III

ADMINISTRATION AND OPERATION OF THE INDUSTRY

The spatial efficiency of an industry is a function of many interrelated variables. The most important are the location and scale of production, shipping patterns, organizational structure and economic power, pricing policy, and planning or success indicators, including standards.

That location and shipping patterns influence spatial efficiency is obvious—indeed, spatial efficiency is defined as rational location and transport use patterns. One reason for irrational transport patterns may be an industry’s market power. For example, if it has no close substitutes and if its marketing function is handled by its own central distribution organization, irrational interregional supply movements may develop, since the industry may have no interest in minimizing the buyer’s transport costs.

The play of the other forces is less direct but no less important. For example, if demand is not absolutely inelastic, adopting an industry-wide average cost-pricing policy rather than one regionally differentiated may cause a deviation from the economic optimum; and both of these may be inferior to a basing-point system if pricing and a modified profit system are to be even partly relied upon to distribute resources efficiently. The system of standards used to define a product can lead to excess transport input and to higher total delivered costs. For example, since more of a product is required when lower grades are used, the shipping input rises proportionally; and, even if we could assume a disproportionately lower production cost per ton for lower cement grades, concrete production costs based on them would be only a little lower, since more of the low-grade product must be used. Total delivered costs are therefore much higher. As we see in the short-run analysis of Chapter V, low-strength cements actually cost more per ton of concrete—much more when the extra transport costs are considered as well—and this was a major source of inefficiency in the Soviet cement industry.

The factors which might have had an influence on efficiency may be considered under the headings of organization, pricing policy, and success indicators.

A. ORGANIZATION OF THE INDUSTRY

1. Organization of Production

The industry underwent several reforms during the interwar period, but no organizational principle was consistently applied. What is more, no principle such as geography, type of product, or relation of input to other industries appears to have underlain even a single organizational reform. The last reform (1939), with its division into two broad geographical areas, came closest to having a unified and rational organizational basis, but even here there were some obvious exceptions.

a) The 1920’s. The Soviet cement industry by 1920 was operating at less than 2 percent of its 1913 level, the industry having practically ground to a halt after years of war, revolution, and intervention. Two plants out of a total of fifty-nine were in operation—an earlier Gigant works in Moscow oblast and the Amvrosievka plant in the Donbass. By 1922, eleven plants were at work. Six of these were organized into four trusts subordinated to the USSR Supreme Council of the National Economy, and the other five, accounting for 10 percent of production, were left outside the centrally planned sphere. These four trusts, which remained in operation until 1931, were Tsemtrest, Ukrsilikattrest, Novorostsement, and the Mal’tsevskii combine.

One seeks in vain for a unique principle on which the organization of the industry was based. It was clearly not geography. For example, Tsemtrest involved plants near Moscow and near Vol’sk, over one thousand kilometers away. Nor could the purpose have been simply to assure the central Moscow region of sufficient supply, since at the time plants around Moscow alone were producing nearly enough for self-sufficiency. On the other hand, plants much nearer the Moscow region, such as the large Briansk production facility, were not encompassed by Tsemtrest. Equally mysterious were plans to include in Novorostsement not only plants scheduled for construction in Voronezh and Kursk oblasts, bordering on the Moscow central region far to the north of the Northern Caucasus region which contained the nucleus of the trust, but also plants scheduled for construction in Lenigrad and Eastern Siberia.¹

b) The 1930’s. The first major change to note in the organization of the cement industry took place in 1930, when Soiuzstroi, the single organization responsible for the building-materials industries and for construction, was split by decree into Soiuzstroimaterial, a building materials industry organization, and Soiuzstroi, a construction organization.² Soiuzstroimaterial was to be responsible for the functions of marketing, production planning, and investment in building materials industries, although a second decree the following week stressed the marketing responsibilities of the new organization.³ One of the products to be marketed was cement. This central control over marketing, which was a feature of the industry throughout the period, has important implications for our analysis.

The next change appears, through indirect evidence, to have taken place in late 1931 when the sponsorship of the journal Stroitel’nye materialy changed. Until October 1931 this journal was published under the aegis of Soiuzstroimaterial and Rosstroimaterial. Starting in December 1931, the journal was sponsored by three organizations—a new cement organization, Soiuztsement, Soiuzogneupory (the refractories industry organization), and Glavstromstroi, the last being an organization of RSFSR VSNKh, believed to be responsible for local industry production of brick, plaster, and other building materials in the RSFSR.

Soiuztsement was now the main cement organization and included all the plants of the former trusts, as well as some of those which were in local industry earlier. But although it continued in existence until 1938 as the major cement-producing organization, its composition changed many times. For example, the Sengilei plant, not earlier a member of one of the predecessor trusts, was in Soiuztsement in 1934 but later was part of local industry. The Leningrad Vorovskii plant, which earlier was in local industry, was a member of Soiuztsement in 1934, but by 1935 it was in local industry again. Similarly, the Podol’sk plant near Moscow was a member in 1934 but was in local industry in 1937.⁴

Soiuztsement was subordinated to Glavstroimaterial, the Main Administration for Building Materials, in turn subordinated to the People’s Ministry for Heavy Industry. But some cement plants also were included in the Main Administration for the Metals Industry. These were portland-slag producers working as part of steel-producing complexes (Kosaia Gora, Dnepropetrovsk). In addition there were certain other plants excluded from Soiuztsement.

The reasons for excluding the last-named cement plants from Soiuztsement are not at all clear. For example, two plants in the Urals in 1934 were listed by Kazanskii as belonging to organizations other than Soiuztsement. It is evident from the data on clinker and cement production⁵ that neither was a portland-slag producer, so that the tie with the steel industry was not so strong. It is possible that the two excluded plants used slag as an input for portland cement clinker rather than as an additive, but the economies of the latter use probably would have compelled production of portland-slag instead of Portland if slag had been used. And if slag was not used, then the plants were not adjacent to, or very close to, steel plants.

Other plants not in Soiuztsement were the four Transcaucasian plants, the two in Uzbek SSR, and two plants said to be in local industry.⁶

By 1937 Soiuztsement and the plants under the jurisdiction of the metals industry accounted for 90 percent of industry output, according to Brodskii.⁷ In that year the name of the major cement organization was changed to Glavtsement (Main Administration for the Cement Industry). It encompassed 28 plants, about the same number as were in Soiuztsement in 1934. The Leningrad, Sengilei, and Podol’sk plants continued to be excluded. Added to their number was the Pervomaisk plant in Novorossiisk. The important portland-slag producers also remained outside the organization. All the Urals plants were now included, however, as were those in the Transcaucus.⁸

Finally in 1939, in a reorganization that has lasted in its essential details until the present, almost the entire industry was divided into two Main Administrations, one for the west and the other for the east (Glavzapadtsement and Glavvostoktsement). All plants were included except for those in Leningrad, Chudovo, Sengilei, Kosaia Gora, and Dnepropetrovsk. The reason for continuing to exclude the two last-named plants is the harder to understand in view of the inclusion, first in Glavtsement and then in Glavazapadtsement, of the grinding mills at the Khar’kov and Lipetsk steel works. If this can be done without producing any administrative difficulty, surely there is more cause to include the Kosaia Gora and Dnepropetrovsk cement works, which had rotary kilns as well as grinding installations.⁹

The foregoing short organizational history reveals no pattern in the industry’s organization during almost all of the prewar period, no clear guiding principle by which plants were subordinated to one agency rather than another. Change with no apparent consistency was the essence of the period. There is a potential danger that this organizational disorder might result in chaotic marketing and shipping practices. For example, it is easy to imagine that irrational ties might develop between certain users and producers while the latter are subordinated, say, to the metallurgical ministry. If these producers are then reorganized into the main cement organization, these ties might continue. In Chapter V we see that this was not the case, that distribution was very efficient. To help make this rather surprising conclusion understandable, we must know something of the operation of cement marketing, which we will now briefly review.

2. Organization of Marketing

In the early 1920’s cement was distributed by orders passed down through Stroibiuro, the organ to which the four trusts were subordinated. Toward the end of the decade, an interindustry agency of the People’s Commissariat for Trade (NKTorg), took orders for cement and then transmitted them to the cement industry. There seem to have been no direct relations between consumer and user. This is further implied by a 1930 complaint that the trusts did not have regular market areas attached to them.¹⁰

In early 1930 STO-SNK SSSR decree No. 309 gave the cement marketing duties of NKTorg to Soiuzstroimaterial, the newly established building materials organ. Later, the National Building Materials Marketing Agency (Soiuzstromsbyt) was responsible for marketing, that is, for the distribution of orders among the producers, for all the plants of Soiuzstsement as well as for the cement producers in the State Administration for the Metallurgical Industry which together accounted for 90 percent of production in the 1930’s.¹¹ Soiuzstromsbyt, or its parent organization, in turn received its orders from USSR Gosplan. These appear to have been transmitted late in the year (after October), so that the marketing agency was not left enough time to work out its own shipping pattern (see Chapter IV, note 24). Thus the industry continued to be characterized by indirect relations between user and producer. One would suppose that this arrangement would create a bias in favor of irrational distribution, since it denied users the opportunity to select their source of supply to minimize their own costs.

B. PRICING POLICY

Three fundamentally different pricing principles have been operative at various times since 1930: regional average production cost, industry average production cost, and regional average delivered cost. These principles, rather than the prices themselves, are of interest here.

1. Regional Average Production Cost

From the late 1920’s (or even earlier) until March 1936 mill prices for cement varied regionally and were uniform within any one region, with the exception of the Moscow region. In Chapter II, information on regional resource bases suggested strongly that the regional variations were related to local cost differences, and regional prices were taken to represent regional average costs. Prices were quoted at the mill. The user paid freight.

The essence of this system is the unpredictability of builder’s costs—that is, of delivered cement costs, which depended on both the average production cost in the region of origin and the transport cost from that region. This would undermine control over builders, since the value of a given physical amount of construction would depend on the origin of the cement, and this remained for the marketing agency to decide.

2. Industry Average Production Cost

In March 1936 and continuing until 1941, the basis for pricing was changed in two ways. First, industry average cost came to be used. This eliminated one source of uncertainty in cost calculations, but there still remained the unpredictability of the freight bill, since the marketing agency continued to be responsible for designating suppliers. The second change was the limited recognition of the utility and the production cost variation of different kinds of cement, a separate list now being established for portland-slag cement showing prices a few percentage points below those for Portland and portland-pozzolan, which were given the same price. Prices were quoted at the mill for six strengths of portland and five of pozzolan following the new grading scheme (see below, section C. 1).¹²

To assess the implications of the two pricing principles, we should know first how the prices are to be used. We shall see shortly that the profitability of individual plant groups does not appear to have been a success indicator in the cement industry, so that these pricing principles should not have influenced the industry administration in setting plant operating levels. We would expect them to elicit different reactions if there had been direct ties between users and producers, for then the user would have to consider both production costs and transport cost in deciding where to place his orders and the two pricing policies might lead to appreciably different purchase patterns. However, there were no direct ties. Different patterns might also arise even with a single marketing authority if profit were a major indicator.

There is one consequence of the changed basis for pricing, however, which could be important. Since the prices were intended primarily for use by the building organizations in figuring their production costs,¹³ an organization attempting to reduce costs, if it has latitude in selecting alternatives, might make different decisions regarding the substitution of cement for another product, given the different relative prices that are implied by the regional average cost basis, on the one hand, and by industry average cost, on the other. It might be argued that from this point of view the 1936 principle is superior, since it forces the builder to weigh the use of cement against the price that reflects national production possibilities. But if substitution is possible, the best solution in the problem of pricing a product with differential regional production costs is to encourage the use of the material in question in the lower cost regions while finding substitutes in the higher cost regions.

3. Regional Average Delivered Cost

Given the institutional setting in which the industry operated, both of the principles so far outlined would seem to encourage laxity in cement marketing. Both of them oblige the buyer to pay freight costs, so that the marketing agency is presumably indifferent whether it employs an irrational crosshaul in which it supplies Western Siberia from Novorossiisk in the Northern Caucasus region at the same time that it ships to the Northern Caucasus from Novosibirsk in Western Siberia, or uses a more rational procedure. As we will see in Chapter V, however, there is no evidence of serious crosshauling or other irrationality in the industry’s shipping patterns in this period, although many journal articles around this time link the excesses in transport utilization with irrational crosshauls.

It may have been such criticism that led eventually to a revision of cement pricing policy and the institution of a new policy of delivered or destination prices. For this, the nation was divided into a number of zones each of which was characterized by a single price (for a given grade of cement). Cement users anywhere in a given zone would pay the same price for the material. This price would have to cover the cost of production plus the cost of transporting the cement to the zone and to the given construction site (or builder’s warehouse). Clearly in this case it would be in the interest of the industry and of the marketing agency to strive for the most efficient pattern of cement distribution. That is, it would be in their interest if some penalty were attached to financial loss, but there is no indication that industry profits were a success indicator.

It is conceivable that with the establishment of the zonal price system, limited use of profits as a success indicator was introduced. The marketing agency could have its own performance judged by “profits,” measured as the difference between the income it received from cement users (based on the zonal pricing system) and the expenditures which it incurred for transportation and for the payment of cement at the mills using the former mill prices. However, there is no sign of the existence of such mill settlement prices after this reform, and there is no reference to them or to the use of profit in this manner as a success indicator for the marketing agency.

Why then should the zonal price system be established? The answer may be that, just as the 1936 pricing principle made it easier for builders to plan their costs than it had been before 1936, so the zonal system makes it easier still, since now even the effect on cost calculations of the regional origin of cement, which remained an uncertain element after the 1936 revision, has been obviated. For with zone-of-delivery prices, which appear to have been introduced in 1941, the source of a builder’s cement and the cost of transporting it to his site no longer affect his cost.¹⁴

The zonal price system bears certain resemblances to the basing-point system which prevailed in many industries in the United States for various periods of time. The main manifestation of the two systems is the same—identical prices are charged at any chosen point of consumption by all sellers. In the basing-point system this is due to the use by all suppliers of the same freight rate schedule between the point of consumption and the basing point nearest the consumer, and to the use of the price applicable to that basing point. In the zonal system identical prices are established in advance for all points within a given zone. The zone need not be continuous. For example, in the 1956 price handbook the Latvian Republics and the region around Leningrad were all in Zone II and were surrounded by territory in different zones, while the Urals, many miles away, were also in Zone II.

Many American observers have argued that the basing-point system, which the Supreme Court held in restraint of trade in 1948 in a decision involving the cement industry, results in a waste of resources, especially transportation resources. Machlup, for example, presents some evidence from testimony from which he infers that basing-point agreements result in an underutilization of capacity and encourage inefficient producers.¹⁵ However, Machlup reserves his main attack for the overexpenditures of transport, which he claims results from basing-point pricing.

Whatever the effect on location and transportation utilization resulting from the American basing-point system, it remains to ask what pricing system would be more useful in the Soviet setting of the time—a basing-point principle or the earlier mill-price system. In the USSR we would expect the first, together with some sort of profit incentive, to introduce some compulsion for the industry to minimize total delivered costs, while under the earlier nonzonal systems there was no such imperative. These policies, to repeat, involved a centrally distributed product whose distributor had no incentive to minimize delivered costs. In the same way, if to an American industry with basing-point pricing we add the equivalent of centralized marketing—that is, if collusion is complete and sellers actually allocate the market among themselves, this minimum transport cost should result. Machlup noted this but did not condone it.¹⁶

C. SUCCESS INDICATORS

One of the most pervasive problems in Soviet planning is the selection of indicators to measure the performance of economic agents. The choice often leads to conflict between personal goals and social welfare; and the perverse results in the distribution of output over time or regions, or with respect to size, strength, color, grade, or other dimensions of performance have been noted many times by Soviet as well as western observers.¹⁷ The problem is usually mentioned in connection with goods of complex assortment-electric motors, for example—where the choice of some common characteristic such as horsepower leads to undue concentration on the production of large motors. In the cotton textile industry the tendency was observed for a long time to stretch the cloth about 7 percent and to produce very narrow widths when the industry’s measure of performance was linear rather than square meters.¹⁸

In the cement industry the main success indicator, tonnage output, had several perverse results. First, it encouraged production of lower-strength cements, which led to a higher tonnage input and higher production cost to make concrete of given strength. A more important short-run inefficiency was the overexpenditure required to transport the greater amount of low-grade cement needed (these problems are discussed in Chapter V). Also, as we will see shortly, it seldom paid to package low-strength cements, while it usually was rational to ship the higher-strength cement in bags, because in this case the value of the powder saved in transit would be enough to offset the packing costs. Finally, with tonnage output paramount, the industry would show a production bias in the long run to the neglect of the transport implications of its location pattern, which tended to be based on production cost minimization only.

1. Output

It is easier to plan and measure the physical output of the hydraulic cement industry than that of most other industries because of the greater uniformity of its products. But the existence of different grades and types of cement does nonetheless present some difficulty for control and evaluation of plant performance. The obvious solution is to devise a method of equivalences which can be used to standardize products, but this was not done in the prewar industry. Instead, total output appears to have been the main performance indicator in the industry with no consideration given to the different qualities of the several grades of cement.

More recently, one observer has proposed as the main success indicator the tonnage output of standardized cement, in which the several grades are corrected by appropriate coefficients expressing their concrete-making potential.¹⁹ While total tonnage in natural units still appears to be the major indicator, attention in recent years has been given increasingly to total-equivalent and to a derivative of this measure, the average grade of output.

The average grade is calculated as the product of the relative output of each grade of cement multiplied by a conversion coefficient, expressing the concrete-making strength of that grade in terms of grade 400. These coefficients show how much cement of grade 400 is required to produce a unit of concrete of constant strength which the other grades of cement can produce. For example, 1.17 tons of grade 400 are needed to produce as much concrete of given strength as can be produced with one ton of grade 500; only .63 ton of grade 400 is needed to produce as much as can be produced with grade 200. The coefficients for the five main grades are:²⁰

The average grade concept falls short of ideal as a measure of performance for several reasons. First of all, two equal quantities of standard-unit cement will most probably require different transport inputs. For example, 1,000 natural tons of grade 400 will require the shipment of 1,000 tons. This tonnage is the “equal” of about 1,600 tons of grade 200, which requires the shipment of 1,600 tons, a cost 60 percent greater. Thus the cost of concrete made with grade 200 is much higher than that made with grade 400 (see Chapter V).

A second objection to the average grade is to be found in the equal treatment it accords portland cement and the blends based on portland. Chapter II showed evidence that grade-400 portland and grade-400 pozzolan, which both meet certain twenty-eight day test requirements under controlled laboratory conditions, do not have the same properties when used in concrete. Thus any measure such as the conversion coefficient which treats them as though they did have equal properties will give incorrect results. Moreover, different three-day or seven-day test strengths under laboratory conditions for the same grade of pozzolan and portland are established by standard, so that where high early strength is required, these cements can by no means be said to be equal. The obvious solution is to introduce special conversion factors for each grade/type. This has not yet been done, and in view of these differential rates of hardening it is difficult to see how the problem could ever be resolved in a completely satisfactory manner.

In spite of its shortcomings, standardized tonnage would have been an improvement over the reporting procedures in the industry in the 1930’s. However, there was no attempt to focus on such a single summary measure of performance. Until 1936 count was kept of the total amounts of the single grades of portland-slag and pozzolan cements and also of each of the three grades of portland,²¹but, probably because of the obvious difficulties in evaluating the performance of an industry when some targets are exceeded and some are not reached, total tonnage in natural units emerged as the main indicator, and this must have encouraged the use of productive capacity for the lower-grade cements.

The cement administrations, first Soiuztsement and then Glavtsement, in turn imposed no grade requirements on plants within their compass. This, of course, is a logical consequence of not setting such targets at the Gosplan level—after all, if Gosplan didn’t care about quality, why should the cement administrations? The latter set targets for the use of pozzolanic additives for each plant.²² And evidence suggests that this was done to maximize output, expressed in natural tons, for a given input cost, the portland blends being cheaper to produce. And this, of course, led to a further deterioration in the product mix in view of the indications already referred to that the blends were in fact inferior to straight portland of the same grade.

The use of natural units as the main central reporting measure was further stimulated by—or reflected in—the discontinuation of records of grade breakdown in 1936. In that year the control forms of the annual plan which were to be completed by all organizations reporting to USSR Gosplan no longer included a grade breakdown for cement producers.²³

The grading system was changed at the start of 1936 to include six rather than three grades for portland, five for pozzolan, and six for portland-slag. Gosplan may simply have decided that 17 items were too many to keep track of centrally and decided to abandon the detailed records and plans of the earlier years. In any event, the main central planning organization in diverting its attention from the qualitative aspects of cement output to the quantitative only, would naturally influence the cement trusts themselves to stress quantity rather than quality, greatly facilitating plan fulfillment thereby. As we will see in Chapter V, in terms of constant concrete-making potential this led to a slight overexpenditure in production cost and a very sizable overinput of transportation.

2. Packing

Plans usually set targets for the amount of cement to be shipped packaged and the amount to be transported in bulk. Packing ensures a better product on arrival, since the powder is insulated against hydration from air moisture. It also ensures arrival of a full ton—that is, the dust loss associated with shipment in tarpaulin-covered gondolas or boxcars is eliminated. This loss represented a cost of around 10 percent (see above, Chapter II, note 23) but was higher on long hauls. Set against this possible saving is the cost of packing and related transport costs; the price handbook for 1935 gives prices of 25 rubles extra per ton for cement packed in barrels and 14–16 rubles per ton extra for bags. This packing charge would then amount to 30–115 percent of the bulk price of medium-grade cement, depending on the area of origin.²⁴

The costs of packing, then, are usually higher than the cost of the cement saved, unless the cement in question is being shipped long distances, or, on moderate distances, if the cement is a more costly higher grade. Also, if hydration is a serious matter (such as it would be in water shipments and in humid or damp regions), cement should not be shipped in bulk whatever the distance or grade. However, for most grades of cement (roughly speaking, lower than grade 500) on short to medium-length hauls, it is safe to say that packaging was not necessary if our estimate of dust loss presented in Chapter II is reasonably close, since in such cases packing costs would exceed the value of dust loss. Nonetheless, there was repeated pressure to increase the use of packing materials, especially bags. For example, after their visit to the United States, lung and Preobrazhenskii urged that the American example be followed and more containers be used.²⁵ An article in Stroitel’nye materialy in 1930 calls for increasing the amount shipped in bags to 40 percent and reducing the amount shipped in barrels to 30 percent.²⁶ However, as late as the first half of 1936, only 37.2 percent of Soiuztsement shipments were planned to go in bags or barrels, while the amount actually so moving was even lower—31.1 percent. The amount shipped in bags was only 14.4 percent against a plan of 20.8 percent.²⁷

In general, no sound analysis was offered in the discussions of the trade-off between the loss of low-strength cement dust and the cost of bags. To use bags represented “advanced technology,” and this may be enough to account for the increased exhortations to pack cement, while the cost and time needed to install bagging machinery and the effect that this would have on plant success indicators explains why these targets were not met.

3. Average Length of Haul

Finally, a target value was set for the average length of haul. The average length of haul was recorded for all transport and for the individual modes. Year-to-year comparability is lessened by the varying plant coverage (for example, sometimes the measure refers to Soiuztsement only, sometimes to this organization plus some other plants). Table IV-1 of Chapter IV shows the fluctuations in the average length of haul in the period.

It is probable, however, that little importance was attached to the average length of haul as a success indicator. The lack of seriousness attaching to this measure is suggested by a goal of the Third Five Year Plan calling for the reduction of the average haul to 300 kilometers.²⁸ This was at a time when the average length of haul had been running 3 to 5 times higher. It is not easy to guess how it was conceived to be possible to effect this reduction. It would scarcely have been possible even if total new planned capacity had been realized and all new output had been consumed within distances of 10 to 20 kilometers from the plants.²⁹ As Chapter V will show, the long average length of haul in the 1930’s was not due to inefficient shipping operations such as crosshauls, and rationalization of distribution therefore could not be a source for reductions in this measure.

To summarize this outline of industry indicators, the main measure of performance was tonnage output. The product mix was of secondary importance. The emphasis on total output shows up in various ways, including the myth about equality of Portland and blended cements which only a few technologists and no central planners appear to have questioned. Industry cost indicators were useful as a way to evaluate the tonnage performance but were not in themselves the main concern. Indicators of other aspects of performance, such as the packing mix or the average length of haul, were planned, although less importance appears to have been attached to them. The average haul will be discussed further in the next two chapters. For now it is enough to say that since it depended largely on the demand pattern, there was little that could be done about it in the short run with given capacity.

Regarding the packaging mix, our brief sketch shows the difficulty in trying to frame a rational policy. Given the costs, it was evident that the best approach would have been to develop bagging facilities and restrict their use to the higher-cost products—grade 500 and up, say—since it is here that the resulting saving would exceed packing costs. But the emphasis on physical tonnage as the output measure did not encourage the production of the higher grades, so that it was probably better under the circumstances not to treat the share packaged as a high priority success indicator.

The review just concluded of the cement industry’s organization, pricing policy, and success indicators points to many areas of potential inefficiency. The very fact of shifting organizational bases during the prewar period indicates that it may have been difficult to coordinate planning efforts, and this might have led to irrational location. The highly centralized marketing organ, a virtual monopoly in cement distribution, coupled with a pricing policy in which the industry was under no compulsion to minimize transport costs, suggests that quite inefficient product-delivery patterns might have resulted. Finally, the success indicators, concentrating as they did on quantity rather than quality, could have easily led to overproduction of low-grade cements, resulting in higher construction costs because of the necessity for builders to order higher quantities for given engineering specifications. What was the net effect of all factors—those mentioned as well as others like simple managerial negligence or incompetence—on the industry’s spatial efficiency? It is to the examination of these questions that we now turn, considering the industry’s efficiency in location in Chapter IV and short-run efficiency in Chapter V.