Soviet Union (Economic Initiatives) (5) Box: RAC Box 12

Ronald Reagan Presidential Library Digital Library Collections This is a PDF of a folder from our textual collections. Collection: Danzansky, Stephen I.: Files Folder Title: Soviet Union (Economic Initiatives) (5) Box: RAC Box 12 To see more digitized collections visit: https://reaganlibrary.gov/archives/digital-library To see all Ronald Reagan Presidential Library inventories visit: https://reaganlibrary.gov/document-collection Contact a reference archivist at: [email protected] Citation Guidelines: https://reaganlibrary.gov/citing National Archives Catalogue: https://catalog.archives.gov/ CHAPTER 1 A THEORETICAL MODEL OF SOVIET ECONOMIC PLANNING 1.1 General This chapter exaaines the Soviet econoaic planninc ■atrix, the theoretical foundation of centralized econo■ ic ■anace■ent in the USSR. Althou1h the Western economist ■ i1ht find so■e of the concepts self evident, the author believes their inclusion at this point in the ■onoeraph will aid the reader in understandinc the Soviet approach towards lar1e-scale econo■ ic ■anace ■ent. 1.2 The Econo■ ic Planning Matrix The first step in econo■ ic planninc is co ■pilinc a list of production require■ents for a civen population and econoaic base. This list is constantly refined and supple■ented, but the nu■ ber of such chan1es by co■parison with the overall size ot the list is insignifi cant. Within a sincle planninc period (a year or even a five year plan) it can be assu■ed to be constant and civen. Co■plex production-de■and relations, includinc the necessity of continued capital invest■ent in production facilities require the for ■ation, directly or indirectly, of an econo■ ic planninc ■atrix as shown in Pieure 1.1. The left colu■n of Fipre 1.1 represents a list ot individual and public consu■ption ite ■ s (includinc plant equip■ent) , which ■ust be pro duced in the planninc period. The second colu■n la the de■and forecast tor each of these ite■s. The ways and ■ethods of forecastinc ■ay differ 3 Articles ot De ■and ~ Expenditure ot Resources Consu■ption Forecast R(l) R(2) R(3) R(i) R(j ) R( ■) C(l) P(l) S(ll) S(21) S(31) S(il) S(jl ) S(al) C(2) P(2) S(12) S(22) S(32) S(i2) S(j2) s(a2) --- --- --- --- --·- --- --- --- C(i) P(i) S(li) S(2i) S(31) S(U) S(ji) S(ai) --- --- --- --- --- --- --- --- C(j) P(j) S(lj) S(2j) S(3j) S(ij) S(jj) S(aj) --- --- --- --- --- --- --- --- C(n) P(n) S(ln) S(2n) S(3n) S(in) S(Jn) S(an) Pi111re 1.1 Bcono■ ic Plannin& Matrix. 4 and are discussed below. Por now we will assuae that the de■and fore cast tor each consuaption ite■ is iiven. All subsequent table coluans are constructed in the sa■ e ■anner. Bach coluan headini bas the na■e ot a particular production resource R(l), R(2) ..• R(i) ••. R(j) ••. R(a). The resource expenditure nor■ or production require■ent R(i) tor the production ot consuaption ite■ C(j) appears in the box for■ed by the intersection of consuaption uni t C(j) and resource R(i). We will call this nor■ or require■ent S(ij) . 1.3 Public Consuaption Nor■ settine, i.e., the establishaent of tareet fleures for resource expenditures, represents one of the ■oat labor intensive and co■plex ele■ents of econo■ic plannine and will be exa■ined in succeedini chapters. At this staee ot analysis we will assuae that production require■ents, like de■and forecasts, are eiven. The forecast for the co■plete expenditure ot resource R(i) for the production ot consuaption ite■ C(j), obviously, is equal to S(ij) x P(j). It is presently sufficient to enuaerate these products for each line of our table in order to deter■ine the de■and for resource R(i) for the entire econo ■y: J•n PR(i) • t (S(ij) x P(j)) (1.1) j•1 Repeatine this operation for each colu■n of the ,- table, we obtain a ayate■ of n equations such as 1.1, which can be viewed as the si ■plest ■odel of a national econo■ ic plan. It asauaes that a list of consuaption 5 !teas and correspondine deaand forecasts tor the plan period are required to deteraine (plan) the resource expenditure tor this period. The resource list and itea list are autually independent. This approach is appropriate when dealine with public conswaption !teas and correspondine equations ot the above type can be solved inde pendently. 1,4 Inter■ediate Consu■ ption In a aodern econo■y, 80 to 85 percent ot production output is spent in the sphere ot inter■ediate consu■ ption and not in individual or public consu■ ption. An inter■ediate consu■ ption itea and a production resource are one and the sue. In other words, value PR(i), whi ch represents the entire national econo■ ic expenditure of resource 1, and value P(i), which represents the consuaption forecast ot ite■ 1 are equivalent. Thus, the equations in Pieure 1.1 beco■e a systea ot hieh order linear equations. This systea is difficult to solve, as shown below. Bvaluatine this difficulty in quantitative teras, we observe that the econoay ot a developed country produces approxiaately 2 ■ illion pro ducts. Consequently, the order of the correspondine systea of equations equals 10' . With the presence ot aodern coaputer equip■ent, the dif ficulty of solvine a syste■ of equations is deterained by the nuaber of binary arithaetic operations required, which is proportional to t he square of the order of the ayate■ . Por our ayste■, it is 10 14 t i mes ~reater than tor a first order syste■ of one equation. Solvine a first order "systea" requires no fewer than 10 binary operations and aany_aore in practice. Therefore, the above systea requires ■ore than 10 1 1 opera tions. Considerine that the output of the ■oat powerful ■odern coaputera 8 is close to 10 7 operations per second, such a syste■ would require 10 1 seconds ( ■ore than 3 years) ot co ■ puter ti ■ e alone. The unreality ot such an approach is obvious. Providing it can be obtained, a solution to the syste■ shown in Fipre 1.1, ■ay turn out to be ■athe■atically irreproachable but econo ■ically unacceptable. Production possesses inertia and it the system solution ditters substantially fro ■ the actual production volu■e of corresponding products in the previous period, the given solution ■ay not be possible to i ■plement in practice. Theretore, the given syste■ ■ust be supple■ented by inequalities of the type P(i) - 4(1), F(i), P(i) + 4(1) (1.2) where P(i) is the actual production volu■ e in the preceding peri od and 4(1) is the acceptable deviation, according to production delay con ditions. Inequality 1.2 is constructed tor each product. Therefore, syste■ 1.1 ■ust be solved as a constrained or "unsatisfied" system, per ■itting nu■erous ■athe■atically correct solutions, fro■ which solutions are then selected which aatiaty the above syste ■ ot inequalities. The difficulty of solving the ■odel, already extre■e, increases con siderably. 1.5 Pour Para■eters of the Econo■ ic Planning Matrix The generally accepted (and at present probably the only) solution to the proble■ discussed above consists of repeatedly reducing the order of the ■odel. In practice, this ■eans grouping si ■ ilar products in a "cluster," replacing ■any lines of the ■atrix and, correapon~lngly, ■any equations of ayate■ 1.1 with one line and one equation tor the cluster (See Chapter 3). Thia approach sharply changes the picture. For 7 exaaple, if the cluster i?"Oups an avera1e of 100 products, then total required co■ puter ti ■e is reduced by a·factor of 10,000 to 3 hours. Even if it is necessary to increase this ti ■e 10 or 20 fold, by takin1 into account the econo■ ic li ■ ita.tiona described above, it will re■ain within reasonable li ■ its, i.e., hours and days. Therefore, product cluster tor■ation is the first and ■oat i ■portant technique of econo ■ ic plannin1 in the Soviet Union. The second obvious proble ■ is the already ■ entioned production inertia. Since the indices ot a plan period differ~ fortiori fro■ those of the previous period, it ■uat be possible to actually chan1e these indices. In other ·words production reserves ■u~t be planned and for■ed, a factor which also de■ands analysis (See Chapter 2). A third proble■ deter■ined directly by the type of equations seen in Pipre 1.1 is the presence ot resource expenditure nor■a for the pro duction ot each product, or the "nor■ative base" (See Chapter 3). The econo■ ic plannin1 ■atrix requires the presence of such nor■ s in each box. It 1oes without sayin1 that in the overwhel■in1 ■ajority of instances a 1iven resource is not spent at all for the production of a particular product, or its expenditure is ne1li1ible. Expenditure norms in these boxes equal zero. But takin1 into account the size of the ■atrix, even a s■all percenta1e of nontrivial nor■s ■akes it necessary to for■ and ■aintain a nor■ative base tor ■ illions ot articles. The fourth and final proble■ ste•in1 fro■ the equation syste■ in Pipre 1.1 consists ot deaand torecastin1 (See also Chapter 3). Demand torecastin1 is not always essential tor interaediate consumption articles since they are aiaultaneously also production resources, which can be aodeled by other ■athe■atical ■ethods.

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