I

INTRODUCTION

The cement industry provides an especially suitable framework within which to analyze the spatial efficiency of Soviet planning because of: (1) its size and rate of growth, which are among the highest in the economy; (2) its relatively simple cost structure and limited scale economies; (3) the widespread distribution of its raw materials, resulting in narrow and predictable regional production cost variation; and (4) the homogeneity of use of its output, as an input into construction, which makes its demand easier to anticipate than is the demand for many other industrial materials, simplifying the problem of location and facilitating retrospective analysis. A brief statement will make it obvious why all these properties of the cement industry make it easier to analyze the spatial aspects of the industry’s development—that is, its location and its transport utilization.

a) Size and Growth. The cement industry is one of the largest in the Soviet Union, and its rate of growth has been one of the highest experienced by any major branch of Soviet heavy manufacturing. (See Table I-1, where the magnitude and the rate of production growth of several commodities are compared.) Annual production of cement during the 1927–40 period rose by 208 percent, which was only 25 percent less than the increase in perhaps the most favored industry, rolled steel. The location of any industry which is as large and which has grown as rapidly as the cement industry must have important consequences on the transport sector of the economy. Production increments, incidentally, were planned to be even higher—a trebling was planned for the first plan period, a doubling for the second, and a 60 percent increase for the third. None of these targets was reached, however.

b) Cost Structure. The Industry’s cost structure and technology are relatively simple. For example, unit production costs are approximately linear, starting at a low volume of output and continuing over a wide range, as we will see in Chapter II. Thus for most of our analysis, transport costs and production costs will be additive, and our comparisons will be surer than they could be in the case of nonlinear long-run production costs. In addition, until recently there was no question of the joint production of cement and some other product, and even today joint production is insignificant in practice. Therefore, a decision on the location of new capacity could be made by the cement industry and evaluated by us independently of any complementary technological needs of other industries. Finally, the cement industry is essentially a one-product production process, obviating the need to allocate joint costs over a wide variety of products, which is always an operation beset with problems.

Table I-1

Output and Rate of Growth of Output of Products of Major Soviet Industries

Source: All production figures relate to post-1939 borders. All information from Promyshlennost’ 1964: pig iron and rolled steel (pp. 170–171), paper (p. 302), cotton fabrics (p.364), and cement (p.318).

c) Raw Materials Availability. The main raw materials inputs for cement production are nearly ubiquitous. With the exception of Leningrad, no important demand center is much more than 450 kilometers away from a good lime source, and most are a good deal closer. Clay is still more evenly distributed. Fuels frequently require transport, though not over a great distance.

This widespread availability of the main raw materials minimizes one element of production cost which might tend to be misreported in published summary cost figures—the transport cost of materials inputs. User costs for the transport of input materials diverged seriously from social costs throughout most of the prewar period, because of heavily subsidized freight rates. Reduction of this problem to a minimum makes reported plant costs more reliable than they would be if a high proportion of necessary inputs had had to be shipped over long distances.

d) Homogeneity of Product. The output of the cement industry is relatively homogeneous. This was especially true before World War II (the period of major concern in this study), when the industry’s major product was portland cement and, as now, the only product group consisted of hydraulic cements, of which portland is the chief variety. Furthermore, the product is homogeneous in use—all goes into construction of some kind and almost all of it directly in concrete rather than as an intermediate product by way of, for example, prestressed concrete shapes, concrete pipe, or asbestos-cement tile. This is important because it renders analysis of the influence of demand on location easier than it would be in, say, the steel industry, where major demands come from construction, machine-building, and other sectors, complicating the planners’ task of projecting demand. The simpler demand pattern also means that the analyst arriving late on the scene can reconstruct with some confidence the regional demand for cement at the time and the projections that the planners may have used.

Another aspect of the industry’s one-product technology which lightens the analytical task is the determinate nature of the industry’s equipment. The costly, expensive-to-operate, and technologically sophisticated kilns cannot be used efficiently for anything else. Once an investment is made, the economy has only two choices: produce or close up. This situation contrasts best, perhaps, with the petroleum industry, where the same cracking facilities can be used for a whole range of products, many of them noncompeting: gasoline, heating oil, diesel fuel, and petrochemicals. An investment in the petroleum industry based on an anticipated but unrealized increase in regional gasoline demand might, nevertheless, be salvaged by the development of petrochemicals, thus converting a misinvestment into an apparent success. That mistakes in the cement industry cannot be so easily hidden is an additional factor making for more unequivocal results in the present study.

The study will begin with a description in Chapter II of the cement industry’s product mix, technology, and cost structure. Chapter III details the industry’s marketing procedures, pricing policy, and organizational structure. These two chapters contain the necessary background to the transportation and location analyses of Chapters IV and V, which evaluate the long-and shortrun efficiency of the industry. Chapter IV shows the planning of location to have been grossly inefficient, but Chapter V gives evidence that a good job was done in cement marketing in the 1930’s—that is, in planning the distribution of fixed output. This conclusion is surprising enough in view of the economy-wide pressures in the period, but it is all the more unexpected in view of the irrationalities in pricing policy described in Chapter III and the frequent criticisms of distribution operations contained in the Soviet press. On the other hand, we also see in Chapter V that a significant waste did result from the Soviet approach to standardization which promoted the production of lower strength cements and led to greater transportation and production costs per unit of concrete.