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The USSR in the international division of labour up to the end of the 20th century
375
THE USSR IN THE INTERNATIONAL DIVISION OF LABOUR UP TO THE END OF THE 20th CENTURY Tassos
Fakiolas
This article deals with the participation of the USSR in the international division of labour. It is concluded that the present export model of the country consisting of exports of raw materials (mainly energy) and intermediate products, is primarily due to the inability of the country to compete with the industrial, and especially the engineering products of the advanced countries in the world markets. This is due to the low technological and quality levels of the Soviet industry together with the existence of the richest mineral resources in the world within the USSR’s boundaries. It is envisaged that within the time limits of this century, the export model of the country could be reformed substantially, under the condition that the new leadership of the USSR has the will and capability to perform radical, large-scale fundamental changes. Keywords. world trade;
USSR,
industrial
production
THE EXISTENCE OF HUGE raw material resources and their considerable in-range exploitation, have ensured the USSR-currently responsible for a quarter of the world’s total production’-a dominant position in the world mining industry. The USSR is the largest producer of oil, gas, ferrous ores, coke, timber, steel, cast iron and cement; it is the second largest producer of electricity and the third largest of tradeable coal. According to Soviet estimates the USSR now has the second largest level of industrial production and engineering production, as against fifth and fourth respectively before the revolution.* However, regardless of the favourable course of development, which took place four or more decades ago, the structure of Soviet exports is still dominated by raw materials-mainly energy related (see The author is special adviser to the Greek Ministry of NatIonal 7, Pmotsl Street, 117 41 Kukaki, Athens, Greece.
FUTURES August 1985
0016-3287/65/040375-10$03.000
Economy
and Finance.
He can be contacted
1965 Butterworth & Co(Publishers)
at
Ltd
376
The USSR tn the tnternattonal dwrsron oflabour to the end of the 20th century
TABLE 1. SHARE OF FUELSa AND ENGINEERING AMOUNT OF SOVIET EXPORTS OF ENGINEERING
PRODUCTS PRODUCTS
IN SOVIET EXPORTS AND AS % OF WORLD TOTAL
Year
Share of fuelsb (%)
Share of engineeringd products (%)
Weighting ofe USSR (%)
1950 1960 1970 1975 1980 1981 1982 1983
3.9 16.2 15.1 30.7 46.1 49.3 51.4 52.8
11.8 20.5 21.5 18.7 15.8 13.7 12.9 12.5
4.1c 3.2 2.3 2.5 2.4 2.3
Notes a Petroil, natural gas, coal. b Calculations. c 1963. d Soviet estimates (Ministry, 1951-1984). e UN estimates (Bulletin, 1984).
Table 1)-and not by industrial and engineering products, as for most other industrial countries. As a percentage of total exports, engineering products reached a peak at the beginning of the 1970s (23.6 % in 1972) and then gradually declined, dropping to 12.5 % in 1983, ie nearly to the 1950/l 1.8% level. In the past 20 years, the Soviet share of world exports of engineering products has also declined, according to UN estimates, from 4.1% in 1963, to 2.3% in 1982.3 These figures are exceptionally low for a large country. The situation has been different with regard to fuels. Fuels already played a major role in Soviet exports, and by 1983 (1982), exports of oil, gas and coal reached 35.8 (32.5) billion roubles, as against total exports of67.9 (63.2) billion roubles. In the post-war period the oil, gas and coal percentage share of total Soviet exports has increased almost 14 times, to reach 52.8% in 1983. Ifenergy and raw materials are included together with fuel (excluding food raw materials), the share of fuel in total Soviet exports increases to 63.2% (1982), as against 45% in 1970, and is equal to five times the export share of engineering products. Here we have a paradox. The role of the world’s second largest producer of industrial and engineering products in world trade is as an exporter of mainly raw materials, which comprise nearly two-thirds of its total exports. Soviet
interpretations
Soviets argue that the paradox of this phenomenon is because the USSR, “in order to ensure a regular production process and the increase of output in the socialist countries . . . supplies them with huge quantities of a diversified range of raw materials”.4 It is a fact that the USSR is the main supplier of raw materials-primarily energy raw materials-to the above countries. From 1976 to 1980, the USSR supplied 800 million tons of conventional fuels to its partners in the Council for Mutual Economic Assistance (COMECON). It is estimated that in the current five-year period these supplies will increase by 20%.
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oflabour to the end ofthe 20th century 377
Marrese, Michael and Vanous5 estimate the value (in 1980 prices) of Soviet exports to and imports from Eastern Europe during 1960 to 1980 (according to world-market prices (WMPS)) at $87.2 billion, greater than the value of the same trade-flows measured according to intra-COMECON foreign-trade prices (FTPs). The USSR has been subsidizing certain East European countries by mainly exporting fuels and non-food raw materials at COMECON FTPs, which are below WMPs, in exchange for imports of machinery, equipment and industrial consumer goods at COMECON FTPs which are above WMPs. The USSR has engaged in trade, on terms that initially appear unfavourable -for unconventional gains which are mainly of a military and political nature. Such factors, however, do not explain the phenomenon ofthe export structure of the USSR, since the structure of its export trade with the COMECON and with the total of the socialist countries even more so, is countries, incomparably better than that with the Western countries. Calculations show that from 1972 to 1983, the exports-imports ratio of engineering products with the most advanced socialist countries-eg East Germany and Czechoslovakia -was 113.7 and 1:3.5, while with the remaining countries, the ratios were much lower (1:1.4 Romania). On the contrary, the relationship with the six most powerful industrial countries of the West (USA, Japan, FR Germany, France, UK, Italy), is exceptionally good, eg USA and Japan: 1: 70 and 1: 130, respectively. The lowest ratio is with the UK-1:6.5. These countries import more than one-third of world engineering products,6 and from 1979 to 1982 the USSR exported up to 1 .S% of its total exports of engineering products to these countries.’ The socialist countries absorb a much higher proportion of Soviet engineering poroducts than Western countries. Consequently, in 1983 (1982), from the total exports of Soviet engineering products, only 4% went to the industrial countries of the West, as against 72 % (73 %) to the socialist countries and 24% (23 %) to the developing countries. Soviet analysis of the categories of purely industrial products from 1980 to 1983 (the remaining categories being included with raw materials), shows that the share of exports of engineering and general industrial products to the socialist countries is considerably higher (approximately four to five percentage units) than to the whole world. On the contrary, the share of exports of fuels and electricity to the socialist countries is four to six units smaller by comparison with that to the whole world.’ These data prove that the structure of Soviet exports to the socialist countries is much better than that to other countries. In consequence, they undermine the Soviet allegation that the poor state of the Soviet exports trade structure is due to the socialist countries. The Soviets also argue that the West’s extremely low share is explained, above all, by the limitations still in effect there on imports of Soviet engineering products.g This allegation is also unfounded since the limitations concern the sale and not the purchase of mainly high-technology products to the Eastern countries.” The Western countries willingly buy every new machine, once it embodies the latest achievements of science and technology and is being sold under competitive terms. Moreover, 20 years ago, the USSR was exporting 3500 different types of machinery and industrial equipment to more than 60 countries, ie to the
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two-thirds of the countries with which it had trade relations. Today, the USSR maintains trade and economic relations with 144 countries, and with 116 of them it has bilateral state agreements. Soviet commodities, including engineering products, thus have access to almost the whole world. In the 1970s the turnover of Soviet-foreign economic operations increased more rapidly than both national income and industrial production, and the USSR’s participation in the international division of labour considerably expanded and intensified. Foreign trade and economic cooperation grew in scope and became a more important sphere of the Soviet economy. Western countries not only develop their trade relations with the USSR and the other socialist countries, but also grant them large long-term loans. As Lenin, too, underlined, “there is a force greater than the desire, the will and the decision of any of the hostile governments and classes. That force is the world economic relations”. l1 It becomes obvious that the low percentage of exports of engineering products is not due to the limitations imposed by the West, nor to the supply of big quantities of raw materials to the socialist countries, but to the inability of the USSR to offer sophisticated products in the increasingly competitive international market. l2 If there are no radical changes the present export model of the USSR will be preserved in general lines till the end of the 20th century. This estimate is based on: l l
the inability of the Soviet industry to offer quality products to the international market, and above all, engineering products of high technology; the existence in the USSR of the richest world reserves of raw materials.
Quality of production The efforts to raise the quality of Soviet products began in the 1930s. “The situation with the quality of the industrial production is at a very low level”, ascertained the XVIth congress of the Communist Party of the Soviet Union (CPSU), which, in order to counteract the situation, passed a resolution emphasizing that the responsibilities for non-compliance with qualitative production indices should not be lesser than those for non-compliance with quantitative ones.13 Thirty-one years later, at the XXIInd congress (1961), it was emphasized that the quality problem was still an important economic-political question. Two decades ago it was admitted that the structure of Soviet exports “is not corresponding to the new level and to the export potentials” of the Soviet industry and that the share of ready-made goods would be increased.14 In the 197Os, Pravda and the Prime Minister of the Russian Federal Republic initiated new efforts to improve the quality of Soviet products.‘5 Regardless of the intensive campaign, and in spite of the name given to the tenth five-year plan plan of quality”, the situation, instead of (1976 to 1980) as a “five-year improving, got worse. The percentage of goods claimed to be of bad quality was “great” and in 1982 the organs of State Control issued 2000 orders to stop the acceptance of goods.16 That same ye ar, the trade enterprises in Leningrad
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oflabour
to the end ofthe 20th century
379
required more than 60000 waggons, cases and parcels to return the defective products. It is recognized that “many metal-working machines are heavier than similar Western machines” and certain types of plastics, synthetic libres and instruments are inferior to similar foreign made products. Many consumer goods too, such as footwear, outer garments, haberdashery and so on, are inferior in such important features as finishing, style and fashion. l7 From 1973 to 1982, the number of enterprises with defective products increased from 1000 to about 2 300. la The increase in the number of such enterprises can be accounted for. Even when producing faulty commodities, the people employed in such enterprises can receive bonuses because they have met the “quantitative indices”. lg The opportunities for managerial staff to raise the production quality are minimal-often non-existent-because the plans are If a manager fails to comply with the overloaded and leave no margins. qualitative indices, he may be reprimanded or fined. But, if he fails to meet the quantitative indices, ie fails to fulfil the plan, which is required by law, he may either be sacked or demoted. On the other hand, the fulfillment of the plan entails bonuses or promotion. The manager’s choice is easy. On the other hand, opportunities for influencing the producer by the consumer are limited, since existing shortages “are distorted actual demands in various goods and are forced on the consumer rather than the products he really wants”.” Besides that, the producers can sell their inferior quality produce to regions “where the insufficiency of products is tangible”.*l With existing shortages and even before meeting the elementary needs of the Soviet market, it is essentially impossible for Soviet industry to produce many of its products to a level which meets world market requirements. The fact that the USSR’s most important customers for basic engineering products are mainly the less developed socialist and capitalist countries, is evidence of the inability of the USSR to compete with other countries in engineering, especially high technology products. For example, from 1979 to 1980, the three most important importers of such products were, in order of importance: Construction of equipment for the chemical industry-Bulgaria, Romania, Vietnam; air-communication means-Cuba, Iraq, Syria; lifting and transportation equipment-Poland, Cuba, Bulgaria; equipment for the food supply industry-Cuba, Iran, Poland; equipment for the textile industryCuba, Poland, Mongolia; medical equipment and instruments-Bulgaria, Poland, Cuba; special purpose cars-Bulgaria, Cuba, Mongolia; busesBulgaria, Afghanistan, Cuba. Calculations show that in 1983 (1982), Bulgaria and Cuba absorbed 24.1% (20.9%) of S oviet exports of engineering products.22 Each of these two small developing countries absorbed more Soviet engineering products than any other country. In only the two engineering products in which the USSR is the world leader (tractors and railway locomotives),23 over 95% of customers are from the COMECON countries. And it is well known, that as a rule, Soviet transactions with these countries do not adhere to the terms of international competition. Due to their low competitiveness, Soviet engineering goods are probably offered at unrealistic prices or as part of a barter deal. For example, the trolley-buses which were sold to Greece were several times cheaper than the European ones
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380
The USSR m fhe zntmatronal dtumon of labour to lhe end ofthe 20th century
and were paid off mainly against exports of Greek agricultural products. As a rule, the same applies to the other engineering products. The USSR also produces some industrial products which are among the best in the world, eg turbines, with a capacity of 1 million kW and the hydraulic turbines produced for Siberian hydropower stations are unrivalled. However, such products are few and far between. As the dispute over 1982 pipeline deliveries showed, the USSR was unable to produce large gas compressor turbines. It is acknowledged that “high quality means greater export potential”.24 However, to achieve high quality and to produce internationally competitive products, the USSR must first determine other criteria for assessment of managerial cadres and provide additional material and labour resourcesz5something that would have a negative impact on the quantitative indices of its economy, which clearly show a downward trend. The rise in quantity would lead to zero production growth, or even to a reduction. However, until now, political and ideological reasons made such an evolution unacceptable to the Soviet leadership, while the simultaneous qualitative and quantitative development of the Soviet economy with satisfactory rates, is practically unattainable. It is clear that prolonged systematic efforts at improving production quality have not produced positive results. There are more profound causes, which are related to the nature of the Soviet regime, to its very economic-political structure, as it was formed during the Stalin period and as it has existed until now.26 Role of natural resources The USSR, stretching over one-sixth of the surface of the earth, is uniquely abundant in raw materials. It possesses the richest resources in the world of gas, coal, ferrous ores, apatite, lime, zinc, vanadium and silver and has some of the largest reserves in the world of manganese, molybdenum, mercury, platinum, asbestos, copper, lead, chromium, colombium, nickel, wolfram, water energy, etc. In the USSR about 20000 sources of minerals, representing the “solid base of raw materials for the development of industry”,27 have been discovered. It follows that the USSR has the world’s richest energy resources and that in the 20th century it is not going to face an energy problem. The conclusion in 1981 of the Chairman of the Academy of Sciences, Alexandrov, that the country “is not threatened by any energy dead-lock”,28 is correct. In the near future, as far as the development of the Soviet energy economy is concerned, it is thought that special attention will be given to increasing the production of gas, to the cheap surface extraction of coal and to the generation of the possibility of increases in electricity by nuclear plants. 2g In the USSR production in these areas is exceptionally great. The USSR has rich gas resources in Central Asia, Kazakhstan, and especially in western Siberia, where the reserves seem to be colossal, constituting about two-fifths of the world’s resources. The existence of such reserves, as well as of the biggest gas distribution network in the world, provide the USSR with the possibility of substantially increasing its exports of gas, which represent only 12% (1982) of its domestic
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oflabour
to the end of the 20th century
381
production, while its share in the balance of fuels of the country stands at 30%. The Soviets are striving to increase their gas exports, in which they are already the world leaders, and believe that the agreements for the annual supply of tens of billions of cubic metres of gas to European countries until the beginning of the next century through an exchange of industrial products (chiefly engineering), *‘demonstrate the possibility and mutual benefit of the international division of labour”. The reserves of goal-which can be exploited more efficiently by surface extraction-are huge and located mainly in Siberia and Kazakhstan. The percentage of coal produced by this method (40% of the total) is expected to rise rapidly. The possibilities for producing electricity from nuclear fuels are especially promising. 31 In the nuclear industry the USSR is as self-sufficient in as it is in raw materials. The USSR has helped a industrial equipment, considerable number of other countries-mainly Eastern-to construct and operate nuclear power stations. Due to the nature of its regime and the immenseness of its territory, the USSR does not have an ecologist opposition, a fact that allows it to construct its nuclear plants chiefly in the European part of the country, from where electricity supply energy to its industrial centres and to European countries is fairly easy. The only sector showing problems in its development is oil. The cost of expanding oil output is high, because 60% of the country’s oil is produced in areas such as Siberia where the environment and climate are extremely hostile. There are difficulties in organizing infrastructure, maintenance and secondary recovery of oil. The replacement of the Soviet oil minister, several years before he was due to retire, and a drop in oil output in 1984 showed that the oil industry has failed to respond adequately given the capital sums invested in it. The USSR has warned the COMECON leaders that it will expand its exports of gas and electricity to member-countries, but not oil. It is further planned to replace oil with gas, coal and atomic energy. The prospects for the production of considerable amounts of energy from the exploitation of non-traditional renewable sources of energy seem favourable especially the possibilities for a wider use of geothermal energy in Kamtchatka and the Caucasus, and of solar energy in Central Asia and Southern Kazakhstan. On the basis of the above, it is possible to expect that the USSR will maintain and perhaps increase its large share-one-fifth of the total-in the world production of energy.32 The prospects are good for an increase in exports of energy and other materials by the USSR to European countries and Japan.33 The Baikal Amur Mainline Railway will contribute to this and will facilitate Soviet trade with the Japanese and Far Eastern markets. The 3 102km railway which has cost &28 billion will provide access to large deposits of coal, oil, ferrous ores, aluminium, copper gold, molybdenum, etc. It is expected that OECD Europe’s primary energy demand will increase from 1249 million tons of oil equivalent in 1980, to 1499 million tons in 1990, while the demand for solid fuel and gas will rise from 285 and 179 million tons respectively, to 374 and 222 million tons.34 It is, of course, in the interest of neighbouring European countries as well as Japan to cover a considerable part of the constantly increasing energy needs with imports from the USSR. Apart from the economic benefits, the differentiation in sources
FUTURES August 1985
of supply is a matter of vital importance for these countries due to the political instability prevailing in the Third World-the major exporter of energy. The prospects for exports of electricity are even better. The European Community’s electricity production growth rates are lagging far behind those of the USSR. In 1960, Soviet electricity production was 68% that of the European Community’s, in 1980 it reached 102%, and in 1983, 111% . It is likely that the shortage in ener
of
Conclusions The inability of the USSR to transform itself into an important supplier of industrial products on the world market (especially with engineering products), and the existence within its territory of the world’s richest resources of raw materials, has shaped the export model of the country based on exports of mainly raw materials and intermediate products. Prospects for the USSR’s place in the international division of labour are that it will continue to be a significant supplier of raw materials, energy and intermediate products to the world market, and that these products will continue to dominate its export trade until the end of this century. The transformation of this model would be extremely difficult without carrying out institutional reforms and a fundamental restructuring of the Soviet economy, which presupposes substantial changes of a political-ideological nature. Until now the FUTURES August 1985
USSR, because of its internal structure and of the way its regime functions, has not been in a position to develop the huge possibilities opened up by the new rechnological epoch. 39The new leadership of the country headed by Gorbachev realizes the need for radical reforms in many fields. However, just how much it will succeed in carrying out these reforms to the required depth and extent, remains to be seen. Notes and references 1.
6. 7. 8. 9. 19. 11. 12. 1X
14, 15.
16. 17. 18. 19.
20. 21. 2’?. 2;. 24. 25. 20.
Yearbook UXSR 1984 (Moscow, Novosti Press Agency, 1984). In 1983 the USSR produced 1416 billion kWh and 2000 million tons of conventional fuels, ie 16.2% and 22.2% respectively of world production. In the same year, oil production reached 616 million tons, gas 536 billion rn.$ and coal 716 million tons. In petroil refining the USSR is the largest producer in the world. USSR tn Figures I983 (Moscow, Finansi i Statistica, 1984), in Russian, page 46. Builettn QI Statistics on World Trade in E?zgineermg Products, 1982 {New York, t’nited Nations, 1984). “The scientific-technological revolution and the international economic G. Prokhnrov, relations”, Vafirosi Economtkz. No 4, April 1974, pages 58-59. “Unconventional gains from trade”, Journal of Compuratzve M. Maresse and J. Vanous, Economtcs, 7(4), December 1983, pages 382-399. Op tit, reference 3. Ministry of Foreign Trade, ForetlJn Trade USSI {Moscow, Finansi i Statistica, 1951-1984, in Russian). Ibzd B. Vaganov, A. Frumkin, “Obstacles to foreign trade: real and imaginary”, Forezgn Trade USSR, No 5, May 1984; and Noxou, News, No 18, 1983, page 4. L. Sabetnikov, “Trends in the development of the trade policy means of capitalist countries in the 8Os”, Fo7eqyz Trade USSR, No 5, May 1984, pages 45-46. Politizdat, 1964), v 44 in Russian, V. I. Lenin, Collected Works (5th edition, Moscow, pages 304-305. “UK engineering”, Fznanciul Times, Section V, 4 July 1984. The Creatton ojthe Kolkhoz $ystem (1929- 1932) “The party, in the period of all-front assault”, (Moscow, PoIiticheskaya Literatura, 1961, in Russian). USSR m the int~~~I~n~i D&&on of Labour (Moscow, Znamye, 1967, in D. Pinhenson, Russian), page 32. Pravda, editorial articles, 14 November 1973, 28 January 1975, 11 June 1975; and the Prime Minister of the Russian Federal Republic, 17 December 1975, emphasized the need for raising the production quality level. The same was also underlined by various editors from the columns of Commumst, E. Demin, 7, 1975; G. Sindorof, 5, 1976; S. Sambasof, 7, 1976; I. Skinin, tl, 1976, as well as editorial articles 4, 1974; 16, 1975. G. Orlov, “The demand of the population and the duties of production and trade”, Yap& Eco~omik~, No 9, Seprember 1983, pages 105-107. Op czf, reference 1. Pravda, 25 February 1983, page 3. A. Tkachenko, “High quality production incentives”, Communtst, No 3, 1981, page 53. 0~ ctt, reference 16. L Baranova, A. Levin, “The sector of individual consumption in the developed socialist society”, Cornmu~~~~,No 6, 1976, page 71. Opcd, reference 7. Op nt, reference 2. R Kosolapov et al, Deueloped So&&m (Moscow, Progress, 1983). E. Karlik, D. Demidenko, Relative to the Expendttures for Improuement of Production Qua& (Vaprosi Economlki, No 9, September 1983). T. Fakioias, Analysis of the Economic Polq of USSR and Eastern Europeun Countries (Athens, A. Sakoulas. 1982), chapter VII, in Greek.
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27. 28. 29 30. 3 1.
32. 33. 34. 35. 36.
37. 38. 39.
The USSR in the international dtvision of labour
to the end of the 20th century
S. Kaganovich, “Extraction industry”, Vaprosi Economtki, No 5, May 1983, page 75. A. Alexandrov, “The energy securing of the country”, Communzst, No 4, 1981, page 87. V. Dymshits, “World energy problems and international cooperation”, Foreign Trade, Moscow, No 5, May 1984, page 8. Y. Baranovsky, “Cojuzgazexport on the gas market”, Foreign Trade USSR, No 5, May 1983, page 20. In countries with rich resources of hydrocarbons, the share of nuclear power stations in the total productton of electricity, 1s relatively limited, as compared to other countries which do not have such resources. In 1982 in France and Japan, the share of nuclear power reached 40% and 20% respectively, as against 16% in the USA and 8% in the USSR. M. Maximova, USSR and Internattonal Cooperatton (Moscow, Progress, 1983). S. Pomazanov, “Energy economy and international cooperation”, Mezhdunarodnaya Zhitn, No 1, January 1983, pages 59-67. in A. Heertje. Inuestmg in Europe’s Future (Oxford, U. Lantzke, “I nvestment and energy”, UK, European Investment Bank, 1983), page 120. V. S. Pankov, The FRG in the Economy ofModem Capitalurn (Moscow, Moskovkiy Universtitet, 1984, m Russian). It is estimated that, each year, only the cement industry can save 7 million tons of conventional fuel, while the engineermg and construction industrtes can save 17 million tons of metal. Ten million tons are wasted because of rust, while 14 million tons of metal products and parts are being sent to foundries before obsolescence (Communist Leader 1983), pages 183-185. In Siberia durtng the past 20 years, fuel production increased ninefold-over 1 billion tons (in conventional units)-and constituted half the total Soviet output. Communzst, No 7, 1984, page 110. The Soviet academician, Aganbegian (1984) considers that the technologtcal level of the country does not correspond to current requirements and that the country will need 10 to 15 years to reach an advanced technological stage.
FUTURES August 1995
THE USSR IN THE INTERNATIONAL DIVISION OF LABOUR UP TO THE END OF THE 20th CENTURY Tassos
Fakiolas
This article deals with the participation of the USSR in the international division of labour. It is concluded that the present export model of the country consisting of exports of raw materials (mainly energy) and intermediate products, is primarily due to the inability of the country to compete with the industrial, and especially the engineering products of the advanced countries in the world markets. This is due to the low technological and quality levels of the Soviet industry together with the existence of the richest mineral resources in the world within the USSR’s boundaries. It is envisaged that within the time limits of this century, the export model of the country could be reformed substantially, under the condition that the new leadership of the USSR has the will and capability to perform radical, large-scale fundamental changes. Keywords. world trade;
USSR,
industrial
production
THE EXISTENCE OF HUGE raw material resources and their considerable in-range exploitation, have ensured the USSR-currently responsible for a quarter of the world’s total production’-a dominant position in the world mining industry. The USSR is the largest producer of oil, gas, ferrous ores, coke, timber, steel, cast iron and cement; it is the second largest producer of electricity and the third largest of tradeable coal. According to Soviet estimates the USSR now has the second largest level of industrial production and engineering production, as against fifth and fourth respectively before the revolution.* However, regardless of the favourable course of development, which took place four or more decades ago, the structure of Soviet exports is still dominated by raw materials-mainly energy related (see The author is special adviser to the Greek Ministry of NatIonal 7, Pmotsl Street, 117 41 Kukaki, Athens, Greece.
FUTURES August 1985
0016-3287/65/040375-10$03.000
Economy
and Finance.
He can be contacted
1965 Butterworth & Co(Publishers)
at
Ltd
376
The USSR tn the tnternattonal dwrsron oflabour to the end of the 20th century
TABLE 1. SHARE OF FUELSa AND ENGINEERING AMOUNT OF SOVIET EXPORTS OF ENGINEERING
PRODUCTS PRODUCTS
IN SOVIET EXPORTS AND AS % OF WORLD TOTAL
Year
Share of fuelsb (%)
Share of engineeringd products (%)
Weighting ofe USSR (%)
1950 1960 1970 1975 1980 1981 1982 1983
3.9 16.2 15.1 30.7 46.1 49.3 51.4 52.8
11.8 20.5 21.5 18.7 15.8 13.7 12.9 12.5
4.1c 3.2 2.3 2.5 2.4 2.3
Notes a Petroil, natural gas, coal. b Calculations. c 1963. d Soviet estimates (Ministry, 1951-1984). e UN estimates (Bulletin, 1984).
Table 1)-and not by industrial and engineering products, as for most other industrial countries. As a percentage of total exports, engineering products reached a peak at the beginning of the 1970s (23.6 % in 1972) and then gradually declined, dropping to 12.5 % in 1983, ie nearly to the 1950/l 1.8% level. In the past 20 years, the Soviet share of world exports of engineering products has also declined, according to UN estimates, from 4.1% in 1963, to 2.3% in 1982.3 These figures are exceptionally low for a large country. The situation has been different with regard to fuels. Fuels already played a major role in Soviet exports, and by 1983 (1982), exports of oil, gas and coal reached 35.8 (32.5) billion roubles, as against total exports of67.9 (63.2) billion roubles. In the post-war period the oil, gas and coal percentage share of total Soviet exports has increased almost 14 times, to reach 52.8% in 1983. Ifenergy and raw materials are included together with fuel (excluding food raw materials), the share of fuel in total Soviet exports increases to 63.2% (1982), as against 45% in 1970, and is equal to five times the export share of engineering products. Here we have a paradox. The role of the world’s second largest producer of industrial and engineering products in world trade is as an exporter of mainly raw materials, which comprise nearly two-thirds of its total exports. Soviet
interpretations
Soviets argue that the paradox of this phenomenon is because the USSR, “in order to ensure a regular production process and the increase of output in the socialist countries . . . supplies them with huge quantities of a diversified range of raw materials”.4 It is a fact that the USSR is the main supplier of raw materials-primarily energy raw materials-to the above countries. From 1976 to 1980, the USSR supplied 800 million tons of conventional fuels to its partners in the Council for Mutual Economic Assistance (COMECON). It is estimated that in the current five-year period these supplies will increase by 20%.
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Marrese, Michael and Vanous5 estimate the value (in 1980 prices) of Soviet exports to and imports from Eastern Europe during 1960 to 1980 (according to world-market prices (WMPS)) at $87.2 billion, greater than the value of the same trade-flows measured according to intra-COMECON foreign-trade prices (FTPs). The USSR has been subsidizing certain East European countries by mainly exporting fuels and non-food raw materials at COMECON FTPs, which are below WMPs, in exchange for imports of machinery, equipment and industrial consumer goods at COMECON FTPs which are above WMPs. The USSR has engaged in trade, on terms that initially appear unfavourable -for unconventional gains which are mainly of a military and political nature. Such factors, however, do not explain the phenomenon ofthe export structure of the USSR, since the structure of its export trade with the COMECON and with the total of the socialist countries even more so, is countries, incomparably better than that with the Western countries. Calculations show that from 1972 to 1983, the exports-imports ratio of engineering products with the most advanced socialist countries-eg East Germany and Czechoslovakia -was 113.7 and 1:3.5, while with the remaining countries, the ratios were much lower (1:1.4 Romania). On the contrary, the relationship with the six most powerful industrial countries of the West (USA, Japan, FR Germany, France, UK, Italy), is exceptionally good, eg USA and Japan: 1: 70 and 1: 130, respectively. The lowest ratio is with the UK-1:6.5. These countries import more than one-third of world engineering products,6 and from 1979 to 1982 the USSR exported up to 1 .S% of its total exports of engineering products to these countries.’ The socialist countries absorb a much higher proportion of Soviet engineering poroducts than Western countries. Consequently, in 1983 (1982), from the total exports of Soviet engineering products, only 4% went to the industrial countries of the West, as against 72 % (73 %) to the socialist countries and 24% (23 %) to the developing countries. Soviet analysis of the categories of purely industrial products from 1980 to 1983 (the remaining categories being included with raw materials), shows that the share of exports of engineering and general industrial products to the socialist countries is considerably higher (approximately four to five percentage units) than to the whole world. On the contrary, the share of exports of fuels and electricity to the socialist countries is four to six units smaller by comparison with that to the whole world.’ These data prove that the structure of Soviet exports to the socialist countries is much better than that to other countries. In consequence, they undermine the Soviet allegation that the poor state of the Soviet exports trade structure is due to the socialist countries. The Soviets also argue that the West’s extremely low share is explained, above all, by the limitations still in effect there on imports of Soviet engineering products.g This allegation is also unfounded since the limitations concern the sale and not the purchase of mainly high-technology products to the Eastern countries.” The Western countries willingly buy every new machine, once it embodies the latest achievements of science and technology and is being sold under competitive terms. Moreover, 20 years ago, the USSR was exporting 3500 different types of machinery and industrial equipment to more than 60 countries, ie to the
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two-thirds of the countries with which it had trade relations. Today, the USSR maintains trade and economic relations with 144 countries, and with 116 of them it has bilateral state agreements. Soviet commodities, including engineering products, thus have access to almost the whole world. In the 1970s the turnover of Soviet-foreign economic operations increased more rapidly than both national income and industrial production, and the USSR’s participation in the international division of labour considerably expanded and intensified. Foreign trade and economic cooperation grew in scope and became a more important sphere of the Soviet economy. Western countries not only develop their trade relations with the USSR and the other socialist countries, but also grant them large long-term loans. As Lenin, too, underlined, “there is a force greater than the desire, the will and the decision of any of the hostile governments and classes. That force is the world economic relations”. l1 It becomes obvious that the low percentage of exports of engineering products is not due to the limitations imposed by the West, nor to the supply of big quantities of raw materials to the socialist countries, but to the inability of the USSR to offer sophisticated products in the increasingly competitive international market. l2 If there are no radical changes the present export model of the USSR will be preserved in general lines till the end of the 20th century. This estimate is based on: l l
the inability of the Soviet industry to offer quality products to the international market, and above all, engineering products of high technology; the existence in the USSR of the richest world reserves of raw materials.
Quality of production The efforts to raise the quality of Soviet products began in the 1930s. “The situation with the quality of the industrial production is at a very low level”, ascertained the XVIth congress of the Communist Party of the Soviet Union (CPSU), which, in order to counteract the situation, passed a resolution emphasizing that the responsibilities for non-compliance with qualitative production indices should not be lesser than those for non-compliance with quantitative ones.13 Thirty-one years later, at the XXIInd congress (1961), it was emphasized that the quality problem was still an important economic-political question. Two decades ago it was admitted that the structure of Soviet exports “is not corresponding to the new level and to the export potentials” of the Soviet industry and that the share of ready-made goods would be increased.14 In the 197Os, Pravda and the Prime Minister of the Russian Federal Republic initiated new efforts to improve the quality of Soviet products.‘5 Regardless of the intensive campaign, and in spite of the name given to the tenth five-year plan plan of quality”, the situation, instead of (1976 to 1980) as a “five-year improving, got worse. The percentage of goods claimed to be of bad quality was “great” and in 1982 the organs of State Control issued 2000 orders to stop the acceptance of goods.16 That same ye ar, the trade enterprises in Leningrad
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required more than 60000 waggons, cases and parcels to return the defective products. It is recognized that “many metal-working machines are heavier than similar Western machines” and certain types of plastics, synthetic libres and instruments are inferior to similar foreign made products. Many consumer goods too, such as footwear, outer garments, haberdashery and so on, are inferior in such important features as finishing, style and fashion. l7 From 1973 to 1982, the number of enterprises with defective products increased from 1000 to about 2 300. la The increase in the number of such enterprises can be accounted for. Even when producing faulty commodities, the people employed in such enterprises can receive bonuses because they have met the “quantitative indices”. lg The opportunities for managerial staff to raise the production quality are minimal-often non-existent-because the plans are If a manager fails to comply with the overloaded and leave no margins. qualitative indices, he may be reprimanded or fined. But, if he fails to meet the quantitative indices, ie fails to fulfil the plan, which is required by law, he may either be sacked or demoted. On the other hand, the fulfillment of the plan entails bonuses or promotion. The manager’s choice is easy. On the other hand, opportunities for influencing the producer by the consumer are limited, since existing shortages “are distorted actual demands in various goods and are forced on the consumer rather than the products he really wants”.” Besides that, the producers can sell their inferior quality produce to regions “where the insufficiency of products is tangible”.*l With existing shortages and even before meeting the elementary needs of the Soviet market, it is essentially impossible for Soviet industry to produce many of its products to a level which meets world market requirements. The fact that the USSR’s most important customers for basic engineering products are mainly the less developed socialist and capitalist countries, is evidence of the inability of the USSR to compete with other countries in engineering, especially high technology products. For example, from 1979 to 1980, the three most important importers of such products were, in order of importance: Construction of equipment for the chemical industry-Bulgaria, Romania, Vietnam; air-communication means-Cuba, Iraq, Syria; lifting and transportation equipment-Poland, Cuba, Bulgaria; equipment for the food supply industry-Cuba, Iran, Poland; equipment for the textile industryCuba, Poland, Mongolia; medical equipment and instruments-Bulgaria, Poland, Cuba; special purpose cars-Bulgaria, Cuba, Mongolia; busesBulgaria, Afghanistan, Cuba. Calculations show that in 1983 (1982), Bulgaria and Cuba absorbed 24.1% (20.9%) of S oviet exports of engineering products.22 Each of these two small developing countries absorbed more Soviet engineering products than any other country. In only the two engineering products in which the USSR is the world leader (tractors and railway locomotives),23 over 95% of customers are from the COMECON countries. And it is well known, that as a rule, Soviet transactions with these countries do not adhere to the terms of international competition. Due to their low competitiveness, Soviet engineering goods are probably offered at unrealistic prices or as part of a barter deal. For example, the trolley-buses which were sold to Greece were several times cheaper than the European ones
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The USSR m fhe zntmatronal dtumon of labour to lhe end ofthe 20th century
and were paid off mainly against exports of Greek agricultural products. As a rule, the same applies to the other engineering products. The USSR also produces some industrial products which are among the best in the world, eg turbines, with a capacity of 1 million kW and the hydraulic turbines produced for Siberian hydropower stations are unrivalled. However, such products are few and far between. As the dispute over 1982 pipeline deliveries showed, the USSR was unable to produce large gas compressor turbines. It is acknowledged that “high quality means greater export potential”.24 However, to achieve high quality and to produce internationally competitive products, the USSR must first determine other criteria for assessment of managerial cadres and provide additional material and labour resourcesz5something that would have a negative impact on the quantitative indices of its economy, which clearly show a downward trend. The rise in quantity would lead to zero production growth, or even to a reduction. However, until now, political and ideological reasons made such an evolution unacceptable to the Soviet leadership, while the simultaneous qualitative and quantitative development of the Soviet economy with satisfactory rates, is practically unattainable. It is clear that prolonged systematic efforts at improving production quality have not produced positive results. There are more profound causes, which are related to the nature of the Soviet regime, to its very economic-political structure, as it was formed during the Stalin period and as it has existed until now.26 Role of natural resources The USSR, stretching over one-sixth of the surface of the earth, is uniquely abundant in raw materials. It possesses the richest resources in the world of gas, coal, ferrous ores, apatite, lime, zinc, vanadium and silver and has some of the largest reserves in the world of manganese, molybdenum, mercury, platinum, asbestos, copper, lead, chromium, colombium, nickel, wolfram, water energy, etc. In the USSR about 20000 sources of minerals, representing the “solid base of raw materials for the development of industry”,27 have been discovered. It follows that the USSR has the world’s richest energy resources and that in the 20th century it is not going to face an energy problem. The conclusion in 1981 of the Chairman of the Academy of Sciences, Alexandrov, that the country “is not threatened by any energy dead-lock”,28 is correct. In the near future, as far as the development of the Soviet energy economy is concerned, it is thought that special attention will be given to increasing the production of gas, to the cheap surface extraction of coal and to the generation of the possibility of increases in electricity by nuclear plants. 2g In the USSR production in these areas is exceptionally great. The USSR has rich gas resources in Central Asia, Kazakhstan, and especially in western Siberia, where the reserves seem to be colossal, constituting about two-fifths of the world’s resources. The existence of such reserves, as well as of the biggest gas distribution network in the world, provide the USSR with the possibility of substantially increasing its exports of gas, which represent only 12% (1982) of its domestic
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production, while its share in the balance of fuels of the country stands at 30%. The Soviets are striving to increase their gas exports, in which they are already the world leaders, and believe that the agreements for the annual supply of tens of billions of cubic metres of gas to European countries until the beginning of the next century through an exchange of industrial products (chiefly engineering), *‘demonstrate the possibility and mutual benefit of the international division of labour”. The reserves of goal-which can be exploited more efficiently by surface extraction-are huge and located mainly in Siberia and Kazakhstan. The percentage of coal produced by this method (40% of the total) is expected to rise rapidly. The possibilities for producing electricity from nuclear fuels are especially promising. 31 In the nuclear industry the USSR is as self-sufficient in as it is in raw materials. The USSR has helped a industrial equipment, considerable number of other countries-mainly Eastern-to construct and operate nuclear power stations. Due to the nature of its regime and the immenseness of its territory, the USSR does not have an ecologist opposition, a fact that allows it to construct its nuclear plants chiefly in the European part of the country, from where electricity supply energy to its industrial centres and to European countries is fairly easy. The only sector showing problems in its development is oil. The cost of expanding oil output is high, because 60% of the country’s oil is produced in areas such as Siberia where the environment and climate are extremely hostile. There are difficulties in organizing infrastructure, maintenance and secondary recovery of oil. The replacement of the Soviet oil minister, several years before he was due to retire, and a drop in oil output in 1984 showed that the oil industry has failed to respond adequately given the capital sums invested in it. The USSR has warned the COMECON leaders that it will expand its exports of gas and electricity to member-countries, but not oil. It is further planned to replace oil with gas, coal and atomic energy. The prospects for the production of considerable amounts of energy from the exploitation of non-traditional renewable sources of energy seem favourable especially the possibilities for a wider use of geothermal energy in Kamtchatka and the Caucasus, and of solar energy in Central Asia and Southern Kazakhstan. On the basis of the above, it is possible to expect that the USSR will maintain and perhaps increase its large share-one-fifth of the total-in the world production of energy.32 The prospects are good for an increase in exports of energy and other materials by the USSR to European countries and Japan.33 The Baikal Amur Mainline Railway will contribute to this and will facilitate Soviet trade with the Japanese and Far Eastern markets. The 3 102km railway which has cost &28 billion will provide access to large deposits of coal, oil, ferrous ores, aluminium, copper gold, molybdenum, etc. It is expected that OECD Europe’s primary energy demand will increase from 1249 million tons of oil equivalent in 1980, to 1499 million tons in 1990, while the demand for solid fuel and gas will rise from 285 and 179 million tons respectively, to 374 and 222 million tons.34 It is, of course, in the interest of neighbouring European countries as well as Japan to cover a considerable part of the constantly increasing energy needs with imports from the USSR. Apart from the economic benefits, the differentiation in sources
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of supply is a matter of vital importance for these countries due to the political instability prevailing in the Third World-the major exporter of energy. The prospects for exports of electricity are even better. The European Community’s electricity production growth rates are lagging far behind those of the USSR. In 1960, Soviet electricity production was 68% that of the European Community’s, in 1980 it reached 102%, and in 1983, 111% . It is likely that the shortage in ener
of
Conclusions The inability of the USSR to transform itself into an important supplier of industrial products on the world market (especially with engineering products), and the existence within its territory of the world’s richest resources of raw materials, has shaped the export model of the country based on exports of mainly raw materials and intermediate products. Prospects for the USSR’s place in the international division of labour are that it will continue to be a significant supplier of raw materials, energy and intermediate products to the world market, and that these products will continue to dominate its export trade until the end of this century. The transformation of this model would be extremely difficult without carrying out institutional reforms and a fundamental restructuring of the Soviet economy, which presupposes substantial changes of a political-ideological nature. Until now the FUTURES August 1985
USSR, because of its internal structure and of the way its regime functions, has not been in a position to develop the huge possibilities opened up by the new rechnological epoch. 39The new leadership of the country headed by Gorbachev realizes the need for radical reforms in many fields. However, just how much it will succeed in carrying out these reforms to the required depth and extent, remains to be seen. Notes and references 1.
6. 7. 8. 9. 19. 11. 12. 1X
14, 15.
16. 17. 18. 19.
20. 21. 2’?. 2;. 24. 25. 20.
Yearbook UXSR 1984 (Moscow, Novosti Press Agency, 1984). In 1983 the USSR produced 1416 billion kWh and 2000 million tons of conventional fuels, ie 16.2% and 22.2% respectively of world production. In the same year, oil production reached 616 million tons, gas 536 billion rn.$ and coal 716 million tons. In petroil refining the USSR is the largest producer in the world. USSR tn Figures I983 (Moscow, Finansi i Statistica, 1984), in Russian, page 46. Builettn QI Statistics on World Trade in E?zgineermg Products, 1982 {New York, t’nited Nations, 1984). “The scientific-technological revolution and the international economic G. Prokhnrov, relations”, Vafirosi Economtkz. No 4, April 1974, pages 58-59. “Unconventional gains from trade”, Journal of Compuratzve M. Maresse and J. Vanous, Economtcs, 7(4), December 1983, pages 382-399. Op tit, reference 3. Ministry of Foreign Trade, ForetlJn Trade USSI {Moscow, Finansi i Statistica, 1951-1984, in Russian). Ibzd B. Vaganov, A. Frumkin, “Obstacles to foreign trade: real and imaginary”, Forezgn Trade USSR, No 5, May 1984; and Noxou, News, No 18, 1983, page 4. L. Sabetnikov, “Trends in the development of the trade policy means of capitalist countries in the 8Os”, Fo7eqyz Trade USSR, No 5, May 1984, pages 45-46. Politizdat, 1964), v 44 in Russian, V. I. Lenin, Collected Works (5th edition, Moscow, pages 304-305. “UK engineering”, Fznanciul Times, Section V, 4 July 1984. The Creatton ojthe Kolkhoz $ystem (1929- 1932) “The party, in the period of all-front assault”, (Moscow, PoIiticheskaya Literatura, 1961, in Russian). USSR m the int~~~I~n~i D&&on of Labour (Moscow, Znamye, 1967, in D. Pinhenson, Russian), page 32. Pravda, editorial articles, 14 November 1973, 28 January 1975, 11 June 1975; and the Prime Minister of the Russian Federal Republic, 17 December 1975, emphasized the need for raising the production quality level. The same was also underlined by various editors from the columns of Commumst, E. Demin, 7, 1975; G. Sindorof, 5, 1976; S. Sambasof, 7, 1976; I. Skinin, tl, 1976, as well as editorial articles 4, 1974; 16, 1975. G. Orlov, “The demand of the population and the duties of production and trade”, Yap& Eco~omik~, No 9, Seprember 1983, pages 105-107. Op czf, reference 1. Pravda, 25 February 1983, page 3. A. Tkachenko, “High quality production incentives”, Communtst, No 3, 1981, page 53. 0~ ctt, reference 16. L Baranova, A. Levin, “The sector of individual consumption in the developed socialist society”, Cornmu~~~~,No 6, 1976, page 71. Opcd, reference 7. Op nt, reference 2. R Kosolapov et al, Deueloped So&&m (Moscow, Progress, 1983). E. Karlik, D. Demidenko, Relative to the Expendttures for Improuement of Production Qua& (Vaprosi Economlki, No 9, September 1983). T. Fakioias, Analysis of the Economic Polq of USSR and Eastern Europeun Countries (Athens, A. Sakoulas. 1982), chapter VII, in Greek.
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27. 28. 29 30. 3 1.
32. 33. 34. 35. 36.
37. 38. 39.
The USSR in the international dtvision of labour
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S. Kaganovich, “Extraction industry”, Vaprosi Economtki, No 5, May 1983, page 75. A. Alexandrov, “The energy securing of the country”, Communzst, No 4, 1981, page 87. V. Dymshits, “World energy problems and international cooperation”, Foreign Trade, Moscow, No 5, May 1984, page 8. Y. Baranovsky, “Cojuzgazexport on the gas market”, Foreign Trade USSR, No 5, May 1983, page 20. In countries with rich resources of hydrocarbons, the share of nuclear power stations in the total productton of electricity, 1s relatively limited, as compared to other countries which do not have such resources. In 1982 in France and Japan, the share of nuclear power reached 40% and 20% respectively, as against 16% in the USA and 8% in the USSR. M. Maximova, USSR and Internattonal Cooperatton (Moscow, Progress, 1983). S. Pomazanov, “Energy economy and international cooperation”, Mezhdunarodnaya Zhitn, No 1, January 1983, pages 59-67. in A. Heertje. Inuestmg in Europe’s Future (Oxford, U. Lantzke, “I nvestment and energy”, UK, European Investment Bank, 1983), page 120. V. S. Pankov, The FRG in the Economy ofModem Capitalurn (Moscow, Moskovkiy Universtitet, 1984, m Russian). It is estimated that, each year, only the cement industry can save 7 million tons of conventional fuel, while the engineermg and construction industrtes can save 17 million tons of metal. Ten million tons are wasted because of rust, while 14 million tons of metal products and parts are being sent to foundries before obsolescence (Communist Leader 1983), pages 183-185. In Siberia durtng the past 20 years, fuel production increased ninefold-over 1 billion tons (in conventional units)-and constituted half the total Soviet output. Communzst, No 7, 1984, page 110. The Soviet academician, Aganbegian (1984) considers that the technologtcal level of the country does not correspond to current requirements and that the country will need 10 to 15 years to reach an advanced technological stage.
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