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Xerox University Microfilms 300 North ZM b Road Ann Arbor, Michigan 40106 74-24,359 LEWIS, John Patrick, 1942- THE ECONOMICS OF INTERCOMMUNICATIONS IN THE USSR: THE POSTAL SERVICE AND TELEPHONE AND TELEGRAPH SYSTEMS. The Ohio State University, Ph.D., 1974 Economics, general

University Microfilms, A XEROX Company, Ann Arbor, Michigan

© Copyright by

John Patrick Lewis 1 9 74

THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED. THE ECONOMICS OF INTERCOMMUNICATIONS IN THE USSR: THE POSTAL SERVICE AND TELEPHONE AND TELEGRAPH SYSTEMS

DISSERTATION

Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University

By John Patrick Lewis, B.A., M.A.

*****

The Ohio State University 1 9 7 4

Reading Committee: Approve Dr. Warren W. Eason Dr. Josef C. Brada, Jr. Dr. Larry J. Wipf A d v iser Department of Economics ACKNOWLEDGMENTS

This study of intercommunications systems in the USSR has benefited from the encouragement, suggestions and crit­ ic ism s o f a number o f in d iv id u a ls to whom, w ith th e r e a d e r 's indulgence, I should like to express my thanks. Professor Warren W. Eason in itially suggested the subject of this dissertation and also gave me access to his microfilm collection of statistical sources on the prewar Soviet industrialization period. Beyond this, however, he has been much more theui a graduate adviser. On my behalf, he has given unstintingly of his time in innumerable ways during my graduate years at The Ohio State University. I ^ trust he w ill not find my gratitude, as Robert Louis Steven­ son once remarked, "a lame sentiment . . . more embarrassing than welcome." I am also indebted to Drs. Josef Brada .and Larry Wipf, the other members of my convnittee, who critically reviewed the dissertation. Dr. Brada greatly improved the exposition on communications growth in the final chapter. None of these three is responsible, of course, for errors that may rem ain. At an earlier stage of the research, Professors Hol­ land Hunter of Haverford College and the late Norman Kaplan

ii of the University of Rochester offered helpful suggestions. Murray Feshbach and his colleague, Stephan Rapawy, allowed me the use of their fine library of Soviet sources at the Foreign Demographic Analysis Division of the Department of Commerce in Washington, D.C. The International Research and Exchanges Board (IREX) made it possible for my family and me to spend the 1972-73 academic year in Moscow on the Graduate Student/Young Faculty Exchange. During that uniquely rewarding exper­ ience, I was extremely fortunate in having been affiliated with the All-Union Correspondence Institute of Electrotech­ nical Communications (VZEIS) and, in particular, its Econ­ omics kafedra. The faculty members there, whose names and works appear throughout the present volume, created a very friendly atmosphere in which to work and were most patient ^with a foreign student whose linguistic struggles with Rus­ sian were, on more than one occasion, a source of amusement. I would like to single out the generous help of the follow­ ing Soviet economists: I.A. Podgorodetskii, my adviser at VZEIS; L.M. Soloveichik, professor of conmunications econ­ omics at the Moscow Electrotechnical Communications Insti­ tute (MEIS); O.S. Srapionov, head of the Economics Division of the Central Scientific Research Institute of Communica­ tions (TsNIIS), the research organ of the Ministry of Com­ m un ication s; N.M. Gubin, dean a t VZEIS; and A.V. Razgovorov and N.F. Golitsyn, two other members of the department.

I l l Each made an important contribution to my research. I would be remiss if I failed to acknowledge the in­ fluence of a remarkable lady, Lida Petrovna Kostina, and her family, who so often eased the "cultural shock" of life in Moscow. Her concern for my progress in writing the dis­ sertation manifested itself in many ways. I am afraid I can never repay her kindness. Only those who have experienced the burdens and sac­ rifices involved with the writing of a dissertation can ap­ preciate how much these impositions are borne by one's family. Mary Beth, Matthew and Leigh Ann have grown accus­ tomed to this situation because they are still too young to have known any other. My w ife, Judy, has given more thaL one could reasonably ask of another human being. It is literally true that this dissertation would not have been completed save for her constant encouragement and love, am delighted to have at last emancipated her from this abnormal existence.

iv VITA

Hay 5 , 1942 ...... Bom - Gary, Indiana 1964 ...... B.A. (Economics), St. Joseph's College, Rensselaer, Indiana 1965 ...... M.A. (Economics) , Indiana University, Bloomington, Indiana 1965-1967 ...... Instructor, Economics, Robert Morris Junior College, Carthage, _ I l l i n o i s 1967-1968 ...... Instructor, Economics, Eastern Illinois University, Charleston, I l l i n o i s 1968-1969; Summer (1971 and 1973) ...... Teaching Associate (Economics), . The Ohio State University, Columbus, Ohio / 1969-1970 ...... Teaching Associate (Interna­ tional Studies), The Ohio State University, Columbus, Ohio Summer (1970); 1970-1972; 1973-1974 ...... NDEA (Title VI) Fellow, The Ohio State University, Columbus, Ohio 1972-1973 ...... International Research and Exchange Fellow (in USSR), U.S. Department of State

PUBLICATIONS "Economics: The Consequences of the Newest Natural Science," The American Economist, Vol. XV, No. 1, Spring 1971, pp. 7 1 -78.

v Economic Theory; Comparative Economic Systems and Soviet-type Economies; and Economic Development and Planning

v l ACKNOWLEDGMENTS VITA ...... LIST OF TABLES LIST OF FIGURES INTRODUCTION. .

^ Chapter I . THE DEVELOPMENT OF THE POSTAL SERVICE AND TELEGRAPH AND TELEPHONE SYSTEMS IN THE USSR ...... Introduction The P o sta l S e r v ic e The Telegraph System Long Distance Telephone Communications Local Telephone Communications C onclusion I I . THE CONCEPT AND COMPOSITION OF SOVIET COMMUNICATIONS OUTPUT ...... Introduction The P o sta l S e r v ic e Telegraph Communications Long Distance Telephone Communications Local Telephone Communications C onclusion I I I . COMMUNICATION RATE THEORY IN THE USSR . . . . Introduction The Public U tility Concept: Soviet and American Comparisons and Contrasts Some Rate and Cost Considerations in the U.S. and USSR • Soviet Price Theory as It Affects Communications Services C onclusion Page IV . COMMUNICATION RATE POLICY IN THE USSR . . . . 18? Introduction A Brief History of Soviet Communica­ t io n R ates Current Soviet Communication Rates C on clu sion V. POSTOAR GROWTH IN THE SOVIET COMMUNICATION INDUSTRY 250 Introduction Communications and Economic Growth Earlier Studies of Soviet Transpor­ tations and Communications CES and VES Production Functions of Communications in the USSR Summary V I. SUMMARY 285 APPENDIX 291 BIBLIOGRAPHY 313

▼111 LIST OF TABLES

T able Page 1 Planned Norms of Subscriber Telegraph Dis­ tribution, by Branch of the Economy, USSR .... 37 2 Capital Costs and Operating Costs of Long Distance Telephone Offices: 1970 Soviet E stim a tes ...... 55 3 Telephone Use by Sector in Selected Soviet C ities: 19 31 and 1936 ...... ?8

4 Branch Output Assortment of the Soviet Com­ munications Industry ...... 100

5 The Structure of Soviet Communications Out­ put: Selected Years, 1950-1970 ...... 102 6 The Structure of U.S. Coronunications Output: Selected Years, 1950-1970 ...... 104 7 The Composition of U.S. Mail, 1968 ...... 10? 8 The Distribution of Mail Volume by Users in th e USSR, 1970 ...... 108 9 The Distribution of Telegrams by Users: USSR, S e le c te d Y ears, 1928-1970 ...... 112 10 Long Distance Telephone Conversations^ Selected Countries, 1970 ...... *...... 116

11 The Distribution of Long Distance Telephone C a lls : USSR, S e le c te d Y ears, 1928-1970 ...... 118 12 Telephone Saturation in the State Sector: USSR, 1960 ...... 124 13 Telephones in Soviet Republics, Capital Cites and Rural Networks, 1969 and 1970 ...... 125

l z Planned Norms o f Telephone S atu ration : USSR, 1970, 1975 and 1980 ...... 15 Profitability of Soviet Branches of Com­ munications, 1966 ...... 16 Cost Structure in Communications and Industrial Production, USSR ...... 17 1968 Concnunications Output In New 1972 Prices, and 1970 ACOR's ...... 18 Postal Revenues, Costs and Profits: USSR, 1925-1926 ...... 19 Soviet Postal Rates ...... 20 Rate Structure and Composition of Soviet Parcels, by Distance and Weight, 1970 ...... 21 Sebestoimost1, Average Rate, Profits and bistribution of Long Distance Telephone C a lls , by D ista n ce: USSR, 1959 and 1964 ......

22 The Relationship between Average Cost and Network Capacity in Soviet City Telephone Systems, 1968 ...... 23 Sources of Average Annual Conmunications Growth: USSR, Selected Periods, 1950-1970 .... 24 Incremental K/Y and K/L Ratios: Soviet Transport-Coirm unications and Communica­ tions Sectors, 1950-1970 ...... 25 Marginal Products and E lasticities: Soviet Communications Industry, 1950-1970 ...... 26 Derivation of L/K Coefficients: USSR, Communications Industry and Branches ...... 27 Communications Output, Revenues, Capital Stock, Employment and Manhours: USSR, 1950-1971 ......

28 Communications Output: USSR, by Branch and Republic, 1960, 1965 and 1970 ......

X T able page

29 Communications C a p ita l S tock: USSR, by Branch and Republic, 1960, 1965 and 1970 ...... 297 30 Communications Workers and Employees: USSR, by Branch and R ep ub lic, 1960, 1965 and 1970 ...... 298 31 Product Assortment and Monetary Valuations (Prices) Used in the Computation of Soviet Convnunications Output ‘ ...... 300 32 Urban Telephone Systems: Selected Years, 1927 ...... 30** 33 Postal and Telegraph Correspondence and Long Distance Telephone Calls: USSR, Selected Years, 1913-1971 ...... 305 34 C ity T elephone System s: USSR, S e le c te d Years, 1913-1971 ...... 30? 35 Rural Telephone System s: USSR, S e le c te d Years, 1928-1971 ...... 309 36 Demand for Soviet Communications Services: Regression Results ...... 311

x l LIST OF FIGURES

F igu re Page 1 Transmission of a Telegram in the Network of General Use and via Subscriber Telegraph, 35 2 A Rate Regulation Model of Soviet City Telephone Networks ...... 176

x li INTRODUCTION

In economies characterized by centralized decision­ making, the coordination of planning at the administrative level and the filtering down and implementation of plan directives at the operational level require channels of com­ munication through which relevant information can flow. These channels operate within the economic organism in a fashion somewhat sim ilar to arteries in the human organism. Their critical functions are those of distribution and cir­ culation. Arteries conduct blood from the heart to various parts of the body; communications channels conduct informa­ tion from the centers of the economy to the peripheral sectors. Now it is clear that neither perfectly functioning arteries nor pervasive channels of communication is a guaran­ tee against atrophic conditions in other vital parts. The "best laid plans,1' transmitted with dispatch to those who w ill implement them, can be subverted after coraminications channels have performed their function. To strain the biological analogy a bit, channels, like arteries, can be­ come "hardened" due to overload, noise, damaged transmission lines, etc., in which case the circulation of information is impeded. Though not necessarily fatal,, this condition is reflected in a loss of efficiency in the organism. By way of clarifying the attributes of communications channels, the contrasts as well as the sim ilarities in the analogy merit attention. First, arteries are sensitive to materials that pass through them; channels are not—‘they are neutral conveyors of good and bad news, meaningful and inconsequential information, relevant and irrelevant data. Secondly, the number of arteries is constant in the human body and each can distend only slightly in size. The growth of channels in size and number provides a means of reducing information costs and improving resource allocation and economic performance. Finally, the nature of the circulatory system differs in artery and channel networks. Since the pioneering work of Harvey, we know that blood does not flow back and forth but travels in only one direction over a circuitous route—away from the heart in the major arteries, to the heart in the veins. The types of channels with which this dissertation deals involve two-way communications or intercommunications. Unlike blood in the arteries, informa­ tion flows in both directions along the same channel. Feed­ back may be instantaneous as in the case of telephone com­ munications or lagged as with telegraph and postal corres­ pondence . The term "communication" involves a panoply of varie­ gated forms. A love letter, jungle drums and the town crier fall under this rubric as readily' as computer print­ outs and artificial satellites. One approach to a more restricted definition is to consider consnunications as an industry which includes only the organized means of trans­ mitting information and excludes informally-received, word- of-mouth messages. He are specifically concerned with the comnunications industry as it is defined in the USSR. Of the following seven branches of the industry# this study focuses on the first five—the means of intercommunica­ t io n s : 1. the postal service (including the distribu­ tion of periodical publications); 2. telegraph communications; 3. long distance telephone communications;.

4 . city telephone systems; 5. rural telephone systems; €. "radiofication" or radio diffusion networks (loudspeakers connected to local wire broad­ cast stations); 7. radio and television broadcasting. Because messages sent through postal, telephone and telegraph systems cost so little relative to personal income and are so often used that they are generally taken for granted, the study of intercommunications has not attracted much attention. On a national scale, investment in these media, especially in the developing countries, has been relatively meager. While the contributions of other sectors of a country's infrastructure, for example, transport or electric power, are more direct and immediate, the impact of intercommunications is in a sense "invisible." It is simply not possible to quantitatively isolate the economic benefits to be derived from, say, an expanded telephone system. The costs of weakly developed intercommunications net­ works, however, are much more apparent, and it is the cost side that may stimulate future increases in investment in electrical conmunications. The critical feature in the further growth of these systems relates to economies of time—an important issue in the more substantive discussions spawned by the Soviet economic reforms of the m id-sixties. In a major article in Pravda, V. Trapeznikov presented some empirical evidence on the debilitating effects of lost time and the consequent immobilization of assets (otmertvlenie sredstv). "It turns out that not only materials that are immobilized in warehouses or in transit but also immobilized information, i.e ., the delay of various communications, causes'enormous losses."'1’ In one group of Magnitogorsk enterprises, Trapeznikov reported, inventories of finished products increased by "tens of thousands of units" for every hour of delayed information. Since a great many Soviet enterprises experience communication bottlenecks of more than one hour, the total loss to the USSR runs into "hundreds of millions of rubles per year." In Soviet agriculture, managerial effectiveness on collective and State farms has likewise been reduced "owing to a shortage of rural telephones. Each year, 250,000 persons are being taken out of productive activities and used as messengers and errand boys. It costs 1 ruble 50 kopeks to send a message in this way, while a rural tele- 2 phone call costs only 3 to 4 kopeks." As the period of heavy industrialization has come to a close and planners have become more conscious of the need to improve efficiency, criticism s of the Soviet comrounica- tions systems have increased, reflecting a belated concern for improved information transmission systems. As we at­ tempt to show in the following chapters, the development of the communications industry has not kept pace with Soviet economic growth. Although communications during the Tsar­ ist period are discussed only briefly, it is apparent that the new Bolshevik regime had recourse to very lim ited elec­ trical communications which were severely curtailed during the ensuing civil war. By the beginning of the Five Year Plans in 1928, Soviet industry generally had achieved a higher level of development them the combined communica­ tions systems. In addition to an analysis of the factors affecting

* the development of each branch of this industry during the Plan years, Chapter I describes the historical changes in the size, sectoral use and technology of the postal service, the telegraph system and long distance and local telephone networks. The underlying objective here as in the entire dissertation is to identify (to the extent the data allow) the types of users—population, national economy, industry, et a l.—of communications services. Few countries calculate a value of output series in communications. Since the early 1960's, the USSR has found such a series useful not merely for statistical accounting purposes but also as a key indicator of the economic per­ formance of communications enterprises. Chapter II is devoted to an analysis of the derivation of Soviet commun­ ications output—the services included in the serieB and the "monetary valuations (prices)" attached to them. An understanding of what is meant by communications output and prices is fundamental to the examination in Chapter III of the development of Soviet rate theory and comparisons with U.S. regulation experience. Criteria af­ fecting postal, telephone and telegraph rate-making prin­ ciples are discussed in depth in Chapter IV. It suffices to mention at this point that for political and economic reas­ ons there is a wide gulf in theory and in practice between the level and structure of user rates on the one hand and the internal prices applied to communications services on the other. In effect, a viable economic theory of rate regula­ tion is shown to be nonexistent. Most of Soviet micro- economic theory and research in communications is devoted to perfecting the internal prices that vitally affect enterprise activities. Finally, in Chapter V, we attempt to assess postwar communications growth and productivity in the USSR by generating value-added measures of input contributions to output and by estimating CES and VES production functions. Extensive reliance on the labor input and insufficient capital investment in the prewar period are shown to have produced greatly distorted factor proportions that have yet to be corrected despite the more rapid growth of. capital since 1950. Thus, communications growth has depended pri­ marily on the infusion of inputs and only marginally on factor productivity. 8

NOTES - INTRODUCTION

*V. Trapeznikov, "How muoh Is Tine Worth - Lost and Saved," Pravda. July 24, 1969. See also V. Bogachev and L. Kantorovich, "The Cost of Time," Kommunlst. no. 10, 1969 and I.A. Podgorodetskli, Khozlalstvennala reforma na prcd- prllatllakh svlazl v delstvll. 1970. p. 3 $. 2Vestnlk svlazl. no. 1, 1965. CHAPTER I

THE DEVELOPMENT OF THE POSTAL SERVICE AND TELEGRAPH AND TELEPHONE SYSTEMS IN THE USSR

Introduction The general aim of this chapter is to place the growth of intercommunications systems within the historical context of Soviet economic development. Intercommunications net- _works in pre-revolutionary Russia are discussed briefly to give some perspective to later developments during the Soviet period. This descriptive survey of the conditions under which each branch of the industry has been promoted or im­ peded includes such factors as the size, structure and dis­ tribution of networks, the use and users of communications services, national and intraindustry investment priorities, technological improvements in the postal and electrical branches, labor and wage policy and official Soviet attitudes toward communications growth. These aspects of development are discussed separately for each intercommunications branch: 1) the postal service; 2) the telegraph system; 3) long dis­ tance telephone communications; and 4) local telephone com­ munications. In each case, we attempt to establish'a frame­ work within which to investigate in later chapters the cen­ tral issues of the dissertation, namely, communications

9 10 output, rate-making, productivity and growth

The Postal Service The earliest form of intercoitmunication, aside from personal contact, was the transmission of written corres­ pondence via the mail. The development of postal service— longer routes, larger mail volume and bulk mail delivery— presupposed the growth of transportation networks and, in Russia, Tsarist predilections for expanded contact with major cities. Before the mid-eighteenth century, postal correspondence passed almost exclusively between the Russian feudal elites who could afford to maintain stables and riders. The postal reforms of Peter the Great represented a partial attempt to promote greater use of the mails by the population, but these reforms were devoted more to the es­ tablishment of regular long distance routes than to intra­ city service. At a time when modern technology and improved means of transport had yet to expand an individual's circle of acquaintances much beyond the city or town lim its, the reforms did little to induce larger mail flows from the Russian citizenry. The birth of railroad transport, postal rate reform, the introduction of city post offices and full-tim e letter carriers produced a quantum leap in letter correspondence and marked the beginning of a national postal service. The Ministry of Post and Telegraph, created in 1865, became the Main Administration for Post and Telegraph twenty years later. These regulatory bodies acted as administrative overseers for intra- and inter-city postal operations. Rural mail correspondence was nonexistent until the latter part of the nineteenth century and even then was developed on local initiative by the zemstva (self-governing district coun­ cils) , independent of and without support from the State. Before 1917, new postal stations were opened only in those rural communities where the prospects of a revenue gain were favorable or on the condition that the local populace would assume a three year obligation to provide, without State subsidy, letter processing and delivery.1’ Under these con­ ditions, many villages remained isolated and ignorant of events even in the provincial centers and depended on the itinerant trader or traveler as the sole source of informa­ tion about the outside world. If, "by 1900, railroad transportation and [mail processing] work in transit were the backbone of the postal 2 system of the United States," the same cannot be said of the Russian postal service. The inmediate impact of the railroad on postal growth, though significant, was relatively much smaller in Russia due to the coinparative lag in the rate of economic development and the fact that the Russian land mass was approximately three times greater than that of the U.S. Even as late as 1937, nearly half of the total length of postal routes was serviced by horses and horse-drawn vehicles, less than ten percent by rail and the remainder 3 via river routes, truck and air transport. The majority of Russian villages were without stationary postal facilities and received mail irregularly through the network of cir­ cular (kol"tsevoi) or mobile delivery. In 1913, of nearly one billion pieces of domestic mail processed, letter correspondence dominated postal volume with 60 percent of the total. The hortatory and didactic value of the press, however, was clearly perceived by Lenin and the new Soviet regime as a primary medium for effecting social and political change. The task of physically dis- ' tributing newspapers and magazines fell to the postal ser­ vice, a task that soon came to dominate a ll of its other functions, at least in terms of the work involved in proces­ sing if not in revenue obtained. Relative shares of letter correspondence and periodical publications in the composi­ tion of output had been reversed by 1928. The enthusiasm with which the Bolsheviks pressed for increases in the number and circulation of periodicals is demonstrated by the fact that 70 percent of a ll mail pieces were newspapers and magazines—twice the prewar share. While there had been an absolute decline in the number of letters sent compared with the 1913 level, circulation of periodicals increased by 4 3 .7 tim e s . The maelstrom of events in Russia from 1914 to 1922- world war, revolution, civil war—resulted in the con­ striction of networks and sizeable reductions in traffic 13 carried by each branch of intercommunications. The prewar level of output in the postal branch was not equaled until 1925, but the network of enterprises was declared to have been fully reconstructed before the onset of the First Five Year P la n . The underlying principle behind postal development that appears repeatedly in the Soviet communications litera­ ture is the idea there should be a "drawing near (pribliz- henie) " of postal services to the population through in­ creases in the types and quantities of service and the den­ sity and dispersion of the network of postal enterprises. Notable successes have been achieved in promoting this goal, especially with regard to the rural regions of the USSR that had remained isolated under the Tsars. Implicit in this objective was the attempt to give the Soviet people closer and more regular access to the printed press through which the regime could propagate central party and governmental p o lic y . Political motives were also apparent in Soviet postal policy in the agricultural sector. As an adjunct of the frenetic collectivization campaign of the early thirties, conmunications services were "drawn nearer" to the popula­ tion as a further means of eliminating the kulaks. "Before 1931, we had a most disorganized staff of rural letter carriers. Kulak elements, which represented a considerable share of the labor force, controlled both the horses and the 14 facilities for expediting the m ail.1* To remedy this situa­ tion* the kulaks were gradually dispossessed of their hold­ ings* and collective fanners were enlisted to serve as mail carriers. The 39*947 rural mail carriers employed in January 1931 had* by July 1934, been converted to or replaced by 109,255 c o lle c t iv e farm postm en. Though th e c o l le c t iv e farms could "now consider the matter of communications their own personal business," the shift to internal labor resources extended Soviet control over agriculture.5 Measured in terms of the output increases in postal matter* the postal service experienced remarkable growth dur­ ing the prewar Plan years. Soviets sent five times more letters and three times more parcels in 1940 than in 1928. Likewise* they received five times as many newspapers and magazines. Mail flows were handled by over 50*000 post offices, the vast majority of them in towns and villages; the network of communications enterprises had tripled in size relative to 1928.5 The prime source of this expansion was the unplanned rise in labor inputs. Although the First Five Year Plan projected a slight decline in communications employment, the average annual number of workers and employees increased by 136 percent from 1928 to 1932. Employment more than doubled n again from 1932 to 1940. The combination of factors re­ sponsible for this growth includes: 1) the conscription of collective farm mail carriers (whose numbers reached 154*600 15 g in 1938 ); 2) social inducements, such as those behind the Stakhanovite movement, in which workers who exceeded their planned production quotas received public praise through the press as well as medals of achievements; 3) the large num­ ber of occupations in the industry requiring little train­ ing; and 4) the relatively high female labor participa­ tion rate in communications. The rates of growth of postal (and communications) out­ put during the prewar years are a ll the more impressive when it is observed that the behavior of wages reflected to some extent the low ranking of this branch of the economy in Soviet development priorities. Following Lenin's 1921 state­ ment that "any notion as to [wage] equality should be dis­ missed, ” the communications industry adopted a differential wage structure (with a 1:8 earnings ratio between the lowest and highest skilled worker) aimed at improving productiv- Q ity. Interbranch differentials were negligible; monthly

earnings of telephone workers were only slightly higher than those of postal and telegraph employees.*® Absolute money wages of communications workers increased substantially but deteriorated steadily relative to most other branches of in­ dustry and the economy during the first two quinquennia. In 1928 average earnings in communications exceeded the average for the whole economy by 10 percent, but by 1940, they stood at 17 percent below the national average.** Soviet wage policy, therefore was hardly conducive to attracting labor to the coimiunications industry. 16 While money wages were rising rapidly in practically every sector of the economy« the degree of consumer price inflation was severe enough to cause a sharp drop in per capita real wages until their level in 19 37 was barely half of what it had been in 1928. £ven though real wages were declining for virtually a ll of the working population in these years, workers in favored industries experienced a slower rate of decline, and even enjoyed increases in some years. Wages in urban occupations exceeded the peasants' per capita income. Thus, the change in the structure of money wages did have the desired incentive effects. In addition, the decline in per capita real wages induced married women to enter the labor force, thereby sustaining or increasing family incomes.i 2 Since occupations such as mail sorter, letter carrier, telephone operator and telegrapher required little or no experience and minimal training periods, work in the commun­ ications industry was a readily accessible source of employ­ ment for Soviet women'seeking to augment family incomes. In 1940, the percentage of women in this industry was higher than in any other branch of the economy, except health and e d u c a tio n . In the absence of appropriate time series data, we cannot empirically estimate the production function behavior of the industry during the prewar period.. It seems doubt­ ful, however, that factor productivity could have accounted for more than a negligible portion of communications output growth. Postal operations in particular remained critically undercapitalized. Unlike most industrial production processes, the business of handling postal matter can pro­ ceed, however inefficiently, with a small degree of mechan­ ization. In the Soviet post, which in 1937 included 60 per- 17 cent of the communications labor force**, handling, sorting and processing operations in all but a few of the largest post offices were performed manually. During the early thirties, several large post offices were constructed (at Sverdlovsk, Perm', Izhevsk, Kineshma, Briansk, et a l.), but even these were short of machinery. "Only about 30 percent [of Soviet post offices] had any kind of mechanized equip­ ment and even this was of the most primitive type. At pres­ ent our comaunications are operating in poorly equipped f a c i l i t i e s . "*5 Exclusive reliance on manual labor as a forcing house for increasing the volume of postal correspondence did re­ sult in impressive output gains. Nevertheless, consistent with the national economic objective of "industrialization at any cost," which in practice meant that the costs of in­ dustrialization would be borne by less favored sectors of the economy, postal planners and supervisors could do little to improve factor combinations and efficiency, except within

» a narrowly defined framework. Over half of the total com­ munications investment in the First Five Year 'Plan was ear­ marked for local and long distance telephone development. Investment allocations to the postal service, telegraph and radio branches were considered by communications economists to be ’’grossly inadequate."*® In September 1934, a general governmental assessment found the "quantity and especially the quality of communica- 17 tions work unsatisfactory." In the cities, the most crit­ ical shortcomings centered around the organization of the 18 network and the integration of postal operations. These

in clu d ed 1) the slow processing of both outgoing and incom­ ing letter mail and periodicals, 2) the absence of sorting offices at railroad stations and 3) weaknesses in the dis­ patching of personnel and postal matter. Intra-oblast and inter-raion communications had for too long been transmitted over "radial" networks in which the oblast or raion center served as the nucleus through which all mail flows passed. This kind of network is analog gous to the spokes on a wheel. Most often, correspondence ' between two contiguous settlements on the rim had to be routed through the center and then back again. Besides the information delays that resulted, this routing scheme placed a particularly heavy sorting burden on the center. Radial networks in both postal and electrical communications existed long after the "gravitation (tiaqotenie)" between adjacent towns had warranted the establishment of direct intercommun­ ications between them. The unbounded enthusiasm of Soviet planners, reflected in the final goals of the First Five Year Plan, was tempered during the 1933-1937 period. The Second Plan targets for the national economy were generally more realistic and bal­ anced between capital and consumer goods production than IB those of its predecessor. Planning in the communications industry revealed a different pattern. Buoyed by the network expansion and the in c r e a se in demand fo r com m unications s e r v ic e s in th e f i r s t quinquennium, planners imposed targets for the postal ser- *9 vice and telephone systems that were unrealistically high.

The number of post offices, which was expected to grow to 70,500 by 1937 (a figure not reached until 1964), actually declined to 41,000. Letter mail and newspapers and mag­ azines were to double by the end of the period; their'volume increased by 30 and 22 percent, respectively. Postal routes grew by 15 percent, one-third of the projected increase. Given the conbination of problems mentioned above relating to the lack of integration of postal operations and the inef­ ficiency associated with the failure to increase capital in-

• » puts, these shortfalls could have been anticipated. An equally important impediment to the achievement of the Plan targets arose in connection with the movement of mail within and between cities. Transportation is clearly a sine qua non for effective postal service, and it is in this area that some setbacks occurred. At the beginning of the Five Year Plans, the time required to transport mail between post offices was double or triple the control norms for most Soviet cities. Intra-city movement of mail—from post office 19 to addressee—was even slower. While the tone of the national economic plan had been one of "mastering technique" and "consolidating the gains already won," the emphasis in the conmunications industry remained unquestionably on in­ creasing the quantity rather than improving the quality of services. This was to be accomplished even though major repairs to railroad postal cars were not conpleted. Further­ more, production of rail mail cars ceased in 1934 and did 20 not resume again until after the war.^® Motorized vehicles for postal transport were expected to make the largest gains in the industry during the Second Plan period with a ten­ fold rise in the number of vehicles and a sixteen-fold in­ crease in the length of motorized postal routes. In both cases, actual figures were less than half of the Plan 21 goals. The share of postal routes served by motor trans­ port did increase from 1.6 percent to 13 percent and there­ by offset in part the weak growth of railroad postal trans­ port during this period. Air and river transport of the mail, though short of Plan goals, tripled and doubled, respectively, in length of routes. 22 Whatever its inadequacies in the Second Five Year Plan, the means of postal transport during the entire pre- % war industrialization period succeeded in handling a tre- t mendous volume of mail. In particular, the increase in the circulation of newspapers and magazines distributed through the postal network—6.7 billion copies in 1940 compared with 1.3 billion in 1928—could not have been much .below reason- 23 a b le e x p e c ta tio n s . The a c c e le r a tio n in demand fo r ordinary letter correspondence is illustrated by the fact that the average Soviet citizen sent only 3.5 letters in 1928, but 24 13.1 letters in 1940. Although postal matter sent cross country by rail took days or even weeks to reach its des­ tination and intra-city mail delivery continued to be plagued by inefficiencies in sorting and handling, the Soviets could 21 claim that, by 1940, 86 percent of all raion centers received

f mail from their oblast, krai or republic capitals on the day it was sent or the next day. This represented a consider­ able improvement over the situation in 1928 when the average frequency of mail movements was less than eight times per month . 25 The extraordinary rates of growth in postal communica­ tions during the first quinquennium reappeared under the foreshortened Third Five Year Plan (1938-1941), but progress was abruptly interrupted by the German invasion in 1941. The national economic plan for 1941, drafted months in advance of its implementation, envisaged a continuation of commun­ ications growth in each branch of the industry, but the im­ mediate effect of the war led to a marked deterioration in 26 mail service. Postal workers were sent to the war front and replaced by new recruits with no prior training. The relocation of industry eastward disrupted established postal routes. Since space became relatively scarce on railroad postal cars, many of which were diverted to military use, parcel post was temporarily suspended. By 1945, the volume of parcels handled had fallen to one-sixth the prewar level. In general, just as some enterprises formerly producing industrial capital goods were shifted to armaments produc­ tion, many postal enterprises were transformed into military dispatch offices. As many as 70 million letters and more i than 30 million newspapers were delivered monthly to the 22 field army alone. About 40 percent of all letters taken in by civilian communications offices were directed to the Red 27 Army o r Navy. In late 1941, 20 central newspapers and 179 central magazines ceased publication. The mass distribution of the periodical press that had dominated the work of the postal service before the war gave way to priority distribution to the Western front with military aircraft carrying half of 28 the central newspaper editions. The decline in normal letter correspondence was off­ set by the huge increase in the flow of mail to military per­ sonnel from their fam ilies, so that by 1945, the volume of ordinary mail was slightly higher than what it had been be­ fore the war. In the case of periodical publications, how­ ever, the war time constraints took their to ll. The number m of newspapers and magazines distributed through the post was only 30 percent of the prewar level in 1943 and 40 percent in 1 9 4 5 .29 Postwar trends in the Soviet comrmnications industry indicate that the electrical branches have made significant inroads on the postal service. From 1950 to the present, the relative share of the postal branch has fallen from about one-half to one-third of the industry's ruble output and rate revenues. This share w ill continue to decline but « w ill stabilize at a lower level since the mails w ill always accommodate those users who seek to transmit less urgent 23 information at the lowest per message cost. According to the most recent Soviet data on the activ­ ities of the communications branches, the postal service ranks at the bottom in terms of economic performance. Postal operating costs per 100 rubles of output are 20 p ercen t higher than the industry average. Nearly half of the indus­ try's operating costs are s till incurred by the postal ser­ vice. Labor productivity, according to Soviet estimates, has remained fairly constant over the postwar period as post­ al workers have been plied with the least amount of capital equipment per worker. Despite its large share of industry output, the post has generated only about 15 percent of com­ munications profits . 30 Most efforts to improve the mail service have been concentrated in the area of rationalizing postal networks 31 and smoothing urban and long distance mail flows. These efforts have had a marked impact on output notwithstanding the unimpressive behavior of other variables mentioned above. From 1950 to 1971, the volume of ordinary letter mail increased by 3.2 times; the number of parcels sent grew by 4.1 times; money orders and pension payments, 3.3 times; and the total circulation of newspapers and magazines, 6 .0 times. Postal transport runs more than tripled in distance. Mail tonnage carried by airlines increased from 29,000 to m 305,000 tons.32 24 Following the lead of several other advanced coun­ tries, the USSR introduced a six-digit "zip code" in January 1971. Though Moscow postal officials expressed some dismay that compliance with the system was exceptionally low, the Ministry of Comnunications reported that by March 1972 an average of 42 percent of outgoing letters included the in- 33 dex number. Wider use of the zip code is expected to reduce processing costs and delivery times. In terms of pieces of mail handled, the Soviet postal service in 1971 compares with the U.S. Post Office in 1950. As w ill become apparent in subsequent chapters, however, this comparison is invalid. The composition of mail in the two systems is radically different. Advertising bulks extreme­ ly large in U.S. mail, but is virtually nonexistent in Sov­ iet mail. Newspaper and magazine delivery occupies the cen­ tral place in the Soviet post, but the U.S. Post Office de- I livers only a fraction of domestic periodical publications. Should increased availability and lower user rates on alter­ n a tiv e means o f intercom m unications reduce th e demand fo r ordinary letter correspondence, the Soviet postal service, because of its responsibility for the distribution of news­ papers and magazines, w ill continue as a mainstay in the comnunications industry.

The Telegraph System Although scientific discoveries are often the result of isolated genius, they generally evolve from the cumulative efforts of past inventors whose names become mere footnotes to history—a fate shared by those who improve upon the basic invention. The paternity of the telegraph, for example, is accorded to the American inventor, Samuel Morse. Since its appearance in 1844, the telegraph has been devel­ oped into a sophisticated medium of intercommunications, but the U.S. and European researchers responsible for the subsequent advances over Morse's first crude instrument re­ main as obscure in the public mind as those who preceded Morse. This rather obvious fact is mentioned only to bring attention to the hundreds of modifications and the many new uses of telegraphy that have arisen in its long history. This section of the chapter briefly summarizes the develop­ ment and current uses of telegraphic communications in the USSR. The St. Petersburg-Moscow telegraph line opened in

* April 1855 with transmitters imported from Germany. Morse instruments were later produced in Russian plants and by A 1913 accounted for 90 percent of all telegraphs. Since duplex telegraphy had yet to be operationalized, the first main line in Russia could carry a message in only one direc­ tion at a time, which severely limited the volume of informa­ tion that could be sent between the country's two most im­ portant cities. Telegraph lines were later extended from St. Petersburg to Warsaw, Helsinki and Revel' (now Tallinn) % and from Moscow southward to Kiev and on to Odessa. 26 Of major world importance was the agreement between Russia and the U.S. to extend the Pacific coast telegraph line from San Francisco to Vancouver, through Alaska and across the Bering Strait by short cable, and then south through Siberia to the mouth of the Amur River. The ex­ pedition was divided between the British Columbian, Alas­ kan (then Russian-American) and Siberian land parties, and work was in full swing by 1865. After more than 1000 miles of line had been constructed and the cable laid, the pro­ ject was aborted owing to the completion of the first 'Transatlantic cable in 1866. Nevertheless, the venture directly contributed to the U.S. purchase of Alaska and a burgeoning of the world telegraph business. The Russians eventually constructed telegraph lines to the Pacific Ocean thereby linking the Far East with Europe and America. 35 Tsarist Russia made no notable contributions to world telegraph technology. Before the Revolution, the entire telegraph system had been a product of foreign design and development. Improved versions of telegraph instruments, before and after 1917, were adopted, but in general they were put to use later and kept in use much longer them in the U.S. and Europe. The 1913 telegraph network included 125,000 kilom­ eters of line, twice the distance covered by the telephone system then extant. 36 Although one-seventh of the messages sent were "official" and therefore transmitted at reduced 27 rates, annual telegraph revenues exceeded operating costs as they had done throughout the pre-revolutionary period. Pos- tal-telegraph deficits were not incurred until the late 1920*8, when rising costs militated against user rates that had not yet matched their prewar level. 37 That the Soviets were w illing to underwrite these later subsidies to the branches of the industry found its roots in Lenin's conception of the indispensibility of both mass communications and intercommunications. As if to jus­ tify themselves, most Soviet works dealing with this sub- " ject begin with Lenin's assertion that "Socialism without the post office, the telegraph and machinery is an empty phrase." Insofar as the postal service was concerned, its function of distributing the periodical press served to "educate" the masses and consolidate Bolshevik power. In that sense, it became not only a means of personal inter­ communication but also a vehicle for mass coimunication. The telegraph, originally intended for and used exclusively by the Russian aristocracy, eventually came into popular use with the gradual reduction in telegram rates. Without any semblance of a telephone network, telegraphic communica­ tions, where they were available, clearly constituted the most effective means of directly transmitting political, economic, administrative and m ilitary information. It is much too generous to claim, as one Soviet his- r tory of communications does, that Lenin's Moscow office 28 represented the "nerve center of our country" in X9X8. 38 Heavy industry, transport, foreign trade and credit and bank­ ing—the "commanding heights" of the economy—were stiXX not compXetely controXXed by the new regime within a year after the revoXution. MiXiions of peasant househoXds were as yet untouched by the SociaXist doctrine. Before the NEP period, the "nerve center" couXd not have been used for much more than miXitary communiques. The civiX war destruction re­ sulted in Xosses to outside Xines and teXegraphs that were not fuXXy recovered untiX X930, at which time the compos- ' ition of teXegraph instruments was sim ilar to what it had

been X8 years earXier. The Baudot quadrupXex machine, which couXd transmit messages at least-eight* times faster than the old Morse teXegraph and which quadrupXed channeX capacity, had first been introduced in Russia in X904. By 1930, XlttXe more than X0 percent of Soviet teXegraphs were 39 of the Baudot type. To the outset of the First Five Year PXan, the teXe­ graph branch was in the process of reconstruction. In X927/28, the Xength of Xines was sXightXy greater, the voX- ume of tra ffic somewhat smaXXer than before WorXd War I. The foXXowing year capitaX investment in teXegraph communi­ cations feXX by 20 percent. Communications economists pre- matureXy interpreted this as the first sign of a graduaX erosion in teXegraph traffic due to the Xong run deveiop- 40 ment of teXephone communications. Gosplan anticipated minimal growth in demand from 1928 to 1932 for the Plan called for an increase in annual message volume of only 17 41 percent. The actual number of telegrams sent grew from 28 42 million to 92 million. Three factors contributed to an

increase in communications of this magnitude: 1 ) the overall growth in industrial output and the large communications requirements of Party and government organizations in coor­

dinating planning and performance; 2) daily injunctions in the press to plan overfulfillment and the fear of sanctions— economic and otherwise—to be exacted against those enter­ prises that failed to meet quotas; and 3) the consequent abuse of the telegraph by administrative officials and enter­ prise managers intent on mobilizing personnel and acquiring raw materials. This "irrational use" of the telegraph on the part of "our economic organizations" came in the form of multi-worded telegrams that "should have been handled completely by the postal service." Channels became over­ loaded, the quality and speed of transmission worsened and telegraph costs at State institutions and industrial enter­ prises increased rapidly. The Council of People's Coirmis- sars, in March 1933, sought to remedy this state of affairs by reducing the budget allocations for telegraph use at a ll 43 institutions and enterprises by 30 percent. Traffic loads were particularly heavy at the Central Telegraph in Moscow, the focal transit center for most Soviet telegrams. Before the Second Five Year Plan, no 30 attempts were made to estimate the potential flows of tele­ graph (and telephone) correspondence between the various economic regions that would have justified the construction of direct wire links between them. For example, Kiev and Khar'kov telegrams to Sverdlovsk, Irkutsk and Khabarovsk had to be routed through Moscow. Many major cities in Central Asia were without direct telegraph connection to the east or to the Ukraine. Yakutia in eastern Siberia had no elec- 44 trical comnunications at all with the rest of the country. Regional switching centers were constructed from the mid­ thirties on in order to alleviate Moscow's volume of traf­ f i c . Growth in telegraph correspondence in the years before World War II was caused by other factors besides the exces­ sive use of telegrams by enterprises (which was not elim in­ ated but only reduced by the 19 33 governmental decree). The production of telegraph instruments increased by 50 percent from 1932 to 1937, and the Soviets began to rely more on the work of their own inventors, namely, Shorin and Treml', for 45 high speed telegraphy (then about 380 words per minute). In addition, the telegraph branch had its own cadre of Stak- hanovites, the "thousanders, M so named for their ability to increase productivity by transmitting a thousand telegrams on Baudot machines whose normal operating capacity was 400-

700 messages per 24 hours . ^ The tenuous international situation prompted an increased effort toward m ilitary 31 preparedness, thereby requiring greater information flows. Shortly after hostilities begem, three auxiliary telegraph centers were set up in Gor'kii, Kuibyshev and Stalingrad (now Volgograd) to relieve the Central Telegraph Office in Moscow. Though s till in its infancy, phototelegraphy had been introduced before the war. Experimental facsimile trans­ mission of Pravda and Izvestiia from Moscow to Sverdlovsk was of poor quality in the late thirties, but later suc­ cesses in this medium were to substantially alter the speeds at which central newspapers and magazines could be delivered to remote regions. Hence, to say that Soviet citizens sent less than one telegram per capita in 1940 misrepresents the specialized and preferential uses of telegraphic inter­ communications in the USSR at that time. !rhe extent of wartime damages to electrical commun­ ications is difficult to estimate, but apparently the greater intensity of telegraph operations more than conpensated for the reduction in the size of the branch. Half of the tele­ graph offices were either evacuated or relocated in regions less vulnerable to attack from the German armies, and much of the line and exchange equipment was destroyed. Yet dur- ing 1942, the worst year of the war in terms of communica­ tions output, message volume had fallen by only 7 percent of the 1940 level. For Vhe entire period from 1940 to 1945, annual telegraph messages rose by about one-fifth, while 32 long distance telephone calls fell by one-third. By the end of the war, 95 percent of the raion centers had established 48 telegraph links with .their republic, krai or oblast centers. The postwar growth of the two competing media of elec­ trical intercommunications—the telegraph and the telephone— was greatly influenced by their respective behavior during the war. Under "normal" conditions, telephone development might have "caught up" with the telegraph system by 1950, but rate revenues, ruble output and message volume remained substantially higher in the latter branch. In 1950, the ratio of Soviet telegram messages to toll calls was 1*5:1; in 1960,.1*3:1; and by January 1, 1972, ,78:1»49 The dis­ placement of the conventional telegraph by the telephone is a natural consequence of economic development as various segments of the economy and society seek more rapid and per­ sonal means of two-way communications. What is remarkable about the Soviet case is that this displacement process has been extremely gradual owing to the slow growth in the tele­ phone system. In the U.S. and Western Europe, telegraphic communications begem to give way to telephone traffic long before the war and continued at a much faster pace than in the USSR. In most of these countries today, telegrams are only an infinitesimal fraction of toll calls The slow shift to telephony is furtdier explained by the fact that telegraph systems have demonstrated a large degree of adaptability in the face of increasing competition from voice communications. They have branched out into new uses that have definite advantages over the telephone. In the USSR, these new uses were not widely developed until the late 1950's. Besides communications "of general use"—the transmission of ordinary telegrams—-telegraph services now include: 1) subscriber telegraph (Telex); 2) facsimile communications and the sending of newspaper type pages by phototelegraphic methods to decentralized printing plants; and 4) leased lines to agencies, enterprises and institu­ tions of other departments outside the Ministry of Commun­ ic a t io n s . Subscriber telegraph—known in the U.S. as Telex— refers to the system in which two subscribers can transmit telegraphic information to each other by by-passing a number of intermediate processing and switching operations. This is accomplished, either manually or automatically, through an alphabetic-numeric scheme that identifies each sub­ scriber in the network. (Henceforth, we refer to the sub­ scriber telegraph system by its Soviet acronym, AT.) The sender can, by designating the correct code on his keyboard % typewriter-perforator, "call" the second party onto the system. Beyond the time saved in this operation as opposed to the sending of an ordinary telegram, AT has an advantage over telephone communication in that the called party need not be present to receive the message. His teleprinter w ill record the message automatically. 3k A graphic comparison of Soviet AT and telegraph com­ munications of general use is shown in Figure 1. Consider a message that is sent from a machine-tool plant in Koloima to the "GAZ" automobile factory in Gor'kii. In the top of

the chart, a 100 word telegram would take 2 - 1 /2 to 3 hours to reach its destination at a cost to the sender of 3 rubles 10 kopeks. Processing at the' transit centers would require the work of 15 people. The same message could be sent by AT (bottom half of

graph) in 10 seconds by one person—the sender—since the " information is switched automatically at each stage. The cost to the subscriber is 48 kopeks. Now the time frame involved in the first method need not be as long as three hours. Since the early 1960's, the USSR has been producing semi-automatic (ATOL) and automatic (PC) telegraphs for installation in the network of general use that would reduce transmission time. Even in the case of PC (direct communications telegraphy), however, the sec­ tions from the sender to the raion communications center in « Kolomna and from the city office to the addressee in Gor'kii would remain as shown in the top half of the graph. At best, the message could be transmitted by telephone along these s e c t io n s The per message cost to the AT subscriber is much lower because of the volume of traffic he generates and the high installation costs. Kolomna (105 kilometers 4*) (403 kilometers-)}: Gor'kii

GOS M i sendin sending HZh ■ Q D Machine- sending receiving receiving tool plant receiv in g

"GAZ" Auto factory transmission of a belegram via Subscriber pelegraph (AT) CT______I CT

ATAM Machine- "GAZ" Auto tool plant factory

GOS - City Communications Office ATA - Automatic Subscriber Telegraph Station KUC - Raion Communications Center ATAM - Automatic Subscriber Telegraph Station CT - Central Telegraph Office (small capacity) F igure 1 yranmiaRion of » Telegram in the Network of General Use and via Subscriber Telegraph (AT)

Source: Adapted from N.M. Gubin and B.V. Bronner, Organ!za tsiia i r >1 nn-fmvmrie telegrp^n*?! syiazi. 1971, p. 78. See also the introduction to Spisok abonentov seti abonontskogo tole- grafa SSSR. 1971, pp. 3-12. 36 The fir st manual AT exchange (an East German TW-39 switching system) began operations in Moscow in 1947. Three years later, the network numbered 369 subscribers. By 1970, the number of subscribers had grown to 24,052. The speed at which messages can be sent in the AT network depends upon high cost automatic switching at reg­ ional centers and terminal equipment at subscriber points. Potential subscribers apply for admission into the network when the gains to be made from the anticipated volume of their telegraph communications are sufficiently high to compensate for the installation, equipment and message costs.

Hence the AT network i 3 restricted to institutional users. The State plan for the development of AT has stipulated norms for the number of subscriber terminals by branch of the economy (Table 1). As with the services provided by other branches of the communications industry, the AT system is heavily weighted in favor of State planning and administra­ tive agencies. Planning on the national scale of the USSR places an enormous burden on central planners to collect, process and act upon millions of bits of economic information. To facilitate this work, a 1966 government decree promulgated the construction of a State network of computer centers. By mid-1972, this network had hardly gotten off the ground and, by all appearances, w ill not be fully introduced until 1977.53 As the computer network becomes operational, AT is Table 1 Planned Norma of AT D istribution, by Branch of the Economyt USSR Branch of the Norms of Subscriber Telegraph National Economy Installations per 1000 employee Industry and construction .7 Agriculture (State and collective farms) .5 Transport and communications 1,1 Trade, procurement, m aterial-technical 1.9 supply and sales, public feeding State and economic organs of admlnistra- 6*7 tion, cooperative organizations, credit and insurance institutions Publio health, education, science, art, et al. .3

Source: Gubin, op clt. . 1971, p. 233* expected to play the major role in data transmission. For example, Soviet banking institutions serve nearly one m illion enterprises and organizations with over four m illion finan­ cial accounts. Planners calculate that the creation of a data transmission network incorporating all branches of Gosbank in the AT system w ill increase the turnover (obora- chivaemost*) of these accounts (i.e ., reduce the time re­ quired to process changes in accounts) by approximately 10 p e r c e n t. 54 An important economic consideration in data transmis­ sion is the choice of channels. Both telegraph and tele­ phone systems can transmit data. Choosing between the two w ill depend upon the volume of information to be sent, d if­ ferences in terminal switching costs per message, and dis­ tance and time of transmission. Because of the difficulties encountered in transmitting digital data through an analog medium, such as the step-by-step telephone switching center (discussed later), data transmission in the USSR up to this point • has been determined more by quality of transmission • than by cost considerations. There is no indication at present that the telephone system has been more than mar­ ginally involved in this new network. The need to improve communications carrier technol-

r * ogy in conveying digital information h^s not been pressing because the volume of data assembled and processed by Soviet computers has been relatively small. Computer 39 technology in the USSR has moved only gradually into the third generation (integrated circuitry), and this, too, has acted as a drag on the growth of data transmission. Facsimile is a third significant postwar development in telegraphy, particularly in terms of its direct effect on the postal service in the distribution of the periodical press. In 1955, when facsimile had first gone beyond the experimental stage, only 4.8 percent of the raion centers and other medium-sized cities received Pravda on the same CC day that it was published in Moscow. Rail and air trans­ port of the press over long distances were used extensively. Given the perishable nature of news and desire to keep the masses in touch with Soviet objectives, freight transport was a necessary evil. The next step in reducing the influence of distance was the use of cardboard matrices of original central news­ paper copy. Matrices were sent by plane to decentralized printing plants where they were cast into printed form for press runs. Readers received the Moscow press within a day or two of the publication date, and operating costs were * significantly reduced. Weather conditions periodically de­ layed flights, and the delivery eastward was slowed by the time zone changes. Although matrices are s till widely used at some 50 printing plants in the USSR, these problems have led to the use of photo tele graphic transmission of news­ paper type pages from Moscow to a number of these plants,®® 40 Facsimile transmission of newspapers guarantees same- day delivery to all distribution points. Of the three meth­ ods of getting the press to provincial centers, sending matrices by aircraft and facsimile transmission are much less costly than physical transport. In turn, matrices are 57 considerably less costly than facsimile. In terms of speed and regularity, however, the benefits gained from phototelegraphic methods warrant their continued growth. In 1970, nearly three-fourths of Soviet raion centers were re­ ceiving Pravda on the same day as Muscovites. The absolute declines in airmail tonnage since 1969 are directly attrib- utable to the distribution medium of phototelegraphy. 5 8 The Soviet telegraph and telephone systems inves­ tigated in this study are those administered by the Ministry of Communications. Electrical means of conmunications are also leased by the Ministry to other agencies and Party organs; these constitute the network of departmental use. Leased lines—the fourth area of postwar telegraph develop­ ment—are reserved for large enterprises in a .few industries in which communications networks have developed independently. On the network of departmental use more w ill be said later. When Soviet telephone networks reach the stage of maturity now attained in other advanced countries, the trad­ itional functions of the telegraph w ill be displaced by the * specialized uses mentioned above that possess comparative 41 advantages over voice communications. This maturing process promises to be a lengthy one, and in the interim, the tele­ graph branch can be expected to diminish in importance only very gradually•

Long Distance Telephone Communications Shortly after city exchanges began operations in the 1880's, long distance telephone communications were intro­ duced at the behest and expense of wealthy Moscow factory owners who wished to communicate with their enterprises 59 located as far as 160 kilometers from the city. Though the Tsarist government nationalized these trunk lines in 1890, it became apparent that the increased demand'for long distance service could not be satisfied exclusively within the public domain. It is doubtful that the Tsars conscious­ ly planned to maintain their monopoly, for they had no in­ tention of developing telephone communications along weak traffic (low revenue generating) routes. In any case, the government acceded to the terms of private enterprise—both Russian and foreign—and the zemstva to develop independent trunk lines. The pattern of ownership that evolved was similar to that in the city telephone systems. Before the revolution, nearly half of all long distance lines were operated privately .®0 The "major*event in the history of telephone contminica- tions in Russia," according to one Soviet observer, was the kz construction of the St. Petersburg-Moscow telephone line. First conceived in 1887, the establishment of this comnunica- tions link had to await the resolution of a number of prob­ lems dealing with design, regulation and use. When it was officially opened at the end of 1898, the four wires strung over some 650 kilometers carried about 10 to 15 calls per day for the first few months. Within three years, the opera­ tion of this line had justified itself financially; the State had recouped the in itial capital outlays largely be­ cause of the heavy to ll charges imposed upon users.in "1913, no more than 200 conversations a day were transmitted over the St. Petersburg-Moscow line. 6 2 Before the Bolsheviks took power and even well into the Soviet period, the use of the term "network" as a des­ cription of the scope of long distance communications would be gratuitous in the extreme. In the first place, neither the Tsars nor the Soviets had worked out a general perspective plan for the development of telephone comnunications. An integrated national network scheme was not to be devised * 6 3 until 1938. Secondly, European Russia under the Tsars was far from being a vast megalopolis with the confluence of adjacent urban centers blurring city distinctions. On the contrary, the relative vastness of space between major cen­ ters, ethnic differences and the absence of modernized means of transport and communications imposed to a large degree on insulation around the most populated areas and their environs. As a result, instead o£ further extending communications lines outward in wavelike fashion from cities previously connected with, say, St. Petersburg and Moscow, the second developmental phase in this branch of the convnun- ications industry involved the interconnection of geograph­ ically separated city pairs, such as Baku-Tiflis, Rostov-on- Don -Novorossisk and Nizhnii Novgorod-Kostroma. Rather than a single national long distance network, there arose a small number of regional telephone links. The emphasis shifted with Lenin who sought to extend the reach of Bolshevik influence by making Moscow the hub of the nation's communications activity. Zn this early stage of telephone development, this objective could have been achieved in only a limited geographical sense. During the early period of Lenin's leadership, the critical military situation precluded any expansion in telephone routes. As the civ il war came to an end, construction began on the Moscow-Smolensk and Moscow-Kaluga trunks, which would even­ tually establish connection between the capital and Minsk and Kiev. By 1926, 34 city-to-city l£nks had been completed. A year later, Leningrad and Baku were connected via Khar'kov and Rostov-on-Don. Growth in long distance routes was mainly confined to the interconnection of cities to the north, south and west of Moscow. Voice communication with the Ural region and beyond was not to appear until after the inauguration of the Five Year Plans.*** kk From 1913 to 1928, the length of telephone trunks in kilometers of wire increased by 80 percent, and the number

of inter-city telephone messages doubled . ^ During the chaotic post-revolutionary period, the number of telephones had been cut in half. The gains in the NEP years brought

the 1928 total to 325,000 receivers, only 8 percent more than in 1913. The overwhelming majority of toll calls— both personal and institutional—were transmitted over con­ necting lines between trunk call offices (from which to ll calls were ordered by the caller) rather than subscriber - lines from private phones to central switching offices. While only 300 trunk call offices had been built in 1913, the Soviets were using over 6000 of these points by 1928.®** The use of long distance telephone communications was heavily weighted in favor of government and industry. In 1928, less than 30 percent of all toll calls were placed by private citizens. When the next one-week sample was pub­ lished in 1945, the population share had dropped to one- g 7 fifth. The latter figure was no doubt representative of

* a ll the war years in which military matters took precedence in the hierarchy of telephone use and call ordering. Per­ sonal calls were connected only after m ilitary, enterprise and administrative demands had been satisfied. Assuming the population share of to ll calls, which has fluctuated within very narrow lim its around 30 percent for the 6 8 periodic sample years, , has remained relatively stable * 5 for the intervening years, we conclude that at least two out of every three long distance phone calls in both the prewar and postwar periods have originated in the government. Party and economic sectors. The concentration of business and government calls was probably much higher over longer dis­ tances, especially in the prewar years, since most private c i t i 2ens would have had little reason to communicate with unknown parts and other peoples of the USSR. It is perhaps commonplace to note that long distance telephone comnunica- tion was developed in the USSR not as an attempt to placate private consumer demand which was surely insignificant before World War II, but to satisfy the derived demand of Soviet planners for greater efficiency in production and lower infor­ mation costs that voice communications are capable of gener­ a tin g . Most noteworthy of the achievements in communications in the First Five Year Plan was the eastward development of th e t o l l netw ork. By th e end o f th e P la n , Moscow had been linked by telephone to Novosibirsk and Stalinsk via Sverdlovsk in the Urals. In addition, telephone lines were constructed from Sverdlovsk southward through Cheliabinsk to Magnito- 69 gorsk. These were logical steps in building the eastern network given the Soviet objective of consummating the union of Magnitogorsk iron ore with Kuzbas coal to create major iron and steel producers in both the Urals and the Kuznets basin. The costly transfer of pig iron and coal between U6 these two regions was-a source of friction between transport authorities and industrial planners. The former objected in vain to the "industrialization at any cost" philosophy in­ herent in the Magnitogorsk-Kuznetsk combine. Cost minimiza­ tion in transportation (in this case, over distances in excess of 2000 kilometers) was not a basic desideratum of Soviet industrialization policy in the 1930's.^0 How far the installation of telephone communications went in facil­ itating the more efficient flow of raw materials between these two industrial centers cannot be ascertained, but at the very least, the telephone (and the telegraph) allowed Moscow planners some small measure of control over the direction and speed of industrialization in the Urals and S ib e r ia . As was apparent in the other branches of the commun­ ications industry, expectations for long distance telephone development were much more inflated in the 19 33-1937 Plan than in its predecessor. In each of the first two quin­ quennia, the annual volume of to ll calls nearly doubled. In the first quinquennium, the Plan was overfulfilled; in the second, the increase was 40 percent short of the Plan goal. Similar shortfalls were experienced in the length of steel and copper wire lines and the length of underground cables which, in 1932, accounted for only one-tenth of one percent 71 of the total length of telephone lines. For reasons to be discussed in connection with the city telephone branch, *7

long distance telephone consnunications fell victim to the reallocation of scarce metal resources to favored sectors of the economy. The directives of the abbreviated Third Five Year Plan stipulated several important goals: 1) the completion of telephone links between Moscow and a ll republic, krai and oblast centers; 2) the establishment of the *radial- junction (radial'no-uzlovala)" network scheme with a hierarchy of switching centers that would a) reduce the num- 72 ber of crosspoint switches and b) set up direct telephone communications between peripheral industrial centers where these links are warranted by the volume of traffic; and 3) the "telephonization" of all raion centers, village Soviets, 73 machine-tractor stations and State farms. Progress in achieving these goals was temporarily suspended with the eruption of h ostilities in World War II. Telephone conraunications between Moscow and the 171 republic, krai and oblast centers was not to be completed until 1950. Most of the unconnected centers were located east of the Urals or in the southern republics that had formerly com­ prised Turkestan and were, therefore, not directly affected by the war. S till the network stretched outward. In raid- 1939 , the world's longest overhead line (8400 kilometers) connecting Moscow with Khabarovsk was completed. Two years later, the line was extended (in part by radio telegraph) 48 to establish voice communications with Sakhalin Island and the Kamchatka peninsula.74 In southern Russia, the capitals of Azerbaidzhan, Georgia and Uzbekistan were added to the long distance network. In anticipation of the industrial evacuation to the east, more intensive development occurred in connecting switching centers in the Volga region, the Urals and Western Siberia. Almost a ll main (magistral*nyi), connecting and sub­ scriber lines before the war were served by overhead steel wire and, to a lesser extent, copper and bim etallic wire. The considerable costs associated with domestically pro­ ducing, or importing, and laying underground cable were not to be assumed on a large scale until after the war. The radial-junction network was enhanced by the instal­ lation of telephones in institutions outside the major cities. Between the raion centers, village Soviets, machine-tractor stations (HTS) and State and collective farms, there was a certain degree of imbalance in telephone growth. In the agrarian sector, the highest priority was attached to the MTS, the centralized supply depots of combines, tractors and other farm machinery used by the collective farms. As political instruments of control and unofficial enforcers of plan per­ formance in agriculture, the MTS had no peers. Their creation was also motivated by the desire to achieve economies in tractor utilization, buildings and machinery repair. By 1940, ninety percent of the MTS had been linked by telephone with 49 their raion centers. Information through the telephone med- ■ ium was consequently diffused from the MTS to the collective farms, less than 10 percent of which had been connected to 75 the raion centers. About three-fourths of State farms and village Soviets had been "telephonized” before the war, but voice coimmnication with their respective raion centers did not become pervasive until the late 1950's. City exchanges were more evenly distributed throughout the USSR as a result of the forced movement of industry east­ ward. So, too, were the volume and direction of long dis­ tance traffic altered by the war. Annual toll calls reached a peak, of 92 m illion calls in 1940, but fell sharply to half that figure within two years. In some of the occupied cities, offices and equipment that had not been evacuated were des­ troyed, reducing outgoing communications to a trickle. In cities that had been liberated or were s till defending posi­ tions in 1943, toll traffic averaged one-third its 1940 level. The Moscow Long Distance Office claimed that its outgoing calls had been reduced by 20 percent. The German siege of Leningrad briefly severed the Moscow link until alternate overhead lines and radio relay towers were constructed. While volume diminished in the established centers of Euro­ pean Russia, the annual number of to ll calls in 1943 was 25 to 50 percent higher than the prewar volume in the Urals, 76 the Volga region, Central Asia, Siberia and the Far East. In spite of this regional growth pattern, to ll telephone 50 branch output was lower In 1945 than It had been in 1940. In the reconstruction period of the late forties, this branch characterised the recuperative powers allegedly pos­ sessed by each branch of the Industry. Semi-automatic tele­ phone switching, In which a to ll call need not be routed through an operator at the designated city, was introduced 77 in 1949. Underground cable came into much wider use. There are, according to Soviet theoreticians, many factors which influence the demand for long distance tele­ phone communications. The most important of these are pop­ ulation and labor force growth, gross industrial and agri­ cultural output and national income* A study published in 1964 reported a significant lag in the development of the long distance network relative to changes in indices of 78 gross industrial output and national income. The lag was apparent irrespective of the base year employed—1928, 1940 or 1950—and was attributed to an inadequate expansion of the network. In the postwar period, 1964 proved to be a watershed in this branch of the industry. Annual growth rates of out­ going toll calls—the basic measure of physical output- fluctuated between 3 and 7 percent from 1950 to 1964, but 79 ranged from 10 to 13 percent from 1965 to 1972. One Sov­ iet regression analysis (which was received while this was being written), presumably based on the most recent data, indicated that a ten percent rise in gross output of 51 industry generated an eighteen percent increase in to ll calls in the national■economic (non-population) sector. u80 Nevertheless, the post-1964 spurt in toll calls should not be construed as an abrupt reversal in the technical de­ velopment of Soviet electrical conKQunications. Any economic variable that had behaved respectably in the 1950 *s might

« have paled in conqparison with the performance of Soviet gross industrial output during that period. Secondly, the number of messages transmitted is only one index of telephone development. The length of long distance lines, for example, more than tripled during the Seven Year Plan (1959-1965) 81 alone. While nearly 60 percent of the capacity of tele­ phone exchanges was served by manual operation in 1950, .the proportion of capacity in manual exchanges had been reduced to one-fifth by 1965. To be sure, the size and scope of the conbined Soviet telephone networks are relatively quite small. In terms of the number of receivers per 100 population, the USSR is slow­ ly moving upward into the ranks of the developing nations, but is s till below such countries as Argentina, Poland, Hungary and Portugal, as well as below the world average. 82 Furthermore, it must surely be a source of discomfort and envy for the Soviets to realize that, at present, U.S. inhabitants place as many to ll calls in little more than two weeks as Soviet citizens place in one year. Seen in the broadest perspective, Soviet telephone conmunications by all 52

the conventional measures remain far behind those of nearly a ll of the advanced countries and many of the developing countries. S till, important postwar contributions have been made with the help of technological borrowing and imported equipment, and what is more significant, Soviet comnunica- tions planners appear to be somewhat more future-oriented in adopting new technologies than some countries in the 83 West. It is unlikely, however, that the temporal gap in technical development and network size can be closed in less than two decades. We turn then to a brief review of tech­ nological progress in telephony and the current state of the art in the Soviet Union. Modern telephone switching is now in its fourth gen­ eration. The first generation, namely, the connection of two subscribers through an operator at a switchboard, served efficiently only so long as the number of subscribers to an exchange remained very sm all. With rapidly rising demands for voice communications, manual switching became obsolete quite rapidly and was replaced by mechanical devices, such as the Strowger step-by-step switch, first developed in the U.S. before the turn of the century. The Soviet Union relied upon labor-intensive manual switching much longer than most countries, and even today, about one-tenth of Soviet phones are battery generated through local switchboards. Compared with the U .S., Soviet switching costs pre­ sumably absorb a significantly smaller share of total revenues 5 3 than do transmission (linehaul) costs. Yet manual and step- by-step methods impose quantitative and qualitative con­ straints on the communications network. The Strowger system, or the Soviet versions—the ATS-47 (domestically produced in 1947) and the ATS-54 (built by Czechoslovakia and East Ger­ many in 1954 and first imported in 1960)—represents a marked improvement over manual switching, but the open-and- shut mechanical switches are relatively large, and this places lim its on the size of the banks in which electrical connections can be housed. The moving parts gather dust and become slippery which introduces "noise" in local conversa­ tions and serious attenuation of voice transmission in long p A distance calls requiring multiple switches. In one respect, step-by-step is inferior to manual switching. With each dialed d igit, the switching mechanism moves consecu­ tively (step-by-step) to select the number of the called subscriber. The equipment thus becomes "locked-in" for the duration of the call. "It is as if an operator could not effect a second interconnection until the first call she 85 served was completed." In this way, step-by-step switching wastes time and utilizes equipment inefficiently. These problems were first recognized in the U.S. before 1930, and the third generation of switching—crossbar-sought to remedy them. The crossbar switch is lighter, smaller and collects less dust than the Strowger switch and therefore reduces but does not completely eliminate noise. In addition. th e "memory" u n it o f th e c r o ssb a r system a llo w s th e r e le a s e

■ of switches for duty elsewhere in the system once inter­ connection has been established. With the advent of computers and the possibility of transmitting electronic information through telephone chan­ nels , faster switching devices were needed. Communications experts in the U.S. "realized in 19S8 that electromechanical switching of the . . • crossbar type had reached its tech- 86 nological lim its." Eight years later, in 1966, the Soviet Union imported its first crossbar (koordinatnyi) equipment from Czechoslovakia. Up to that time, domestic production of the ATS-K system by Leningrad's Red Dawn Plant, the Rus­ sian counterpart (on a much smaller scale) to Western Elec­ tric, had resulted in only a 77,000-number crossbar capacity, 87 or 2 percent of the total ATS capacity. Thus, at approx- imately the same time crossbar switching was deemed inad­ equate for future U.S. needs, the USSR was in the first phase of introducing this method of switching. The introduction of automatic and semi-automatic technology within the hierarchical telephone network w ill be determined in part by the trade-off between higher.capital costs and lower operating costs and the willingness of planners to underwrite large in itial investments in faster and more efficient means of transmitting information. Table 2, which is based on TsNIIS research, does not provide suf­ ficient information to make technological choices, but is Table 2 Capital Coata and Operating Costa of Long Distance Telephone Offices in the USSR: 1970 Soviet Estimates (Semi-automatic s 100) Manual Semi-automatic AMTS-1M AMTS-2 AMTS-3 'apital Costs 60 100 190 235 265 }perating Costs 125 100 40 n.a. 35 Vestnilc sviazl. no. 10, 1971, pp. 20-21. The AMTS o ffices use both automatic and semi-automatic switching methods so that operating costa w ill fluctuate depending upon the outgoing and incoming tra ffic in a given office. AMTS-1M la a step-by-step exchange with low channel capac­ ity (up to 200 outgoing channels). AMTS-2 Is a crossbar switching office with large channel capacity (500 to 1500 outgoing channels). AMTS-3 u til­ ises the crossbar method with on average capacity of 200 to 500 channels. No information was given on the AHM-20 crossbar system (produced by the L*M. Erilcson firm in Sweden) in which labor productivity i s reported to be five times greater than in the operation of the AMTS-1M. See Vestnik avlaa!. no. 3, 1972, p. 16. The AMT&4, a crossbar unit with 3000 out­ going circuits, "will satisfy all the requirements of EASS [the unified automated national communications network}," but i s s t i l l on the drawing boards. Cf. Karmazov, o p . c i t . . 1973, p. 152. 56 included here as a rough indication of the relative costs of various switching techniques in the long distance telephone b ran ch . Despite the o fficial commitment to move toward great­ er crossbar use and the recent experimentation with semi- electronic switching systems (EATS), the USSR w ill continue to depend mainly upon the ATS-47 and ATS-54 step-by-step equipment. This has clear indications for the future of centralized planning. The ability to rapidly transmit data via telephone channels would naturally add a new dimension ' to the arsenal of Soviet planning and control, but the nature of existing terminal equipment does not make this a reason­ able prospect, at least in the foreseeable future. Prior to the electronic age, the function of telephone systems was not to handle the digital codes of computers but to transmit analogs of the human voice, that is, to convert spoken words into electrical pulses at the point of origin and to reverse the process at the point of destination. The problem of noise in step-by-step switching of these electri­ cal pulses may be irritating to subscribers who must occas­ ionally contend with it, but when the subscribers are trans­ mitting data—digital information—actual errors can easily be introduced into the data. Zt is far easier to distinguish spoken sounds than to distinguish between an electrical pulse 88 and the absence of a pulse. What this implies is that efficien t data transmission in the USSR must be effected by 57 telegraphic rather than telephonic means. The second component of telephony concerns the trans­ mission of calls over connecting lines (between the various switching centers and exchanges), subscriber lines (from the exchange to the subscribers' receivers) and microwave. In this area, the U.S.-Soviet technological gap appears to be equally wide in quantitative terms (e.g., extent of cable network), but the Soviet Union has allocated the largest share of its telephone research and development expenditures to linehaul improvements and, with the major exception of microwave facilities, the quality of local and long distance telephone lines has developed quite rapidly. New technol­ ogies have singly not been assimilated fast enough. A 1969 study, for example, indicated that 95 percent of the line- cable administrations failed to incorporate improvements in transmission equipment within the normative periods. The greatest advances have been achieved in increas- .... ing the capacity of telephone circuits to carry voice commun­ ications. "Multiplexing" equipment, used extensively in the U.S. during the 1940's to compensate for wartime shortages of metal, was first developed in the USSR in 1949. Multi- « plexing is an engineering concept which denotes the ability of a single wire or communications channel to carry numerous speech signals in each direction simultaneously. In techni­ cal terms, the human voice, whose frequency signals range from 300 to 4000 hertz (cycles per second), can be transmitted over long distances only if voice frequency sig­ nals are used to modulate a higher frequency or bandwidth. These higher frequency signals are "carried" to their des­ tination where they are demodulated into voice frequencies once again. Modulated signals are then combined and sent over one wire.®® The earliest Soviet effort (V-3) was aimed at multi­ plexing overhead lines and could transmit calls up to 10,000 kilometers with adequate amplifier spacing. In the postwar - years, improved versions were developed (the V-3-3, V-12 and V-12-2 systems) with higher frequency ranges, larger channel capacities on open wire and wider uses, such as the qi transmission of telegrams and broadcasting. The relatively narrow range of frequencies in wire transmission led to the development of broadband coircnunica- tions—VHP and UHF waves carried through copper coaxial cable—a revolutionary change in,long distance telephony. In the U.S., the first of such cables was laid in 1939, and a -

« each pair of cables had a capacity of 600 voice channels. In other words, 600 simultaneous conversations could be carried over one pair of cables. 92 The Soviet Union began to multiplex cable in the 1950's. The K-12, K-24 and K-60 cables, most of which were imported from Eastern Europe, allowed 12, 24 and 60 conversations, respectively, to be 9 3 transmitted simultaneously. In 1959, the USSR moved into 59 the modern era of telephone technology with the domestic production of the K-1920 coaxial cable whose cost per circuit kilometer was considerably less than any of its predecessors'. Hie K-1920 cable permits 1920 simultaneous telephone calls or 300 calls plus television transmission.9* The U.S. Bell System installed its L4 cable in 1967 between Washington, D.C. and Miami. L4 carries 3600 two-way conversations in just one pair of 3/8-inch coaxial cables. Nine pairs accommodate 32,400 calls. The L5. system is expected to triple that capacity. To date, the Soviets for their part have indicated only that attempts to expand the spectrum of carrier waves are being conducted, and the "K-3600 coaxial cable w ill be more profitable than the K-1920" with respect to lowering costs per circuit kilo­ m e te r .96 Microwave has supplanted coaxial cables in the trans­ mission of U.S. long distance conversations; the latter now 97 service only one-third of all toll calls. Cables present­ ly carry well over half of all USSR toll calls. The Soviets have developed microwave-relay fa cilities—the R-600, Druzhba and Voskhod—whose construction costs are much lower than those of equivalent-capacity cables, but whose operating costs are 15 to 20 percent higher. For telephone communica­ tions, microwave has been applied in mountainous regions and inhospitable climates where laying cable would be difficult if not impossible. Line-of-sight towers in the more 60

p o p u l o u s areas are used primarily for transmitting televis­ ion broadcasts, as is the Soviet comnunications satellite, Molniia-1.®® Having mentioned television, we should note that the emphasis on this contemporary mass medium contrasts sharply with the relative neglect of the telephone as a personal medium of intercommunications. The USSR holds a unique position in the world of producing many more television sets than telephones. In 1971, the stock of Soviet tele­ visions was slightly less than 40 million, while telephones numbered o n ly 15 m illio n . 99 Of the three telephone branches in the Soviet comnun- ications industry, we have dealt with the historical develop­ ment of the long distance branch first because of its close relationship—both complementarity and substitutability— with telegraph comnunications. We now consider the networks in Soviet cities and rural areas and how they have functioned in the economic development of the USSR.

Local Telephone Comnunications 20 June 1882 marked the beginning of the Russian city telephone network. The in itial concession to develop tele­ phone comnunications was awarded to an engineer, von Baranov, who, in negotiations with the Ministry of Internal Affairs, agreed to a contract to last 20 years—until November 1901— for the construction of exchanges in five Russian cities. 61 including St. Petersburg and Moscow. Before the first switch- board was installed, von Baranov sold his construction rights to the Bell Company in the U.S. The American firm promised that "telephone operations w ill begin no later than July 1 (1882)." By late June, the first 61 telephones were operat­ ing in Moscow.^00 The earliest subscriber rates put telephone use beyond the reach of all but the wealthiest Russian citizens. A receiver for individual use cost 250 rubles per year, while the annual charge for institutions and organizations was 125 rubles. If the telephone line was over three versts (about two miles) from the local switchboard, the subscriber was charged fifty rubles a year for each additional verst of line. Rates based on the distance from the exchange s till partially obtain in Soviet rural networks today. In spite of these high rates, the Moscow exchange grew to 3000 subscribers by the turn of the century, a feat that had been achieved in New York, Boston, Philadelphia and Chicago at least twenty years earlier. In 1895, twenty per­ cent of a ll city phones were located in private apartments; 47 percent in trade enterprises; and only 17 percent in plants, factories and State organizations.^^ Along with the concessions to foreign firms, State- owned city networks were introduced in the m id-eighties, first in Kiev, and later in Khar'kov, Kazan', Saratov, the Moscow suburbs and other cities. By 1895, government-owned 62 exchanges had been opened in 37 Russian citie s.102 Thus, telephone communications developed in parallel fashion. Just prior to the revolution, approximately half of the nation's telephones were under the jurisdiction of the Tsarist govern­ ment, while the other half were controlled by the conces­ sionaires.102 The Bell contract expired in 1901, and the Main Admin­ istration for Post and Telegraph granted a new, 18-year concession to the Swiss-Danish-Russian Joint Stock Company. As of 1917, there were nearly 63,000 telephones in Moscow and over 300,000 throughout European Russia.10* The regional growth of city telephone systems was most uneven. This stemmed from the Tsarist policy of requir­ ing prepayment of at least half of the first year's sub­ scriber payments from a minimum of fifty individual or in sti­ tutional subscribers—the in itial number of users necessary for the government to consider the construction of an ex- change. 1 0 5 Also, the foreign firms responsible for telephone development sought out the most profitable markets found mainly in the large cities. When the number of telephone subscribers reached its lowest level in 1922, almost half of the total telephone capacity was located in Moscow and Petro- grad alone. The Kirgiz and Tadzhik republics had no urban telephones at all. One the eve of the First Five Year Plan, 95 percent of city subscribers were located in cities of over 50,000 people.106 63 The final version of the First Five Year Plan incorpor­ ated two somewhat contradictory principles: 1) the unequal regional development promoted by the Tsars must- be rectified so that the more backward republics could achieve relative parity with the "center"} and 2) the particular geographic and economic advantages accruing to each major region must 107 be exploited. Insofar as these criteria applied to the communications industry, it seems clear that the first prin­ ciple was pursued much less enthusiastically than the second. Even as late as 1935, the tone of Soviet regional communica­ tions policy was typified in the annual plan which allocated fully 80 percent of the total communications capital invest­ ment to the RSFSR and 20 percent to Moscow and Leningrad combined.108 The Soviets attributed the urban-rural imbalance in telephone communications, far greater in 1928 than in six

1 A Q Western countries with which the USSR was compared, to the Tsarist policy of neglect toward rural development. For both political and economic reasons, however, Soviet planners also concentrated scarce supplies of skilled labor and materials around the high density areas of the larger cities. In addition, every major breakthrough in telephone technology—either Soviet-inspired or foreign made—was first tested in Moscow, Leningrad or another industrial center. The future pattern of telephone distribution and use was presaged in 1921 with the installation in Moscow of the 6k so-called "Soviet switchboard," a 1200-number capacity ex­ change in which only the most important government and Party organs were included. Subscribers received priority treat­ ment in placing calls during peak hours and in the mainten­ ance of lines and equipment. The first Russian-built central battery manual ex­ change was installed at Sverdlovsk in 1926. Three years later, an automatic dial system with a capacity of 6000 numbers was built at Rostov-on-Don. Shortly thereafter, automatic exchanges were opened in two Moscow raions.*11 The quantitative growth of city exchanges during the early quinquennia was substantial. With a total capacity of less than 300,000 numbers in 1928, the Soviet city telephone systems quadrupled their capacity by 1940. While there were no automatic dial telephones in the USSR in 1928 , 36 per­ cent of the installed capacity could be handled by auto- 112 matic switching before the war. Throughout this early period, however, Soviet conmun- ications journals were replete with articles critical of the * poor performance of the networks. The quality of the com­ munications labor force—measured in terms of the number of engineers and technicians per 100 employees—was lower than in any other branch of the economy* Battery, wire and cir­ cuit components for maintenance and expansion of electrical communications were habitually in short supply. Communica­ tions engineers complained that the Soviet Union had nothing remotely comparable to the technical sophistication of the U.S. Bell System with respect to either the training of workers or expenditures for research and development. Tele­ phone den8ity--the number of receivers per 100 people—was reported as being only one percent of the U.S. density. 113 Two factors, generated by waves of both optimism and pessimism, provided the impetus for drastically augmenting the goals of the Second Five Year Plan. Despite criticisms of the quality of the industry's labor force and of the services it provided, there were, first of all, the achieve- " ments of nearly every branch of the industry in overfulfilling the First Plan's targets. The gravitational pull of resour­ ces to heavy industry did not appear to affect the growth performance of the postal, telephone, telegraph and radio branches. In the face of demands for increased moderniza­ tion of the means of communications, a vain hope persisted among communications planners that the potential resource drain to large-scale manufacturing and mining would not mater­ ialize in the second quinquennium. On the negative side, the results of the First Plan were small comfort to those who believed that communications networks and services s till 114 lagged behind the rest of the Soviet economy. In late 1931, V. V. Kuibyshev, who was later to become head of Gos- plan, voiced the common complaint that "comnunications are the weak link in our national economy. 66 The production of steel, coal and pig iron, the mining and refining of non-ferrous metals and petroleum, and machine building and metal fabricating--in a word, heavy industry- a ll competed for metal resources critical to the electrical branches of the communications industry. The demands of in­ dustrialization had sooner or later to impinge upon the flow of steel, copper and bim etallic wire and cable, metal con­ tacts, switches, circuits, receivers and other telephone- telegraph switching and transmission components. In the city telephone networks, for example, station "capacity was expected to double from 1933 to 1937. This included a 6-1/2-fold capacity increase in automatic dial exchanges,' 20 percent in central battery offices and 3 per­ cent in local battery exchanges.116 Though short of the Plan, the registered gain of 75 percent in installed capac­ ity was. formidable. The resulting distribution of that capacity between the three types of exchanges, however, re­ flected the degree to which planners were forced to revise their growth expectations for metal-consuming dial systems. Central and local battery capacity rose by 32 and 56 per­ cent, respectively, but that of automatic exchanges was only 117 about half the Plan figure. In the rural telephone branch, the shortfall was even more striking. By 1937, the Soviets expected to have a quarter of a million telephones in operation in the country­ side. The actual figure barely exceeded 100,000. 6?

■ The enthusiasm for mechanization of telephone networks did not necessarily derive from sound economic criteria, A 1931 Soviet study determined that construction costs for an automatic exchange serving up to 10,000 subscribers were double the costs for. a manual (operator-assisted) office and that, given the fairly small saving in annual operating costs due to the introduction of dial equipment in these small net­ works, it would take an inordinately long period of time to recoup the construction cost differential. The declining relative wages of communications workers should have been an added incentive to maintain labor-intensive operations. 118 In the early stages of economic development, there is no economic justification for applying the most modern technology in every city and village. For the purpose of voice transmission alone, automatic dial systems possess few major advantages over battery-generated telephony. The latter can serve the needs of the local economy and the population without significant efficiency losses. The pos­ sib ility of transmitting data via telephone lines does re­ quire more sophisticated automatic crossbar and electronic equipment, but in the 1930's, the integration of computers and telephone channels could not have been foreseen. Yet the relative backwardness of USSR communications during the pre­ war decade and continued Soviet references to conmunications advances in the capitalist countries were motivating factors behind planners' vain attempts to forego the comparative 68 advantage of lesser technologies, such as the manual tele­ phone exchange. In 1934 it. was argued that "in our techni­ cal communications equipment, the USSR at the present time has sharply fallen behind the highest level of modem Euro­ pean, and especially American, technology .... He must develop our own scientific research in all aspects. During the first fifty years of electrical communica­ tions development—from the 1880's to the 1930's—both the Tsarist and Soviet governments relied extensively on foreign technology. The L. M. Erikson Company, a Swedish communica­ tions manufacturer, had long been and s till is a leader in the field of communications technology. Before the revolu­ tion, this St. Petersburg-based firm was the largest tele­ phone company in Russia. Erikson-designed equipment was used to standardize central battery offices during the NEP period, and it was this firm that was responsible for the construction of the first dial exchange at Rostov-on-Don in 1929. Since the Soviets had no technical expertise or experience in automated telephony, they imported technically qualified engineers and components. The shortfall of dial offices in the Second Plan resulted from 1) the inability of these.foreign technicians to train a large corps of Russian engineers to assume their tasks and 2) the increasing desire on the part of the Soviet regime to achieve self-sufficiency. Responsibility for the development of communications facil­ itie s and equipment came to be centered primarily in 69 Leningrad's Red Dawn factory and in the All-Union Electro­ technical Trust for Weak Current Plants. The lack of qualified technicians, the poor quality o f la b o r in this industry, the shift of resources away from ancillary industries such as communications, niggardly domes­ tic research and development expenditures—a ll of these not­ withstanding—achievements in' Soviet city telephone develop­ ment during the 1928-1940 period were significant. It is difficult to imagine how the networks, even under the best conditions, could have sustained 15 percent annual incre­ ments in installed capacity as projected in the Second 120 Plan. Excluding the military, the number of city sub­ scribers quadrupled, reaching one million by 1940. Tele­ phone exchanges under the Ministry of Communications tripled in number, but the individual capacity of most exchanges remained limited. The average capacity of a city telephone office increased from 185 to 258 numbers over the twelve- year period. Apartment telephones remained a constant 27 percent of the total number of receivers. 121 The network of departmental use, which consisted of telephone systems developed independently of the Ministry of Communications, was initiated during the industrialization period. Since the Ministry was unable to satisfy the contnun- ications need of every industry and to simultaneously estab­ lish or .expand city telephone offices, certain sectors of the Soviet economy—rail, air, river transport, the coal 70 industry* et al. —found it necessary to construct their own lines of communications. Eventually these isolated networks were connected with local city offices* and in turn# with other cities over Ion? distance lines* Initially# however# they were low capacity, private branch exchanges (with an average of 67 numbers per office just before World War II) serving individual industrial enterprises# railroad yards and lines# airlines* etc. In 1940* about half a million telephones* or one-third of the total number of Soviet tele­ phone receivers (again excluding the military) had been put into operation in the network of departmental use. In 1970, 122 the departmental share had fallen to 25 percent.

.The Ministry of Communications acts only as a general overseer of the technical operations of the autonomous tele­ phone systems. These communications facilities have been exclusively intended for business use* such as the smooth­ ing of the flow of orders and materials at the interfirm level or facilitating the work of the intra-plant office or line dispatcher. Beyond aggregate data on the number of sta­ tions* network capacity and receivers* detailed information ia scarce on costs * rates# productivity and usage intensity in the network of departmental use. Furthermore* the Soviets have divulged virtually no information on m ilitary communications* which in effect constitute a third network. Telephone communications as considered in this study refer

t I 71 specifically to the major organized network of general use under the jurisdiction of the Ministry of Communications. The Soviet Union has often pointed to the devastating impact of the Second World War on its domestic production and the partial erosion of its impressive prewar industrial gains. Aside from the actual destruction to facilities* there were also the short run losses stemming from the east­ ward movement of industry. The consequences of industrial dislocation were naturally less significant for communica­ tions facilities than for manufacturing plants. The regime's predilection for "gigantomania*n based in part on the legit­ imate desire to exploit economies of large-scale production* had important implications in terms of the relative market sizes in the established centers of European Russia versus the newer cities in the Volga region and on both sides of the Urals. Large firms might well face higher transport costs in distributing their output over the less densely 123 populated areas in the East. A city telephone exchange, on the other hand* is a self-contained unit whose scope of operation is confined by the size of the immediate urban area it serves. The costs of distributing physical output are irrelevant for this branch of communications. Both switch­ ing and line costs should* other things equal, be roughly similar irrespective of location. There is* of course, the question of the relative effectiveness of a telephone ex­ change in Moscow* the economic and cultural center of the 72 nation, as opposed to the same exchange after it has been transplanted in, say, Kazan' or Cheliabinsk. Here, however, the Soviets had little choice but to follow (or in some cases to lead) the trail of industry and relocate exchanges in the nodal centers of the Eastern industrial complex. The sheer magnitude of effort involved in relocating a major industrial plant had no corollary in the communica­ tions field. By contrast, the dismantling of a city tele­ phone office, many of which s till used overhead steel wires rather than buried cable, was a relatively minor under­ taking. Since the largest cities threatened by.the Germans contained a fairly large number of small capacity exchanges, planners could strategically choose which offices to send eastward on the basis of their vulnerability to attack, their indispensability in the defense of a given city or the degree of sophistication of the switching equipment. Automatic dial exchanges .in Leningrad, Kiev, Stalingrad and Odessa—the industrial nerve centers besieged by German forces—were evacuated to the nation's interior in 1941 and 1942. Two years after the outset of war, the number of Leningrad subscribers had been reduced to one-third (about 31,000) of the prewar level. Moscow city telephone opera­ tions fell markedly. At least 17 main offices and substa­ tions, representing a total capacity of more than 60,000 numbers, were completely or partially dismantled. The prin­ cipal recipients of these offices were Kuibyshev, the tem­ porary wartime capital, Kazan', Ufa and Perm to the west of 73 the Urals, and Sverdlovsk, Omsk, Magnitogorsk and Novosi­ birsk to the east.*^* Less obvious than the costs imposed by the German destruction were the constraints involved in reinstituting telephone service at the new sites. In comparison with telephone operations as they had been established in the old centers, "other things" were not in fact equal. Tele­ phone operators, linemen, technicians and engineers had to be trained on the job. Housing for those staff employees who had migrated with the communications equipment and for the physical telephone plants was inadequate. Acquiring spare parts for maintenance became one step further removed as many industrial enterprises were forced to re-tool their plants for armaments production. Nevertheless, Soviet data indicate that the combina­ tion of the war and relocation had been felt most in 1942 and that reconstruction and recovery commenced shortly there­ after. Offices with a total capacity of more than half a million numbers, or 44 percent of the entire prewar capacity, * had been destroyed. The number of subscribers had been halved, and 45 percent of Soviet city phones were no longer operating. By the end of the war, however, these indicators of the state of city telephone communications exceeded their prewar levels or were well on their way to matching them. In 1950, the year in which fu ll reconstruction of wartime damages was officially pronounced as having been completed, the momentum of the prewar Plan years in the growth of urban ?4 communications networks had been recovered and, because of the forcible movement eastward, the distribution of city net­ works waa far less lopsided than had been the case in either 1928 or 1940.125 He digress at this point to consider the use and users of local telephone communications in the USSR. Since the focal point of this study is 'the postwar economic policy and performance of the communications industry, a systematic survey of newspapers, magazines and trade journals of the thirties has not been undertaken. On the question of dis­ tribution and use the paucity of published infotmation is most evident, even for the postwar years. Thus, we rely on fragmentary evidence from primary and secondary sources for this brief overview. The speed and flexibility of voice transmission render *the telephone the most valuable medium of intercommun­ ications. Its importance is particularly magnified at the microeconomic level where the value of specific information declines rapidly. Success in procuring supplies, implement­ ing production, technical and planning decisions, mobilizing the labor force and coordinating the overall planning effort within the urban and rural economies is functionally related to communications via telephone. During the Soviet period, the principal actors in­ volved in economic decision-making have been the industrial managers, enterprise directors in the construction, trade, 75 transport and agricultural sectors, government planning of- ficials and the heads of the local Party organs. Informa­ tion transmitted between these functionaries is "high- powered," in the sense that its economic consequences extend far beyond the fortunes of the principals involved. It is scarcely surprising, therefore, that telephone networks were developed most rapidly in the planning and industrial centers or, as Albert O. Hirschman and other development economists have called them, the "growth poles" or "growing points." Moscow alone accounted for nearly one-quarter of Soviet city telephone subscribers in 1928— the same share held by Mob- 127 cow and Leningrad combined in 1940. Telephone density, though far below the levels attained in the U.S. and Western Europe, has been consistently and predictably higher in the major cities of European Russia than in the rest of the USSR. A year before the inauguration of the First Five Year Plan, there were approximately 3 telephones per 100 inhabitants in Moscow and Leningrad; 1.2 in T bilisi and Irkutsk; and less than one in Astrakhan', Samara (now Kuibyshev) and Novosibirsk. The national average was .22, or about one telephone for every 455 people. By January 1, 1973—45 years later—average den- i sity had reached 5.3 city and rural telephones per 100 popu­ lation, but the corresponding figures for Moscow, Kiev and Leningrad (in 1972) were 22.6, 13.5 and 11.9, respectively. By way of comparison, the U.S. had 63.8 telephones per 100 people in 1973.128 76 Regional disparities in the availability of telephones are also evident in the data on density in the republic capital. In recent years, the capitals of the southernmost republics—Uzbekistan, K irgizia, Azerbaidzhan, Tadzhikstan and Turkmenistan—have exhibited the least progress in tele­ phone development. It is probably more than mere coincid­ ence that indices of republic gross industrial output per capita and national income per capita are closely correlated with the ranking of telephone density in the republic cap­ i t a l s . The national and regional distribution of telephones sheds only a dim light on the sectoral use of this medium. What little evidence is available suggests that, whatever their major failings, the various electrical communications networks were heavily oriented toward economic- and p o liti­ cal use rather than personal or household use. In the urban areas from 1928 to 1940, 72 percent of telephones in the Ministry of Communications.network were to be found in industry, trade, transport, services and ad­ ministrative agencies; less than one percent of the total were public pay phones; the remainder were either individual or shared apartment phones. Since only industrial comnunica- tions facilities were served by the network of departmental use, which, as we have noted, had grown by 1940 to one-half the size of the Ministry network, no more than one of every five telephones was intended for private use. In other 77 words, throughout the early phases of industrialization, the Soviet regime could enlist the aid and exercise direct control over the use of at least four of every five city telephones. Even this extraordinary imbalance understates the actual use of the telephone in the service of the State. Random surveys in the 1930's indicated that intensity of use in the economic and government sectors was much greater than in the housing sector. How extensive these studies were in terms of sample size and the time period covered is not known, but their results, presented in Table 3, are indic­ ative of the greater urgency in transmitting information for decision-making purposes in the non-housing sector, the higher probability of feedback (returned calls) and the larger number of known correspondents in the economic sphere. Moscow data for 1933 and 1944-1955 indicate that the ratio of the number of calls in the network of general use to the number of calls emanating from apartment phones has re- 1 3 1 mained fairly constant at about 3.5 to 1. t Professor Jerry Hough's exhaustive study of the econ­ omic decision-making process and the interrelationships be­ tween city, raion and oblast Party committees and industrial enterprises confirms, at least informally, the critical nature of intercommunications media in plan fulfillm ent. Though Hough's work concentrates on the postwar period, the examples he cites were most likely echoed in the thirties, 78 Tabled

Adminis­ Heavy Construc­ Trade Transport trative Population City Tear Industry1 tion Agencies Average c[ally number of outgoing local telephone calls per subscriber foscov 1931 14.3 18.8 16.7 12.8 15.7 3.0 Moscow 1936 19.5 17.0 19.0 5.2 Rostov- 1931 13.3 15.7 18.2 3.1 on-Don Kuibyshei 1936 20.0 19.8 21.0 14*5 14-5 4.5 T b ilisi 1936 20.0 18.0 20.8 5.0 £.V. Markhal, Osnow teknlko-ckonomicheBkogo proektlrovnni-iA fwmd. skUeh telefonnvkh setel. 1953, p. 37. albeit with less frequency due to the smaller absolute size 1 3 2 of networks. Implicit in his study, as in so many others on the Soviet economy, is that the integration of plan and performance was far from optimal. Equally important for the subject of this dissertation is the contribution of the local telephone networks as vital links in the material sup­ plies chain. Despite Soviet criticisms of the role of local Party organs and, in some cases, of telephone abuse, the gaps that did exist between plan intentions and managerial achievements would most certainly have been widened without the flow of information carried via telephone. Representative of the criticism lodged by the press, Party officials and industrial managers was a complaint in 1958 by the Party secretary in large machine-building plant: "An official w ill phone from the raikom [raion (district) Party committee] about some question, and then on the very same day someone w ill phone from the obkom [oblast (regional) Party committee] about the very same question." 1 3 3 Inter­ cession by the gorkom (city Party committee) and raikom to speed up the distribution of raw materials and spare parts to local industry was frequently criticized in Pravda and other leading newspapers as detracting from the major policy and organizational responsibilities of the various Party committees. One gorkom secretary complained of the exces­ sive "time • • • taken by the beating out of materials for inter-plant deliveries .... We understand that this is an incorrect practice . . . but we cannot watch indifferently as the plan collapses.in the Sverdlovsk region, another gorkom o fficia l lamented about Mhow many phone calls coma to the gorkom daily—you can't count theml And the majority of them are on economic matters." This situation was repeated in Belorussia: "Sometimes the office of the head of the . industrial-transportation department of the Grodno gorkom • • • reminds one of a dispatcher's office. It is as if the two phones are competing to see which can transmit the most conversations while the head is here and not at an enter­ prise . . . . "135 Pejoratively labeled "dispatcher's offices," the Party committees were also negatively referred to as "special kinds of 'pushers' (tolkachi)." The real Soviet pushers comprised a large group of unofficial middlemen engaged in semilegal and extralegal activities designed to circumvent bottlenecks in the official supply chain. Their frequent successes and publicized notoriety have been sufficient to warrant space in any history of the Soviet economy. In a very real sense, the Party organs, like the tolkachi on a different plane, were filling an information void. Since the number of telephones per 100 employees was (in 1960) four to ten times greater in the administrative—Party and government—sector than in the service and industrial sectors (see Chapter II, Table 9), the growing importance 8 1 of the local Party committees in the daily economic affairs of enterprises could have easily been foreseen. Because of their political strength and their responsibility for coor­ dinating macroeconomic planning, the Party committees might w ell have assumed the tasks of expediting materials and mobilizing personnel at the microeconomic level in any case. Had the means of communications been developed more exten­ sively within the industrial sector, however, the vertical integration of firms and direct intercommunication between suppliers, fabricators and producers would have obviated the need for the liaison work of the local Party organs. With "normal" access to supplies and raw materials closed, Soviet enterprises engaged the services of tolkachi, sought the intercession of gorkom, raikom and obkom o ffi­ cials, hoarded "hidden reserves" of scarce materials and devised successful though perverse methods of achieving plan fulfillm ent. Evsei Liberman has remarked that "this phenomenon (the tolkachi] expressed the real necessity for well-organized direct relations between suppliers and pur- chasers." 1 3 7 The point of the argument here is not that these deviations would have been completely eliminated but that 1) the creation of these extralegal supply channels would not have occurred on such a wide scale and 2) the flow of scarce physical resources would have been substan­ tia lly improved had existing communications networks been distributed more evenly throughout the economy. 82 Summary We have shown that in terms of output and employment the postal service has been the bulwark of the conmunica- tions industry in the Soviet period—a predictable outcome given the reliance on the post as the "transmission belt” for the mass distribution of Soviet newspapers and mag­ azines . The growth of national telegraph and, more im­ portantly, telephone networks has been victimized by the absence of a significant domestic research and development effort and lagging technology, a poorly qualified cadre of ' electrical technicians, engineers and designers, steady deterioration of communications wages and the principal policy of promoting telephone-telegraph networks almost solely for administrative and economic use to the near ex­ clusion of the population sector in the provision of these s e r v i c e s . With rapid industrialization as the overriding goal, this unequal distribution of the means of coimnunications represented rational policy. The economic effects of con­ centrating telegraph and telephone systems in the non­ population sector, however, would likely have proved more favorable in terms of efficiency, raw materials supply and commodity production if communications channels had been more evenly distributed among industrial managers, enter­ prise directors and Party officials. 83

Zn the following chapters, we w ill have occasion to elaborate on many of the issues that have been raised here, especially those that reflect on the rates, costs, use and "production" of communications services and on the past economic performance and growth of these branches of the communications industry. 84- NOTES - CHAPTER I

1L. IA. Dobychina, Organlzatslla 1 planlrovanle pooh- tovol svlazl. 1971# P. H. ^Ronald P. Abler, The Geography of InteroommunIca- tlon8 Systems; The Post OfTlce and Telephone Systems in t‘he foniteA States. 196b, p. 149, •'TaUNKhU, Sotslallstlcheskoe stro ltel1stvo SSSR. 1933-1938 gg. 1939. P. 109. See also TsSU. Itogl desTatl- letlla eovetskol vlastl v tslfrakh. 1917-1927 gg. 192b. p. 463. These data actually understate the use of the rails for postal transport. Since 19^7* the Soviets have ceased publication of data on the "length of postal routes"—the sum of the geographical distances between post offices (in thousands of kilometers). Instead, a new series has appeared —"postal transport run (probeg)11 —which refers to the total _ distance traveled annually (In millions of kilometers) by various means of transport In moving the mail between postal enterprises. The new series has the virtue of providing In­ formation on the Intensity of use of the several modes of postal transportation. In 1940, for example, while Soviet railroads accounted for only 17 percent of the total length of mail routes, they traveled those routes more frequently and registered over half of the distance of all mall runs. Cf. also TsSU, Transport 1 svlaz* SSSR. 1967, p. 272. ^TsSU. Forty Years of Soviet Power. 1958. P. 222. ^NKSvlazl SSSR, Svlaz1 k VII s"ezdu sovetov SSSR. 1931-1934. 1935. P. 10.

^TsSU, Forty Years, op c lt.. 1958, p.222, 7 'Gosplan, P latlletn ll plan narodno-khozlalstvennogo atroltel'stva SSSR. Vol. 1930. p. 207i TsUNKhu. Sots, s t r o l . SSSR. 19 34. p . 307S TsSU, Narodnoe k h o z la lstv o SSSR. 1922-1972 gg. 1972, p. 3^7. This development was not unique to the communications Industry. As Stanley Cohn has shownt "By any international standard the rates of growth in the Soviet labor force have been prodigious. No other economy has remotely matohed the Soviet labor Influx rate at comp­ arable stages of development, especially during the period of the first three long-term Plans." Economic Development In the Soviet Union. 1970. p. 6 3 .

8TsUNKhU, S o ts , s t r o l. SSSR. op c lt.. 1939, P. 109. ^N.D. Peurtsev, Razvltle svlazl v SSSR. 1917-1967 gg. 1968, p. 94. 85 10TsSU. Statlstlcheskll spravoehnlk SSSR za 1928. 1929. P. 548. 11TsDNKhU, Sots, strol. SSSR. 1934, P. 316; TsSU, Nar. khoz.. op c lt.. 1972. p. 351. These 1990 relative wage levels have persisted to the present day. Xh January 1972, average monthly money wages in communications were less than 80 peroent of the national economic average. Cf. ibid., PP. 350-51. 12Cohn, op c lt.. 1970, p. 33.

13TsSU, Nar. khoz.. op c lt.. 1972, p. 348. Vishnevski 1, et a l., Ekonomlka svlazl. 1961, p. 214.

^NKSviazi, Svlaz 1 k VII s"ezdu. op o lt.. 1935* P. 16.

^ Ekonomlka svlazl. no. 1, 1929, p. 8 .

^NKSviazi, Svlaz* k VII s"ezdu. op c lt.. 1935. P. 7. 18See the extended discussions in Cohn, op c lt.. 1970, pp. 26-37 and Maurice Dobb, Soviet Economic Development Since 1917. Rev. e d ., 1 9 6 6 , ohapter 11. ^ Ekonomika svlazl. no, 4, 1929, p. 64.

20P su rtsev , op c l t . . 1 9 6 8 , p . 114. 2*Gosplan, Vtorol p latlletnll plan razvltlla narodnogo khozlalstva SSSR. 1933-1937 gg. Vol. 1. 1934. p. 433; TsUNKhU, Sots, strol.. op o lt.. 1939* P. 109. 22TsUNKhU, Sots, stro l.. op o lt., 1934, p. 292; TsUNKhU, Sots, strol.. op c ii.. 19 P. 109. 2^The number of newspapers at the end of the period reached 8,806, or eight times as many as In 1928. Much of this Increase stemmed from the rapid rise of the local press network, suoh as the small factory weeklies and bi-weeklies and maohlne-traotor station and State farm tabloids, in which mechanized transport requirements were negligible and dlspatohlng and delivery could be performed by local labor. For a discussion of the early growth of the Soviet periodi­ cal press, see Mark W. Hopkins, Mass Media in the Soviet Union. 1970, ohapter 2.

2**Theae seemingly low per oaplta figures are not *inflated" by business correspondence (as is the case in the U.S.) since the primary function of the postal service in the USSR, aside from distributing the press, has been as 66 a medium for personal intercommunications rather than a means for transacting business. Approximately 7 0 t o 80 percent of letter volume during this period was generated by individuals and 20 t o 30 percent by industrial and servloe enterprises and government agencies. Cf. Mlnisterstvo svlazl SSSR, Kllentura svlazl 1 srednle dokhodnye taksr na uslwtl svlazl. 1959. pp. 4-5.

2 5psurtsev, op c lt.. 1 9 6 8 , pp. 1 1 2 and 117. 28Gosplan, Gosudarstvennll plan ragvltle narodnogo khozlalstva SSSR za~1941 g. 19*»1. PP. 9B0-bl. 27psurtsev, op c lt.. 1968, p. 215. 28Ibld.. p. 221.

29tsSU, Portv Years, op c lt.. 1958, p. 222. ^M inisterstvo svlazl SSSR, Anallz osnovnykh ekono- - nlohesklkh pokazatelel delatel'noati khozlalstva svlazl v tseioa predprllatll i PTUS soluznogo pod'chlnenlla 1 mlnTs- terstv svlazl soiuznvkh resoubllic v otraslevom razreze za 1 9 6 6 -1 9 7 6 gg. 1971. PP. 12 and 19. 31see Dobychina, op c lt.. 19?1. chapters 6 and 7, and V.A. Barsuk, et a l . . S lstem a avtomatlcheskol obrabotkl pls^ennol korrespondentsll. 1968. 3 2TsSU, Transport 1 svlaz* SSSR. 1972, pp. 274, 277. •33yefltnik svlazl. no. 7 , 1 9 7 2 , p . 3 9 . 3^TsUNKhU, S o ts , s t r o l . . op c l t . . 1934, p . 293. 35john G. Glover and Rudolph L. Lagal (eds.), The Development of American Industries. 1959* PP. 715-16.

36a .A. Santalov and Louis Segal (eds.), Soviet Uhlon Yearbook. 1930. 1930, p. 258. 37cosplan, Plat, plan.. op o lt.. 1930, p. 318. 38peurtsev, op o lt.. 1968, p. 64. ^TsUNKhU, S ots, s t r o l . . op c l t . . 1934, p. 319. ^Ekonomlka svlazl. nos. 5-6, 1929* P. 50.

^Gosplan, Plat, plan.. o p c lt.. 1930, p. 319.

42 t sSU, Tr. 1 svlaz1.. op o lt.. 1972, p. 274.

^3jjKSvlazl, Svlaz 1 k VII s»ezdu.. op o lt.. 1935. P. 32. 8 7 ^Svlaz1 vo vtorom p latlletll. 1933* PP. 416-18. Reznlkov. 60 let sovetskoi svlazl. 196?, p. 37* ^Paurtsev, op e lt.. 1968, p. 94.

**7Ib ld ,, p. 2 0 5 . WIbids., p. 223.

^7TbSU, Tr. 1 s v la z 1. op elt.. 1972. p. 274. Slnoe o n ly 3 t o 5 percent of all telegrams are local. I.e., sent and received within the same city or town, comparisons of telegrams and toll cails are reasonably legitimate. Cf. M.G. Karmazov, Organlzatslla 1 planlrovanle predprllatll elektrl- oheskol svlazl. 1973. p. io6. 50to the.1960's, the acceleration of this substitution prooess was partially explained by the rapid rise in sebes- tolmost1 (branch average cost of production) per 100 rubles - of output and the deterioration in profit rates in the tele­ graph branch. ^The operation of the various types of telegraphic equipment are discussed in N.H. Gubin and B.V. Bronner, Organlzatslla 1 planlrovanle telegrafno1 svlazl. 1971, p. 78. ^These data were obtained from the Economics Labora­ to r y a t VZEIS In Moscow. ^Gertrude E. Sohroeder, "Recent Developments In Sov­ iet Planning and Incentives," Soviet Economic Prospects for the Seventies. U.S. Congress 1 Joint Economic Committee, Washington, D.C., U.S. Government Printing O ffice, 1973* PP. 2 3 -25. ^Gubln, op o lt.. 1971. p. 95.

55t s 8U. Tr. 1 svlaz1. op o lt.. 1972, p. 279. 66 ^The Telegraph Agency of the Soviet Uhlon, TASS, and the Soviet Weather Bureau have their own phototelegraph services. Gubin, op c lt.. 1971. p. 167. ^7G.K. Gil*, et a l., Magistral*nala poohtovala svlaz* SSSR. 1963. P. 16.

^8T s SU, Tr. 1 svlaz1. op e lt.. 1972, pp. 277 *nd 279* To arrive at the optimal number of decentralized printing plants, the Soviets employ a type of marginal analysis. The objective is to minimize "national economic oosts," which in this case include transportation, publishing and processing oosts. "We must consider the eoonomio effect on the national 88 economy or the savings to be achieved by the opening of eaoh additional plant." Gil*, o p e l t . . 1 9 6 3 , p . 14. -^G.I. Golovin and S.L. Epshtein, Rueekle lzobretatell v telefonll. 1949, p. 23 and Aeznikov, o p o l t . . 1 9 6 7 . p. 6o.

^°PBurtsev, o p o l t . . 1968* p. 26,

^G olovin, o p o lt.. 1949, P. 23. ^2Bol*shala sovetskala entslklopedlla. Vol 42, 1956, p. 1 7 2 . ^ T .S . Khaohaturov, Transport 1 svlaz* v SSSB. 1952, p, 46. 64 Pfiurtsev, op o lt.. 1968 , p. 31. ^Kilometer of wire data are given In TsUNKhU, Sots, strol.. op e lt.. 1934, p. 292. Message data are from TsSU, Tr. 1 svlaz*. op e lt.. 1972, p. 274. All published statls- tloal sources prior to the publication of the 1967 e d itio n of Transport 1 svlaz* report the 1913 number of long distance oalls to have been 3 0 0 , 0 0 0 . Slnoe 1967 the figure has been given as 7*400,000, whloh we use here to represent the doub­ ling of volume by 1928 to 15 million calls. The discrepancy Is not explained in these sources, but may be due to the (reoent) Inclusion In the 1913 total of all lntra-ralon con­ versations through exohanges that were not technically clas­ sified as part of the city telephone branoh.

^TsSU, Tr. 1 svlaz*. o p o l t . . 1972, p . 280.

^ Kllentura svlazl. o p e lt.. 1959* PP. 4-5. ^®Mlnisterstvo svlazl SSSR, Sostav potrebltelel uslug svlazl 1 srednie dokhodnre taksr. 1972, p. 9. ^ Ekonomlka so tsia llstlo h e sk o l s v la z l. nos, 5*6, 1933, p. 6. 7®8ee M. Gardner Clark, The Economics of Soviet Steel. 1 9 5 7 -

71TsUNKhU, Sots, s t r o l . . o p o l t . . 1939* P. 109. 72 r Consider a simple telephone network In whloh there are N Incoming lines and N outgoing lines. The network oan be organized as an N x N matrix with eaoh line crossing every other line. The number of orosspolnts In this com­ pletely Integrated network Is N2, while the number of routes required to connect eaoh subscriber with every other sub­ scriber is N(N - l)/2. As subscribers are added to the 89 network, the maze of routes end orosspolnts gets out of hand. At the other extreme, a single switching eenter might handle interconnection for all subscribers. This is equally inef­ ficient when N grows, for the load on the nodal swltohing office becomes unmanageable, especially when the network must depend upon operator-assisted manual switching entirely. Until recently, the Central Telegraph Office and the Central Long Distance Telephone Office In Moscow served as prototypes of this model. Electromechanical swltohing was introduced in 1929, but by 19^0, less than one peroent of Soviet tele­ phone offices had been converted to automatlo switching. A more rational scheme calls for the organization of a m ulti-stage (radlal-Junotlon) network in whloh regional centers are Interconnected and eaoh regional center routes oalls through dlstrlot centers, tandem or toll offices and end offices. See Hlroshe Inose, "Communications Networks," Scientific American, vol. 227, no. 3* 1972, pp. 117-128. ^?N.D. psurtsev, Svlaz1 stranv sotslallzm a. 1959* p . 2 0 . ^Bol'shaia sovetskala entslklonediia. on o it.. 1956. P . 173. ?%.M. Gubin and O.S. Srapionov, Ekonomlka. organ 1- gat si la 1 planlrovanle v ralonnykh uzlakh svlazl. p. 53 and TsSU. Transport 1 svlaz1 SSSR. 1957. pp. 2 39. 2*1.

^Psurtsev, op o lt.. 1 9 6 8 , p . 168. 77 ffVestnlk svlazl. no. 10, 1971» P. 20. 78 M inisterstvo svlazl SSSR, Osnow metodologll per- spektlvnogo planlrovan11a potrebnostel v svlazl obshohego pol'zovanlla. 196^. pp. 12-15.

79 t b su , Tr. 1 svlaz*. op o lt.. 1972, p. 27 ** and TsSU, Nar. khoz.. op o lt..1972. p. 313. Indicative of the stress on increasing telephone density and, indirectly, to ll traffio was the government-approved resolution of the Mosoow City Telephone Administration, adopted in September 1964, to add 120.000 telephones to the oapltal's network in 1966 w ith su c ­ cessive annual increments of 10,000 receivers, suoh that 160.000 new phones would be put into operation in 1970. The new plan projected a city telephone stock of 3.** m illion by 1980, Cf. Psurtsev, on e lt.. 1 9 6 8 , p . 332. 80 A.V. Razgovorov, Prlmenenle EVM 1 matematlohesklkh metodov prl planlrovanlla razvltlla svlazl. 1973. p. 56.

®*M.G. K o zlo v , Ekonomlka s v l a z l . 1971* P. 19. ^American Telephone & Telegraph Company, The World’s Telephones, as of January 1, 1973, p. 6. 9 0 ^Telephone systems in the U.K.* Tor example, are s till saddled with step-by-step switching equipment because of the imprudent decision of the British Post Office, the national regulatory body, to postpone investment in crossbar exchanges. Cf. Brenda Maddox, Beyond Babel t New Directions in communications. 1972, chapter 12. Qji °*Reznikov, op e lt.. 1967* P. 58 and Kaxmazov, op o lt., 1973. PP. 37-39.

®^Abler, op o lt.. 1968, p. 72. 86Ibid.. p. 73. ^Psurtsev, op e lt.. 1968, p. 33h. to 1972, over half of U.S. telephone exchanges used crossbar, about 40 percent used step-by-step switching and approximately 8 percent had been oonverted to electronic switching. Less than a tenth of a percent of telephones are now connected to manual ex­ changes in the U.S. Since the capacity of electronic and orossbar exchanges is much larger than that of Strowger or manual exchanges, the share of telephones in each of the former exchanges Is much larger than these percentages ln- lo a t e . 88Maddox, op o lt.. 1972, p. 212. 8^L.M. Soloveichlk and M.A. Gorelik, Osnovnye prolz- yodstvennye fondy svlazl 1 put! uluchshenlla lkh p ol1 zovan­ lla. 1971. p p . 66-67 and Vestnlk svlazl. no. 6. 1972. pp. 2 6 -2 7 . 90 Henri Buslgnles, "Communications Channels,» Scien­ tific American, vol. 227, no, 3, 1972, p. 100.

^Reznlkov, op e lt.. 1 9 6 7 . PP. 70-73. 92Eroest R. Kretzmer, "Communication Terminals," Scientific American, vol. 227, no. 3. 1972, p. 13*K 9^Vestnlk svlazl. no. 10, 1957* P. 12. ok 7 E. Rudol and T. Lazarenko, Razvltle transports 1 svlazl v SSSR. 1959-1965. 1966, p. lT

^Kretzmer, op o lt.. 1972, p. 13*K ^Karmazov, op e lt.. 1973. PP. 100-101.

^M addox, op e l t . . 1 972, p . 32.

98 koz1 ov, op o lt.. 1971. P. 22. 91 99 t sSU* Nar. khoz.. op o lt.. 1972, pp. 313-314.

*00Golovln, op o lt.. 1949, P. 16. The other four Rus­ sian cities in whloh telephone operations began In July 1882 werei St. Petersburg with 128 subscribers; Warsaw, 105; Odessa, 66; and Riga, 57 subscribers. *°*N.N. Luzhnetskll and B.S. Belikov, Moskovskala gorodskala telefonnala set*. 1947, p. 5*

*02Golovln, op e lt.. 19^9, pp. 26 and 8 2 - 8 3 .

*°3Materlaly p o lstorll svlazl v R o ssll. XVIII - nachalo XX w . 1966. p p . 120 a n d ^71. *0<*Bkonomlka s v l a z l . n o . 4 , 1929, p. 4 5 .

10^Golovln, op e lt.. 19^9, p. 20. *°^Psurtsev, op e lt.. 1968, p. 137; Ekonomlka svlazl. no. 2, 1929, p. 42. 1 10? rHolland Hunter, Soviet Transportation Policy. 1957 p. 4 4 . ^®Gosplan, Narodno-khozlalstvennyl plan na 1935 g. 1935, P. 702. *09Ekonomlka svlazl. no, 2, 1929, p. 42.

**®Psurtsev, op e lt.. 1 9 6 8 , p. 6 9 .

***Reznlkov, op e lt.. 1 9 6 7 , p . 2 6 . H2psurtsev, op o lt.. 1968, p. 146. See also Svlaz1 k V II s"ezdu. op o lt.. 1935. p. 48, H^Ekonomlka svlozl« no. 1, 1929, pp. 8 and 11; no. 2 1929, P. 4i; noB. 5-b, 19 2 9 , p. lo6, and Svlaz* k VII s"ezdu op o lt.. 1935, P. 51. ^^Psurtsev, op o l t . . 1 9 6 8 , p . 113, **-*I.A. Podgorodetskll, et a l,, Ekonomlka svlazl. 1967, P. 25. This view was reiterated In connection with the Moscow telephone system In 1 9 6 7 : "Although the situa­ tion has improved, the telephone network In the capital Is s t i l l th e w eakest p o in t In th e oommunal f a c i l i t i e s o f th e city." Ibid.. p. 167.

H^Gosplan. Vtorol platlletnll plan, o p o l t . . 1934 . p. 484 . ------**?Psurtsev, op o lt.. 1968, p. 146. xx Ekonomlka svlazl. no. 3, 1931* p. 30, A similar situation arose in agriculture. Because of low wage and llvestook oosts in the thirties, the attempt to transform Soviet agricultural production from traditional horse- and ox-drawn implements to tractors was, according to at least one Western observer, ill-considered. See Naum Jasny, The Socialized Agriculture of the USSR. 1949, pp. 26-30.

^^Svlaz1 k vxi s"ezdu. op o l t . . 1935. p. 58. l^Gosplan. Vtoroi piatlletnll plan, op olt.. 1934. p . 484. 121 TsSU, Tr. 1 svlaz*. op o lt.. 1972, p. 283. *22Ibld.. pp. 283 and 288. Because of "haphazard planning and unutilized capacity," 7 50 departmental offices were transferred to the Ministry of Communications between 1956 and 19^3. These were offices that had formerly be­ longed to m inistries, State committees and republic admini­ strations. Dispatch and intercom telephone facilities in the various transport systems, power stations, the oil in­ dustry, mines and factories remained In the network of de­ partmental use. Psurtsev, op o lt.. 1968, p. 334.

12^Hunter, op e lt.. 1957* P. 23. *2^S.G. Sleplan. Geooraflla elektricheskol svlazl. 1973. P. 22.

12^Psurtsev, op o l t . . 1 9 6 7 . p . 229. 1 1xcoA.O,9f% Hlrschman, The Strategy of Economic Develop­ ment. 1958, p. 183.

*2?Luzhnetskiit op e lt.. 1947, p. 5 6 .

128A.T.*T., op e lt.. 1973. PP. 4 and 23. *2^Industrial output and national lnoame Indloes by republic for 1965 have been oaloulated by I.S. KoropeckyJ in "Industrial Location Policy In the USSR During the Post­ war Period," Economic Performance and the M ilitary Burden In the Soviet Union. U.S. Congress? Joint Economic Committee. Washington, D.C., U.S. Government Printing Office, 1970, p . 249. *^°TsS.U, Tr. 1 svlaz*. op olt. ■ 1972, p. 283. *3*Ekonomlka sotslallstloheskol svlazl. no, 3, 1933, p. 12 and G.Z. Maksimov and A.P. Pshenlohnikov, Telefonnala 93 nagruzka mestnvkh aetel svlazl. 1 9 6 9 , p . 31. 132That Party Involvement In Industrial deoislon- maklng was not strlotly a postwar phenomenon is documented by Hough in his book, The Soviet Prefects: the Local Party Organs in Industrial Decision-making. 1969. p. 2 1 0 . i33ibld.. p. 33. ^ Ib ld .. p. 224. 133Ibld.. p. 224 and 222. 13^See, for example, the discussions of managerial behavior in Joseph S. Berliner. "The Informal Organization of the Soviet Firm" (August 1952) and Alec Move, "The Problem of ■Success Indicators' in Soviet Industry" (February 1958)* reprinted in Readings on the Soviet Economy. (Franklyn Holzman, ed .), 1962, pp. 40tt-*f32 and 4 -j*3- c46, respectively, *3^Evsei G. Liberman, Economic Methods and the Effect­ iveness of Production. 1971, p. 9 0 . CHAPTER II

THE CONCEPT AND COMPOSITION OF SOVIET COMMUNICATIONS OUTPUT

Introduction The purpose of this chapter is three-fold: 1) to ex­ plain the methodology of measuring output in the communica­ tions industry, the Soviet rationale for using this measure­ ment and the significance of the output indicator for conmun- ications enterprises; 2) to delineate the composition of branch output in the postwar period and to compare this com­ position with the structure of U.S. communications; and 3) to identify the several groups of users of postal, tele­ phone and telegraph services. In the early 1960's, the Soviet Union published for the first time a ruble series for "communications output" (produktsiia sviazi) which appeared regularly in subsequent volumes of the annual statistical handbooks. * Beyond the men­ tion that these data reflect "the value of the different types of services which are produced by communications enterprises," no other explanation appears in these hand­ books. To understand the meaning and methodology of these ruble output calculations requires a fam iliarity with the specialized Soviet sources on the economics of conmunica­ tio n s . . 9 4 95

In a sense, we are dealing with a maverick industry. Not only is there an aggregation of firms, but also an aggre­ gation of separate sub-industries or branches, each of which employs different inputs to produce a variety of products (services). This study is confined to an economic analysis of two-way or inter-comnunications, namely, postal conrnun- ications, the various telephone systems extant in the USSR and, to a lesser degree, the telegraph network. Hass com­ munications— the radio and television branches—are consid­ ered only peripherally, i.e ., when published Soviet data are not sufficiently disaggregated to provide a distinct bifur­ cation between inter- and mass communications. In both cases, the concepts of production and output are particularly e l u s i v e . In planning the volume of output, the Soviets draw an important distinction regarding the nature of the product. The coimmnications branches are divided into two categories: A. those in which output is created within a single enterprise and, consequently, within a single branch; B. those in which output must be processed through two or more enterprises, and which may involve the fa cilities of more than one branch. Under A, each stage of the production process takes place through the facilities operated by a single enterprise. This category includes the activities of enterprises in the following branches: 96

1• the city telephone exchanges; 2. the rural telephone network; 3. radlofication (the Soviet system of wired b ro a d ca sts to home lo u d -sp e a k e r s); 4. wireless radio and television. A conversation between two subscribers to a city tele­ phone exchange is transmitted'through switching equipment under the sole jurisdiction of that exchange. Likewise, radio broadcast programs are transmitted from, say, Central B road castin g in Moscow by long or mediunwave t o Moscow r e s i - "dents and outlying areas, by shortwave to remote areas and by wire to urban and suburban Moscow listeners in close prox­ imity to Central Broadcasting's main transmitter.^ As is true for all enterprises in this group, the transmission of radio (and television) broadcast messages is "completed" within a single broadcasting office. The greatest ruble share of communications output—ap­ proximately two-thirds of the total—is produced by enter­ prises of the branches in category B: 1. the Soviet postal service; 2. the long distance telephone network; 3. the telegraph network; 4. combined offices (ob'edinennye predpriiatiia) which provide two or £hree of these services. The real crux of the nature-of-the-product distinction lies in the fact that messages sent through the postal 97 servicer long distance telephone and telegraph do not orig­ inate and terminate within the same enterprise. A telegram, for example, sent from Moscow to Pskov involves the opera­ tions of five offices. The sender makes payment at a Moscow . post office (outgoing stage), which transfers the message to the telegraph office (in-transit stage) • The telegram is carried over the transmission facilities of the line-cable administration to the Pskov telegraph office (in-transit stage) , which in turn sends the message to a local Pskov post office (incoming stage) from which the telegram w ill be delivered to the addressee. Clearly, each of these five enterprises were instrumental in "producing" this telegram, though only the first received payment for it. Each enter­ prise produced, in Soviet terminology, an incomplete or un­ finished (nezakonchennyi) product. From the point of view of the American experience, this arrangement may appear arbitrary and unduly conplicated. Although the outgoing, in-transit and incoming classifica­ tion is used in the postal service and telephone and tele­ graph systems, the vast majority of U.S. conmunications firms operate in principle on the assumption that the outgoing message flow and the corresponding user revenues w ill be sufficient to compensate in any given time period for the. incoming message flow for which no revenues are received. Soviet conmunications economists contend that these distinc­ tions are a necessary first step in arriving at a ruble 98 value for communications output—a critical factor in the overall planning effort and one of the most important "suc­ cess indicators" for enterprises in this industry. In Soviet practice, two measures of conmunications output are employed—the output of the branches and the output of the enterprises. Where the transmission of a particular piece of information is confined to a single office (category A), branch and enterprise output coincide. The two measures may diverge where enterprises produce "in­ complete" products (category B)• The output of Soviet conmunications enterprises, Qe, is defined as:

(1) Qe - E q„p0 + E qtPt + E where q is the volume of output in physical units, for exam- pie, letters, parcels, telegrams, toll calls, etc.; the sub­ scripts o, t and i represent outgoing, in-transit and in­ coming volume, respectively; p is the price or monetary val- uation (denezhnaia otsenka) for each type of output. Total branch output is given as

<2> Ob - E QCPC where Q„ is the number of "completed" conmunications products in physical units; and P C is the monetary valuation for each 4 type of completed product.

f 99 Equation (1), total enterprise output, is used by republic communications m inistries and oblast administrations in drafting annual economic plans. Brandi output figures (2) are analyzed by the Ministry of Communications, USSR for the purpose of preparing perspective plans. The official Soviet ruble output series reflects total enterprise output. These two measures of output are based on different product assortments (nomenklatury). Technological change in comnunications equipment and the introduction of new services have necessitated modifications in the conpositions of the assortments as well as revisions in the monetary valuations attached to each product. An abbreviated list of the branch output assortment is presented in Table 4. The types of products which appear in the right-hand column are the actual physical measures of output unless otherwise noted. The enterprise output assortment is more detailed due to the inclusion of incomplete products, i.e . each of the items in the first three' branches above (excluding Id, 2b, 3b and 3c) is broken down into outgoing, in-transit and incoming categories and a monetary valuation is attached to each of these items. Additional but less important items appear only in the enterprise assortments, such as shipment and contain- erization of mail, installation of telephones, servicing of comnunications equipment, etc.

Though branch output data are not available for com­ parison with enterprise output figures (the official ruble 1 0 0

T a b le A

The Branch Output Assortment of the Soviet Conounicatlons Industry Branch o f Comnunications Type of Product 1. Postal Service a* letters and printed matter (ordinary and registered) b. Insured letters and printed matter c. money orders d. pension payments e . parcels £• periodical publications (newspapers and magazines) 2* Long Distance a. long distance telephone calls Telephone b. telephone channels assigned on a Communications lease basis (in channel hours) 3. Telegraph a* telegrams Communications b. subscriber telegraph (Telex) instal­ la tion s c. telegraph channels assigned on a lease basis (in channel hours) 4* City Telephone a. telephone receivers Communications b* public pay phones c. connecting lines d. direct lines 5* Rural Telephone a* telephone receivers Communications b. length of telephone lines and cables (in kilometers) 6. Radiofication a. -radio rediffusion points * 7. Radiobroadcasting a. operation of radiobroadcasting channels (in channel hours) 8. Television a* operation of television broadcasting channels (in channel hours)

Source: M.G. Kozlov, Ekonomlka sv la zl. 1971, pp. 52-54* Cf. also I.A* Podgorodetskli, et a l., Ekonomlka svlazl* 1967, pp. 127-129* 1 0 1 series in Table 5), the likelihood is that the degree of divergence between the two is relatively small. In the first place, the monetary valuation for, 3ay, an ordinary letter (branch output) is in general the weighted average of the monetary valuations of an outgoing, in-transit and in­ coming letter (enterprise output). Secondly, products in­ cluded in the enterprise assortments but not in the branch assortments probably do not bulk large in the total value of o u tp u t. At this point, it is sufficient to note that the per unit monetary valuations are estimated on the basis of the average branch cost of production (sebestoimost1) of the products and equipment in the assortments plus a predeter­ mined per unit profit markup. These valuations are deter­ mined by the Central Scientific Research Institute of Com­ munications (TsNIIS), the research organ of the Ministry of Communications, USSR. Using 1962 as the base year, the product assortments and valuations were revised (from 1957) and were put into effect in 1966. Revisions were again made in 1971 and introduced in 1972.® The total volume of output of the Soviet conmunications industry and its branches appears in Table 5. While total communications output data are published in Narodnoe Khozlaistvo for most years from 1950 to 1971, branch percentages of the total output are available for only a few years. These percentage data are deficient in two Table5

The Structure of Soviet

Branch of Communications 1950 1960 1965 _ 1970

106 rubles % 10^ rubles t 10^ rubles % 10^ rubles $ Postal Service 385.3 52.5 586.4 43.1 859.3 42.7 1260.4 38.3 Long Distance Telephone 85.9 11.7 170.8 12.5 288.6 14.3 555.3 16.9 Telegraph 110.8 15.1 169.3 12.4 224.7 11*2 356.0 10.8

City Telephone 55.8 7.6 117.8 8.7 171.1 8.5 344.4 10.4

Rural Telephone 32.3 4*4 ioo;i 7.4 148.0 7.3 267.1 8.1 Radloflcation 45.5 6.2 108.6 8.0 164.3 8.2 236.0 7.2 Radiobroadcasting and Television _ 18.4— 2.5 108.1 7.9 157.4 7.8 272.5 _ 8.3 Total8 734.0 100.0 ... 100.0 2013.3 100.0 3291.9 100.G Sources: The 1950 branch ruble figures are derived from a percentage branch breakdown In I.A. Fodgorodetskii and A.V. RaZgovorov, Statlstlkl svlazl. 1962, p. 107. The authors' total output figure Is given as 684->4 mil Hon rubles. Assuming the discrepancy between this amount and the 734*0 million rubles shown above (from TsSU, Nar. khoz.. op e l t ., 1969, p. 487) to be evenly dis­ tributed among the branches by output share, 1 have applied the author A1 percentage distribution to the larger ruble figure. The totals for the four years as veil as the branch ruble data for 1960, 1965 and 1970 are given In Analiz. op c i t ., 1971, p. 36. I am especially Indebted to I.A. Fodgorodetskii for providing me access to this publication. Errors are due to rounding. See A.V. Razgovorov, Teorlla statistlka 1 statlstlkl sviasi. 1968, p. 304 for the same 1960 and 1965 totals, 102 but slightly different percentages. 103 respects > a) the various sources differ fairly widely in the percentage distributions reported for any one year, and b) the branch classification nay differ from the one in

Table 4. For example , the long distance telephone network is in some cases combined with the telegraph system, or city and rural telephone networks are aggregated into one branch— local telephone conmunications. The U.S. does not compute a value for communications output, but in order to give some perspective to the Soviet data and to illustrate the ways in which the Soviet system operates, Table 6, which employs operating revenues as a surrogate measure of output, is the most serviceable approx­ imation available.

a. The Soviet Postal Service' The most glaring difference between Soviet and Ameri­ can communications is reflected in the absolute size of each of the two systems as a proportion of its respective•national product. On the assumption that gross revenues represent a

* reasonable proxy for output, U.S. comnunications accounted for nearly three per cent of GNP in 1970. For the USSR, however, communications output is on the order of one half of one per cent of the Soviet Gross Social Product. Of greater interest and importance than comparisons of absolute size are the structure of the industry as indi­ cated by the percentage shares and the changing shares of the T a b le 6

Branch of Communications 1950 1960 1965 197C

10^ dollars ft 10^ dollars % 106 dollars $ 106 dollars % Postal Service 1,677 29.6 3,277 24.8 4,483 24-3 6,473 23.3 Long Distance Telephone 1,208 21.3 3,058 23*1 4,706 25.5 8,042 29.3 Telegraph 228 4.0 349 2.6 413 2.2 402 2.1 City and Rural Telephone 1,997 35.3 4,665 35.3 6,114 33.1 8,685 31-3

Radiobroadcasting 446 7.8 598 4.5 793 4.3 1,137 4.1 Television 106 1.8 1.269 9.6 1.965 10.6 2.808 10.1 Totals 5.662- 100.0 _ 13.216 100.0 18.474 100.0 27.741 100.0 Sources: 1950 radiobroadcast revenues from U.S. Department of Commerce, Statistical Abstract of the United States. Washington, D.C., U.S. Government Printing Office, 1966, p.. 518; 1950 television revenues from Ibid., 1968, p. 504; all annual postal revenues, telephone and telegraph .operating revenues and remaining radio and television broadcast revenues are from Ibid., 1972, pp. 489, 492 and 498, respectively. Errors are due to rounding. Local and to ll revenues In the telephone branches are slightly understated since they include only Bell System revenues. The distribution of these revenues for the entire U.S. telephone network—the Bell System and other independent : companies—does not appear in the Statistical Abstract. Since the Bell System handles 90 percent of to ll ca lls and 85 percent of local exchange service (cf. Manley Irwin, "The Communications Industry," The Structure of American Industry. 4th ed., (Walter Adorns, ed.), 1971, p. 381), the telephone shore of U.S. communications output shown here is not substantially different from what i t would be i f a ll telephone revenues were included. 105 branches In the postwar period. In 1950, over half of Sov­ iet conmunications output was generated by the postal serv­ ice. While its share of output has declined with the be­ lated growth of telephonic conmunications, radio and tele­ vision , the post office remains the largest single branch of Soviet comnunications. Postal output in the USSR, however, is not strictly comparable with that of the U.S. Unlike the U.S. Postal Serv­ ice, the Soviet postal system is responsible for the distri­ bution of newspapers as well as magazines. Since subscrip­ tio n sales account for nearly 80% of the total sales of per­ iodical publications and given the political importance of this medium of conxnunication, the processing and delivery of newspapers and magazines play a major role in the overall effort of the postal system. In 1971, periodical publica­ tions accounted for more than 75% of mail pieces in the USSR, but only 11% of U.S. mail pieces (in 1968).6 Another ingredient serving to differentiate the two postal systems is the share of advertising in the U.S. postal mix. Circulars, handbills, promotional material and so-called "junk mail" weigh heavily <26% in 1968)^ in the total U.S. mail volume. The use of the mails as a commercial advertising medium is virtually nonexistent in the USSR. This is hardly surprising in an economy where industrial and retail price competition as well as competition in the provisions of services are nowhere in evidence. With uniform State prices and far fewer product brands from which to choose, the con­ sumer's costs of search are, ceteris paribus, considerably less than those same costs in a capitalist system. The function of advertising, either as a means of transmitting information or of persuading potential buyers to purchase particular commodities, is consequently diminished. Adver­ tising exists in the USSR—usually of the billboard variety— in the sense that consumers are exhorted to purchase the generic commodity as opposed to the specific brand. But for a few newspapers in which only a small amount of this type of "advertising can be found, the Soviet postal service does not function as an advertising medium. The consumption of postal output varies widely in the two countries due to: a. the heavy volume of business-oriented and advertising mail in the U.S.; b. the function of the Soviet postal system as the major distributor of periodical publications; c. the lack of widespread alternative means of communications for Soviet users, but especially for those in the consumer sector; d. the apparent use of other media—telephone, telegraph and word-of-mouth—by Soviet enter­ prises and service organizations in transmit­ ting information about production, plans and p erso n n el.

As Tables 7 and 8 are intended to show, the Soviet postal ser­ vice is primarily consumer-oriented; the U.S. Postal Service, to a far larger extent, is a primary medium for conducting b u s in e s s • 10?

The Composition o f U.S. Mail- Prom

To Business0, Household Government Total Business0, 25.8 5.8 1.8 3 3 .# Household 46.6 14.0 3.8 6 4 .# Sovernment 1.2 .4 .6 2.25 Total 73.6(55 20.25 6.25 100.05b Source: Ibid., 1968, p. 1-3. Data on the postal demand for eaoh class of mail, as are show for the USSR in Table 8, are not available for the U.S. _ Motes: a The category "Business" includes a ll non-governmental organi- . nations. 100.0J5 = 83.8 billion pieces, slightly more than the U.S. Post Office Department's estimate of 82 billions for the fiscal year 1968. 108 T a b le 8

The Distribution nf tfa-n Vnlmift by Users in the USSR. 1970IV

Type o f User G ro u n a Postal Population Enterprises in Nonproductive Total Output the material institutions & branch o f pro­ organ!zations duction0^ Ordinary.letters, cards and printed 81.0 8.7 10.3 100.0? matter Registered letters, cards and printed 37.6 35.2 27.2 100.02 matter

Insured letters 63.7 26.8 9.5 100.02 and printed matter

Money orders 22.5 9 .2 68.3 100.0? Parcel8 68.2 23.6 8.2 100.0? Source: Mlnisterstvo svlazl SSSR, Sostay potrebitelel ualug svlagi 1 arednle dokhodnve taksr. 1972, p. 7. The inter-group flow data shown in Table 7 for the U.S. are unavailable for the USSR. Soviet data re­ fer to outgoing correspondence. Notes: .a The Soviets still adhere to the Marxian (and classical) dis­ tinction between "productive" and "nonproductive" sectors of the econo­ my. Enterprises in the material branches of production are those which produce physical (material) products. a Nonproductive institutions and organizations do not contribute to physical product. In this sector are included educational establish­ ments, trade, banking and credit, the military, legal and medical pro­ fession s, certain transport and communications services, the service sector in general, Party and government administrative organs, etc. The d istin ctio n i s far from exact, for some services, while nonproduc­ tive in themselves, do constitute a portion of the national product by being rendered to enterprises in the materal branches of production ( i . e . , to productive enterprises). Another way o f looking at th is sec­ tor classification is through Colin C laris terminology. With certain exceptions, the "productive" enterprises are those found In the "primary (agricultural)" and "secondary (industrial)" sectors, while the "nonproductive" organizations are located in the "tertiary (service)" sector. 109

The Soviet data are derived from a survey conducted among a ll types of conmunications enterprises during the third week in November, 1970. Similar investigations were undertaken in 1928, 1945, 1958 and 1964. The results sug­ gest a marked stability in the composition of institution­ al postal usage over time. The volume of the various classes of postal output has greatly increased since the be­ ginning of the first Five Year Plan in 1928, and the popula­ tion at large, as opposed to the business, Party and govern­ ment sectors, is now, as then, the prime generator of mail volume in nearly all classes. In the future, the relative share of the postal ser­ vice in total Soviet conmunications output w ill be a function of both the rate of growth of. alternative means of transmit­ ting messages and the extent to which more efficient methods of physically distributing periodical publications are devel­ oped. The further expansion of decentralized printing plants, which w ill utilize newspaper matrices delivered by plane or facsim ile pages of national newspapers transmitted electron­ ically, can be expected to lighten the postal load. b. Telegraph Communications Given the Soviets1 late start in developing their com­ munications industry, we are tempted to look for patterns of structural change similar to those experienced by the U.S. in its early comnunications development. Communication via 110 telegraph, besides being more impersonal than a telephone conversation, operates with a considerable lag that m ili­ tates against its use as a true two-way medium. Relative prices and scarcities aside, the telephone is an obviously superior means o£ communication for almost any purpose. Wherever favorable prospects for telephone growth exist, the demise of the telegraph is foreordained. The number of U.S. telegraph revenue messages has been declining since 1947. Because of increasing competi­ tion from the telephone industry and the fact that Western Union, the only domestic telegraphic carrier, has been unable to hold its own even in a burgeoning market such as leasing lines to commercial and government users, telegraph commun­ ications have lost ground in the last fifty years. In the USSR, a telephone conversation has only recent­ ly become a meaningful substitute for a telegram for at least some Soviet citizens. This is due neither to significant guality-of-transmission or price differences between the two modes of communication, but simply to a failure to meet the long pent-up demand for a faster, more reliable and more per­ sonal type of communications medium—the telephone. Soviet long distance telephone output surpassed tele­ graph output in 1960, but not until 1968 was the annual num­ ber of long distance calls greater than the annual volume

O of telegrams. (In the U.S.,. the annual number of toll tele­ phone calls exceeded the amount of telegrams before the turn q of the century. The growth rate of Soviet telegrams began I ll to fall In 1969, but Soviet experts believe that this de­ cline w ill be compensated by the growth of subscriber tele­ graph (Telex), leased lines to industrial' enterprise, minis­ tries and the service sector, and the demand for data trans­ mission via telegraph3,0—an expectation shared by the U.S. telegraph industry several decades ago. The composition of output of conventional telegrams (Table 9) has changed somewhat over the course of the in­ dustrialization period due to the expansion of telephone net-■ works whose influence has been much greater in the public 'versus the private sector. The population share of telegraph output has been increasing with the rising volume of tele­ grams most probably as a consequence of the relatively high opportunity costs of placing long distance telephone calls, i.e ., the costs of waiting for pre-arranged connections to be made*at trunk call offices (peregovornye punkty). Of no lesser importance is the fact that the industrial and ser­ vice sectors have been the primary beneficiaries of telephone exp a n sio n . The paucity of published Soviet data is most evident in the newer forms of communication, such as subscriber telegraph and the leased telegraph and telephone lines. Until official Soviet data are made more readily available, we are unlikely to get much beyond conjecture with respect to the size and scope of these networks.

The first subscriber telegraph (Telex) stations, built from 1948 to 1951, were completely manual systems. By.1965, 112 Table 9

The Distribution of Teleerams bv Users: USSR. Selected Tears. 1928-70 Tear Population Baterprises in the Nonproductive Total material branches institutions & of production organizations 1928 44.4 31.6 24.0 100.0$ 1945 39.1 36.2 24.7 100.0$ 1958 59.2 21.7 19.1 100.0$ 1964 58.6 25.2 16.2 100.0$

1970 <&f.1_____ 22.0 14.9 100.0$ Sources: 1958-70 - Op c i t ., Sostav, 1972, p. 9j 1945 - Ministerstvo eviazi SSSR, Klientura sviaai 1 srednle dokhodnve taksv na uslugl BViaal. 1959, pp. 4-5J 1928 - data provided without source reference by the Economics Laboratory at VZEIS. 113 the network numbered 9,131 subscribers. As noted, this fig­ ure had grown to 24,052 subscribers in 1970. Sixty-five percent of the revenues from subscriber telegraph calls came from enterprises in the branches of material production; the remaining thirty-five percent originated in nonproductive institutions and organizations.^ In order to arrive at a ruble output figure for the use of telegraph comnunications other than conventional tele­ grams, i.e ., subscriber telegraph, facsimile and leased lines, certain liberties must be taken with the data. Of 365 mil­ lion telegrams sent in 1970, 91.3% were ordinary telegrams and 8.7% were urgent (srochnye) telegrams. The average user rates were 71 and 175 kopecks, respectively. A weighted aver­ age of ordinary and urgent telegrams indicates that conven­ tional telegraph use generated approximately 257 m illion rubles in rate revenues. Since total telegraph revenues were equal to 318 m illion rubles in 1970, the subscriber telegraph, facsim ile and leased line networks could not have accounted 12 for much more than 60 m illion rubles in rate revenues. Despite the recent growth of these new telegraph ser­ vices, the trend of long distance and local telephone growth belies Soviet economists 1 claims that the telegraph w ill play a major role in the future of Soviet comnunications. What is more likely to happen is that the.conventional telegram w ill become increasingly obsolete (how rapidly this occurs w ill depend upon the rate at which the various segments of the 11* Soviet economy are supplied with preferred means of commun­ ication, namely, the telephone), and subscriber telegraph and leased telegraph lines w ill supplement the national tele­ phone and data transmission networks. c. Long Distance Telephone Comnunications The long range objective of Soviet planners is cen­ tered around the creation of EASS (edinaia avtomatizirovanaia sistema sviazi)—a unified, automated communications system for the country as a whole. The success of this system de­ pends critically upon the rapid development of long distance telephone communications. Xn the postwar period, no other branch of intercommunications has matched the rate of growth in this area. Second only to the postal service in total output, this branch w ill in a ll likelihood continue to absorb an increasing share of that output in the short run. In spite of this recent growth spurt, which looks all the more impressive compared with, say, the meager 1950 base, Soviet communications economists readily admit that their long distance telephone network is some three decades behind that of the U.S.3,3 Besides a huge increase in the availability of tele­ phones, what is meant by the concept of EASS is the establish­ ment of pervasive direct distance dialing or, as the Soviets phrase it, a system of communications that w ill connect "each with each" (kazhdyi s kazhdoi). 115

The first automatic long distance telephone office was put into operation in May, 1963 at Kaunas, Lithuania.1,4 As of 1968, experimental direct dialing had been established 15 from Moscow to G or'kii, Kaluga, Kiev, Leningrad and Khar'kov. At present, a majority of Moscow subscribers have the oppor­ tunity of dialing directly to a limited number of exchanges in 44 Soviet cities—21 around-the-clock and the remaining 23 from 6 p.m. to 9 a.m.16 As the hub of the nation's economic activity, Moscow is the natural testing ground for the latest technology and the first claimant of the best that the Soviet Union produces. Automatic connections between the other major cities on this lis t, not to mention those between the thousands of other Soviet cities, w ill be gradually realized only over the course of several more five-year plans. For the vast majority of Soviet citizens, the time-consuming ritual (for those without telephones) of ordering a long distance phone call at a trunk- call office and accepting the completed call there at a later hour or placing the order via apartment telephone with a local operator is likely to remain standard procedure for years to come. For the USSR•as a whole, 64 percent of all long dis­ tance calls were connected manually as of January 1, 1971. The telephone conversation is the major product of the long distance telephone branch. Since most Soviet offices utilize either manual or semi-automatic switching systems, monetary valuations are applied in outgoing, 116 3 ^ 0,10

Country Number of long distance Average annual number of telephone conversations (1CP) conversations per capita U.S. 7,241,000 34.9 Canada 471,340 21.7 U.K. 1,535,647 27.6 Japan 8,217,081 78.5 West Germany 3,337,837 56.4 Sweden*1 810,000 99.9 USSR 431.000 1.8 Sources: Number of calls - American Telephone and Telegraph, The World's Telephones, as o f January 1, 1971, pp. 11-12; per capita calls - based on July 1, 1971 population estimates from United Nations, Deportment o f Economic and Social A ffairs, Demographic Yearbook 1971. 1972, pp. 114-116. Notes: a Data are for year ended June 30, 1971. Per capita call fig­ ures are slightly off due to mid-year rather than first^of-year popu­ lation estim ates. Narrowly defined lo ca l exchanges within a country may account for some high per capita call figures. The number of Soviet calls is found in TsSU, Karodnoe khozialotvo. 1922-1972. 1972, p. 314* In 1971, Soviet citizens placed 479 million long distance c a lls. 1 1 ? in-transit and incoming phone calls. As more offices are converted to automatic systems and direct distance dialing becomes more prevalent, this classification w ill slowly disappear. At the point at which automatic systems take over completely, the monetary valuation of the branch product— the average long distance telephone call (in terms of both distance and duration of call)—w ill coincide with the roone- ■ tary valuation of the enterprise product. That is, the long distance telephone branch w ill join the other branches of category B in producing only "completed" products. Comparative sizes of national long distance telephone networks indicate that the USSR is quite backward in this area of economic development. This is equally true of local telephone communications as w ill be seen in the next section. While the Soviets justly proclaim their industrial achieve­ ments, their telephone communications—both in quality and quantity—are not a source of pride. The diversion of human and nonhuman resources to heavy industry during the indus­ trialization drive took its toll on the light industries and the service sector. Telephone communications stand out as a shining example of this disregard. Table 10 provides com­ parative data on long distance communications in several ad­ vanced countries. A host of factors shares responsibility for the remark­ ably low number of long distance telephone calls in the USSR: 118 T a b le 11 The Distribution of Long Distance Telephone Calls; USSR. Selected Years.. 1928-1970 Tear Population Enterprises in the Nonproductive Total branches of material institutions & production organizations 1923 29.3 32.0 38.7 100.0% 1945 20.5 3 8 .3 . 41.2 100.0% 1958 30.7 39.3 30.0 100.0% 1964 23.8 48.0 23.2 100.0%

1970 33.1 _ 4 5 .4 , 21-5 .. 100.0% Sources: see footnote to Table 9* 1 1 9 the conspicuous scarcity of telephones; the availability of less costly substitutes; inadequate investment allocations; and the relatively poor quality of transmission due to switching and channel capacity constraints. There is also a socio-geographic factor at work here. The transportation- communication revolution that has made the U.S. a "small world" has yet to have much, if any, impact in the USSR, a country which spans eleven time zones and includes twenty- five major nationalities, each with over 500,000 people. Zn the U.S., the mobility of the so-called "new nomads," leaving jobs, hones, friends and relatives every few years, has sure­ ly influenced the rise in long distance communications. The Soviet Union has not been affected to any significant extent by this same phenomenon. Changes in the composition of users of long distance communications are presented in Table 11. Soviet to ll calls have jumped from 15 m illion in 1928 to 479 m illion in 1971. With the exception of 1945 (the war­ time influence), the population share has remained fairly stable. The industrial sector is relying relatively more, the service sector relatively less on long distance telephone communications today than in 1928. Projections for telephone density in various Soviet sectors through 1980 (see below) w ill shed some light on the future distribution of output in this branch. 120 d. Local Telephone Comnunications Long distance, city and rural telephone networks are regarded as three separate branches of the Soviet communica­ tions industry. For analytical purposes and to the extent the data allow, this is the subdivision that w ill be used in this study. There is, however, another distinction, in terms of administrative organs, that precludes an examination of the entire Soviet telephone system. Under the jurisdiction of the Ministry of Communications, USSR are the means of communications "of general usethe State telephone network. The means of communications "of departmental use" (vedom- stvennogo pol'zovaniia) appertain to organizations, institu­ tions and enterprises of certain m inistries and departments. Among these are included the national weather service and portions of the coal industry, Aeroflot—the State airline, river and ocean transport and others. A precise definition of the scope of the departmental network is not available. But why these industries are set apart is largely a matter of historical accident. Zn the 1930's and during World War XI, when resources for nonindustrial uses were most scarce, the Ministry of Comnunications was unable to assume full financial responsibility for the development of a ll telephone networks. Other m inistries, whose communications needs were most pres­ sing, were thereby induced to divert portions of their own allocated funds to the construction of internal communications systems, which, while eventually linked to the State network. 121 were and s t ill remain under the management and control of the separate m inistries. In the late 1950's, the network of departmental use reached its peak relative to the network of general use. The number of departmental telephone offices in fact ex­ ceeded the number of offices under the Ministry of Conmun- . » ications, and the capacity of those departmental offices was only slightly less than the total capacity of the State net­ work (1959). By 1969, the latest year for which departmental network data are available, telephone capacity in the network of departmental use had fallen to less than one half that of the network of general use. The share of total city tele­ phones in the Ministry network versus the departmental net­ work is approximately 75 percent. In the rural networks, IB the Ministry share is 85 percent.

* Telephone output is an ambiguous concept. There is no single satisfactory measure that can account for changes in distances over which messages are transmitted, ease and speed of connection, quality of transmission, and duration of calls. Gross number of calls, constant dollar revenues or number of telephones installed all fail to account for these potential improvements over time and understate the true rate of growth. In the U.S., no real need exists to calculate a dollar value of output. Conmunications firms can project future needs on the basis of a range of variables one step removed from the grand t o t a l . But in o rd er t o a r r iv e a t a common denom inator 122 consistent with the spirit of national planning, the Soviet quest for placing a monetary value on their coumunication output has led planners, as we have seen in the case of long distance communications, to opt for the number of conversa­ tions as the physical measure of output. Here a case can be made for the view that average monetary valuations capture some of the vagaries due to distance and duration of calls, and changes in those valuations can partially account for quality improvements. In local telephone networks, however, the value of output is calculated as a function of the total number of telephones. The USSR is one of the few countries in the world that does hot publish and ostensibly does not use statistics on the number of calls in local telephone lo s y s te m s . Approximately 70 percent of local telephone output is attributable to the value of installed telephones. The re­ mainder consists of the various valuations on connecting lines and cables and switching equipment. 20 By 1970, the share of telephones for personal use, that is, in the apartment sectors of city networks, accounted for 53 percent of the telephones under the Ministry of Communica- 21 tions, but less than 40 percent of all city, telephones. Apartment telephones absorbed only 16 percent in 1950 and 22 percent in 1960 of all city telephones. Jean Gottman has extended Colin Clark's analysis be­ yond the tertiary sector (trade, service, transportation) to 123 the quaternary sector (occupations centering around govern­ ment activity, research and development, decision-making, transactions, etc.). H istorically, communications have been

4 used most intensively by those in the quaternary sector. Host often, accessibility to the means of communications has been closely guarded by the decision makers. As one re­ searcher has noted, "the interdependence between decision makers and intercommunications is a persistent associa­ t i o n ." 22 ■ This view finds a certain degree of confirmation in the experience of the U.S. and USSR, where sim ilar patterns of non-household telephone distribution exist, though at differ­ ent levels of development. A 1960 Soviet study of telephone saturation (nasyshchennost1)—Table 12--demonstrates the heavy concentration of telephones in the quaternary sector. The large share in administration is justified, according to Soviet economists, by the need to create EASS—the unified national communications network. Concentrating the lim ited means of communications in administrative and economic spheres clearly represented a rational policy in the context of the industrialization objective. For the USSR as a whole, intercommunication activity is centered in the decision-making sectors. The distribution of Soviet telephones is also predictably skewed toward the capital cities (Table 13)• 12k

Telephone Saturation In the State Sector: USSR. 1960

User Groups Number of enterprises and Number of telephones Institutions in the sample per 100 employed

Industry 867 1.9 Administration 450 24.5 Service sector: Trade 296 5.7 Culture 776 6.3 Health 264 3.6 Others 148 5.2

Source: Ministerstvo sviazi SSSR, Osnovr metodologil perspektlvnogo planlrovanlla potrebnoatel v sviazi obshchego pol1 zovanila. 1964-, p. 83. IsSLeJ1

No. of phones From col. 1, No. of apart­ From col. 2, which can be no. of phones ment phones no. of rural connected to under Ministry per 100 pop­ •phones per network of gen­ of Communica­ ulation 100 popula­ Capitol (Republic) eral use, per tions, per 100 tion 100 population population From col. 3 From col. 2 Capital Republic Capitol Capital Republic Republic (1969) (1970) _ _ (1969) (1969) (1970) (1970) ____ Ilf (2) \3i Iaj (5) t a Moscow (RSFSR) 19.04 6.82 16.18 10.31 2.53 1.69 Kiev (Ukraine) 11.79 6.A7 9.25 5.82 2.78 1.17 Minsk (Belorussia) 9.28 6.56 7.24 4.61 2.99 1.28 Tashkent (Uzbekistan) 4.73 A. 55 . 3.52 1.69 1.59 .62 Alma-Ata (Kazakhstan) 9 .AS 5.A6 8.A4 4.73 1.93 1.13 T b ilisi (Georgia) 9*A3 8.31 6.85 4.25 3.92 1.08 Baku (Azerbaidzhan) 6.A2 5.79 4.61 2.79 3.03 1.19 V il’nius (Lithuania) 13.03 8.27 12.08 7.15 4.19 2.13 Kishinev (Moldavia) 9.58 6.A7 8.54 4-56 2.84 .73 Riga (Latvia) 15.07 13-10 13.65 9.02 7.78 4.94 Frunze (Kirgizia) 5.18 A. 77 4.A0 2.12 1.54 .63 Dushanbe (Tadzhikstan) 6.82 5.22 5.76 2.83 1.94 .46 Yerevan (Armenia) 10.58 10.21 9.33 6.37 6.27 3.29 Ashkhabad (Turkmenistan) 6.91 4.92 5.66 2.69 1.90 .51 Tallin (Estonia) 14.56 10.94 14.56 6.01 4.49 5.75 Sources: Columns 1, 3 and 4 - Ministerstvo sviazi SSSR, Anallz sostaianiia sviazi v Boiuznykh resrrat>- likakh. 1970, p. 18. This source was kindly made available to me by I.A. Podgorodetskil. Columns 2, 5 and 6 - data provided without source reference by the Economics Laboratory at VZEIS# Telephone use is also disproportionately larger In major U.S. cities. For example, the number of tel^ phones per 100 population in Washington, D.C. i s 116*9; in New York, 73*9; and in Chicago, 69*8* Op c i t ., The World1 a Telephones, as of January 1, 1971, p. 26. 126 Rural telephone communications include the intra-raion systems outside the city networks and the intra-production (vnutriproizvodstvennyi) networks located on State and col­ lective farms. As planners have allocated more of the scarce communications resources to areas where larger returns could be expected, namely, the cities, rural telephone development has lagged. Though the value of rural telephone output was three-fourths of city telephone output in 1970 (due to the value of aerial and underground cables in the more widely diffused rural network), only 14 percent of Soviet telephones were in the villages. An average Soviet collective farm had six telephones, a State farm had seventeen telephones in mid-1970. State and collective farm phones accounted for 23 some 35 percent of a ll rural telephones. About 220,000 telephones, or approximately one-fifth of the total, were located in the rural apartment sector. The remaining portion of rural telephones are found in State administrative agen­ cies, social organizations and institutions, and factories and 24 plants in the rural localities. Since the total number of telephones is the basic unit of output in the city and rural communications branches, it is instructive to consider the projected sector distributions based on city size for 1970 through 1980 (Table 14). These data do not include the output of the network of departmental use, but only those telephones under the jurisdiction of the Ministry of Communications. For the large administrative and 127

Tattle _1 A Planned Norms of Telephone Saturation i USSR: 1970. 197

... ' ...... City Population per 1000 Inhabij 1?>70 1975 Sector Jo to 20120-1001100-500 I Over 500 Ur. to 20 20-100 H00-500l0vor 500i Number o f telo n tonos nor 100 workers n«1

Industry 3 .5 3 .5 3 .3 2 .2 5 .8 5.1 4 .5 . 3 .4 idaini stration 2 3 .5 25.0 24.0 25.3 32.1 3 2 .4 30.5 3 2 .6

Trade 7 .5 8 .2 6.0 4 .8 10.0 10.0 8 .3 7 .6

Education and 8 .7 7 .5 7 .2 4 .6 1 3 .4 10.5 9 .3 6 .3 ju ltu r e lloalth 4 .8 6 .7 3 .3 4 .0 6 .8 7 .7 5 .3 5 .2

Dthors 8 .1 7 .4 _ 6 .3 6 .2 12.3 11.9 8 .7 8 .7 Number of toloohonos oor 100 inliabii

Public pay •07 .09 .15 .20 .10 .16 .20 .3 0 phones fcpartment phono r 1 .0 1 .8 3 .0 4 .0 2 .0 4 .0 6 .6 8 .0 ill city phonos 4 .2 4 .9 5 .8 6.1 7*1 8 .3 10.0 11.1 Rural phonos (a) 2 .4 4 .8

Source: Vromonnvo nonny tolofonnvkh nlotnootei dlln goroclov. Infornntsionnya mate: (a) refers to telephones In rural population points and villa(joo which are cubordir Sinco actual 1970 tclophono data by sector ore not available, it is not possil projections in this table have been, realizod. 127

TableJ^ of Telephone Saturation! USSR: 1970. 1975 end 1980

Citv Population por 1000 Inhabitants - . . . 1975. _ 15>80 )ver 500 Un to 20120-1001100-500 lOver 500 Up to 20120-1001100-5001 Over 500 Number of telephones per 100 vorkors and emploveos

2 .2 5.8 5.1 4.5 . 3.4 9 .3 7 .8 6 .7 5.3

25.3 32.1 3 2 .4 30.5 32.6 4 0 .4 4 0 .4 36.5 3 9 .6

4.8 10.0 10.0 8 .3 7 .6 1 4 .4 13.3 12.3 11.1

4 .6 1 3 .4 10.5 9 .3 6.3 18.9 15.8 13.1 8 .7

4 .0 6.8 7 .7 5.3 5 .2 9.1 8 .7 8 .2 7.1

6 .2 . _1_2.3___ 11.9 8 .7 8 .7 16.2 16.3 12.3 11.8 Nunbor of tolcphonos per 100 inliabitnnts

•20 .10 .16 .20 .30 •20 .25 .30 .4^

4*0 2.0 4 .0 6 .6 8 .0 4 .0 9 .0 14.5 18.6

6,1 7t1 8 .3 10.0 11.1 11.6 15.3 20.0 23.0 4 .8 9 .6 tnootel JHa gorodov. Informatsionnye matcrialy institute "Giprosviaz10 (1966 )l bion pointo and villagos which aro subordinate to tho ralon center. sector are not available, It is not possible to say to what extent tho izod . 128 cultural centers, such as Moscow, Leningrad and the capitals of the union republics, the projected telephone saturation is considerably higher than these average figures Indicate. As a measure of output, the number of telephones pro­ vides no Information on variability of use between different sectors. From Table 14, we can see that the share of apart­ ment phones is expected to Increase (as it has over the past twenty years). If we assume, however, that a call placed in, say, the industrial or administrative sector is more Important (i.e ., has a greater economic impact) than one placed in the apartment sector, then merely counting tele­ phones disguises these differences. Ideally, a measure which accounts for the relative "value* of each sector's calls should be used, but this involves some rather heroic assump­ tions with which even a statistical purist would express dif­ fid e n c e . A mid-1950's study of Moscow city networks showed that the average daily number of conversations in the non­ apartment sector was 22.6, while in the apartment, sector, the average number of calls was 6.8. 2 5 Using telephone calls rather than numbers of telephones as a measure of output would at least have the advantage of giving a reasonable quantitative weight to the various sectors that rely on tele­ phone communications by accounting for differences in use. But the fact that the same monetary valuation (though not the same user rate) is applied to each telephone implies that. 129 for the purpose of measuring output, telephones in the various sectors are of equal value, irrespective of sector differences in the number of calls. Thus, our reservations about the meaning behind the Soviet money "value" of commun­ ications output are confounded in the case of local telephone communications. As with most studies of the Soviet economy, however, we have little recourse but to voice the traditional misgiv­ ings regarding the merit of the methodology involved, the re­ liability of data, etc., and forge ahead. With respect to "the analytical conclusions on the growth of the industry, we should be somewhat chary about their reliability, relying as we must on the fundamental datum—the annual value of Soviet communications output—whose composition includes everything from ordinary letters and postcards to complex telephone switching equipment and television broadcasting. Though post­ war output time series are not available for each of the branches, cross-section analysis of disaggregated republic data on communications output, capital stock and manhours for 1960, 1965 and 1970 can help to alleviate reservations that stem from measuring heterogeneous communications products.

Summary Some comnunications_enterprises in the USSR do not serve final users and thus receive no rate revenues; others receive rate payment from users but do not incur a ll the costs 130 of transmitting ness ages. In order to more clearly define the contribution of each comraunications enterprise and to increase the autonomy of the enterprise, communications planners have devised the concept of communications output. Essentially what is involved here is the estimation of the per unit cost of receiving, handling and delivering a postal, telephone and telegraph message and adding to that cost a predetermined per unit profit (the size of which is discussed in the following chapter). The sum of the unit cost and profit is referred to as the monetary valuation, or price, of the particular service (a letter, toll call, telegram, etc.). This price, as we shall show later, does not neces­ sarily bear any relation to the final charge, or user rate, to the consumer of the communications service. By the use of this measurement, the value of output (and the "own" in­ come) of each enterprise is taken into account. In the aggregate, from 1950 to 1970, the share of communications output held by enterprises in the postal ser­ vice and telegraph branch has declined from 68. to 49 percent, while the three telephone branches have increased their collective share from 24 to 35 percent. In 1970, Soviet mass media contributed only 16 percent to the ruble value of out­ put. The U.S. does not calculate a communications output series, but in terms of rate revenues—a reasonable approxima­ tion to output, the post and telegraph accounted for only a quarter of the total in 1970; telephone networks, 60 percent; and radio and tolevision, 14 percent of rate revenues. The causes of these structural differences and changing shares in the communications industries of the two countries are discussed in the chapter. The periodic one-week surveys of communications use in the USSR indicate that conventional postal operations have primarily served the population sector, while telephone and, to a lesser degree, telegraph systems have been concentrated mainly in Party and government organs and in the industrial 'and service sectors. These latter users groups are just now beginning to rely more heavily on newer electrical communica­ tions services such as subscriber telegraph (Telex) and leased telephone and telegraph lines. 1 3 2

NOTES - CHAPTER I I

P. Gayle Durban, Radio and Television In the USSR. 1965. P. 1. 2 0,S. SrapIonov, et a l., Ekonomlka 1 planlrovanle s v i a z i . 1 9 6 8 , p . 111. ^Monetary valuations are not to be oonfused with com­ munication rates, though they are of at least equal import­ ance In the Soviet communications Industry and w ill be dis­ cussed more fully in the next chapter. It is instructive to point out here the difference between "product" and "service." In Marxian terminology, the "use value" derived by the communications user is in the form of an activity rather than a physical object or produot. Thus, the user consumes a service. The consumption of use value refers to a service, while the production of use value refers to a produot—the opposite sides of the same coin. Communication rates are applied to the servloes provided by the industry; monetary valuations (prices) are applied to communications products. Irrespective of their stage of pro­ duction. For our purposes, however, the two terms are used in t er ohan ge ab ly . **A.A. Vishnevskil, et a l., Ekonomlka sviazi. 1961, PP. 9 3 -9 * . ^Vestnlk sviazi. no. 2, 1972, p. 28. ^TsSU, SSSR v tslfrakh v 1971 godu. 1972, p. 154; Towards Postal Excellencet The Report 0/ the Presidents Commission on Postal organization. Vol. II. Washington.D.C., U.S. Government Printing Office, June 1968, p. 1-11. ? I b i d ,, 1 9 6 8 , p. 2-5. For the purposes of this ex­ haust lva7"raulti-volume study on postal organization, adver­ tising was defined as "correspondence giving information about something to buy, contribute to, join of attend, as well as coupons and free samples," Magazines and newspapers oontaln a substantial amount of advertising none of which is included in the 26 p ercen t. ®TsSU, Transport 1 s v la z * . 1972, p. 274. ^U.S, Department of Commerce, Statistical Abstract of the united States. Washington, D.C., U.S. Government Print­ ing ofrice, 1930, pp. 359 and 364. *°N.M. Gubin and B.V. Bronner, Organlzatslla 1 planl- rovanle telegrafnol sviazi. 1971* P. 13* 133 UM lnisterstvo sviazi SSSR, Sostav potrebltelel uslug sviazi 1 srednle dokhodnve taksv. 1972, p. 59. 12The percentage telegram distribution and average user rates were published in ibid., p. 90, Once again, this publloatlon presents data which are based on a one-week sur­ vey. The assumption is that these figures do not deviate markedly from average annual data. The 318 m illion ruble rate revenue figure is given in TsSU, Tr. 1 svlaz*. op cit. , 1972, p. 382. While the sum of rate revenues should theor­ etically ooinolde with total communications output, they do in fact differ significantly in some branches. Given the 358 m illion rubles of telegraph communications output (of. Table 5)* the output share of subscriber telegraph, facsimi­ le and leased telegraph lines is somewhat larger than is in­ dicated by the 61 million ruble rate revenue figure. A dis­ cussion of telegraph output measurement appears in M.G. Kar­ in azov, Organlzatslla l planlrovanle predprllatll elektrloh- eskol sviazi. 1973. p. 102. ^This assessment was conveyed to me in Moscow on separate oooaslons by I.A. Podgorodetskil, N.F. Golitsyn and N.M. Gubin—a ll members of the communications economics fac­ ulty at VZEIS—and O.S. Sraplonov, the head of the Department of Communications Economics at TsNIIS. Curiously, the notion that the Soviet network was only "one-tenth11 that of the U.S. kept cropping up in these discussions, which suggested some­ thing more than a random view. By the year 2000, these eco­ nomists argued, the Soviet network should be one-third to one-half the size of the U.S. network. •In 1986, Michael Boretsky noted: "Judging by the use of telephones alone the present overall level of technology in the Soviet economy is probably on par with the level of U.S. technology in the late thirties." "Comparative Progress in Technology, Productivity and Economic Efficiency: USSR versus USA," New Directions in the Soviet Eoonomy. U.S. Con­ gress: Joint Eeonomio Committee, Washington, D.C., U.S. Gov­ ernment Printing Office, 1 9 6 6 , p . 180. l**Vestnlk sviazi. no. 2, February 1 9 6 9 , p . 2 5 . ^M inisterstvo sviazi SSSR, Splsok abonentov Moskov- skol gorodskol telefonnol setl. 1965, p. 498. This service excluded sixteen (three-digit prefix) exchanges. Informa­ tion concerning the percent of Moscow subscribers who were provided with this service in 1 9 6 8 is not available. l^Vechernlala Moskva. February 5* 1973. P. 6. The cities in the first group include: Alma-Ata, Baku, Vil'nius, Voronezh, G or'kil, Yerevan, Leningrad, Kaluga, Kiev, Kishi­ nev, Kalinin, Minsk, Odessa, Riga, Rostov, Sverdlovsk, Tal­ lin , Tashkent, T bilisi, Khar'kov and Yaroslavl'• Cities in the second group are Arkhangelsk, Vladimir, Dnepropetrovsk, 134 Donetsk, Ivanovo, Kaliningrad, Kazan', Kirov, Kostroma, Kursk, L'vov, Lipetsk, Murmansk, Novosibirsk, Orel, Ordzhon­ ikidze, Penza, Perm', Rlazan', Smolensk, Frunze, Chella- blnsk and Stavropol'.. It is interesting to note that only 5 of these 44 cities are located east of the Urals. ‘ The head of the Central Long Distance Telephone Of­ fice in Moscow pointed out that direct distance dialing can now be used by some 6 5 percent of the city's subscribers. Approximately 25 percent of outgoing toll calls are connect­ ed manually (through operators at both ends), 40 peroent are p laced se m i-a u to m a tlca lly (through a Moscow op erator to the designated number) and about 33 percent are connected auto­ matically (directly from the oaller to the designated num­ ber). Given this distribution of outgoing toll calls, the. 65 percent figure appears to be somewhat inflated, unless a large portion of Moscow subscribers has been insufficiently apprised of its direct dialing capabilities. *?N.D. Psurtsev, Svlaz' v devlatol platlietke. 1972, p. 13. Cf. also Ekonomlcheskala Gazeta. no. September "1971. P. 3.

1®Ts SU, Tr. 1 svlaz'. op o lt. . 1972, pp. 281 and 288-289. Though aggregate data on the means of communica­ tions of departmental use are available, this widely dis­ persed network offers little in the way of detailed informa­ tio n . Communications econom ists in Moscow claim ed th a t non- M in Is try of Communications networks were of negligible im­ portance. The aggregate data, however, point to the conclu­ sion that departmental networks s till weigh heavily in total Soviet communications. ^One Soviet explanation for this is the laok of metering devices by which to oount oalls. To the rejoinder that this could be easily rectified by the application of appropriate sampling techniques, Soviet economists argue that the total number of calls is a poor measure of output in any case because so many looal calls are aborted due to busy signals, dialing errors, no response at the called num­ ber and technical complications in connecting calls. ^°M.G. Kozlov, Ekonomlka sviazi. 1971. P. 57. 21TsSU, Tr. 1 svlaz*. op o lt.. 1972, p. 281. TsSU, Narodnoe khozlalstvo. 1922-19?2. 1972. p. 314- provides the latest data on local telephone communications. In 1971. of 12,078,000 local telephones, 10,436,000 were located in city networks, and 1,642,000 were in the rural systems. "The total number of telephones In a ll departments" was 15.1 mil­ lion in 1971. The difference between this figure and the 12.1 million local telephones—some 3 m illion receivers— may represent the number of telephones in the Soviet military establishment. 135 22Ronald P. Abler* The Geography of Intercommunica­ tions Systems: The Poet Office ana Telephone Systems In the fa It ed. States. 1965. p p . 8 -9 .

23yestnlk sviazi. no. $, May 1970, P. 29. 2**A.G. Loginov, Organlzatslla. planlrovanle 1 proek- tlrovanle sel^skol telefonnol sviazi. 196^f^p. 10.

25 g.Z. Maksimov and A.P. Pshenlohnlkov, Telefonnala nagruzka aestnykh cetel sviazi. 1969, p. 31. CHAPTER I I I

COMMUNICATION RATE THEORY IN THE USSR

Introduction The objective of this chapter is to examine the theor­ etical principles upon which Soviet communications rates de­ pend and the degree to which rates conform to these princi­ ples in the branches of intercommunications. For this pur­ pose , it is again necessary to distinguish between 1) the user rate, or final charge, on postal, telephone and tele­ graph services and 2) the monetary valuation, or the internal price, derived by summing the average unit cost and profit markup on each unit of communications output. As is demon­ strated in this chapter, Soviet "rate" theory actually per­ tains not to user rates but to the internal prices used in the measurement of communications enterprise output. We begin by juxtaposing the economic theory of regula­ tion in the U.S. with parallel concepts in Soviet communica­ tions rate theory. Rate-making criteria and costing problems common to both economies are then considered. The remainder of the chapter analyses the contributions of Soviet economists, in Marxian "value" terminology, to this realm of price theory.

136 1

137

Since whatever conclusions we derive from this anal­ ysis w ill be couched in terms of Western microeconomic cri­ teria in general and public u tility theory and the economics of regulation in particular, it is important to determine what relevance £he application of €he public u tility concept ’ has to the'Soviet communications industry. Though regula­ tion rate controversies are still very much unsettled in the U.S., the sides of the issues being debated seem to be fairly w ell drawn, and this allows a reasonably narrow framework in ^which to discuss the Soviet case..

The Public U tility Concept: Soviet and American Comparisons and Contrasts

A comparative overview of the two systems leads to the following general conclusions: 1. The concept of a public utility or, more broadly, any "business affected with a public interest," is alien to Soviet economic thought. Soviet economists would likely argue, * with more superciliousness than substance, that all enter­ prises are affected with a public interest. To put it otherwise, U.S. firms are subject to govern­ mental regulation only in those relatively few instances where there are compelling economic reasons to justify the monopo­ listic market organization in the provision of services. In the USSR, all enterprises, with the exception of collective farm markets, are regulated. Soviet communications are, to 138 be sure, set apart from other Industries. Marx delineated transportation and communications—the "information industry," as he called it—as special branches of material production which, while not producing material products themselves, serve to promote the output of the industrial (material goods producing) branches. But such characteristics have never warranted special treatment for the communications industry and have little bearing on pricing policies. Nevertheless, institutional and administrative differ­ ences aside, the economic conditions which dictate the exist­ ence of "natural monopoly" would seem to be independent of the economic system under which such enterprises operate. We assume that the public u tility concept is, mutatis mutandis, relevant to Soviet communications enterprises. 2. In the USSR, the postal service has always been considered as much a part of the communications industry as the telephone, telegraph, radio and television segments of the industry. In the U.S., structure has taken precedence over function, and the post office, which until 1970 was government-owned and operated (that is, not simply govem- mentally regulated), has been treated strictly as a govern­ ment agency rather than a communications enterprise or public u t i l i t y . U.S. postal rates are subject not to Federal, state and municipal agencies but to Congressional approval. It is also true that the postal service has a legal monopoly only 139 in the carriage of first-class and some third-class mail, but faces real competition in fourth-class parcel post and in the distribution of newspapers and magazines (second-class m ail)• What little evidence exists, however, suggests that the postal service, like other public u tilities, faces decreasing unit costs with an increasing scale of output.^ Furthermore, it is generally agreed that the £ost office, along with other communications carriers, confers externalities—social bene­ fits to users and non-users alike—that would not be in the interest of private enterprise to maximize. Zn this case, some form of government intervention is warranted. On the basis of these latter considerations, the post office, in this study, w ill be treated both as a public utility and as an in­ tegral part of the communications industry. 3. The central legal and economic controversy in American public u tility regulation has been the appropriate method for the valuation of the firm's plant and equipment, in short, the measurement of the "rate base." Public utility rate-making has traditionally proceeded from the determination of (a) the rate base to .(b) the percentage rate of return on that base and (c) the earnings forthcoming from the applica­ tion of that rate of return. Only then have user rates been established (or modified) that would result in those earnings. The determination of the rate base with its derivative influence on the structure and level of user charges has been of fundamental importance to both U.S. public u tilities and 1 4 0 regulatory cornnissions, while in the USSR, communications economists have virtually ignored this issue and have readily accepted the methodology imposed from above. Not until recently has the issue of improved rate structures been di­ rectly linked with the necessary branch capital requirements.

4. A second area of controversy in American public utility economics is the setting of an acceptable rate of return as a percent of the rate base. The rate of return Mhas become less and less an essentially conventional 6% or soM with the realization that there is no single, scientifically correct rate of return, but a “zone of reasonableness," within which judgment must be exercised. What are the lim its of this zone? The bottom lim it is an economic one, set by necessity of contin­ uing to attract capital .... The upper lim i t has been either what it was estimated capital was obtaining in investments of similar risk elsewhere or, even higher, at whatever it was deemed the traffic would bear.2

Because of the long-standing ideological objections to a return to a "nonproductive" factor (capital) , and because the problem of attracting investors by sufficiently high rates of return does not obtain in the USSR, the concept of a rate of return on the value of fixed and working capital has little place in Soviet economic discussions. A 6% capital charge is imposed on Soviet enterprises mainly to reduce the profligate use of a formerly "free" resource. The major difference between Soviet and American usage is that, in the U.S., the rate of return (capital charge) is lkl regarded as an economic cost that must be paid if investors are not to seek alternative sources of income; in the USSR, the cost of capital is thought of as a residual element of profits and thus need not be paid (to the State) should profits be insufficent to meet this "obligation•M Zn other words, the concept of earnings on invested capital (or re­ turns on net assets, stockholders' equity, etc.), so critical for U.S. public u tilities, focuses on the valuation of the capital stock. The rate of return includes both profit and interest on that debt capital. On the Soviet side, profit alone—the difference between monetary valuations and sebestoimost1—is a primary criterion for communications enterprises. As w ill be shown below, the 1972 price reform has introduced higher monetary valuations (and consequently, higher profits) on the output of branches with the highest capital‘requirements. And the recent Soviet efforts to define profitability as a function of the value of the capital stock correspond more closely to the U.S. concept of a rate of re­ turn on invested capital. 5. The pricing of communications services properly in­ cludes both cost-of-service and value-of-service elements (which we elaborate on momentarily). That is, nondiscrimina- tory rate differentials can be based on cost differences and discriminatory rate differentials can be justified on the basis of varying demand elasticities. Both methods have been widely used in U.S. rate-making, but Soviet planners have 142 relied almost exclusively on cost-of-service rate-making. Differences in price elasticities have never been used to rationalize rate deviations. In fact, it is probably safe to assume that consumer demand ela sticities for coirmunica- tions services are not being computed either at Gosplan or a t TsN IIS.

Some Rate and Cost Considerations in the U.S. and USSR

One of the most fundamental propositions of Western , price theory holds that some degree of economic inefficiency results when a firm discriminates among its users in the pricing of its services, that is, when one class of users is charged with costs demonstrably related to another class. Charging a consumer more or less them the marginal cost of the service distorts marginal decisions and leads to non- optimal outputs. In practice, however, this principle gives way to a variety of pragmatic considerations from the inabil­ ity to precisely define and ascertain marginal costs to the volume of unutilized capacity. But, again in principle, while marginal cost pricing can easily accommodate the existence of price (and rate) differentials for various user groups, there is no justification for imposing upon one group the costs generated by another. This type of price discrimination has long been prev­ alent in the U.S. Post Office in spite of, or perhaps be­ cause of, the Cost Ascertainment System, which was in effect 143 from 1926 to 1970. This costing system was based on the mistaken premise that a ll postal costs and revenues could be fully allocated to one class of mail or another. Institu­ tional or fixed costs do not vary with changes in volume; these costs exist for the benefit of the several classes of mail service or for the postal system as a whole rather than for any particular class of mail. A "reasonable** allocation of such costs to various classes of mail would be extremely difficult even with the most reliable collection of cost d a t a .* The p itfalls of cost separation were recognized as early as 1929 in the USSR. S. V. Evstiugov pointed out that "the whole rate problem consists in whether we can determine the costs of production for a) the communications industry e and b) separate types of communications services." The Soviets, however, adopted a costing system not unlike the Cost Ascertainment System because they too believed that the total expenditures associated with each service could be approximated without a significant degree of error. On the assumption that the postal service seeks to break even and eliminate it3 long-standing annual deficits,*’ the important question is how these institutional costs w ill be treated in the application of rate policy. In other words, how are those costs attributable to the post office as a system (and therefore non-allocable to the separate mail classes) to be compensated? 144 To minimize the dislocation of resources and contrac­ tions in employmant and income, specific taxation, for exam­ ple, is levied on commodities the demands for which are price inelastic. The same principle can apply in postal (and com­ m unication) rate-m akin g. Where th e demand fo r s e r v ic e s i s strong (that is, inelastic), mail users can bear a larger share of institutional costs as well as their demonstrably related costs. For some users, the demand for postal services may be so weak (elastic) that the generated revenues are suf­ ficient to cover little more than the total variable costs. "No significant amount of institutional (fixed) costs can be brought to bear on these users. In this case, then, where the consumers 1 surplus accruing to one class of users is greater than that for another class in the consumption of the same service, higher rates for the first group can easily be justified on economic grounds. The caveat mentioned with respect to cost allocation should be emphasized. Wage costs account for the vast bulk of total costs in the postal service—nearly two-thirds in both the U.S. and USSR. Thus, allocating wage costs is the first order of priority in allocating total costs. An ordi­ nary postal employee, however, is engaged in handling letters, parcels, magazines, etc.; in a word, all types of postal matter. No two postal employees spend the same amount of time handling the mail of different classes. This suggests that it would be impossible to reliably approximate labor time shares spent on each class, a prerequisite to determin- ing separable total and average costs for the handling of first-class mail, registered and insured letters, etc. The same problems apply to the allocation of administrative personnel costs, utilization of sorting machinery and trans­ port of the mails. In this sense, a large portion of postal costs are "common." That is , when the same resources may be used to provide services A and B, and the production of A uses factors that could otherwise be used in supplying B, the costs of production are said to be common. Here, "the margi­ nal cost of A may include an identifiable part of these common costs."7 Where these costs are not neatly assignable to the services provided, basing rate discrimination on cost differences cannot serve as the sole rationale for rate- making policy. The relative strengths and responsiveness of user demands for conmunications services must constitute an important part of that policy. This is no less true in telephone and telegraph systems where common costs are as prevalent as they are in the postal service.

* Under decreasing cost conditions (which are assumed to prevail in most communications firm s) the application of mar­ ginal cost pricing involves subsidies—im plicit subsidies to users who are not charged with a fair share of fixed costs and explicit (governmental) subsidies to the post office which is producing on the declining portion of its average cost curve and which would otherwise shut down in the long run. If 146

the post office seeks to impose the costs of its services on mail users rather than taxpayers and avoid some of these subsidies that have sustained the mails in the past, it can resort to rate differentials functionally related to demand elasticities to achieve this purpose. As Irwin Steltzer has put it, . . some economically appropriate resolution of the conflict [between marginal and non-marginal cost pricing] is necessary. And this resolution is possible by designating rates which reflect, even in very rough fa sh io n , th e d iff e r in g demand e l a s t i c i t i e s o f th e Q "various service-users." Subsidies are an equally important facet of the opera­ tion of Soviet communications enterprises, though the welfare implications stemming from such subsidies have rarely given the Soviets pause. The postal system, unlike the U.S. Postal Service, is far and away the most profitable branch in terms of rate revenues, but within this branch, (excess) revenues derived from, say, parcels and money orders, are used to sub­ sidize the distribution of the periodical press which invar­ iably operates at a loss. For reasons that w ill become appar­ ent in the next chapter, the rural telephone network has incurred considerable losses (over 100 million rubles in 1970), and the city telephone systems and radio broadcasting and television branch have, at one time or another during the 1960's, operated at an annual loss. Intra- and inter-branch redistribution of revenues is relied upon to guarantee 147 continued normal operations of the unprofitable enterprises and branches. Aside from purely economic considerations, an overall assessment of U.S. postal rate-making would take into account the several non-economic criteria responsible for the "irra­ tionality" of certain postal rates. Since such an assess- raent is beyond the scope of this study, it is sufficient to note that these criteria center around the concepts of a "national welfare objective" and the "public service" nature q of the postal system. That the post office has consistently "failed to meet its sole economic objective—financial break­ even—can be attributed to a rate structure based more on social and political factors (for example, publishers1 claims that below cost postal rates on newspapers and magazines best serve the interests of freedom of the press and the widest possible dissemination of information, i.e ., the national welfare broadly defined) than economic rationale. The im­ portance of political decisions in the rate-making process has particular relevance for the structure and level of prac­ tically a ll Soviet coimumication rates. On these non-economic c r it e r i a more w i l l b e s a id l a t e r .

Soviet Price Theory as It Affects Comnunications Services

The foregoing remarks were intended to set the stage for an analysis of the theoretical aspects of Soviet rate- making in the context of the communications industry. A 148 necessary first step in this analysis is to establish a clear- cut distinction between the two types of Soviet communica­ tion prices: 1. user rates or tariffs 2. monetary valuations on the products produced by the communications enterprises. A third type of conmunication rate—the monetary valuations on branch products—is applied to the "completed* products (a letter, a telephone call, etc.), but is not directly used by enterprises, unless branch and enterprise output assort- -ments are the same. User rates apply to various kinds of final products (services) made available to consumers. These rates are drafted by the Ministry of Communications in Moscow, but are subject to the strict approval of the State Comnittee on Prices. With few exceptions, user rates are uniform through­ ou t th e USSR. Normally, rate theory refers to propositions made about the "proper* level and structure of user charges. In the USSR, however, the major thrust of theoretical work centers not on user rates but on the appropriate levels of monetary valua­ tions—the internal (wholesale) prices on enterprise output. The relationship between a user rate and a monetary valuation for a particular service may be wholly arbitrary where (as is often the case) the former is politically-determined, the latter cost-determined. Regardless of the nature of user rate Ik9 determination, however, the behavior of the Soviet communica­ tions enterprise is affected much more by the monetary valua­ tions—which the enterprise treats as given in the short run— than by user rates.For the monetary valuations times the respective outputs determine the enterprise's "own income" (sobstvennvi dokhod)—the ruble value of its output. Changes in monetary valuations have a much more direct and substantial impact on an enterprise's financial position than do changes in user rates. As an example of the relationship between rate revenues "and own revenues, consider a local post office whose annual rate revenues—the sum of its user charges—equal 300 thousand rubles, but whose own revenues (the product of the monetary valuations and the enterprise's output) amount to 260 thousand rubles. The excess of 40 thousand rubles is transferred to a higher administrative organ to be distributed to enterprises whose rate revenues fall short of their own revenues. Exam­ ples of the latter would be postal transport offices and' tele­ phone and telegraph cable maintenance stations, i.e ., any comnunications enterprise some or all of whose services are provided without direct reimbursement from users. For sim plicity throughout the analysis of Soviet rate theory, we follow the recent change in Soviet terminology by referring to monetary valuations as "prices," keeping in mind that these correspond roughly to wholesale prices. Use of this term runs the risk of confusing prices with user rates 150 (which they definitely are not) , but in order to avoid the more awkward terminology, we adopt the term "price" to refer to the internal price at which the enterprise's output is v a lu e d . Since Soviet prices (both wholesale and retail) have always been more a reflection of costs than demand, an anal­ ysis of Soviet price determination in the communications in­ dustry most naturally begins by asking how costs are cal­ c u la te d . The problems mentioned with respect to cost allocation in the U.S. are compounded in the Soviet case. As of Jan­ uary 1, 1972, there were some 83,000 communications enter­ prises in the USSR.*** This number includes city post offices with annual outputs of over 15 million rubles, city telephone exchanges, radio broadcasting centers, televisions stations, telegraph offices, various enterprises performing administra­ tive and maintenance functions as well as the smallest city and rural communications offices (otdeleniia sviazi). The majority of communications enterprises provide postal, tele­ phone and telegraph (or some combination of two of these) services. So the herculean task of allocating costs is made more difficult as administrative and institutional costs must be spread over the specific outputs of a given branch and the operations of these combined enterprises (ob'edinennie predpriiatiia)• 151 Soviet specialists agree that allocating conmunica- tions costs is fraught with the p itfalls of vague assumptions and inadequate data, but they have pressed ahead to derive the sebestoimost* (branch average cost of production) for nearly every type of postal correspondence, telephone, tele­ graph, radio and television output. The coimon costs problem has not been squarely met due to the overriding necessity to determine objective criteria through which enterprise behav­ ior can be evaluated. To determine sebestoimost1 and price for each type of output, a sample of 300 communications enterprises is taken every four or five years under the auspices of the Ministry of Communications. (The Cost Ascertainment System of the U.S. Post Office Department—as it was known prior to reorgan­ ization in 1970—relied on a periodic sample of 500 post offices.) 12 It is assumed that each employee (except for ad­ m inistrative personnel) belongs to a given branch of commun­ ications. Time studies are undertaken to establish the amount of the worker's time—and therefore the. percentage of his wage—devoted to each of his functions, e.g., delivering a letter, a parcel or a money order, sending a telegram, connecting a long distance telephone call, etc. The average of these time studies are aggregated to find sample averages which then serve as the basis for estimates of sebestoimost'. Directly attributable (or demonstrably related) costs are thereby ascertained. The comnon costs—those that are 152 theoretically nonallocable to any specific branch or product— account for approximately 40-50% of total costs. These costs are attributed to the output of specific products in propor­ tion to their directly attributable costs. In this way, all costs (according to the Soviet definition of that term) are 13 allocated to one type of output or another. Leaving aside further criticism of price determination based on fully allocated costing principles, what are the theoretical foundations for the prices that are actually decided upon in the Soviet communications industry? As is the case with industrial wholesale, agricultural and retail prices, price determination in this industry has evolved through several stages. Each new price list—the newest being implemented, after a six-year interim, in 1972—is heralded, as a significant improvement over the last and presumably ac-

* counts for advances in communications technology and changes in costs. Market demand as either affecting or being affected by these prices s till plays a very minor role in the price calculations. That prices are "continually being improved" suggests, in the first place, that more sophisticated cost allocation procedures are being sought, but also that the method of determining the "correct" price for each of the many conxnunications products and the theory underlying the method are s till open to question. The relative merits of Soviet pricing of industrial wholesale, retail and agricultural products have been widely 153 discussed in the USSR. Little attention has been paid, how­ ever, to coimunications rate theory outside of the research and planning done at Gosplan and TsNIIS. This is partly due to the fact that rate theory affects relatively few enter­ prises in the national economy* but more importantly, because State-regulated prices are the rule rather than the excep­ tio n in th e USSR, r a te theory i s co n sid ered a s p e c ia l ca se of price theory writ large. Since all Soviet discussion of price determination is carried on in Marx's terminology, we briefly review Marxian value theory. The value of a commodity, according to Marx, consists of (a) the value of raw materials, plant and equipment, whose value in turn depends upon the past labor embodied in them and (b) the value of current labor. Workers are compensated, however, for only a portion of their labor, so that (c) the value of labor for which they are not conpensated—the "sur­ plus value" or surplus product—must also be included in the total value of the good. Let c equal the value of past labor embodied in raw m aterials, plant and machinery (what Marx called "constant capital"); v equals the value of living labor represented by workers' wages ("variable capital"); and s is the surplus value. The value (stoimost') of a com­ modity is equal to c + v + s, where the sum of c -f v is generally taken to be the sebestoimost', the branch average cost of production. Sebestoimost' has no precise equivalent 15* in Western microeconomic theory or cost accounting. While the term covers per unit variable labor costs, raw materials, depreciation and certain fixed costs, no account is taken of rent and a true market rate of interest on capital as cost f a c t o r s . The major bone of contention in Soviet price theory has been the problem of defining the size of the surplus product as a component part of value. To arrive at (whole­ sale) prices based on value (c + v + s), the "surplus product markup school," as Morris Bomstein has referred to it, has employed variations on the theme of finding appropriate stan­ dards for s. One group of economists holds the view that the size of the surplus product should be proportional to the cost of current labor, i.e ., total wages:

(1) p«c+v+sv*c+ v ( l + s) where p is the price of the product; c is that part of sebestoimost' relating to non-wage costs (including deprecia- tion); v is that part relating to wage costs; and s, the sur­ plus value per unit of output.*5 Prices used for calculating the ruble value of conroun- ications output were first introduced experimentally in 1949; by 1954, these prices were applied industry-wide. Equation (1) was the basis for the earliest price calculations. The percentage of accumulation (profits) in relation to the •1

155 wage fund (total wages) or* in other words, the surplus prod­ uct markup, was set at 55.231. This figure was applied as a single profit rate for each type of communications output. The following example of pricing an outgoing letter demonstrates how this principle operated in practice:*6 1. The total operating costs of processing out­ going letters (total c + v) ■ 234.7 million rubles (in pre-1961 rubles); 2. the physical volume of output (total number of outgoing letters) * 3,271.1 million; 3. sebestoimost1 of an outgoing letter (average c + v, or 1 * 2) *7.17 kopeks; 4. percent of accumulation (profits) or s > 55.23%; 5. total wages (v) “ 120.5 million rubles; 6. the value of output of outgoing letters (c + v (1 + s)) » 234.7 million rubles + (120.5 mil­ lion rubles • .5523) « 301.3 million rubles); 7. the value of output of an outgoing letter « 301.3 * 3.271.1 ■* 9.21 kopeks; 8. the price (monetary valuation) of an outgoing letter « 9 kopeks.

Since the structure of operating costs varies between communications branches, the level of profitability for various types of output w ill also differ. The application of this price theory led to a situation in which the largest profits were generated in those branches with the largest relative shares of manual labor in the production processes. A look at branch capital per worker (fondovooruzhennost1) illustrates indirectly the degree of labor intensity. In 1960, each Soviet postal worker and telegraph employee worked 156 with 730 and 1,380 rubles of capital equipment, respectively. The amount of capital per worker in long distance, city and rural telephone networks was estimated at 7,090, 6,260 and 3,740 rubles, respectively. Average rates of growth of capital per worker were not drastically different from one 17 branch to the next through 1970, so there is little reason to believe that relative branch capital use was sig- V *> nificantly different in the 1950*s. The greater labor in­ tensity of the postal service and telegraph network meant relatively larger profits for these branches of conmunica­ t io n s . In 1957, Soviet planners rejected communications pric­ ing based on a single profit rate applicable to the entire industry. Equation (1) remained as the pricing principle, •but surplus product markups were differentiated by branch. The average markup for the industry as a whole was 72.6% (with respect to total wages) . For the post office, the profit rate was set at 93.6%; for all electrical communica­ tions (exclusive of radio and television), a norm of 46.2% was established; and for radio and television broadcasting, 111.6%. While the virtues of differentiated branch markups were fairly apparent given the disparities in the composition of costs among the branches, the actual choice of the differ­ ent profit rates in effect further subsidized the most labor intensive branch (the post office) relative to the other IS? intercommunications branches. It is somewhat surprising that in the communications industry, where the lack of technologi­ cal sophistication in capital equipment is more acutely felt than in most industrial sectors, these prices should have pre­ vailed (until 1966) for as long as they did. In the m id-sixties, comnunications economists leaned toward a second pricing formula that related the surplus product to total operating costs (or, on a per unit basis, sebestoimost1) rather than to labor costs alone, i.e .,

(2) p ■ c + v + s(c + v) ■ (c + v) (1 + s) where p, c, v and s are as defined in equation (1). In one sense, the adoption of equation (2) in coinaun- ications pricing involved a return to the earliest formula­ tion of equation (1)——the use of a standard (usrednennaia) markup for the entire industry. New prices introduced in January, 1966 were calculated with the use of 1962 data. The value of s was defined as the ratio of the industry's profits to its operating costs—26.28%— a uniform rate for a ll b ra n ch es• Why was the notion of differentiated branch markups rejected during this period? One suggestion was to derive a standard profit norm for the industry as a whole as a propor­ tion of sebestoim ost1 (26.28%) and then modify the standard norm for each of the branches with the level of user charges as the adjustment factor. 1 5 8 Though theoretically, actual user rates can deviate from "value," many rates differ sharply from sebestoimost1 (and stoimost'). Some rates, in fact, fail to cover sebestoi- most *, while others are so high they bear little relation to it. Differentiated branch profit norms, estimated in rela­ tion to actual user rates, could not then be considered objective criteria for defining the value of communications s e r v ic e s . Prior to 1972, profits were defined as rate revenues minus operating costs; profitability referred to the ratio of these profits to the value of fixed productive capital—12.4 percent for the communications industry in 1966 (26.28 per­ cent with respect to operating costs). Table 15 compares this concept of profitability for each of the branches with the new one in which profits are calculated as the value of communications output (own revenues) minus operating costs. The difference here is that rate revenues are a function of user rates; the value of output is a function of prices. The differences within each column are explained in the first place by variation in capital intensity between branches. This factor obviously influences the data given the denominator—value of fixed productive capital—in the Soviet definition of profitability. For example, profit­ ability in the postal service is especially high because the post office is the least capital intensive branch. Though it produces nearly 40 percent of the total communications output. 159

Profitability of Soviet Branches of Conwnnvtcntlons. 1966

Profitability as a function of. Branch o f (1)a (2) Comminicatlons Rate Revenues (£) Value of Output (£) foetal Service 47.1 42.8 Telegraph 6.5 11.8 x>ng Bistance Telephone 30.0 8.8 Jity Telephone 5.7 5.9 tural Telephone -24.3 8.3 iadlofication 31.0 14.0 ladio Communications -2.1 8.6 and Broadcasting T elevision -4 .0 6.0

Source: O.S. Srapionov, Prlntslpy formlrovanlla nomenklatury 1 rasoheta novykh teen na produktsiiu predpriiatii sviazi. 1971, p. 7. Cf. also Srapionov, op cit., 1972, p. 26. Notes: a Column ( 1) equals (branch rate revenues - branch operating c o sts) 7 the value of productive fixed capital of the branch, o Column (2) equals (branch value of output - branch operating costs) ~ the value of productive fixed capital of the branch. 160 th e p o s ta l s e r v ic e commands on ly 11 p ercen t o f the fix e d cap­ i t a l . 18 According to TsNIIS research, 31 of 48 city telephone networks had profitability rates of less than 8 percent, which excluded the possibility of paying the cost of capital in fu ll. Twenty-five percent of total communications capital is employed in the city telephone networks. Secondly, and more importantly for the issue at hand, there are considerable differences between the profits gener­ ated by individual kinds of comnunications products within each branch. Profits (and losses) tend to be much more exaggerated when defined as the difference between the user rate and sebestoimost' than when profit is defined as the difference between price and sebestoimost1(the margin being the surplus value in the latter case). Therefore, basing differentiated surplus product markups on the level of user rates when at least some of these charges are economically "irrational" (in the sense that they reflect neither cost nor demand factors) would distort the calculation .of the value of o u tp u t. Equation (2) could have been used with separate branch markups estimated as functions of sebestoimost1, but instead a uniform profit norm of 26.28 percent was adopted. Prices in effect from 1966 to 1972 reflected this principle. A final consideration in calling for a markup related to total industry sebestoimost1 (equation 2) is the consequence for the pricing of products whose production entails widely varying compositions of c and v. Table 16—a comparison of cost compositions—illustrates just how labor intensive the coinnunications industry is as compared to other Soviet in­ dustries. Soviet specialists contend that raw materials costs are a negligible component of total costs. The pro­ duction and consumption of communications services—once the plant is built and in operation—occur almost simultan­ eously , at least in the electrical communications branches. Furthermore, the transmission of messages is in the nature of a "pure" service in that no material product is being produced, and consequently, no raw materials are needed in

IQ the production of information. Note, too, that despite the high degree of labor in­ tensity in the industry, depreciation on communications cap­ ital is nearly triple the average for all Soviet industries. The range of differences depicted in Table 16 are at least as great when the comparison is made on an inter(com­ munications) -branch basis, which suggests that the measure­ ment of the value of output and the behavior of enterprises might have been better served had the s standard been related to the activities of each of the branches as opposed to the industry as a whole. A third formulation squared the circle so to speak by requiring a markup related solely to the value of fixed and working capital, according to the following equation: 162 g q b je ,16 The Structure of Costs in the Production of Connuni- catlona Output Mid In Industrial Production: USSR (1) (2) Communications All Industries TVne of Costs Industry (1968- In 4) (1971. in 55) Raw materials 3.8 72.5 Wages 56.6 15.5 Depreciation 14*8 5.3 Electrical energy 2.0 2.5 Mail transport and related 17.5 - transport costs Other costs0. __ A»,2 Total 100.0 100.0 Sources: Column (1) - G.M. Tochil'nikov and G.E. Golomb, Flnangy khozlalstva sviazl. 1970, p. 72. " Column (2) - TsSU, Nar. khoz.. op cit., 1972, p. 157. Cf. also Planlrovanle narodnoeo khozlalstva SSSR. N.V. Tsapkin (ed.)* 1972, p. 376. Notes: a Includes administrative costs. Note here the use of the term "communications industry." The Soviets consistently refer to the com­ posite of communications branches as khozlalstvo sviagl. or "communica­ tions economy." Though communication, lik e transportation, promotes the physical output of industries, it is not itself considered a Soviet industry, but a "branch of the national economy," along with education, retail trade, construction, insurance, et al. 163

(3) p-c+v+ek where e is the ratio of the total surplus product (profits) to the total fixed and working capital; and k is the average amount of fixed and working capital per unit of output. Though adherents of this pricing scheme argued that more efficient use of capital assets would follow upon the introduction of investment outlays into the calculus, equa­ tion (3), like (1) and (2), is merely another form of the cost-plus approach to price determination. Moreover, in the communications industry, the value of e (in the case of profits being a function of rate revenues) exceeds 20% in the postal service, telegraph and long distance telephone net­ works, but is negative in branches with chronic losses, such as, the rural telephone system and radio communications. This pricing* approach has never been given serious consideration in this industry, because it would lead to prices below sebestoimost1 in the unprofitable branches. Again, while user rates have been significantly higher or lower than sebestoim ost1. comnuni cations prices have always been set so as to cover sebestoimost* plus some positive markup. One method of "eliminating" unprofitable branches is simply to re-define profits as suggested in Table 15 and as adopted in the 1972 price reform. If profits refer to the value of communications output (rather than the conventional definition of rate revenues) minus operating costs, then all 164 branches appear profitable. The true "value" of any coinnun- ications service is reflected, not in the rate charged for its use, but in the price of the completed product (i.e ., the monetary valuation on the output of the branch-*-the third category of rates mentioned earlier). This, according to Srapionov, is sufficient justification for the new view of profits in communications. A fourth approach, inspired by the late V.S. Nemchi- nov, is referred to as the "transformed value" (prevrashchen- naia stoimost*) principle. According to this formula, sur­ plus product would be distributed in proportion to both labor and capital costs in the following way:

(4) p ** c + v ( l + a) + + r^) where a is the percentage of total wages going to social and cultural expenditures (health, education and welfare costs); r^ represents the standard (fixed) charge for capital; and r^ is the established norm to be deducted for State expenditures (defense, administration, etc.). p, c, v and k have been de­ fined in the former equations. Nemchinov modified this principle with the inclusion of a differential rent, D, on land, buildings and equipment. He contended that this "transformed form of value" was related more closely to real "national economic costs." Alec Nove has pointed out that "the implications of this differential rent [derived from mathematical analysis] • . . may not be 165 visible at first sight, but reflection w ill show that they in­ volve something close to marginalism in disguise .... There is no suggestion that particular comaodities1 value has any relationship to marginal cost. Yet [Nemchinov'sJ model would in fact relate his 'values in transformed form' to aver­ age cost plus a variable margin which looks very much like 20 Marshallian quasi rent." In one respect, this principle is criticized on grounds that it is logically circular. If norms are based on actual prices which fail to mirror the "socially necessary costs" of production, then similar defects w ill appear in the newly established prices which are a function of the surplus product norms. If, on the other hand, arbitrary price set­ ting could be eliminated and prices could be made to approx­ imate the "value" of products (by whatever standard for s is chosenl), this criticism of equation (4) as involving a vicious circle in the propagation of "incorrect" prices would be unwarranted. Srapionov's quasi-approval of equation -(4) as an ap­ propriate standard for price determination stems from a curious but rather conventional line of reasoning. The "transformed value" formula (without a differential rent ele­ ment) at work in the conmunications industry, he argues, would result in a "smaller error" in the valuation of output than would be the case in industry generally, because that part of output depending upon the wage fund is nearly 60 percent in 1

166 communications, but less than 20 percent on average for Soviet industries. His position implies that the higher the proportion of wage costs in total costs, the closer does equation (4) come to meeting the nebulous criteria of "soc­ ially necessary costs," "value," etc. But in the extreme (and implausible) case where k approaches zero, equation (4) — in the absence of differential rents—approximates the ortho­ dox equation (1) and its attendant problems. The basis for future improvement in communications pricing (as an adjunct of industrial wholesale pricing) is suggested in the work of V.P. Diachenko. His formula would take into account differential branch capital charges instead of the uniform (6 percent) rate now imposed upon enterprises for the use of capital: (5) p - c + v(l + a) + ik where p, c, v, a and k are as defined in the aforementioned equations; and i refers to the "coefficient of differentia­ tion of capital efficiency" and would depend upon the rela­ tive efficiency of the elements of fixed capital in each of the branches. Though i would by no means represent a market •. rate of interest since it would still be imposed from above and be invariant in the Bhort run plan period, the notion of a differentiated capital charge does take the Soviets a step further in the direction of recognizing the scarcity value of capital. Should some form of equation (5) be adopted, 167 the greater demand for capital in the local and long distance telephone networks would push up prices on the output of those branches. Whether this step w ill actually be taken in the next round of comnunications price changes four or five years from now remains to be seen, but the acceptance of branch capital charges in comnunications is unlikely to occur without a prior general sanction of these price-forming ele­ ments by Gosplan. One might well ask where the revolutionary ideas of L.V. Kantorovich and V.V. Novozhilov fit into the Soviet com- 21 munications industry. That is, to what extent have Kantor­ ovich's "objectively determined valuations" (shadow prices) and Novozhilov's "inversely related expenditures of labor" (opportunity costs) influenced communications pricing. The following chapter, devoted to user rate policy, indicates that opportunity costs are being used (by Srapionov himself) to justify rate differentials on a few comnunications products, but at this juncture, such a rationale is certainly the ex­ ception. It is not at all clear what Srapionov means when he says that the Kantorovich-Novozhilov mathematical theory of optimal plan pricing is especially vulnerable in its "defin­ ition of socially necessary costs on the basis of the maximum costs in the production of a given outputPresum ably, the mathematical economists are being chastised for giving undue weight to resource scarcity. Srapionov adds, however, "the theory of optimal planning is part of a young science. 168 and at this time, any evaluation of the positive and negative aspects of this theory would be obviously premature." 22 Ap­ parently, the comnunications industry w ill not be the purvey­ or of innovations in pricing which recognize the importance of opportunity costs, scarce resources and demand factors. The renaissance of mathematical economics in the USSR, stimulated by Kantorovich, Novozhilov and Nemchinov, is expected to be long-lived, 23 given the Soviets * pressing need to bolster their computer planning. The communications in­ dustry, small as it is in relation to other industries and to the national economy, has not harnessed the intellectual resources necessary to promote the sophisticated techniques of the optimal planning school. The integration of comnun­ ications networks and computer technology would be expedited with greater facility if the industry claimed a solid school of mathematically-oriented economists devoting its talents to this area of concern. 2 4 No such school has made its presence known, because the more highly qualified economists have been channeled into other industries, and also because cora- munications-computer integration is not an imminent objec­ t i v e . 25 This is not to suggest that mathematical analysis has been totally ignored in communications. V.A. Barsuk, another comnunications economist at VZEIS, has concentrated his ef­ forts on the application of linear programming and graph theory to the solution of optimal employments of manpower 169 and equipment in the various branches, the planning of mail transport flows, the smoothing of comnunications loads and 26 optimal network schemes. But he has yet to direct his at­ tention to the question of optimal comnunications pricing. ttie new communications price equation adopted in 1972— and probably effective through 1975— has not been ex­ plicitly stated in any Soviet'source. But those responsible for the reform sought to remedy certain defects in the 1966- 1971 equation, namely, the absence of a proper method for calculating the profitability of production, failure to recognize the importance of payment for the use of productive capital and the distribution of profits defined as a func­ tion of rate revenues rather than own revenues. How the value of output in each communications branch has been affected by the changed price lists is illustrated in Table 17, in which the 1972 pricing formula is applied to the 1968 volume of communications output. Since the branch capital structure is expected to play an increased role in price determination, Table 17 includes the average branch c a p ita l-o u tp u t r a t io s (ACOR's) t o show th e e x te n t to which output values are influenced by branch capital intensities. It is argued, for example, that an ACOR over twice as high in the city telephone networks as for the communications indus­ try is at least partially reflected by the 7 percent increase in the value of output in this branch when the earlier output is measured in new prices. 170

Table 17 Differences in the 1968 Volume of Output When Measured in New 1972 P rices, and 1970 ACOR'si Soviet Communications Branches (1) (2) Branch of % Difference in Communications Actual Outout ACOR Postal Service +1.0 .52 Telegraph -20.0 •79 (including lin e - (without line-cable network) cable network) Long Distance Telephone -32.0 3.36 (including line- (without line-cable network) cable network) Line-cable Network +14*3 n.a. City Telephone +7.0 4.29 Rural Telephone -3.0 1.64 Radioficatlon +8.0 1.78 Radio Communications and -3.9 Broadcasting >2.60 Television -9.2- J Sources: Column (1) - Op cit., Srapionov, 1972, p. 78* Column (2) - Value of capital stock data ore from Analiz. op cit., p. 11; value of output is given in Table 5* The disparity in the ACOR's of the long distance tele­ phone and telegraph networks is due to the allocation of out­ side plant and equipment* Though to ll calls and telegrams are often transmitted over the same cable equipment, separa­ tion principles do not appear to be highly developed, and 80 percent of the line-cable network is treated as part of

» the long distance telephone branch, while the remaining 20 percent of its value is assigned to telegraph.27 The line- cable network taken separately is probably more capital in­ tensive than any other segment of the industry; hence, the 14 percent difference in the value of output under the new pricing principles and the high and low ACOR's in the long distance telephone and telegraph branches, respectively, when the line-cable network is disproportionately included in the value of output of these two branches.

* It is apparent from Table 17, however, that there is no one-to-one correspondence between the degree of capital intensity and the new communications prices. Each branch provides a host of services some of whose prices have in­ creased and others reduced in accordance with changes in sebestoimost1, i.e ., both labor and capital costs. What de­ serves emphasis here is that as the period of exclusive in­ vestment in heavy industry has come to a close and the Soviets now seek to achieve, at least according to official pronounce­ ments, a more balanced type of economic growth, scarce capital must be dispersed over a larger range of economic sectors. 172 and non-wage costs, especially those relating to increased capital needs, are being given greater weight in price plan­ ning than was true in the pre-Reform period. The "allowable'' rate of return for U.S. public u tili­ ties is clearly in the nature of a maximum lim it on earnings consistent with the generally accepted view that such firms as are "vested with a public interest" should be precluded from earning excessive profits. Such "restrictive" notions of the behavior of the firm do not obtain in the USSR. Indeed, quite the opposite is the case. Profits and profitability have, since the Reforms, become the ultimate criteria for Soviet enterprises* To eliminate unprofitable enterprises and branches, both indicators have been re-defined, and prices have been adjusted. The most recent comnunications price re­ form has introduced the concept of the "minimum necessary level of profitability"—9.3 percent with respect to fixed productive capital or 23.3 percent with respect to sebestoi- most'—again in terms of 1968, the data year on which the price reform was based. The level and structure of prices, this concept implies, should guarantee that aggregate indus­ try profits, at a minimum, be sufficient to cover the 6 per­ cent cost of capital. Such a standard is recognized as a necessary, but not sufficient, condition for improving rate systems, for even if the industry did achieve a 9.3 percent profitability rate, some enterprises (whose profitability rates are subject to wide fluctuations) and branches would still be unprofitable. Likewise, in a few Soviet republics (Kazakhstan, Tadzhikstan, Turkmenistan and the more remote regions of the RSFSR), cost and productivity conditions have been less favorable'and have resulted in lower profitability l e v e l s . Minimum necessary profitability rates have also been established for each of the branches—higher rates for the postal service and telegraph because of their lower capital requirements, and lower rates for the various (capital in­ tensive) telephone networks. If communications enterprises fail to meet these mini­ mum standards, then naturally they cannot achieve the (higher) planned branch profitability norms that would allow the satis­ faction of all profit claims, namely, the full payment for productive capital, for the normative share to be set aside for social and cultural expenditures and State-related costs (defense, investment and administration), for premia payments to managerial and technical personnel, etc. In any case, the industry's annual profitability norm, set by the reform at 14-15 percent, is expected to be met by 1974, but not without a prior overhaul of user rate policy. To date, the several communications price reforms since 1948 have touched only on prices (monetary valuations); user rate reform has been insignificant. And there is virtually unan­ imous agreement among Soviet comnunications economists that many user rates are out of touch with current economic condi­ t io n s . x?k It may be helpful at this point to examine the ways in which the behavior of Soviet comnunications enterprises con­ forms to the theory of monopoly. We can hardly expect any precise correspondence between the two, because, for a ll the official proclamations concerning the precedence of "value" as a prime criterion, pragmatic and non-economic elements exert no small influence in Soviet rate-making. That is to say that for each and every comnunications service a whole range of principles seems to be at work in rate determination besides cost-plus pricing. Another problem, as was mentioned earlier, is that Soviet rate theory deals not so much with user rates but with prices or monetary valuations on communications services. Rates should theoretically reflect "value," but that they so often do not demonstrates the transcending influence of poli­ tical whim. Much concern is given at TsNIXS and the various comnunications institutes in the USSR to the more exact cal­ culation of sebestoimost* underlying prices, but what little research is given over to rate theory and policy at these institutions has, over the past twenty years, taken place in vacuo. The best that can be done is to observe particular aspects of rate policy within the framework of monopoly theo­ ry. In what follows, the use of marginal revenue and cost concepts does not imply that this terminology has any rele­ vance to Soviet practice. Suppose a monopolist faces a market demand curve, PdD, and the corresponding marginal revenue curve, PdMR. Left to his own devices, the monopolist w ill maximize profits by equating MC and MR, and charge a price (rate) of Pm for his service. Assume, however, that the regulatory (planning) authority imposes a rate ceiling P, above which the firm is prohibited from selling its service. The immediate conse­ quence of this policy is to alter the firm*s demand and mar­ ginal revenue curves. Once the ceiling rate is established, the effective demand curve becomes PlD. To sell any output greater than Q^, the firm must lower its rate. At the imposed rate, the monopolist w ill produce at point k, the only level of output that does not result in losses. At k, the firm*s economic profits are zero, and MC and the rate are equal. But at this rate-output combination, not all potential customers are satisfied; excess demand is represented by the K1 segment, i.e ., - Q^. The limited supply (OQ^) must be rationed with recourse to non-price fac­ t o r s . As an aside, rate P could conceivably represent the "value1* of any particular Soviet service or commodity since it just covers average cost, which we assume includes both sebestoimost1 and surplus product, or "normal" profits. There is at least one mitigating circumstance, however, that ren­ ders such a possibility unlikely, namely, factor costs in the USSR do not reflect their relative scarcities (opportunity 176

pm

MR Figure 2 Rate Regulation In the Soviet City Telephone Branch

» 1 77 costs). Were relative scarcities given their due weight in the Soviet enterprise, AC would be shifted upward in Figure 2. We are limited to the statement that any rate below P, such as PM', could not represent the Soviet concept of "value since it would compensate, at best, for only a portion of surplus product. But the fact that the rate which represents "value" is indeterminate here is unimportant for the analysis This model is not limited solely to comnunications, but is equally serviceable in other consumer- and capital- goods producing industries in the USSR. From 1950 to 1971, for example, Soviet per capita real disposable income in­ creased more them three-fold, while the overall consumer price index remained nearly constant over the same time period. 28 Evidence of the scarcity of consumer durable and non-durable goods, beyond the ubiquitous queues for prac­ tically every kind of commodity, is provided by the fact that Soviet consumers, frustrated in their attempts to dispose of their excess income, have increased the volume of their sav- 29 ing deposits by a factor of 30 in the last twenty years. Within the communications industry, the behavior of city telephone networks is explained reasonably well in the framework of Figure 2. Residential and business telephone services are offered at very low rates to those who, for whatever reasons, are deemed worthy to receive them. A black market has periodically arisen to satisfy kl customers. In late 1969, for example, four Moscow telephone 178 workers were imprisoned for accepting bribes on the illegal installation of private telephones. Most of the bribes ranged from 25 to 50 rubles to install a phone immediately and there­ by avoid the long waiting period, but in two separate cases, housing cooperatives belonging to the Soviet Acadeiry of Sciences were reported to have offered as much as 800 and

2 ,0 0 0 r u b le s . 30 Carrying this a step further, we should also mention the limited supply of services to those who already own tele­ phones. A comprehensive, four-volume, Moscow telephone di- "rectory was published in 1971, twenty years after its prede­ cessor.33* But even its exorbitant price of 22 rubles (about $25) was probably too low to efficiently ration the 50,000 copy edition among Moscow's m illion and a half subscribers. As it was, the directories were earmarked for organizations and institutions. The only available copy is a museum piece in the Lenin Library. Abridged versions, containing the numbers of only industrial, retail, administrative, educa­ tional and service organizations, but no apartment telephone listings, are published periodically; the latest, in 1972, 32 brought a price of 3 rubles 36 kopeks. Sold over the

counter in subways, bookstores and kiosks, this 2 0 0 ,0 0 0 copy edition was sold out in short order. The large majority of Moscow subscribers must rely on the information operator for unknown numbers. But an informal survey conducted by Literaturnaia Gazeta revealed that on an 179 average morning, 5 to 12 calls were necessary before informa­ tion could be reached and then a wait of about seven rings before the operator answered the telephone. 33 The end result, in the absence of directories, has been the ballooning of the information service. Besides having poor customer services, the Moscow tele­ phone network is not known for its technical virtuosity. Lim­ ited switching capacity, faulty and, in some instances, out­ dated equipment render the simplest chores that might be transacted via telephone difficult. I.A. Podgorodetskii ad­ mitted that, though Soviet authorities are generally satis­ fied with the operation of outside plant and equipment, cables and aerial lines, the quality of switching equipment, purchased mainly from Eastern Europe after the war, has not met prior expectations. The general impression one gets from both Soviet com­ munications literature and from officials in the USSR is that Moscow is an exceptional case only insofar as its size mag­ nifies the problems it faces. The telephone networks of Leningrad, Kiev and other large and medium-size cities func­ tion along quite similar lines. Excess demand for telephone service, stimulated by user rates below market clearing levels, is prevalent throughout the USSR. Assuming AC to be the relevant average cost curve, the planning agency might decide to impose a higher rate ceiling at P' in order to satisfy some portion of the excess demand. Comnunications economists have apparently had this in mind. On at least four separate occasions during the 1960's, they presented their case, through the Ministry of Communications, for increases in monthly rates for city telephone service. In the U.S., public utility requests for rate increases might be rejected on grounds that the u tility would realize exces­ sive gains relative to the “comparable earnings“ of industry generally, that new, higher rates may entail undue discrim­ ination among users, that changes in the cost of capital, operating costs, etc. do not warrant rate increases, or that, in general, rate revisions would be economically “unreason­ able." None of these considerations appears to have influ­ enced the decisions of the State Committee on Prices; all four rate requests were denied. Podgorodetskii, from whom information concerning these events was received, claimed that the State Committee on Prices was motivated solely by the de­ sire to keep business and residential telephone rates stabil­ ized “at low levels in a manner consistent with overall Soviet pricing policy" (sic). A ll excess demand could be eliminated were P “ imposed upon the monopoly. At point g (as with h), the firm earns economic profits. One would be hard pressed to point to exam­ ples of this pricing philosophy in the USSR since few attempts are made to consciously satisfy market demand through equil- ibrium prices. 181

What P, P' and P" illustrate is that the imposition of any rate by the planning authority involves some compro­ mising of economic objectives. Clearly, Western economic criteria—market clearing prices, marginal cost pricing, zero economic profits, etc.—do not hold equal fascination for Soviet rate-makers. In the cononunications industry, planners seek to satisfy their objective functions not on the basis of general microeconomic principles but in accordance with national economic principles as they relate to branch- "flpecific factors. Even a ceiling rate of P"' (which may or may not be sufficiently high to cover average variable cost), though it violates such hallowed Soviet tenets as the "law of value" or the sound operation of khozraschet. can hardly be considered irrational in a‘ rate-making scheme where ef­ ficiency criteria can and often do give way to national economic and political objectives.

Summary The critical features in the Economics of Regulation in the U.S.—the rate base, rate of return and earnings on invested capital—are either ignored in the USSR or treated in an altogether different fashion. This stems from the Sov­ iet disregard for the return to a "nonproductive" factor- capital. Only recently have Soviet economists begun to rec­ ognize the scarcity value of capital, but rate-making in the comnunications industry has yet to account for it in practice. 182

The regulation of communications rates has been with­ out foundation in Soviet economic theory and has remained within the exclusive (political) province of the State Com­ mittee on Prices. The regulation of prices is a function of such economic factors as average cost, technological change andr increasingly, branch capital requirements. Neither rates nor prices, however, has been noticeably affected by changes in consumer demand. Refinements in Soviet (Marxian) price equations in the communications industry have centered on the definition of "surplus value" or the markup from sebestoimost1—a reflec­ tion of the increased concern for branch profitability and the satisfaction of all profit claims, including the standard capital charge and increments to the enterprises 1 in c e n t iv e funds. Postal, telephone and telegraph rate-making and price determination, however, have not been influenced by the ideas of the "opportunity cost" school of Soviet economists. 183

NOTES - CHAPTER I I I

^Sources confirming this view on the American side are cited in Horton S. Barat 2 , The Economics of the Postal Service. 1962, pp. 30-31; for a similar, though less de­ tailed Soviet view, see O.S. Srapionov and S.R. Eslkov, Sebestoimost 1 produktsll v khozlalstve svlazl. 1962, pp. 12- 13. ^Alfred E. Kahn, The Eoonomlcs of Regulation. Vol. II, pp. 41-1*3. It is assumed throughout that these principles are equally pertinent to the Soviet system. **A similar attempt to fully allocate the costs of all to ll telephone services was made by Bell Telephone (at the - request of the Federal Communications Commission); these in­ vestigations were oalled the Seven Way Cost Study. See FCC Docket No. 14650, Bell Exhibit 81, and FCC Docket No. 16258, PCC Exhibits 1-8, 37, 53 and 54. ^Ekonomlka svlazl. no. 1, 1929* p. 50. 6 President Nixon stated in his postal reform message of April 16, 1970; "As the new postal service w ill be self- contained, so should it be self-supporting; as it w ill be non-profit, so should it be non-loss." Postal Rates and Rev­ enue and Cost Analysis. U.S. Congress; House Sub-committee on Postal Rates, Washington, D.C., U.S. Government Printing Offloe, 1970, p. 24. According to the dictates of the Post­ al Policy Aot of 1958, postal service revenues should be sufficient to cover all postal costs except those deemed "public servloe costs" which would be subsidized by the taxpayers. Public service costs Include; allowances to rural post offices that do not generate enough revenues to oover costs; unreimbursed non-postal services to other gov­ ernment agencies; and the largest portion of these costs, the losses on certain types of mall and services (e.g., seoond- and third-class mall of non-profit organizations, olassroom publications, materials for.the blind, books and records, special delivery, registered mall, C.O.D. and money orders). Towards Postal Excellence: The Report of the Pres­ ident's Commission on Postal Organization. 1968. p. 137. The research organizations responsible for investigating postal reorganization argued that the umbrella of publlo servloe costs shielded many activities whose costs should be borne by users of the mall rather than be subsidized by the ta x p a y e r s.

?Kahn, op c it.. vol. I, 1970, p. ?8. 184 8 F ran k s . Walters, "Rate concepts In Today's Economy," Essaya on Public U tility Pricing and Regulation. Harry M. Treblng, ed., 1971, p. 7o. This Is not to suggest that there Is unanimity among economists on the need to jettison the fully allocated cost approach to rate-making. There are s t i l l a number o f econom ists who ad v o ca te, on e f f ic ie n c y grounds, more or less strict adherence to marginal cost pric­ ing rules. The Treblng voltcae oontalna several Important articles: a defense of fully allocated cost pricing (W.H. Melody); the virtues of marginal oost pricing (W.S. Baumol and A.M. Froggatt); and an Interesting analysis of French public u tility rate-making based on both marginal oost and demand e l a s t i c i t y f a c to r s (P.- C a llle ) . ?The term "public service," so often applied to the post office, refers to an activity carried on for the bene­ fit of society, all of whose members may have access to it. The post office Is not a "public good." If users could not be prohibited from using the service whether or not they paid (as In the case of national defense) or if users were - obligated to use the postal service (as with the classic example of the lighthouse), the post office could be consid­ ered a public good for which no rational pricing scheme would exist. 10I.A. Fodgorodetskll pointed out that enterprise managers oftentimes engage In Informal "lobbying" In order to convince higher eohelon administrators and planners to revise monetary valuations upward.

.H t sSU, Narodnoe khozlalstvo. 1922-1972. 1972, p. 313.

l^Towards Postal Excellence, o p o lt.. vol.II, p. 4-10. 13This costing scheme was explained to me by O.S. Srapionov and Is disousBed In greater detail in Srapionov, o p c it.. 1962, pp. 18-20. l**Morrls Bom steln, "Soviet Price Theory," New Dir­ ections In the Soviet Economy. U.S. Congress: Joint Eco­ nomic Committee, Washington, D.C., U.S. Government Printing Offloe, 1966, pp. 6 7 , 6 9 -7 0 . l^The review of Soviet price (rate) theory presented here relies heavily on O.S. Srapionov, Voprosv ekonomlkl svlagl v uslovllakh novol slstemy khozlalstvovanlla. 1972. ohapters 2, 6, and also Bomsteln's 1966 article. l^Based on an early 1950's study by TsNIIS and re­ ported In Srapionov, o p o lt.. 1972, p. 26.

l^Mlnlsterstvo avlazi SSSB, Anall 2 osnovnvkh ekonoml- ohesklkh pokazatelel delatel'nostl khozlalstva sylazl V tselom. predprllatll 1 PTU3 soluznogo pod'chlnenllal 185 1 m inistersty svlazl soluznykh respubllk v otraalevom raz- r e z e za 1 9 6 6 - 1 9 7 0 gg? ' 1 9 7 1 . P. 1 8 . .

18ib id .. p. 1 1 .

19 m.G. Kozlov, Ekonomlka svlazl. 1971, p. 15. See •Iso O.S. Srapionov, et a l., Ekonomlka 1 planlrovanle svlazl. 1968. p. 9 and I.A. Podgorodetskll, et al. • Ekonomlka svlazl. 1967. PP. 12-13. 2®Alee Nove, The Soviet Economy. 2nd ed., 1965. p. 296 . 21The theories of these two major Soviet eoonomlsts have been extensively reviewed by Benjamin Ward, "Kantoro- vloh on Economic Calculation,” Journal of P olitical Economy. December i 9 6 0 , pp. 5^5-556: Robert Campbell, "Marx, Kantoro- vloh and Novozhilov: Stoimost 1 versus R eality,” New Currents In Soviet-type Economies: a Reader. George Feiwel, ed., i 9 6 0 , pp. 2 6 1 - 2 7 7 ; and Michael Ellman, Soviet Planning Today: " Proposals for an Optimally Functioning Economic System^ 1 9 7 1 .

22Srapionov, o p c it.. 1972, p. 222.

23This view is given qualified support in E.G. Llber- man, Economic Methods and the Effectiveness of Production. Leonard j, Klrsh, ed.; Arlo Schultz, , tr ., 1972.

2^By 1975 i t i s e s tim a te d th a t 3 /k o f a l l U .S . com­ puters w ill employ telecommunications links. Manley Irwin, "The Communications Industry," The Structure of American Industry. Walter Adams, ed., 1971, p.

25several specific examples of data transmission via subscriber telegraph facilities presently in existence in the USSR are given in N.M. Gubin and B.V. Bronner, Organ1- z a t s l l a 1 planlrovanle telegrafnol svlazl. 1971 * PP^ 77"7 8 . But when the question of computexT links in the teleoommuni- oatlons network was put to the head of Moscow's Central Long Distance Telephone Office, he remarked that the first order of priority for the toll telephone branch was the creation of EASS, i.e ., nation-wide direct distance dialing. Neither the overall plan for nor the specific implementation of computer hook-ups was his concern, nf. coBarsuk's researoh includes Prlmenenle llnelnogo programmlrovanlla v pochtovol svlazl. 1 9 6 3 : with N.M. Gubin. Matematlchesklemetody planlrovanlla 1 upravlenlla v khoz- lalstve svlazl. 1 9 6 6 : and with others. Metody optlmal'nol"" organlzatsi 1 prolzvodstvennykh protsessov v predprllatllakh poohtovol svlazl. 1 9 7 6 . 186 2?I.A. Podgorodetskll, in private discussions. See also L.M, Solovelohlk, Sebestolmost» produktsll v khozlalst- ve svlazl 1 out! elo snlzhenlla. 1958. p. 41. V 28Davld Bronson, "USSR* Personal Disposable Honey In­ come, 1950, 1955. 1960 - 7 0 , 1975 Plan," unpublished manu­ script, May 31, 1972.

2^Ts SU, Nar. khoz.. op o lt.. 1972, p. 373* 3°Sotslallstloheskala Industrlla. December 23, 1969* P. 3 , ^M inisterstvo svlazl SSSR, Splsok abonentov Moskov- skoi gorodskol telefonnol setl. 1971. 32M inisterstvo svlazl SSSR, Splsok abonentov Moskov- skol gorodskol telefonnol setl; telefony organlzatsll. uchrezhdenll 1 predprllatll. 1972. 33Llteratumala Gazeta. October 19, 1970, p. 6. CHAPTER IV

COMMUNICATION RATE POLICY IN THE USSR

The preceding chapter emphasized the important differ­ ences between user rates and monetary valuations, and demon­ strated how "rate" theory in fact applies not to the former but to the latter, that is, the cost-determined internal prices on communications services. In this chapter, we are concerned with the political and economic policy criteria, as opposed to the theoretical principles that have determined the actual level and structure of final charges to commun- ications users in the Soviet Union. As a prelude to the discussion of current rate policy, we briefly consider the rate system as it evolved from the period of War Communism (1918-1921) and the reconstruction (the New Economic Policy—1921-1928) through the early Five Year Plans (1928-1940) and'the immediate postwar period. User charges are then examined in some detail. Special emphasis is placed on the Soviet rationale for setting rates that deviate from "value" and also the common occurrence of rate discrimination in each branch of intercommunications. Finally, we discuss the reasons why communications economists have called for a drastic revision of comnunication rates that

187 188 have remained relatively unchanged In the postwar period.

A Brief History of Soviet Contnunications Rates The first eight months after the revolution of Octob­ er 1917 saw the rise of a transitional period of State Cap­ italism in which there existed control over private trade and industry rather than extensive socialization. Subse­ quent writers have referred to this as the "'elemental period' of the revolution, when most things were done by uncoordinated local initiative, and the Soviet authorities at the center s till had no more than a light hand upon the r e i n s . A tighter grip on the reins was necessitated when, in the summer of 1918, civ il war broke out and was exacerbated by the armed intervention of foreign powers. Whether the economic policies adopted throughout the next two and a half y e a r s o f War Communism c o n s t it u t e d (a) a s e t o f em ergency measures intended to cope with the particularly tense m ilitary situation or (b) a product of "dreamers" (as Lenin later called them) designed to speed the coming of the ideal com­ munist society by eliminating the transitory stage of social­ ism is a question upon which Western scholars have not yet been able to agree. The Soviets took deliberate steps to imple­ ment economic policies that departed radically not only from traditional Tsarist economics, but also, given the economic, historical and political perspective, from Marxian tenets. 169 The most important of these steps was the adoption of a State system of barter, payments in kind and the abolition of money whose purchasing power, by October 1920, was no more than 1 percent of what it had been three years earlier at the 2 time of the revolution. In addition, the Soviets sought to abolish charges for water and electricity supply, railroad travel, urban housing, the supply of basic food rations as well as payment for postal, telegraph and telephone services. The extent to which political exigencies had come to ^outweigh economic considerations in the entire economy was typically expressed in Lenin's November 1918 decree "On the Establishment of Free Carriage of Letters" in which he wrote, "the more' regular and expanded exchange of correspondence between the workers and the poor peasants of the countryside further serves to consolidate the bond between them and thus promotes the cause of the organization of revolutionary socialist power in Russia." V. N. Podbel'skii, the first Commissar of Narkompochtel (Peoples ' Commissariat of the Post and Telegraph), reiterated that view. "Up to now," he wrote in 1918, "the post and telegraph were available more or less only to the large cities, towns and centers, but the small hamlets and villages were isolated from them. Not for noth­ ing did the workers and peasants carry out the revolution; now they are demanding and should expect from us that we move closer to them, and our department must serve the workers and peasants who have been neglected in the most remote depths 3 of the provinces." 190 Lenin's decree, which took effect on January 1, 1919, allowed for the free carriage of ordinary letters weighing up to 15 grains for all citizens. In rural areas, this priv­ ilege was extended to include letters weighing more than 15 grams. Not surprisingly, the volume of mail "increased im­ mediately by 34 percent."^ A similar situation arose in the telegraph network. By the beginning of 1920, the movement in the direction of abolishing telegram rates induced a demand far in excess of the network capacity, so that lim its were placed on the number of telegrams an organization could send. In the face of the catastrophic depreciation of the currency during this period, the financial system was almost * completely shattered. And the combined impact of World War I, the revolution and the civil war that followed drastically reduced every means of communication. As an example, the number of telephone subscribers reached a peak of 233,000 in 1918, but (like so many other conmunications indicators that would fail to match their 1917-1918 levels until the late 1920's or early 1930's) stood at 89,000 in 1922.^ Several writers have referred to the 1919-1920 period, indeed the whole o f War Communism, as one o f "telephone hunger" (t e l e - fonnyi golod) .**. The communications networks, not to mention the rest of the economy, could not be rebuilt on the basis of good intentions. The first concrete step toward reconstruction 191 was the elimination of the ill-considered policy of provid­ ing free communications services. On August 1, 1921, Narkompochte1 reestablished rate payments for postal corres- 7 pondence and telephone-telegraph messages. The in itial rates put into effect in 1921 were mod­ ified throughout the 1920's. Ordinary letter and postcard rates, for example, were six and four kopeks, respectively; but by 1926, they had been reduced to four and three kopeks—

O rates that have remained unchanged to the present day. The overall level of communication rates was slightly 'increased (relative to the 1921 rate schedules) with the rate reform of 1928 which recognized "the low level of rates and the necessity to increase postal revenues so as to develop

* and improve postal and telegraph networks, to speed up news­ paper and other postal matter delivery and to promote the g technical modernization of telephone transmission." Unanimity of opinion on the desirability of commun­ ication rate structure was far from complete. Gregory Gross­ man has written of the "vibrant and often brilliant Soviet economic literature [that] abounded . . . from 1927 through 1930." Critical articles in the journal sources cited above provide ample evidence of fitting into this genre. The most controversial aspect of rate policy focused on the attempt by Soviet authorities to rapidly expand the publication and distribution of the periodical press, in particular, the central Party and government newspapers • For that purpose, the rate for nearly every publication amounted to no more than a pittance, and rate revenues from processing newspapers and magazines, fell far short of the costs to the postal service for its efforts* S. V. Evstiugov, with Table 18 as his evidence, argued that a subsidy of the magnitude indicated here was economically unjustifiable. He suggested that rates be in­ creased so that by the end of the first Five Year Plan rev­ enues should be sufficient to cover the costs associated with the provision of any given service. "Our current rates .for periodical publications," he claimed, "are four times lower than before the [first world) war. The average user rate in 1928 was 38 kopeks; but in 1913, the average rate was 69 kopeks. And the purchasing power of the ruble is only 47 kopeks (in relation to the pre-war ruble) . The editors of Ekonomika sviazi noted that Evstiugov's call for higher rates was worthy of attention, but that it was contrary to the basic political tasks of the Soviet regime, especially with regard to advocating higher news­ paper rates. The editors' justification has been reaffirmed time and again since the first Five Year Plan as Soviet planners have promoted the principle that losses on the pro­ cessing of periodical publications should be subsidized by postal profits elsewhere in the system. For the communications industry as a whole, the gen­ eral level of user rates in 1926-27 was only 60 percent of 193 T a b le 18

1 ...... type of Postal Revenuesa Sebestolnost* ^ P rofits Losses Matter ( i n t b ousanas cr rub l e bJ

Jrdinary le tte r s 24*000 21,905 2,095 legistered letters 8,700 5,874 2,826 tarcels 16,000 8,707 7,293 fcney orders 10,100 9,986 114 Jeclared value 3,500 2,886 614 le tte r s Periodical publi­ 2,000 16,484 14,484 cations Teleprams 41.800 _ 35.900 5.900 Total 106.100 .....JP.1a7.42 .. 18.i8.42 14.484 Source: Ekonomika s v la z l. no. 1 , 1929, p . 44* Notes: a Includes only paid correspondence. " Inoludes paid, official and free correspondence. the prewar level. According to Evstiugov's research, total sebestoimost1 of communications services was approximately 10 percent less than in 1913, yet across-the-board rate in­ creases were not warranted. Evstiugov proposed that rate policy should be determined only after due consideration had been given to cost and revenue factors in the production of each type of communications product. In practice, however, the ultimate goal, then as now, has been branch profitabil­ ity; Soviet conmunication rate policy, after the aberration of War Communism, has always been based on the assumption that intra-branch losses on certain services would and should be more than compensated for by intra-branch profits on other services. Rates were increased in June, 1931 and February, 1933 in order to enlarge the communications profit base from which a larger portion could be diverted to the State's industrial­ ization program. Rates were then stabilized until the unex­ pected money wage increases, associated with the productivity gains of the Stakhanovite movement in the second half of the second Five Year Plan, led to annual losses in some communica­ tions branches. The subsequent 1938-1940 rate revisions did not undergo any significant changes during World War II or the early postwar.years. In September, 1948, a number of user rates were again revised upward so that prices to final users would better reflect the "value" of coimiunications services, where "value" 195 was defined as sebestoimost1 plus a predetermined markup (representing surplus product). Profitability (with respect to sebestoimost1) for the communications industry, once the new rates had become effective, reached 21.6 percent in 1949.11 Naturally, the assortment of services has changed over the past twenty-five years, and with the addition of new ser­ vices and technological improvements in communication trans­ mission, rate schedules have become more complex. But the syBtem of user rates introduced in 1948-1949 is, with only 'minor exceptions, still in effect today.

Current Soviet Communication Rates 1.- Principles and Policy Soviet consumers of communications services face a wide array of user rates which can be grouped into three categories: a. General rates apply to the output of a ll comnun- ications branches and are based on such factors as size and weight (of postal matter), distance, speed of transmission, etc. There are over 450 designated rates for all the branches; b. Reduced rates are primarily aimed toward alleviat­ ing peak loads, such as lower night rates for long distance telephone calls. These rates are commonly justified on econ­ omic grounds and, in most cases, serve to smooth out the process of transmitting information; 196 c. Special rates deviate considerably, either in an upward (restrictive) or downward (incentive) direction, from both stoim ost1 ("value") and sebestoimost1 (cost). Communica­ tions economists have become increasingly vocal in their criticism of certain special rates, particularly those that have historically been intended to achieve political objec­ tives, such as the heavy postal subsidy involved in process­ ing periodical publications. Consistent with national policy with respect to the p r e s s , th e S o v ie t News Agency, TASS, i s p erm itted t o send telegrams at rates lower than those for ordinary users. On the other hand, rates for leasing telephone channels are far in excess of sebestoimost* and are prohibitively high for all * but the largest enterprises and government and Party organs. The rural telephone network provides another case of special rates. Rural telephone communications are invar­ iably operated at a loss. Telephone rates below costs, it is argued, promote agricultural production on State and collective farms. However, there is another reason that is at least as compelling to explain low rural rates. village Soviets, collective farms and state farms are allocated only a small monthly amount to pay for telephone communications. While the cost of providing rural service is approximately twice that budgeted amount, local telephone enterprises cannot ask these organizations to pay more than that amount since it is beyond their financial capacity to do so. The 197 rural telephone branch is the only sector of the contnunica- tions industry that has consistently relied upon industry 12 profits for its continued operation. Special rates can also include those for long dis­ tance telephone coimunications, which are of some interest be­ cause they parallel somewhat the American experience in to ll rates. There has been some controversy as to whether the Bell System followed a policy of subsidizing inter-state telephone operations through intra-state revenues, espec­ ially from 1945 to 1961. A 6-minute, 100-mile, person-to- -person call (in 1966) transmitted intra-state cost twice that of a comparable inter-state call. This discrepancy was due in large part to improper separation cost principles (and properly to the high ratio of switching to transmission costs), but for whatever reason, the local telephone user incurred a disproportionate burden in pricing.^ Zn the USSR, sebestoimost* exceeds the average per- minute user rate on toll telephone calls up to a distance of 50 kilometers and over a distance of 1000 kilometers. In the latter case, the rate may be as little as one-third to one- 14 fourth of sebestoimost1. The objective of this rate policy is to generate greater demand for longer distance calls in order to more fully u tilize lower density telephone routes. In effect, middle-distance users are subsidizing both local and long-distance users of the to ll network. The franking privilege allowed to Soviet army and navy personnel and the preferential postal rates granted to 198 Gosbank, Stroibank and other government and Party organs also fall in the category of special rates. In a ll the research that has been done on the ques­ tion of convnunication rate-making, the overriding theme is the necessary coincidence of the rate with the "value" of output, or, in the oft-repeated Marxian phrase, the "socially necessary costs of production." This principle implies that the communication rate (in fact, a ll prices) should be based on sebestoimost * plus a per unit profit that w ill insure the continued normal operation of the conmunications enterprise. - Soviet economists argue that rates can and should deviate from "value" for at least four reasons: 1. social and political goals may supercede purely economic considerations; 2. technological gains can be stimulated by the ap­ plication of special rates to particular communications ser­ v ic e s ; 3. the nature and composition of user groups—the pop­ ulation and the productive and nonproductive spheres—may war­ rant the setting of discriminatory rates; and 4. given the rate deviations due to these factors, the assurance that the conmunications branch as a whole be profit- able w ill require additional special rates to counterbalance o t h e r s . Where rates deviate widely from sebestoimost1, they are seen as conforming to the "law of planned (proportionate) 199 development of the economy," as In the case of rural telephone rates. Unless conformity to some higher "law" or political aim is at issue, the lower lim it of rate deviation from value is sebestoimost1. Setting rates below sebestoimost1, accord­ ing to Soviet communications economists, undermines the prin­ ciples of khozraschet (economic accountability). The upper lim it has not been neatly defined—save in general terms of approximating "value"—but appears to be any rate level that w ill sufficiently restrict demand for certain communications services, particularly those which as yet remain underdevel­ oped, such as the leasing of telephone channels. Soviet rate-making principles include the require­ ments that (1) rates be simple in practical application and be generally uniform for the country as a whole, and (2) that they be gradually reduced in light of technological progress and increased labor productivity. The latter requirement, communications specialists recognize, must be tempered in those cases where rate reductions are precluded due to in­ creased costs of production. In fact, the latest rate pro­ posals argue for higher rates on certain conmunications s e r v i c e s .

Postal Rates The postal system in pre-revolutionary Russia.consisted of a relatively small number of geographically disjointed net­ works located almost exclusively west of the Urals. Even remotely efficient transport of the mails had to await the 200 development of the railroad which, by the mid-nineteenth cen­ tury, was still in its infancy. City postal agencies were first introduced in St. Petersburg (1821) and Moscow (1844);

1C by 1900, post offices were operating in 47 Russian cities. A significant landmark in Russian postal rate reform came in 1843 when a single rate was established for letter mail independent of the distance sent. Weight- and distance- based rates had first been introduced 60 years earlier. But they depended upon the particular route over which corres­ pondence was conveyed, e.g ., in two separate regions of the "country, mail travelling the same distance often required different rates.1,6 This change followed by three years the research of Sir Rowland H ill in Britain, who showed that the average cost of conveying a letter was a negligible portion of the aver­ age total cost of handling and that this average transport cost diminished as the volume of letter mail increased. Recent U.S. Congressional testimony by a former Assistant Postmaster General confirms H ill's findings: "The principle difference in cost [between local and non-local letter mail] is the transportation increment, which is no more than about 3.5 percent of variable costs. . . . The demonstrably re­ lated costs of a local letter are calculated at 3.3 cents. The demonstrably related costs of a non-local letter are calculated at 4.0 cents, a difference of 0.7 of a cent." 17 H ill's work implied that distance-based rates dis­ criminated against longer hauls and were inefficient because 201 the letter rate that exceeded the average cost of processing and delivery would restrict mail use to less than equilibrium levels. The U.S. did not adopt a letter rate irrespective 18 of distance until as late as 1863. Current rates for Soviet postal services are given in T able 19. For the largest country in the world and one whose land mass is nearly two and one-half times the size of the U.S., distance, or more precisely, transport of postal cor­ respondence (and transmission of electrical communications) must necessarily bulk large in production costs. Scant pub­ lished data are available on the distribution of letters by distance and the percent of transport costs in total postal expenditures for ordinary letters. In 1969, transport of a ll postal matter amounted to 12.3 percent of all postal costs for Soviet post offices and 9.2 percent for city and raion postal junctions. 19 But these figures include the cost of moving newspapers, magazines and parcels whose trans­ port costs, because of their bulk, are naturally higher than in the case of ordinary letters and postcards. The pre­ sumption is that even if, in the movement of ordinary letter correspondence, the costs of conveyance were such as to war­ rant distance-differentiated rates, the sheer complexity and cumbersomeness of this type of rate structure would do little to improve either the efficiency or the equitability of the service. Weight remains the only consideration in the unit charge for Soviet letters. 202 , Table 19

Soviet Postal Rates

Trpe_of Mail ______Postal Rate

Ordinary le t te r s 4 kopeks up to 20 grains; 2 kopeks for eaci additional 20 grams or fraction thereof

Ordinary postcards 3 kopeks

Double postcards 6 kopeks (postage pre-paid for reply por­ tion of postcard)

Printed natter 3 kopeks up to 50 grams; 1.5 kopeks for each additional 50 grams or fraction thereof (to the nearest kopek)

Registered letters 10 kopeks up to 20 grams; 2 kopeks for each additional 20 grams

Registered postcards 10 kopeks

Registered printed natter 10 kopeks up to 50 grams; 1.5 kopeks fo r each additional 50 grams • Insured letters same as registered letters plus rate based on declared value of letter

Airmail letters 6 kopeks up to 20 grams; 3 kopeks for eaet additional 20 grans

Airmail postcards A kopeks

Airmail printed n atter 10 kopeks up to 50 grams; 6 kopeks for each additional 50 grams

Registered airmail letters, • postcards and printed add 6 kopeks to airmail rates matter

Source; Mlnlsterstvo svlazl SSSR, Spravochnlk nachal'nik otdelenlia svlazl. 1970, p. 62. 203 Tradition has established a hierarchical preference system in the processing and delivery of postal matter in the U.S. Post Office—as the notion of mail classes indicates. "All first-class mail and about 150 periodicals the contents of which are 'perishable' in terms of time are known as pref­ erential mail because they receive top-priority handling at every stage. This system has the added effect of allowing post of­ fices to handle "deferred" mail (third- and a portion of second-class matter) during the off-peak periods. Mail class rate distinctions are a function of the relative value of the information being transmitted. ■ Mes­ sages intended for only one or a few individuals are charged higher levies. Since the value of infotmation tends to dis­ sipate rapidly, these messages are considered first-class and receive priority handling. "Mass messages," on the other hand, are directed toward a wider audience; they are .ac­ corded lower priority, however, since the value of informa­ tion contained in them is thought to be lower, or at least less urgent. Magazines and advertising serve as primary examples of this type of mail. With a few important exceptions (for example, the dis­ tribution of the periodical press), rates levied on Soviet postal matter are based, in Western parlance, on the "cost of service." In this Soviet context, rates include sebestoimost* and surplus product (c + v + s ). The "value of zok servicer" or consumer demand, has little if any influence on rate policy. Now the terminology used here requires some elabora­ tion. c + v + s is traditionally regarded as stoimost1 (value), which derives mainly from the supply side. The "value of service" concept, so familiar in U.S. rate regula­ tion, is not to be confused with stoimost1. "Value of ser­ vice" principles do involve "'marking up' or 'marking down' ascertained cost by some subjectively-determined estimate" 21 in much the same way Soviet rates are established, but the increment is determined with respect to "what the market w ill bear" (demand), not with reference to the "cost-plus" (supply) approaches discussed in the last chapter. The idea then that users of the postal service would w illingly pay a premium to insure more rapid delivery of let­ ter correspondence does not go far to explain rate differen­ tials between ordinary Soviet letter mail and other postal matter. Relative value of alternative types of information does not appear to enter into the Soviet rate-makers' cal- cuius. The implication is that preferential and deferred mail—mail classes—are not relevant to the Soviet postal system, the sole exception being the handling of periodical publications, especially central newspapers, which receive 22 special (preferred) treatment. Mortan Baratz has written that "for the student of postal economics, the second-class [newspaper and magazine] 23 mail statute is of unrivaled interest." Excluding the class distinction, the statement is also true of the Soviet postal service. The difference between U.S. second-class mail and Soviet printed matter (banderoli) is that the former refers largely to newspapers and magazines, while the latter includes "books, brochures, forms, materials for the blind, photo al­ bums, bulletins, newspapers, press-clippings, maps, engrav­ ings, magazines, calendars, catalogs, proof sheets, leaflets, notes, advertisements, wall posters, plans, price lists, drawings, manuscripts, copy-books and notebooks."2* Soviet printed matter is granted a relatively sizeable concession. A 50 gram piece is conveyed for one kopek less than an ordinary, 20 gram letter. The per unit revenue is higher for letters than for printed matter, but as far as the per unit cost of handling is concerned, the opposite is 25 true. • How is the preferential rate for printed, matter ex­ plained? The answer was given in the delineation of reasons for rate deviations from "value": national economic goals as enunciated by the Party leadership supercede microeconomic "laws." It suffices merely to point out that, just as in the case of, say, special book rates and charges for educa­ tional material in the U.S., the relatively low Soviet rates for printed matter are intended to do nothing more (or less) than promote the general weal, provide for a more well-informed citizenry, augment the cultural level of the nation, increase the degree of interdependence and efficiency by reducing the costs of information, etc. 206 The significance that attaches to periodical publica­ tions, not only for the postal' service, but also for the econ­ omy, society and the polity, is such as to warrant a few ad­ ditional conments on the history and mechanics of distribu­ tio n . The printed press has played a particularly exalted role in the history of the revolution. Soviet leadership ever since Lenin ha3 pressed for a larger and more diver- . sified circulation. As an agent for transmitting and con­ trolling information and molding opinion, the newspaper has gone unexcelled. Consequently, the distribution of the press has assumed a p olitical importance not bestowed on other forms of intercommunications. The promotion and physical distribution of newspapers and magazines are carried out by Soiuzpechat * (a term that refers to the Ministry of Communication's Main Administration for the Distribution of the Press) and the postal service. Soiuzpechat1 had its origins in the 1918 Leninist decree that revamped the distribution of the press. However, the sharp reduction in paper production—a result of the civil war and foreign intervention—led to a decline in the output of news­ papers and magazines. By 1923, the annual volume of publica- tions had fallen to one-third the 1913 volume. 26 During the civ il war years, newspapers and magazines were distributed free of charge—again an attribute of the more general policy predicated in part perhaps on the idea of moving directly 20? into "full cornnunism,** but also with the goal of maximizing readership. Under the wartime constraints, individual sub­ scriptions and retail distribution gave ground to the "wall newspaper1* which could reach a wide readership at lower costs. With the implementation of NEP, newspaper and magazine rates were re-established. The business of distributing the press was temporarily assumed by publishers in 1923, when Pravda, Izvestiia and Rabochaia Gazeta and others organized dispatch offices in the larger cities. This arrangement failed to live up to expectations and was disbanded within five years. At the XHXth Party Congress (August 1930) , Narkompochtel was given 27 sole responsibility for subscription and retail distribution. During the next seven years, the various functions involved in subscription and retail distribution were given over to Soiuzpechat* so that, by 1937, the distribution problem was its reserve and remains so today. Soiuzpechat* has a dual function—to promote a yearly mass subscription campaign for all periodical publications in the USSR and to ensure that these publications get to readers through the mail or through its network of some 2 8 25,000 kiosks (newsstands). As a khozraschet organization, Soiuzpechat * should earn revenues sufficient to cover its costs, and it invariably does so. For their services, the 3,325 administrative offices of Soiuzpechat* (in 1971)retain a given percentage of the total amount received from sub­ scription sales as follows: 208 newspaper publications of Pravda and Izvestiia - 6.5 percent; magazines of Pravda and Izvestiia - 13 percent; Other central newspapers and magazines - 17 percent; republic, krai (territory) and oblast (region) news­ papers - 7.5 percent; republic, krai and oblast magazines- 15 percent; and local newspapers - 6.4 percent. For the distribution of newspapers and magazines by re­ ta il sale, the oblast offices of Soiuzpechat1 receive from central, republic, krai and oblast newspapers - 7.5 percent (of the total amount received from sales); newspapers published in the raion (district) centers - 13 percent; central magazines - 19 percent; and 2 g republic, krai and oblast magazines - 26 percent. The burden of physically processing and delivering the press rests mainly with the Soviet postal service. It is in this area that official Soviet policy has come under crit­ icism exemplified in Bv 3 tiugov's article in the late 1920's, in more subdued tones since then, and finally, in 1972, in another clear call for higher postal rates to publishers. Soviet post offices are paid by publishers for each 1000 delivered newspapers. For example, for dispatching 1000 copies of Pravda, the publisher is charged three rubles, or three-tenths of a kopek per copy; for Moskovskaia Pravda - 5 rubles; and for city and local newspapers - 3 rubles. In the distribution of magazines, the post office receives 3 percent of the retail price of each magazine. These rates cover both processing of publications at post offices and about 9,000 distribution points (communications enterprises that are also a part of the postal service) and delivery to 209

the places of residence—in effect, all of the operations involved in getting the newspaper or magazine to the reader. 30 In 1953, TsNIIS determined that the sebestoim ost1 of handling and delivering a single copy of the press was 8.95 kopeks, but the average revenue received by the postal ser­ vice was only 2.43 kopeks.^ By 1957, the relationship of per unit cost to revenue was 10 kopeks to 3 kopeks. 32 This disparity has apparently gotten larger, because in order for the postal branch to achieve its profitability norm (with respect to fixed productive capital) of 26.2 percent (the highest in the industry), Srapionov argues that the peren­ nial losses in the distribution of the press must be elim­ inated through a substantial increase in postal rates charged to publishers. On the basis of TsNIIS research, rates should be increased by 5.4 times to achieve this objective. 33 Raising postal rates for processing periodical pub­ lications inqplies increased costs to publishing houses. Should rates actually be more than quintupled, some publishers would be faced with financial hardships. Their higher costs could be offset in one of two ways: a) with no increases in sub­ scription rates or retail prices for newspapers and magazines, the leadership would have to agree to subsidy payments to at least some publishers—an unlikely occurrence since publish­ ers, too, are khozraschet organizations; or b) higher postal rates could be matched by across-the-board hikes in subscrip­ tion rates and newsstand prices to Soviet readers—an equally unlikely occurrence that would break with fifty years of Soviet tradition (at least with respect to the pricing of central newspapers) and might have the effect of undermining the press as a vehicle for shaping public opinion. The second option would allow publishers to shift the incidence of higher postal costs onto subscribers much as U.S. maga­ zine publishers, who rely heavily upon the postal system for distribution, have successfully passed bulk rate increases onto subscribers and advertisers.3* But the Soviets want to avoid a prescription that might seriously weaken the patient. A third possibility, of course, is that the planning auth­ orities w ill follow the same path that had been charted after (and followed since) the revolution and do nothing. What kinds of factors w ill influence the final deci­ sion on the suggested postal rate hikes? In the first place, the readership maximization objective is generally regarded as unassailable, the ultimate consideration, the cost of which has been the annual losses in handling periodical pub­ lications. Whatever course of action is chosen cannot be expected to unduly compromise this objective. The TsNIIS proposal derives from a second objective, namely, a specific desire on the part of the Ministry of Communications to in­ crease the self-sufficiency of postal enterprises and to allow them to become more directly accountable for their costs and revenues. 3 5 Up to now, this goal conflict has been resolved in favor of the forces above and beyond the M in istry . 211 in rates w ill lead to an increase in the volume of communica­ tions products and w ill make it possible to maintain and even increase the total level of profitability in communica­ tions ." (Emphasis added.). But elasticity coefficients equal to or greater than one clearly run counter to our preconceived notions of consumer responsiveness to rate changes on cornnun- ications services. We would assume a priori that the demand for most Soviet postal services is price inelastic. There are few good substitutes for ordinary letters in terms of either price or quality, and postal costs to the consumer are an insignif­ icant portion of his total income. In 1969, the annual aver­ age per capita expenditure by U.S. private citizens for first class postage was approximately $15.55. 37 The roughly com­ parable figure (for ordinary letters) in the USSR in 1970 was 38 135 kopeks ($1.50). The expenditures accounted for about one-half and one-fifth of 1 percent of average per capita disposable income in the US and USSR, respectively. 39 In the absence of empirical investigations from the Soviet side, simple regression equations were estimated for various Soviet postal and electrical communications services for the 1955-1964 period. For the postal service, the re­ gressions (see Table 36) indicated that variations in the volume of letters, parcels and money orders were largely ex­ plained by the expansion of economic activity as expressed by 212

Secondly, any decision by the State Committee on Prices to approve higher subscription and newsstand prices as a consequence of higher bulk mailing fees w ill probably be based to some degree on the anticipated quantity responses such price increases w ill evoke. But how much attention is paid to elasticities in this or any other area of Soviet price determination is not known. Newspaper and magazine prices are outside the purview of the M inistry's decision-making powers, so that we are left squarely in the speculative realm with respect to the fate of final user rates to Soviet readers. But if and when new prices are adopted here, an antecedent postal rate revision can be anticipated. The question of demand elasticity is not as important for bulk rates to publishers as it is for other services provided by the communications industry, because bulk rates are one step removed from final user rates. Given higher postal costs, publishers could do little but plead for higher retail prices or subsidies, for the alternatives to delivery via the mails are practically nonexistent. If the issue of price (and income) elasticity is seriously considered in the comnunications industry, the literature search in this field did not reveal it. A. A. Vishnevski! 's corrments 3 6 are typical of those regarding price elasticity: "Reducing 3ebestoimost' provides the basis for reducing the effective rate level. In its turn, a decrease 213 population, gross national product or national and personal income variables. Prices alone or in conjunction with the other independent variables did not improve the results at a ll in explaining changes in the number of ordinary letters sent. This is hardly surprising since the absolute letter rate (4 kopeks) has been constant through the postwar period, 4 0 and even the use o f‘a price deflator—the Soviet consumer price index (which itse lf has been remarkably stable) —provided little variation in the real rate variable em- • ployed in the regression. Zn such cases, the price (rate) effect on volume cannot be sensibly investigated. But even if rate changes had been marked and a negative correlation between rate and volume had been observed, it would not serve as a. meaningful measure of demand sensitivity to rate changes. The growth of mail volume in the USSR, as in the U.S., i s surely most affected by the expansion of the national economy, income and production. The positive relationship between economic growth and increased mail volume is supported by the regression analysis. Furthermore, the demand for ordinary letters, again conform­ ing to prior expectations, is income inelastic; the values of the (statistically significant) coefficients ranged from .31 to .41, depending upon the income variable employed. For parcels, demand.approximated unitary income elasticity; for money orders, demand was slightly income inelastic. In the case of newspapers and magazines, the elasticity coefficients 21k (ranging from 1.2 to 1.5 for the several income variables) demonstrate that increases in national and personal income are associated with larger increases in the quantities of periodical publications demanded by Soviet citizens. This may be due to the very low subscription and newsstand prices that take only a small portion of the reader's income, the 4 absence of a wide variety of other consumer goods and ser­ vices that might othexwise attract the consumer ruble, an increased thirst for information about' work, leisure, other peoples, etc. 41 Rates for Soviet parcel post stand out as the major exception to the rule of historical stability in postal rates. Prom 1967 to 1970, though the rate structure remained approx­ imately the same, the rate level of parcels rose on the order 42 of one-third. Current parcel rates in effect in the USSR are givdn in Table 20. What g e n e r a liz a tio n s , i f any, can be drawn about the nature of Soviet policy regarding this aspect of the postal system? Cost data in terms of distance and weight of par­ cels—the rate determinants—are scarce, but the data that do exist permit a few rough-edged conclusions. Zn the USSR, transportation costs constitute nearly half of total parcel post costs, since the marginal cost of delivering a parcel an extra kilometer decreases, however, the percentage rate increases should (if cost is the main criterion in rate-making) also diminish for parcels delivered to more distant zones. In general, the parcel rate schedule T a b le 20 Rata Structure and Composition of Soviet Parcels, by Distance and Weights 1970 R a t e s f o r Parcels Up to 3 Up to 10 kilograms: Up to 20 kilograms: Distance kilograms (col. 1 rates apply (col. 2 rates apply Distribution (kilometers) (kopeks) on f ir s t 3 kgs.) for on f ir s t 10 kgs.) fox of parcels each leg. or fraction each kg. or fraction by distance of remaining weight of remaining weight (*) (kopeks) (kopeks) 1 2 3 L

Up to 200 35 3 6 ^28.7 201-500 50 5 10 501-1000 60 7 12 19-9 10Q1-2000 70 10 • 15 24.0 2001-3500 90 17 22 1A.9 3501-5000 110 25 30 6.3 5001-6500 130 30 35 2.3 6501-8000 150 35 A5 1.3 6001-9500 170 IP 50 1.2 9501-11,000 190 A5 55 .8 Over 11.000 230 55 65 .6 5 Up to 3 kilograms 3-6 kgg. 6-8 kgs • 8-10 kgs. Over 10 kgs. Distribution of parcels 19.9 25.3 21.9 20.7 12.2 by weight (2) Sources: Columns 1 ,2 and 3 - Spravochnlk nachal’nlka otdelenlla sviazi. op cit., 1970, p. A3* Columns A and 5 - Minister stvo sviazl SSSR, Sostav ootrebltelei uslug sviazl 1 srednie dokhodnye taksy. 1972, p. 75* Motes: The size and weight requirements for Soviet parcels are as follows: m«THwnm size - 70 centimeters in length, width and height; minimum size - 10 centimeters in one dimension and not le ss than 5 centimeters in the remaining two dimensions; weight - 20 kilograms (sending parcels in excess of 20 kilograms - AA pounds - requires a permit from the Ministry of Cozmzunlcatlons. 216 complies with this axiom, but cost is not the only, or even the major, consideration. A 1959 Soviet study 4 3 showed, for example, that for parcels weighing up to three kilograms and sent up to 500 kilometers, rate and sebestoimost1 approx­ imately coincided; beyond 500 kilometers, the excess of the average rate over sebestoimost1 grew with distance and yielded profit rates up to 100 percent. For heavier parcels, similar rate-cost deviations occurred at greater distances. The results of this study were reconfirmed in 1964 (by which time the parcel processing-delivery cost situation had worsened) when it was shown 4 4 that the smallest parcels sent the shortest distances were charged rates as little as half their sebestoimost1, whereas profits on larger parcels transported to farther rate zones were, in some cases, equal to sebestoimost1. On the whole, the operation of the Soviet parcel post is and always has been a most profitable venture despite these anomolies in the rate structure. Two types of rate discrimination appear to exist: 1) longhaul users of the parcel service are discriminated against in relation to short- haul users, i.e ., excess revenues earned in the carriage of parcels over longer distances (beyond 1000 kilometers) are used to subsidize losses on short-distance parcels; and 2) excess profits from the parcel system help to finance the distribution of periodical publications, i.e ., parcel users in effect subsidize Soviet newspaper and magazine readers. 217 The Soviets are explicit in admitting this type of redistri­ bution: "Profits [from parcel operations] go to cover other services of postal communications, for example, the delivery 45 of periodical publications." The im plicit and explicit subsidies involved in the Soviet parcel post are not only recognized but purposeful; they have little to do with achieving marginal efficiency conditions, but are intended to satisfy the national econ­ omic priorities mentioned earlier. As with other aspects of price determination in the postal system, parcel rate-making can be viewed as a subset which complements the main thrust of postal policy—the mass distribution of the printed press. Soviet authorities are seemingly satisfied with the results of parcel operations; no new proposals for parcel rate reform have been suggested. Clearly, the rate structure in the postal service is more complicated than is indicated by the analysis above. But the objective was to consider the most important postal matter—letter mail, newspapers and magazines and parcels— which comprise by far the largest share of postal volume. Attention is now turned to an altogether different form of communications medium—the telephone.

Telephone Communication Rates Telephone comnunications in the USSR differ consid­ erably from the American telephone system both in the struc­ ture and scope of the network. The Bell System, through 216 its extensive patent development and the governmentally reg­ ulated {i.e., protected) nature of its operations, has vir­ tually dominated telephonic communications in the U.S. and is the bulwark behind a highly integrated and pervasive national comnunications network. Planning apart, the Soviet telephone network has been victimized by scarce resource al­ location in a country bent on rapid industrialization and has conspicuously lagged behind industrial sector growth within the USSR and telephone communications development in other advanced economies. Four networks are now extant: the long distance net­ work; the city telephone systems; the rural network; and departmental telephone comnunications. Only the regulation of technical aspects of the "network of departmental use" falls under the jurisdiction of the Ministry of Communica­ tions, and little information could be obtained even in this area. The discussion, therefore, is confined to tele­ phone rates in the first three networks. 1. Long Distance Telephone Rates. User charges for long distance telephone service (hence­ forth these w ill be referred to as to ll rates) are determined by several factors: a) distance of call; b) duration of call; c) peak-load factors (e.g., time of day); and d) the urgency of the call. Six rate zones have been established up to a distance of 2,000 kilometers; the rate system comprises over 40 zones in all. The first six zones are: up to 25 kilometers; 219 26-50; 51-200; 201-600; 601-1200; and 1201-2000 kilometers. The cost of a three-minute call for each 200 kilometers or fraction thereof beyond 2,000 kilometers is three kopeks; each extra minute of conversation beyond that distance costs the user an additional kopek. Though the rate schedule is quoted in terms of three-minute periods, Table 21 provides a more detailed breakdown of the average rate and cost rela­ tionships per minute at shorter distance intervals. Urgent calls are put through at triple the rates shown in the table. Toll calls connected between 6:00 p.m. and 7:00 a.m. on work­ days and holidays are charged at 75 percent of the stated rate. Payment for calls placed from private or party-line telephones can be deferred—a service for which an addi­ tional five kopek per call charge is applied—but all charges for to ll calls must be liquidated within five days of receipt of the b ill from the long distance telephone office.^ These data demonstrate the escalation in costs and the consequent profit deterioration over the 1959-1964 period. Unlike U.S. telephone communications, Soviet long distance telephone enterprises (excluding the line-cable administra­ tions) are the second most labor intensive enterprises (after the telegraph offices) in electrical comnunications. Wages account for 71 percent of their operating costs. 47 Thus, the increase in sebestoimost1 is primarily a reflection of the 1960-61 wage reform in which the average wages of comnunica- tions workers increased by nearly 20 percent. Moreover, the 220 T a b le 2 1 Sebestoimost*, Average Rate, Profits and Distribution of 1 2 3 4 Average Rate Sebestolmost' Profit Rate Distribution of Distance per call min­ per c& 11 min- per call min­ toll calls (£) (kilometers) ute (kopeks) ute (kiopeks) ute (0-2)*2) (%) 1959 1964 .1959 1964 1959 1964 1958 1964 1970 Up to 25 2 2 3.9 5.2 -48.7 -62.0 9.1 6.8 5.3 26-50 5 5 4.4 5.7 14.6 -12.3 18.0 15.2 13.1 51-100 12 12 5.2 6.4 130.8 88.0 1 <4 e /I O AU.Um a 101-200 12 12 6.8 8.0 76.5 50.0 201-300 15 15 8.8 10.0 70.5 50.0 ! 301-400 15 15 10.8 12.0 38.9 25.0 ’10*4iA I •to / a0f\/.P c 401-500 15 15 12.8 14.0 17.2 7.2 I7i4 501-600 15 15 14.9 16.0 .01 -6 .3 601-800 25 25 ) 17.5 ) 43.0 801-1000 25 25 f 20.3 23.0 (2 3 .2 9.0 ’ 8.1 9 .4 13.1 1001-1200 25 25 ) 28.1 ) -11.0 1201-1500 28 28 33.1 -15.1 3.8 1501-2000 28 28 {36.1 41.1 {-22.5 -32.0 . 3.3 5.3 2001-3000 33 33 1 56.0 n.a. -41.1 n.a. \ 3001-4000 38 38 77.0 78.2 -5 0 .6 -54.0 4001-5000 43 43 98.0 U. A. -56.1 n.a. / 5001-6000 48 48 105.7 n.a. -54.4 n.a. » 1.6 2.2 2.7 6001-7000 53 53 n .a. 120.3 He A* -61.7 c 7001-8000 58 58 n.a. 141.4 n .a. -63.8 1 Over 6000 56 n .a. 174.3 n.a. -67.9 n.a. / Sources: 1959 - adapted from Srapionov and Esikov, op c i t ., 1962, p. 162. 1964 - adapted from Podgorodetskii, op c it., 1967, p. 282. 1970 - Sostav. op c i t . , 1972, p. 76. Information obtained at the Central Long Distance Telephone Office in H o 8 C o v (May 1973) indicates that the present toll rates are the same a s those in the. table above. Cost data beyond 1964 could not be obtained. 221 1959 capital stock revaluation led to higher depreciation charges for communications enterprises.^8 The rate-cost relationships depicted in Table 21 also indicate some degree of price discrimination. If the rela­ tive distance-related profit rates in 1970 were similar to those in 1964 (absolute rate-cost differentials had to have been narrowed for even by 1966 communications workers' wages had increased on average by 16 percent 49 ), then over one- fourth of all toll calls (the 15 percent of calls up to 50 kilometers and the 9-10 percent beyond 1000 kilometers) were being charged at rates far below sebestoimost1. For the remaining 75 percent over middle distances (50 to 1000 k il­ ometers) , the opposite was true. Essentially, then, middle distance users were—and presumably are today—being dis­ criminated against in favor of short and long distance users, for a l&rge part of the operating costs in these latter ranges are being covered through net revenues over the 50- 1000 kilometer range. In other words, middle distance to ll callers are forced to incur costs for which they are not directly responsible. Preferential rates for the longer distance caller are aimed at encouraging wider use of lower traffic routes and thereby at promoting greater capacity utilization. Urban telephone users are the main beneficiaries of the low rates for short distance to ll calls, because most trunk call offices, private phones and automatic switching equipment are 222 concentrated in the major Soviet cities. Zn spite of these low rates, the distributive share of calls up to 50 kilome­ ters has fallen from 33 percent in 1950 to 18 percent in 1970, not only because of the expansion of the long distance net­ work, but also because the radii of city telephone networks are moving outward. Some former to ll areas have now been included within the compass of the city telephone systems. This amounts to a reduction in the real rate for city sub­ scribers—a reduction that, as has recently been suggested, should be compensated by increasing the absolute monthly 50 charges to both residential and business users. It has been estimated that in the U.S. "70 to 85% of the cost of a toll call is switching cost with only 15 to 30% being expended on linehaul." 51 Communications economists in Moscow claim that transmission outweighs switching in the cost structure of their long distance telephone operations. Unfortunately, recent, hard and fast data could not be found to support this contention. In the late 1950*8, one econ­ omist noted that transmission costs accounted for 70 percent * of the sebestoimost ' of a toll call. For distances up to 100 kilometers and in excess of 1200 kilometers, the share of transmission costs ranged from 25 to 80 percent, respec­ t i v e l y . ^ Whatever the exact nature of switching to transmission costs, it is certainly reasonable to assume that the latter exert a greater influence in Soviet than in American toll 223 telephone operations. The distance (transmission or line- haul) fa c to r i s much more form idable in the USSR. F urther­ more, the acknowledged lack of sophistication in switching equipment (and therefore less costly station equipment) also accounts in part for the smaller share of switching costs.53 As technological improvements are achieved in switching and . transmission methods, the Soviets fully expect that the dis­ parity in sebestoimost1 over distance w ill be reduced, i.e ., cost convergence w ill continue. Whether this occurrence w ill affect the structure, as opposed to the level, of toll "rates cannot be easily predicted. From U.S. experience, it has been found that [glenerally, as the distance of the toll call increases, costs per unit tend to rise because of the greater length of circuits, the addi­ tional facilities required to secure satisfac­ tory transmission, the lower volume of traffic over longer routes and the greater operating labor due to the higher percentage of switched traffic. The costs per mile, however, do not vary directly with distance, since terminal costs become relatively less important in the total cost of any particular call. Consequent­ ly, toll charges increase with distance, but at a decreasing rate.54 While these comments are applicable as well to the Soviet long distance network, the crux of the Soviet argument is that the rate of change of the average cost of a toll call does not diminish as rapidly as is the case in the U.S. But without further cost information, it would be presumptuous to go beyond the generalizations outlined above. 2 Zk Another factor that w ill certainly influence price (monetary valuation) determination, if not rate policy, is the effort to improve the quality of toll telephony. Any increase in the extent of direct distance dialing in the USSR is expected to be a costly (but justifiable) venture. But even direct distance dialing capabilities presently in ' existence are not comparable to those which exist in the U.S. For example, automatic (telephone) number determina­ tion (AON) is still in the experimental stage in the USSR, that is, very few Soviet subscribers, belonging to a neg­ ligible number of city exchanges, can dial long distance directly without also dialing their own numbers. Connec­ tion requires the dialing of 17 to 20 digits. The consen­ sus among Soviet contnunications economists is that the cost of quality improvements, such as the implementation of AON, should be borne by subscribers through higher to ll rates. Also, the tradition of establishing trunk call of­ fices from which to ll calls must be ordered has had the ef­ fect of imposing the cost of getting to the telephone office on the would-be user, instead of the cost (of subscriber lines) being charged to the telephone system, as in the case of a call ordered from an apartment telephone. As the num­ ber of apartment telephones and direct distance dialing capabilities increase, costs and benefits are reallocated— a further justification for toll rate hikes. 225

Since the late 1950's, conventional user toll opera­ tions taken separately have been only marginally profitable or, more recently, unprofitable* Yet the long distance net­ work in toto has consistently achieved profitability rates of upwards of 20 percent annually (with respect to rate rev- 56 enues). Just as the excess • revenues from parcels and money orders more than cover losses elsewhere in the postal sector, so too are revenues from subsidiary services, espec­ ially the leasing of to ll telephone channels, responsible -for the relatively large profits earned in the long distance telephone branch. Payments for the leasing of telephone channels to organizations, enterprises and institutions, many of which belong to the network of departmental use, are based on the to ll rates in Table 21 and on the assumption of maximum use of telephone channels. Suppose a telephone channel is leased up to a distance of 1000 kilometers. The per-minute rate for a call at that distance is 25 kopeks. If the or­ ganization leasing the line desires around-the-clock use, its yearly payment w ill amount to 131,400 rubles (25 kopeks times 525,600 minutes per year). Host organizations lease telephone channels only during working hours, but they are charged the full rate per hour. 57 Since some (unknown) number of organizations leases telephone lines, we can only assume that a) the opportunity cost to the lessee of alternative means of coitmunication— 226 facing queues at trunk call offices, relying on the postal service for the transmission of information, etc.—is extreme­ ly high, and b) organizations place a high value of service on the leased line. Price discrimination obviously exists insofar as lease rates fail to reflect costs and leased-line users subsidize conventional to ll users. Should market clear­ ing prices prevail, many more Soviet institutions would be leasing telephone channels. As it is, the overwhelming majority of institutions have been priced out of the market. Why are leasing arrangements discriminatory? Though "long distance channels vary in terms of capacity utiliza­ tion, none is used 100 percent of the time. The coefficient of utilization for many long distance telephone channels is, 58 on the average, 20 to 25 percent. A telephone channel has competing uses—ordinary toll calls, restricted lease use, data transmission, etc. If a channel is leased, toll calls that might have occupied one-third of the channel's operating time must be diverted to another channel on the same route or to alternative routes. Yet lessees are charged for full time use, even though they, too, may keep the channel tied up only a fraction of the time. If we assumed that the to ll rate structure was strictly cost-based and that Soviet rate policy was designed to cover cost (average or marginal), then leased rates would be a function of average or marginal use of tele­ phone channels. 227

In fact, the "perfecting" of communication rates—the latest rate reform proposals—involves a recognition of this approach. In Srapionov's view, payments for leased channels should more closely approximate actual use rather than assumed full use. It is clearly inplied in this view that the charge for a leased line should represent its highest valued alter­ native use, or the opportunity cost to society of leasing telephone channels. To this end, use coefficients have been suggested as proximate measures of peak and off-peak loads. Consider again the above example and the following coefficients: a) for 24 hour use - .3; i.e ., the leased payment would be 30 percent of the amount of a fu ll 24 hour charge over a year's time—131,400 rubles times .3 ** 39,420 rubles; b) for, say, 3 hour daily use during peak hours - .8; i.e ., the lease payment would be 80 percent of the amount charged for 100 percent use of the channel for 3 hours (25 kopeks ■ 180 minutes • 365 days • .8 * 13,140 rubles); c) for 3 hour daily use during off-peak* hours - .1; i.e ., 25 • 180 • 365 • .1 » 1,633 rubles.^ The actual coefficients must be determined by the Min­ istry of Consnunications. Similar coefficient rate-making has been suggested for the leasing of telegraph channels. At present rate payments for both telephone and telegraph leased lines are determined on the basis of full utilization. 2 2 8 How rate revenues from leased channels would be affec­ ted by the proposed rate reform would naturally depend upon the degree of elasticity. The expectation, however, is that the long distance telephone branch could no longer rely upon revenues from leased lines to fully condensate the telephone system for potential losses on conventional user tolls and s till provide the branch with‘normative profits. This is one of the reasons why it has been argued that to ll rates (up to a distance of 50 kilometers) be increased by 1.5 to 3 tim e s . The present zone structure of to ll rates has been severely criticized. About 35 different rates apply to the 3 percent of calls connected beyond 2000 kilometers. To sim­ plify accounting procedures, at least 6 but no more than 10 rate zones have been proposed, along with the elimination of the up to 25 kilometer zone and the eventual phasing out of marginal to lls beyond 2000 kilometers. The convergence of short and longhaul rates in the U.S.—as distance becomes a less imposing cost factor—is also expected to take place in the Soviet to ll structure, but only very gradually. Because of the constancy of to ll rates (and the stabil­ ity of consumer prices) in the postwar period, we did not include a nominal rate (or real rate) variable in the estima­ tion of demand equations. Also, it has been shown that M[u]nlike consumer durables, consumption of services such as comnunications has a strong element of habit formation. This 229 influence seems quite independent of current income and rela­ tive prices.m60 This suggests that the explanatory value of the regressions might have been improved with the inclusion of a lagged output variable (last period's volume of to ll calls). Since the objective was simply to observe how closely related were various measures of national and personal income with to ll telephone output, no lagged variables were included. The result from one of the simple regressions—and closely approximated when other income variables were used—is as follows (t values in parentheses):

Log(TelCall) « -5.2240 + 1.0957 Log(PCRDY) (3.1957) (20.1274) where TelCall = the annual number of Soviet long-distance tele phone calls, 1955-1964

PCRDY *> Soviet per capita real disposable income^ SE « .0268 R2 * .982 DW - 1.341

The statistical quality of the equation is good with a tight fit and the apparent absence of autocorrelation in the residuals (as is suggested by the Durbin-Watson statistic 62 of 1.341). The result suggests that the Soviet demand for long distance telephone communications is slightly elastic; a 10 percent increase in per capita real disposable income (or in real GNP) is associated with a 10.9 percent rise in the volume of toll calls. 230 Finally, proponents of increased tolls for long dis­ tance service could presumably strengthen their case if they were to show that the likely consequence of their proposals would be to increase toll revenues. The official view, of course, has been that to ll rates must be maintained at low levels, despite higher costs, in order to provide the Soviet populace and economic sectors 'with a continued low cost means of long distance conrounications. Unofficially, Soviet plan­ n ers may fe a r th a t th e demand fo r th e se r v ic e i s p r ic e e l a s - 6 3 tic. Because the data do not lend themselves to an empir­ ic a l investigation of price effects, we have adduced no defin­ i t i v e co n clu sio n s about demand e l a s t ic it y * I t seems s e n s ib le to surmise,however, that because of the important element of habit formation, the lack of truly comparable substitutes and the fact that higher rates would s till represent an insignif­ icant portion of the Soviet consumer's budget, actual and potential users of to ll telephone conmunications would be relatively unresponsive to the new higher rates proposed. 2. City Telephone Rates The variation in Soviet city telephone rates is solely a function of differences in user groups. The first category includes telephones belonging to individuals (apartments); the monthly charge for city service is two rubles fifty kopeks. Party lines cost users two rubles per month. The monthly rate for telephone use by administrative organs, production and trade enterprises is four rubles seventeen kopeks. Higher 23 1 business rates reflect the greater "value of service" derived by business users, their higher calling rates and the larger percentage of business calls placed during peak operating hours.*** Flat rate charges for local telephone service have not always been the rule in the USSR. When the first automatic telephone station was opened at Rostov-on-Don in 1929, the Soviets experimented with message or per call rates so as to 6S reduce profligate use of the scarce capacity. But because only a fraction of city telephones were located in the apart- 'ment sector and business users were largely unresponsive to the rate changes, the introduction of message rates did not have the intended effect. Moreover, there were positive reasons for adopting flat rates, especially the desire to avoid increased metering and accounting costs that message rates would entail. Since the mid-1930's, the nature of rate policy in local telephone comnunications has not been called into question. Though the current rates cover telephone use within « each urban network, a sim ilar additional flat rate charge has been levied on subscribers, living in other cities within an oblast, who make calls to the oblast center. For example, since 1962, a portion of the subscribers of the telephone ex­ change in Podol'sk, a town located about 60 kilometers south of Moscow, has been directly connected to the Moscow network. Formerly, Podol'sk-Moscow calls were long distance calls at 2 3 2 the corresponding toll rates. At present, Podol*sk subscrib­ ers pay a flat rate in addition to those listed above for the service of direct connection with Mosbcw. The extra charge is intended to compensate for the consequent reduction in the revenues of the long distance telephone branch.6^ A further indication of the gravitational pull of the cities is the telephone traffic flow from the raion centers to the oblast centers, which appears to be almost exclusively uni-directional, in some cases, approaching 95 percent of the entire intra-oblast volume. The long range effort is toward a restructuring of the oblast telephone networks into individual, self-contained systems which would function much as city networks do today. By bringing outlying cities and raion centers within the range of the oblast center, to ll calls would be confined to inter-oblast lines. • Intra-oblast calls, formerly bearing to ll rates, would then carry supple­ mentary subscription charges as in the Podol'sk-Moscow exam ple. One objective of this effort is to obviate the need for long distance rate-making and recording equipment within the oblast. No less important is the reduction in switching equipment at end offices of the to ll telephone network as raion centers' and other citie s' exchanges are connected directly to the oblast center exchange. Any reduction in the number of end offices, however, w ill lead to an increase in capital outlays as connecting lines are diverted from end 233 offices and extended to central exchanges or their sub-sta­ tions. Thus, expanding the radii of oblast center exchanges within which flat rate subscriber charges are applied w ill be a very gradual process at best. 67 While city telephone rates have been virtually imper­ vious to change, monetary valuations on the assortment of city telephone services have been periodically readjusted in light of cost studies carried out every four or five years. Some Soviet economists stress the need to differentiate both prices and rates on the basis of the method of connection— manual or automatic—thereby giving appropriate weight to 6 8 the quality and speed of transmission. Likewise, others have suggested price (and rate) differentiation relative to the capacity of the network. 69 They argue that the larger the network capacity, the greater the value of service ren­ dered to communications users. In practice, at least inso­ far as rate making and price determination apply to the out­ put of Soviet city telephone networks, beyond the basic sub­ scriber charges, the value-of-service concept has given way to the cost-of-service. A strict interpretation and application of cost-of- service principles would result in a farrago of rates through out the USSR, since no two local telephone exchanges are equally productive, use exactly the same equipment, face the same costs, etc. The principal determinant of Soviet city telephone rate-making is branch cost-of-service—uniform. 234 country-wide rates set so as to cover total branch costs and, theoretically, to recover a profit that conforms to branch norms. The difference between business and residential rates is, however, justified on both value-of-service and cost-of- service principles.70 Garfield and Lovejoy, among others, have pointed out that city telephone networks, unlike other public u tilities in the U.S., show an apparent tendency toward "increasing costs." As the size of the city network increases, so too do average costs. The reasons for this circumstance are many and varied, and to mention but a few, include the facts that a) urban telephone operation is more expensive than rural be­ cause of higher wage, tax and rent requirements, b) the addi­ tion of a marginal subscriber to the network necessitates multiple connections with existing subscribers to the exchange which in turn requires additional and more complicated switch­ ing equipment, and c) average investment and maintenance costs increase with network size because the capacity is used more intensively, i.e ., average use per telephone increases. 71 In the USSR, research has neither confirmed nor denied the existence of increasing costs in city telephone operations. An analysis of the correlation between average cost and capac­ ity in 48 city exchanges is illustrated in Table 22. The Garfield-Lovejoy scenario may w ell describe general cost behavior in Soviet telephone networks, but the relatively low average cost in networks with the largest capacities con­ tradicts expectations. How is this anomaly explained? In 235 Table 22

The Relationship between Average Cost and Network Capacity in Soviet City telephone Systems, 1968

Average Capacity of City Telephone Average Coat per 100 rubles Networks (in teleohone numbers) of outcut (in rubles) 8,600 74 17,000 69 30,000 80 65.000 ,65 ...... Source: Srapionov, op c it., 1972, p. 62. The sane conclusions are drawn from a similar study of approximately one-fourth of Soviet oity networks in Lugovskoi, op cit., 1970, p. 40. 2 3 6 the first place, the largest city networks tend to employ the most advanced switching equipment requiring the smallest amounts of labor. Conceivably, lower wage costs can outweigh the influence of the more expensive equipment. Secondly, fixed costs of plant and equipment are spread over a greater volume of output as the larger networks more fully utilize 72 existing capacity. Finally, the larger networks whose capital requirements are higher benefit from the lack of a market-determined cost of capital—a factor that would ad­ versely affect the cost structure of the major city telephone ■^systems. In any case, evidence of this kind (Table 22), plus the sheer complexity and inefficiency of applying differen­ tiated prices and rates, provide the rationale for the adop­ tion of uniform prices and rates, irrespective of network c a p a c ity . The city telephone branch has been far from the most successful segment of the communications industry according to Soviet criteria. In 1970, sebestoimost* per 100 rubles of output was higher in this branch than in any other, except for the postal service—a situation that continues a trend found throughout the 1960's. Furthermore, city telephone capital requirements have continued to outpace those of a ll other branches (with the possible exception of the line-cable administration of the to ll telephone network) with the result that the 1970 profitability rate was only 2.2 percent, far below the 11 percent planned norm. From 1960 to 1970, the 237 excess of own incomes over rate revenues grew from 11 to 46 million rubles partly as a result of the fact that the mone­ tary valuation of a city telephone apparatus (upon which the value of output and own incomes are based) exceeded the an- 73 nual subscriber rate. Because of the meager profits gen­ erated in the city telephone branch, Soviet conmunications economists are in favor of increasing both residential.and business subscriber rates. As in other branches, rate reform here would involve some compromise of political and social objectives on the one hand with economic reality on the ' o th e r . 3. Rural Telephone Rates Telephone service in rural areas is offered at rates identical to those for city telephone service. The only dif­ ference is that a distance-based subscription charge is ap­ plied to those city network telephones located outside urban city and town lim its. In this case, the charge is 5 rubles per year for each kilometer or fraction thereof away from the central station or sub-station. In the rural telephone * network, the rate is 3 rubles per kilometer per year for tele- phones outside the boundary of the raion center. 74 L ittle can be added to what has already been said about these "special" rates in the rural network. Though city and rural rates are basically the same, the rural tele­ phone branch covers only a portion of its operating costs because a) the rural network is so widely diffused that the 238 cost of outside plant and cable equipment is inordinately high, b) it has been able to make only a residual claim, after city network needs have been met, to more modern communica­ tions technology, and c) labor is used more intensively—as of January 1, 1971, 8,833 of the total 29,990 telephone sta- tions still required operator-assisted connections. 75 In the mid-1960's, the sebestoimost* of operating one city telephone was estimated at 38 rubles per year, but the sebestoimost1 of operating a rural telephone was 151 rubles per year. In an effort to make the concept of khozraschet -viable end to create a self-sustaining rural telephone brench, it has been suggested that rural rates be increased by 6.4 t im e s . Apparently, the State Coimiittee on Prices has been w illing to approve changes in prices (monetary valuations) of communications services that have been proposed by TsNIIS following its periodic cost studies. User rate changes, however, are not ordinarily initiated by TsNIIS (or its parent, the Ministry of Communications) as this area of pol­ icy has been the exclusive domain of the State Committee on Prices. Thus TSNIIS's published proposals for rate reform represent an unusual break with tradition. An increase in rural rates of the magnitude indicated here is, along with higher postal rates charged to publishers, the most striking recommendation TsNIIS has offered. That policy change would have at least three significant conse- » quences: a) it would give the lie to the long-standing, 239 officia l policy of promoting agricultural development through low communication rates for telephone service; b) existing economic relations and financial arrangements between rural telephone administrations and offices, State and collective farms, rural business and residential users, as well as high­ er financial organs, such as Gosbank, would be considerably modified; and c) it would represent a victory for the cost- conscious economists whose primary concern is that each type of communications service pays its own way.

_ Telegraph Rates Basically three types of services are provided by the telegraph branch of the Soviet communications industry: the transmission of ordinary telegrams; the subscriber telegraph system; and the leasing of long distance telegraph channels. The latter is closely tied in to the toll telephone branch in that leased telegraph messages and toll calls are trans­ mitted over a conrnon cable network, and both extend mainly to the "network of departmental use.M In other words, the Ministry of Communications merely leases (and receives nom­ inal payment for) telephone and telegraph channels to enter­ prises and organizations under the jurisdiction of other m inistries. Ordinary telegram rates depend upon the number of words in the message and its urgency: 3 kopeks per word for an ordinary telegram and 10 kopeks per word for an urgent telegram, plus a 10 kopek handling charge and a minimum 77 charge of 60 kopeks per message. Unlike to ll telephone rates, and in spite of the variability of loads over a 24- hour period, no incentive rates have been established for off peak hours. Distance of transmission does not influence telegram rates, since it is estimated that over four-fifths of sebestoimost1 is accountable to station costs and the remain- ing one-fifth to line costs. 78 But these estimates are the result of separation principles that attribute the bulk of outside plant and equipment to the long distance telephone b ran ch . A flat, monthly rate of 20 rubles is charged to each of the nearly 25,000 Soviet subscriber telegraph installa­ tions. In addition, each telegraph call made up to a dis­ tance of 600 kilometers costs the subscriber eight kopeks; for each call beyond 600 kilometers, the per call charge is twenty four kopeks. 79 Calls placed between 6:00 p.m. and 7:00 a.m. are charged at half the normal rate. As in the toll telephone branch, telegraph channels are allocated to organizations in the production, trade and administrative sectors. Five rate zones have been estab­ lished: up to 100 kilometers; 101-200; 201-600; 601-2000; and beyond 2000 kilometers. When a channel is leased, max­ imum use of the channel—24 hours a day—is assumed (though, of course, never realized) • Thus, the annual amount of the rental charge for a channel length of 500 kilometers is 60 rubles tines 365 days, or 21,900 rubles (where 60 rubles is the daily rate).. TsNIIS has criticized these prohibitively high rates and has suggested that both telephone and tele­ graph leased line rates should be revised to only one-fifth to one-third their present levels. 80 Rates for phototelegrams and facsim ile transmission have remained below sebestoimost1—further evidence of lar­ gess to the press—and these, too, it has been suggested, should be revised upward. What is the likelihood that modem Soviet communica­ tion rate policy, based almost exclusively on decisions reached some twenty-five years ago, w ill be overhauled in a manner consistent with the objectives of the new critics? In 1960, A. A. Vishnevski!, in one of the few published recommendations for rate reform in the postwar period, argued specifically that "the time to lower these rates [on leased telephone and telegraph channels] is right," and in general that "the necessity for a re-examination of separate rates is imminent. These rates were set more than 10 years ago, 81 and they are in need of serious improvement." As we have seen, rate levels and structures are vir­ t u a lly th e same as th ey were in 1948 and 1960, To know what is and what is not "imminent" requires access to the inner chambers of Gosplan. We have no way of knowing whether the arguments of 1972 w ill be any more persuasive than those of 1960 in terms of actually affecting rate policy. But the 242 ongoing economic reforms in the USSR do illustrate a growing respect for formerly alien concepts such as profit, profit­ ability , and even, opportunity costs. Should that trend con­ tinue, it is reasonable to expect that communication rate policy may be altered in such a way that each branch of the industry w ill operate de facto as well as de jure by khozras- chet standards. In that vein, it is appropriate to conclude this chap­ ter with the remarks of 0. S. Srapionov, on whom much of the analysis here has relied. Srapionov is outspoken on the need 'to adhere to the letter of the "law" of the new system of planning and economic incentives: It is perfectly obvious that coranunication rates are and w ill be established at a level that would, above all, conform to the interests of the State. . . . but if those interests are served by • • • certain free and unprofitable coimnunica­ tions services then, in our opinion, the problem of centralized compensation to the comnunications industry for the reduction in rate revenues must also be resolved . . . so as to further strengthen the principles of khozraschet.82

Summary During the frenetic period of War Communism, the Bol­ sheviks, perhaps because of their in itial enthusiasm for im­ mediately realizing "full communism" in Russia, attempted to shift to a moneyless economy. As an adjunct of this policy, postal, telephone and telegraph rates were either drastically reduced or abolished altogether. From 1921 to 1948, the level of user rates was periodically increased, but since 243 then, with few exceptions, communication rates have remained unchanged. The Soviets argue that final charges to users can and should deviate from "value" ( i.e ., the monetary valuation) 1) if political objectives supercede purely economic consid­ erations, 2) to stimulate technological innovation, 3) accord­ ing to the nature and composition of user groups, and 4) to satisfy branch profitability norms. Comnunications econo­ mists, however, have criticised the level and structure of rates in the USSR. They point out that cost differentials -are insufficiently accounted for in rate-making and that khozraschet principles are being abused through explicit and im plicit subsidies to certain groups of users. Their rate reform proposals include: a 5- to 6-fold increase in charges to publishers for the delivery of periodical publications and also in rural telephone rates; rate reductions on leased telephone and telegraph channels to one-fourth their present levels; and considerable changes in the structure of the long distance telephone rate schedule. Similar but unheeded proposals for reform were suggested in 1960, so it is ques­ tionable at best whether planners w ill see fit to acknowledge the current criticism s and overhaul Soviet coimnunication r a t e s . 2 4 4

NOTES - CHAPTER IV

^Maurice Dobb, Soviet Economic Development Since 1917. 1968 , p. 8 8 , 2Ibid., p, 100. ^B.I. Basin, TalantlIvy1 organlzator sotslallstioh- eskol svlazl: V.N. Pod'belskll. 1962. pp. 8 9 . 4 I b ld . . p. 89. ^Ekonomlka svlazl. no. 4, 1929* p. 45 . ^N.N. Luzhnetskil and B.S. Belikov, Moskovskala gorod- skala te le fo n a la s e t '. 1947, p. 47. Cf. a lso Ekonomlka svlazl. nos. 1-2. 1930. p. 30. ?A.A. Vlshnevskll, Tarlfy svlazl 1 osnovy tarlfnol polltlkl v khozlalstve svlazl. 1960. p. 12. 2Sbornlk tarlfov na vnutrennle poohtovye otpravlenlla 1 za osobye uslugl. okazyvaemye poohtol. p a r t 1 (192&J. See also'the same Sbomlk tarlfov for 1929. ^Vlshnevskll, op c lt.. i 9 6 0 , p. 14. 10Ib ld . . p. 47. U Ibld.. p . 16. ^^Information obtained In discussions with O.S. Srap­ ionov and I. A. Fodgorodetskll... *^Cf. Manley Irwin, "The Communications Industry," he Structure of American Industry. Walter Adams, ed,, ?971, p. 403. Also Charles F. Phillips, The Economlos of Regulation. 1969. P. 159. l^I.A. Podgorodetskii, et a l., Ekonomlka svlazl. 1967, p. 282.

*5 v .N. Pod'belskll, Poohta. telegraf 1 telefon v svlazl s sotslallstlchesklm stroltel*stvom. 1919. p. 33.

i a . Dobychina, Organlzatsi l a poohtovol svlazl. 1971. P . 10. ^Testimony James W. Hargrove In Postal Rates and Revenue and Cost Analysis. House Sub-Committee on Postal R a te s, U.S. Congress, April 15* 1970, p . 11. 245 l®H ill's research is described in Horton Baratz's The Eoonomlos of the Postal Service. 1962, pp. 14-15 and 83. ^P. 10. Kruplanskll, et a l.. Organ lzat si la 1 planl- rovanle noohtovol svlazl. 1 9 7 1 , p . 4 l .

2 0 Baratz, op c l t . . 1962, p . 8 7 .

21I b id . . p . 6 9 . 22In response to a question concerning the types of mail handled during off-peak hours, officials at Moscow's newest and the Soviet Union's largest postal sorting complex at the. Kazanski1 Railroad Terminal expressed the view that, to borrow a well-known phrase, a ll postal matter is treated equally in processing, but the periodical press is "first among equals." These officials were nonplused at the thought that some mall should be purposely deferred, i .e ., accord ed second-class treatment. Yet their admission that newspapers and magazines--which account for about two-thirds of a ll Soviet mall by volume--receive higher priority in postal prooesslng suggests that, given scarce postal resources, all other matter is- second-class.

2 3Baratz, op c l t . . 1962, p. 15. 2^Spravochnlk ob uslugakh svlazl. 1967* p. 25. 2 5curiously enough, the same prices (monetary valua­ tions) have been set for outgoing, in-transit and incoming letters and printed matter. O.S. Srapionov, Voprosy ekonoml- kl svlazl v uslovllakh novol slstemy khozlalstvovanlla. 1 9 7 2 7 p. 61. Since the per unit cost of handling is undoubtedly greater for printed matter, we would expect the price to re- fleot that higher cost. Evidently, prices, like rates, are not solely cost-determined. 2^TsUNKhU, S o t s l a lls t lc h e s k o e s t r o l t e l ' s t v o SSSR. 1 934, p . 2 9 2 . 2 ?N.G. Bogdanov and B.A. Viazemskil, Spravoohnlk zhurnallsta. 1 9 7 1 . p. 5 5 7 . 2®Mark Hopkins, Mass Media in the Soviet Uhlon. 1970, pp. 135-136. ^Bogdanov, op c l t . . 1971. P. 562. 3°ibld.. p. 5 6 2 .

^IvishnevskH, op c l t . . i 9 6 0 , p. 21. Figures in pre- 1 96 1 r u b le s . 246 3^0.S. Srapionov and S.R. Esikov, Sebestoimost* produktsll v khogialstve svlazl. 1962, p. lb.

33srapionov, o p c l t . . 1972, p. 228. Presently, the intra-branch subsidy necessary to compensate the costs of handling and transporting publications is derived from the excess revenue earned on ordinary letters, money orders and parcels. The ratio of the average user rate to sebestoimost* (In kopeks) is 4 .It2 . 2 , 6 6 .4s30.9, and 135*10? for letters, money orders and parcels, respectively. See O.S. Srapionov, Ekonomlka 1 planlrovanle svlazl. 1968, p. 159. 3**The Impact of Postal Rate Increases. U.S. P ost Of­ fice Department, Washington, D.C., U.S. Government Printing Office, I960, pp. 2-12 to 2-20. 3 5 in fact, by 1962, practically a ll communications enterprises and administrations were directly accountable for their costs and revenues for they had been shifted to the khozraschet system. But the postal sector is somewhat unique in that an enterprise, because of its varied outputs, oan recoup sizeable losses in a particular area of its oper­ a tio n s (e.g., periodical mail) through revenues generated on other postal matter, and thereby B tlll measure up to the principles of khozraschet as an enterprise.

3^Ekonomlka s v l a z l . 1 9 6 1 , p. 245. Adapted from data in Postal Rates and Revenue and Cost Analysis, op c lt . , 1970* p. 6 2 . 38,Anallz. op o lt . . 1971* p. 34. 39Based on income data reported in Statistical Ab­ stract of the United States. 1969, p. 317; and David Bron­ son, USSR; Personal Disposable Honey Income. I960. 1965. 1960-7?. 1975 Plan. Unpublished manuscript. May 3l. i§72. ^°A similar investigation in the U.S. demonstrated that "onoe account has been taken of the effect on m ail volume of economic conditions..., there is no measurable independent association of first-class volume with th e ab­ solute price." The Impact of Postal Bate Increases, op c l t . . I960, p. A-2. ^Caution, of oourse, must be observed in making sweeping generalizations—or pinpointing coefficients— about income elasticity. What appears to be the effect o f lnoome changes may actually be due to other forces. Income increments may be disproportionately alloted to the purchase of consumer services (e.g ., com m unications), but th e compo­ sition of expenditures in real terms between commodities and services can remain constant if prices in the service sector are rising or productivity is falling relative to the 2 ^ 7 commodity sector. Our analysis makes no allowance for these possibilities. ^compare rate structures in Spravochnlk ob uslugakh svlazl. 1967, op c l t . . p, 39 and Spravoohnlk nachal'nlka otdeienlla svlazl. 1970, op clt.. p. 43. ^Srapionov, op clt.. 1962, p. 16k. ^Podgorodetskll, op c l t .. 1 9 6 ? , P. 282. ^Srapionov, op clt. , 1962, p. 166. ^ Spravochnlk. op clt. . 1967, p. 138. ^?M.G. Kozlov, Ekonomlka svlazl. 1971. P* 118. ^®O.S. Srapionov, Tar If y na uslugl svlazl. 1965* P* H« ^M urray Feshbach and Stephan Rapawy, "Labor and Wages," Eoonomlo Performance and th e M ilitary Burden In the Soviet Union. Washington. D.C.i U.S. Government Printing Office. 3.970, p. 82. ^°Srapionov, op c lt. . 1972 , p. 231. ^Charles Sllberman, quoted In Ronald F. Abler's The Geography of Intercommunications Systems, op c l t . . 1 9 6 8 , P. 91. Cf a lso Irwin, o p c lt.. 1971. P. 306. ^L.M. Soloveiohlk, Sebestoimost1 produktsll v khoz- lalstve svlazl 1 putl elo snlzhenlla. 1958. p. hi. Sim ilar results are found In Srapionov. op c l t . . 1962 , p . 160. 53-rhe Initial outlays lnourred In replacing manual swltohing equipment will no doubt be substantial, but TsNIIS estimates Indicate that If the sebestoimost' of a toll call switched manually via operators at both ends -is taken to be 100, then the sebestoimost' of a call transmitted either seml-automatlcally through an operator In the city where the call originates or automatically (dlreotly) is roughly 70 and 62, respectively. Srapionov, o p c l t . . 1971* P« 29. 5^phillips, op c l t . . 1 9 6 9 , P. 3 6 1 . 55ihe case for recognizing quality differences In oost and output Is most forcefully presented in I.A. Podgor- odetskii, Novala slstema planlrovanlla 1 ekonomloheskogo stlmullrovanlla v khozlalstve svlazl. 19&9. p p . 2*1—49. Tn the long distance telephone network, for example, Podgorod- etskli argues that the value of output should Include a weighted average of the to ll calls transmitted over the various types of telephone equipment and offers a list of 2 4 8 coefficients to achieve that end. The coefficients are de­ rived from an assessment of such criteria as speed of trans­ mission, audibility of calls, proportion of cable damages, etc. Simply counting calls, he contends, reflects neither the value of output nor the cost of produoing that output. ^ Anallz. op clt. . 1971, P. 11.

-^Srapionov, o p c l t . , 1 9 6 5 . P. 5 .

->®Srapionov, o p c l t . . 1 968 , p. 71. ^Srapionov, op olt. r 1972, p. 231. ^°B.E. Davis, et a l., "An Econometric Planning Model fo r American Telephone & Telegraph Company," The Bell Jour- a l of Eoonomlcs and Management Science. Spring 1973, P. 36. ^TelCall data ore taken from TsSU, Transport 1 svlaz* SSSR. 1972, p. 274; PCRDT is derived from estimates by David Bronson and Barbara Severin, "Recent Trends in Con­ sumption and Disposable Money Income In the USSR," New Dir­ ections in the Soviet Economy. Washington, D.C.: U.S. Gov- emment Printing Office, i9 6 0 , p. 5 26. Technically, the dependent variable should be a weighted average—by duration and d i 8 tance»of the annual volume of toll calls, but the data were insufficient to allow the derivation of such a s e rie s . 62 When gross national produot is employed as the in­ dependent variable, we have: Log (TelCall) = -.1318 + 1.0928 Log (RGNP) (.3123) (39.8075) SE « .0137 R2 « .995 DW - 1.695 where RGNP is an index of real Soviet gross national produot based on Bergson-Cohn estim ates and quoted in Holland Hunt­ er, Soviet Transport Experience: Its Lessons for Other Coun­ t r i e s . 1 9 6 8 . p . 3 6 . ^Several studies In other oountries have found elas­ t i c i t i e s g re a te r than u n ity in the demand fo r t o l l serv ice. Cf. Rlohard Gabel, Development of Separations Principles In the Telephone Industry. 1 9 6 7 . quoted in Irwin, o p clt.. 1971. p. 390 and A. Rodney Dobell, et a l., "Telephone communications in Canada; demand, production, and investment decisions," The B ell Journal of Economics and Management Solence. Spring 1972, pp. 185 , 18b and 190. ^ G .Z . Maksimov and A.P. Psheniohnlkov, Telefonnala nagruzka mestnvkh setel svlazl. I 9 6 9 , pp. 1 6 , 36 and 3 2 . 249 ^B ol1shale sovetskala entslklopedlla. 1956* vol. 42, p. 1?2. See also Ekonomlka svlazl. nos.. 1-2. 1930, p. 60.

^Srapionov, o p o l t . . 1 9 6 5 , p . 7 . ^information provided In discussions with the head of the Central Long Distance Telephone Office in Moscow. ^8p.P. Lugovskoi, Ekonomloheskala effektlvnoat1 ls- poUzovanlla osnovnykh fondov gorodsklkh telefonnykh setel. 1970, p. 20. ^Thls position Is described, but rejected, by Srapionov, o p o l t . , 1972, p. 60. 7°Thls contrasts with the U.S. system where "[tlhe design of telephone rate schedules is determined almost en­ tirely by value-of-service considerations.. . .there has been next to no Interest shown by either regulatory commissions or telephone companies in basing the rates for different classes of telephone service, or the rate differentials among them, on the results of cost analyses." Paul J. Gar­ field and Wallace P. Lovejoy, Public Utility Economics. 1964, p. 195. 71Ibld. . pp. 199-200.

72Lugovskol, o p clt.. 1970, p. 40. 7^Analiz, op pit. . 1 9 7 1 , p assim .

7^Spravochnlk. o p olt. . 1970, pp. 52-53.

75tsSU, Tr. 1 sv laz1. o p c l t . . 1972, p. 285 .

7^Podgorodetskii, o p c lt. . 1967* p. 281; Srapionov, o p c l t . . 1972, p. 228.

77Spravoohnlk. o p c l t . . 1970, p. 50.

7®vishnevskii, o p o l t . . i 9 6 0 , p. 22.

7^Spravoohnlk. o p c l t . . 1967* p. 129, N.M. Gubin and B.V. Bronner, Organlzatsila 1 planirovanie telegrafnol svla- 21. 1971. P. 8b. fin °uSrapionov, o p olt. . 1972, p. 228. ®*Vishnevskii, op c lt. . i 9 6 0 , pp. 25 and 31. 82 Srapionov, o p o l t . . 1968 , p. 166. CHAPTER V

POSTWAR GROWTH IN THE SOVIET COMMUNICATIONS INDUSTRy

Introduction Western economists have expended a great deal of ef­ fort in investigating the pattern of Soviet economic growth since 1950. The main thrust of these efforts has been to sort out the causes behind the early rapid growth rates that were the envy of some capitalist countries and the so-

« called retardation that-set in during the late fifties and early sixties. Basically, the issue was whether the Soviets had benefited from a massive infusion of capital and labor inputs on the one hand, or from some vaguely specified residual element (technological change/factor productivity) on the other. Until recently, some type of Cobb-Douglas formulation has served as the primary explanatory tool along with Solow-Kendrick-Denison estimates of disembodied techni­ cal change. (The nature of Soviet capital stock data does not readily lend itself to the use of vintage models.) The answers generated by the application of these techniques have pointed to strongly rising capital-output ratios, gross inefficiency in the use of capital and, for whatever reasons, declines in the rate of growth of the residual.

25 0 251 Xn 1970, Martin Weitzman provided an alternative ex­ planation of Soviet postwar growth.1* Estimating a non-linear CES production function for Soviet industry from 1950 to 1969, Weitzman found that with a (statistically significant) elasticity of substitution less than unity, "the condition g^ > g^ [annual growth rates of capital and labor respec­ tively] would imply that [labor's share] would increase over time, and (capital's share] would decline . . . [the result being] that g^ [growth rate of output] would tend to decline over time due to the increasingly heavy weight of the slower g^." This approach places the major burden of responsibility for the observed growth slowdown not on the declining residual (as is posited by the Cobb-Douglas func­ tions) but on diminishing returns to capital. Up to now, Cobb-Douglas (C-D) production functions have been applied to official Soviet source data or Western estimates of Soviet GNP, aggregated industry or agricultural 3 output. The CES specification has not yet been extended be­ yond Weitzman's estimates of aggregate industry behavior. Our objective in this chapter is to examine the post­ war growth of a particular sector of the Soviet economy, name­ ly, the communications industry. For this purpose, we employ the conventional total factor productivity approach, the non-linear CES model used by Weitzman and two variants of a nonhoroogeneous, variable elasticity of substitution (VES) production function. To maximize the use of the data that 252 have been made available# we have employed the various models using time series of output, capital and manhour variables for the entire industry and on branch cross-section data by republic. The strengths and weaknesses of the production models and the implications of the regression results are discussed below. The.annual growth rates of output (see Table 27) dem­ onstrate that the communications industry does not serve as a microcosm of the Soviet economy; that is, the much-heralded deceleration in Soviet growth is not reflected in this small "subset of the economy. While growth rates began to tail off in the USSR after 1958, the communications industry—if, as is assumed, we can take the ruble series as a fairly reliable measure of communications activity—began to accelerate. Part of this behavior is necessarily explained by the fact that the industry is achieving larger growth rates owing to its minuscule early postwar base. Naturally, a look at the changing importance of the various branches w ill provide some additional insights on the question of the industry's development, but the belated growth of convnunications has yet to make the industry anything more than a fractional contributor—at least in-visible terms—to total Soviet out­ p u t.

Communications and Economic Growth Before turning to the empirical analysis, it may be useful to comment briefly on the larger question of the role 253 of communications in economic development* Few economists have speculated about the relationship between communications and growth most likely because of the im possibility of quan­ tifying, either individually or collectively, such diverse phenomena as information flows via word-of-mouth, the mails, the telephone and radio and television. Yet one of the basic premises upon which microeconomic theory rests is that re­ source substitutability and mobility vary directly with the flow of information and the stock of knowledge. Richard Meier has argued that there is indeed a defin- _able growth relationship between communications and the over­ a ll economy. According to Meier, "there seems to be no way in which growth can be promoted that does not involve a prior acceleration of communications. . . . The overall increase [in inflow] formation three to ten years preceding the re­ corded expansion of income must have been comparable to the increment of growth later experienced by the economy. This deduction may be restated in a more positive form. Increases in the flow of information may serve as a predictor of econ­ omic growth."^ Though the argument is rooted in the American experience, there is little doubt that the author intended his -thesis to apply universally. But the term "communica­ tions" has a variety of meanings, and it is important to understand what Meier and others intend to convey by the use of the term before setting Meier's theory in the context of the postwar Soviet economy. 2$k In the first place, sociologists generally view com­ munications as a multi-dimensional process that occurs at (in) separate and distinct levels (sectors). Information is init­ iated and used differently, for example, by "traditional elites" from that used by "modernizing elites," not only be­ tween countries, but within the same country. Likewise, both mass and intercommunications may be the major modi operandi at the urban (elite) level, while personal contact (word-of- mouth) remains the modus vivendi at the village level. Secondly, the conventional definition of comiminica- "tions accounts for letter correspondence, telegrams, telephone calls, newspapers and magazines, radio and television broad­ casts, etc., but information is also being transmitted in the educational process and through books, art, film , music as well as advertising, public relations, conrputers, and by word o f mouth. Finally, some messages, usually transmitted between national leaders, executives of firms and planners, are more important (have a greater economic effect) than others. Iso- lating the "high-powered" messages, however, would obviously involve no small degree of value judgment. Communications then can be defined as broadly or as narrowly, as precisely or as vaguely as suits the purpose at hand. Though he does not set out a rigorous definition, Meier discusses symbols, terms, concepts, transactions and channels in such a way that the broadcast interpretation of communica­ tions is implied. If this is true, his hypothesis is a weaker one (less subject to disconfirmation) than would be the case if communications had been restricted to one or a few m edia. Does coitmunications growth lead Soviet economic growth by three to ten years? If communications refers to the transmission of industrial, agricultural, governmental and economic information between those who are in a position to effect change, Meier's hypothesis may be confirmed. Fur­ ther, if comnunication is thought of as any type of msssage sent through any kind of channel, the behavior of the econ­ omy may well be consistent with the view that information is a predictor of growth, though it would be most difficult to pinpoint the causal relationship.

As Holland Hunter has shown , 5 the industrialization drive of the 1930's occurred without massive investment in the transport sector. With the significant exception of the distribution of the periodical press, the same general conclusion holds for the communications industry, as is discussed in the historical review of Chapter I. Planners in developing countries often give top priority to large- scale investment in transportation systems, but coirmunica- tions is usually a residual claimant for scarce investment funds, because the effects of transmitting information are not immediately apparent. If Meier's view is correct, this policy of neglect is ill-conceived. Where specific channels of communications are established through which messages of 256 national economic importance (planning, production and supply information) can flow, output growth may be sustainable. With a communications network incapable of effectively processing the information input, the economy can hardly achieve its fu ll production potential as resource bottlenecks are of necessity g magnified. In essence, communications development is a neces­ sary—but not a sufficient—condition for economic growth. Meier's argument reduces to the following: economic growth is a function of communications growth. For the kinds of high-level information flows mentioned above, that prop­ osition can hardly be refuted, since it comes close to a . 7 tautology. But, in the Soviet case, if we take as our in­ dependent variable the combined activities of the seven branches of the conmunications industry and further assume that its growth is reasonably accounted for by the ruble out­ put series or by the change in total rate revenues, we find no evidence that comnunications is a leading indicator in the USSR over the 1950-1971 period. Unlike the growth pat­ tern for the economy, the communications industry and its branches (excluding rural telephone networks, radiofication and radio and television) have experienced higher average annual rates of growth in the 1960's than in the 1950 *s (Table 23).8 4 Despite its classification (with transportation) as a special branch of material production, this industry ap­ pears to be developing along lines similar to those of the 257

Table 23 Sources of Average Annual Connunlcatlona Growth : USSR. 1 1950-1960 Communications Man- Fixed LA Sol. 2 Col. 3 Cols. Produd Branch )utmit hours Capital Weirrhts x L vfft x K wet 5f6 iv itv 1 2 3 4 5 6 7 8 Comma. Indust. 6.4. 1.8 9 .7 .752/. 248 1.35 2.41 3.76 2*64 Postal Service 4.3 1.0 8.5 •915/.085 •92 .72 1.64 2.66 Long Dist. Tel 7.1 3.4 12.6 • 573/«427 1.95 5.38 7.33 -.2 3 Telegraph 4*4 .0 6.0 .840/. 160 .00 .96 .96. 3.44 LET & Teleg. 5.6 1.7 10.9 .706/.294 1.20 3.20 4.40 1.20 City Telephone 7.7 1.4 10.2 .598/. 402 .64 4.10 4*94 2.76 Rural Teleph. 12.0 5.0 10.6 .671/.329 3.36 3.49 6.85 5-15 Radiofication 9.1 3 .4 8 .7 .656/. 344 2.23 2.99 5.22 3.88 Radio and TV 19-4 3.9 6.9 .363/. 637 1.42 4.40 5.82 13.58 1960-1970 Comms. Indust. 9.3 5.7 11.1 .704/. 296 4*01 3.29 7.30. 2.00 Postal Servico 8.0 6.6 10.1 .902/.098 5-95 .99 6*94' 1.06 Long Dist. Tel 12.5 7.6 12.3 .506/.494 3.85 6.08 9.93 2.57 Telegraph 7.7 2.6 6 .2 .835/.165 2.17 1.02 3.19 4.51 LDT & Teleg. 10.4 5.0 11.2 .631/.369 3.16 4.13 7.29 3.11 City Telephone 11.3 5.2 13.6 .492/. 508 2.56 6.91 9*47. 1.83 Rural Teleph. 10.3 2.3 9 .0 .632/. 368 1 *45 3.31 4.76, 5.54 Radiofication 8.1 4 .4 8 .6 .652/.348 2.87 3.13 6.00. 2.10 Radio and TV 9.7 4.3 9 .7 .352/.648 1.51 6.29 7.80 1.90 1950-1970 Comma. Indust. 7.8 4.0 10.3 .736/.264 2.94 2.72 5.66 2.14 Postal Service 6.1 3.7 9 .3 .914/.086 3.38 .80 4.18 1.92 Long Dist. Tel 9.8 5.5 12.5 .554/.446 3.05 5.58 8.61 1.19 Telegraph 6.0 1.4 6.1 .840/. 160 1.18 .98 2.16, 3.84 LDT & Teleg. 8 .0 2.6 11.1 .677/. 323 1.76 3.59 5.35 2.65 City Telephone 9.5 3.3 11.9 .552/.448 1.82 5.33 7.15 2.35 Rural Teleph. 11.1 3.8 9.8 .651/.349 2.47 3.42 5.89 5.21 Radiofication 8.6 3.9 8 .6 .651/. 349 2.54 3.00 5.54 3.06 Radio and TV 14.4 4.1 8 .3 .354/. 646 1.45 5.36 6.81 7.59 Notes: The ruble output, productive fixed capital and manhour series from v (columns 1, 2 and 3) are derived and the procedures for estimating 1 Table 27* The two sets of input coefficients (columns 4 and 9) are percent imputed cost of ca p ita l, respectively. Given these two d lff 7 and 12 measure the proportion of output growth accounted for fay tfc 13 describe the growth of the residual, or total factor productivity 257

T able 23

1950-1960 LA Col. 2 Col. 3 Cols. Product­ LA Col. 2 Col. 3 Cols. Product­ lights x L vat x K wat 5t6 : iv ity Weights x L w/it ,x K wirt .10M1 iv ity 4 5 6 7 8 9 10 11 12 13 »2/.248 1.35 2.41 3.76 2*64 .655/. 345 1.18 3.35 4.53 1.87 5/.085 .92 .72 1.64 2.66 .873/. 127 .87 1.08 1.95 2.35 3/*427 1.95 5.38 7.33 -.23 .453/. 547 1.54 6.89 8.43 -1.62 JO/. 160 .00 .96 .96 3.44 .772/.228 .00 1.37 1.37 3.03 )6/.294 1.20 3.20 4.40 1.20 .601/.399 1.02 4.35 5.37 .23 ?8/*A02 .84 4.10 4.94 2.76 .478/. 522 .67 5.32 5.99 1.71 M/.329 3-36 3.49 6.85 5-15 • 559/.441 2.80 4.67 7.47 4.53 >6/. 344 2.23 2.99 5.22 3.88 .549/.451 1.87 3.92 5.69 3.41 >3/. 637 1.42 4*40 5.82 13-58 .272/. 728 1.06 5.02 6.03 13.32 1960-1970 M /. 296 4.01 3.29 7.30. 2.00 .597/.403 3.40 4.47 7.87 1.43 02/.098 5.95 .99 6.94 1.06 .854/.146 5.64 1.47 7.11 .89 0 6 /.4 9 4 3.85 6.08 9.93- 2,57 .385/.615 2.93 7.56 10.49 1.81 35/ . 165 2.17 1.02 3.19 4.51 .766/. 234 1.99 1.45 3.44 4.26 31/. 369 3.16 4.13 7.29. 3.11 .516/.484 2.58 5.42 8.00 2.40 92 / . 508 2.56 6.91 9*47. 1.83 .372/.628 1.93 8.54 10.47 .83 32/. 368 1.45 3.31 4.76, 5.54 .515/.485 1.18 4.37 5.55 3.45 52/. 348 2.87 3.13 6.00. 2.10 •545/»455 2.40 3.91 6.31 2.29 52/. 648 1.51 6.29 7.80 1.90 .263/.737 1.13 7.15 8.28 1.42 1950-1970 36/. 264 2.94 2.72 5.66 2.14 .636/.364 2.54 3.79 6.33 1.47 14/. 086 3.38 .80 4.18 1.92 .871/.129 3.22 1.20 4.42 1.68 54/*446 3.05 5.58 8.61 1.19 .433/. 567 2.38 7.09 9.47 .33 40/. 160 1.18 .98 2.16. 3.84 .772/.228 1.08 1.39 2.47 3.53 77/. 323 1.76 3.59 5.35 2.65 .56S/.432 1.48 4.80 6.28 1.72 52/. 448 1.82 5.33 7.15 2.35 .432/. 568 1.43 6.76 8.19 1.31 51/.349 2.47 3.42 5.89- 5.21 .537/.463 2.04 4.54 6.58 4.52 51/. 349 2.54 3.00 5.54- 3.06 .545/.45S 2.13 3.91 6.04 2.56 54/.646 1.45 5.36 6.81 7.59 .264/.736 1.08 6.11 8.29 6.11 xed capital and manhour series I'rom which these average annual growth rates d and the procedures for estimating input coefficients are presented in the t coefficients (columns 4 and*9) ore based on the assumption of an 8 and 15 , respectively* Given these two different sets of factor weights, columns , o f output growth accounted for by the growth in to ta l inputs; columns 8 and e sidual, or total factor productivity* 258 service and light industries as planners revise their pref­ erences for greater sectoral balance. Whether the Soviet Union is becoming more cognizant of what widely dispersed means of coxtmunications can do or whether it is nowr after having achieved mature industrial status, more sensitive to its low ranking in the world scale of comnunications development, it is clear that ‘the communications industry has been a "late-bloomer." And the recent escalation of rhetoric in the pages of the Soviet press concerning the creation of EASS—the unified, automated, national commun­ ications network—cannot hide the fact that EASS means lit ­ tle more than direct distance dialing which is s till 25 years away from being fully realized. The data and the calculations that appear in Table 23 are weak in several respects. The capital series used in this paper is the first detailed breakdown of Soviet com­ munications capital stock to be made available, but there are s till gaps in the series for which data could not be obtained. We have resorted to the assumption of a constant capital growth rate for the missing years. Estimating any capital cost series from Soviet data is difficult because of the absence of a market rate of interest. Two capital cost series have been simulated on the basis of imputed interest rates of 8 and 15 percent. Leonid Kantorovich, the economist laureate of the USSR, has argued that a 15 percent interest charge more truly reflects the real cost of capital. 259 Unless otherwise noted, references to productivity growth relate to columns 9-13 in Table 23, where the capital coef­ ficient is derived from an assumed 15 percent, rather than an 8 percent, capital cost. The derivation of the capital share in communications is open to question also because the amortization charges added to the imputed interest rates are only rough estimates (as explained in notes to Table 26) and are probably biased downward. Industry estim ates of hours worked annually and aver­ age annual earnings are assumed to apply equally to the branches, though differences in actual inter-branch manhours and earnings could alter, if only slightly, the derivation of the input coefficients. The industry and branch employ­ ment data (see Table 30) are derived from official Soviet sources, but employment is a weak surrogate for the labor factor because it fails to reflect changes in the workweek. Thus, we rely exclusively on Rapawy's total manhour estimates in the production function analysis (see Table 27). Having explicitly stated these lim itations, we can now focus atten­ tion on the postwar economic behavior of the Soviet commun­ ications industry and its branches without interjecting provisos at each step of the way. From 1950 to 1970, Soviet communications output grew by 349 percent, while combined capital and manhour inputs increased by 291 percent. To put it another way, less than one-fifth of the annual change in output was accounted for 2 6 0 by improved factor productivity; more than 80 percent of the observed increment in output was due to the influx of capital and labor. Even with an assumed capital charge of 8 percent, only 27 percent of the change in output was explained by productivity gains. This compares unfavorably with Western estimates of productivity increases in Soviet GNP and indus­ trial production, where the relative contributions of inputs and productivity have been found to be approximately equal g from 1950 to 1965. James Noren's 1951-1964 estimates of factor productivity in nine Soviet industrial branches dem- "onstrate that in each case, except petroleum products, and chemicals, the relative importance of productivity in pro­ moting output has been measurably greater than the estimate obtained in this paper for the communications industry. In other words, over the twenty-year period, the growth of output in excess of the growth in physical inputs has been negligible in the Soviet cormmnications industry. Improvements in factor substitution and resource allocation, more highly integrated planning systems, better managerial talent, the introduction of labor- and capital-saving inno­ vations, more efficient use of plant and equipment—or what­ ever else lies behind the residual—have not made any sig­ nificant impact on the industry. Except for the rural telephone system, the input- productivity configuration for each of the branches of inter­ communications resembles the total industry pattern. The 2 6 1 anomalous output, input and productivity growth rates for the long-distance telephone and telegraph branches taken sep­ arately are due to the Soviet separations principles which allocate 80 percent of outside plant and equipment to the telephone network and 20 percent to the telegraph network. When these two branches are combined, input growth is almost identical and productivity growth only slightly higher than is true for the entire industry. Of a ll the branches of intercommunications, rural telephone systems exhibit the most distinctive behavior in productivity growth. The 1950 rural telephone network was responsible for only four percent of total communications output. Compared with the 1,230,000 city telephones under the jurisdiction of the Ministry of Communications, there were less than 180,000 telephones in the countryside (a slight drop from the prewar—1940—level) . More than 99 percent of a ll conversations were handled manually through village switchboards. By every measure of its development, this network appears to have been virtually ignored during the industrialization period, which may, in some small part, account for the low rates of growth in agricultural output from 1928 to 1940. By 1950, 78 percent of Soviet State farms, 22 percent of collective farms and 87 percent of the village Soviets had been "telephonized." Zn most cases, this meant that a single telephone belonged to each organization. (By 1970, nearly all of these organizations could claim at least one telephone.) 2 6 2 The relatively large growth in factor productivity in the rural networks since 1950—accounting for some 40 percent of output growth—has resulted from the belated (and far from complete) application of technology first used in the city telephone exchanges. While almost a ll of the 1950 rural telephone station equipment was battery-generated—either common (central) battery or magneto (local) battery, more than two-thirds of the stations had introduced more sophis­ ticated electromechanical switching apparatuses by 1970, es­ pecially the ATS-54 Strowger-type, step-by-step and the newer 'ATS-K crossbar switching equipment.*®

Earlier Studies of Soviet Trans­ portation and Communications The only other economic study to deal with the Soviet communications industry, and then only.peripherally, was Norman Kaplan's 1964 Rand paper.** His objective was to calculate an output series for transportation and communica­ tions combined. Since much of the data are published in this fashion, his was a reasonable approach. In fact, however, Kaplan's conclusions with respect to the combined sector do 12 not apply pari passu for comnunications taken separately. Subsequent studies of the Soviet branches of the economy have continued to aggregate these two sectors either in the Kaplan manner or by using value added derived from Vladimir 13 Treml's input-output matrices. 263 Had the major variables for a) transport and communica­ tions and b) communications moved in the same direction, this portion of the paper could have been omitted. But in many' casesr conmunications variables have moved in opposite direc­ tions compared with the combined sector, thereby suggesting that transport elements alone would have had to increase (or decrease), if only marginally, by more than was indicated in the Kaplan (and Cohn) analysis of the transport/communica­ tions industry. "If only marginally" is an important qualification, because transport clearly dominates communications in the Kaplan index. The 1955 communications shares of the combined output, capital and labor are 8.9, 5.2 and 10.8 percent, respectively. Regardless of its output growth rate, the com- 4 munications industry exerts little influence on the total output index. Kaplan asserts that "deceleration noted for other seg­ ments of the economy and for the economy as a whole [for 1958- 62 in comparison with either 1950-58 or 1953-58] holds also for transport and communications, for transport, and for 14 railroad transport." Table 23 indicates that the same con­ clusion does not hold for communications alone. The 1958-62 output growth rates are, on average, higher than those for the earlier period. Two considerations are worth mentioning here: a) the 5.5-6.5 percent average annual growth rates in communications from 1950 to 1958 pale in comparison with the 264 11.5 percent average annual growth in transport/concnunica- tions*5 of.the 10-11 percent growth rate in Soviet indus­ try. Other things equal, consistently .high growth in the latter was more difficult to sustain than the relatively slow growth in comnunications during this period; and b) the com­ munications industry was so small in comparison with either transport or, more inportantly, the national economy, that any major resource dislocations or altering of national in­ vestment priorities had only slight repercussions on commun­ ic a t io n s • Kaplan also states that "[e]vidently, the investment burden per additional ruble of output for transport and com­ munications . . . is increasing very rapidly.1’1^ Calcula­ tions (not shown here) using the same benchmark years on the capital and output data assembled in this paper and then compared with Kaplan's incremental capital-output ratios point to the opposite conclusion for the communications in­ d u s tr y . In Table 24, the incremental capital-output ratios (ICOR) for the combined sector (updated by Cohn) and the

ICOR's and in c r e m e n ta l c a p it a l- la b o r r a t io s (ICLR) fo r com­ munications are shown. The high and steadily rising ICOR in the combined sector (excepting the slight decline in 1963-65) contrasts with the fluctuations and level of the communications ICOR. The declines in the 1955-60 and 1965-67 communications ICOR indicate that the marginal productivity of capital in Soviet transportation fell by even more than the Kaplan-Cohn estimates imply. Note, too, that throughout 265 T a b le 2 L Incremental Capital-Output Ratios and Incremental Capital-Labor Ratios:

Period Kaplan-Cohn ICOR for Communications ■ - Communications. Transoort/Communications ICOR ICLR (1) (2) ____ (3) __ 1950-55 2.8 2 .4 4.1 1955-60 3.0 1.7 7.5 1960-63 3 .6 2.2 3.8 1963-65 3 .4 2.4 3.5 1965-67 5.4 1.8 3.6 1967-70 - 1.8

Sources: Column ( 1) - Increase in fixed capital stock per u nit change In value added. Cohn, op cit., 1970, p. 172. Column (2) - (K^ - KQ)/(Yt - YQ), where t is the terminal year and o is the base year. See Table 27 for the capital stock and output series. Column (3) - (K^ - KQ)/(L^ - L0) , where L represents manhours (Table 27). 26 6 the twenty year period, the marginal productivity o£ capital in communications has been higher (the ICOR lower) than in the combined sector. The 1955-60 increase in 'the XCLR is directly attributable to the reduction in the work week which accounted for the absolute decline in manhours in 1956. As Kaplan has pointed out, the ICOR is a descriptive m rather than an explanatory variable. The causes behind its behavior may include the degree of technological change, economies or diseconomies of scale, the efficiency of econ­ omic organization, the sk ills of managers and workers, etc. 'To examine the relationships between the variables, he went beyond the ICOR calculations to construct a factor produc­ tivity index in geometric form. Instead of using value added input estimates (upon which Table 23 relies), he let the distributive capital share, 6, range from 0 to 1 and calculated the 1951-58 and 1958-63 average annual rates of increase in factor productivity for various hypothetical sets of input coefficients. In each case, productivity in the transport/communications sector was higher in the earlier period than in the later period. Since we do not observe any deceleration in communica­ tions output growth between these two sub-periods, we are less interested in the direction of productivity change and more concerned about its size in explaining coirmunications growth. Kaplan's estimates for the combined sector show output gains substantially in excess of increased units of 2 6 ? input for the 1951-58 period. Even in the implausible case of j • l.o , over 40 percent of the average annual growth in transport/communications output is shown to be due to in­ creases in factor productivity. For all other values of 6,

that percentage rises as 6 & 0 • But in the communications industry, gk has outpaced gy over the same time period, so that 6 « 1.0 would leave no room for factor (capital) pro­ ductivity. The total output gain would have been due to the

influx of physical capital. In the relevant 6 range, with the estimated coefficients of Table 23, we conclude that the contribution of factor productivity in explaining out­ put growth has been much smaller—on the order of 30-40 per­ cent—in the communications industry than Kaplan's figures (50-60 percent) for the transport/comnunications sector. From 1960 to 1970, the proportion of output growth due to the

* residual fell to 15-20 percent in comnunications alone.

CES and VES Production Functions of Communications in the USSR In light of the restrictions imposed by the tradition­ al factor productivity and Cobb-Douglas approaches, more sophisticated production functions were employed. In par­ ticular, it seemed advisable to drop the assumption of unitary elasticity of substitution (a * 1). On a priori grounds, we would expect the lumpiness of capital, especially in the electrical branches of comnunications, and the fairly long gestation periods from drafting of plans to start-up times of new capital equipment to impede factor substitution. If this were true, o < 1 would imply "eventual difficulty in in­ creasing output by primarily incrementing one factor . . . relative to the other . • . because diminishing returns set in strongly and rapidly." IB It may be objected that the aggregation of the varie-

» gated components of the communications industry obfuscates the important and not-so-important development of each of the branches. Were the data available, the cake could be sliced in several ways: the postal service, for example, could be isolated to consider the behavior of electrical com­ munications alone; or intercommunications could be neatly divorced from the mass media; or, better yet, the time series behavior of each of the seven branches could be stud­ ied separately. While an attempt has been made to disaggre-

* gate by branch on the basis of cross-republie data, greater confidence in the results would naturally obtain had ex­ tended time series been available. But it should be emphas­ ized that the assumptions underlying the estimation of an aggregate single industry production function are no more heroic nor less defensible than those upon which an aggregate national industry production function rests. Without data on wages and labor productivity that would have permitted linear estimation of the CES function, non-linear regression methods were used to estimate the fol­ lowing model for the Soviet communications industry (1950-1970) 269

(1) Y(t) - YeXt[6 K(t)"p + (1 - i)l(t)"pl “1/p

o where Y » annual Soviet communications output (1965 « 100); K “ index of productive fixed capital in the convnun- incations industry (1965:■ 100); L ■ index of communications manhours worked per year (1965 - 100);

The regression results were as follows (with t values in parentheses):

y “ 1.026 X « .0279 6 « .1639 o ■ .7420 R2 - .9982 (139.389 (3.986) (1.075) (1.402)

Though the efficiency (y) and technology (X) parameters are statistically significant, the estimated coefficients of the distribution (6) and substitution (o) parameters are not significant at the 10 percent level. Thus, our. prior belief

in finding a < 1 is only weakly confirmed by the statistical iq ev id e n c e . The poor statistical performance of this specification led to the rejection of the CES model (though not the possib­ ility that a differed from 1) in favor of two recently devel­ oped nonhomogeneous variable elasticity of substitution (VES) production functions. The major advantage of the VES formu­ lation is that it provides information on input elasticities and productivities, and scale and substitution elasticities for each observation in either time series or cross-section regressions. In addition, the models used here are easily estimated by ordinary least squares methods. 2?0 Equation (2) is referred to as an additive VES func­ tion; equation (3) is a m ultiplicative VES function.

(2) Y * ajK + a2L + a3K(ln L) + a4L(ln K)

(3) InY « aQ + a^ ln K + a2ln L + a^tln K)(In L)

For the Soviet communications industry as a whole, equation (3) provided the best time series results, and they w ill be discussed shortly. Fifty-four regressions were es­ timated on 1960, 1965 and 1970 output, capital and manhour ..data by republics. While most of these cross-republie re­ gressions did not prove fruitful by conventional statistical tests, both (2) and (3) provided a handful of reasonable es­ timates for one or another of the branches for at least one of the three years. The mathematical properties of these two models are developed at length in the original sources. 20 Because we rely in this paper on the results of the multiplicative function, the additive function is not discussed. Only the basic definitions of the elasticities and productivities are spelled out here for equation (3). Equation (3) has an obviously useful property. If the null hypothesis, a3 » 0, cannot be rejected, (3) reduces to the Cobb-Douglas function in log form. This proved to be the case in a large number of the branch cross-section re­ g r e s s io n s . 271 Let represent the marginal elasticity of factor x^:

( 3In Y) _ . _ (ain'x^) i i + 3 xj where i,j - 1,2; 1 j* j; “ capital, x2 = raanhours, and Y = output or revenues. Returns to scale—the percentage change in Y assoc­ iated with a simultaneous small percentage change in x^—are measured by the sum of the marginal elasticities of the factors, i.e .,

e ■- e x + e2 = + a2 + a3ln ( x ^ )

The marginal productivities and the marginal rate of substi­ tution are defined as follows:

MBS12 " x2el /x l c 2

The elasticity of substitution is shown to be equal to

_ El + a2 - al + a2 * a3ln (xlx2> e l + e2+ 2 a 3 °1 + a2 + a 3 *xl x2* +

Since is a function of the changing values of x^, a will vary for each observation, and, unlike the Cobb-Douglas func­ tion with constant e^, marginal elasticities w ill change 272 over the time series. If + e2 < 0 and a^ < 0, then o < 1. The conditions for isoquant convexity, optimal capital-labor ratios and other properties of the model are discussed in the article by H. D. vinod. The Soviet communications industry includes the out­ put (and rate revenues) and capital and labor inputs for each 21 of the seven branches. Let Y *=> rate revenues, “ pro­ ductive fixed capital and x2 * manhours, where each variable is measured in actual values rather than in index form. The fitted production function for 1950 to 1970 (with absolute values of the t-statistics in parentheses) is

In Y « 36.5440 - 3.0851 In x, - 5.0539 In x- + .5579 (3.4073) (2.7954) A (3.2105) z (3.3956) (In xx) (In x2)

S£ - .0289 R2 » .9967 DW » .8798

• The test for serial correlation (DW ** .88) is inconclusive. Otherwise, the statistical quality of the equation is good. Each of the estimated coefficients is significant at the 2 percent level. On the basis of this equation, the supple­ mentary statistics were calculated; the numerical results appear in Table 25. Obviously, the derived parameter estimates in Table 25 are not entirely consistent with economic theory. In par­ ticular, the magnitude of the negative values for the mar­ ginal product and marginal elasticity of labor is especially 23 disturbing. Nevertheless, Table 25 provies some useful Table 25

Marginal Products and E lasticities: Soviet Comnunications Industry. 1950-1970 Marginal Marginal Marginal Marginal Scale Hasticity oi Product of Product o f H a s t, of H a st, of H a s tic ity Substitution lear CaDital Labor CaDital Labor

f 1 f 2 € 2 € 6 1950 •7457 -.7999 .8564 -1.3108 —4544 -.6870 1951 .7564 -.8316 .8667 -1.2564 -.3897 -.5367 1952 .7553 -.8445 .8760 -1.2113 -.3353 -.4296 1953 .7048 -.7874 .8919 -1.1634 -.2715 -.3216 1954 .6907 -.7834 .9043 -1.1073 -.2030 -.222 4 1955 .6503 -.7646 .9168 -1.0236 -.1068 -.1058 1956 .6358 —7844 .9147 -.9750 -.0603 -.0571 1957 .6438 -.8160 .9164 -.9302 -.0138 -.0125 1953 .6300 -.7988 .9324 -.8569 .0755 .0634 1959 .6474 -.8195 .9390 -.8280 .1110 .0905 I960 .6723 -.8277 .9545 -.7996 .1549 .1219 1961 .6565 -.8008 .9675 -.7440 .2235 .1669 1962 .6509 -.7481 .9964 -.6882 .3082 .2164 1963 .6452 -.6962 1.0246 -.6330 .3916 .2593 1964 .6269 -.6209 1.0588 -.5648 .4940 .3069 1965 .6177 -.5421 1.1004 -.490 4 .6100 .3535 1966 .6396 -.4963 1.1384 -.4345 .7039 .3868 1967 .6567 . -.4560 1.1654 -.3763 .7891 .4142 1963 .6780 —4034 1.1976 -.3140 .8836 .4419 1969 .7088 -.3559 1.2361 -.2716 .9645 .4636 1970 .7111 -.2930 1.2611 -.2148 1.0463 .4839

IO U 274 information about Soviet communications behavior in the post­ war period. In 1950, the communications industry was highly labor intensive, and it is only somewhat less so today. Half of the comnunications labor force at the beginning and at the end of the period was comprised of postal workers who com­ manded only 11 to 13 percent of the capital to produce about half of the output and some 40 percent of the rate revenues. Thus, the aggregate data include in effect two sectors—the postal service and the electrical communications branches— whose production processes are quite different. Unfortun­ ately, given the data at hand, there is no reasonable way in which to separate the two for production function estim­ ation. The f^, and o factors shown above reflect the activities of all seven branches. The extent to which the labor input predominated can­ not be overemphasized. Even today, for example, the postal service depends almost exclusively on manual sorting opera­ tions. In the most technologically advanced Soviet post of­ fice, Moscow's new sorting complex near Kazanskii Station, only one of the fifteen semi-automatic MSP-120 sorters (max­ imum capacity - 7,000 letters per hour) was in operation on a typical weekday afternoon in early 1973. N. 0. Psurtsev, the USSR Minister of Communications, reports that, as of January 1, 1971, there were only 90 sorting machines in all of the Soviet Union. 275 The transformation of rural mail carriers into col­ lective farm postmen in the 1930's was undone in the 1960's, At the beginning of 1962, there were 110,140 collective farm postal workers. In 1971, nine years later, the number was reduced to 2,387. During the same period, "postal workers of communications enterprises" grew by 127,400, many of whom had simply changed title s. 25 Labor was sim ilarly important in the telephone net­ works. Only one-third of city telephone subscribers could place local calls without the assistance of a switchboard operator. Dial telephone apparatuses were virtually un­ known in the countryside. The multiplex telegraph system, which was widely used in the U.S. by the 1920's, did not appear in the USSR until the early fifties. Not until August 1957 was the first perforated tape teleprinter introduced at Moscow's Central 26 T elegraph . In the long distance telephone network, toll calls could not be transmitted along subscriber lines but only along connecting lines between two of the some 20 thousand trunk call offices. At present, that situation has been rectified for many city subscribers who can now place toll calls through local operators, but the Soviets have continued to follow a policy of bringing the potential long distance telephone user to the service facility rather than taking the service to the user. The 75 thousand trunk call offices 276 from which inter-city calls can be "ordered" bear witness to th a t f a c t . The state of the Soviet comnunications art in 1950 warrants the view that, though an increment in the labor input would not have actually reduced output (i.e ., revenues) by the magnitude of e2 it is not too far-fetched to assume that a 1 percent increase in manhours did little or nothing to 27 generate additional revenue. A considerable amount of overcrowding of the variable input was evident. Stated other­ wise, the Soviet communications industry appears to have been drastically undercapitalized throughout the past twenty years. In this industry, a certain amount of credence is lent to the informal view that the Soviet economy is characterized by hidden unemployment. In terms of the marginal elasticity of capital, a 1 percent increase in this very scarce resourse could easily have been associated with as large a revenue gain as .86 percent. In value terms, an incremental 1950 ruble of pro­ ductive fixed capital produced approximately 75 kopeks of additional rate revenues. The negative marginal productivity of labor, f2, throughout the period implies that the industry as a whole has been operating in Stage III, the "irrational" region of production. But negative f2 also means absolute declines in revenues which, in fact, we do not observe except for the single case of 1953. Even in Stage III, output (or its 277 surrogate) can be increased—>or its rate of decline can be lessened—by reducing the relative intensity of the exces- 2ft sive factor. The Soviets are moving, albeit very slowly, in this direction as is demonstrated by the slight rise in the comnunications incremental capital-labor ratio (Table 24) • That this trend w ill continue is not at all certain since the projected percentage increases in gross fixed investment in communications for the Ninth Five-Year Plan (1971-75) are meager compared with most other sectors of the economy and industrial branches. According to Soviet "con­ trol figures" for the optimal variant of the Ninth Five Year Plan, however, communications output is projected to grow at 9.5 percent annually; communications capital stock 11.1 percent annually; and workers and employees in the industry on by only 3.3 percent per year. One weakness of the VES function is that it does not explicitly include a technology parameter, c, the scale elasticity, is the sum of the marginal elasticities of the 31 factors and measures the change in output given the com­ bined change in inputs. As such, e approximates the Solow- Kendrick measure of total factor productivity. But how much of the difference between output and input growth is due to mere size and how much is due to technical progress cannot be identified without elaborate engineering data. 32 From T able 2 5 , i t can be seen th a t even w ith non­ negative (but small) values for e2, the Soviet communications industry has experienced decreasing returns or only mildly 2 7 8 increasing returns to scale from 1950 to 1970. z would prob­ ably have been higher had some dramatic technological devel­ opments taken place, such as the wide application of direct distance dialing or the introduction of electronic switching in the long distance telephone network, but Soviet commun­ ications technology has proceeded gradually at best. Assume that a 1 percent increment in manhours had no effect on revenues (e2 ■ 0) and that the residual was strict­ ly due to improvements in factor (capital) productivity, then ■ e, and only in the last few years has factor productiv­ ity approached the estimates for residual growth found in the Table 23 constructions. In general, the multiplicative VES function produces much lower estimates for total factor productivity growth in the communications industry than were generated by the value added approach. This is due mainly to an elasticity of substitution less than unity. If cap­ ita l equipment was particularly scarce relative to labor in 1950, one might have expected impressive gains in the mar­ ginal productivity of capital as communications investment increased. Instead, the trend in f^ is generally downward until the mid-sixties. Why this is so is not entirely clear, but much of the blame for the capital productivity decline can be laid on the low values of o. The elasticity of sub­ stitution is another omnibus variable which imprecisely reflects the combined impact of relatively poor resource mobility, less than fully integrated planning, long 279 construction lags, efficiency in economic organization and a host of other impediments to factor substitution. The recent growth performance of the Soviet communications in­ dustry tentatively demonstrates, however, that these ob­ stacles are less imposing today than they were in the 1950's.

Summary Three topics have been examined in this chapter each related to the question of communications growth. On the global issue of the contribution of the flow of information to economic growth, we found no evidence in the Soviet case to support Richard Meier's contention that an acceleration in comnunications development precedes overall growth in the economy by as much as a decade. On the contrary, es­ pecially in the case of telephone and telegraph systems, national communications have lagged behind the rate of growth of industrial production throughout the Soviet period. Without abundant data, we are not able to determine whether a general rise in the transmission of "high-powered" mes­ sages alone, namely, those messages between planners, pro­ ducers and suppliers, led to calculable increments in econ­ omic indicators. But even in these restricted networks, we have demonstrated that the imbalance in the distribution and use of channels in favor of local Party organs oftentimes created production bottlenecks rather than facilitated econ­ omic activity. 280 Secondly, the conclusions Norman Kaplan drew from his earlier studies of the combined transportation/communications sector in the USSR do not apply pari pas3U for comnunica- tions taken separately. On the basis of recently available comnunications capital stock data, we have shown that the high and steadily rising incremental K/Y ratio in the com­ bined sector contrasts with the much lower and fluctuating K/Y ratio in the communications industry. This finding suggests that the marginal productivity of capital in Soviet transportation has fallen by even more than the Kaplan-Cohn estimates imply. Finally, the incremental K/Y ratio in communications is a cardinal feature in our production function analysis of the industry's postwar economic performance. Additions to the capital stock have generated gradually higher growth rates in output (or in the surrogate measure of output—rate revenues) due to the effort toward rationalizing factor proportions by lessening the historically excessive labor component in the provision of communications services. The estimation of the CES and VES functions, however, underscore the importance of a marginal elasticity of substitution less than one and the consequent difficulty, for reasons enum­ erated above, of substituting capital for labor. By all appearances, the altering of factor proportions must proceed much further if the low marginal productivity contribution of the Soviet communications labor force is to improve. 281

NOTES - CHAPTER V

Martin Weitzman, "Soviet Postwar Economic Growth and Capital-Labor Substitution," American Economic Review. September 1970, pp. 6 7 6 - 6 9 2 . ^cf. ibid. , p. 679 for a mathematical proof. 3?or C-D estimates by branch of industry, see James H. Noren, "Soviet Industry Trends in Output, Inputs and Productivity," New Directions in the Soviet Economy, vol. IX-A, Washington, D.C.: U.S. Government Printing Office, 1966, pp. 271-326. Richard Meier, "Information, Resource Use and Eco­ nomic Growth," Natural Resources and Economic Growth. J.J, Spengler, ed., 1961, pp. 100-101. This theory is discussed in greater depth in Meier, A Communications Theory of Urban Growth. 1962. ^Holland Hunter, Soviet Transportation Policy. 1957* number of studies of the Soviet economy have dealt directly with the economic relations between managers, plan­ ners and bureaucrats, and at least lndireotly with the com­ munications overload, especially in plan drafting, revision and fulfillm ent, that has exceeded the limited channel capac­ ities, and the concomitant constraints that have impeded ef- fiolenoy throughout the Soviet period. See, for example, Joseph Berliner, Factory and Manager in the USSR. 1957; Herbert S. Levine, "The Centralized Planning of Supply in Soviet Industry," Comparisons of the United States and Sov­ ie t Economies. Washington, D.C.: U.S. Government Printing Offloe, 1959» PP. 151-176; and Jerry Hough, The Soviet Pre­ fects i the Local Party Organs in Industrial Decision-making. J 9 W . ?Ih the lim iting case, where communication is totally laoking, the economy cannot progress beyond a disjointed set of self-sufficient producers engaged solely in roundabout methods of production, the notion of a market is meaningless and eoonomlo growth is severely olroumscrlbed. Q ’“’Whether the recent growth rates in communications w ill be "comparable to the increment of growth later experienced by the economy"—three to ten years hence—remains to be seen. Whatever the course of Soviet growth over the next decade, however, it is certain that its source w ill be more multi­ faceted than is implied by Meier's one-faotor theory. 2 8 2 9Stanley H. Cohn, Economic Development In the Soviet Uhlon. 1970. p. 64 and Noren, op G it., i. 9 6 6 , p. 262. A separate investigation of the U.S. communications industry, which by definition excludes the postal service, has not been undertaken. But it has been shown, from John Kendrick's research, that "for the Bell System alone, the rate of in­ crease in real productivity [from 1948 to 1966 ]has been at least twice that of the private economy." Irwin, o p o l t . . 1971, p. 407. 1 0 TsSU, Transport 1 svlaz' SSSR. 1972, pp. 285-287* N.D. Psurtsev, Svlaz 1 v devlatol platletke. 1972, p. 30. orman Kaplan, Soviet Transportation and Communica­ tions t Output Indexes. 1928-1962. Band Corporation. Memoran­ dum RM -426 4-PR (November 196^) and Supplement; 1928-1963 (November 1965). also Kaplan, "The Growth of Output and Inputs in Soviet Transport and Communications," American Economic Review. December 1965* l% ote that Kaplan drew no conclusions about communi­ cations output alone. He rejeoted the official output ser­ ies for this industry because "its nature is unexplained." (The purpose of Chapter II is to describe the Soviet method­ ology in measuring this output.) Instead, he constructed a combined employment/ruble output series for the communica­ tions Industry which was then lumped together with transport output. With no, or very little , communications capital stock data, he relied on the transport/communications cap­ ital figures published in the yearly statistical handbooks. l^Cf., for example, Stanley H. Cohn, "Soviet Growth Retardation: Trends in Resource A vailability and Efficiency," New Directions in the Soviet Economy. Washington, D.C.: U.S. Government Printing office, 1966, p . 128; Cohn, o p o l t . . 1970, p. 106; and Cohn, "General Growth Performance of the Soviet Economy," Economic Performance and the M ilitary Bur­ den in the Soviet Union. Washington. D. C.V U.S. Government Printing Office, 1970,p. 15. ^Kaplan, op olt. . 1964, p. 21; Kaplan, o p cit,, 1967, P. 1156.

1^Kaplan, o p o l t . . 1 9 6 5 * p . 8 . l^Noren, op clt.. 1966, p. 281 ^Kaplan, op olt. . 1964, p. 35.

IBWeitzman, op o lt. . 1970, p. 6 7 9 . ^A lternatively, when rate revenues were substituted as the dependent variable, X, the significance of the param­ eter estimates did not improve.

? » 1 .0 5 6 A a .0 1 8 6 0 - .2 5 9 8 CT- .5 1 6 2 R2 - .9 9 7 0 (71.306) (1.417) (.928) (1.483) Production studies of Bell Canada also use rate revenues as the only viable surrogate for output. See Dobell, o p c l t . . Spring 1972, p. 194. 20 E.F. Sudlt, "Additive Nonhomogeneous Production Functions in Telecommunications," BJEMS. Autumn 1973. PP. 499-514; H.D. Vlnod, "Nonhomogeneous Production Functions and Applications to Telecommunications," BJEMS. Autumn 1972, PP. 531-5^3. 21 Inferior results were obtained with ruble output as the dependent variable, 22 ‘'•'Because the capital stock data are more reliable after 1958, equations (2) and (3) were applied to the later time period, 1958-1970. Equation (2) again proved to be a poor estimator. The quality of equation (3) was equal to that shown for the longer period, but the parameter estim­ ates led to more extreme (negative) values for fg and f o . Irrespective of the t values, nine degrees of freedom (13 observations and 4 regressors) could not lend much con­ fidence to the observed goodness of fit. High H2 values on these small samples generally overstate the predictive power of the*fitted function. The same problem arose in fitting C-D, CES and VES functions to the republic cross-section data (15 observations), ^Interestingly enough, negative f2 and £ 2 were also observed over some portion of the time series when equation (3) was applied to 1947-1970 U.S. Bell System data and to 1952-1967 Bell Canada data. Cf. Vlnod, o p olt.. 1972, p . 540 and Sudlt, o p clt.. 1973. P. 513. 2 **N.D. Psurtsev, Svlaz* v devlatol platletke. 1972, p. 45. The largest U.S. post offices are now equipped with electronic sorters capable of handling up to 3 6 ,0 0 0 l e t t e r s p er hour.

25sraplonov, op c lt. . 1 9 7 2 , p . 3 7 . ^Gubin, op pit.. 1971. P. 62.

2 ?Note, of course, that had the fitting of equation ( 3 ) to output data rather than revenue data yielded signif­ icant parameter estimates, the consequent values of f,, £, a n d c r might have led to a somewhat different interpretation. 2 8 4 20For a diecussion of this point* see Om P. Tangrl* "Omissions in the Treatment of the Law of Variable Propor­ tions*" American Economic Review. June 1966* pp. 1*81*-1*92. 2?Keith Bush* "Resource Allocation Policy: Capital Investment*" Soviet Economic Prospects for the Seventies. Washington* D.C.s U.S. Government Printing O ffice, 1973, p . 1 * 0 . 3®A.V. Razgovorov* Primenenle EVM i matematlohesklkh metodov prl planlrovanll razvltila svlazl. 1973. p p . 52-53. 3*A theorem first proved by Ragnar Frisch* Theory of Production. 1965, PP. 77-78.

32Vinod, o p olt.. 1972, p . 5^1. SUMMARY

In this study, we have investigated a number of econ­ omic aspects of Soviet intercommunications. The primary pur­ pose was to examine the strengths and weaknesses of each of the branches of the industry in terms of the changes in the composition of services, Soviet rate-making objectives, the distribution and use of services in the population and .-national economic sectors and growth and productivity in com­ munications output. By way of summary, we delineate a few of the major conclusions derived from this analysis. 1. The burden of physically distributing the period­ ical press has uniquely characterized and dominated the work o f th e p o s t a l s e r v ic e in th e USSR. E l e c t r ic a l b ran ch es o f intercommunications have only recently begun to make inroads into the postal share of the industry, which remains at near­ ly 40 percent of the total ruble value of communications out­ p u t. 2. Given the late development of telephone networks, the conventional telegraph has been the mainstay in electrical communications long after the relative decline of this interim technology in other advanced countries. Before the greater availability of telephones renders the ordinary telegram obsolete (many years hence), the telegraph branch w ill have 285 2 8 6 adapted itself to alternative uses, such as subscriber tele­ graph, facsim ile methods, leased lines, and, much later, data transmission. 3. The level of development of telephone networks is the weakest aspect of intercommunications in the USSR. Manual switching systems served as the basic telephone technology until well into the postwar period. Direct distance dialing in the to ll telephone branch is currently operational in only a few major cities. Domestic research and development ex­ penditures have been insignificant as the USSR depended largely upon foreign communications technology. The most ob­ vious deficiencies are the small stock of receivers and the low per capita use of telephone communications. In the city networks, there are only 13 million telephones; in rural net­ works, less than two million (excluding the m ilitary). By comparison, the U.S. stock of telephones exceeds 130 m il­ l i o n . 4. Conaunications enterprises are faced with two sets of prices imposed from above: monetary valuations on the specific types of services they produce and user rates—the final prices to consumers of communications services. There appears to &e a wide gulf between rate theory and rate policy* The former focuses on the various methodologies involved in the determination of sebestoim osti, profit markups and the sum of the two, the monetary valuations, which are periodic­ ally revised. The latter refers to the establishment of user 2 8 ? rates whose structure and level are heavily influenced by the political discretion of the Soviet leadership. Except­ ing important instances of rate discrimination, user rates have been relatively stable since 1948 and quite low. The provision of postal and telegraph services to the population appears adequate, but the short supply of telephone receivers and disequilibrium rates for toll calls and local service have created excess demands in a ll three telephone branches. 5. Annual growth rates of communications output have been quite respectable in the postwar period, the largest gains having been registered by the telephone branches (and the mass media)• Factor productivity, however, irrespective of the form of the production function used, accounted for only a small proportion of output growth. Consistent with the findings of other studies of the Soviet economy, communi­ cations growth is shown to be highly dependent upon the in­ fusion of labor and, to a lesser extent, capital. In fact, the analysis developed here suggests that the communications industry is critically undercapitalized 2nd that capital- labor ratios are far from optimal. Increased mechanization of production processes is sorely needed in the postal ser­ vice, but the wider application of automatic switching in telephone-telegraph systems could also lead to greater efficiency. We also show, in light of the data used in this dissertation, that earlier conclusions about the behavior of certain economic variables (namely, the incremental capital- 288 output ratio) based on the Kaplan-Cohn studies of the trans­ port/communications sector combined are subject to some mod­ i f i c a t i o n . The Soviet Union has managed to attain in a short period of time advanced status in the world*s economies. For a nation that claims first place in the production of steel, iron ore, coal, timber, cement, diesel locomotives, to name but a few,*’ it is a ll the more remarkable that this rapid growth was achieved with electrical communications systems whose small absolute and relative sizes do represent a "weak link” in the economy. Fart of this deficiency, as we have seen, has been counterbalanced by the disproportionate dis­ tribution of the networks serving those who transmit "high- powered" messages and the much greater intensity of use by government. Party and economic organizations—a rational pol­ icy consistent with rapid industrialization. But in provin­ cial regions where high speed communications links were con­ structed late in the prewar period or not until after the war, central planners were forced to rely on decentralized, * on-the-spot decision-making that must have oftentimes been inconsistent with plan objectives. The economic losses from delayed production may have been equally significant when local authorities refrained from taking action until opera- tional directives from Moscow were delivered by couriers or the postal service. In either case, the list of static and dynamic inefficiencies that have attended Soviet growth must surely include the frequent inability to communicate planning 289 and production decisions rapidly, especially through the medium of the telephone. The mature Soviet economy, as has been demonstrated elsewhere, can no longer expect to rely as it did in the past upon vast labor resources for large annual increments to out­ put. The slogan of the Second Five Year Plan—"mastering technique"—w ill have contemporary relevance in an econoity whose output gains w ill depend more on finesse than on force. In the future, the communications industry can scarcely be considered the fulcrum that w ill support the Soviet econony, but it can act as one of several levers in improving upon the record of Soviet efficiency. 2 9 0

NOTES - SUMMARY

*TsSU, Narodnoe khozlalstvo. 1922-1972. 1972, p. 68. APPENDIX 292

T a b le d . Derivation o Cownunlcat: Employ­ Ave.ann. Soc.Ins. Labor Fixed Amort. Caplti ' 3ase ment of earnings deduc­ Costs 0.PJU1 charge (10<> fear workers (rubles) tion s d o 6 ruble d o 3) (*) rubles) rubles) 1=8* 1 2 3 4 5 6 7 8 Communications 1950 542 634.8 5.3 362.3 820.0 3.6 95.' Industry I960 738 752.4 5.3 584.7 2,050.4 3.6 237.1 1965 1,007 890.4 5.3 944.2 3,568.0 3.6 413.' 1970 1,330 1,161.6 5.3 1,626.5 5,846.7 3.6 678.: Postal Service 1950 272 634.8 - 5.3 181.8 110.7 4.2 13. 1960 342 752.4 5.3 271.0 250.2 4.2 30.! 1965 472 890.4 5.3 442.5 422.6 4.2 51.1 1970 675 1, 161.6 5.3 825.6 654.8 4.2 79.< Long Distance 1950 52 634.8 5.3 34.8 177.1 3.0 19.! Telephone Network 1960 83 752.4 5.3 65.8 586.4 3.0 64.! 1965 128 890.4 5.3 120.0 1,101.6 3.0 121.! 1970 178 1,161.6 5.3 217.7 1,865.1 3.0 205.! Telegraph Network 1950 97 634.8 5.3 64.8 85.3 4 .4 10.1 I960 111 752.4 5.3 87.9 153.8 4 .4 19.- 1965 145 890.4 5.3 136.0 198.5 4 .4 25*J 1970 150 1,161.6 5.3 183.5 280.6 4 .4 34.I Long Distance 1950 149 634.8 5.3 99.6 262.4 3-5 30.! Telephone and 1960 194 752.4 5.3 153.7 740.2 3.5 85.1 Telegraph Com­ 1965 273 890.4 5.3 256.0 1,300.1 3.5 149.! bined 1970 328 1 , 161.6 5.3 401.2 2,145.7 3.5 246.! City Telephone 1950 50 634.8 5.3 33.4 156.6 3.0 17.1 Networks 1960 66 ‘ 752.4 5.3 52.3 412.1 3.0 45.1 1965 89 890.4 5.3 83-4 820.4 3.0 90.1 1970 113 1,161.6 5.3 138.2 1,479.2 3.0 162.' Rural Telephone 1950 26 634.8 5.3 17.4 67.2 3.4 7.' Networks 1960 49 752.4 5*3 38.8 184.5 3.4 21.( 1965 62 890.4 5.3 58.1 292.1 3.4 33.: • 1970 64 1,161.6 5.3 78.3 438.5 3.4 50.( Radloflcation 1950 30 634.8 5.3 20.1 80.4 4*4 10.( I960 52 752.4 5.3 41.2 184.5 4*4 22.5 1965 76 890.4 5.3 71.3 283.8 4.4 35.3 1970 77 1,161.6 5.3 94.2 421.0 4*4 52.; Radiobroadcast­ 1950 16 634.8 5.3 10.7 142.7 . 5-3 19.C ing and Televis­ 1960 27 752.4 5-3 21.4 278.9 5.3 37.1 ion 1965 35 890.4 5.3 32.8 449.0 5.3 59.1 1970 43 1,161.6 5-3 47.6 707.5 5.3 94.1 2 9 2

T able 26

Soe.Ine. Labor Fixed Amort. CnnitAl Cantu 'otnl I> & K Contn e a ff. charge (10* (10° (5*10)' deduo* Coats Capital (10° 10° X (5*11) tione (106 (106 rubles) rubles) rubles) rubles) <*) rubles) rubles) 1=8* 1=15* 12 4 5 6 7 8 9 — 10 11 13 5.3 362.3 820.0 3.6 95.1 152.5 457.4 514.8 .792 .704 5.3 584-7 2,050.4 3.6 237.8 381.4 822.5 966.1 .711 .605 5.3 944.2 3,568.0 3.6 413.9 663.6 1,358.1 1,607.8 .695 .587 5.3 1,626.5 5,846.7 3.6 678.2 1,087.5 2,304.7 2,714.0 .706 • 599 5.3 181.8 110.7 4.2 13.5 21.3 195-3 203.1 .931 .895 5.3 271.0 250.2 4.2 30.5 48.0 301.5 319.0 .899 .850 5.3 442.5 422.6 4.2 51.6 81.1 494.1 523.6 .896 .845 5.3 825.6 654.8 4 .2 79.9 125.7 905.5 951.3 .912 .868 5.3 34.8 177.1 3.0 19.5 31.9 54.3 66.7 .641 .522 5.3 65.8 586.4 3.0 64.5 105.6 130.3 171.4 .505 .384 5.3 120.0 1,101.6 3.0 121.2 198.3 241.2 318.3 .498 .377 5.3 217.7 1,865.1 3.0 205.2 335.7 422.9 553.4 .515 .393 5.3 64.8 85.3 4*4 10.6 16.5 75-4 81.3 .859 .797 5.3 87.9 153.8 4*4 19.1 29.8 107.0 117.7 .821 .747 5.3 136.0 198.5 4*4 25.4 38.5 161.4 174.5 .843 .779 5.3 183.5 280.6 4*4 34-8 54.4 218.3 237.9 .841 .771 5.3 99.6 262.4 3.5 30.2 48.5 129.8 148.1 .767 .673 5.3 153.7 740.2 3.5 85.1 136.9 238.8 290.6 •644 .529 5.3 256.0 1,300.1 3.5 149.5 240.5 405.5 496.5 .631 .516 5.3 401.2 2,145.7 3.5 246.8 397.0 648.0 798.2 .619 .503 5-3 33.4 156.6 3.0 17.2 28.2 50.6 61.6 .660 .542 5.3 52.3 412.1 3.0 45.3 74.2 97.6 126.5 .536 .413 5.3 83.4 820.4 3.0 90.2 147.7 173.6 231.1 .480 .361 5.3 138.2 1,479.2 3.0 162.7 266.3 300.9 404.5 .459 .342 5.3 17.4 67.2 3.4 7.7 12*4 25.1 29.8 .693 .584 5.3 38.8 184.5 3.4 21.0 33.9 59.8 72.7 .649 .534 5.3 58.1 292.1 3.4 33.3 53.7 91.4 111.8 .636 .520 5.3 78.3 438.5 3.4 50.0 80.7 128.3 159.0 .610 .492 5.3 20.1 80.4 4*4 10.0 15.6 30.1 35.7 .668 .563 5.3 41.2 184.5 4*4 22.9 35.8 64.1 77.0 .643 .535 5.3 71.3 283.8 4*4 35.2 55.1 106.5 126.4 •669 .564 5.3 94.2 421.0 4-4 52.2 81.7 146.4 175.9 .643 .536 5.3 10.7 142.7 . 5.3 19.0 29.0 29.7 39.7 .360 .270 5.3 21.4 278.9 5.3 37.1 56.6 58.5 78.0 .366 .274 5.3 32.8 449.0 5.3 59.7 91.1 92.5 123.9 .355 .265 5.3 47.6 707.5 5.3 94.1 143.6 141.7 191.2 .336 .249 2 9 3 Sources to Table 26: Column 2 - Total industry employment for the four benchmark years are given In TsSU, Nar. khoz.. op c it., 1972, p. 347. Branch employment figures for 1950 are based on a 1949 percentage dis­ tribution in Vishnevakil, op c it., 1961, p. 214* The line-cable admin­ istrations, which account for 7 percent of total industry employment in 1949, are assigned to the long distance telephone and telegraph branches in the ratio of .8/. 2, since we are following general Soviet separations principles. The labor share going to the radlofication branch and to the radio communications/television branch combined is 8.4 percent. The 1965 and 1959 shares shown in Podgorodetskii, op c i t . , 1967 and Srap- lonov, op c it., 1968 are approximately two-thirds of the combined figure for radlofication and one-third for radio communications/television. We assume the same proportions held true in the 1950 employment distribu- tion. The 1960, 1965 and 1970 data are reported in Anallz. op cit., 1971, pp. 9-11. Column 3 - Average monthly earnings of workers in the communications industry are published in TsSU, Mar, khoz.. op c it., 1972, p. 351* These figures are multiplied by 12 to arrive a t average annual earnings. Monthly earnings for the industry as a whole are assumed to apply to each of the branches. Column 4 - Social insurance deductions are given in Sraplonov, op c it., 1968, p. 305. See also Tochil'nikov, op cit*, 1970, p. 72. Column 5 — (Col. 2 x Col. 3) + Col. 4(Col. 2 x Col. 3) * Column 6 - 1960, 1965 and 1970 capital stock data are given in Analiz. op cit., 1971, pp. 9-11. For 1950 figures, see note to Column 7, Table 27. Column 7 - The Industry amortization norm is reported in Tochil'nikov, op c i t . , 1970, p. 151* Branch amortization norms are adapted from P.R. Filippov, Mo we normv amortizatsil. 1963, pp. 171 and 217-18 and L.M. Soloveiohik and M.A. Gorelik, Osnowe proizvodstvennye fondy sviazl 1 nuti uluchsheniia ikh laool' zovanila. 1971, p. 20. The percentage charges (for replacement only) in Col. 7 are rough estimates, because the actual published norms are given only for types of communications equipment and not for the separate branches. Column 8 - Capital costs equal the amortization charge plus an Imputed cost of capital of 8 percent times Col. 6. Column 9 - Same as Col. 8, but with an assumed interest rate of 15, rather than 8, percent. Column 10 - Col. 5 + Col. 8. Column 11 - Col. 5 + Col. 9. Column 12 - Col. 5 * Col. 10 Column 13 - Col. 5 * Col. 11 T ab l. 27 Comnunieatlons Out nut. Rate Revenues. Productive Fixed Cai Qrolovment an Output Revenues Capital Etaplo, Base (106 196>= (10* 1965= (10® 1965= ment( fear rubles) (?) 100 rubles) (?) 100 rubles) t o 100 vorke 1 2 3 4 5 6 7 8 9 10 1950 . 734 36.5 714 35.7 (820) 23.0 54 1951 (774) (5-4) 38.5 789 10.5 39-4 (904) (10.3) 25.3 (55- 1952 816 (5.5) 40.5 845 7.2 42.2 (980) (8.4) 27.5 56 1953 (863) (5.8) 42.9 844 .0 4 2 .2 (1,068) (9.0) 29.9 58, 1954 (913) (5.8) 45.4 902 6.8 45.0 (1,181) (10.6) 33.1 (59 1955 967 (5.9) 48.0 974 8.1 48.7 (1,372) (16 .2) 38.5 6r 1956 (1,029) (6.4) 51.1 1,045 7.3 52.2 (1,497) (9.1) 42.0 62 1957 (1,096) (6.5) 54.4 (1,143) (9.3) 57.1 (1,622) (8.4) 45.5 64 1958 1,167 (6.5) 60.0 1,250 (9.4) 62.4 1,850 (14.1) 51.8 66. 1959 1,245 6*7 61.8 (1,343) (7.5) 67.1 (1,948) (5.2) 54.6 69 1960 1,361 9*3 67.6 1,444 (7.5) 72.1 2,050 (5.3) 57.5 73! 1961 1,445 6.2 71.8 (1,537) (6.4) 76.7 (2,265) (10.5) 63.5 79 1962 1,555 7.6 77.2 (1,635) (6.4) 81.6 (2,503) (10.5) 70.2 83 1963 1,680 8.0 83.5 (1,740) (6.4) 86.9 2,763 (10.4) 77.4 87 1964 1,829 8.9 90.9 1,849 (6.3) 92.3 3,123 13.0 87.5 92 1965 2,013 10.1 100.0 2,003 8.3 100.0 3,568 14.2 100.0 1,00 1966 2,236 11.1 111.1 2,216 10.7 110.6 3,944 10.5 110.5 1,07 1967 2,472 10.6 122.8 2,467 11.3 123.2 4,378 11.0 122.7 1,12 1968 2,724 10.2 135.3 2,771 12.3 138.4 4,895 11.8 137.2 1,18 1969 3,002 10.2 149.1 3,028 9.3 151.2 5,281 7.9 148.0 1,26 1970 3,292 9 .7 163.5 3,297 • 8.9 164.6 5,847 10.7 163.9 1,33 1971 (3,558) (8.1) 176.8 6,548 12.0 183.5 1,39 2?±_

Table 27

Productive Fixed Caj p ital. EbtDlovment and Manhours: USSR. 1950-1971 Capital Employ-, Manhours 1965= 1965= meat(10 1965= d o 6) 1965= L 100 rubles) t o 100 workers) 100 100 E 6 7 8 3 _ 10 ^ J 1 _ 12 13 14 15 r 35*7 (820) 23.0 542 53.8 1,170 64.6 [5 39. A (904) (10.3) 25.3 (554) (2.2) 55.0 1,192 1.8 65.8 .2 42.2 (980) (8.4) 27.5 565 (2.0) 56.1 1,212 1.7 66.9 .0 42.2 (1,068) (9.0) 29.9 582 3.0 57.8 1,247 2.9 68.8 .8 45.0 (1,181) (10.6) 33.1 (596) (2.4) 59.2 1,275 2.2 70.4 ,1 48.7 (1,372) ( 16. 2) 38.5 611 (2.5) 60.7 1,304 2.3 72.0 .3 52.2 (1,497) (9.1) 42.0 624 2.1 62.0 1,299 —.4 71.7 .3) 57.1 (1,622) (8.4) 45.5 641 2.7 63.7 1,303 .3 71.9 .A) 62.4 1,850 (14.1) 51.8 664 3.6 65.9 1,341 2.9 74.0 •5) 67.1 (1,948) (5.2) 54.6 691 4.1 68.6 1,357 1 .2 74-9 .5) 72.1 2,050 (5.3) 57.5 738 6.8 73.3 1,395 2.8 77.0 .4) 76.7 (2,265) (10.5) 63.5 790 7.0 78.5 1,428 2 .4 78.8 La) 81.6 (2,503) (10.5 70.2 832 5.3 82.6 1,504 5-3 83.0 •A) 86.9 2,763 (10.4) 77.4 877 5.4 87.1 1,582 5.2 87.3 .3) 92.3 3,123 13.0 87.5 928 5.8 92.2 1,682 6.3 92.8 .3 100.0 3,568 14.2 100.0 1,007 8.5 100.0 1,812 7 .7 100.0 .7 110.6 3,944 10.5 110.5 1,073 6.7 106.6 1,940 7.1 107.1 .3 123.2 4,378 11.0 122.7 1,123 4.7 111.5 2,036 4.9 112.4 .3 138.4 A,895 11.8 137.2 1,187 5.7 117.9 2,157 5.9 119.0 .3 151.2 5,281 7-9 148.0 1,262 6.3 125.3 2,311 7.1 127.5 .9 164.6 5,847 10.7 163.9 1,330 5.4 132.1 2,417 4 .6 133-4 6,548 12.0 183.5 1,394 4.8 138.4 2,548 5.4 140.6 29 5 Sources to Table 27: Column 1 - 1950, 1952 and 1958-63 figures are from TsSU, Nar. khoz.. op cit., 1961, p. 520, Nar. khoz.. 1962, p. 422, Mar. khoz.. 1963, p. 438; 1955 and 1965-70 are given in Tr. i sviaz1. op c it., 1972, p. 273? 1964 is from Tr. 1 sviaz1. op cit., 1967, p. 264) the 1971 total is derived by comparing the figure in Nar. khog.. 1972, p. 313 (which apparently utilizes a revised base year) with the figure in Tr. i sviaz1. 1972. The derivation of the official ruble output series i s discussed in Chapter 2. Column 4 - 1950, 1955, 1960 and 1965-70 data are from Tr. 1 sviaz1. 1972, p. 302; 1951-54 and 1956 are from Tr. 1 sviaz*. 1957, p. 216; 1958 and 1964 are given in Tr. 1 sviaz1. 1967, p. 298. Column 7 - Official Soviet productive fixed capital values, gross of depreciation a t July 1, 1955 prices. 1958, 1960 and 1963-71 figures were provided without source reference by Professor L.M. Solovelchik at HEZS. 1950 figure based on Solovelchik and L.C.Genin, Osnovnve fondr mezhdugorodnoi telefonno-telegrafnol sviazi i lkh isuol1 zovanle. 1963, p. 4 wliich states that productive fixed capital of the communi­ cations industry grew 2.5 times (in comparable prices) from 1950 to 1960•" 1950-57 data are based on an index of growth in capital found in A .A. Vishnevskii, Osnovye fondv sviazi i lkh ispol1 zovanle. 1959, p. 6 . Column 10 - 1950-71 employment figures are reported in Murray Feshbach and Stephen Hapawy, "Labor Constraints in the Five-Year Plan," Soviet Economic Prospects for the Seventies. U.S. CongresB, Joint Economic Committee, Washington, D.C., U.S. Government Printing O ffice, 1973, pp. 508-09. Column 13 - 1950-71 manhour estimates for the communications industry have been kindly provided by Stephen Rapauy in his preliminary paper "Estimates of Manhour Employment in Selected Nonagricultural Branches of the Eoonomy, USSR: 1950 to 1971," U.S. Department of Commerce, For­ eign Demographic Analysis D ivision, August 1973, p. 4> Unless otherwise noted above, figures in parentheses are interpolated assuming a constant growth rate, g^., g^, gj., g ., and g^ denote annual rates of change in output, revenues, capital, employmerit and manhours, respectively. 2 9 6

Table 28

UUVaVAViiO wuvvuv* uimni e wj fcouwu tum u«wuw -----L2«l----- Communications Postal Service Long Distance Republic Industry Telephone Network 1960 1965 1970 1960 1965 1970 1960 ' 1965 197 USSR 1361.3 2013.3 3291.9 586.4 859.3 1260.4 170.8 288.6 555. RSFSR 659.0 1262.3 2075.2 363.5 526.1 755.4 115.0 196.5 390. Ukraine 227.1 333.3 542.2 111.5 164.6 243.2 19.8 34.0 68. Belorussia 47.6 70.1 110.6 20.8 30.9 44.2 5 .4 8 .6 14. Uzbekistan 29.6 50.4 89.3 12.9 * 21.4 40.4 4 .2 7.8 14. Kazakhstan 54.7 86.7 142.9 24*6 38.6 60.5 5.8 9 .8 16. Georgia 22.9 30.1 46.3 9 .4 12.3 19.3 2 .6 3 .4 5. Azerbaldzhan 18.3 27.5 42.1 7.0 10.0 17.9 2 .7 4 .5 4. Lithuania 18.3 27.5 43.6 6.7 10.1 1 3.4 2.9 4 .4 9. Moldavia 12.8 17.5 30.0 6 .4 8 .7 14.0 1 .4 2.0 3. Latvia 24.0 31.9 45.8 7.5 10.0 12.8 3 .9 5.3 8. K irgizia 8 .4 16.5 29.2 3.5 7 .0 11.2 1 .5 3.1 5. Tadzhikistan 7 .5 12.2 20.8 2.6 4.1 6 .5 .8 1 .3 2. Armenia 9 .0 15.5 29.4 2.7 4 .6 7 .6 1 .2 2.2 3. Turkmenia 7.9 12.4 17.4 2.8 4 .3 6.0 1 .6 2.5 3. Estonia 14.0 19-3_ 26.8 4.7 6 .2 7 .8 1 .8 3.0 4. City Telephone Rural Telephone Radlofication Republic Networks Networks 1960 1965 1970 1960 1965 1970 1960 1965 197 USSR 117.8 171.1 344.4 100.1 148.0 267.1 108.6 164.3 236.I RSFSR 75.6 109.4 212.6 57.6 84.4 150.0 66.1 99.8 141- Ukraine 1 6 .6 23.4 57.9 15.0 22.4 40.7 24-3 36.0 54- Belorussia 3.1 4*4 10.3 5.2 7 .7 15.4 5 .2 7.9 10.1 Uzbekistan 2 .2 3.9 7 .7 1.9 3 .3 6 .6 2 .4 4.3 5.1 Kazakhstan 3.9 6.0 13.0 4*6 7.3 13.5 3.9 6.3 9 .‘ Georgia 2.5 3 .3 5.9 1.3 1 .8 2.8 1 .2 1.7 1.1 Azerbaldzhan 2 .6 4 .0 5.5 1 .2 1*8 4*1 .9 1 .4 2.- Lithuania 1.8 2 .7 5.5 2.8 4.1 8.1 •6 .9 1.< Moldavia .9 1 .2 2.7 1.2 1 .7 2.8 1 .0 1 .4 2.: Latvia 3.1 4 .0 7.8 4 .6 6.1 9-9 .8 1.0 1.: Kirgizia .5 1.0 2.0 •6 1.0 2.0 .6 1.1 1.< Tadzhikistan .6 1 .0 2.0 .5 .7 1.5 .4 .7 .< Armenia 1 .9 3.3 5-9 •9 1*6 4*4 .4 .8 1.; Turkmenia .7 1.0 1 .7 .5 .8 1 .3 .4 .6 .< Estonia 1 .6 2 .2 3 .5 2.2 3.1 4.8 .3 .4 • ! 2 96

Table 28

Postal Service Long Distance • Telegraph Telephone Network Network 1960 1965 1970 1960 ' 1965 1970 19&) _ 1965 1970 586.4 859.3 1260.4 170.8 288.6 555.3 169.3 224.7 356.0 363.5 526.1 755.4 115.0 196.5 390.6 111.7 145.6 231.8 111.5 164.6 243.2 19.8 34.0 68.3 26.7 34.0 55.9 20.8 30.9 44.2 5.4 8.6 14.5 5.3 7.0 10.8 12.9 ’ 21.4 40.4 4.2 7.8 14.0 3.6 5.5 8.1 24.6 38.6 60.5 5.8 9.8 16.8 7.4 11.3 17.2 9.4 12.3 19.3 2.6 3.4 5.5 3.6 4.8 6.4 7.0 10.0 17.9 2.7 4.5 4.8 1.9 3.0 4.1 6.7 10.1 13.4 2.9 4.4 9.0 1.6 2.2 3.7 6 .4 8.7 14.0 1 .4 2.0 3.9 1.0 1 .4 2.4 7.5 10.0 12.8 3.9 5.3 8.1 2.0 2 .6 4.1 3.5 7.0 11.2 1.5 3.1 5.7 1.0 1.8 3.1 2.6 4.1 6.5 .8 1.3 2.3 .7 1.0 1.6 2.7 4.6 7 .6 1.2 2.2 3.9 .8 1.5 2.5 2.8 4.3 6.0 1.6 2.5 3.3 1.0 1.5 2.0 i 4.7 6.2 7.8 1.8 3.0 4.7 .9 1 .2 2.0 Rural Telephone Radlofication Radiobroadcasting Networks and Television i 1960 .1965 1970 1960 _ 1965 1970 1960 1965 1970 100.1 148.0 267.1 108.6 164.3 236.0 108.1 157.4 272.5 57.6 84.4 150.0 66.1 99.8 141.4 69.6 100.4 193.3 15.0 22.4 40.7 24.3 36.0 54.4 13.2 18.9 21.8 5.2 7.7 15.4 5.2 7.9 10.8 2.5 3.4 4.7 1.9 3.3 6.6 2.4 4.3 5.8 2.4 4*2 6.7 4.6 7.3 13.5 3.9 6.3 9.7 4.4 7.2 12.2 1.3 1.8 2.6 1 .2 1.7 1.9 2.1 2.8 4.4 1 .2 1.8 4.1 .9 1.4 2.1 1.9 2.7 3.6 2.8 4.1 8.1 .6 .9 1.0 1.8 2.8 2.7 1.2 1.7 2.8 1.0 1.4 2.5 .9 1.1 1.8 4 .6 6.1 9.9 .8 1.0 1.3 2.1 2.8 2.7 •6 1.0 2.0 .6 1.1 1.6 .7 • 1.2 3.4 .5 .7 1.5 .4 .7 .9 2.0 3.2 5.8 .9 1.6 4 .4 .4 .6 - 1.2 1.0 1.7 3.8 .5 .8 1.3 .4 .6 .9 1.1 1.7 2.2 2.2 3.1 4.8 .3 .4 .5 2.4 3.1 3.4 2 9 7

Table 29

Communications Postal Service Long Dist Republic Industry Telephone 1960 1965 _ 1970 1960 1965 1970 1960 196 USSR 2050.4 3568.0 5846.7 250.2 422.6 654.8 586.4 1101. RSFSR (403.0 2436.0 3979.9 154.7 277.7 421.9 429.0 872. Ukraine 244.2 426.2 730.3 41.0 51.6 85.5 54.5 63. Belorussia 57.3 98.2 159-3 8.5 14.2 22.1 15.4 21. Uzbekistan 39*5 70.7 120.4 5.7 6.2 9 .6 7.9 11. Kazakhstan 79.6 154-5 258.3 9.8 18.1 28.8 26.3 47. Georgia 30.5 52.8 81.6 4 .5 7.9 11.3 7 .2 10. Azerbaldzhan 35.0 57.7 68.9 3.9 9 .7 11.9 11.5 15. Lithuania 30.2 50.5 84-5 4.1 7.2 12.5 5.9 12. Moldavia 13.5 23.2 4 0 .0 1.9 3.9 7.8 3.5 4. Latvia 38.9 55.3 85*1 4.8 8.0 11.1 7 .4 11. Kirgizia 13.0 27.2 4D.3 1 .8 4 .2 5.8 3.0 5. Tadzhikistan 15.3 27.1 49.1 2.3 2.8 6.1 2.7 6. Armenia 17.8 33.3 65.7 3 .6 5.1 10.5 3 .6 8. Turkmenia 13.4 21.9 33.0 1 .6 2.3 4 .2 4.7 6. Estonia 19.2 33.4 49.7 2.1 3.7 5.7 _ 3.9 _ 6. City Telephone Rural Telephono Radiofica Republic Networks Networks 1960 1965 1970 . J960 1965 1970 1960 1?6 USSR 412.1 820.4 1479.2 184-5 292.1 438.5 184-5 283.! RSFSR 244.6 438.7 811.9 114.3 185.1 270.6 132.3 167. Ukraine 65.4 180.7 317.1 26.1 38.4 57.0 23.0 47. Belorussia 13.2 27.9 50.2 7 .4 11.2 15.1 5.5 14. Uzbekistan 10.9 27.3 51.9 3.3 6.3 11.4 2.6 7. Kazakhstan 16.1 30.1 53.2 8*4 16.1 30.3 5.6 17.< Georgia 7.3 18.8 30.3 2 .4 3.5 5 .2 2.0 3.« Azerbaldzhan 10.3 18.2 23.2 2 .2 2.5 2.8 2 .2 4.1 Lithuania 7.7 15.6 27.0 4 .2 4 .2 9 .3 3.0 3.' Moldavia 3.2 7.1 11.8 1.7 3.2 5.3 1.2 2 .; Latvia 12.3 16.0 27.8 6.7 9.1 12.2 1.9 2.i K irgizia 3.4 6 .6 12.6 1 .3 2.9 4*0 1.1 3 .’ Tadzhikistan 3.8 8.0 15.2 .9 2.9 3.7 1 .0 1.1 Armenia 4.9 11.6 24.1 1 .0 1 .2 2.9 1 .6 2.1 Turkmenia 3.2 4.8 8 .4 .9 1 *4 2 .4 .7 1.* Estonia 9 .0 14.5 - I t IL_ 4.0 6.3 !•?, 297

X r t f t n J S

•i as PoBtal Service Long Distance Telegraph Telephone Network Network 1970 1960 1965 1970 1960 1965 1970 1960 1965 1979 58^6.7 250.2 422.6 654.8 586.4 1101.6 1W5.1 153.8 198.5 280.6 3979.9 154-7 277.7 421.9 429.0 872.1 1476.5 113*2 154.9 218.9 730.3 41.0 51.6 85.5 54-5 63.9 117.4 16.1 1 6 .2 25.8 159-3 8.5 14.2 22.1 15.4 21.1 34.6 3.8 4.1 5.5 120.4 5.7 6.2 9 .4 7.9 11.1 19.9 2.5 2.7 3.7 258.3 9.8 18.1 28.8 26.3 47.0 79.0 4.8 5.9 6.5 81.6 4.5 7.9 11.3 7.2 10.1 16.4 2.1 2.2 3.1 68.9 3.9 9.7 11.9 11.5 15.1 17.2 1.7 1.9 2.2 84.5 4.1 7 .2 12.5 5.9 12.3 21.7 2.0 2.3 3.2 40.0 1.9 3.9 7.8 3.5 4*4 8 .3 .6 .7 .9 85.1 4.8 8.0 11.1 7.4 11.9 18.8 2.0 2.1 2.7 40.3 1.8 4 .2 5.8 3.0 5.2 8 .0 .9 .9 1.3 49-1 2.3 2.8 6.1 2.7 6.5 11.8 .9 1.1 1.8 65.7 3.6 5.1 10.5 3.6 8.1 15.6 1.2 1 .4 2.4 33-0 1 .6 2.3 4.2 4.7 6.7 10.4 .9 1.1 1.4 49.7 2.1 3.7 5.7 3.9 6.1 9 .5 .8 1.0 1.2 ►no Rural Telephone Radlofication Radiobroadcasting Natworks and Television 1970 JS60 1965 1970 1960 1965.. 1970 1960 1965 1970 1479.2 184.5 292.1 438.5 184.5 283.8 421.0 278.9 449.0 707.5 811.9 114*3 185.1 270.6 132.3 167.4 242.8 214.9 340.0 537.3 317.1 26.1 38.4 57.0 23.0 47.7 75.8 18.1 27.7 51.7 50.2 7 .4 11.2 15.1 5.5 14.3 21.9 3.4 5.4 9.9 51.9 3.3 6.3 11.4 2.6 7 .7 11.9 6.6 9*4 12.0 53.2 8 .4 16.1 30.3 5.6 17.7 27.6 8.6 19.6 32.8 30.3 2.4 3.5 5.2 2.0 3.9 5.8 5.0 6 .4 9.5 23.2 2.2 2.5 2.8 2.2 4.8 4.9 3.2 5.5 6.7 27.0 4.2 4 .2 9.3 3.0 3.6 5.7 3.3 5.3 5.7 11.8 1.7 3.2 5.3 1.2 2.2 2.8 1.4 1.7 3.0 27.8 6.7 9.1 12.2 1.9 2 .6 4.9 3.8 5.6 7.6 12.6 1.3 2.9 4.0 1.1 3.7 4 .2 1.5 3.7 4.4 15.2 .9 2.9 3.7 1.0 1 .6 2.5 3.7 4 .2 8.0 24.1 1.0 1 .2 2.9 1.6 2.8 4.3 1.9 3.1 5.9 8 .4 .9 1 .4 2.4 .7 1.9 3 .4 1.4 3.7 3.0 14.5 —3*5 4.0 6.3 •9 1.9 . ,2 .5 . 2.1 7.7 10.0 296

Cotinunl cations Workers and USSR, far Branch and Retmbll Communications Postal Service Long I Republic Industry______Telepti 1960 1965 J220 1960 1965 1970 JS3R 730,951 1,006,385 1,301,217 342,397 471,803 6 7 4 ,8 7 3 82,698 127 ISFSR 466,578 627,526 786,252 219,292. 294,937 398,965 52,495 81 Ukraine 111,233 160,235 231,315 51,167 74,210 126,586 10,441 17 Belorussia 26,924 37,212 45,946 13,731 19,723 .27,594 3,769 4 Uzbekistan 17,361 25,696 33,437 7,986 11,820 18,981 1,904 3 Kazakhstan 33,446 56,323 68,418 17,392 28,162 34,432 3,216 5 Gleorgia 11,470 15,302 22,350 4,476 5,607 10,793 1,492 1 Azerbaldzhan 10,055 14,026 19,027 4.324 6,172 9,220 1,207 1 Lithuania 9,978 12,070 16,128 4,889 6,156 8,854 1,692 1 Moldavia 6,021 8,094 13,790 2,950 3,804 8,020 842 1 ,atvia 11,433 13,040 16,219 5,030 5,559 8,094 1,715 2 Kirgizia 4,743 7,964 11,195 2.324 3,848 6,013 664 1 Tadzhikistan 4,566 6,283 8,632 1,782 2,461 4,134 639 Armenia . 4,740 7,782 11,140 1,543 3,268 4,872 664 1 Turkmenia 4,748 6,139 7,881 1,899 2,517 3,794 807 Estonia _____ 7.649 8.693 9.487 3.212 -I lS.6.4. £ i£ 2 1 City Telephone Rural Telephone Radiol Republic Networks______Networks 1960 1965 1 9 7 0 1960 ■-19.7P 1960 USSR 65,819 89,238 113,212 49,395 1>1,770 64,322 52,477 t ! RSFSR 41,992 56,478 69,193 32,660 37,652 35,728 27,994 39 Ukraine 8,899 12,336 18,722 6,674 9,855 10,700 13,348 19 Belorussia 2,154 2,977 3,339 1,346 1,861 2,382 1,077 1 Uzbekistan 1,736 2,569 2,611 1,215 1,798 1,707 1,389 2 Kazakhstan 2,676 3,943 5,021 1,672 2,816 3,810 4,013 7 Qeorgia 1,377 1,772 2,364 1,033 1,664 1,515 918 1 Azerbaldzhan 1,207 1,701 2,148 804 1,002 1,728 881 Lithuania 999 1,207 1,601 399 580 1,028 499 Moldavia 602 790 1,154 302 411 776 302 ,atvia 1,258 1,434 2,014 1,143 1,254 1,458 572 Kirgizia 332 582 709 379 623 678 332 Tadzhikistan 502 692 821 274 377 411 395 Armenia 616 1,012 1,582 474 778 1,177 237 Turkmenia 475 665 . 750 332 404 415 237 1.18^ 688 809 283 Estonia _____ 994 1.130 — W zy o

Table 30 nreee* USSR, bv Branch and Republic. 1960. 1965 and 1970 Postal Service Long Distance - Telegraph * Telephone Network Network 70 1960 1965 1970. 1960 1965 - 1970 1960 1965 1970 ,217 342,397 471,808 674,873 82,698 127,792 178,235 111,414 144,853 150,245 ,252 219,292 294,937 398,965 52,495 81,577 119,245 73,480 94,129 94,742 ,315 51,167 74,210 126,586 10,441 17,746 24,162 17,368 22,053 24,813 ,946 13,731 19,723 27,594 3,769 4,837 5,308 4,039 5,209 4,706 ,437 7,986 11,820 18,981 1,904 3,341 4,059 2,436 3,084 3,031 ,418 17,392 28,162 34,432 3,216 5,632 7,732 3,808 6,759 8,315 :,350 4,476 5,607 10,793 1,492 1,881 2,540 1,836 2,798 3,214 ,027 4,324 6,172 9,220 1,207 1,964 2,086 1,418 1,823 1,921 >,128 4,889 6,156 8,854 1,692 1,931 2,549 1,197 1,327 1,334 5,790 2,950 3,804 8,020 842 1,214 1,544 903 1,214 1,295 >,219 5,030 5,559 8,094 1,715 2,027 2,227 1,372 1,673 1,685 1,195 2,324 3,848 6,013 664 1,138 1,613 616 980 1,157 *,632 1,782 2,461 4,134 639 968 1,192 639 780 881 1,140 1,543 3,268 4,872 664 1,167 1,411 664 934 1,100 I%881 1,899 2,517 3,794 807 982 1,169 807 1,044 1,049 ^487 3.212 3.564 4.521 841 1.391 1.399 841 _ 1.043 98C Rural Telephone Racllofication ' Radiobroadcasting Networks and Television ?70 1960 1965 1970 __1960 _ 1965 1970 .1960 1965 1970 3,212 49,395 61,770 64,322 52,477 75,820 77,238 26,758 35,054 43,085 3,193 32,660 37,652 35,728 27,994 39,310 39,278 18,665 23,443 29,100 3,722 6,674 9,855 10,700 13,348 19,325 21,226 3,336 4,710 5,106 3,339 1,346 1,861 2,382 1,077 1,574 1,859 808 1,031 758 2,611 1,215 1,798 1,707 1,389 2,313 2,214 695 771 834 5,021 1,672 2,816 3,810 4,013 7,322 6,432 669 1,689 2,679 2,364 1,033 1,664 1,515 918 1,131 1,197 344 449 700 2,148 804 1,002 1,728 881 999 1,306 301 362 618 1,601 399 580 1,028 499 528 395 299 344 367 1,154 302 411 776 302 433 678 120 227 326 2,014 1,143 1,254 1,458 572 694 328 343 400 416 709 379 623 678 332 633 733 96 160 293 821 274 377 411 395 397 455 365 598 738 1,582 474 778 1,177 237 396 475 142 227 523 750 332 404 415 237 315 333 191 212 371 1.182 688 695 809 283 ... 45Q_ 329 42Q 266

! I Source to Tables 28, 29 and 30* Ministeratvo sviazi SSSR, Anallz. op cit., pp. 9f 10 and 11, respectively. 3 0 0 T a b le 31

Product Assortment and Monetary Valuations (Prices) Used in the Computation o f Soviet Communications Output1 (Prices Effective January 1, 1972) Product Assortment Unit of Output Price Rubles Koneks C. Postal Service 1* Ordinary and Registered Letters and Printed Matter a) outgoing letter .8 b) Incoming " 1-4 o) in-transit 11 .3 2. Insured Letters and Printed Matter a) outgoing letter 8.6 b) incoming " 11.2 c) ln-translt * 4.1 3* Parcels a) outgoing parcel 14.2 b) incoming " 11.0 o) in-transit * 7.6 A* Money Orders

a) outgoing money order 6.4 b) Incoming " 14.6 5* Pension Payment pension payment 12.0 6. Periodical Publications a) outgoing single copy .2 b) Incoming n 1.1 c) in-transit ' ■ .2 7* Sbtall Packages with Correspon­ dence or Periodical Publications a) in-transit package 4.3 S. Insured Packages a) in-transit package 9.5 301 Table 31: Continued

Product Assortment Unit o f Output P r i c e

9* Containers with Parcels, Correspondence or Periodical Publications a) in-transit container 1 20 10. Hail Transport a) bgr motorized vehicles per kilometer 17 and waterways b) horse-drawn cartage 10.9 c) by railroads per ton-kilometer 3 11. Telegraph System 1. Telegram a) outgoing 1) sent by the PC system telegram 15 2) sent by the ATGL system 11 12 b) incoming " 25 c) in-transit N 8.3 2. Phototelegram phototelegram 50 3* international Telegram telegram 35 U* .Subscriber Telegraph Call per ruble of rate 55 revenue 3. Annual Service on Subscriber subscriber instal­ 183 Installation lation 6. Channels in the PC System direct channel con 936 nection 7. Newspaper Type Pages Sent Through Communications Channels

a) relayed type page U 10 b) d irect N 11 8. Channels Leased by Other Depart- ohannel per day 55 ments I II . Long Distance Telephone Communications 1. Long Dlatanoe Telephone Call 302 Table 31> Continued

Product Assortment Unit of Output Price ' RublesKopeks

a) outgoing per c a ll 24 b) Incoming ■ 11 c) in-translt 28 2. International Telephone Call per ca ll 83 3* Order for a Long Distance Call at a Trunk Call Office

a) outgoing per order 12 b) incoming ■ 10 4< Semi-automatic or Automatic Incoming Channel channel 1462 (Annual Maintenance)

5. Videotelephone Call per c a ll 19 6. Leased Telephone Channels a) telephone 1) to other departments per channel hour 4 2) to communications u 3 enterprises b) telev isio n per channel 12,786 c) wired broadcasting per channel hour 10 IV. Line-Cable Network of the Long Distance Telephone-Telegraph System 1. Overhead Line: Mounting and Operation (Annual Mainten­ per kilometer 27 40 ance) o f wire 2. Long Distance Cable (Annual Maintenance) a) symmetrical cable per kilometer 1) low capacity o f cable 385 2) high capacity a 601 b) coaxial cable a 756 Ve omit here the l i s t of monetary valuations on measures of output at tandem, toll and end offices. Monetary valuations differ accord­ ing to the channel capacities of the various multiplexed cables and also according to the type of transmission—radio relay, tropo­ spheric, telephone, television, etc. 303 Table 31: Continued

Product Assortment Unit of Output P r ic e

V. City Telephone Networks

1. Telephones under the jurisdic­ tion of the Ministry of Comnunications (Annual Service) a) main receiver 42 56 b) extension N 20 76 2. Telephones in the Network of Departmental Use that can be connected to the City Networks, and Telephones that cannot be receiver 50 connected but are serviced by the Ministry (Annual Service) 3. Public Pay Phones (Annual pay phone 145 Service) 4. Connecting Line (Annual Service) lin e 106 5. Direct Line (Annual Service) lin e 30 6. Installation of a Telephone receiver 7 VI. Rural Telephone Networks 1. Telephone (Annual Service) receiver 41 76

2. Overhead Line and Single-pair per kilometer of 48 Cable (Annual Service) wire (cahle) 23 3. Multi-1 pair Cable (Annual Serv­ per kilometer of ice) cable 95 86 4. Multiplexed Terminal Telephone per channel 422 76 Channel (Annual Service) 5. Installation of a Telephone receiver 8 80 6. Intraproduction Telephone Communications of Collective receiver 20 60 and State Farms (Annual Serv­ ice) O.S. Srapionov, Prlntslpy foraiirovaniia nomenklaturv i rascheta novykh tsen na orodukatllu predpriiatll sviazi. 1971, pp. 69-74. T a b le 32

Urban Telephone Systems: Selected C ities, 1927

World C ities Number of Number of Telephones Soviet Cities Number of . Number of Telephones TeleDhonesa Per 100 Inhabitants Telephones Per 100 Inhabitants

San Francisco 239,155 33*3 Moscow 65,350 3.17 Stockholm 114,923 28.6 Leningrad 49,079 3.03 Washington 147,347 28.6 Arkhangelsk 1,395 2.13 Chicago 903,460 28.6 Groznyi 1,625 1.67 Los Angeles 333,971 26.3 Khar'kov 6,520 1.56 New York 1,599,915 26.3 Ni zbnii- Novgorod 2,829 1.54 Cincinnati 154,021 22.7 (Gorkii) Copenhagen 126,849 16.4 Baku 6,884 1.47 Zurich 29,077 13.3 Kiev 6,864 1.32 Berlin 448,030 10.9 Rostov-on-Don 4,003 1.30 Paris 314,541 10.9 Irkutsk 1,161 1.18 Sydney 103,254 9.4 Tiflis (Tbilisi) 3,454 1.18 Havana 46,998 8.1 Kazan' 1,992 1.11 London 578,322 7.7 Saratov 2,251 1.05 Brussels 67,505 7.4 Odessa 4,269 1.02 Tokyo 129,548 5.8 Samara 1,671 .95 Vienna 105,420 5.4 (Kuibyshev) Prague 32,465 4.5 Novosibirsk 1,031 .86 Shwnghol 27,217 1.7 Astrakhan1 1,285 .73

Source: Bconomlka sviazi. nos. 5-6, 1929, pp. 100-101* Notes: * Is of January 1, 1927. As of October 1, 1927. v o T a b le 33

Postal and Telegraph Correspondence and Lang instance Telephone Calls: USSR, Selected Tears, 1913-1971 fm inions) _ ___ S e n t A n * n u ally Letters® Parcels Honey Orders and Newspapers and' Telegrams Long Distance Pension Payments Magazines Conversations 1913 981 20 42 443 42 7.4 1928 522 14 37 1,320 28 15 1932 981 34 38 4,€95 91 26 1937 1,277 31 77 5,731 103 50 1940 2,580 45 99 6,698 141 92 1950 2,607 44 205 5,877 154 103 1951 2,886 51 218 6,701 167 108 1952 3,164 55 231 7,435 181 115 1953 3,275 59 243 7,894 195 119 1954 3,432 65 255 8,782 201 126 1955 3,778 76 256 9,349 203* 135 1956 3,896 76 262 10,461 206 143 1957 3,838 82 281 11,353 227 152 1958 3,985 88 293 12,121 223 163 1959 4,103 91 304 13,125 230 172 I960 4,171 91 326 14,403 241 185 1961 4,075 98 337 15,562 245 197 1962 4,239 107 361 16,595 252 210 * 1963 4,537 120 394 18,059 254 218 1964 4,938 131 419 20,110 257 227 1965 5,241 128 494 22,599 273 257 1966 5,659 138 544 25,497 300 283 1967 6,296 151 568 28,344 323 314 1968 6,954 159 614 29,498 339 343 1969 7,584 168 633 31,458 357 386 1970 8,020 176 655 33,242 365 431 1971 8,341 180 675 35,092 372 479 3 0 6

Sources and Notes to Table 33

Sources: 1913-1970: TsSU, Tr. 1 avias1. op cit., 1972, p. 274, 1971: TsSU, Nar. khoz*. op c l t ., 1972, p. 313. Notes: a Includes pieces of mall sent, domestic. Comprises letters, postcards, printed matter, small packets and phonopost packets* Also includes mail carried without charge, but excludes ordinary packages, and Insured le tte r s and boxes. t t r t l o 34

C ity Telephone Systems: USSR, Selected Tears, 191 >-1971

Total Ho. of No. of (1). under No. of d a l No. of Apart­ Ministry releohone Offices Telephones* Ministry of Com­ Telephones ment Phones No. of No. of (5) Office No. of (7) munications Offices Automatic Capacity Automatic d o 3) (103) (103) d o 3) (10^ nos) (lO^ nos.) __ d ) (2) (3) (4) (5) (6) (7> (8) 1913 301 301 0 1,242 0 230 0 1928 — 325 0 89 1,566 0 290 0 1932 — 519 — 142 2,289 13 490 71 1937 — 769 — 211 3,640 73 864 272 1940 1,548 1,044 414 286 4,532 120 1,169 424 1950 2,092 1,231 871 338 5,105 218 1,341 563 1951 2,231 1,307 — 359 5,124 236 1,428 617 1952 2,422 1,392 — 381 5,167 262 1,533 689 1953 2,548 1,464 — 402 5,135 280 1,589 735 1954 2,698 1,566 — 435 5,179 324 1,716 823 1955 2,839 1,663 — 484 5,201 349 1,817 890 1956 2,983 1,770 — 545 5,129 405 1,904 960 1957 3,145 1,896 — 608 5,154 467 2,031 1,044 1958 3,360 2,032 675 5,147 563 2,168 1,152 1959 3,520 2,132 — 740 4,886 692 2,303 1,289 1960 3,753 2,284 2,142 813 4,949 884 2,494 1,468 1961 4,021 2,484 904 5,143 1,141 2,741 1,697 1962 4,350 2,732 — 1,012 5,382 1,469 3,004 1,971 1963 4,475 2,819 — 1,104 4,602 1,837 3,130 2,305 1964 4,864 3,166 — . 1,284 5,190 2,437 3,538 2,743 1965 5,490 3,715 4,110 1,538 6,107 3,077 4,193 3,351 1966 6,129 4,266 — 1,867 6,456 3,565 4,783 3,963 1967 6,867 4,893 — 2,262 6,740 4,095 5,482 4,722 1968 7,677 5,597 — 2,719 6,886 4,531 6,176 5,479 1969 8,570 6,353 — 3,209 6,934 4,815 6,945 6,299 1970 9,504 7,168 8,473 3,768 . 7,018 5,170 7,792 7,205 1971 10.436 _ — 9.47? —— — — — 3 0 8

Sources and Notes to Table 3U

Sources: All data from TsSU, Tr. 1 svlaz1. op cit., 1972, p. 233, except Column 3 and 1971 data, which are from TsSU, Nar. khoz. . op cit., 1972, p. 314* Notes: * Excludes telephones In the military service T a b le 35

Rural Telephone Systems: USSR, Selected Tears, 1923-1971 rotal Bo. of Bo. of ( 1) under ■o. of Dial Ministry Telephone Offices Telephones Ministry of Com­ Telephones No. of No. of (4) Office No. of ( 6) munications Offices Automatic Capacity Automatic do3) ( 10*) do3) (10^ nos.! (103 nos.) (1) (2) (3) (4) (5) (6) (7) 1928 6 0 1932 — 44 0 4,062 0 53 0 1937 — 103 0 8,809 0 141 0 1940 181 181 0 12,763 0 268 0 1950 221 179 1 12,777 31 234 .3 1951 244 193 — 13,257 112 255 2 1952 264 206 — 13,630 199 277 4 1953 289 222 — 14,119 343 303 7 1954 326 250 — 14,962 489 341 10 1955 351 269 — 15,520 616 367 12 1956 383 297 — 16,296 753 411 16 1957 413 324 — 16,959 1,080 448 24 1958 450 338 — 17,623 1,488 483 35 1959 503 381 — 18,609 2,069 554 52 1960 548 413 68 19,254 2,818 600 76 1961 598 448 — 19,928 3,525 646 99 1962 650 483 — 20,430 4,689 688 140 1963 814 660 — 23,271 6,905 965 225 1964 893 734 * — 24,470 9,132 1,044 317 1965 909 744 340 25,111 11,407 1,030 415 1966 986 806 — 25,832 13,156 1,096 521 1967 1,075 882 — 26,760 14,975 1,177 640 1968 1,192 995 — 27,820 16,884 1,295 787 1969 1,324 1,119 — 28,793 18,928 1,439 966 1970 1,483 1,268 993 29,990 21,157 1,616 1,183 1971 1,642 — 1,185 — — — — Sources of Table 35

Sources: 1928 - TsSU, Forty Years of Soviet Power, op c i t ,, 1958, p. 222) 1932-1970 - TsSU, Tr. 1 aviaz*. op c i t ., 1972, p. 285) 1971 and Column 3 - TsSU, Kar. khoz. . op c i t ., 1972, p. 3 1 1 T a b le 36

Demand fo r Soviet Communications Services: Regression R esults. 1955-64 Regression Equation ** j£ L DW Log x* = 8*2217 + •0242t .0345 .845 .931 (40.5196) (6.3651) Log Xo = 4*2828 + .05911 .0438 .950 .848 (52.5940) (12.2515) Log x-a = 5.5196 + •0547t .0203 .984 1.136 (146.6729) (24.5579) Log Xt = 9*1606 + .08l6t .0128 .997 1.797 * (385.9644) (58.0075) Log Xc = 5.3299 + .02711 .0224 .929 2.045 5 (40.5440) (10.9965) Log x, = .8824 + 1.3926 log n .0367 .819 .911 1 (.0701) (5.9149) Log x- = -13.7635 + 3.4239 log n .0488 .937 .779 * (2.5994) (10.9374) Log Xq = -11.2452 + 3.1806 log n .0251 .978 .983 9 (4.1255) (19.7360) log x/ = -15.8833 + 4*7511 log n .0168 .996 1.477 (8.6982) (44.0076) Log Xc = —3*0255 + 1.5850 log n .0210 .940 2.253 7 (.4192) (11.7452) CO 0 p\ log x, = 6.2200 + .4343 log q .0372 • .869 ~ (1.7117) (5.8110) Log *o = —6357 + 1.0667 log q .0517 .930 .724 (.3978) (10.2659) Log Xq = .9536 + •9902 log q .0306 .968 1.068 ** ** (1.0095) (16.1184) Log X# = 2.3143 + 1*4842 log q .0223 .992 1.523 4 (3.3637) (33.1716) log x, = 3.0472 + .4947 log q .0219 .936 2.528 3 (1.4274) (11.2694) log x, = 4.4146 + •4124 log y .0454 .710 .930 n (.5049) (4.4794) « log Xn = -5.3747 + 1.0452 log y .0689 .875 .741 * (1.2799) (7.4741) lOg Xq « -3.5366 + .9798 log y .0464 .931 .857 ^ (1.2509) (10.4064) log X/ = - 4.5434 + 1.4820 log y .0451 .969 1.057 4 (1.6542) (16.2026) log Xc = .6197 + •5089 log y .0139 .970 3.251 ? (.2309) (18.0044)

Motes: Figures in parentheses are t values. Simple regressions in log­ arithmic form were carried out on the basis of 1955-1964 data to de­ scribe the effect of economic activity on the Soviet demand for postal and telegraph services. The following dependent variables were used: 3 1 2 Xy = the annual number of outgoing letters; *2 = the yearly volume of parcels; X3 = the annual number of money orders; = the total volume of newspapers and magazines per year; x«; = the annual number of telegrams, x. were regressed againstx t = time; n = mid-year population estimates; q = annual real gross national product; y - annual per capita real disposable income. 3^ data are given in Tr. 1 sviaz1. op cit., 1967, p. 272. Population estimates are from James V. Brackett and John W. DePauw, "Population Policy and Demographic Trends in the Soviet Union," New Directions in the Soviet Economy, op cit., 1966, p. 657. q data are from Hunter, op cit., 1968, p. 36. y data are from Bronson and Severln, op cit., 1966, p. 526. In each case, the t value of the coefficient of the independent variable is significant at the .005 level. The five dependent variables were also regressed on total money income, per capita consumption ex­ penditures and official Soviet national income with similar results. The coefficients of the variables in these logarithmic equations are the elasticities. As expected, multiple regression on various combinations of the independent variables did not prove fru itfu l. In no case was the quality of f i t markedly increased, and since changes in income, output and consumption have been highly correlated with each other and with time, m ulticollinearity rendered estimation d iffic u lt.

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In addition to the titles listed above, articles from the following Soviet newspapers and trade journals have been used but are not specifically cited in the bibliography. Dates that appear after the journal title refer to the life­ time of the publication. Bkonomloheskala Gageta Ekonomlka Sotslallstlcheskol Svlazl (1932-1933) Ekonomlka Svlazl t1929-1931) XZT88t) H si Khozlalstvo Svlazl (1930) kommunlst Llteratumala Gazeta Planovoe Khozlalstvo Pravda Sotslallstlcheskala Industrlla Vechemlala Moskva Vestalk Statistlkl Vestnlk Svlazl