l i n d u s t r y has been compelled t o i n v e s t l a r g e sums of money i n c o a l e n r i c h i n g p l a n t s . The f o u r t h F i v e Year P l a n i n 1946 l a i d down an extremely ambitious program o f c o a l b e n e f i c i a t i o n , which c a l l e d f o r the c o n s t r u c t i o n of twenty-seven new c o a l c o n c e n t r a t i n g p l a n t s , development of enrichment by heavy suspension and the e n r i c h i n g of a l l coking c o a l c o n t a i n i n g over 7 p e r cent ash. T h i s meant t h a t the S o v i e t s were t o e n r i c h 53,000,000 out of the 57,700,000 tons o f c o k i n g c o a l s scheduled f o r p r o d u c t i o n i n 1950. This program r e q u i r e d tremendous c a p i t a l Investment and was j u s t i f i e d on the grounds t h a t investment i n b e n e f i c i a t i o n p l a n t s would r a i s e the product i v i t y of the b l a s t furnaces and reduce the c a p i t a l Investment i n them by more than the investment i n b e n e f i c i a t i o n e q u i p m e n t . 20  RAILROAD TRANSPORT The  r a i l t r a n s p o r t Industry  absorbed from 2.0 percent  i n the U n i t e d  (1938, 1933) t o 6.1  States  percent  (1930) of t o t a l investments i n the n a t i o n a l economy f o r 21 the prewar p e r i o d .  During the same p e r i o d , the i n d u s t r y  In the S o v i e t Union r e c e i v e d a minimum share o f 10.8 percent The  (1933) and a maximum share o f 15.0 percent proportions  (1929).  o f t o t a l investments employed f o r c a p i t a l  work i n the American r a i l t r a n s p o r t i n d u s t r y f o r the post20 C l a r k , S o v i e t S t e e l , pp. 115-16. 21Cf.  Appendices, Table M l .  46.  war  p e r i o d are s i m i l a r t o those evident f o r the p e r i o d  1931-1940.  The minimum and maximum share f o r the p e r i o d  1946-1950 were 2.1 percent (1950) and 3.1 percent  (1949).  Postwar data f o r the U.S.S.R. r e v e a l s a S o v i e t tendency t o r e l a x spending i n the r a i l r o a d investment s e c t o r . shares f o r the years 1946-1950 can be d e s c r i b e d  The as u n i -  form i n t h a t they range over the s h o r t i n t e r v a l between 7.7  percent (1948) and 8.8 percent  (1946).  •Investment i n r a i l r o a d t r a n s p o r t as a p r o p o r t i o n of t o t a l i n d u s t r i a l investments i n the U n i t e d S t a t e s shows c o n s i d e r a b l e v a r i a t i o n f o r the years of the prewar p e r i o d . The percentages f l u c t u a t e d through an I n t e r v a l f i x e d by a minim p r o p o r t i o n of 8.0 24.0 percent (1930).  percent (1935) and a maximal of Data f o r the U.S.S.R. i n d i c a t e s  that the l i m i t s f o r the years 1929-1938 were 23.8 (1933) and 34.1 percent (1936).  I t i s i n t e r e s t i n g t o note  t h a t i n two separate years of the prewar p e r i o d , 1936)  percent  (1929  and  the S o v i e t Union spent sums, f o r c a p i t a l work i n i t s  r a i l t r a n s p o r t i n d u s t r y , e q u i v a l e n t t o one' t h i r d of t o t a l i n d u s t r i a l investments f o r these y e a r s . Postwar investment i n r a i l r o a d t r a n s p o r t as a share of t o t a l I n d u s t r i a l investment shows a d e c l i n e i n both c o u n t r i e s a l t h o u g h t h i s accent Is most pronounced i n the Soviet case.  The minimum and maximum share recorded f o r  the U.S.A. are 7.1 percent (1946) and 11.8  percent  (1949).  47.  F o r the S o v i e t Union, the f i g u r e s are 16.6 and  19.2  percent  (1947).  percent  (1948)  Most i n t e r e s t i n g perhaps i n the  l i g h t of t h i s l a t t e r d a t a has  been the S o v i e t d i s p o s i t i o n  through the p e r i o d 1947-1950 t o spend sums which as of t o t a l i n d u s t r i a l investments are l e s s t h a n 20  shares  percent,  whereas i n the prewar p e r i o d , these shares were r a r e l y l e s s than 25  percent.  ."Economically,  the d i v e r s i t y of means of  transport  i n the West Is i n marked c o n t r a s t t o the dependence of the 22 S o v i e t : b l o c upon i t s r a i l r o a d s . " Among the f e a t u r e s t h a t are i n d i c a t i v e of the more m u l t i f o r m  character  of the  American i n c o n t r a s t t o the S o v i e t economy, p o s s i b l y most notable  the  i s the employment of l a r g e f l e e t s of a i r c r a f t  and motor v e h i c l e s f o r g e n e r a l t r a n s p o r t purposes. railways  Soviet  i n recent years have hauled about 85 percent  t o t a l ton-mileage of f r e i g h t ;  American r a i l l i n e s ,  c o n t r a s t , have hauled about 50 percent  of  by  of t o t a l f r e i g h t  23 ton-mileage. of the U n i t e d  T h i s i s not States  t o say t h a t the r a i l  i s i n any  sense a l e s s w e l l developed  system than that of the S o v i e t Union; 1937  there were 18.6  miles  system  on the c o n t r a r y ,  in  of t r a c k per 10,000 i n h a b i t a n t s  i n the U.S.A., as compared to 3.1 m i l e s per 10,000 i n h a b i 22 U n i t e d S t a t e s , Trends i n Economic Growth, pp.48-49. p-s  °Ibid., p.  46.  48  t a n t s I n the U.S.S.R..  The f l a t n e s s of the t e r r a i n of  the S o v i e t Union has r e s u l t e d i n a c e r t a i n preference f o r r a i l r o a d s as a means o f t r a n s p o r t ; o b v i o u s l y been present, such t r a n s p o r t so very The  but o t h e r f a c t o r s have  t o make S o v i e t expenditures f o r large.  c h o i c e o f l o c a t i o n s f o r i n d u s t r y has had a n  extremely s i g n i f i c a n t I n f l u e n c e on the performance o f S o v i e t railroads.  • The a p p a r e n t l y  i n a d v e r t e n t c h o i c e of develop-  mental s i t e s , which has from time t o time c h a r a c t e r i z e d Soviet: p l a n n i n g of t h i s being  (one of the best and most r e c e n t  examples  the Cherepovets i r o n and s t e e l complex), has  s e r i o u s l y taxed the S o v i e t r a i l system, and i n s p i t e o f a d e s i r e t o conserve Investment funds f o r other purposes, l a r g e expenditures  have become necessary i n order t o keep  the r a i l l i n e s o p e r a t i n g .  Even so, S o v i e t measures t o  conserve investment monies have r e s u l t e d i n s e r i o u s d e f i c i e n c i e s a f f e c t i n g the r a i l r o a d s .  Because o f l i m i t e d  f a c i l i t i e s , . i n terms o f both t r a c k and equipment, S o v i e t 25 r a i l r o a d s have become crowded w i t h l i g h t , slow t r a i n s . 24 U n i t e d S t a t e s , Trends i n Economic Growth, p. 167. 25 I b i d . , p. 47. C f . U. S. Krushchev, Concerning the F u r t h e r Improvement of the O r g a n i z a t i o n of Administ r a t i o n over Industry and C o n s t r u c t i o n , (A r e p o r t t o the Seventh S e s s i o n o f the Supreme S o v i e t , U.S.S.R.) G o s p o l i t i z d a t , 1957, p. 15. T h i s Is an account of the problems and c o s t s of " c r o s s - h a u l i n g " on S o v i e t r a i l w a y s .  49.  THE  CONSTRUCTION INDUSTRY  Investment i n a l l types o f c o n s t r u c t i o n work i n the U n i t e d S t a t e s , f o r the years of the prewar, p e r i o d t u t e d from 55.0 percent  (1935) t o 66.0 percent  consti-  (1931) o f  26 t o t a l investments i n the n a t i o n a l economy.  F o r the same  p e r i o d , the S o v i e t c o n s t r u c t i o n i n d u s t r y d i s p o s e d  of sums  which as shares of t o t a l investments v a r i e d between a low and h i g h of 55.5 percent  (1933) and 65.5 percent  (1932).  During the postwar p e r i o d i n the U.S.A., from 48.9 percent (1946) t o 55.5 percent  (1950) of t o t a l Investments were  channeled i n t o the c o n s t r u c t i o n i n d u s t r y .  No r e l e v a n t  f i g u r e s a r e a v a i l a b l e f o r the U.S.S.R. f o r t h i s  period.  Investment expenditures f o r c o n s t r u c t i o n i n an i n d u s t r i a l i z e d s o c i e t y i n v o l v e f i n a n c i a l disbursements f o r the purpose o f e r e c t i n g a q u i t e i n d e s c r i b a b l e v a r i e t y of structures.  The c h a r a c t e r  of the c o n s t r u c t i o n work t h a t  i s undertaken i n an economy Is o f i n t e r e s t . say,  That i s t o  i t Is worthy o f note, f o r i n s t a n c e , t o what extent an  economy i s d e v o t i n g  I t s resources  t o the c o n s t r u c t i o n o f  i n d u s t r i a l , commercial and a d m i n i s t r a t i v e b u i l d i n g s as opposed t o p u b l i c and private, r e s i d e n t i a l s t r u c t u r e s .  In  any g e n e r a l a p p r a i s a l o f a s o c i e t y ' s Investment a c t i v i t i e s , t h i s l a t t e r and s p e c i f i c p r o p o s i t i o n has e s s e n t i a l importance.  F o r t h i s r e a s o n , the d a t a i n Table N l i n c l u d e s 26  C f . Appendices, Table N l :  C f . Appendix 0.  50  s t a t i s t i c s p e r t a i n i n g p a r t i c u l a r l y t o monies spent f o r c o n s t r u c t i o n work on urban r e s i d e n t i a l s t r u c t u r e s i n both the U.S.A. and the U.S.S.R.. summarizes these  The f o l l o w i n g paragraph  figures.  Expenditures f o r urban r e s i d e n t i a l c o n s t r u c t i o n as proportions  o f t o t a l investments i n the U n i t e d S t a t e s f o r  the prewar p e r i o d c o n s t i t u t e d a minimum o f 928 percent (1954) and a maximum o f 21.2 percent  (1939 and 1940).  the S o v i e t Union, these shares v a r i e d between 6.2 (1936) and 8.8 percent  (1929).  In  percent  Throughout the postwar  p e r i o d , i n v e s t i n g i n urban r e s i d e n t i a l c o n s t r u c t i o n as a share o f t o t a l investments i n the U.S.A. consumed between 17.8  percent  (1946) and 25.2 percent  (1950) of that t o t a l .  Such c o n s t r u c t i o n i n the U.S.S.R. f o r the same p e r i o d absorbed from 9.3 percent  (1946) t o 11.7 percent  (1949) o f  t o t a l investments. Of f i n a l i n t e r e s t  i s the q u a n t i t y o f money u t i l i z e d  f o r urban r e s i d e n t i a l c o n s t r u c t i o n as a share o f t o t a l c o n s t r u c t i o n expenditures.  Such an a n a l y s i s r e v e a l s t h e  f a c t t h a t a very s i g n i f i c a n t p a r t o f t o t a l c o n s t r u c t i o n expenditures has been a l l o c a t e d  i n the U n i t e d  States t o  u r b a n r e s i d e n t i a l c o n s t r u c t i o n , throughout the prewar and postwar p e r i o d s . In the U n i t e d S t a t e s d u r i n g t h e i n t e r v a l 1929 through 1940,  from 16.3 percent  (1933) t o 36.6 percent  (1940) o f  51.  t o t a l c o n s t r u c t i o n expenditures were devoted t o urban r e s i d e n t i a l construction.  S o v i e t data f o r t h i s p e r i o d i s  not complete, u n f o r t u n a t e l y ; f o r t h e years 1936-1940.  no f i g u r e s b e i n g a v a i l a b l e  There i s l i t t l e l i k e l i h o o d ,  however, t h a t S o v i e t spending f o r urban r e s i d e n t i a l  purposes  i n the p e r i o d immediately b e f o r e the outbreak o f RussoGerman h o s t i l i t i e s surpassed t h a t of the f i r s t years o f p l a n n i n g .  s i x to eight  I n the p e r i o d 1929-1936, the U.S.S.R.  spent roughly 10-14 percent o f a l l monies expended f o r c o n s t r u c t i o n purposes on the e r e c t i o n of urban  residences.  An account of S o v i e t spending f o r urban  residential  c o n s t r u c t i o n i n the postwar p e r i o d i s not a v a i l a b l e . American  i n v e s t i n g I n the sphere o f urban  residential  c o n s t r u c t i o n f o r the years 1946-1950 r e f l e c t s tremendous activity i n this direction.  A t no time i n the course of  the f i v e postwar years examined d i d such spending c o n s t i t u t e l e s s t h a n o n e - t h i r d o f a l l sums spent f o r c o n s t r u c t i o n purposes.  Of s p e c i a l i n t e r e s t i s the y e a r 1950, d u r i n g  which urban r e s i d e n t i a l c o n s t r u c t i o n accounted f o r 45 percent of t o t a l expenditures f o r c o n s t r u c t i o n purposes i n the U.S.A.. In c o n c l u s i o n ,  i t i s i n t e r e s t i n g t o compare the  t o t a l percentage of investments I n b a s i c i n d u s t r i e s f o r a prewar and a postwar y e a r i n the U.S.A., and the U.S.S.R.. To t h i s end, data f o r the f i v e primary i n d u s t r i e s  (machine  52.  b u i l d i n g , e l e c t r i c power, I r o n and s t e e l , petroleum and c o a l ) nave been s e l e c t e d f o r 1939 (where f i g u r e s f o r 1939 were not a v a i l a b l e , f i g u r e s f o r 1940 were used) and 1948. Considered i n aggregate, the f i v e prime i n d u s t r i e s , i n 1939, accounted f o r 13.8 percent o f t o t a l Investments i n the American economy, whereas, i n the S o v i e t economy they accounted f o r 17.8 p e r c e n t . i n d u s t r i e s absorbed  I n 1948, the same group of  17.9 percent o f t o t a l American i n v e s t -  ment and 32.5 percent o f t o t a l S o v i e t investments.  Taken  as p r o p o r t i o n s of t o t a l I n d u s t r i a l investments, the group, I n 1939, r e c e i v e d 64.3 percent of the t o t a l I n the U.S.A., and 44.2 percent of t h e t o t a l i n the U.S.S.R.;  i n 1948,  these i n d u s t r i e s took 59.8 percent of the t o t a l i n the U.S.A., and 70.2 percent I n the U.S.S.R.. In the l i g h t o f t h e m a t e r i a l presented I n t h i s c h a p t e r , i t i s of s i g n i f i c a n c e t o note some f i g u r e s pert a i n i n g t o c u r r e n t output o f b a s i c i n d u s t r i a l commodities i n the U n i t e d S t a t e s and the S o v i e t Union.  The d a t a a r e ,  perhaps, o f p a r t i c u l a r import s i n c e they were o b t a i n e d from Kommunlat (No. 7, 1956).  The f i g u r e s i n d i c a t e t h a t i n  terms o f output p e r head of p o p u l a t i o n , the U.S.S.R., i n 1955,  produced:  358 kgs. o f o i l (U.S.A. = 2,015);  of s t e e l (U.S.A. = 642); 427);  169 kgs. of p i g i r o n (U.S.A. s  696 kgs. o f c o a l (U.S.A. = 2,707);  kwh. of e l e c t r i c i t y  229 kgs.  (U.S.A. =* 3,782).  and f i n a l l y , 816  CHAPTER IV SUMMARY AND CONCLUSIONS  The d i s t i n g u i s h i n g f e a t u r e of a f r e e market economy i s the process  o f exchange.  C a p i t a l goods may be  exchanged only when a sum o f money e q u a l t o a s e l l e r ' s p r i c e i s p r o f e r r e d by some second p a r t y . can be procured  Money c a p i t a l  only by meeting a s e l l e r ' s p r i c e i n the  form o f a market r a t e o f i n t e r e s t .  I n both c a s e s ,  exchange t r a n s a c t i o n s r e q u i r e a money payment on the p a r t of a p r o s p e c t i v e buyer, before the o b j e c t s o f the negot i a t i o n s change hands.  I n other words, the u s e r o f  e i t h e r money c a p i t a l o r m a t e r i a l resources must pay a p r i c e f o r the p r i v i l e g e of employing these r e l a t i v e l y resources.  scarce  The p a r t i c u l a r p r i c e which i s p a i d w i l l depend  on a host of f a c t o r s , but s t a t e d simply, on what value a p r o s p e c t i v e u s e r attaches of e i t h e r o r both s o r t s o f c a p i t a l .  the p r i c e depends t o the employment  The value which a  g i v e n q u a n t i t y o f money o r c a p i t a l has f o r d i f f e r e n t p o t e n t i a l employers w i l l n e c e s s a r i l y be d i f f e r e n t .  This  l a t t e r c o n d i t i o n a r i s e s i n t h a t the value o f a s t o c k of c a p i t a l w i l l depend on a s e r i e s o f c o n j e c t u r e d contingent  returns  on I t s employment i n any one of a g i v e n s e l e c t i o n  54  of p r o d u c t i o n p r o c e s s e s . The tendency of the market i s t o a l l o c a t e s c a r c e resources t o the f i e l d o r process wherein the employment of t h e money o r goods w i l l f e t c h the h i g h e s t r e t u r n s . P r o f i t s a r e t h e r e f o r e the d e c i s i v e f a c t o r i n d e t e r m i n i n g the d i r e c t i o n o f flow f o r both money c a p i t a l and s o c i a l capital.  The l o g i c of t h i s process d e r i v e s from i t s  I n c l i n a t i o n t o d i v e r t resources i n t o those f i e l d s which value a g i v e n stock o f c a p i t a l most h i g h l y .  The p r i c i n g  mechanism of a f r e e exchange system i s enabled,  automati-  c a l l y , t o a l l o c a t e m a t e r i a l s t o those processes  promising  the h i g h e s t r a t e s o f r e t u r n .  T h i s mechanism c a n o n l y  f u n c t i o n i f f r e e exchange p r e v a i l s throughout  a l l markets.  I n other words, both consumers' and producers' commonly be s u b j e c t t o f r e e exchange.  If, t h i s  goods must latter  c o n d i t i o n p r e v a i l s , then the p r i c e network t h a t r e s u l t s may be d e s c r i b e d as a homogeneous one. The network of p r i c e s e x i s t i n g a t any moment of time i n the U n i t e d States o r any o t h e r f r e e market economy, can be d e s c r i b e d as a homogeneous one.  A homogeneous  p r a c i n g system i s one i n which each i n d i v i d u a l p r i c e e x e r t s a mediating pressure on every o t h e r p r i c e and i s i n t u r n s i m i l a r l y a c t e d upon.  Even g i v e n the i n f l u e n c e of a  l a r g e p u b l i c s e c t o r , such as there i s i n the U.S.A., and the presence  o f p r i v a t e monopolies, as w e l l , the p r i c i n g  55.  system n e v e r t h e l e s s r e t a i n s the tautness of a homogeneous network.  The durable coherence of the p r i c e system i s the  r e s u l t of the p h y s i c a l magnitude of an enormous i n d i v i d u a l i s t o r p r i v a t e s e c t o r , whose i n f l u e n c e s t r o n g l y m i t i g a t e s the i n t r u s i o n of d e l e t e r i o u s and a r b i t r a r y p r i c i n g .  The  end r e s u l t i s t h a t each p r i c e maintains w i t h i n the network a unique and r e l a t i v e l y harmonius other,price.  r e l a t i o n s h i p w i t h every  The phrase, " e x i s t i n g a t any moment of time",  used i n the f i r s t sentence of t h i s paragraph, i m p l i e s  that  p r i c e networks are never g i v e n except f o r some s p e c i f i c moment of time (such, i n f a c t , b e i n g i n d e t e r m i n a t e ) .  The  r e a l l y i n d i s p e n s a b l e t h i n g t o be borne i n mind i s , t h a t i n order a homogeneous p r i c e network remain homogeneous, i t must be p e r m i t t e d t o r e a d j u s t I t s e l f c o n t i n u a l l y t o p r i c e s which a r e c o n s t a n t l y f l u c t u a t i n g .  That p r i c e s w i l l  and  must f l u c t u a t e f o l l o w s from the c o n d i t i o n t h a t v a l u e s a r e rarely constants.  V a l u e s , i n t u r n , f l u c t u a t e as demands  expand and s h r i n k f o r s p e c i f i c goods and  services.  I n an economy employing the market mechanism, the d i s t u r b i n g Issues of apportionment are absent, simply because they cannot a r i s e w i t h i n the sphere of a f r e e apparatus. here answered  pricing  The questions which apportionment r a i s e s are v i a the c r i t e r i o n of p r o f i t .  I t i s the absence  of any such c r i t e r i o n t h a t , i n f a c t ,  occasions v a r i o u s i s s u e s of apportionment.  W i t h i n the  56.  scheme of a c e n t r a l p l a n , the use  of the p r o f i t  criterion  i s i m p o s s i b l e because the p r e - c o n d i t i o n s of such an are  (necessarily) absent.  index  1  Under c o n d i t i o n s of c e n t r a l p l a n n i n g , the f r e e exchange o f • p r o d u c e r s  1  goods i s i m p o s s i b l e .  Never p a s s i n g  through the process of f r e e exchange, c a p i t a l goods are never the o b j e c t s of e v a l u a t i o n by p o t e n t i a l u s e r s .  Money  p r i c e s are simply a f f i x e d to these goods by p l a n n i n g  "Moreover, j u s t because no p r o d u c t i o n goods w i l l ever become the o b j e c t of exchange, I t w i l l be i m p o s s i b l e t o determine I t s monetary v a l u e " . Ludwig von M i s e s , "Economic C a l c u l a t i o n i n the S o c i a l i s t Commonwealth", C o l l e c t l v l s t Economic P l a n n i n g , (London, Routledge, 1935), p. 92. " N a t i o n a l i z a t i o n of the means of p r o d u c t i o n i n v o l v e s the c e n t r a l c o n t r o l of economic a c t i v i t y . The i n e v i t a b l e presence of t h i s c e n t r a l i s t i c element ... must n e c e s s a r i l y d i s t u r b the p r i c i n g process ... For the p r i c i n g p r o c e s s , ... i s an endless network of exchange r e l a t i o n s from which i n d i v i d u a l p i e c e s cannot be a r b i t r a r i l y t o r n w i t h o u t i n j u r i n g the r e s t . " George Halm, " F u r t h e r C o n s i d e r a t i o n s on the P o s s i b i l i t y of Adequate C a l c u l a t i o n i n a S o c i a l i s t Community", C o l l e c t l v l s t Economic P l a n n i n g , pp. 168-169. "The p r i c i n g processes i n the consumption goods markets are not enough. There must a l s o be a r e a l p r i c i n g process i n the markets f o r means of p r o d u c t i o n . No meaning can be a s s i g n e d to any p r o p o s a l t o r e p l a c e t h i s p r i c i n g process by a process of ' i m p u t a t i o n , which, being a p u r e l y i n d i v i d u a l c o n s t r u c t i o n of a s c a l e of v a l u e s , has no r e l e vance t o the o b j e c t i v i z e d sphere of the s o c i a l economy. I b i d . , p. 182. 1  57  authorities.  The  c o n t r a d i c t i o n s and f r u s t r a t i o n s t h a t  t h i s procedure leads t o , can r e a d i l y be a s c e r t a i n e d 2 reference  t o S o v i e t sources on the s u b j e c t .  arbitrarily  'torn  1  by  Having  from the network of exchange r e l a t i o n s  a s i g n i f i c a n t p o r t i o n of t h a t complex, planners  have con-  f r o n t e d themselves w i t h a s i t u a t i o n wherein i t i s v i r t u a l l y impossible  to r e a d i l y assess  the economic d e s i r a b i l i t y  u s i n g c a p i t a l In any g i v e n scheme or p r o c e s s .  of  Soviet  attempts t o f i n d an a l t e r n a t i v e t o the p r i c e apparatus have not a p p a r e n t l y met t i o n , ,one  w i t h any  success.  In t h i s  of the most obvious p i t f a l l s w i l l be the  t o confuse what i s economically is technically desirable:  situa-  tendency  d e s i r a b l e w i t h t h a t which  t h a t i s to say, scarce  resources  w i l l tend to be used f o r purposes which do not o f f e r adequate economic r e t u r n s c o n s i d e r i n g the economic value  of  the employed r e s o u r c e : I t f o l l o w s t h e r e f o r e t h a t the e x c e l l e n c e , from a t e c h n o l o g i c a l p o i n t of view, of some p a r t s of the R u s s i a n i n d u s t r i a l equipment ... has l i t t l e s i g n i f i c a n c e i n so f a r as the answer t o the c e n t r a l q u e s t i o n i s concerned ... The best t r a c t o r f a c t o r y may not be an a s s e t , and the c a p i t a l i n vested i n i t i s a sheer l o s s i f the l a b o u r which  % a l i s h e v , "Some Questions of P r i c e F i x i n g i n a S o c i a l i s t Economy", V o p r o s i Ekonomiki, No. 3, 1957, pp. 93-105. ^A. Zauberman, "Economic Thought In the S o v i e t Union", The Review of Economic S t u d i e s , V o l . XVI, 1948-49, pp. 1-12.  58.  the t r a c t o r r e p l a c e s i s cheaper than the c o s t of the m a t e r i a l and l a b o u r , which goes t o make a t r a c t o r , plus i n t e r e s t . ^  In the s o c i a l i s t economy, as i n the communistic, the probable tendency w i l l be to i n t r o d u c e wherever p o s s i b l e those methods t h a t are the best t e c h n i c a l l y , p o s s i b l y without i t ever being r e a l i z e d t h a t the best from the t e c h n i c a l p o i n t of view need not be the best from the economic p o i n t of v i e w . 5  The abandonment of the a l l o c a t i v e technique  of the  market, w i t h i t s simple and r e l a t i v e l y dependable p r i c i n g system as a b a s i c c r i t e r i o n , has f o r c e d S o v i e t a u t h o r i t i e s to  adopt the a p p o r t i o n i n g technique  of c e n t r a l p l a n n i n g  w i t h i t s v a r i o u s s t r u c t u r a l p i t f a l l s which l e a d i n e v i t a b l y to m i s a l l o c a t i o n of s u b s t a n t i a l q u a n t i t i e s of s c a r c e resources. The  first  i s s u e of apportionment, as o u t l i n e d i n  the i n t r o d u c t i o n , concerns the problem of d i s t r i b u t i n g monetary funds s e t a s i d e f o r investment individual projects. for  the use  The  the  purposes between  number of p r o j e c t s competing  of t h i s money c a p i t a l must, i n the knowledge  t h a t S o v i e t i n d u s t r y i s a h i g h l y complex t e c h n i c a l o r g a n i z a t i o n , be c o n s i d e r a b l e .  T h i s q u e s t i o n Is not  s e t t l e d , c o n s i d e r i n g t h a t any  easily  p l a n must always have not  only  4 P. A. von Hayek, "The Present S t a t e of the Debate", C o l l e c t l v l s t Economic P l a n n i n g , pp. 204-205. ^George Halm, " F u r t h e r C o n s i d e r a t i o n s on the P o s s i b i l i t y of Adequate C a l c u l a t i o n i n a S o c i a l i s t Community", C o l l e c t l v l s t Economic P l a n n i n g , p. 173.  59  c e r t a i n b a s i c o b j e c t i v e s whose r e a l i z a t i o n i s u s u a l l y of c r u c i a l importance t o the schematics of a p l a n as a whole, but a l s o , a g r e a t number of secondary o b j e c t i v e s .  More-  over, the more p a r t i c u l a r the problem becomes, the more d i f f i c u l t becomes the t a s k of f i n d i n g i t s s o l u t i o n . Assuming  t h a t a c h o i c e of p r o j e c t s has been made, another  q u e s t i o n r e g a r d i n g the apportionment of money between pure c o n s t r u c t i o n and equipment resolved.  i n each p r o j e c t remains t o be  The t a s k of a l l o t t i n g funds between demands  f o r f i x e d c a p i t a l i n the form of b u i l d i n g s and f i x e d t a l i n the form of equipment  i s an enormous one.  capi-  It is  an i m p o s s i b l e l a b o u r t o attempt the i m a g i n a t i o n of the dimensions of t h i s problem, encompassing sands of i n d i v i d u a l p r o j e c t s .  as i t does thou-  Decisions regarding  allo-  c a t i o n s , a s i d e from the problem of t h e i r economic v a l u e , are made on the b a s i s o f prepared e s t i m a t e s , and i n the c o n v i c t i o n that such estimates can never be a n y t h i n g but rough guides, i t t h e r e f o r e f o l l o w s t h a t s e r i o u s are bound t o occur.  errors  Some c o n c e p t i o n of the magnitude of  these problems, and t h e i r a t t e n d a n t d i f f i c u l t i e s may  be  gleaned by r e f e r r i n g t o e x c e r p t s from S o v i e t p u b l i c a t i o n s . The f i r s t q u o t a t i o n was  taken from a d i s c u s s i o n c o n c e r n i n g  the shortcomings o f the c o n s t r u c t i o n i n d u s t r y I n the U.S.S.R., r e v e a l e d by P a r t y i n v e s t i g a t i o n s conducted i n 1936;  the e x t r a c t undertakes t o d e s c r i b e , i n p a r t i c u l a r ,  60.  some of the economically  d e b i l i t a t i n g e f f e c t s of crude  o r g a n i z a t i o n a l procedures: The Government and C e n t r a l Committee of the P a r t y have summed up the progress of c o n s t r u c t i o n work i n our country ... and have r e v e a l e d a range of very l a r g e s c a l e d e f i c i e n c i e s a r i s i n g from the o r g a n i z a t i o n a l weaknesses of c o n s t r u c t i o n , and from the presence of i n e f f i c i e n t methods of e x e c u t i o n of c o n s t r u c t i o n j o b s , i n the course of which each new p r o j e c t i s provided a f r e s h w i t h equipment, a n c i l l a r y establishments and newly t r a i n e d cadres, a l l of which are d i s p e r s e d a t the completion of a p r o j e c t , i n s t e a d of remaining t o c o n t r i b u t e to the t e c h n i c a l bases of the c o n s t r u c t i o n i n d u s t r y . This weakness i n the o r g a n i z a t i o n of the c o n s t r u c t i o n i n d u s t r y , has through i t s i n f l u e n c e s , produced o t h e r e f f e c t s , among which are i n s u f f i c i e n t u t i l i z a t i o n of equipment and low labour output .•. Disbursements f o r labour i n our b u i l d i n g s , i n comparison w i t h expenditures f o r b u i l d i n g s i n the U n i t e d S t a t e s , are much h i g h e r . I f i n one of our medium s c a l e c o n s t r u c t i o n s the expenditures average 100, then i n the American case such expenditures would c o n s t i t u t e not more t h a n 2 7 . 6  By r e f l e c t i n g t h a t these d e f i c i e n c i e s e x i s t e d a t a r e l a t i v e l y e a r l y stage of the p l a n n i n g p e r i o d , one  might  w e l l be l e d to conclude t h a t the d e f e c t s were t r a n s i t o r y . That t h i s l a t t e r c o n c l u s i o n i a i n v a l i d can be e s t a b l i s h e d by r e f e r e n c e  to the f o l l o w i n g q u o t a t i o n s , which i l l u s t r a t e  the c o n t i n u i n g d i f f i c u l t i e s f a c e d by p l a n n i n g a u t h o r i t i e s i n this l a t t e r respect. M. V. Kolganoff and other, ed., N a t i o n a l Income of the U.S.S.R., (Moscow, P u b l i s h e r s f o r State Planning Commission, 1939), pp. 149-53: C f . Krushchev, Concerning the F u r t h e r Improvement of the O r g a n i z a t i o n of Administ r a t i o n over Industry and C o n s t r u c t i o n , p. 16.  61  The range of d e f i c i e n c i e s which were i n d i c a t e d (as above) ... continued t o e x i s t i n the f o l l o w i n g y e a r s , and p a r t i c u l a r l y i n such important s e c t i o n s as the p r o j e c t i o n estimate work" and the f i n a n c i n g of c o n s t r u c t i o n .  Over t h e course of years t h e r e has even taken p l a c e some i n c r e a s e i n the c o s t of pure c o n s t r u c t i o n . The h i g h share of pure c o n s t r u c t i o n i n the g e n e r a l volume o f c a p i t a l Investments appears above a l l as the r e s u l t of the g r e a t excesses i n p r o j e c t s and e s t i m a t e s , the unreasonable dimensions o f works, grounds, p r o d u c t i o n a r e a , volume of b u i l d i n g s and s t r u c t u r e s ( " s u a r u z h e n i i a " ) , and f i n a l l y , excesses i n the c o n s t r u c t i o n of a n c i l l a r y b u i l d i n g s and their facades. 8  The second major i s s u e o f apportionment  specifically  concerns t h e a l l o c a t i o n of p i e c e s o f equipment.  Given  t h a t d i s t r i b u t i o n o f funds between pure c o n s t r u c t i o n and equipment has been decided upon, p l a n n i n g a u t h o r i t i e s a r e immediately  c o n f r o n t e d w i t h the task o f maximizing the  p r o d u c t i v e p o s s i b i l i t i e s o f t h e i r l i m i t e d stocks o f machinery.  Thus a g a i n there must be answered, i n one  f a s h i o n o r another,  the demands f o r economic e v a l u a t i o n .  Lacking r e a l i s t i c c r i t e r i a upon which t o make judgments o f v a l u e , planners  inevitably err.  The succeeding  passages  a t t e s t t o the presence of t h i s grave q u e s t i o n . K o l g a n o f f , N a t i o n a l Income o f the U.S.S.R., p. 150. C f . Appendix P. 7  A . A. A r a k i l y a n , Economic Accounting and U t i l i z a t i o n of F i x e d C a p i t a l i n Industry i n the U.S.S.R., (State P u b l i s h e r o f P o l i t i c a l L i t e r a t u r e , 1954), pp. 68-69. 8  62.  The r e l a t i v e l y great share of pur c o n s t r u c t i o n i s e x p l a i n e d a l s o by the improper a l l o c a t i o n of equipment f o r p r o d u c t i o n areas of many e n t e r p r i s e s .  I t i s p r e c i s e l y the use of equipment and machinery by a M i n i s t r y of C o n s t r u c t i o n O r g a n i z a t i o n that i s poorly systematized. Much i d l e equipment and machinery have accumulated i n warehouses and at construction s i t e s . This i s e s p e c i a l l y true of the V o r o s h i l o v g r a d M i n i n g C o n s t r u c t i o n Combine of the M i n i s t r y of C o a l I n d u s t r y . The Krasny Iuch Mining C o n s t r u c t i o n T r u s t , f o r example, has much powerful machinery, but makes abnormally poor use of i t . The primary reason f o r such an abnormal s i t u a t i o n i s t h a t the M i n i s t r y of C o a l Industry provides c o n s t r u c t i o n o r g a n i z a t i o n s w i t h equipment r e g a r d l e s s of t h e i r a c t u a l requirements o r opportunities f o r using i t . In t u r n , the engineers and t e c h n i c i a n s of the V o r o s h i l o v g r a d Mining Cons t r u c t i o n Combine, are c a r e l e s s w i t h equipment, because, they ... s u f f e r no s h o r t a g e . 1 0  W i t h i n the g e n e r a l problem of a l l o c a t i o n of  equip-  ment there r e s i d e s the s p e c i f i c problem to ensure a r a t i o n a l c o r r e l a t i o n of i n d i v i d u a l mechanical of a f i r m .  The  resources  i n c r e a s i n g automation of a l l s e c t o r s  of  i n d u s t r y g i v e s e s p e c i a l impetus t o t h i s p a r t i c u l a r problem of s e c u r i n g complementarity among the m u l t i f o r m  types  of machinery and  pro-  cesses.  equipment used i n modern i n d u s t r i a l  That c o s t l y e r r o r s have been made i n t h i s con-  t e x t can be confirmed by a u t h o r i t a t i v e evidence.  Some of  A. A. A r a k i l y a n , Economic Accounting and U t i l i z a t i o n of F i x e d " C a p i t a l i n Industry i n the U.S.S.R.. (State P u b l i s h e r of P o l i t i c a l L i t e r a t u r e , 1954), p. 69. B . Volenko, Manager of the V o r o s h i l o v g r a d C o n s t r u c t i o n Combine, I z v e s t l a , A p r i l 10, 1953. 1 0  Mining  63.  the f a c t s have been o f f i c i a l l y summarized as f o l l o w s : I n e f f e c t u a l mechanization of a n c i l l a r y processes r e s u l t s i n a s i t u a t i o n where a g r e a t d e a l of manual labour continues t o be a p p l i e d i n the presence of an enormous q u a n t i t y of mechanical equipment, i n both e n t e r p r i s e s and c o n s t r u c t i o n s . The p r o p o r t i o n of workers l a b o u r i n g manually, c o n s t i t u t e s : 68 percent of the labour f o r c e employed i n the f o r e s t procurement i n d u s t r y ; I n the case of the c o a l Industry - 44 p e r c e n t ; f e r r o u s m e t a l l u r g y - 35 percent; the c o n s t r u c t i o n i n d u s t r y - 69 p e r c e n t . The labour of these workers i s p o o r l y o r g a n i z e d , of d i m i n i s h e d p r o d u c t i v i t y , and as a consequence, the e f f e c t s a t t r i b u t a b l e t o the growth of l a b o u r p r o d u c t i v i t y (through the use of new equipment) of b a s i c p r o d u c t i o n workers, i s i n s i g n i f i c a n t measure d i s s i p a t e d by expenditures f o r hand l a b o u r engaged i n a u x i l l i a r y works. We cannot and must not f u r t h e r t o l e r a t e s i m i l a r waste of s o c i a l l a b o u r . I f i n the immediate f u t u r e we do not r e c t i f y t h i s s i t u a t i o n , then not only w i l l we not o b t a i n a r e a l Increase of l a b o u r p r o d u c t i v i t y , but i n view of the huge growth of the n a t i o n a l economy we s h a l l be c o n f r o n t e d w i t h hardships i n the p r o v i s i o n of i t w i t h l a b o u r power. H  ... the h i g h degree of mechanization of the main p r o d u c t i o n p r o c e s s e s , which had been i n t r o d u c e d so f a r was o f t e n w a s t e f u l . In the Donets c o a l b a s i n , there was t h r e e and a h a l f times as much machinery per metre of c o a l f a c e as i n 1940, but labour p r o d u c t i v i t y was l i t t l e h i g h e r . Successf u l automation r e q u i r e s the automation of the whole p r o d u c t i o n c y c l e , not of p a r t i c u l a r jobs and processes, and a change i n the whole t e c h nology of production.12  N. A. B u l g a n i n , Pravda, J u l y 17, 1955,  p.  3.  Summaries from Pravda, February 22-26 on XX P a r t y Congress, C f . S o v i e t S t u d i e s , V o l . V I I I , 1956-57, pp. 185-203. A  64.  The  t h i r d major i s s u e to be c o n s i d e r e d d e a l s w i t h  the problem of a s c e r t a i n i n g t h a t a l l a v a i l a b l e stocks of equipment are a c t u a l l y u t i l i z e d . f o r mechanical items may  I n s i s t e n t as demands  be, these do not c o n s i s t e n t l y  secure the u t i l i z a t i o n of s u p p l i e s of equipment which a l r e a d y e x i s t but are hoarded, s t o r e d or f o r g o t t e n about i n numerous warehouses of s t a t e o r g a n i z a t i o n s .  The  g r a v i t y of t h i s p a r t i c u l a r problem i s a m p l y , i l l u s t r a t e d by the f o l l o w i n g s e c t i o n of a speech made by a prominent p a r t y and  governmental o f f i c i a l :  Our economy i s s t i l l c o n f r o n t e d w i t h s i t u a t i o n s I n which much domestic and imported machinery i s not u t i l i z e d f o r y e a r s , but l i e s i n warehouses and becomes o b s o l e t e . At the beginning of 1955, a c c o r d i n g to (the r e p o r t s of) a l l m i n i s t r i e s and departments, 13 b i l l i o n r u b l e s w o r t h of unemployed equipment e x i s t e d , among which were 5 and a h a l f b i l l i o n r u b l e s worth of r e s e r v e equipment which was excess s t o c k . A l l t h i s r e s u l t s from l a c k of o r g a n i z a t i o n , improper methods of d i s t r i b u t i o n , and mismanagement i n a s u c c e s s i o n of i n d u s t r i a l organizations.13 These i s s u e s of a l l o c a t i o n are of  outstanding  importance as they i n f l u e n c e the development of the p u r e l y mechanical aspect of p r o d u c t i o n .  As A r a k i l y a n has  observed: N. A. Bulganin, Pravda, J u l y 17, 1955, p. 3: C f N. S. Krushchev, Concerning the F u r t h e r Improvement of the O r g a n i z a t i o n of A d m i n i s t r a t i o n over Industry and C o n s t r u c t i o n , p. 14 #  65.  Machines r e p r e s e n t i n themselves the most e f f i c a c i o u s p a r t of f i x e d c a p i t a l . Their quantity and q u a l i t y d i r e c t l y d i c t a t e what l e v e l of productivity w i l l e x i s t . 1 4  A low share of equipment i n the sum of a l l f i x e d c a p i t a l of e n t e r p r i s e s i s a n e g a t i v e exponent, inasmuch as machines are the more i n d u s t r i o u s f u n c t i o n a l p o r t i o n of f i x e d c a p i t a l . 1 5  C o n s i d e r i n g the economic s i g n i f i c a n c e of the  relative  q u a n t i t y of "equipment" v i s - a - v i s " b u i l d i n g s " i n a s o c i e t y ' s s t o c k of p r o d u c t i v e f i x e d c a p i t a l , I t i s worthwhile a s c e r t a i n what shares of investment d i v e r t e d to purchases  expenditures have been  of equipment i n b o t h the U.S.S.R.,  and the U.S.A., over the p e r i o d 1929-1950.  Reference  Table. Q l w i l l d i s c l o s e t h a t , as a share of t o t a l ments throughout  to  invest-  the prewar and postwar p e r i o d s , e s t i m a t e d  American expenditures f o r equipment formed from 47.5 cent  (1932) t o 66.6  expenditures.  to  The  percent  (1947) of the sum  per-  of t o t a l  estimates f o r r e l a t e d expenditures i n  the S o v i e t Union, f o r the same p e r i o d ( e x c e p t i n g the years 1935-1940), c o n s t i t u t e d from 35.1 percent  percent  (1934) t o  (1946-1950) of t o t a l money investment.  share of t o t a l I n d u s t r i a l investment  46.8  Taken as a  (Cf. Table Q2),  expen-  d i t u r e s f o r equipment i n b o t h c o u n t r i e s r e f l e c t a g a i n the 14 A r a k i l y a n , Economic Accounting, p. 1 5  I b l d . , p.  68.  67.  66.  tendency f o r American spending t o beemore pronounced i n the matter of equipment purchases.  On the b a s i s of two  figures  p r o v i d e d by A r a k i l y a n r e s p e c t i n g the " S t r u c t u r e of P r o d u c t i v e F i x e d C a p i t a l f o r the e n t e r p r i s e s of the Peoples' Commissar i a t s of I n d u s t r y " I t was  concluded, t h a t S o v i e t expenditures  f o r equipment were probably i n the neighbourhood of 35 t o 40 percent of t o t a l i n d u s t r i a l investment out the prewar p e r i o d .  spending,  through-  No data are a v a i l a b l e f o r the  U.S.S.R., f o r the postwar p e r i o d .  American  f o r equipment as a share of t o t a l i n d u s t r i a l  disbursements investments,  f o r the p e r i o d 1929-1950, were estimated t o c o n s t i t u t e 41.4  percent  (1930) t o 66.8  percent  from  (1935-36) of t o t a l  I n d u s t r i a l expenditures. S t a t i s t i c s are never intended t o prove they a r e only intended t o a c t as i n d i c a t o r s .  anything, The  data  i n t r o d u c e d above, of course, prove n o t h i n g , but they  may  i n d i c a t e t h a t t h e r e i s , t o use A r a k i l y a n ' s terminology, a 'negative exponent' i n the sum  of S o v i e t p r o d u c t i v e f i x e d  capital.  The  i s s u e s of apportionment  j u s t d i s c u s s e d , and  the  waste these i s s u e s g i v e r i s e t o , are problems t h a t w i l l p e r s i s t as long as major changes i n the technique of a l l o c a t i o n are not i n s t i t u t e d . pay i t s own  S o v i e t Investment p o l i c y must  s p e c i a l p r i c e f o r the p r i v i l e g e s w h i c h i t  67.  assumes.  That some o f the economists o f the U.S.S.R. a r e  conscious o f a n e c e s s i t y f o r s u b s t a n t i a l a l t e r a t i o n o f present  p o l i c y i s made evident  by M a l i s h e v ' s a r t i c l e on,  "Some Questions o f P r i c e F i x i n g i n a S o c i a l i s t Economy", (see B i b l i o g r a p h y ) .  A prime t h e s i s o f t h i s a r t i c l e i s ,  t h a t the p r o f i t c r i t e r i o n i s of outstanding.importance i n the d e t e r m i n a t i o n  of investment v a r i a n t s , but t h a t  very c r i t e r i o n has been c o n s i s t e n t l y Ignored.  this  Malishev i s  concerned, I n g e n e r a l , about the l a c k of a r e a l i s t i c approach t o the problems of economic a c c o u n t i n g S o v i e t economy. "ignore  i n the  He c i t e s examples of economists who  the o b j e c t i v e u n i t y o f a l l branches of the n a t i o n a l  economy i n the process o f r e p r o d u c t i o n " ,  (p. 93).  i n g t h i s l i n e o f thought, he c r i t i c i z e s two S o v i e t mists "it  Followecono-  (Bachurin and Meizenberg) who, h o l d i n common, t h a t  i s not a t a l l necessary t o convey i n value  t o t a l i t y of s o c i a l c o s t s o f p r o d u c t i o n  form a l l the  (with r e g a r d t o  wholesale p r i c e s f o r the means of p r o d u c t i o n ) i n r e l a t i o n to output d i s t r i b u t e d among s t a t e e n t e r p r i s e s on the b a s i s of t h e p l a n of m a t e r i a l - t e c h n i c a l supply." M a l i s h e v continues  (p. 93).  h i s own argument by making untenable the  p r o p o s i t i o n t h a t , i n the U.S.S.R., d e v i a t i o n s o f p r i c e from value a r e "planned" d e v i a t i o n s  (p. 101).  the t e n o r o f the paper moves one t o suspect ment i s i n f a v o u r  A r e f l e c t i o n on t h a t the argu-  of what sounds s u s p i c i o u s l y l i k e the  68.  p r i c i n g mechanism ef the market.  There a r e , of c o u r s e ,  o b s t a c l e s t o the r e i n s t i t u t i o n of the market system i n the U.S.S.R., and  a l l of them are not i d e o l o g i c a l .  Recent S o v i e t measures concerned w i t h the d e c e n t r a l i z a t i o n of economic c o n t r o l s provide  the U.S.S.R. w i t h a  semblance of the m u l t i p l i c i t y of planning  centres  encountered  16 i n an i n d i v i d u a l e n t e r p r i s e system.  What s a l u b r i o u s  e f f e c t t h i s p a t t e r n of p l a n n i n g w i l l have as f a r as problems d e a l i n g w i t h the d i s t r i b u t i o n of investment'resources concerned, i s not y e t m a n i f e s t . administering  the absolute  The  difficulty  development of very  are  of  l a r g e urban  areas s u c h as Leningrad and Moscow can h a r d l y be any arduous than was any  one  the a d m i n i s t r a t i o n of the development of  of the now The  less  defunct  industrial ministries.  l o s s e s which have occurred,  as a r e s u l t of  c e n t r a l i z e d d i s t r i b u t i o n of investment r e s o u r c e s , o b v i o u s l y not c r i p p l e d S o v i e t investment p l a n n i n g . remains t o be e s t a b l i s h e d i s whether, as the  have What  configuration  of economic a c t i v i t i e s becomes i n c r e a s i n g l y more complex, the S o v i e t economy can s u s t a i n a p p r e c i a b l e y e t bear the burden of what are  growth,rates  and  l i a b l e t o be mounting l o s s e s .  16 An i n t e r e s t i n g d i s s e r t a t i o n on the n e c e s s i t y f o r r e o r g a n i z a t i o n of c e n t r a l i z e d c o n t r o l i s c o n t a i n e d i n the a r t i c l e by, N. S. Krushchev, Concerning the F u r t h e r Improvement of the O r g a n i z a t i o n of A d m i n i s t r a t i o n over Industry and C o n s t r u c t i o n , (beginning w i t h ) p. 12. See H. E. Ronimois, The R e - o r g a n i z a t i o n of the S o v i e t Economy i n 1957, (A Paper prepared a t "the U n i v e r s i t y of B r i t i s h Columbia, 1958).  69  That l o s s e s w i l l probably r i s e i s presumed from the assumpt i o n ' t h a t as the economy becomes p r o g r e s s i v e l y r i c h e r i n a c t i v i t y and content, then the d i f f i c u l t y of g e n e r a l a d m i n i s t r a t i o n must  increase.  I t i s probable t h a t r a d i c a l changes i n a l l o c a t i o n techniques w i l l be made by the S o v i e t a u t h o r i t i e s as the needs become compelling auspicious*  and as the p o l i t i c a l moments become  That the p a r t y i s prepared, under i t s present  l e a d e r s h i p , t o modify e x i s t i n g p o l i c y r e g a r d i n g b u t i o n o f resources excerpt  the d i s t r i -  i s made q u i t e c l e a r by the f o l l o w i n g  from a speech made by N. S. Krushchev, I n January  of t h i s y e a r : An end w i l l be put t o the b u r e a u c r a t i c d i s t r i b u t i o n o f machinery from the c e n t r e . A t the present time, r e g r e t t a b l y , the d e f i c i e n c i e s o f t h e system a r e r e s p o n s i b l e f o r enormous l o s s e s t o the state. 1 7  T h i s statement by Mr. Krushchev Is s p e c i f i c a l l y concerned w i t h the d i s t r i b u t i o n o f a g r i c u l t u r a l equipment. The  Communist P a r t y l e a d e r proposed I n the course o f h i s  speech that the a c q u i r i n g o f equipment become the I n d i v i d u a l r e s p o n s i b i l i t y of the c o l l e c t i v e f a r m s .  1 8  The exer-  17 Koms omo1 skaya Pravda, January 25, 1958, p. 2. 1  18 Sale o f a g r i c u l t u r a l implements ( f o r m e r l y s t a t e p r o p e r t y h e l d by machine t r a c t o r s t a t i o n s ) t o I n d i v i d u a l c o l l e c t i v e farms, a p p a r e n t l y commenced s h o r t l y a f t e r Mr. Krushchev's speech was p u b l i s h e d .  70,  e l s e of c h o i c e i n the matter of the a c q u i s i t o n o f means of production  i s d e c i d e d l y a new departure i n S o v i e t i n v e s t -  ment p o l i c y even though the producing u n i t s i n v o l v e d are farms.  The r e s u l t s of t h i s scheme w i l l not be apparent  f o r some time y e t . The d e f i c i e n c i e s o f the S o v i e t technique o f apportionment are judged t o r e p r e s e n t  a problem the s o l u t i o n o f  which c o n s t i t u t e s one of the more urgent concerns of S o v i e t planning a u t h o r i t i e s .  A P P E N D I C E S  70.  APPENDIX A TABLE A l INVESTMENTS IN FIXED CAPITAL AND PROPORTIONS FINANCED FROM THE STATE BUDGET IN THE SOVIET UNION, 1933-^1 AND 19H6-50 ( b i l l i o n s of current rubles)  Investments In Fixed C a p i t a l Total  From Budget  Year  (1)  (2)  1933 193*  17.2 21.8 2H.0 30.3 27.8 35.8 3*.7 36.1 38.0 60.0 HQ.V  lh.2  1932  Plan Plan Plan Plan Plan  1936 1937 1938 1939 19H0 WHO 19^1 19*6  I9k6  Plan 19h7 19*7 19*8 Plan 19*9 Plan 1950  H4.2  58.8 55.1 66.2 105.-5 135.6  16.2 16.3  21.5 20.7 2h.9 25.1 2Kh 25>7 H6.6 H1.3  37. H-  HQ.2 H4.5 57.2 79.8 106.5  Ratios  (1) (3)=T2lX100 82.5 7*. 3 67.9 70.9 69.5 72.3 67 S 67.6 77.6 83.7  84.6  83.6 83.8  86.^ 75.6 78.5  SOURCE: Norman Kaplan, C a p i t a l Investments In the Soviet Union, 192H-51 (Santa Monica, Rand Corporation, 1952), p. 117.  APPENDIX B  TABLE BI THE TURNOVER TAX AS A PERCENTAGE OF TOTAL BUDGET RECEIPTS IN THE-SOVTET UNION, 1933-^1 AND 19^6-50 ( b i l l i o n s of current rubles)  Turnover Tax Year 1933 193^ 193-5 1936 1937 1938 1939  19% 19^ 19^6 19^7 1950  (1)  T o t a l Budget Receipts (2)  Ratios  (1) (3)=T2TX100  37.6 52.2 65.8 75.9 8G> 96.9 105.9 93.2 190.9  k6.h  58.2  109.3 127.5 156.0 180.2 177.0 32fA  69.6 69.? 69.6 63.1 62.1 58.8 52.6 58.7  2H?.3 236.1  *10.5 ^22.8  60.2 55.8  239.7  386.2  62.1  SOURCEi Franklyn D. Holzman, Soviet^Taxation (Cambridge, Harvard U n i v e r s i t y Press, 1955), pp. 217, 222.  TABLE CI  APPENDIX C  ABSOLUTE AND PERCENTILE CONTRIBUTIONS OP VARIOUS SOURCES . OF BUDGET REVENUE,.IN THE SOVIET UNION,_1931-1958 ( b i l l i o n s of c u r r e n t  Revenue Turnover Tax P r o f i t s Tax D i r e c t Tax S t a t e Loan Other, i n c l u d i n g S o c i a l Insurance e t c . T o t a l Budget R e c e i p t s  1931 11.7 2.2 1.6 3.3 6.4 25.2  1948 Turnover Tax 247.3 P r o f i t s Tax 227.2 D i r e c t Tax 33.2 State Loan 23.9 Other, i n c l u d i n g 78.9 S o c i a l Insurance e t c . • T o t a l Budget Receipts 410.5  SOURCES: _  % (46.4) (08.7) (06.3) (13.1) (25.4)  1933 27.0 3.4 3.5 4.4 8.1 '~ 4"674~  % 1950 (60.2) 236.1 (06.6) 40.4 (08.1) 35.8 (05.8) 3i.O (19.2) 79.5 422.8  rubles)  % (58.2) (07.3) (07.5) (09.5) (17.5)  1935 52.2 3.3 3.2 4.9 11.4 W70  % 1952 (55.8) 246.9 (09.6) 58.5 (08.5) 47.4 (07.3) 42.6 (18.8) 102.3 497.7  % (69.6) (04.4) (04.3) (06.5) (15.3)  1937 75.9 9.4 4.0 5.9 14.2  % (69.6) (08.5) (03.7) (05.4) (13.0)  ~ 109.3 % 1957 (49.7) 278.3 (11.7) 116.0 (09.5) 51.5 (08.5) 26.6 (20.6) 144.8  1939 96.9 15.8 7.0 8.4 27.9  % (62.1) (10J) (045) (05.4) (17.9)  15679" % 1958 % (45.1) 300.5 (46.8)) (18.8) 130.3 (20.3) (08.3) 49.8 (07.8) (04.3) 4.6 (00.7)1 (23.5) 156.7 (24.4)  617.2  Years 1931-1952, C f . F r a n k l y n D. Holzman, S o v i e t T a x a t i o n , (Cambridge, Harvard U n i v e r s i t y P r e s s , 1955), pp. 217, 222: 1957 and 1958, C f . Economist, (January 4, 1958), p. 46, (data from Economist are e s t i m a t e s ) . ^•Note the v i r t u a l disappearance of t h i s form of revenue.  641.9  -a to  73.  APPENDIX D  S o v i e t investment I n the n a t i o n a l economy i s a sum of s e v e r a l items, i n c l u d i n g c e n t r a l i z e d investments, e x t r a - l i m i t investments, c a p i t a l r e p a i r s , and investments made by c o l l e c t i v e farms on t h e i r own b e h a l f and from t h e i r own r e s o u r c e s . I n d u s t r i a l investment i n the U.S.S.R., c o l l e c t s under one heading a l l c a p i t a l expendit u r e made on b e h a l f of every major i n d u s t r y . 1  American Investment i n the n a t i o n a l economy i n c l u d e s , i n g e n e r a l , a l l p r i v a t e and p u b l i c expenditures f o r b u i l d i n g s and equipment ( i n c l u d i n g c o n s t r u c t i o n expenditures f o r m i l i t a r y f a c i l i t i e s - taken from, U n i t e d S t a t e s , N a t i o n a l Income 1954, pp. 208-209). Equipment charges t o c u r r e n t account a r e Included i n t o t a l I n v e s t ments, but not i n the d a t a f o r i n d u s t r y . A l t h o u g h the investment t o t a l s f o r the n a t i o n a l economy a r e i n f l a t e d , i t i s b e l i e v e d t h a t they do n o t r a d i c a l l y d i s t o r t the relevant r a t i o s . One of the most d i f f i c u l t problems encountered i n the p r e s e n t a t i o n of data f o r t h e v a r i o u s branches of i n d u s t r y i n both the U n i t e d S t a t e s and the S o v i e t Union has been the endeavour t o account i n adequate f a s h i o n f o r the r o l e of c a p i t a l r e p a i r s i n investment e x p e n d i t u r e s . 2  Cf. note 30, p. 27. " T o t a l Investments" i n the U.S.S.R. (Investments i n the National.Economy), exclude labour p a r t i c i p a t i o n i n r o a d b u i l d i n g and l a b o u r c o n t r i b u t i o n s i n k i n d t o c o l l e c t i v e farms' investment from t h e i r own r e s o u r c e s . C f . Kaplan, C a p i t a l Investments, p. 37, p. 212. A c a p i t a l r e p a i r i s a fundamental o r major recons t r u c t i o n o r r e n o v a t i o n o f some f i x e d a s s e t ( r e p l a c i n g the p r i n c i p a l elements o f a steam t u r b i n e , o r r e l i n i n g the i n t e r i o r of a b l a s t f u r n a c e , f o r example), as opposed t o a c u r r e n t r e p a i r , which i a commonly r e s t r i c t e d t o s m a l l s c a l e r e n o v a t i o n ( r e p l a c i n g minor p a r t s of machinery and equipment e t c . ) . 2  74  Because of the extremely meagre data c u r r e n t l y a v a i l a b l e p e r t a i n i n g t o c a p i t a l r e p a i r s , the w r i t e r has f e l t o b l i g e d t o . d i s r e g a r d the d e l i n e a t i o n of t h i s Item i n both economies r e s p e c t i n g i n d u s t r y and i t s branches. That t h i s probably r e s u l t s i n the d e f l a t i o n of some of the S o v i e t d a t a may be i n f e r r e d by c o n s u l t i n g the f i g u r e s p u b l i s h e d f o r the 1941 Plan i n , C a p i t a l Investments i n the S o v i e t Union. 1924-1951. 5  I t has been assumed t h a t under the heading "Expend i t u r e s f o r C a p i t a l Goods", i n the U n i t e d S t a t e s , are i n c l u d e d a l l expenditures f o r such goods, whether the goods are d e s t i n e d f o r new p r o j e c t s o r f o r r e n o v a t i o n and e x t e n s i o n of e x i s t i n g e n t e r p r i s e s . 4  The f o l l o w i n g q u o t a t i o n r e g a r d i n g ments i n the U.S.S.R. i s p e r t i n e n t .  industrial invest-  The data on investments by s p e c i f i c branches of i n d u s t r y are s c a t t e r e d and somewhat ambiguous. The p a r t i c u l a r ambiguities are as f o l l o w s : a. Whether the data r e f e r t o a d m i n i s t r a t i v e c l a s s i f i c a t i o n s or t o genuine branches ( i . e . , t o the branch r e g a r d l e s s of the a d m i n i s t r a t i v e j u r i s d i c t i o n of a p a r t i c u l a r e n t e r p r i s e ) i s f r e q u e n t l y unknown. b. Whether the branch i n c l u d e s o r excludes "nonprod u c t i v e " investments by e n t e r p r i s e s i n the branch i s f r e q u e n t l y unknown. 5  c. What the coverage of the branch Is and whether branch coverage over time i s constant are unknown. d. H i g h l y c o n j e c t u r a l estimates have been employed f o r the postwar y e a r s . The postwar,data are °See a l s o pp. 142-147 of Kaplan's study, C a p i t a l Investments, f o r f u r t h e r d i s c u s s i o n of c a p i t a l r e p a i r s . 4 Dewhurst, America's Needs and Resources, p. 1009. C f . Murray P. Poss and V i t o N a t r e l l a , Survey of Current Business, (March 1957), p. 8. C o n s i s t s of f i x e d c a p i t a l devoted to s o c i a l , t u r a l needs, e t c . , of the p o p u l a t i o n . C f . Kaplan, C a p i t a l Investments, p. 16. 5  cul-  75.  c o n f i n e d to percentage f i g u r e s which express branch investments i n a g i v e n y e a r as a percentage of branch Investments f o r the p r e v i o u s year. The g e n e r a l procedure has been t o l i n k the percentages i n t o an index number s e r i e s and t o s e a r c h f o r a r u b l e f i g u r e f o r one of the postwar y e a r s . I n most c a s e s , the l a t t e r f i g u r e had t o be estimated from a planned f i g u r e . Thus, the dependence of the postwar estimates on a s i n g l e and d o u b t f u l r u b l e f i g u r e makes the postwar estimates p a r t i c u l a r l y tenuous.6 The items enclosed by brackets i n Columns (1) and (2) of Tables G l through N l under "U.S.S.R. - Investments" are estimates made by the w r i t e r i n terms of 1945 p r i c e s , on the b a s i s of data t a k e n from the study by Kaplan, ( C a p i t a l Investments). E s t i m a t e s f o r investments In the " N a t i o n a l Economy" were based on r a t i o s developed by comparing (at c u r r e n t p r i c e s ) c e n t r a l i z e d investments and t o t a l investments, and then a p p l y i n g the a s c e r t a i n e d r a t i o s to expenditures quoted f o r " T o t a l N a t i o n a l Economy", which were assumed t o be c e n t r a l i z e d investments (at 1945. p r i c e s ) f o r the p e r i o d 1946-1950." Estimates f o r investments i n " I n d u s t r y " were a l s o based on data drawn from the above mentioned study.®  Kaplan, C a p i t a l Investments, p. C f . Table D l . l  Cf. Table  D2.  64.  APPENDIX D TABLE D l INVESTMENTS IN "TOTAL NATIONAL ECONOMY" AND RATIO, OF CENTRALIZED.INVESTMENTS TO TOTAL INVESTMENTS, IN THE SOVIET UNION, 1945 - 1950 ( b i l l i o n s of rubles)  Year  Total National Economy (i)  1945 1946 1947 1948 1949 1950  36.3 42.5 46.8 57.6 69.1 85.0  Centralized Investments (2) 36.3 44.2 53.1. 66.2  —  Total Investments (3)  Ratios 2/3 (4)  '49.9 67.0 79.7 100.2 143.0 166.7  .72 .66 .66 .66  Source:  Norman Kaplan, C a p i t a l Investments i n the S o v i e t Union, 1924-1951, (Santa Monica, C a l i f o r n i a , Rand C o r p o r a t i o n , 1952), pp. 33-35, 207, 211.  Notes:  P r i c e s of 1945 a p p l y t o Column 1; p r i c e s a p p l y elsewhere.  —  current  R a t i o s f o r 1949 and 1950 were not c a l c u l a t e d because of d i f f i c u l t i e s p e r t a i n i n g t o i n c l u s i o n of " e x t r a - l i m i t " expenditures i n the data f o r the.Investment p l a n f o r these two y e a r s . The w r i t e r a r b i t r a r i l y s e l e c t e d the r a t i o common t o the years 1946-1948 and d i v i d e d the data under " T o t a l N a t i o n a l Economy" by the relevant decimal. The r e s u l t s o f these computations appear under " S o v i e t Union: Investments i n N a t i o n a l Economy", Table G l and o t h e r s .  77.  APPENDIX D TABLE D2 INVESTMENTS BY PRINCIPAL BRANCHES OP INDUSTRY AS A PERCENTAGE.. OP INVESTMENTS BY.TOTAL INDUSTRY, IN THE SOVIET UNION, 1947 - 1950 ( b i l l i o n s o f 1945 r u b l e s )  Year  P r i n c i p a l Branches of Industry (1)  Total Industry (2)  Ratio 1/2  1947 1948 1949 1950  21.9 28.2 34.3 40.1  (31.2) 40.4 47.3 (57.2)  .72 .70 •  Source:  Norman Kaplan, C a p i t a l Investments i n the S o v i e t Union. 1924-1951. (Santa Monica. C a l i f o r n i a . Rand C o r p o r a t i o n , 1952), p. 66.  Notes:  " P r i n c i p a l Branches of Industry" i n c l u d e data f o r only the f o l l o w i n g branches: E l e c t r i c Power Stations; C o a l and Petroleum I n d u s t r i e s ; Ferrous and Nonferrous M e t a l l u r g i c a l I n d u s t r y ; and the L i g h t and Pood I n d u s t r i e s . As " P r i n c i p a l Branches o f Industry" c o n s t i t u t e d about seventy percent of investments by " T o t a l Industry" f o r the years 1948 and 1949, i t was assumed t h a t the same r a t i o a p p l i e d a l s o t o " P r i n c i p a l Branches of Industry" as a p r o p o r t i o n of t o t a l I n d u s t r i a l i n v e s t m e n t s . f o r the years 1947 and 1948. The estimates ( i n b r a c k e t s ) f o r " T o t a l Industry" were developed by d i v i d i n g the d a t a , assumed t o a p p l y t o " P r i n c i p a l Branches o f Industry", by decimal 7.  78.  APPENDIX E  TABLE 1ET1 INVESTMENTS IN INDUSTRY AND IN GROUP A INDUSTRY IN THE SOVIET UNION, 1 9 2 9 - * 2 ( b i l l i o n s of current rubles) Soviet sources divide industry into groups A and B. Group A industry embraces those branches of industry.which generate producers* goods. Group B industry produces consumers goods. Where a branch of industry produces both consumers* and producers* goods, i t i s c l a s s i f i e d according to the predominant destination of i t s output. 1  Year  Prices  Investments i n Group A Industry  (1)  1929  1930 1931 1933  1933  193*  1933-37 193*-38  Plan 1 9 3 8 - * 2  2.615  9.080 53.**2 7.*01  69.5*5  8.692  1932 Plan 1 9 3 6 Plan 1937  1936-37  (2)  2.127  3.*25 6.513  1932  Plan 1 9 3 3 - 3 7  Investments in Industry  10.516 10.6*7 10.9-19 f*.565 60.777 87.162  Investments i n Group A Industry as a Percentage of Investments i n Industry (3)=^-X100  81.3  *.ll* 7.1*07  83.3 87.9  10.U-31  87.0 76.8 83.5 81.8 83.8 76.3 78.* 83.0 8^.3  8.863 10.62* 12.5*2 13.956 13.928 65.763 72.9*8  103.580  8*.l  SOURCE: Norman Kaplan, C a p i t a l Investments i n the Soviet Union, 192*-195l (Santa Monica, C a l i f o r n i a , Rand Corporation,  1952), p. 6 0 .  79.  APPENDIX P  TABLE F l INVESTMENTS BY INDUSTRIAL MINISTRIES IN THE SOVIET UNI ON, 1929-19^-1 ( b i l l i o n s of current rubles unless otherwise noted) Soviet sources have also presented d i s t r i b u t i o n s of investments by ministries and other administrative departments. P r i o r to the p r o l i f e r a t i o n of i n d u s t r i a l ministries i n the late 1930*s there were four i n d u s t r i a l m i n i s t r i e s : (a) the Ministry of Heavy Industry; (b) the Ministry of Light Industry; (c) the Ministry of Timber Industries; and (d) the Republic M i n i s t r i e s of Local Industry. Under the j u r i s d i c t i o n of the Ministry o f Heavy Industry were the following branches: e l e c t r i c power stations, the coal and petroleum i n d u s t r i e s , ferrous and non-ferrous ore mining, ferrous and non-ferrous metallurgy, and the automobile, t r a c t o r , machine building, construction materials, chemicals and defence i n d u s t r i e s . Under the j u r i s d i c t i o n of the Ministry of Light Industry were: the t e x t i l e , clothing, leather, boot, shoe and glass i n d u s t r i e s . Under the j u r i s d i c t i o n of the Ministry of Timber Industry were: the woodworking, f u r n i t u r e , wood chemical, paper, match and logging i n d u s t r i e s . The j u r i s d i c t i o n of the Ministry of Food Industry i s self-evident. Under the j u r i s d i c t i o n of the Republic Ministries of Local Industry were l o c a l i n d u s t r i a l branches of a l l national administrative c l a s s i f i c a t i o n s . Year Ministry Ministry Ministry Ministry Ministry Other of Heavy of Light of Timber of Food of Local Industry Industry Industry Industry Industry  1929  1.981  .31^  193 1 6.113 1932 8.505 1933 7M0 193* 8.M-58 193$ 8.9£9 1936* IO.269 1937* 8.667 19^1* 25.393  . 276 .389 .513 .629 .720 1.37Q 1.406 .757  1930  3.1^7  ,  .318  .096  .200  .382 .W* .^09 .H67 .559 1.042 l.oao .469  .20**  .hll  . 592 .868 .91? .93^ .8£2 1.165 .970 .545  —  —  — —  A71 .500 1.057 .770 .24?  Total Investments in Industry  .0^0  2.635  .1H6 .197 .21^ .285 .199 .115 .323 .065  7.509 10.f«O3 9>75 11.244 11.789 15.019 13.1*+f 27.476  .095  Kl7l  SOURCE: Norman Kaplan, C a p i t a l Investments i n the Soviet Union, 192^1951 (Santa Monica, C a l i f o r n i a , Rand Corporation, 1952), pp. 61-63. • A l l - f i g u r e s f o r t h i s year are plan f i g u r e s . •1936-37 prices. (See Table V)  80.  APPENDIX F TABLE F2 INVESTMENTS BY INDUSTRIAL MINISTRIES AS PERCENTAGES OF TOTAL- INVESTMENTS IN INDUSTRY IN THE SOVIET UNION, 192*-19*1  Year M i n i s t r y Ministry Ministry Ministry M i n i s t r y Other of Heavy of Light of Timber of Food o f L o c a l Industry Industry Industry Industry Industry  1929 1930 1931 1932 1933 193* 1935 Plan 1936 Plan 1937 Plan 19*1  75.2 75.* 81.* 81.8 78.3 75.2 76.0  11.97.6 3.7 3.7 5.k 5.6 6.1  3.6 *.8 5.1 *.3 *.3 *.2 *.7  *.3 *.3  1.5 2.3 1.9 1.9 2.3 2.5 1.7  100 100 100 100 100 100 100  7.8  7.0  0.8  100  7.7 9.9 7.9 8.3 9.7 8.3 7.2  — — — — —  —  —•  '  Total  68.*  9.1  6.9  65.9  10.7  7.7  7.*  5.9  2.5  100  92.*  2.8  1.7  2  *°  .9  0.2  100  SOURCE: Norman Kaplan, C a p i t a l Investments i n the Soviet Union, 192^-1951 (Santa Monica, C a l i f o r n i a , Rand Corporation, 1952), p. 63.  TABLE \Q.3L  APPENDIX G  INVESTMENTS IN THE IRON AND STEEL INDUSTRY, AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL.INVESTMENTS IN EACH AREA, IN THE UNITED STATES.AND THE SOVIET UNION, 1929-40 AND 19^6-50 ( b i l l i o n s of current dollars and rubles) The i r o n and s t e e l industry i n the U.S.S.R. after 1947, includes non-ferrous metallurgy. Prior to 1938, the i r o n and s t e e l industry i n the U.S.A., as defined herein, includes only "primary" i r o n and s t e e l ; f o r 1939, i t includes primary iron and s t e e l plus fabricated metal products; and from 1946-50, i t includes primary i r o n and s t e e l , fabricated metal products and primary non-ferrous metallurgy. Per U.S.A.- Investments i n : National Industry Iron and Cent Economy Steel Industry ( i ) Year (1) (2) (3) 17.767 14.12$ 9.|26 5.622 4.931 1934 6.526 193f 7.997 II.474 1936 13.085 1937 1938 11.477 13.307 1939 1940 15.394 19*46 25.1B9 1947 34.793 1948 43.0-55 1949 42.965 52.532 1950 1929 1930 1931 1932 1933  SOURCES:  4. $74 3.607  2.151  1.307 1.200 1.703  2.106  2.884 3.8042.635 2.874 4.120 8.180 11.132 12.883 11.377 11.872  .150  .300 .120 .040 .050 .040 .122 .200 .316 .132 .122  —-  .593 .816 .965 .747 .733  See "Sources,"  0.8 2.1 1.2 .7 1.0 .6 1.5 1.7 2.4 1.2 1.6 —  3.8 3.4 3.0 2.4 2.0  Per Cent  C3). (2)  Per U.S.S.R.- Investments i n : Per National Industry Iron and Cent Cent Steel Economy 111 (3) (2) Industry (1) (2) (3) (1) -  3.2  8.3  5.6 3.0  4.2  2.3 5.8  6.9 8.3  5.0 7.4  11.1 10.6 10.2 8.9 9.1  Table n .  19.866  2.615 4.114 7.^7 10.431  29.3  10.624 12.542  36.3 44.6 44.8  17.075  5.805  9.665  15.501 19.4 25.2  38.1  50.1  (64.0) (70.0) (87.0) (104.0) (128.0)  8.86V  13.956  17.4 17.9 —  (31.2)  40.4.  47.3 (57.2)  .263  4.5  .836  5.4 7.2  .4l&  1.422  1.726 1.827 1.549* I.050* 1.210 1.326 2.238  8.8 7.2 5.2  2.8 2.7  6.5 6.5 8.5  4.4 10.2 9.2 9.f  11.6  9.0  10.0  *Plan f i g u r e s .  9.6  .......  10.1 10.2  11.3  13.6  10.5 17.2 12.6  7.5  74 7.6  12.5 —  20.8  21.0 21.1 20.2  TABLE 1 1  APPENDIX H  INVESTMENTS IN THE ELECTRIC POWER INDUSTRY, AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL.INVESTMENTS IN EACH AREA, IN THE UNITED STATES AND THE SOVIET UNION, 1929-*0 AND l$k6-$0 ( b i l l i o n s of current d o l l a r s and rubles)  Per U.S.A.- Investments i n : National Industry E l e c t r i c Cent Economy Power (3) Industry T U Year (1) (2) (3)  Per Cent  *.2 5.8 5.0 *.6 3.0 2.* 2.6  16.222.6  1929 1930 1931 1932 1933 193* 1935 1936 1937 1938 1939 19*0 19*6 19*7 19*8 19^9 1950  17.767 1*.125 9.926 5.622  V.67*  *.93±  1.200  6.526 7.997 U.*7* 13.085 11.*77 13.307 15.39*  25.189  3*. 793 *3.055 *2.965 52.532  SOURCES:  3.607  2.151 1.307 1.703 2.106 2.88* 3.80* 2.635 2.87* *.120 8.180 11.132 12.883 11.377 11.872  2.9  .57* .565  .925  1.866 2.272 2.187  3.8 3.9 3.3 3.7 2.2 2.6 *.3 5.2 *.2  (3)  T2l  23.2 19.8 12.6 9.1 10.0 11.6 13.2 17.0  15.* 13.9 6.9  8.3 1*.* 20.0 18.*  See "Sources," Table I I .  U.S.S.R.- Investments i n : Per National Industry E l e c t r i c Cent Economy Power (3) Industry ( 1 ) CD , (2) (3)  Per Cent  *.3  9.6 9.6 7.* 6.8 6.8 6.0 6.8 7.0  5.805  15  *.ll* 7.*07 1D.*31 8.863 10.62* 12.5*2 13.956  9.665  15.501 19.866 19.*  25.2 29.3 38.1 36.3  H*f.6 **.8  50.1  (6J+.0)  (70.0) (87.0)  (10*. 0 )  (128.0)  (  *.o  .395 .550 .719 .609 .6HO .8*1* .976*  3.5 3.6 3.1 2.5 2.8 2.6  17.075 17.* 17.9  1.081 1.2*5 1.011  2~k  8i  3^0 3.6 5.0 6.6  K2  *7.3^ (57.2)  2.8 2.0  •Plan figures  *.l *.8 5.2  (3)  T2T  675 7.2 5.6 9.6 8.9 10.6 11.5  APPENDIX I  TABLE I I  INVESTMENTS IN THE MACHINE-BUILDING INDUSTRY, AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL INVESTMENTS IN EACH AREA, IN THE UNITED STATES AND THE SOVIET UNION, 1934-40 AND 19*6-50 ( b i l l i o n s of current d o l l a r s and rubles, unless otherwise noted) T o t a l investments i n the United States are an amalgam of " T o t a l Expenditures from C a p i t a l Goods" (from J . F. Dewhurst- see below) and expenditures for m i l i tary construction by the Federal Government (from National Income, 195*- see below). "Industry" i n the United States, as defined herein, includes the f o l lowing branches: manufacturing, mining, u t i l i t i e s ( e l e c t r i c a l and gas), o i l p i p e l i n e , and i n d u s t r i a l and commercial developmental construction. The "MachineB u i l d i n g Industry" i n the United States, as defined herein, includes: enterprises manufacturing motor vehicles and transportation equipment, e l e c t r i c a l machinery and equipment, and n o n - e l e c t r i c a l machinery. Per Per U.S.A.- Investments i n : National Industry Machine- Cent Cent Economy Building (3) (3) Industry Year (2) (1) (3)  (17 (27  1934 193f 1936 1937 1938 1939 1940 1946 1947 1948 1949 1950  —  —_ —.  —  — —  ' —_  „.„ __  13.307  2.874  .324  2.4  11.2  25.189 34.793 43.055 42.965 52.532  8.180 11.132 12.883 11.377 11.872  1.493 1.422 1.396 1.034 1.248  5.9 4.0 3.2 2.4 2.4  18.2 12.8 10.8 9.0 10.5  •  U.S.S.R.- Investments i n : Per Per Industry Machine-Cent Cent National Economy Building (3) (3) Industry (17 (27 (2) (3) (1) 25.2 29.3 38.1 36.3 44.6** 44.8** $0.1** (64.0)(70.0) (87.0) (104.0) (128.0)  10.624 12.542 13.956* 17.075 17.4 17.9 —  (31.2) 40.447.3 (57.2)  2.179*  8.6 8.0 5.1  18.4 19.2 14.0  2.214 4.0 4.0 4.6 5.1 5.6  4.4 6.2 5.7 ?.2  12.4 12.8 11.4 10.8 9.8  SOURCES: J . Frederic Dewhurst and Associates, America s Needs and Resources (New York, American Book-Stratford Press, 1955), pp. 1009-15; Norman Kaplan, C a p i t a l Investments i n the Soviet Union, 1924^-1951, . 37,66; United States, Department of Commerce, Nationa1 Income, 1954 (Washington, 1954), pp. 208-09. 1  p p  *Plan f i g u r e s .  **1936-37 prices.  APPENDIX J  TABLE iJl  INVESTMENTS IN THE PETROLEUM INDUSTRY, AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL INVESTMENTS IN EACH AREA, IN THE UNITED STATES AND THE SOVIET UNION, 1929-*0 AND 19*6-50 ( b i l l i o n s of current dollars and rubles) Expenditures i n the United States include those f o r production ( d r i l l i n g , e t c . ) , r e f i n i n g , and other items (including transportation). U.S.A.- Investments i n ; % National Industry Petroleum (3) Economy Industry (1) Year (1) (2) (3) — — —  1935 1936  — 11. *7*  — 2.88*  ll.*77 13.307 15.39* 25.189 3*.793 *3.055 *2.965 52.532  2.635 2.87* *.120 8.180 11.132 12.883 11.377 11.872  1937  1938 1939 19*0 19*6 19*7 19*8 19*9 1950  U.S.S.R.- Investments i n : National Industry Petroleum (3) Economy Industry (1)  (1) 5.805  1929 1930 1931 1932 1933  193*  % (3) (2)  ~ —  13.085  SOURCES:  —  9.665  19.866  10.*31  15.501  3.80*  -  (.689) (.88*) (.681)  (.725) (.702) (1.393) (2.165) (2.735) (2.302) (1.926)  25.2 29.3 — 38.1 6.0 23.8 6.8 23.2 36.3 5.9 25.8 M+.6 **.8 5 . * 25.2 -50.1 * . 6 17.0 (6>+.o) 5.5 17.0 (79.0) 6.2 19.* (87.0) 6 > 21.2 (10*.0) 5 . * 20.2 3.6 16.2 (128.0)  See "Sources," Table I I . Cf. Appendix K.  2.615  *.ll*  19.*  —  (2)  7.*07  8.863 10.62* 12.5*2 13.956  --  17.075  17.* 17.9  (3ll2) *0.* *7.3 (57.2)  (3)  (3) (2)  *  .860* 1.000*  *.2 3.6 2.6 2.2 2.* 2.8 2.9 2.6  1.150* l.**02.*02  2.6 6.1 *.2 8.2 *.8 13.*  2.8 3.6  *.o *.l *.2  .2*9  .350 >15 .*52  .*83 .698  —  *.*  5.7  •Plan figures  —  —  *.*  8.5 5.* 6.6 7.0 7.2 —  —  9.0 8.9 9.3 10.0  85  APPENDIX K  The items appearing i n the v a r i o u s columns o f Table K l are as f o l l o w s : Columns 1, 2, and 3 are c a p i t a l expenditures f o r p r o d u c t i o n , r e f i n i n g and o t h e r ( t r a n s p o r t a t i o n , e t c . , ) , r e s p e c t i v e l y , by t h i r t y p r i n c i p a l o i l companies i n the U n i t e d S t a t e s ; data were drawn from R e g u l a r l z a t l o n of Business Investment. Column 4 (1936-1940) are estimates of c a p i t a l expenditures f o r p r o d u c t i o n purposes by the j o i n t c o a l and petroleum i n d u s t r y . Column 4 (1946-1950) are c a p i t a l expenditures by the c o a l and petroleum i n d u s t r y ; data taken from America's Needs and Resources. Column 5 a r e e s t i m a t e d c a p i t a l expenditures by o i l i n d u s t r y f o r p r o d u c t i o n purposes. Column 6 are e s t i m a t e d c a p i t a l expenditures by c o a l industry. To o b t a i n the estimates f o r the c o a l ' i n d u s t r y (1946-1950), the f i g u r e s i n Column 1 (1946-1950) were subt r a c t e d from the f i g u r e s i n Column 4 (1946-1950); one h a l f being a r b i t r a r i l y a s s i g n e d t o the c o a l i n d u s t r y ; the o t h e r t o the petroleum i n d u s t r y . E s t i m a t e s f o r the c o a l i n d u s t r y , f o r the p e r i o d , 1936-1940, were o b t a i n e d i n the f o l l o w i n g manner. Between 1946 and 1950, p r o d u c t i o n expenditures by t h i r t y p r i n c i p a l o i l f i r m s c o n s t i t u t e d about 62 percent of t o t a l expenditures f o r the c o a l and petroleum i n d u s t r y (America's Needs and Resources); i t was t h e r e f o r e assumed t h a t each f i g u r e f o r p r o d u c t i o n expenditures between 1936 and 1940, c o n s t i t u t e d 62 percent of the t o t a l f i g u r e f o r c o a l and petroleum. The c o a l estimates f o r 1936-1940 then proceeded from the method f o l l o w e d f o r o b t a i n i n g the 1946-1950 e s t i m a t e s . I t was f i n a l l y assumed t h a t the c a p i t a l expenditures by t h i r t y p r i n c i p a l o i l f i r m s f o r r e f i n i n g and o t h e r processes made up the whole of such expenditures f o r the petroleum i n d u s t r y . These a d d i t i o n a l sums were then added  86.  t o the expenditure estimates f o r p r o d u c t i o n . Two l i m i t a t i o n s of the above estimates are e s p e c i a l l y important t o note. We have i g n o r e d the i n f l u e n c e of a n c i l l a r y I n d u s t r i e s i n the d a t a excerpted from America's Needs and Resources; having been cons t r u c t e d independently, the estimates are not s t r i c t l y comparable w i t h the aggregates under " N a t i o n a l Economy" and " I n d u s t r y " .  See Column 3 of Table J l , f o r t o t a l expenditures by petroleum I n d u s t r y .  investment  APPENDIX K  TABLE K l ESTIMATED INVESTMENT EXPENDITURES FOR THE. PETROLEUM AND COAL INDUSTRIES, IN THE UNITED STATES,_1936^40 and 1946-50 ( m i l l i o n s of c u r r e n t d o l l a r s )  5  6  Column  1  2  3  4  Year 1936 1937 1938 1939 1940  370 462 355 319 331  59 96 88 98 97  146 183 127 159 172  (596) (745) (574) (516) (533)  1946 1947 1948 1949 1950  674 879 1,260 1,128 1,064  189 349 513 388 248  324 508 541 456 353  1,087 1,736 2,100 1,789 1,587  Sources:  N a t i o n a l Bureau of Economic Research, R e p o l a r i z a t i o n of Business Investment, ( P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , 1954), pp. 140-142. Logan, L. J . , "Larger Companies Produce 62 percent and r e f i n e 86 . percent of U.S. O i l " , World O i l , v o l . 130 (June 1950), p. 44. J . F r e d e r i c Dewhurst,-and A s s o c i a t e s , America's Needs and Resources, (New York,-American B o o k - S t r a t f o r d P r e s s , 1955), p. 1011.  Notes:  Brackets I n d i c a t e t h a t the e n c l o s e d the w r i t e r .  (483) (604) (465) (468) (432) (880) (1,307) (1,680) (1,458) (1,325)  f i g u r e s are estimates  (113) (142) (109) (148) (101) (206) (428) (420) (330) (261)  made fcy  TABLE :L1  APPENDIX L  INVESTMENTS IN THE COAL INDUSTRY, AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL INVESTMENTS IN EACH AREA, IN THE UNITED STATES AND THE SOVIET UNION, 1929-40 AND 1946-50 (billions of current dollars and rubles)  U.S.A.- Investments In: National Industry Coal Economy Industry Year 1929 1930 1931 1932 1933 1934 193? 1936 1937 1938 1939 1940 1946 1947 1948 1949 1950  (1)  (2)  % (3) (1)  % (3) (2)  (3) — — _ _  —  — —  11.474 13.085 11.477 13.307 15.394 25.189 34.793 43.055 42.965 52.532  SOURCES:  2.884 3.804 2.635 2.874 4.120 8.180 11.132 12.883 11.377 11.872  .113) .142) .109) .148) .101) .206) .428) .420) .330) .261)  0.9 1.0 0.9 1.1 0.6 0.8 1.2 1.0 0.7 o.C  3.9 3.7 4.1 5.1 2.4 2.5 3.8 3.2 2.9 2.2  See "Sources," Table SI. Cf. Appendix K.  U.S.S.R.- Investments i n : National Industry Coal Economy Industry (3) (2) (1)  % (3> (1)  % (3) (2)  2.61? 4.114 7.^07 10.431 8.863 10.624 12.542 13.956  4.0 3.2 3.8 2.8 2.4 2.1 1.3  8.8 7.5 8.0 7.4 6.3 5.6 5.1 3.6  5*2 3.4  1377 8.8  5.805 9.665 15.501 19.866 19.4 25.2 29.3 38.1 44.6 44.8 -50.1 (64.0) (70.0) (87.0) (104.0) (128.0)  17.075 17.4 17.9  OlTi) 40.4 47.3 (57.2)  .230 .309 .599 .782 .561 .595 .625* .500* 2.339 1.529 5.8 6.3 8.1 9.9 10.7  9.0 9.0 9.5 8.4  *Plan figures.  20.2 20.0 20.9 18.7  TABLE HTz  APPENDIX M  INVESTMENTS IN RAILROAD TRANSPORT. AS PERCENTAGES OF TOTAL INVESTMENTS IN EACH AREA AND TOTAL INDUSTRIAL INVESTMENTS IN EACH AREA, IN THE UNITED STATES AND THE SOVIET UNION, 1929-*0 AND 19*6-50 ( b i l l i o n s of current d o l l a r s and rubles) U.S.A.- Investments i n : National Industry Railroad (3) Transport TT7 Economy Year (1) (2) (3) 1929 1930 1931 1932 1933 193* 1935 1936 1937 1938 1939 19*0 19*6 19*7 19*8 19*9 1950  17.767 1*.125  *.67* 3.607  5.622  1.307 1.200 1.703 2.106 2.88* 3.80* 2.635 2.87* *.120 8.180 11.132 12.883 11.377 11.872  9.926 *.931  6.526 7.997 11. *7* 13.085 11. *77 13.307 15.39* 25.189 3*. 793 *3.055 *2.965 52.532  SOURCES: pp. 1009-15?  2.151  .8*0 .865 .360  .308  *.7 6.1 3.6 2.9 2.0 3.3 2.1 2.6  .2*0 .280 .*39 .583 .889 1.319 1.352 1.111  2.0 2.1 2.8 2.3 2.6 3.0 3.1 2.1  .16*  .101 .218  .168 .52*  *.o  (3) (27  17.8 2*.0 16.7 12.5 8. * 12.8 8.0 10.6 13.8 9.1 9.7 10.6 7.1 8.0 10.2 11.8 9. *  U.S.S.R.- Investments i n : National Industry Railroad Economy Transport (1) (2) (3) 5.805 9.665 15.501 19.866 19.* 25.2 29.3  38.1 36.3  kh.6  **.8 50.1 (6*.0) (70.0) (87.0) (1X)*.0) (128.0)  2.615  *.ll* 7.*07 10.*31 8.863 10.62* 12.5*2 13.956 17.075 17.* 17.9  (3ll2)  *0.* *7.3 (57.2)  .873 1.112 1.910 2.569 2.107 2.928 3.752 *.762* 5.323* 5.0 *  (3)  (3)  (T7  (IT  15.0 11.5 12.3 12.9 10.8 11.6 12.8 12.* 1*.6 11.2  33.*  27.0 25.8  2*. 6  23.8  27.6  29.9 3*.l 26Ti  — -—  5.6 6.0 6.7 8.8 10.7  8.8 8.6  19.2 16.6 1:1 18.6 18.7 8.*  J . Frederic Dewhurst and Associates, America's Needs and Resources, Norman Kaplan, C a p i t a l Investments In the Soviet Union, p. 195.  *Plan figures  TABLE 1 L  APPENDIX N  INVESTMENTS FOR ALL CONSTRUCTION PURPOSES AS A PERCENTAGE OF TOTAL INVESTMENTS, AND INVESTMENTS FOR URBAN RESIDENTIAL CONSTRUCTION. AS A PERCENTAGE OF TOTAL INVESTMENTS AND TOTAL CONSTRUCTION, IN THE UNITED STATES AND THE SOVIET UNION, 1929-40 AND 19*6-50 ( b i l l i o n s o f current dollars and rubles) $  %  (3). (1)  (3i (2)  Natlonal Economy (1)  Constructlon (2)  10.793 3.625 62.1 20.8 33.6 8.741 2.075 63.2 15.0 23.7 6.427 1.565 66.0 16.0 2 * . * .630 65.2 11.6 17.83.538  5.805 9.665 15.501 19.866 19.* 25.2 29.3 38.1 36.3 44.6 44.8 50.1 (64.0) (70.0) (87.0) (104.0) (128.0)  3.612 5.813 9.787 13.0-15 10.769 14.817 — 26.0 —  U.S.A.- Investments i n : % NaCont i o n a l strucEconomy t i o n Year (1) (2) 1929 1930 1931 1932 1933 193* 193-5 1936 1937 1938 1939 19*0 19*6 19 *7 19*8 19*9 1950 4  17.367 13.825 9.726 5.422 4.731 6.326 7.697 11.174 12.585 11.077 12.939 14.996 24.536 34.020 42.004 41.896 51.253  2.879 3.720  4.232  6.497 6.999 6.98O 8.198 8.682 12.000 16.689 21.678 22.789 28.454  Urban (2) Resi- (1) dences (3)  .470 .626 1.019 1.626 1.968 2.025 2.7*5 3.185 4.389 6.510 8.736 8.626 12.945  60.8 9.9 16.3 58.8 9.8 16.8 55.0 13.2 24.0 58.1 1*.6 25.0 55.6 15.6 28.1 63.0 18.2 29.0 6 3 . * 21.2 3 3 . * 57.8 21.2 36.6 48.9 17.8 36.6 49.0 19.1 39.0 51.6 20.8 40.2 54.4 20.6 37.8 55.5 25.2 45.4  U.S.S.R.- Investments i n : %  — — — — — -  Urban Residences (3) .509 .751.116 1.5?1 1.3*3 1.729 1.930 2.* — 3.2 6.0 7.0 9.5 12.2 14.4  %  <2)_ (1)  %  (3) (3) (1) (2)  62.2 60.1 63.1 65.5 55.5 58.8  8.8 14.0 7.8 12.9 7.2 11.4 8.0 12.2 6.9 12.4 6.8 11.6 $9.h 6.6 — 6 0 . * 6.2 9.2 — — - — 60.8 — — — — —  -6.4 9.3 10.0 10.9 11.7 11.2  — — — — — — —  SOURCES: United States, Department o f Commerce, National Income, 195 *, pp. 208-09, 122-23? Norman Kaplan, C a p i t a l Investments i n the Soviet Union, 1924-1951, pp. 2, 72; N.V. Kolganoff and others, ed., National Income o f the U.S.S.R. (Moscow), p. 159; J . Frederic Dewhurst, America's Needs and Resources, pp. 1009-15. 1  APPENDIX 0  S o v i e t d a t a f o r c o n s t r u c t i o n i n Table N l a r e assumed t o represent expenditures f o r "pure" c o n s t r u c t i o n ( c h i s t o e s t r o i t e l s t v o ) and hence s p e c i f i c a l l y exclude the expenses f o r the mounting of equipment^ (montazh oborudovanie). Pure c o n s t r u c t i o n i n the U.S.S.R. i s defined to include: 1  ... the e r e c t i o n of a l l s o r t s of b u i l d i n g s (industrial, residential, cultural-social, public a d m i n i s t r a t i o n , trade and commercial, m u n i c i p a l , a g r i c u l t u r a l , e t c . ) , and l i k e w i s e the c o n s t r u c t i o n of a l l s o r t s o f s t r u c t u r e s ( s u a r u z h e n i i a ) , i n c l u d i n g i n d u s t r i a l ( b l a s t f u r n a c e s , open h e a r t h f u r naces, e l e c t r i c a l t r a n s m i s s i o n l i n e s , o i l p i p e l i n e s , e t c . ) , t r a n s p o r t (conveyance ways), hydrot e c h n i c a l , and m u n i c i p a l s t r u c t u r e s , and a l s o r e c l a m a t i o n and mining w o r k s . 2  I t Is important t o note t h a t the data as presented i n t h i s study a r e supposed t o be e x c l u s i v e of c o l l e c t i v e farms' investments from t h e i r own r e s o u r c e s , l a b o u r p a r t i c i p a t i o n i n road b u i l d i n g , and expenditures f o r s p e c i a l purposes ( i n 1933 and 1 9 3 4 ) . 5  The American d a t a present expenditures c o n s t r u c t i o n , which r e p r e s e n t s :  f o r new  ... the value of progress made d u r i n g the g i v e n year i n t h e p r o d u c t i o n of f i x e d works and s t r u c t u r e s . The v a l u e o f progress made, o r work put i n p l a c e , i s d e f i n e d as e q u i v a l e n t t o the value o f labour and m a t e r i a l s used plus overhead c o s t s and p r o f i t s accrued on operations d u r i n g the g i v e n p e r i o d . I t  K o l g a n o f f , N a t i o n a l Income, p. 159: C a p i t a l Investments, pp. 1-3. x  2  K o l g a n o f f , N a t i o n a l Income, p. 159. Kaplan, C a p i t a l Investments, p. 41.  C f . Kaplan,  92.  i n c l u d e s the I n s t a l l e d value of equipment g e n e r a l l y c o n s i d e r e d an i n t e g r a l p a r t of a s t r u c t u r e and commonly i n c l u d e d i n the c o n s t r u c t i o n c o n t r a c t p r i c e ... F i x e d works and s t r u c t u r e s i n c l u d e not only d w e l l i n g s and other b u i l d i n g s but a l s o dams, b r i d g e s , roads, c a n a l s , and l i k e . C e r t a i n types of works such as mine tunnels and farm d i t c h e s which might be c l a s s i f i e d as c o n s t r u c t i o n a r e not inc l u d e d . 4  I t i s t o be noted t h a t the t o t a l s I n Column 1 (Investments i n N a t i o n a l Economy - U.S.A.) Table N l do not correspond w i t h the t o t a l s g i v e n under "Investments i n the N a t i o n a l Economy - U.S.A." i n other t a b l e s . T h i s f o l l o w s from the use of c o n s t r u c t i o n data from N a t i o n a l Income, 1954 (Department o f Commerce, U.S.A.). Prev i o u s l y , both c o n s t r u c t i o n and equipment data were drawn from, Dewhurst, America's Needs; i n t h i s p a r t i c u l a r case, the c o n s t r u c t i o n data i n N a t i o n a l Income. 1954, were used because a more d e t a i l e d breakdown of items Included under " c o n s t r u c t i o n " was provided by the l a t t e r source.•.  U n i t e d S t a t e s , N a t i o n a l Income, 1954, pp. 122-123.  93.  APPENDIX P  "The use of estimate p r i c e s i s p r e s c r i b e d i n the process.of project-making ("proektirovanie") i n i n v e s t ment p l a n n i n g . C o n s t r u c t i o n ( i n the narrow sense) without project-making i s p r o h i b i t e d except f o r s m a l l r e c o n s t r u c t i o n s of b u i l d i n g s and shops. The b a s i c t a s k of project-making i s " t o j u s t i f y the n e c e s s i t y and the technical-economic p o s s i b i l i t y of constructing a given object with a s p e c i f i e d capacity i n a g i v e n place and i n a s p e c i f i e d time." (L. Kantor, Osnovnye fondy promyshlennosti i i k h i s p o l ' z o v a n i e F i x e d C a p i t a l of Industry and I t s Use - G o s l e n i z d a t , 1947, p. 84). The s t a r t i n g p o i n t f o r project-making i n i n d u s t r y i s the planned task (planovoe zadanie) which i s worked out by the c h i e f a d m i n i s t r a t i o n of the m i n i s t r y and sent to a project-making o r g a n i z a t i o n . The planned task f o r an o b j e c t of c a p i t a l c o n s t r u c t i o n i n c l u d e s : a.  the planned c a p a c i t y of the e n t e r p r i s e t o be c o n s t r u c t e d and p e r s p e c t i v e s f o r i t s f u t u r e expansion;  b.  the b a s i c kinds  c.  the expected consumers of i t s output;  d.  the r e g i o n of  e.  the planned c o n s t r u c t i o n p e r i o d ,  f.  a t e n t a t i v e c o s t of c o n s t r u c t i o n .  of output of the  enterprise;  construction; and  Proceeding from the planned t a s k , the p r o j e c t making o r g a n i z a t i o n works out a technical-economic p r o j e c t which s p e c i f i e s the d e t a i l s of c o n s t r u c t i o n and the i n d i c e s of the normal o p e r a t i o n of the e n t e r p r i s e . ' Two stages i n t h i s process - the p r o j e c t task (proektnoe zadanie) and the t e c h n i c a l p r o j e c t and estimate (tekhni'cheskil proekt i smeta) - are d i s t i n g u i s h e d by decree but i n p r a c t i c e are f r e q u e n t l y combined.  94.  The p r o j e c t task simply r e - s t a t e s the planned t a s k i n greater d e t a i l . The t e c h n i c a l p r o j e c t i s the b a s i c document f o r each o b j e c t of c o n s t r u c t i o n . I t s o l v e s the b a s i c t e c h n i c a l and economic q u e s t i o n s ; i t eliminates a l t e r n a t i v e v a r i a n t s of c o n s t r u c t i o n . The t e c h n i c a l project contains: a.  the g e n e r a l d e s i g n  of the e n t e r p r i s e ;  b.  a statement of i t s requirements i n terms of t r a n s p o r t , power, water supply, l a b o u r force, etc.;  c.  a c a l c u l a t i o n of the f a c t o r y c o s t of the output of the e n t e r p r i s e and of i t s r e quirements f o r c i r c u l a t i n g c a p i t a l .  A t t a c h e d t o the " t e c h n i c a l p r o j e c t " must be an e s t i m a t e of c o n s t r u c t i o n which s t a t e s the r e q u i r e d expenditures of m a t e r i a l s and labour f o r the c o n s t r u c t i o n p r o j e c t as a whole and f o r I t s v a r i o u s components. The p r i c e s of m a t e r i a l s . ( i n c l u d i n g equipment) and labour used i n the estimate are the s o - c a l l e d estimate p r i c e s . Once the p r o j e c t has been approved by the approp r i a t e a u t h o r i t y , the project-making o r g a n i z a t i o n works out the b l u e p r i n t s a c c o r d i n g t o which the c o n s t r u c t i o n w i l l be e f f e c t e d . The f o r e g o i n g account of project-making i s t a k e n from Kantor, I b i d . , pp. 84-87, and M. D'iachkov and V. K i p a r i s o v , Uchet Kapital'nogo s t r o i t e l ' s t v a - (The C a l c u l a t i o n of C a p i t a l C o n s t r u c t i o n ) , G o s p l a n i z d a t , 1948, pp. 16-19.  Source:  Norman Kaplan, C a p i t a l Investments i n . t h e S o v i e t Union, 1924-1951 (Santa Monica, C a l i f o r n i a , Rand C o r p o r a t i o n , 1952), p. 4.  95.  APPENDIX Q,  Table Q l presents data c o n c e r n i n g the p r o p o r t i o n s of t o t a l investments r e p r e s e n t e d by equipment expendit u r e s i n t h e U.S.A., and the U.S.S.R.. To develop the r a t i o s a p p l i c a b l e t o the U n i t e d S t a t e s , c e r t a i n items were f i r s t e l i m i n a t e d from the sums given f o r t o t a l investments. The Items excluded cons t i t u t e d expenditures f o r p r o j e c t s which were: 1  a.  not a s i g n i f i c a n t f e a t u r e o f S o v i e t i n v e s t ment spending(highway c o n s t r u c t i o n ) ; 2  b.  n o n - e s s e n t i a l f o r the purposes o f the present e x e r c i s e , i . e . , non-productive fixed capital (residential construction and the e r e c t i o n o f r e l i g i o u s e d i f i c e s ) .  The s e c t i o n of Table Q l devoted t o data a p p l y i n g to t h e U n i t e d S t a t e s , c o n s i s t s of the f o l l o w i n g items: Column 1 r e f e r s t o t o t a l investments i n the n a t i o n a l economy; Column 2 t o t o t a l s u b t r a c t i o n s f o r housing, e t c . ; Column 3 equals Column 1 minus Column 2; Column 4 r e f e r s t o t o t a l investment expenditures f o r equipment; Column 5 i s the r a t i o of Column 4 t o Column 3 expressed as a percentage, and d e l i n e a t e s the p r o p o r t i o n of t o t a l Investments c o n s t i t u t e d by expenditures f o r equipment. The computation of r e s i d u a l data r e s p e c t i n g t o t a l S o v i e t investments, i n v o l v e d the e l i m i n a t i o n o f housing expenditures o n l y . Equipment expenditures were e s t i m a t e d 4 h e s u b t r a c t i o n s i n c l u d e investment spending f o r highways, p r i v a t e and p u b l i c r e s i d e n t i a l c o n s t r u c t i o n , and the e r e c t i o n o f r e l i g i o u s s t r u c t u r e s . o Highway c o n s t r u c t i o n i n the U.S.S.R., d u r i n g the p e r i o d 1929-1950, was a p p a r e n t l y c o n f i n e d t o the b u i l d i n g of access roads i n o r t o major c i t i e s . Cf. United States, Trends i n Economic Growth, p. 173.  96.  by s u b t r a c t i n g housing expenditures from t o t a l c o n s t r u c t i o n expenditures and then s u b t r a c t i n g t h i s l a t t e r r e s i d u a l from the r e s i d u a l f o r t o t a l investments. The e n t r i e s i n Table Q l a p p l i c a b l e t o the S o v i e t U n i o n a r e as f o l l o w s : Column 1 presents t o t a l investments i n the n a t i o n a l economy; Column 2 r e f e r s t o investment f o r p u b l i c r e s i d e n t i a l c o n s t r u c t i o n ; Column 3 equals Column 1 minus Column 2; Column 4 g i v e s t o t a l S o v i e t c o n s t r u c t i o n e x p e n d i t u r e s ; Column 5 equals Column 4 minus Column 2: Column 6 i s assumed t o r e p r e s e n t t o t a l expendit u r e s f o r equipment; Column 7 i s the r a t i o of Column 6 t o Column 5 expressed as a percentage and i s hence the r a t i o of expenditures f o r equipment t o expenditures f o r t o t a l ( r e s i d u a l ) c a p i t a l work. Table Q2 presents data c o n c e r n i n g investment spendi n g f o r i n d u s t r i a l equipment as a percentage o f t o t a l i n d u s t r i a l investments. Equipment expenditures i n . t h e U n i t e d S t a t e s were estimated by s u b t r a c t i n g expenditures f o r t o t a l i n d u s t r i a l c o n s t r u c t i o n from expenditures f o r t o t a l i n d u s t r i a l investments. The data c o n s i s t of the f o l l o w i n g items: 3  I n d u s t r i a l c o n s t r u c t i o n Is defined t o i n c l u d e : c o n s t r u c t i o n of i n d u s t r i a l b u i l d i n g s : warehouses; 10 percent o f s t o r e s and r e s t a u r a n t s ; other" public u t i l i t i e s (less l o c a l t r a n s i t ) ; 50 percent of a l l o t h e r p r i v a t e and p u b l i c i n d u s t r i a l c o n s t r u c t i o n ; petroleum and gas d r i l l i n g . C f . N a t i o n a l Income, 1954. I n d u s t r i a l c o n s t r u c t i o n i n the U n i t e d S t a t e s as d e f i n e d here, i n c l u d e s expenditures f o r s t r u c t u r e s n o t normally i n c l u d e d w i t h i n the category of i n d u s t r i a l cons t r u c t i o n I n the U.S.A.. Such " e x t r a o r d i n a r y " i n c l u s i o n s were necessary i n o r d e r t o c o m p e n s a t e f o r s i m i l a r expenditures made i n t h e U.S.S.R., by i n d u s t r i a l o r g a n i s a t i o n s and c l a s s i f i e d under the category o f I n d u s t r i a l construction. I t was of course i m p o s s i b l e t o gauge the exact dimensions and make the proper allowances f o r a l l of the e x c e p t i o n a l expenditures made i n the U.S.S.R., by industry. The data presented and the c o n c l u s i o n s based on t h e i r acceptance are hence t e n t a t i v e .  97  Column 1 presents t o t a l I n d u s t r i a l investment e x p e n d i t u r e s ; Column 2 c o n s i s t s of f i g u r e s r e p r e s e n t i n g t o t a l i n d u s t r i a l c o n s t r u c t i o n ; Column 3 i s a r a t i o of Column 2 t o Column 1 expressed as a percentage; Column 4 equals 100 minus Column 3, and i s assumed t o r e p r e s e n t the p r o p o r t i o n of t o t a l i n d u s t r i a l investments spent f o r equipment as d i s t i n c t from b u i l d i n g s e t c . . The data f o r equipment expenditures as components of t o t a l i n d u s t r i a l investment i n the U.S.S.R., are represented by two f i g u r e s f o r the prewar p e r i o d . The percentages t h a t are g i v e n r e f l e c t combined expenditures f o r equipment and "mounting" i n both y e a r s . S o v i e t d a t a p e r t a i n i n g t o the s t r u c t u r e of c a p i t a l investments i n the U.S.S.R., f o r the years 1946 t o 1955, came to the a t t e n t i o n of the w r i t e r a t a l a t e date and hence, precluded the p o s s i b i l i t y of r e f e r e n c e being made to the f i g u r e s i n the t e x t p r o p e r . The data i n d i c a t e t h a t w i t h t o t a l c a p i t a l i n v e s t m e n t taken as 100, cons t r u c t i o n - i n s t a l l a t i o n work accounted f o r from 60 percent (1950) t o 70 percent (1946) of t o t a l investmentequipment, t o o l s and s t o c k making up the r e s p e c t i v e balances. 4  5  Data i s a l s o a v a i l a b l e w i t h r e s p e c t t o the " F i x e d P r o d u c t i o n C a p i t a l of S t a t e I n d u s t r y A c c o r d i n g t o Types", ( S t r u k t u r a Promish lenno P r o i z v o d s t v e n n i k h Osnovnikh Fondov Gosudarstvennoi P r o m i s h l e n n o s t i , C.C.C.P., Vidam - see p. 33 of S o v i e t work c i t e d below). W i t h the t o t a l of F i x e d P r o d u c t i o n C a p i t a l of S t a t e I n d u s t r y taken as 100, b u i l d i n g s and i n s t a l l a t i o n s accounted f o r 50 percent of the t o t a l i n 1939 and 51 percent of the t o t a l i n 1950 - the balances c o n s i s t i n g of power equipment, p r o d u c t i o n equipment, t r a n s m i s s i o n f a c i l i t i e s , t r a n s p o r t f a c i l i t i e s , implements, Instruments and o t h e r f i x e d a s s e t s . * T o t a l c a p i t a l investment here i n c l u d e s investment funds a l l o c a t e d by the C e n t r a l S t a t e P l a n , plus funds from e n t e r p r i s e s and other d e c e n t r a l i z e d s o u r c e s . ^U.S.S.R., C e n t r a l S t a t i s t i c a l A d m i n i s t r a t i o n , " S t r u k t u r a K a p i t a l ' n i k h V l o z h e n i i " , N a t i o n a l Economy of the U.S.S.R., Moscow, 1956, p. 160. An E n g l i s h t r a n s l a t i o n of t h i s S o v i e t handbook has been made by the N a t i o n a l I n d u s t r i a l Conference Board. See N.I.C.B., S t u d i e s i n Business Economics, No. 55.  APPENDIX Qj  TABLE Q l  INVESTMENT EXPENDITURES FOR EQUIPMENT AS A PERCENTAGE OF TOTAL INVESTMENTS, ..IN THE UNITED STATES AND THE SOVIET UNION, 1929 -r 1950 Year Column Column Column Column Column Year Column Column Column Column Column Year Column Column Column Column Column Column Column  1 2 3 4 5  1929 17.767 5.185 12.582 6.574 52.2  1930 14.125 3.833 10.292 5.084 49.4  1 2 3 4 5  1939 13.307 4.280 9.027 4.741 52.5  1940 15.394 4.691 10.703 6.314 59.0  1 2 3 4 5 6 7  1929 5.805 .509 5.296 3.612 3.103 2.193 41.4  1930 9.496 .75 8.746 5.813 5.063 3.683 42.1  Sources:  Notes:  1931 9.926 3.066 6.860 3.299 48.0  1932 5.622 1.657 3.965 1.884 47.5  U.S.A., 1933 4.931 1.368 3.563 1.852 52.0 -  1931 15.116 1.116 14.000 9.787 8.671 5.329 38.0  ( b i l l i ons of ccurrent d o l l a r s ) 1935 1936 1934 1937 6.526 7.997 11.474 13.085 1.683 3.098 3.338 1.953 4.843 6.044 8.376 9.747 2.606 4.677 5.586 3.465 55.8 53.8 57.3 57.3 1946 25.189 5.769 19.420 12.536 64.6  1947 34.793 8.770 26.023 17.331 66.6  1948 43.055 11.499 31.556 20.326 64.4  1949 42.965 11.812 31.153 19.107 61.3  1938 11.477 3.576 7.901 4.097 51.8 1950 52.532 16.389 36.143 22.799 63.0  U.S.S.R. , ( b i l l i o n s of c u r r e n t r u b l e s ) 1932 1946— 1933 1934 through — 1950 250.32 19.351 16.790 21.909 1.729 1.591 1.343 42.3 17.760 15.447 20.180 208.0 13.015 10.769 14.817 153.0 11.424 9.426 13.088 110.7 6.336 6.021 7.092 97.3 39.0 35.6 46.8 35.1  J . F r e d e r i c Dewhurst and A s s o c i a t e s , America's Needs and Resources, (New York, American B o o k - S t r a t f o r d P r e s s , 1955), pp. 1009-15; U n i t e d S t a t e s , Dep<artment of Commerce, N a t i o n a l Income. 1954, (Washington, 1954), pp..208-209; Norman Kaplan, C a p i t a l Investments i n the S o v i e t Union, 1924-1951, (Santa Monica, C a l i f o r n i a , Rand.Corporation, 1952), pp. 37, 41, 72; M. V. Kolganoff and o t h e r s , ed., N a t i o n a l Income of the U.S.S.R., (Moscow, P u b l i s h e r s f o r State Planning Commission, 1939), p. 159. """ ~~~ A l l f i g u r e s a p p l y i n g t o the U.S.S.R. f o r 1946-1950, a r e i n 1945 p r i c e s ; they are a l s o p l a n f i g u r e s .  APPENDIX Q  TABLE Q2 INVESTMENT EXPENDITURES FOR INDUSTRIAL . EQUIPMENT AS A.PERCENTAGE OF,TOTAL INDUSTRIAL, INVESTMENTS, , IN THE UNITED STATES AND THE SOVIET UNION,. 1929-1950  Year Column Column Column Column Year Column Column Column Column  1 2 3 4  1929 4,674 2.718 58.2 41.8  1930 3,607 2.112 58.6 41.4  1 2 3 4  1939 2.874 1.160 40.4 59.6  1940 4.120 1.563 37.9 62.1  1931 2,151 1.168 54.3 45.7  1932 1,307 .632 48.4 51.6  U.S.A., ( b i l l i o n s o f c u r r e n t d o l l a r s ) 1938 1936 1937 1933 1935 1934 2.635 2.884 3.804 1.703 2.106 1.200 1.125 .552 .699 .958 1.525 .608 33.2 33.2 40.0 42.6 46.0 35.7 57.4 66.8 66.8 60.0 54.0 64.3 1946  1947  1948  1949  1950  3.631 44.4 55.6  4.274 38.4 61.6  4.952 38.4 61.6  4.996 43.9 56.1  5.602 47.2 52.8  1935 35.32  1936 37.54  U.S.S.R. Year Column 1 Sources:  A. A. A r a k i l y a n , Economic Accounting and U t i l i z a t i o n of F i x e d C a p i t a l i n Industry I n the U.S.S.R., (State P u b l i s h e r s o f P o l i t i c a l L i t e r a t u r e , 1954), p. 66; C f . Table Q l .  to to  100.  B I B L I O G R A P H Y  A r a k i l y a n , A. A.  Economic Accounting and U t i l i z a t i o n of F i x e d C a p i t a l I n I n d u s t r y I n the U.S.S.R., State P u b l i s h e r s of P o l i t i c a l L i t e r a t u r e , 1954. ( A r a k i l y a n , A.A., Khozraschot i I s p o l ' z o v a n i e Osnovnikh Fondov P r o m i s h l e n n o s t l , S.S.S.R., G o s p o l i t i z d a t , 1954).  A t k i n s o n , F. J .  "Savings and Investment i n a S o c i a l i s t S t a t e " , The Review of Economic S t u d i e s , V o l . XV (2) Wo. 38, 1947-48.  Baykov, Alexander,  The Development of the S o v i e t Economic System, Cambridge, Cambridge U n i v e r s i t y P r e s s , 1947.  Bergson, Abram, ed.,  S o v i e t Economic Growth, New York, Row P e t e r s o n , 1953.  Canada  Department of Trade and Commerce, P r i v a t e and P u b l i c Investment i n Canada, 1926-J951, Ottawa, Queen s P r i n t e r and C o n t r o l l e r of S t a t i o n e r y , 1952. 1  Chemomordik, D. I.,, ed.,  N a t i o n a l Income of the U.S.S.R., Moscow, P u b l i s h e r s f o r State P l a n n i n g Commission, 1939. (Chemomordik, D.I., Narodni Dokhod S.S.S.R., Moskva, G o s p l a n i z d a t , 1939).  101.  C l a r k , Gardner, M.  The Economics o f S o v i e t S t e e l , Camb r i d g e , Harvard U n i v e r s i t y P r e s s , 1956.  Conference o f the Universities N a t i o n a l Bureau Committee f o r Economic Research,  C a p i t a l Formation and Economic Growth, P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , 1955.  Dewhurst, J . , F r e d e r i c , and Associates,  America's Needs and Resources, New York, American Book - S t r a t f o r d P r e s s , 1955.  Economist,  (January 4, 1958).  Giddens, P a u l , H.  Standard O i l Company ( I n d i a n a ) , New York, A p p l l e t o n - Century C r o f t s , 1955.  Gubin, B.  Bank C o n t r o l as a Device f o r the Lowering o f Costs o f C o n s t r u c t i o n Work, Moscow, S t a t e P u b l i s h e r s f o r F i n a n c i a l L i t e r a t u r e , 1957. (Gubin, B., B a n k o v s k l i K o n t r o l ' Za Snizheniem S e b l s t o i m o s t i S t r o i t e l ' n i k h Rabot, Moskva, G o s f i n i z d a t , 1957).  Hassman, H e i n r i c h  O i l i n the S o v i e t Union, P r i n c e t o n , P r i n c e t o n U n i v e r s i t y P r e s s , 1953.  Hayek, F. A. von, ed.,  C o l l e c t i v i s t Economic P l a n n i n g , London, Routledge, 1935. :  Holzman, F r a n k l y n D . ,  S o v i e t T a x a t i o n , Cambridge, Harvard U n i v e r s i t y P r e s s , 1955.  Izvestia,  ( A p r i l 10, 1953).  102.  Jewkes, John  Ordeal by P l a n n i n g , Macmillan, 1948.  Kaplan,  C a p i t a l Investment i n the S o v i e t Union. 1924-1951, Santa Monica, C a l i f o r n i a , Rand C o r p o r a t i o n , 1952.  Norman  Krushchev,  N.S.,  London,  Concerning the F u r t h e r Improvement of the O r g a n i z a t i o n of A d m i n i s t r a t i o n over Industry and C o n s t r u c t i o n , Moscow, S t a t e P u b l i s h e r s of P o l i t i c a l L i t e r a t u r e , 1957. (0 Dal'neishem Sovershenstvovanii Organizatsii Upravlenia, Promishlennostiv 1 S t r o i t e l ' stvom, Moskva, G o s p o l i t i z d a t , 1957).  Kommunist,  (No. 7, 1956).  Komsomol a Kaya Pravda,(January 1  25,  1958).  Logan, L. J .  "Larger Companies Produce 62 percent and Refine 86 percent of U.S. 0±1", World O i l . V o l . 130, (June 1950).  Malishev,  "Some Questions of P r i c e F i x i n g a S o c i a l i s t Economy", V o p r o s i Ekonomiki, (No. 3, 1957).  In  ("Nekotorie V o p r o s i Tsenoobrazovania v S o t s i a l i s t i - c h e s k o m K h o z e i s t v e " , V o p r o s i Ekonomiki, Moskva, 3 , 1 9 5 7 ) . ' Mises,  Ludwig  S o c i a l i s m , London, Jonathan Cape, 1936.  103.  National Association of Manufacturers,  The American I n d i v i d u a l E n t e r p r i s e System, New York, McGraw-Hill, 1946.  N a t i o n a l Bureau of Economic Research,  R e p o l a r i z a t i o n of Business Investment, P r i n c e t o n , P r i n c e t o n "University Press, 1954.  Pravda,  ( J u l y 17,  1955).  Robblns, L i o n e l  The Economic Problem i n Peace and War, London, Macmillan, 1947.  Roitburd,  S o v i e t I r o n and S t e e l I n d u s t r y , Moscow, F o r e i g n Language P u b l i s h i n g House, 1956.  Iazar  Ronimois, H.  E.  S o v i e t Planning and Economic Theory, Vancouver, U n i v e r s i t y of B r i t i s h Columbia, 1950. The R e - o r g a n i z a t i o n of the S o v i e t Economy i n 1957*1 (A paper prepared by the U n i v e r s i t y of B r i t i s h Columbia, 1958).  Soviet  Studies,  U.S.S.R.,  (October 1956,  Vol. VIII).  Trade Union O r g a n i z a t i o n of a F a c t o r y , Moscow, F o r e i g n Language P u b l i s h i n g House, 1956. Central S t a t i s t i c a l Administration, N a t i o n a l Economy of the U.S.S.R., Moscow, State P u b l i s h e r of S t a t i s t i c s , 1956. (Tsentral'noe S t a t i s t i c h e s k o e U p r a v l e n l e p r i Sovete M i n i s t r o v S.S.S.R., Narodnoe K h o z e i s t v o S.S.S.R., Gosudarstvennoe ~~ Statisticheskoe Izdatel'stvo, Moskva, 1956.)  104.  United States,  L e g i s l a t i v e Reference S e r v i c e of the L i b r a r y of Congress, Trends i n Economic Growth, Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1955. Department of Commerce, N a t i o n a l Income 1954, (A Supplement t o t h e , Survey of C u r r e n t B u s i n e s s ) , Washi n g t o n , U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1954. Department of Commerce, Survey of Current B u s i n e s s , (March 1957), Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e .  Zauberman, A.  "Economic Thought i n the S o v i e t Union", The Review of Economic S t u d i e s , V o l . XVI ( 1 ) . No. 59. 1947-48.  

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