China’s New Vassal
How the War in Ukraine Turned Moscow Into Beijing’s Junior Partner
The published figures of the new Soviet Five Year Plan attracted wide attention in the world press. This is understandable. Implementation of the plan will result in an increase in Soviet economic and military might and will provide a base for the extension of Soviet political and economic influence. Although the new plan has not been finally adopted-it is scheduled to be approved later by the Supreme Soviet-one may assume that in all important respects the plan is set.
The Sixth Five Year Plan (1956-1960) was abolished in September 1957 because it was found to be unrealistic. The Seven Year Plan (1959-1965) which replaced it was not fulfilled in the majority of its main objectives- national income, agriculture, standard of living, labor productivity, etc. Virtually no data have been published on the results of the plan, the only admission being that "fulfillment of the plan was hampered by serious shortages" and that "certain difficulties were encountered in expanding the economy."
The Eighth Five Year Plan (1966-1970) has three distinctive features. The first is that it is more realistic and takes previous experience into account. In the preceding plan, national income was to increase by 65 percent, to be achieved in 7.4 percent yearly increases; actually, the increase was about 4.4 percent annually. The planned increase in the output of agricultural products during this period was set at 70 percent, about 8 percent per year; the actual increase in the seven-year period was only 10 percent, or less than 2 percent per year. In other words, agricultural output barely kept ahead of population growth. In 1965 the grain harvest, for example, amounted to 120.5 million metric tons, as compared with the planned figure of 180 million tons.
Under the new Five Year Plan, the national income is scheduled to increase by 38 to 41 percent, or about 6.7 percent per year, while the volume of industrial production is supposed to show a 47 to 50 percent rise, or about 8 percent per year. In agriculture, the 1970 target figure is arrived at by increasing the 1961-1965 average yearly production by 25 percent. For grain production, the planned overall increase is 30 percent in comparison with the previous five-year period, the target being 167 million metric tons in 1970.
The second new feature of the plan is the effort of the new leaders to conciliate the collective farmers, who up to now have been treated like second-class citizens. The dismal failures in agriculture are forcing the leaders to make far-reaching promises to "narrow the gap between the standards of living of the rural and urban population," "overcome the differences in social and economic benefits and in living conditions that exist between city and village," and "introduce guaranteed monthly wages to the collective farmers."
The third new feature is the abandonment of the slogan, "Overtake and surpass the U.S.A." The goal in the previous Seven Year Plan was to exceed the current level of American industrial production in a number of important types of production, and to equal it in others. In addition, total and per capita output of farm products was to exceed that in the United States. At the same time, it was emphasized that by 1965 the countries of the Communist bloc would produce more than half the world's industrial output. In the new plan, not a word is said about any of this, although in his speech at the Twenty-Third Congress of the Communist Party, Premier Kosygin referred to the competition between the two systems as a historically inevitable process. In actual fact, the countries of the Communist bloc are at present producing about one-third of the world's output, although they claim to be turning out two-fifths.
It is interesting to note that two years ago Professor V. Starovsky, Chairman of the Central Statistical Administration of the U.S.S.R., accused American economists of misrepresenting the facts, of deliberately distorting the actual situation, in their statements concerning the decreased rate of growth of the Soviet economy.[i] Today, however, these statements are generally recognized as factual. Soviet economists have calculated that as a result of lowered growth rates during the six-year period 1959-1964, the Soviet national income actually fell 41 billion rubles ($45.5 billion) below what it would otherwise have been.[ii]
There may, then, be some truth in the accusation directed at Khrushchev- namely, that his errors of voluntarism, subjectivism, and other sins (by whatever name) caused the present economic difficulties, although this contradicts Marxist doctrine concerning the role of personality in history. But one thing is clear beyond doubt-the Soviet economy (as well as those of the other countries of the Communist bloc) is in trouble. The planned economy is undergoing severe trials. Successful fulfillment of the Eighth Five Year Plan will depend to a considerable extent on whether the projected reforms designed to stimulate the Soviet economy can be effectively implemented.
FULFILLMENT OF THE SEVEN-YEAR PLAN (1959-1965) AND BASIC TARGETS OF THE FIVE-YEAR PLAN (1966-1970)
BASIC PRODUCTS UNITS OUTPUT 1965 1970 Fulfillment % increase Plan Amount % Plan over plan 1965 Steel mil. metric tons 91 91 100 129 41.7
Coal mil. metric tons 609 578 94.4 675 10.8
Petroleum mil. metric tons 240 243 101.2 355 47.9
Gas mil. cubic meters 150 129.2 86.1 240 60.0
Electric power billion kwh 520 507 97.5 850 63.4
Cement mil. metric tons 81 72.4 89.4 105 29.6
Fertilizers mil. metric tons 36 31.3 86.9 65 80.5
Grain mil. metric tons 180 120.5 66.9 167 -7.2
Sugar mil. metric tons 10 8.9 89.0 10 -
Meat mil. metric tons 6.1 4.8 78.7 6.2 1.6
Whole milk mil. metric tons 13.5. 11.5 85.2 17 25.9
Butter thousand metric tons 1,006 1,066 105.9 1,160 15.3
Cloth mil. sq. m. 10,620 7,500 70.6 9,800 -7.7
Shoes mil. pairs 515 486 94.3 630 22.3
Metal cutting machine tools thousands 200 185 92.5 230 15.0
Motor vehicles of all types thousands 856 616.4 72.0 1,510 76.4 passenger cars 201.2 800 297.6
Housing construction a) in urban areas mil. sq. m. floor sp. 94.3 79.5 84.3 96.0 1.8 b) in rural areas mil. houses 1.0 0.5 50.0 0.5 -50.0
Sources: "Kontrol'nyye tsifzy razvitiya narodnogo khozyaistva SSSR na 1959- 1965 gody," (Planned Figures for Development of National Economy of the U.S.S.R. in 1959-1965), p. 30, 34-36, 39, 40, 43-44, 51, 69, 98; Pravda, February 3, p. 1-2; February 20, p. 1-4; April 10, p. 2-5, 1966.
In the new Five Year Plan, the Soviets are investing some 205 billion rubles ($227.5 billion) in the productive sector of the national economy (industry, agriculture, transportation and communication). Of this amount, two-fifths (126 billion rubles) have been allocated to industry-88 percent of it to heavy industry. Electric power, machine-building, chemicals and metal-working will receive priority. Considerable expansion is projected in such new fields as electronics, electronic engineering, atomic power engineering, electronic computers and synthetic materials; clearly these are particularly important to the current and potential growth of the country's economic and military strength.
Will these hundreds of billions of rubles be more effectively used than in the past? First, we need to review briefly some of the causes of inefficiency in the Soviet economy.
The country's labor force has been ineffectively and wastefully used. Contrary to popular belief, every year millions of industrial workers transfer from one plant to another on their own initiative, and of these one-third change their profession.[iii] Soviet economists have estimated that in 1963 this resulted in the loss of 54.5 million man-days in Soviet industry and 10.4 million man-days in construction. The cost to the economy was 2 billion rubles.[iv]
Bad management, wastefulness and excessive overhead expenses have reduced the effectiveness of investments. Also, the consumption of many types of raw materials, fuel and electric power per unit of production has been excessive; in the machine-building industry, for example, waste metal amounts to nearly half, by weight, of the finished parts. Finally, there have been gross miscalculations in planning, especially in the area of capital investment. Unfinished construction in 1964 amounted to 27.1 billion rubles, or 68 percent of capital investment; reduction of this figure to 50-55 percent would release over 6 billion rubles. The excessively long periods of time required for industrial construction and the slowness in organizing have resulted in an annual loss of another 10 billion rubles.[v]
A variety of measures are planned to increase industrial efficiency. Administration of industry on a territorial basis through Sovnarkhozes (Councils of the National Economy), introduced in 1957, is now being discontinued, and All-Union and Union-Republic ministries for the administration of particular branches of industry are being recreated on the old pattern. Measures will be taken to improve planning, and greater emphasis will be placed on the role of the State Planning Commission and on centralized planning in general. However, the directors of industrial plants will gain increased power and autonomy. This will be reflected in a decrease (to eight) in the number of economic indicators in the industrial plans approved for the plants by higher government agencies. With respect to labor, for example, only the plant wage fund will be subject to official approval; each plant will independently plan the number of workers, the labor productivity and average wages without the necessity for approval by higher government agencies.
Special funds are being set up with which to make maximum use of incentives for all workers, from common laborer to director. Wage increases will be determined to a large extent by the performance of the given plant- increased output, improved quality of the products, higher labor productivity, greater earning capacity and higher profits. Basically the same principle is involved in the introduction of payments into the general funds of the plant-a transition from non-reimbursable allocations for capital construction to long-term crediting.
These new reforms are in the nature of a compromise, having two mutually exclusive objectives: to make the director the central figure at the plant, with greater independence and leeway; and to give greater weight to centralized planning. The difficulty of translating these reforms into solutions of specific problems is illustrated by the case of a pillow factory which requires pillow-case material 61-62 centimeters wide, whereas the textile factory makes pillow-case material which is 80 centimeters wide. Pravda reported: "Correspondence concerning this problem has been going on for no less than seven years between the [pillow] factory and the Union-Republic and All-Union planning organizations. Not the slightest progress has been made." Will the director now be able to solve this type of problem? Will there be some changes in the modus operandi of the various planning agencies? What will be the role of the innumerable ministries and committees in such a situation?
It is unclear in what way improvement will come about in the operations of the higher planning agencies, whose function is to establish a balance in the national economy, to determine its proportions, capital investment, etc. There is no doubt whatsoever that the administration of industry on the territorial principle through Sovnarkhozes has been a failure. However, this does not necessarily mean that reversion to centralized ministries will bring about an improvement. The liquidation of these same ministries in 1957 was hailed with the slogan, "Away with the congested bureaucratic maze of Moscow ministries!"
There are many questions as to the effect of the new reform. To what extent will industrial plants be able to establish direct contractual relationships, as has been done in light industry? How will the operation of the State Committee on the Supply of Materials and Equipment be set up? How fast and how successfully will the new wholesale prices be put into effect? And so on.
In one of his articles, Professor E. Liberman, economist at the University of Kharkov, caused considerable misunderstanding by his use of the word "profit" as an indicator for evaluating the performance of an industrial establishment. It must be emphasized that where the right of private ownership of the means of production has been denied and where neither a market nor market relationships exists, the term "profit," like a whole series of related terms (price, credit, etc.), is merely a technical term, without the socio-economic implications which it has under the conditions of a market economy.
Professor Liberman's primary contribution consists in the fact that in 1962 he loudly declared (and for the first time) that all was not well with the operation of the Soviet industrial establishment; the ensuing discussion has led to the present reform, on which the Soviet leaders are placing great hopes.
The present difficulties in Soviet agriculture stem from many and varied causes: the sharp increase in state purchases of grain and other farm products, endless reorganizations, meddling by incompetent administrators in the work of the kolkhozes, restrictions placed on the collective farmers (curtailment of personal plots, restricted use of livestock, etc.), and a reduction in the cash payments and payments in kind for their services. In this situation, as previously, the peasant has resorted to the time-tested method of passive resistance. He becomes more occupied with his personal plot than with the work of the collective, or he leaves for the city to engage in construction work. The population of the kolkhozes in the R.S.F.S.R. alone decreased by 3.1 million persons, or 27 percent, during the period 1959-1963.[vi]
It is now being recognized that the carrot may be more reliable than the stick in dealing with the collective farmers. Hence, under the new plan there will be reforms in agriculture and new concessions to the kolkhozniks. The government is establishing a uniform, fixed plan for the purchase of grain, livestock, poultry, milk, eggs and wool, with scheduled increases from year to year through 1970. To increase incentives, higher prices will be paid for all these products. After fulfillment of the grain purchase plans, however, the kolkhozes will be forced to sell additional quantities of grain to the state, albeit at increased prices. The new plan promises an increase of 35-40 percent in payments, either in cash or in kind, to the collective farmers from the economy at large, and restrictions on the use of personal plots and livestock have been removed.
Plans have been made to invest 71 billion rubles in agriculture-including 30 billion from kolkhozes. The supply of mineral fertilizers will be doubled during the years 1966-1970, and 1,790,000 tractors, 1,100,000 trucks and 550,000 combines are to be provided. The supply of electric power to farms is also to be doubled-an impressive increase until one considers the fact that at present Soviet agriculture consumes less than 4 percent of the total amount of electric power produced. Similarly, the plan calls for the construction of 500,000 houses per year for the rural population; but this only matches the number actually built during the preceding plan period, which fell 50 percent below its goal.
By these measures the government hopes for a 40-45 percent increase in labor productivity on the state and collective farms. Undoubtedly, the planned capital investment in agriculture, the increase in agricultural machinery and in mineral fertilizers are all important in improving the agricultural situation, but the decisive factor is still the farmer himself and his relation to the kolkhoz. The problem for the régime is how to induce the farmer to devote the same effort to the public lands as he does to his own plot. These personal plots of all kinds occupy less than 2 percent of all the arable land in the U.S.S.R., but produce 70 percent of the potatoes, 42 percent of the vegetables, 44 percent of the meat, 45 percent of the milk, 76 percent of the eggs and 22 percent of the wool. About two-thirds of the output of fruit and berries and about a fourth of grapes also come from personal plots. At the same time, the quality of this produce is much better than that of the same crops grown on collective and state farms.
The fact that the rural population lives under much worse conditions than does the urban population should not surprise anyone, but the magnitude of the gap is striking. During recent years some 8-9 billion rubles have annually been withdrawn from the total net income of agriculture for use in the development of other branches of the national economy.[vii] For the last thirteen years the urban resident bought 3.8 times more goods per capita than the person living in the countryside.[viii] At the same time the rural population had to pay higher prices for the same goods. It consumes only 2 percent of the country's total output of electric power for consumer needs. Water supply lines, sewerage and gas works are rare occurrences in the country. In 1964 the volume of consumer services in urban areas was 4.3 times higher than in the rural areas.
Will these and similar anomalies be eliminated? No doubt the establishment of a stable, fixed plan for the purchase of farm products, the increase of payments to farmers for agricultural products, greater freedom in the use of personal plots and livestock, etc., will change the agricultural situation for the better, just as happened when the reforms were instituted after the death of Stalin. Much will depend, however, on how sincere the government is in its promises, particularly as regards the "introduction of guaranteed monthly wages to the collective farmers."
But no miracle will take place. The tragedy of Soviet agriculture consists in the fact that the collective farmer does not feel that he is the master of the kolkhoz. The results are well known: with almost half the population living in the country and about one-third of the labor force occupied in agriculture, the U.S.S.R. continues to have serious problems in meeting the needs of its population for foodstuffs, and those of its industry for agricultural raw materials.
One aspect of the Soviet national economy deserves particular attention: the low quality of production. The Soviet system of national planning has resulted in poor quality of industrial goods, consumer goods and all types of construction work, particularly housing. In the R.S.F.S.R., there are special "brigades," comprising 30,000 men, who are working the year round on the elimination of defects in completed construction projects.[ix] Legal prosecution for the manufacture of defective goods or low-quality products has not so far achieved any significant improvement. The situation results in countless losses to the national economy and hurts the Russians' chances of expanding foreign trade. The Soviet government recognizes these deficiencies and the Eighth Five Year Plan attempts to cope with them.
The new plan stresses the necessity of making the most of science and technology in developing the national economy. One obstacle, however, is that in many cases the education and technical competence of workers in the middle age bracket, whose schooling coincided with the war, are inadequate. Since this particular age group is at present the most numerous and most highly skilled, progress in areas of increasingly complex technology may be much affected.
The problem of "unused reserves" or "superfluous labor force"-to use the Soviet terminology-deserves special attention. Despite the wide application of automation, the number of workers in industry is not decreasing, but actually increasing at rates which are not warranted by increased production. Many plants are employing workers who are not needed and are often used for tasks which have no relation to production. According to official statistics for 1961, the loss of work time resulting from this kind of inefficiency at the establishments of the Councils of the National Economy alone amounted to 231 million man-days.[x] Under the new reforms, plant directors will probably make use of the right granted them to determine independently the structure and size of the labor force, within the limits established by the annual wage fund. This will, of course, have a favorable effect on plant performance, but some of the workers will lose their jobs. At the Moscow automobile Kombinat, reduction of the labor force amounted to 7 percent as soon as the new system went into effect, while in other industries the percentage of dismissed workers was as much as 20 percent.[xi] This means that 2 to 3 million workers are in danger of losing their jobs. The situation is complicated still further by the fact that in 1966 about 3 million young men and women will leave school and enter the labor market. The oft-reported labor shortage in the Soviet Union is no more.
There is talk in the Soviet press of providing support to workers who lose their jobs because of automation. It is pointed out that the cost to the state of keeping superfluous workers on the payroll is very high and that they are hindering efforts to increase labor productivity. Providing material aid to those who have lost their jobs, it is argued, is therefore fully justified economically.[xii] However, to take this course is to admit that unemployment exists, and so far the myth that the U.S.S.R. "has had no unemployment since 1930" has prevailed.
Let us now consider the standard of living of the Soviet worker. One indicator of a worker's standard of living is the proportion of his total income that is spent on food; the higher this proportion, the lower is the standard of living. In the 10 years 1951-1961 the food budget of the Soviet worker has decreased from 49.3 percent to 46.9 percent. Although the figure may now be somewhat lower, it is still one and one-half to two times higher than that of a European or an American worker.
Also, the promises of the Seven Year Plan to increase wages and salaries 40 percent, to implement a 35-hour work-week for most employees, and to raise minimum salaries to 50-60 rubles a month were not fulfilled. The new plan makes new promises: a considerable increase in the output of consumer goods, particularly durable goods (including color television), reduction in taxes and a five-day work-week, still of 41 hours. Wages and salaries are scheduled to increase by 20 percent, from the present average of 95 rubles to 115 rubles monthly in 1970.
The proposed plans in the service sector, which includes construction of housing, public utilities, cultural and personal services, are lagging far behind the actual need. At the end of 1965, 50 percent of the urban population was living in state-owned communal apartments, sharing the kitchen, bathroom and other facilities. On the average, 69 square feet of living space were available for each person, while the average housing density was 2.33 persons per room. After fulfillment of the proposed housing plan, somewhat more living space will be available per person by 1970, but it will still be far below the stated health norm of 97 square feet per person.
The situation with regard to municipal facilities is no better. Less than half the city streets have water mains, while the sewerage system is only about half the length of the water supply system.[xiii] As a result, millions of urban dwellers are living in houses without running water or plumbing.[xiv] Cities, particularly the large ones, are poorly provided with municipal transportation. For example, according to a recent survey in Novosibirsk, a city of 1 million, each inhabitant spends 246 hours per year waiting for the bus.[xv] By the end of 1970, the situation will have improved only slightly.
There is an acute shortage of service establishments such as stores, laundries, barber shops, dry cleaners, various repair shops, etc. For example, laundries employ only 0.11 persons per 1000 population as against 1.7 in the United States; retail establishments employ 16 persons per 1000 population as against 76 in the United States.[xvi] The new plan provides for considerable expansion of services-for example, dry-cleaning shops will increase by 500 percent-but who can tell whether such arbitrary figures will serve to meet or exceed the demands? It is planned to increase the production of passenger cars from 200,000 in 1965 to 800,000 in 1970. This would mean theoretically that about 5 percent of
Soviet families would be able to own a car. A serious deterrent, however, is the fact that the present price of a car exceeds the average wages of a worker for a period of three years.
The new Five Year Plan sets out two basic tasks: "strengthening of the defensive might of the country" and "a substantial rise in the standard of living of the people."[xvii] Which is more important? Which is given preference? In short-"guns or butter"?
At the Twenty-Third Congress of the Communist Party, Brezhnev emphasized the importance of closing the gap between the rate at which the means of production is increasing-52 percent (58 percent in 1961-1965)-and the rate of increase in the production of consumer goods-46 percent (36 percent in 1961-1965). But this needs to be examined in the light of investments in the various sectors of the national economy, as shown in the table below.
It will be noted that in the new Five Year Plan investment in the service sector has been reduced sharply in relative terms-to 26.8 percent. Had the relative share of the service sector stayed at the level of 1959-1964, the total investments in it would have amounted to 97.2 billion rubles, instead of the presently planned 75 billion rubles; in other words, the investments would have been greater by 22.2 billion rubles.
INVESTMENT OF STATE AND COÖPERATIVE ORGANIZATIONS IN VARIOUS SECTORS IN COMPARABLE PRICES (BILLIONS OF RUBLES)
1918-1958 1959-1964 1966-1970 (plan)
Types of Investment Amount Percent Amount Percent Amount Percent
Total investment in the 214.4 100 203.2 100 280.0 100 national economy- including: Productive sector (industry, 149.0 69.5 132.6 65.3 205.0 73.2 agriculture, transportation, communications ) Investment in industry 102.9 48.0 83.8 41.2 126.0 45.0 including: Heavy industry 90.9 88.3 72.8 86.9 111.0 88.1 (producer goods) Light industry 12.0 11.7 11.0 13.1 15.0 11.9 (consumer goods) Service sector (construction 65.4 30.5 70.6 34.7 75.0 26.8 of housing, public utilities, cultural and personal services)
Sources: "Narodnoye Khozyaystvo SSSR v 1958 godu, Statisticheskiy Yezhegodnik" (National Economy of the U.S.S.R. in 1958, Statistical Yearbook) Moscow, 1958, p. 622-625; "Narodnoye Khozyaystvo SSSR v 1964 godu, Statisticheskiy Yezhegodnik" (National Economy of the U.S.S.R. in 1964, Statistical Yearbook) Moscow, 1965, p. 515; Pravda, April 10, 1966, p. 4.
Thus, the consumer's interest is relegated to second place. This means that there will not be any "substantial rise in the standard of living of people," as indicated in the plan; the funds to be invested in the service sector are completely inadequate to the needs of the population. For instance, if by the end of 1970 every urban family were to be provided with housing on the principle of "one person, one room," instead of the present rate of 2.33 persons per room, then an additional investment of 100 billion rubles would be required in the service sector.
The relative share of investments in light industry in the new plan has hardly changed at all from the figures of the two previous periods. This fact has various consequences. For heavy industry it means a substantial increase in output. For light industry-that is consumer goods-it means a limited increase of about 12 percent.
Thus, the answer to the question "guns or butter?" has not changed since the First Five Year Plan (1928-1932), when the principles of Soviet investment policy were formulated. However, token efforts have been made to satisfy the people, particularly in the production of consumer goods which do not require a large outlay of capital-such as television sets, washing machines, refrigerators, etc. This is much less expensive than satisfying the need for proper housing, good public utilities or automobiles. Should the new plan succeed, it is estimated that by the end of 1970, 53 percent of Soviet families will own television sets, 41 percent will own washing machines, 31 percent will own refrigerators, and 14 percent will own motorcycles or motorscooters.
We are familiar with the promises of Soviet five-year plans. It is of course impossible to predict whether the Eighth Five Year Plan will be more successful in achieving its stated goals, but one can say with certainty that it will not raise the living standards of the Soviet citizen to the level of the advanced industrial countries of Europe. Considering the Soviet economic potential, this is both a commentary on the inefficiency of the system and a result of the basic decision that guns still come before butter.
[i] 1 Pravda, March 14, 1964, p. 2-3.
[ii] Voprosy ekonomiki (Problems of Economics), No. 2, 1966, p. 8. At the current official rate, 1 ruble equals $1.11.
[iii] Voprosy ekonomiki, No. 6, 1965, p. 29.
[iv] Planovoye khozyaystvo (Planned Economy), No. 6, 1965, p. 44; Voprosy ekonomiki, No. 6,1965, p. 27.
[v] Voprosy ekonomiki, No. 2, 1966, p. 7-8.
[vi] Voprosy ekonomiki, No. 6, 1965, p. 26.
[vii] Voprosy ekonomiki, No. 4, 1965, p. 13.
[viii] Ibid., No. 7, 1965, p. 32.
[ix] Pravda, July 7, 1965, p. 2.
[x] Voprosy ekonomiki, No. 6, 1965, p. 28.
[xi] Kommunist, No. 18, 1965, p. 69; Ekonomicheskaya gazeta (Economic News), June 30, 1965, p. 6.
[xii] Voprosy ekonomiki, No. 6, 1965, p. 29-30.
[xiii] Planovoye khozyaystvo, No. 2, 1966, p. 36.
[xiv] Soviet Studies, July 1965, p. 111.
[xv] Izvestiya, April 18, 1965, p. 2.
[xvi] Voprosy ekonomiki, No. 6, 1965, p. 30.
[xvii] Pravda, February 20, 1966, p. 1.