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List of Chapters
27: "The International Division of Labour"

The policy of national discrimination adopted in relation to the non-Russian Union Republics is "justified" theoretically in terms of what is called by contemporary Soviet economists the "law of the international division of labour". This "law" is of great importance not only internally, but also externally since it is utilised to "justify" the policy adopted towards the countries within Comecon and towards underdeveloped countries. Here, however, space precludes treatment of the external relations of the Soviet Union.

According to Marxism-Leninism, the value of a commodity is determined, as has been pointed out in Section 14 ("Price Control"), by the amount of socially necessary labour time involved in its production.

But the socially necessary labour time involved in the production of a particular commodity varies in different regions and in different countries according to such factors as climate, soil, accessibility to mineral resources and the productivity of labour (the latter depending on the technical level of production). Thus, the value of a particular commodity varies in different regions and in different countries:

"Since... it (a commodity -- WBB) is produced in economies at different levels of development, with a different labour productivity, there inevitably are distinctions... between the national values (prices of production) of commodities".

(M. Senin: "Socialist Integration"; Moscow; 1973; p. 228-9).

 Thus, the British economist David Ricardo (1772-1823) held that, under a completely free system of international trade, each country would produce precisely those commodities which it was capable of producing at minimal value, i.e., with the expenditure of a minimum amount of socially necessary labour: "Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each... By using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically".

(D. Ricardo: "The Principles of Political Economy and Taxation"; London; 1937; p. 80, 81).

 Ricardo bases his theory on a hypothetical example. He assumes that the production of a certain amount of cloth in Britain requires the labour of 100 workers for a year, while the production of the same amount of cloth in Portugal would require the labour of 90 workers. This quantity of cloth could be exchanged for a certain quantity of wine, the production of which in Portugal requires the labour of 80 workers for a year, while the production of the same amount of wine in Britain would require the labour of 120. In these circumstances, it would be economically beneficial for both "countries" that Britain should produce cloth and Portugal wine, that Britain should exchange cloth for Portuguese wine, and that Portugal should exchange wine for British cloth, since this would save the labour of 20 workers in Britain and 10 workers in Portugal:

Before Specialisation

                        Wine                 Cloth             Total Portugal:                                           80                     90                  170

Britain:                                            120                     100                220

Total: 390

After Specialisation

                        Wine      Cloth     Total     Saving Portugal:                                            160                 -             160             10

Britain:                                             -                 200            200             20

___ ___

360 30

Ricardo refrains from carrying his theory to its logical conclusion -- that there would be an even greater total saving of labour if both cloth and wine were made in Portugal!

Many contemporary Soviet economists endorse at least "the rational basis" of Ricardo's theory:

Further

                                                            Wine         Cloth              Total   Saving

Portugal:                         160             180                    340

Britain:                                                         -                        -                     -

___

Total: 340 20

"Many economists who have analysed Ricardo's above views believe that he has revealed the mechanism of the emergence of material advantages from the participation in the international division of labour...

The economists who see a rational grain in Ricardo's theory and think of using it to promote the international socialist division of labour are closer to the truth".

(M. Senin: ibid.; p. 233, 234).

 Marx did, indeed, maintain that a region or country with a less technically developed level of production, by trading with a region or country with a more technically developed level of production "... may ... yet thereby receive commodities cheaper than it could produce them".

(K. Marx: "Capital", Volume 3; London; 1974; p. 238).

 And it is allegedly on the basis of "Marxism" that contemporary Soviet economists maintain that economic "co-operation" between the Union Republics of the Soviet Union, as well as between the Soviet Union and underdeveloped countries, brings about, when it is based on "the international division of labour" "....mutual benefit of the parties, which is attained through the saving of social labour in the production of individual goods".

(A.I. Chekhutov: "Economic Co-operation with Socialist States as a Factor of Industrialisation of Developign Countries"; Moscow; 1973; p. 234).

 Marx, however held that the application of "the international division of labour" meant that the region or country with the more technically developed level of production was able to exploit the region or country with the less technically developed level of production: "Even if we consider Ricardo's theory... three days of one country's labour may be exchanged for a single day of another country's .... In this case the rich country exploits the poor one".

(K. Marx: "Histoire des doctrines economiques" (History of Economic Doctrines); Paris; n.d.; in: A. Emmanuel: "Unequal Exchange: A Study of the Imperialism of Trade"' London; 1972; p. 92).

 Thus, contemporary Soviet economists are compelled to admit that, even if there is "mutual benefit" from such international exchange, the region or country with the higher level of labour productivity derives significantly greater benefit than the region or country with the lower level of labour productivity: "Marx... regarded.. as only natural that more developed countries should enjoy greater advantage from the division of labour. In his view a nation with a higher social labour productivity obtains in the international exchange.. '..a surplus profit'..

(K. Marx: "Capital", Volume 3; London; 1974; p. 238).

"Under any circumstances there exists an international exchange which in every concrete case brings greater advantages to countries with a more developed economy, and less advantages to countries with a less developed economy".

(M. Senin: ibid.; p. 231, 235).

 Soviet economists present "the international division of labour", based on "... the international specialisation and co-operation of production"

(M. Senin: ibid.; p. 63) as an objective economic law, namely:

"...the law of the international division of labour".

(M. Senin: ibid.; p. 57).

 It is, therefore, on the basis that they are endeavoring to violate "an objective economic law" that contemporary Soviet propagandists denounce Union Republics or foreign countries which seek to move in the direction of economic self-sufficiency: "National selfishness and the tendency towards economic autarchy ultimately produce economic instability and increase dependence upon the world capitalist market".

(V.I. Kuznetsov: "Economic Integration: Two Approaches"; Moscow; 1976; p. 41).

 It is also noted that technological development is relatively more expensive in the industrially backward Union Republics than in the more industrially developed Russian Republic: "Increases in industrial production are becoming relatively more expensive to achieve in most of the less developed areas of the USSR (i.e., the Central Asian and Transcuacasian republics) than in the already developed western regions".

(F.D. Whitehouse: "Demographic Aspects of Regional Economic Development in the USSR", in: V.N. Bandera & Z.L. Melnyk (Eds.): "The Soviet Economy in Regional Perspective"; New York; 1973; p. 156).

 The policy of the new Soviet leadership is thus to develop further "the international division of labour" between the Union Republics of the Soviet Union -- that is, to develop further the semi-colonial status of the peripheral Union Republics in relation to the dominant Russian Republic: "In the 10th. five-year period... the territorial division of labour will become more effective, and the contribution of every republic and region to the attainment of all-Union objectives will be augmented".

(A.N. Kosygin: "Guidelines for the Development of the National Economy of the USSR", 25th. Congress CPSU; Moscow; 1976; p. 71).
28: Investment

Investment, as the term is used by contemporary Soviet economists, is the provision of new means of production to the economy.

Under the socialist system which formerly existed in the Soviet Union, new means of production were, as has been shown in the section entitled "Payment for Production Assets", allocated by the state to enterprises without charge, in accordance with the central state economic plan:

"Up to now capital investments in industry have in most cases been financed from non-repayable budget funds".

(V. Vorobyev: "Credit and Industrial Development", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 46, 1965, in: "The Soviet Economic Reforms: Main Features and Aims"; Moscow; 1967; p. 90).

"The financing of capital investment is currently handled by free grants from the state budget."

(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 2; New York; 1966; p. 23).

 Since the "economic reform", however, as has been shown in the same section, enterprises buy new means of production; but only in exceptional cases are investment funds (that is, money capital) advanced to enterprises for this purpose by the state without charge: "At the present time... only in exceptional cases will the means (of investment -- WBB) come from the budget".

(V. Batyrev: "The Economic Reform and the Increasing Role of Credit", in: "Kommunist" (Communist), No. 2, 1966, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 246).

 Nevertheless, investment is still classified into "centralised" (that is, officially included in the central state economic "plan") and "decentralised" (that is, made from enterprises' own funds and not included in the central state economic "plan"): "Non-centralised investments... are of local significance. They are made by the enterprises themselves which are guided by their own calculations".

(P.G. Bunich: "Methods of Planning and Stimulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 37).

 In 1969-70 some 80% of total investment was classified as "centralised" and about 20% as "decentralised"; and it was intended that the proportion of "decentralised" investment should increase: "At present... non-centralised investments make up about 20% of total investments. But as the reform is deepened this share will grow".

(T.S. Khachaturov: "The Economic Reform and Efficiency of Investments", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 156).

"In accordance with the decision of the September (1965 -- WBB) Plenary Meeting of the CPSU Central Committee, the volume of decentralised capital investments is being expanded considerably".

(P. Bunich: "Economic Stimuli to Increase the Effectiveness of Capital Investments and the Output-to-Capital Ratio", in: "Voprosy ekonomiki" (Problems of Economics), No. 12, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 185-6).

 It is, however, not only the "decentralised" 20% of total investment which is made from enterprises' own funds. In addition to this, 73.5% of "centralised" investment (that is, 58.8% of total investment) also came from enterprises' own funds:

(I. Shur: "Long-term Credit in Industry", in: "Voprosy ekonomiki" (Problems of Economics), No. 6, 1970, in: "Problems of Economics", Volume 13, No. 8; December 1970; p. 46).

Thus, some 78.8% of total investment comes from enterpirses' own funds.

For the purpose of making such investments, each enterprise is obliged to set up a production development fund:

"There are now three types of material incentive funds at the Soviet enterprise:...

c) a production development fund designated for investment by the enterprise".

(V.M. Batyrev: "Commodity-Money Relations under Socialism", in: "The Soviet Planned Economy"; Moscow; 1974; p. 172).

 On the average, 65% of an enterprise's production development fund is formed from depreciation allowances (state-determined allowances for wear and tear of existing means of production, deducted from the enterprise's gross income before profits are calculated).

(R. Krylov, L. Rotshtein & D. Tsarev: "On the Procedure and Conditions for Changing to the New System", in: "Planovoe khoziaistvo" (Planned Economy), No. 4, 1966, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 267).

On the average, 40% of depreciation allowances are transferred to the enterprise's production development fund, the remaining 60% going to the state.

(R. Krylov, L. Rotshtein & D. Tsarev: ibid.; p. 267)

Thus,

"Depreciation charges are the most important source of enterprise funds for financing investments".

(K.N. Plotnikov: "Soviet Finance and Credit", in: "The Soviet Planned Economy"; Moscow; 1974; p. 218).

 On the average, the remaining 35% of an enterprise's production development fund comes from: firstly, transfers from profits; and secondly, proceeds from the sale of superfluous means of production: "The production development fund will be made up of three sources: part of the profit, part of the depreciation allowances designated for the complete renewal of fixed assets, and receipts from the sale of superfluous equipment".

(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Prolems of Economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 80).

"Profit is a vitally important source of expanded socialist reproduction".

(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), No. 18, 1962, in: M.E. Sharpe (Ed.); op. cit., Volume 1; p. 89).

"The role of profit will also be reinforced as a source of the reproduction of fixed assets in the enterprises".

(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 49, 1965, in: M.E. Sharpe (Ed): op. cit., Volume 2; p. 210).

 The establishment of production development funds brought about a very large increase in the enterprises' funds available for investment: from 120 million rubles in 1964 to 4,000 million rubles in 1967 -- an increase of more than 33 times.

(A.N. Kosygin: ibid.; p. 22-3).

Furthermore, between 1966 and 1970 enterprises' production development funds rose, on average by 6 times.

(N.Y. Drogichinsky: "The Economic Reform in Action", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 207).

Any investment made by an enterprise over and above the funds available in its production development fund must (as has been shown in the sections entitled "Payment for Production Assets" and "Credit and Interest") normally be obtained in the form of bank credit, repayable by the enterprise with interest:

"Expenditures for the reconstruction and expansion of existing enterprises will come not only from their own resources but also from long-term bank credits. Moreover, the intention is to extend long-term loans for the construction of new enterprises in instances when credit will be repaid in a relatively short period after the installations go into operation.

According to preliminary calculations, more than half of the present total volume of capital investments -- 20 to 25 thousand million rubles -- can be effectuated through credit".

(V. Garbuzov: "Finances and Economic Stimuli", in: "Ekonomicheskaya gazeta" (Economic gazette), No. 41, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 54).

"The reconstruction of existing enterprises... will be fully financed from profits, amortisation (i.e., depreciation allowances -- WBB) and bank credits".

(V. Batyrev: "The Economic Reform and the Increasing Role of Credit", in: "Kommunist" (Communist). No. 2, 1966, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 246).

"Credit is a much more advantageous way of financing than non-repayable budget funds...

Under the new conditions of economic management new enterprises will be built on credits supplied by the Stroibank... provided that the outlay be repaid within five years from the time the project goes into operation...

The reconstruction and extension of existing plants and factories will be financed partly from the profit and depreciation allowances for complete restoration of fixed assets and partly from Stroibank credits".

(V. Vorobyev: ibid.; p. 90-1).

"Investments in enlarging and modernising operating enterprises will be increasingly made on account of the production development fund and back credits. Moreover, industry's own resources and long-term bank credits will serve as sources of investment in new enterprises which recoup with their own profit the invested resources in periods of up to five years".

(T.S. Khachaturov: ibid,; p. 156).

"Investments are financed first of al l out of funds owned by the enterprises, organisations and construction sites. If these are insufficienct, then bank credits are allocated".

(K.N. Plotnikov: ibid.; p. 217-8).

 Despite the forecasts of some Soviet economists that "more than half" of investment might be effected through bank credits, by 1974 only 3.3% of investment was in fact effected in this way. (V.N. Kulikov: "Some Problems of Long-term Crediting of Centralised Capital Investments", in: "Finansy SSSR" (USSR Finances). No. 5, 1974, in: "Problems of Economics", Volume 17, No. 10; February 1975; p. 61).

The basic reason why bank credit came to constitute such a very small proportion of investment was:

"..the high profitability of the majority of existing enterprises, which makes it possible to make capital investments from their own resources".

(V.N. Kulikov: ibid.; p. 61).

 Indeed, one of the aims of establishing a "sufficiently high" rate of interest on bank credits was to "encourage" enterprises to finance their investment from their own funds: "Credits for capital investments in industry will encourage mobilisation of the enterprises' own reserves".

(V. Vorobyev: ibid.; p. 91).

 In other words, one of the cardinal aims of the "economic reform" was that enterprises should adopt "...the principle of total self-financing".

(N. Fedorenko: "On the Elaboration of a System of Optimal Functioning of the Socialist Economy",, in: "Voprosy ekonomiki" (Problems of Economics), No. 6, 1972, in: "Problems of Economics", Volume 15, No. 6; January 1973; p. 21).

"Cost accounting has essentially widened the sphere of self-sufficiency. Self-sufficiency means that an enterprise itself finances its current and long-term expenditures and obtains a profit on a scale which ensures extended socialist reproduction".

(P.G. Bunich: "Methods of Planning and Stimulation", in: "Soviet Economic Reform: Progres and Problems"; Moscow; 1972; p. 51-2).

 Only previously in Nazi Germany have enterprises attained the degree of self-sufficiency -- of relative independence of bank credit -- enjoyed by the majority of enterprises in the contemporary Soviet Union: "The 1933 legislation had .. encouraged internal financing by tax privileges and tax exemptions... For 1938 we reach a figure of nearly 5,000 million marks undistributed profits ... Industry is no longer indebted to banks...

The victory of internal financing over the borrowing from banks, savings banks and insurance institutions indicates... the decay of the role of banking capital. That decline is a universal trend...

The primacy of self-financing over borrowing is not the end of capitalism and is not even the end of finance capitalism. It merely indicates that the seat of finance capitalism has shifted from the banks to industry, or rather to a congruence of banks and industry".

(P. Neumann: "Behemoth: The Structure and Practice of National Socialism"; London; 1942; p. 261, 262).

 State investment grants have, since the "economic reform", been restricted to "exceptional cases" approved by the USSR Council of Ministers -- generally large-scale new construction projects whose recoupment period will exceed five years from commencement of operations: "Financial grants made by the state to enterprises for capital investment must be restricted and the use of credits expanded"

(A.N. Kosygin: ibid.; p. 21).

"Budgetary allocations for this purpose (i.e., investment -- WBB) must be authorised by the USSR Council of Ministers".

(V. Vorobyev: ibid.; p. 246)

"Only in exceptional cases will the means (for investment -- WBB) come from the budget".

(V. Batyrev: ibid.; p. 246).

 State enterprises themselves are responsible for almost 80% of total investment, an increasing proportion of investment goes to the expansion or modernisation of existing enterprises rather than to the construction of new enterprises: "Every year 80% and more of all investments go into projects in the process of construction... and thus the possibilities of building new projects, including those for the development of new sectors, are limited".

(T.S. Khachaturov: ibid.; p. 165).

 This applies particularly to the European and Urals region of the Soviet Union, new projects being scheduled for development mainly in the eastern region of the country, especially Siberia: "The eastern regions, especially Siberia, where industrial production is to be raised by nearly 50%, will develop at priority rates...

In the European part of the USSR and in the Urals industrial development will largely follow the line of technical re-equipment and reconstruction of operating enterprises".

(A.N. Kosygin: "Guidelines for the Development of the National Economy of the USSR for 1976-1980", 25th Congress CPSU; Moscow; 1976, p. 72).

 Investment is classified by contemporary Soviet economists into "extensive" (involving an expansion of the labour force) and "intensive" (bringing about a rise in the productivity of labour but not involving an expansion of the labour force -- indeed, possibly permitting a reduction in the labor force): "Investments in the expansion of production can schematically be divided into two parts. One of them goes for increasing the quantity of the means of labour. To set into motion these new productive capacities new workers, engineers and technicians are needed... The other part of investments goes into extended reproduction for replacing the operating means of labour by technically more improved (ones -- WBB) which raise labour productivity. These investments do not demand additional manpower; moreover, they make it possible to release manpower...

These types of investments may conventionally be called extensive (requiring new manpower) and intensive (which ensure a rise in labour productivity and release manpower)"

(T.S. Khachaturov: ibid.; p. 152).

"National income can grow mainly on account of additional investments, an increase in the work force as a whole and the number of persons employed in the sphere of material production -- this is the extensive method of development. But there is also another way -- the intensification of social production. This can be achieved by replacing existing equipment with new technically advanced machinery and by attaining, on the basis of new technology, a rise in labour productivity and a saving of material, manpower and financial resources. This way is more efficient and therefore preferable".

(D.A. Allakhverdyan: "National Income and Income Distribution in the USSR", in: "The Soviet Planned Economy"; Moscow; 1974; p. 85).

 In determining its investment policy, an enterprise is, of course, guided by its assessment of what will maximise its rate of profit: "In making investments on account of its own development fund or bank credit, an enterprise will choose alternatives which enable it to increase profit and raise the level of profitability... Of all the alternatives an enterprise will choose one that provides for the biggest rise in profitability".

(T.S. Khachaturov: ibid.; p. 156).

"In view of the huge scale of investments great significance attaches to their economic efficiency, i.e., choosing the most favourable trends in construction, ensuring the biggest returns per unit of investments".

(K.N. Plotnikov: ibid.; p. 217).

 Despite the great increase in the size of enterprises' funds available for investment, since the "economic reform" the growth rate of investment has declined markedly, as follows:

YEAR        GROWTH RATE
1966-70:                                 43%

1971-75:                                 42%

1976-80:                 ("planned"): 25%

("Soviet Economy Forges Ahead"; Moscow; 1973; p. 16).(A.N. Kosygin: ibid.; p. 11, 69).

This is, of course, in line with the practice of orthodox capitalist countries in conditions of monopoly, where maximum profitability often accrues from continuing to operate means of production after they have become obsolescent.

The decline in the growth rate of investment has been associated with a decline in the growth rate of industrial output:


YEAR        GROWTH RATE
1966-70:                             50%

1971-75:                             47%

1975-80             ("planned"): 35-39%

("Soviet Economy Forges Ahead"; Moscow; 1973; p. 160). (A.N. Kosygin: ibid.; p. 29).


and with a decline in the growth rate of national income:

YEAR                  GROWTH RATE

1966-70:                             41%

1971-75:                             39%

1976-80                            ("planned"): 24-28%

(D.A. Allakhverdyan: ibid.; p. 88); (A.N. Kosygin: ibid.; p. 29).

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