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Substance and Shadow in the Soviet Seven Year Plan

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NIKITA Khrushchev's report on the new Seven Year Plan for 1959-1965, published last November and endorsed by the January Party Congress, is a package remarkable both for its content and its vivid wrapping. The hard content was provided by the data on past economic achievements of the Soviet Union which Khrushchev reviewed, as well as by what he revealed of his economic program for the seven years ahead. On both counts he had an impressive story to tell. In the 1950s, the Soviet record of industrial expansion, scientific advance and technological accomplishment has been a startling one. Even in agriculture, where the Soviet economic system had been failing badly, Khrushchev's own vigorous leadership has at last added a creditable page to the record by bringing about a striking expansion of output. This background of fast economic growth has also enabled the régime to let the consumer share increasingly in the fruit of his labor and sacrifices. Real incomes, however modest they still are by the standards of the richest Western countries, have been rising fast enough to give both workers and farmers a sense of measurable and continuous improvement. Moreover, Khrushchev has taken care in recent years to channel much of this improvement selectively into the worst areas of Stalinist neglect. He spearheaded a vigorous attack on the housing problem. His minimum wage and pension reforms brought some badly needed relief to the most underprivileged groups of Soviet society.

If Khrushchev's past economic record could well have spoken for itself, his preview of further advances to be made by 1965, and beyond, traced out a program also impressive enough, on its own merits, to cheer his followers and to force the West to take thoughtful notice of the dimensions which the Soviet economic challenge is likely to assume within the coming decade.

Yet Khrushchev was not content to let the record and the economic blueprint for the future speak for themselves. Instead, he turned his report into a political manifesto, and garnished it with propagandist embellishment unusually heavy even for Soviet documents of this kind. To the Soviet public, he represented the Plan as a decisive milestone of advance to the final "Communist" stage of social and economic development. To be sure, he was as careful as ever not to specify exactly when the Soviet Union might enter this promised land of superabundance and social harmony, but he tried to build up the impression that two or three seven-year strides would take it there.

To the world at large, he painted the Plan as an equally decisive step towards final victory in competition with capitalism. Here he was specific. He predicted confidently that 15 years hence the Soviet Union would "take the first place in the world not only in total output but also in per capita production."

The latter theme was heavily and exuberantly expanded by Soviet comments after publication of Khrushchev's report. "A plan that will shake the world" was one representative headline, over an Izvestia editorial which credited the Plan with "having captured the imagination of mankind," and having "illuminated, like a powerful searchlight, the perspectives of its historical development." This article, and many like it, reported gleefully that publication of the Plan had caused consternation in the capitalist camp.

Soviet economists, in a less lyrical but equally confident vein, proceeded to document Khrushchev's bold predictions with calculations that try to determine the precise point at which Soviet and American production curves will cross. One writer credited Soviet industry with a 1957 output volume half that of the United States--an exaggerated estimate, probably, but one which got the Soviets off to a good start in a projection that assumed for their industry an annual rate of output expansion of 8.6 percent (as the Plan requires for 1959-1965) and accorded its American opponent a modest 2.2 percent. Having duly noted that the American recession had given the Soviets a head start in 1958, he went on to conclude that Soviet industry would be producing as much as the United States in 1968, and then would need but two or three years more to surpass it in per capita production.

One would be paying too much respect to this kind of political arithmetic, which still substitutes for serious Soviet research on comparative economic growth, if one were to dwell on the various ways in which it stacks the cards in the Soviets' favor, ignores the tough technical problems involved in such comparisons and treats uncertainty as certainty. It would also be too obliging to Khrushchev to become infected with his sporting mood and to accept his challenge to the industrial race on his own terms, by which he himself picks the entries for both sides, matching fast-growing sectors of the Soviet economy against their American counterparts, while disqualifying all the large areas of gross Soviet backwardness, in industry and elsewhere. In some of these "races," indeed, the Soviet entry has hardly appeared on the track.

Yet Khrushchev's obsession with the Soviet-American economic race cannot be shrugged off as irrelevant byplay to his economic policy, nor can we take lightly his conception of the new Plan as a prelude to the defeat of capitalism. The calculations of his economists, however disingenuous and primitive, contain a hard core of disturbing fact, too important for American opinion to ignore with indifference, or to belittle with complacency, as it has largely tended to do so far.

In contrast to the easygoing industrial nations of the West, which expect economic growth to accrue fortuitously from uncontrolled or loosely directed activity in the marketplace, the Soviet Union has made expansion of output a dominant and direct objective of national policy. In 30 years of single-minded pursuit of this objective, it has developed economic and political institutions well designed to attain it. In the 1950s it succeeded in translating these advantages over the hedonist West into industrial growth rates markedly higher than those recorded by most free-world nations, and certainly the United States. The U.S.S.R. has now shown its determination to go on pressing for maximum industrial expansion in the 1960s. We have no comparable program.

Even if Soviet performance under the new Plan should fall short of its assignments, we should not mistake the fallibility of long-term planning for economic failure. No outside observer today can detect any economic problems serious enough to prevent industrial growth from proceeding at a pace which is likely to be rapid by any standards other than, possibly, the self-set and exacting standard of the Soviet leadership. Whatever discounts may be applicable to Khrushchev's arithmetic, the cold fact remains that, at current relative rates of growth, Soviet industry is steadily narrowing the gap between its output and that of its self-elected main rival. Any comfort to be drawn from the thought that the gap is still wide gets colder year by year.

II

Khrushchev's motives for presenting the Plan with so much pomp and bombast deserve examination--not as a source of comfort, but as essential background. Two related reasons, probably, go far to account for his tactics.

First, in the eyes of his Party comrades, he must bear a goodly share of the blame for the Plan's embarrassing antecedents. Khrushchev dominated the Twentieth Party Congress which three years ago issued the Party's Directives on the Sixth Five Year Plan for 1956-1960. This document bore the stamp of Khrushchev's impatient nature. It demanded ambitiously fast rates of advance in every sector of production, combined with promises of rapid gains in consumption and housing. Before 1956 had ended, it became clear that these demands were overtaxing Soviet resources. In December the Party called the first retreat, by scaling down output and investment targets for 1957. In the course of that year, Soviet production policy concentrated on the acute bottlenecks experienced by industry in 1956. This required revision of earlier output and investment programs, and resulted in much slower expansion in many industries than the Directives had called for. In some, output was actually curtailed. In September 1957--when the pattern of industrial progress had come to bear but casual resemblance to that required by the Directives--the Sixth Five Year Plan was given a none-too-decent burial. A Party resolution that was a prize exhibit of equivocation instructed the planners to start preparing the present Seven Year Plan. To justify the vacuum in planning left by this fiasco, it was claimed that new possibilities for expansion had been found in the economy, through technological advances and the discovery of new mineral resources, and that only a new plan would do justice to the production gains expected from the drastic reshuffling of industrial administration in mid-1957. Much the same camouflage, with a few layers added, was used by Khrushchev to explain to the Twenty-first Party Congress why a fresh start in long-term planning had become necessary.

The other motive for applying an extra coat of propaganda is more important, as it bears on the Plan's substance and on the Soviet leaders' private views of their country's economic prospects. Although Khrushchev pictures the Plan as a program for an unprecedented spurt of industrial expansion, such claims are not borne out by his own figures. The growth rates implicit in the 1965 targets for industrial output as a whole, and for many major commodities, are distinctly below those claimed for the last few years. It appears that the vicissitudes of 1956 prompted a serious reappraisal of industry's long-range growth potential. The first result was a 15-year "perspective plan" of tentative output goals for 1972. A few selected data from this document were published in November 1957. They showed that, even then, the leadership was reconciled to a marked slowdown in the rate of industrial growth--compared, as must be stressed, to the outstandingly high rates of the first postwar decade and of the 1930s. This more conservative assessment of future production possibilities has carried over into the Seven Year Plan.

Its goal is to increase the volume of gross industrial output by about 80 percent over the 1958 level. Impressive as this is, it represents an annual growth rate of 8.6 percent, compared to the 10 percent per annum claimed by the Soviet production index for 1956-1958. An even more modest increase, by 7.7 percent, has been programmed for 1959. One should note, however, that the annual plans for 1957 and 1958 had also scheduled output increases of 7 to 8 percent only, and the 10 percent increases claimed for both years were attributed to plan overfulfillment. It is none too clear whether it is now Soviet policy to set easier output goals (to avoid high-cost production resulting from efforts to meet excessive targets) or whether the claims of above-plan production are a statistical illusion, reflecting the skill acquired by Soviet plant managers in manipulating production reports. That Soviet authorities suspect the latter is suggested by the findings of a recent investigation by the Planning Commission of plants which had claimed to have exceeded their production quotas. Much of the excess turned out to be due to expedients like valuing new products at inflated prices, producing items not called for by the Plan, or concentrating on products requiring little processing at the plant, but reported at their full gross value.

These and other uncertainties attaching to Soviet statistics preclude any appraisal of the exact degree to which the sights of industrial expansion have been lowered. However, the slowdown can be traced clearly for many commodities for which physical data on current and planned 1965 output are available, and the tendency is more clearly reflected in these data than in the ever-suspect index of total industrial output. There has been no discussion in Soviet sources of this implication of the Plan figures, a silence offset by the propaganda campaign that asserts sustained expansion at record pace. This silence, however, probably testifies to nothing more serious than a strong allergy of the political leaders to any admission of even the possibility of a slowdown in what they are convinced is the world's most dynamic economy.

Beyond this, they can have little cause for concern. The growth rates which are still deemed feasible by the Soviet planners are quite high enough to justify much of Khrushchev's exuberance. Moreover, with good reason, he has emphasized that, at the output levels now attained by Soviet heavy industry, the growth rates programmed for 1959-1965 signify very formidable additions to output in absolute terms. The prospect of having 30 to 35 million tons of steel added by 1965 to a present output of 55 million, with commensurate additions in other industries that spell national power, cannot be disheartening to Khrushchev, even if three years ago he had hopes of doing even better.

III

But have the planners carried realism far enough and are the industrial goals truly feasible? The meager published data rule out anything like an independent audit of the Plan. There can be little doubt, however, that this time the targets for industry--and this goes for the other non-farm sectors, too--are backed up by a serious attempt to balance output schedules with resource availabilities. Khrushchev's report, for all its 125 pages, is but a glossy publicity release abstracted from what must be many volumes of sober and technical calculations compiled over 15 months by Gosplan and the 30 special committees that worked in detail on every aspect of the Plan. Their joint product probably adds up to a much more thorough and critical assessment of the economy's growth potential than the ill-starred Sixth Plan benefited from. It would be strange indeed if the planners had not worked hard to save Khrushchev, and themselves, from a repetition of the recent error of overplanning, by drawing up a program that, in their best judgment, is feasible.

On the other hand, the planners' judgment was seriously constrained by Khrushchev's insistence that expansion be maximized, to "gain time," as he puts it, in the race with capitalism. They could not afford to turn in a soft plan, certain of realization in every detail. Khrushchev did not ease their task by also insisting on objectives distinctly in conflict with the goal of maximizing output. This planners' dilemma is best illustrated by their handling of the labor supply problem, perhaps the most serious resource bottleneck confronting them in the immediate future.

The problem stems mainly from the harsh demographic fact that, for the next five years or so, the Soviet labor force will depend for its young recruits on the war-depleted age group born in 1942-1946. Recently the state labor force (which excludes collective farmers) has grown by about 2,000,000 workers annually. An increase of only 1,300,000 expected in 1959 shows that the lean years of labor supply have arrived. To make things more difficult, because of Khrushchev's energetic and badly needed measures to expand agricultural output, the non-farm sector cannot draw as freely as before on its traditional labor reservoir, the farm population. The Plan demands a formidable production effort from agriculture, and much of this effort is concentrated in branches of farming which, in the Soviet Union, are still extremely labor-intensive and have been barely touched by mechanization. Thus, the villages may not be able to spare significant reinforcements for the non-farm labor force.

Confronting these prospects, the Plan budgets for a seemingly modest 21 percent increase in the state labor force over the seven years, or by 1,600,000 workers per annum. Actually, this is quite an optimistic expectation, given the stringency of the demographic bottleneck. It suggests that the planners place considerable reliance on several measures built into the Plan and designed, in part at least, to ease the labor supply problem.

Wage policy is one: wage increases in the seven years will be largely reserved for the lowest-paid categories of labor, where they will be substantial. This measure not only effectively builds up Khrushchev as the friend of the underdog, but also may add to the labor force. Since women make up much of the low-paid labor contingent, it should draw more women into industry. At the same time, the virtual freezing of wages of the better-paid workers should deter their working wives and daughters from leaving employment. Similarly, the Plan's pension policy is designed to keep older workers at work. They have been warned not to expect increases in retirement pensions--still very low after the 1956 pension reform--until 1963, when the worst of the impact of low wartime birthrates on labor recruitment will have passed.

The school reform synchronized with the Plan is another timely device to assist labor supply, though this may not be its primary motive. In a move not without irony at a time when Americans, in the wake of sputnik, had started looking enviously at the high standards of Soviet education, the Soviet leadership decided that their youth was being over-educated. Students will now be encouraged to leave school and start work at 15 years of age. Those who stay on to compete for university admission will combine academic studies with training for industrial work. In contrast to the time-wasting "shop" courses of American schools, this training is evidently conceived as serious and systematic apprenticeship. Thus, Soviet industry will be able to recruit young workers already trained to some extent, and adolescents may be more willing to leave school and seek employment at the better starting wages now offered.

These measures may ease the labor problem, though to an extent that cannot be precisely predicted by the Soviet planners. At the same time, their efforts to back up the Plan with an adequate supply of labor came into conflict with Khrushchev's decision to yield to labor's desires for more leisure and to offer it psychological incentives on the long road to "Communism." After some reductions in working hours in recent years, the average work-week in non-farm employment is still in the neighborhood of 45 hours. Now the Plan promises to make a 41-hour week general by 1960 (with shorter hours for miners and juveniles) and to reduce it to 40 hours by 1962. Looking even further ahead, it envisages a gradual transition to 30-35 hours, starting in 1964--that is, again, once the lean years of labor recruitment have passed--and to be completed by 1968. This, Khrushchev claims, will give Soviet workers the shortest hours in the world, another long-range prophecy not capable of verification at this date. However, together with other long-deferred promises, such as pension reform, it illustrates the technique used to impress working-class opinion at home and abroad with Soviet concern for social welfare.

For the planners, however, the modest cutting of working hours scheduled for the next few years spells another important limitation on labor supply. Even if industry receives a little more than its proportionate share of the one-fifth increase in the state labor force hoped for by 1965, its output per man-hour, allowing for the shorter work-week, will have to rise by more than one-half if it is to realize the 80 percent output increase assigned to it. This means that productivity must increase at a rate even faster than the impressive 6 percent per annum claimed to have been maintained in recent years.

The planners evidently hope that such a spurt in productivity can be generated, but they cannot count on it. The surest way of raising output per man is to provide him with more and more equipment and power to work with. As far as can be judged from the fragmentary data on the Plan's investment program, industry --and heavy industry in particular--is once again due for the lion's share of investment, something like one-half of the total.

This means that industry can expect a massive influx of new equipment and new construction. But there are signs that the industrial planners have had to husband prospective investment resources very carefully in trying to satisfy all of industry's voracious needs, and make hard decisions in apportioning investment within industry. This much can be inferred, first, from the fact that published information on industrial investment is confined mainly to preferred sectors of heavy industry--such as metals and ores, chemicals, petroleum and natural gas--where investment is due to increase considerably faster than in industry as a whole. This necessarily implies that other sectors of industry will have to be content with much less generous investment programs.

Then there is heavy emphasis on the need to economize investment resources and put them to the best possible use. Stress will be laid on replacement and modernization of equipment in existing plants, to save on new construction--an indication that Khrushchev's housing program is impinging on industrial expansion. In power plant construction, there has been a switch from hydroelectric to thermal plants--explicitly to economize on investment. The new Plan has very little to say on the Soviet atomic energy program, which was announced with much publicity in 1956. This appears to have been heavily cut in response to the investment squeeze, although technological second thoughts, such as have also arisen in the West, undoubtedly had something to do with it.

These strenuous efforts to make the most of investment resources may bespeak the planners' uneasiness as to whether the inflow of new capital will be adequate to achieve the steep increase in industrial labor productivity that is required. One has the impression that they are banking to a large extent on other and less tangible sources of productivity increases, intractable to prediction and planning. Considerable faith is being placed, clearly, in the future fruits of technological advance in general and automation in particular. Probably there are similar expectations of improved productivity resulting from the better educational levels of the present industrial labor force, the ample supply of engineers and industrial scientists, and from organizational and managerial improvements. There is nothing reckless about making some allowance for these effects in a long-term program. Soviet industry, no doubt, still has large reserves of inefficiencies amenable to energetic treatment. Moreover, past experience of other industrial nations has shown that labor productivity often tends to increase faster than is accounted for by an increasing provision of physical capital per worker alone. These effects, however, are easier to observe ex post than to anticipate ex ante. Time soon will show whether the Soviet planners' judgment on productivity gains has not been pushed a bit too far by Khrushchev's insistence on "gaining time."

IV

In agriculture, too, the proof of planning is in the eating, and more literally so. The history of Soviet five-year planning of farm output contains a dismal record of setting grossly excessive and seldom-realized production targets. On the face of it, the Seven Year Plan suggests more of the same. There must be newspaper readers even in Moscow with memories long enough to compare the grain output target for 1965, 164-180 million tons, to the goal for 1960 of the Sixth Plan, 180 million tons. Actual grain production in 1956-1958 has averaged some 120 million tons, though last year's bumper crop may have been as high as 140 million tons. Striking increases are also scheduled for other farm products, including a doubling of meat output--a major benchmark toward Khrushchev's coveted and distant goal of surpassing the carnivorous standards of the United States.

What is one to make of these figures? On past form, one is tempted to write them off as another flight of wishful fancy. Yet one cause for hesitation, and a weighty one, is provided by the reforms and new policies instituted by Khrushchev since 1954. Apart from raising output to a significantly higher level, they have produced an atmosphere in Soviet farming greatly different from the stifling air of bureaucratic regimentation and shortsighted exploitation under Stalinism. These measures have probably not yet run their course in freeing the production potentialities of land and peasantry from the shackles of a system that could not have been better designed to discourage effort, thwart initiative and breed inefficiency. One is not surprised that Khrushchev, at the remarkable meeting of the Party's Central Committee in December 1958, chose his farm policy record as the stick with which to beat his defeated opponents of the "anti-party faction." Possibly in order to counter skepticism evoked by the Plan's agricultural goals, he reviewed this record at great length, and spiced it with charges such as that against Malenkov, who was accused of having publicly exaggerated grain production in 1952 by more than 40 percent. By this performance Khrushchev may have sought to establish his unique competence for leading agriculture in another rapid upsurge of output, now no longer obstructed by the "faction."

On this occasion, as in his Plan report, Khrushchev acknowledged that this surge will be no easy task. The production gains since 1954 have rested very largely on extensive additions to output, through the daring "virgin lands" drive which has added 50 million acres sown in grain. Now, as Khrushchev has stressed, further expansion of crop production will have to come from more intensive cultivation, by raising yields per acre rather than bringing more land under the plow. The need is no longer to produce more food grain to assure the people's daily bread; Khrushchev can take much of the credit for this comforting situation, as his farm policies have raised wheat production by some 50 percent since 1952. The main problem now is to grow more feed grain and other fodder in order to expand livestock herds and thus to add to meat and dairy output, as well as to produce more vegetables and fruit to vary the urban diet, and to supply more cotton, sugar beet and similar crops to the processing industries.

Soviet industry is due to bring considerable succor to agriculture in its efforts to intensify production. It will go on providing the wherewithal of mechanization on a large scale, and is also scheduled to triple mineral fertilizer output, bringing it to 35 million tons by 1965. Even at this level of output, however, chemical fertilizers will remain reserved for cotton, sugar beet and vegetables. The Lenin Academy of Agriculture recently estimated that an output of 45 million tons would be needed before fertilizers can even start making an impact on grain yields. Generally, it is clear that, even with the increasing supply of physical inputs which agriculture can count on, it will come somewhere near its exacting output targets only if it is enabled, and encouraged, to take full advantage of the more propitious climate created by Khrushchev's reforms so as to make better use of its resources.

Soviet farming, much more so than industry, harbors great reserves stemming from the very fact that so many operations are still conducted in highly primitive and inefficient fashion. In sharp contrast to the Stalin era, Soviet farmers now have much better price and income incentives to start pulling themselves out of this trough of backwardness. This they can do by making use of any number of improved farming techniques and practices which still await introduction in the Soviet Union. At the same time, many of the old institutional barriers to their introduction have now disappeared. Thus, the system of highly centralized production planning and narrowly prescribed delivery obligations has given way to a much more sensible and flexible scheme, which enables collective farms to adapt production to their particular conditions. The fact that the collectives themselves now control and operate tractors and farm machinery should enable them to observe more timely schedules of farm operations, a most important potential source of higher output. There is also a new emphasis on keeping track of production costs in collective farming, and comparing them to returns--an elementary and badly needed innovation that should promote more rational farm management.

In short, one certainly should not regard the agricultural goals of the Plan as much more than numerical symbols denoting the fact that a maximum effort to raise output is expected from agriculture. It would be unwise to ignore, however, that for the first time in its history Soviet collective farming has been offered rewards making effort and initiative worth while.

V

What is the import of the Plan for East-West relations? In traditional fashion, Soviet comments depict it as evidence of pacific intent: so sweeping a program cannot but absorb all the energies of the Soviet Union in "peaceful construction." Yet the Plan presents no evidence of any reorientation of economic policy towards more urgent concern for consumer welfare and less emphasis on building up the power of the Soviet state. For another seven years, the time-tested formula of expanding the output of heavy industry (which in Soviet terminology includes military hardware) more rapidly than consumer goods is to govern the pattern of Soviet industrial development and speed its pace.

Khrushchev's report notes that the Plan will "further strengthen the defense capability" of the U.S.S.R. Such strengthening need not necessarily mean expanding munitions output. The Soviet budget for 1959, with its trivial reduction in overt defense outlays and very sizeable increase in appropriations to "science," serves as a reminder that much of the contest for military superiority has shifted to the arena of research and development. At the same time, the vigorous pursuit of the Soviet economic offensive underscores the other important fact that "peaceful" capital equipment now serves as ammunition in the vital contest for the allegiance of the underdeveloped nations. Undoubtedly, the Plan has made sure to curb domestic demand for investment resources by the small margin required to assure an ample supply of these high-yield weapons of diplomatic warfare.

In short, no matter how the Soviet Union chooses to employ economic resources to build up national power and back up its foreign policy, it can look forward to disposing of a growing flow of resources to this end. It is this prospect, no doubt, which makes Khrushchev so confident in equating Soviet gains in industrial output with progress towards the defeat of capitalism. Clearly, he does not expect the Western democracies to strike their colors simply because a statistical comparison, in 1972 or any other year, has shown them that Soviet and American production curves have crossed. Nor can he count on Soviet production successes "to enhance the attractive power of the great ideas of Marxism-Leninism" to the point of setting off an unassisted landslide into the Communist fold. But he has good reason to be pleased with the rate at which industrial progress is providing Soviet political strategy with the material means for helping history along towards the outcome postulated by Marxism-Leninism.

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