N. A . Kovalevskii

ON THE CONSTRUCTION OF THE GENERAL PLAN

...The experience of my work in formulating a working hypothesis of the General Plan indicates that the drafts of the working hypothesis, as they relate to a particular branch or region, shock at the beginning even the boldest and most talented engineer, as they shock even the boldest worker of a new region. As a rule such drafts are initially received by them with complete distrust. People regard a person speaking of such things with great distrust and confusion. But gradually these goals enter into the flesh and blood, they become an integral attribute of our conception of the ways to development of a given branch and region. In all our work, there has not yet been a single case which would represent an exception in this respect.

We adopted these considerations relating to the necessity of an economic conception of the plan as a whole and the necessity of constructing a working hypothesis more than two years ago, when, over a period of several months, we carefully elaborated on the methodology of the work on the General Plan. When we originally discussed the plan of our actions two years ago in the Commission for the General Plan, then later at the special meeting of the Congress of Planning Organs, and finally, in the discussion in the Club of Planning Workers, we agreed that such a working hypothesis was absolutely necessary and that it would shorten such aberrations as would otherwise be inevitable, that it would play its positive role, and then, when the working hypothesis had been constructed, it would, on the one hand, recede, and, on the other hand, with corresponding corrections, changes, and additions, turn in to that economic synthesis that will have to be welded into one of the several parts of the plan.

We have set ourselves the task of establishing this economic connection in the General Plan, starting from the famous schemas of Marx presented in the second volume of Capital—the schemas of expanded reproduction.

Following this path, we have segregated the total net product of the country (v ₊ m In Marx’s terms) created in the course of a year. We have then segregated that part of it which goes to expand the capital funds of the country in the course of each year, and that part going to direct consumption. Under a system of planned economy such division is now absolutely necessary because it is at this particular point, in this particular planning act, that the working class-the master of the country-exerts its decisive will. The working class decides each year, through its organs, the question of what portion of the country’s net output will be devoted in a given year to expansion of the reproduction process, and what portion will be earmarked for consumption. Both the growth rates of the reproduction process, and the direction of the country’s development, depend on the solution of this question.

From the analysis of various possible variants of the dynamics of the basic indexes it becomes unquestionably clear that pursuit of a joyful life, of a high level of welfare, would lead, Sharing the coming years, to a drastic decline of growth rates of capital formation. If in the coming years we were to pursue opportunistically as high a level of immediate consumption as possible, we should inevitably-figuratively speaking-eat the chicken that would have laid eggs for us in subsequent years; we should consume those resources which, if invested during the early years in the reproduction process, would yield us in subsequent years an effect that would many times exceed those crumbs, that “mess of pottage,” that we could serve the proletariat in the coming years in the form of- an immediate, small additional expansion of consumption. This analysis shows the wisdom of the party policy directed toward forcing economic growth to the maximum, the policy of industrialization loans in which the working class, particularly conscious at present of its role of active builder of the future, will relatively contract its consumption in order to expand it subsequently at a rapid rate when the country becomes sufficiently industrialized.

On the other hand, analysis of the possible variants of the reproduction process also shows how erroneous would be policies such as those resembling the position of the Trotskyite super-industrializers which call for developing the reproduction process further and further through over-all contraction of current consumption. Analysis of these variants indicates that there are limits which cannot be overstepped with impunity in either direction. A given mighty development of industry in our country can be achieved only on the basis of well-provided cadres of labor; we can attain the American level of labor productivity only if we drastically raise the present level of consumption in our country, a level which in the initial year of the plan amounts to 137 rubles per capita (in 1927/28 prices). In branches of the economy such as housing this amounts to 11 rubles per capita, while such items as cultural expenditures, national education, health care, transportation, telephone, telegraph, mail, radio, etc. (the category Called in the plan GOELRO “expenditures on various forms of communication”) amount only to 9 rubles per capita-while in contemporary Australia per capita expenditures on these items exceed 300 rubles....

I shall not dwell here on the content of all the economic concepts with which we shall have to operate in the General Plan. I shall deal only with fundamental economic indicators which appear to be decisive for the construction of the General Plan as a whole and which tie the entire structure together. These basic indicators can be reduced to the following: first, the size of the country’s labor force, the number of man-hours which the economy expends in the process of production, and the average hourly productivity of labor. The product of the latter two figures gives us the total net annual output of the economy: net annual product of the economy equals the number of man-hours expended in the course of a year times the average productivity of labor. In practical application this is expressed in constant prices of the initial year of the plan, which enables us to compare the real dimensions of output by sectors. The next indicators are the total capital funds of the economy-fixed and circulating—which represent the aggregate material equipment of labor. When we then compare the magnitude of the total net output of the economy (denoted by the letter “D”) with the corresponding size of the capital, or physical equipment of labor (denoted by -P-), we obtain the coefficient D/F This is the ratio of the total annual product of the aggregate labor force of the economy (the aggregate value created by the labor force) to the aggregate value created by the labor of preceding generations (excluding objects of direct personal consumption), which represents the available equipment of labor.

In other words, the ratio D/F is the ratio of annual net output of the economy to its available resources, including both means of production and supplies of consumption goods available at the beginning of a given production year.

I call this ratio the coefficient of reproduction. It shows the result of the reproduction process from the viewpoint of what part of the available wealth created by the labor of previous generations (excepting objects of direct personal consumption) can be reproduced again in a given year in the form of the net product of the economy. The economy can then dispose of this net product in such a way as it may deem necessary for further improvement of the reproduction process.

We divide the aggregate annual net product of the economy into (1) a part going into expansion of the reproduction process (expansion of fixed and circulating capital funds), denoted by D_r, and (2) a part going, in a given year, into consumption, denoted by D_p. The ratio of the part going into expansion of F to the aggregate net product of the economy is the index of the extent of productive accumulation that we realize in the course of any given year. The coefficient of productive accumulation is thus an index of the degree of intensity of utilization by the economy of its net product (its “national income”) for the purpose of increasing its equipment of means of production and increasing its supplies of objects of consumption which secure a normal, uninterrupted process of expanded reproduction.

Finally we denote by the letter “A” the annual amortization and the necessary annual replacement investment. Hence D_r + A is the sum of investment undertaken annually in the process of expanded reproduction.

These elements of the reproduction process are interrelated in a very simple way. Their relationship is so clear that one does not have to prove it; it is sufficient to point it out. This relationship enables us to see-by projecting any one of these indexes -how it is related to the dynamics of the others. Moreover, having projected the two basic synthesizing coefficients, the coefficient of reproduction and the coefficient of productive accumulation and their dynamics in the course of the General Plan, we also get a change in all other indexes of the General Plan. This is so since the answer to the question of the dynamics of D/F-where D = labor productivity ⋅ number of man-hours-requires first a determination of the dynamics of labor productivity expected to obtain as a result of reconstruction, and of the number of man-hours of labor which we expect to expend each year, given our projection of the dynamics of the population and the size of the labor force and the corresponding distribution of the labor resources of the USSR.

Determination of the dynamics of the coefficient of productive accumulation D_r/D calls for providing a directive on economic policy with respect to the dynamics of the people’s welfare, given a level of labor productivity and growth of “national income” and hence also of the dynamics of capital investments, because D = D_r + D_p.

Having adopted a definite policy of amortization allowance, determined primarily by the rate of technological progress, hence by the periods of technical depreciation and depreciation due to obsolescence, we also obtain the sum D_r + A showing the real magnitude of the economy’s annual gross investment.

All the other indexes are set, so to speak, within this complex and they depend upon it.

Thus we have here an economically unified system of indexes which enables us-by means of these extremely simple elementary formulas and categories-to bring together the basic elements of the productive process and to set out a deliberately balanced variant of the working hypothesis of the plan. Herein lies the value of the method of constructing the working hypothesis of the General Plan which we have adopted.

When we apply this method-along with other generally accepted methods-to planning work, we rid ourselves of the extraordinary difficulties associated with the fact that it is impossible for every individual sectoral or regional planning organ to determine its place and significance in the over-all system, its economic weight and scale of production, in isolation from the economic whole and the perspectives of its development. So far we have followed only the method of successive approximations, and since we were unable to rely upon a corresponding working hypothesis we were inevitably forced to perform “syntheses” which corresponded neither to the level nor to the value of the work that must be performed in the process of elaboration. We all know very well that in “synthesizing” we constantly had to do things which-from our own viewpoint-are inadmissible for an economist. Very frequently we had to “cut” and “shred”, etc., i.e., we had to do not what we would consider necessary from the viewpoint of balancing the dynamics of the economy, but what we were forced to do because of the inevitable initial imperfections of methodology and organization of our planning work, imperfections due to infantile diseases, perhaps even uterinal diseases, of the emerging science of planning. And later we had to persuade ourselves every time that next year it would be necessary to change the balance of the plan, to introduce in it very essential corrections.

Our task now consists in formulating such a system of work as would provide a deliberately balanced variant-a variant of the plan in which it would be impossible to change any parts painlessly and with impunity, in which any change would lead to a corresponding series of changes in other economically connected components.

Since the basic directions of the development of the economy are before our eyes along with the tasks set by the General Plan, the combination of these tasks and of the projected basic indices determines the structure of production and the combination of its branches. The above indices alone are still inadequate because, in the absence of ultimate tasks, they allow too much freedom for the plan. Given a definite value of the portion of “national income” which you invest in expansion of reproduction, and the portion going annually into direct consumption, you can devote net investment either to agrarization or to industrialization, the alternatives being sufficiently distinct so that there exists between them an infinite number of “degrees,” a practically infinite number of combinations, which you can effect in the process of your economic policy, but, of course, not with impunity. Thus we see that, on one hand, the opportunity for volitional direction, and, on the other, the responsibility of the guiding organs of the planned economy, for the direction of the economic policy, are exceptionally great....

Let us consider the analysis of how to select the exact dynamics of the basic indexes of the General Plan. The decisive factor in the dynamics of the reproduction process, the factor to which both Marx and Lenin paid so much attention, is labor productivity. This is the leading and determining factor in all planning.

Since we have set as our goal in the sphere of the technique of production to catch up and overtake, over the period of the General Plan, the most advanced capitalist countries, it is natural that in the orientation calculations of future growth of labor productivity we should first turn to the most advanced of them, the United States of America.

In the initial year of the plan labor productivity in the USA exceeds the average labor productivity in the USSR approximately 6 times. This would be so if we calculated in terms of the prewar parity and the relations of aggregate indexes. Unfortunately, a comparison for different countries of prewar purchasing power, of gold in money units of equal weight, has not yet been made anywhere. This is explained on one hand by the practical difficulty of solving this problem, and on the other by the ruling fetishistic attitude to the monetary unit which makes even the raising of such a question exceptionally difficult.

Rough comparisons indicate that before the war the purchasing power of a monetary gold unit of equal weight was approximately 1.5 times higher in the USA than in Russia. If we adopt this comparison for the purpose of initial projection we obtain a corresponding rise of 50 per cent in the comparable average labor productivity of the USA, i.e., an increase to 9 times that of the USSR in the initial year of the Plan.

But the USA itself is not a country of homogeneous technology. No less than one-half of their enterprises have a technology which is already obsolete. Transition to contemporary technology would raise labor productivity in the USA by no less than one-third, more likely much more than one-third. But even a one-third rise yields a labor productivity 12 times higher than in the USSR during the initial year of the Plan.

But, after all, we do not propose to limit ourselves to contemporary American technology Technological progress goes rapidly forward; the Americans themselves, as well as capitalists of other countries who compete with them, equip the newer enterprises with a technology that is already more perfect and with labor productivity that is much higher than current American labor productivity. Assuming that in 12 years we shall surpass the 1929 technology and thus the labor productivity of the USA by only 20 per cent, even then our labor productivity will be 14.4 times higher than labor productivity in the USSR in the initial year of the Plan. There is nothing improbable in such a growth of labor productivity over a period of 12 years of rapid reconstruction. The Control Figures of the economy of the USSR for 1929/30 require a 25 per cent rise in labor productivity in industry. With such a rate of growth, labor productivity in industry would increase over a period of 12 years 14.6 times. And we are still only on the first steps of reconstruction. After all, our first enterprises are still under construction; the results of our reconstruction are for the most part still ahead of us. We are only just starting the technical reconstruction of agriculture. Transportation continues to remain untouched in all its virginity. Only the construction processes on such firstlings as the Dnieprostroi approach the contemporary advanced technology of construction, while most construction is still performed by semiancestral methods. This sort of thing can be found in other branches of the economy as well. All this shows that in coming years we shall have to forge ahead more rapidly than we do now when the first results of reconstruction have, strictly speaking, not yet begun to appear.

With respect to the number of man-hours of labor to be expended by the economy, the growth of population alone will, other things being equal, increase our labor resources, over a period of 12 years, by 32 per cent. But the net output of the economy equals, as we have already said, the average productivity of labor multiplied by the number of man-hours. Consequently, with a 14.6-fold growth of labor productivity and a 1.32-fold growth of the labor force, the net output of the economy will rise 19 times in comparison with the initial year of the Plan.¹

However, our present utilization of the labor force is far from full. The calculation of man-hours expended in the country during the initial year of the Plan shows that we have reserves of unutilized labor possibilities of about 28 per cent. (These are the so-called “extra mouths” in agriculture, housewives, whose labor is not counted in the net output, and the unemployed registered at labor exchanges, etc.)

This reserve of labor, when rationally utilized, allows us to shorten the length of the working day as compared to the initial year of the Plan or to raise the volume of production, given the length of the working day. Further shortening of the length of the working day will depend, on the whole, on the growth of labor productivity over the 14.4-fold increase mentioned above.

In conjunction with our ends we can thus adopt as a directive for the General Plan a 14.4-fold increase of labor productivity in the economy of the USSR. Along with the 1.32-fold increase of man-hours (corresponding to the growth of population), this yields a 19-fold increase of net output.

American output increased over a period of 75 years, roughly speaking, 21 times. But in the USA the 75 years between 1850 and 1925 hardly represent a more significant period economically than the 25 years in the USSR following the October Revolution. The US growth is even more interesting from the viewpoint of particular indexes. Thus the physical volume of output of extractive industries in the USA increased in those 75 years 63 times and that of manufacturing industries increased 38 times. During the same period the physical volume of agricultural output-and this is extremely interesting and indicative of structural changes-increased altogether only 7 times.

[In this note the term “year” refers to the 11th year after the revolution, 1928, the initial year of the first Five-Year Plan; the “year 23” after the revolution (12th year of the assumed General Plan) refers to 1940.—Ed.]

During this period we plan to raise the level of production of the whole economy 19 times, i.e., to triple the output compared to the USA, with the same capital.

We are asked: (1) Where are you going to get capital equal to that of the Americans? (2) How can you expect to raise your output at three times the American level, with a total capital only matching the American level?

To answer the first question we mention the policy of accumulation projected by the working hypothesis. Having determined, for our orientation, the annual net output of the economy, we then adopt a definite policy of allocating that output into two basic channels: annual consumption (D_p) and annual net investment, that is, increments of fixed and circulating physical capital funds (TX). We take the annual replacement investment (A) to equal the total actual wear and tear of fixed capital increased annually by the sum of the net investments of that year (D_r).

Our accumulation policy is coordinated with the policy of increasing welfare, which on one hand depends on the growth of investment and the equipment of labor, and on the other hand determines them.

Thus the answer to the above question is the dynamics of the coefficient of productive accumulation projected by the working hypothesis. In the initial variant of the working hypothesis of the General Plan, after we have projected various approximate variants and after we have felt through the results of various dynamics of the coefficient of productive accumulation we adopted the following dynamics for this variable: following a sharp rise from 20.1 to 37.7 per cent in the current year we adopt a much milder further growth, a rise to 45.3 per cent and 46.4 per cent in the next three years, the last years of the Five Year Plan, i.e. a much milder and smoother growth than at present. Growth of the current year is the most rapid, investment in the entire economy rising by 223 per cent, while in the coming years we shall have a much slower growth of investment, which will make possible a substantial rise of consumption. We project the following growth of the consumed portion of national income (D_p): for the next year (1930/31) a rise of 15 per cent, for the year after, a rise of 31 per cent, then a rise of 44 per cent, etc. When we consider, in particular, the current process of collectivization, the fact that the new village will have different demands from the old, and that the workers’ government cannot keep the communard on the collectives in bast shoes and hemp clothes -we believe that we shall have to take particular care that consumption should grow on a scale providing a rapid growth of production both in industry and in agriculture.

Later on, after the Five-Year Plan has been fulfilled, we plan a rather significant decline of the coefficient of productive accumulation, bringing it down, gradually over a period of 10 years, to approximately 33 per cent by 1939/40, and over a period of 15 years down to almost 31 per cent. Thus we are thinking of even the minimum intensity of our productive accumulation during the latter period in terms of equality or near-equality with the intensity of productive accumulation in the USA during the war years. Until the imperialist war, America knew no such intensity. Over a period of half a century, even 60 years, the maximum US intensity occurred during the sixties of the last century before the start of the Civil War and amounted to 23 per cent. It then declined sharply to 15 per cent and before the imperialist war it was down to 6 per cent during depression years. This is quite clear: during periods of depression productive accumulation and investments are sharply reduced. During the imperialist war the US coefficient of productive accumulation attained 36 per cent and then declined again sharply to 7 per cent during the postwar depression (1921). Since then the coefficient has again risen. On the average the coefficient of productive accumulation in the USA is around 15 per cent while in our economy it currently stands at 37.7 per cent. The same policy of productive accumulation will also permit realization of the development of the USSR economy without any significant foreign loans and capital. And this is the origin and source of growth of those capital funds on whose basis we expect to increase our output 19 times as compared to the initial year of the Plan.

How can this output increase 3 times more rapidly than that of the USA if our capital is only equal to the American capital? Only a man without experience in guiding our economy can ask such a question. Even he who is a little acquainted with the dynamics of the USSR economy knows that the advantages of a planned economy consist in the ability to turn out a much higher volume of output with much smaller equipment than a capitalist economy. Currently we reproduce each year 37 per cent of the national wealth created by labor (not counting goods of personal consumption) while the USA reproduces 22 per cent, and much less than that during depressions.

If you look closely at the coefficient of reproduction

you will see why this is so. The USA utilizes her capital funds with an intensity of around 75 percent under the prevailing system of work shifts, which is close to unity in that country. Our system of work shifts equals currently 1.5 to 1.6 while before the war it was equal to 1.3. The upper limit of the number of shifts, with a 7-hour working day, can be thought of as equal to 3.4. However, such a limit is unattainable. What is practically possible is bound to be significantly lower, since there are a number of industries in which continuous production around the clock is irrational from the technical viewpoint. But if you take this comparison, you will see that on account of rational utilization alone by the planned economy of all existing equipment through the introduction of a multi-shift system one can raise the effectiveness of reproduction approximately 2.5-fold as compared to the USA. The growth of the coefficient of reproduction which is currently taking place in our country can be explained by the fact that we have a larger number of shifts; that we are already introducing a continuous production year, which does not exist in other countries; that we possess elements of a planned economy, which allows us to attain the greatest economies through unification of our electric power stations and optimal combining of our existing enterprises and available resources; etc. All this, taken together, provides an exceptional growth of the coefficient of reproduction, which, according to our first draft, should increase, at the time of catching up with the USA with respect to capital funds, to twice our coefficient of reproduction in the current year and three times that of the USA in recent years of prosperity³....

Let me dwell some more on the effects of the growth rates of investment on the productive structure of the economy. I have already stated at the beginning that very high coefficients of productive accumulation correspond to the colossal construction, to the gigantic development of the means of production. And it is precisely here, in case of excessive increase of the coefficient [of productive accumulation] that we arrive at the point when quantity is transformed into quality, at the point which will then force us to change drastically the policy of allocating the economy’s net output, and to state that during the second period of the General Plan-when the economy has already attained a high level of industrialization-we shall no longer be interested in the coefficient of productive accumulation, i.e., D_r/D, but rather in D_p/D. I call the latter the coefficient of useful activity of the entire system. We shall be interested in what portion of human energy is lost, so to speak, in the channels expended on overcoming all obstacles, and what part reaches the end. It is the ratio D_p/D that we shall begin to see by that time as the coefficient of useful activity.

Following one of my first reports on the General Plan, G. M. Krzhizhanovskii pointed out to me that the structure of the US economy is not bad in this respect. I had called a capitalist country with a coefficient of productive accumulation of only 8 to 10 per cent, which consumes over 90 per cent of its net output, a Yorkshire hog on short legs unable to grow rapidly, while I called the USSR, with her variants of high productive structure under the General Plan, an Arabian stallion with long legs, as compared to its body, and therefore able to rise exceptionally high. One could perhaps find a better illustration, using an industrial example, for the period of reconstruction than an Arabian stallion, but this illustration is appropriate in the sense that a high structure of production enables us to move forward rapidly. However, if you come to think of those points of which we spoke above, it becomes clear that beyond a certain limit, here as everywhere else, quantity is transformed into quality: an excessively high structure of production becomes absurd since a much smaller annual coefficient of productive accumulation becomes sufficient to secure a gigantic growth of production and consumption....

“K postroeniiu general’nogo plana,” Planovoe khoziaistvo, no. 3, 1930, pp. 117-144.

1. Net output = average labor productivity ⋅ number of man-hours Net output of year 23 = 14.4 (average labor productivity of year 11) 1.32 (man-hours of year 11) = 19 (net outputs of year 11)

2.

3. D of year 23 = 19 (D of year 11)