Andrew rothstein

At the same time, the Soviet Press constantly publishes examples of how inattention to opportunities for increasing output without increasing costs or reducing quality leads in fact to failure to produce the output quota planned. Thus at the Supreme Soviet session on 15th October, 1946, the Minister of Finance of the U.S.S.R., Zverev, sharply criticised the working of Soviet textile factories; and in his contribution to the debate Sedin, Minister for the Textile Industry, acknowledged the truth of the criticism. The industry in 1945 had contributed to the State Budget 406 million roubles less than was planned, 50% of this sum being accounted for by excessive costs of production, and the rest by such defects as insufficient expenditure on housing for its workers, unnecessarily writing off bad debts, etc. In 1946 the financial position of the industry, by greater attention to these matters, began rapidly to improve from month to month, and by the third quarter of the year it had begun to wipe out its debt. At the same time it completed its programme of output in the second and third quarters of 1946 for the first time since the war, it reduced costs of production to below the planned amount, economising nearly 24 million roubles under this heading alone, and by the efforts of its workers it had succeeded in starting an additional 100,000 spindles and 4500 looms above plan.

It is interesting to note that the textile industry was one of the large group which, in 1946, not only considerably increased its output in comparison with 1945 (cotton fabrics by 17% and woollen fabrics by 30%), but over-fulfilled its plan for the year, in spite of the bad start, by 3%.¹

A considerable part in the effort of Soviet managements to raise the amount of profit within the framework of planned costs and labour conditions is played by what is called “mobilisation of internal resources”. Many plants, and particularly building jobs, tend to accumulate excess stores of materials. On the basis of a technically determined quantity of stocks per day, building jobs are supposed to have in reserve not more than sixty days’ stock of materials and equipment and forty days' stock of iron and steel. In the course of the worst years of the war, 1942 and 1943, 3 milliard roubles of economies were effected by the building industry (which constructed vast numbers of factories in those years) solely by its managers “unfreezing” excess quantities of such stores. It is important to notice in this connection that, in Soviet conditions, there is no need for managers to anticipate a possible rise in prices of materials as elsewhere, and only technological considerations should govern their plans. Excess stocks temporarily fall out of the production cycle, thereby both interfering with State plans of output and reducing the volume of accumulation.

Speakers at the Budget debates in October, 1946, gave a number of examples of such wasteful piling up of stocks, and pointed to the great opportunities which managers had in this connection. Unnecessary stocks on 1st July, 1946, in undertakings belonging to the Ministry of Agricultural Engineering (said the Minister of Finance) amounted to nearly one milliard roubles, in those of the textile industry over 300 million roubles, and in the chemical industry to 170 million roubles. Kornietz, in the speech already quoted, pointed out that plants of the Ministry for the Iron and Steel Industry had allowed stocks to rise by the same date to over 300 million roubles above the permitted total—instead of reducing them, as they were instructed, by 70 million roubles.²

4. Control by Bank and Budget

In the criticism of such defects responsibility is placed not only upon the managers concerned, but also upon the State Bank. “Bank workers, and particularly the credit machinery of the State Bank, must carefully study the condition of the working resources in the various branches of national economy,” said Zverev in the same speech, “and discover in good time those cases where the working resources are out of proportion to the real economic requirements.”

This aspect is also important. The financing of the entire process of Soviet production takes place under strict “rouble control”, as it is called, i.e., supervision by the banking machinery.

Where it is a case of new enterprises being built in accordance with the State plan—in other words, where long-term investment of State resources is taking place—the amounts involved are held by the various long-term credit banks (for industry, agriculture, trade or municipal enterprise), and they must issue to the building jobs concerned, quarter by quarter, the sums needed for purchase of materials, payment of labour and service, etc. But they must only do this on receiving satisfactory evidence that the work is proceeding according to plan.

Where it is a case of the working resources of enterprises which are already operating, the funds necessary to finance part of the normal or planned reserves at any given moment (both in materials and in cash), and those required for financing all seasonal variations in stocks of raw materials and finished goods, transport, extra labour, etc.—over and above the normal amounts—are supplied on short-term credit by the State Bank. The local branches of the State Bank (there were over 4000 of them before the war) must exercise the same supervision as the long-term credit banks. In January, 1939, 65% of the resources of the State Bank represented short-term credits of this kind to industry, and to the wholesale and retail trade carried on by industry.

It can therefore be seen what a powerful lever of control, supplementary to that exercised from above by the Ministry concerned—and from below, we may say in anticipation, by the workers directly involved—rests in the hands of the Soviet banking machinery. In practice, this means that tens of thousands of bank workers, as well as hundreds of thousands of factory managers and more responsible subordinates, have their hands full, and their individual abilities and initiative taxed, at least as much as in other countries, in increasing accumulation, and thus making Socialist planning possible.

The importance of reducing costs of production, as part of this process, has already been mentioned. The basic condition for a Soviet enterprise showing profit, indeed, is fulfilment of the plan for reducing costs; and the majority of Soviet enterprises do in fact fulfil the plan in this respect. The importance of this will be particularly clear from the fact that “the total economics effected by reducing production costs in the period 1946-50 in industry, transport, State-owned machine and tractor stations and State farms should amount to some 160 milliard roubles as compared with 1945.”¹ This sum may mean little to the British reader, at first sight. But it should be compared with the 250 milliards which the same Five Year Plan provided for reconstruction and new building of enterprises during the five years—remembering that this meant building or reconstructing 5900 of the largest modern factories, mines, shipyards, railways, harbours, State farms and so forth. The tremendous importance of the economy required will then be manifest: since it represented over 60% of the total investments for these purposes allotted by the Plan.

It is not surprising that, in order to increase the feeling of responsibility for fulfilling plans in respect of lowered costs of industrial output, the Soviet Cabinet in 1946 decided that the granting of special rewards to managers and technicians of industrial enterprises, for fulfilment and over-fulfilment of production plans, should take place only when works accounting had established that there had also been a planned reduction of costs.²

In this respect war experience in the U.S.S.R. was encouraging. Costs of production in State-owned industry were reduced by 6.9% in 1941, 5.9% in 1942, 2.5% in 1943³ and 3% in 1944. In the latter year costs were reduced by 7.3% in the aircraft industry, as compared with 1943, by 12.8% in the tank industry, by 7.6% in the armaments industry, by 9.8% in the machine-tool industry, and so forth. Total economies during the three-and-a-half years of war secured by reduction of costs in comparable branches of industry amounted to 50 milliard roubles⁴—no small amount, by comparison with the 103 milliards invested in capital construction during 1944 and 1945.

Furthermore, the lowering of costs of production is presented in the speeches and writings of Soviet statesmen and economists as an objective of struggle, of combat, for the individual citizen at his place of work, and particularly, of course, for the manager. This is the more important because in the U.S.S.R. there is no contradiction between the economic function of wages earned by the individual and that of the surplus product, or net increment, which he produces by his efforts. The surplus product passes into the hands of society as a whole, to be used for purposes which it determines very largely with the help of the individual worker—as will be seen later. Accumulation by society, in these conditions, is literally (and not merely as a figure of speech used by economists) only “deferred consumption” by society.

This explains why in Soviet economy reduction of costs is generally accompanied by increasing of wages. Thus, under the third Five Year Plan, adopted in 1939 for the period 1938-42, the economies to be realised by raising productivity of labour were to amount by 1942 to nearly 20 milliard roubles, of which over 15 milliards were earmarked for wage increases, and the rest for lowering costs of production. Again, in 1941 an average wage increase per worker of 6.5% was planned, simultaneously with a decrease in wages costs per unit of production of 4^.9%.⁵ In the fourth Five Year Plan costs of production in industry were to decrease by 17%, and in rail transport by 18%, while average annual earnings were also to increase substantially, with a 30% rise in the national income.

Only with these broad tendencies in mind can the constant drive for reduction in costs of production of Soviet industry be seen in its true perspective. At the Budget debates of October, 1946, the chairman of the Budget Commission in the Soviet of Nationalities, I. S. Khokhlov, referred to the successes of the building materials industry, which had been sharply criticised the year before for failure to carry out its plan and for increasing costs by 2.6%. As a result, he said, there had been a definite improvement from the second quarter of 1946, when the quarter’s plan had been over-fulfilled by 14.5%, with a reduction in costs of 12.9%. The third quarter’s programme had also been satisfactorily fulfilled.¹ A communiqué of the State Planning Commission published in January, 1947, on the degree of fulfilment of the 1946 plan, shows the building materials industry as having over-fulfilled its plan for the year by 5%.²

Again, in the Budget debates of February, 1947, Khokhlov drew attention to the consequences of good and bad management in a number of industries. Thus the textile industry, he pointed out, had had a good overall outcome of its year’s working: the relevant figures have been quoted earlier. But there were considerable variations within it. The Pavlovo-Pokrovsk factory had increased its output in 1946 by 44% over the previous year, and lowered costs of production by 1.75% more than had been planned, over-fulfilling its production plan for 1946 by 7.4% as a result. But a nearby group of textile mills at Glukhov had reduced output in comparison with 1945, under-fulfilling its plan by 5.8%, and by increasing costs over 5% had ended the year with a big deficit. A great deal still needed to be done, concluded Khokhlov, to “mobilise the reserves existing in industry” by pulling the backward factories up to the level of those more advanced.³

Almost every day, towards the end of the year, the Soviet Press reported the achievements of Soviet factories in this respect. The success of the Voroshilovgrad locomotive works has already been mentioned. The Shcherbakov leather factory at Yaroslavl, by taking better economy measures and utilising its internal resources better, reduced costs by 10.4% in one month.⁴ The Kuznetsk iron and steel works at Kemerovo, in Siberia, not only produced in ten months of 1946 more iron and steel than they had pledged themselves to turn out in twelve months (and that was more than the State plan), but by reducing costs had economised 26 million roubles in ten months.

In this case, as in others, it was not only the management which secured these results. The many thousands of workers of the Kuznetsk works had pledged themselves to secure them by competing with each other in friendly rivalry; and the Council of Ministers of the U.S.S.R. awarded a red banner to the works, with challenge banners to its blast-furnace, rail and open-hearth shops—the usual distinctions for success in Socialist emulation.

Turning now to the budgetary source of accumulation, we find one main and decisive item in the income of the Soviet State, responsible not only for the greater part of public revenue (except in war-time), but also for most of the capital investment by the State in new economic construction. This is the turnover tax, the importance of which for peace-time budgets can be seen, from the following table:⁵

Year.	Turnover Tax.	% of Budget Revenue.
1938-40 (total)	283 milliard roubles	61.3
1944	91.7 ” ”	34.1
1945	123.1 ” ”	40.8
1946	191.0 ” ”	59.2
1947	239.9 ” ”	62.3
1948 (plan)	280.1 ” ”	65.4

The turnover tax is a sum levied, in accordance with a rate varying from industry to industry, on the actual cash sales of the factory: which means, as wholesale prices of the commodities it produces are also fixed by the State in advance, that the ability of the factory to meet the anticipated amount of turnover tax under its financial plan depends first and foremost on the quantity and variety of output. The factory cannot “take it out of the consumer”, should quantity fall below standard, by raising prices. Thus the fulfilment of obligations in respect of turnover tax is an additional powerful means of keeping production up to the mark.

Turnover tax is not paid on goods passing from enterprise to enterprise within the same branch of industry: or on semi-finished goods which have already paid turnover tax at an earlier stage: or on manufactures from by-products or waste material, not provided for by the plan (this to encourage supplementary output of every kind): or on goods manufactured by industries belonging to local authorities, and using local sources of raw materials and fuel not governed by the central State plans.

Turnover tax plays a most important part in ensuring the rational use of accumulation in Soviet economy, and therefore in promoting that constantly expanding reproduction which is the latter’s aim. Soviet economy, taken as a whole, produces a surplus product every year: the problem is to re-distribute that product for the purpose just mentioned (and for defence). By imposing a higher turnover tax on light than on heavy industry, the Soviet State realises part of the value of the surplus product of heavy industry through the prices of the product of light industry.¹ For this reason, industries manufacturing the means of production (such as engineering, metallurgy, chemical, coal) pay a very low tax—and therefore do not pass on too heavy a burden to the industries which use their output in order to build or equip new factories. For similar reasons, new factories pay a very low turnover tax in the first period of their working, until they have fully mastered the production process. On the other hand, the highest and most varied rates fall upon industries producing articles of consumption; and in the main it is from the light industries that the revenue from turnover tax comes.