Cost Accounting of Research Institutes as a Form of Economic Separation

A. A. Savenko

Science, being one of the forms of social consciousness, is becoming to an ever greater degree an essential factor in the development of the productive forces. By the present time it has turned into a major sphere for the application of social labor, material and financial resources. Thus, for example, in the USSR by 1967, according to Professor V. Sominsky’s estimate, about 3.3 million people were employed in the sphere of scientific research, while expenditures on science amounted to 7.2 billion rubles. If one also takes into account expenditures on the construction of scientific institutions and experimental bases for them, then expenditures on science amount to approximately 9 billion rubles, which represents about 4% of national income and 20% of annual capital investments in the national economy of the USSR¹.

The concentration of scientific institutions is also increasing noticeably. Thus, for example, from 1940 to 1965 the average number of scientific workers per scientific institution in the USSR rose from 54 to 140, and the average budget expenditure from 62 thousand rubles to 903 thousand rubles².

Such a significant volume of expenditures on scientific research in itself inevitably raises the question of their effectiveness and rational use. At the same time, the growth in the number of people employed in the sphere of science, the level of concentration of scientific institutions in terms of the number employed and the volume of equipment falling to each scientific institution, and the increasing complexity and technical sophistication of equipment necessarily pose problems analogous to those in production: improving the cooperation of scientific labor, its material stimulation, the planning of scientific work, and other economic problems.

The urgency of solving the tasks of increasing the return on labor expenditures in scientific research becomes all the more understandable because, according to some scholars, the effectiveness of science is declining. Thus, Doctor of Biological Sciences A. Neifakh writes that the number of people engaged in science doubles every 7–10 years, whereas the number of publications doubles every 13–15 years, and the total amount of scientific knowledge every 40–50 years³.

The new economic conditions to which production is now shifting cannot but bring about changes in the character of its ties with scientific institutions; they impose heightened requirements on the effectiveness of scientific developments and on the speed with which they are introduced into production.

One of the effective means of increasing the efficiency of scientific research is cost accounting. Usually, in proving the necessity of cost accounting for scientific institutions, one proceeds from the recognition of scientific labor as productive. In fact, K. Marx, for example, points out in Theories of Surplus Value: “...if the concept of productive and unproductive workers is taken in a narrower sense, then productive labor will be any such labor that enters into the production of a commodity (production here embraces all acts through which the commodity must pass from the primary producer to the consumer), whatever this labor may be—physical or nonphysical (scientific)”^4).

Developing this idea of Marx’s, many researchers, in our view quite rightly, point to the impossibility of modern production without reliance on science, and to the transformation of science into a kind of preparatory shop of production.

However, it must be borne in mind that cost accounting is also widely applied in the nonproductive sphere, for example in the service sector: barbershops, passenger transport, bathhouses, etc.

It is hardly possible to assign all areas of scientific activity to the productive sphere—for example, a significant part of research undertaken in the social sciences. K. Marx, further characterizing unproductive labor under capitalism, said that it “will be labor that does not enter into the production of a commodity and whose purpose is not the production of a commodity”^5).

At the same time, Marx believed that, for characterizing productive and unproductive labor in a broad sense, the essence of the given formation, the basic economic law of its development, is of enormous importance. Thus, for capitalism, productive, he said, will be any activity that brings profit to its organizer^6).

It seems to us that such a concrete-historical approach by Marx to the solution of this problem has important methodological significance under socialism as well. Developing Marx’s idea with reference to the communist formation, one may say that, since under socialism the basic economic law is the fullest possible satisfaction of the material and spiritual needs of society and of each of its members, any labor that promotes or directly sets itself the task of achieving this goal is productive.

In substantiating cost accounting for scientific institutions, it is necessary to assign them to the productive sphere. Therefore the main task is seen in correctly delineating the circle of scientific institutions, or individual scientific works, that directly serve the needs of production. In including research institutes in the productive sphere, the forms of cost accounting that have taken shape in industry are often mechanically transferred to the sphere of scientific research. This can be traced both in the existing practice of evaluating the activity of scientific institutions by the volume of expenditures on scientific developments and in proposals on—

^4) K. Marx, Theories of Surplus Value (Vol. IV of Capital), Part III. Moscow, 1961, Gospolitizdat, p. 409.
^5) Ibid., p. 409.
^6) For example, K. Marx, Theories of Surplus Value (Vol. IV of Capital). Moscow, 1961, Gospolitizdat.

move from this indicator to the indicator of the volume of scientific developments completed and transferred, in the prescribed manner, into production.

If a certain part of science is assigned to the production sphere, then it is logical to assume that cost accounting, being a product of the socio-economic conditions of socialism, should in principle have no differences in any parts of production covered by nationwide, state ownership.

However, the volume of expenditures of a scientific institution and of an industrial enterprise essentially characterize different phenomena. The growth in the volume of sales of an industrial enterprise’s output and, with certain reservations, simply the growth in the volume of its expenditures show that more use values have been produced and, consequently, that the volume of society’s satisfied needs is increasing. When output in physical terms is increased or product quality is improved, a reduction in costs is a positive phenomenon, since it characterizes growth in the volume of satisfied needs with lower costs on the part of society.

The matter is entirely different in scientific institutions. Here the growth of expenditures has no significance if it does not culminate in the development of a new, more advanced product, technological process, etc. Cost savings in themselves play no role if the result indicated above is not achieved. For a scientific institution, expenditures must necessarily be compared with the savings from the introduction of the development into the national economy.

It is precisely the amount of these savings that is the ultimate goal of the work of a scientific institution. Moreover, the basis should, of course, be not notional savings, but savings actually obtained as a result of introducing the scientific development.

To determine the economic efficiency of the work of a scientific institution, it is necessary to compare the savings from the introduction of its developments with the expenditures for carrying them out. These expenditures must be taken in full, that is, including here depreciation of buildings, structures, and equipment according to justified norms, and not only the wage fund, overhead expenses, travel expenses, and payroll charges for social insurance.

The volume of expenditures on developments introduced and transferred to production, although it does indicate that the work of the given research institute is in demand in production and finds application there, in no way indicates the true result of this work and does not give it a concrete measure.

For a research institute, the indicator of the volume of expenditures has relative significance, as compared with savings from the introduction of developments, and therefore cannot be the principal one. It may be used as cost of production is used in manufacturing: for planning within the research institute, for comparisons, for calculations, etc., and as an additional indicator in planning alongside the wage fund, the list of topics for scientific developments, and the deadlines for their implementation.

It is precisely the indicator of savings from the introduction of scientific developments into production that is analogous to the indicator of the volume of sold output in industry, since it characterizes the actual output, the final result of the scientific research undertaken. This indicator more fully reflects the specific character of scientific institutions. The indicator of the volume of expenditures, by contrast, places scientific organizations on the same footing as production organizations, ignoring the special feature of scientific institutions: that they must provide something new in comparison with what exists, and not multiply similar traditional products, technological processes, etc.

It should be said that the amount of savings from the introduction of scientific developments depends not only on the efforts of the scientific collective, but also on the breadth of use of the development in the national economy. Sometimes a development that produces a fundamental shift and requires impressive scientific efforts has limited application in production. It therefore yields a comparatively smaller effect than a development not connected with the solution of major scientific tasks, but one that has found the broadest application in production. However, the large economic effect obtained in the second case is a reality that benefits society as a whole. It seems to us that the corresponding stimulation of scientific collectives and individual workers for such developments has positive significance and does not represent any particular contradiction. It will encourage research institutes to solve problems of broad social significance that bring society the greatest economic effect.

The use, for evaluating the activity of scientific institutions, of the indicator of savings from the introduction of scientific developments into production encounters objections. First, calculating it is difficult, since sufficiently satisfactory methods for its precise determination do not exist; second, the realization of savings is considerably delayed in time from the moment scientific developments are completed.

Objections of the first kind speak only to the need to undertake more deeply and consistently the substantiation of reliable methods for calculating savings, and scarcely touch the substance of the question.

Objections of the second kind, obviously, reflect a real difficulty that can be removed through broader use of credit for financing scientific work.

If a research institute guarantees the receipt of a definite saving from undertaken or proposed scientific developments, ensuring not only reimbursement of the costs of carrying them out but also a significant additional effect within a definite period, then credit must be provided for such developments. That this need has matured is evidenced by statements by major organizers of science in favor of developing credit relationships between banks and economic enterprises and organizations and scientific institutions.^8

In essence, the practice of concluding economic contracts by scientific institutions for conducting research for interested organizations is a type of credit relationship that could serve as the basis for extending it to a broader circle of participants, provided that the existing practice is further improved.

For this purpose, the basis for concluding an economic contract should be a precisely stipulated amount of the economic effect from the development. Genuine cost accounting is possible here only when the economic organization introducing the scientific development has the opportunity, from the effect obtained, to reimburse the expenses of paying for the economic contract and to obtain certain accumulations, a part of which it must, naturally, transfer to the scientific institution.

The latter would make it possible for research institutes to form their own funds and a fund for the development of scientific work. These funds could serve not only the purposes of creating a certain scientific backlog, sourc—

^7 See, for example, Ekonomicheskaya gazeta, 1967, No. 35, B. Frolov, “Cost Accounting in Research Institutes,” p. 37.

^8 See, for example, Pravda, 1967, No. 349 of December 15, N. Chinakal — “Advance of Trust.”

... financing of exploratory and “initiative” scientific developments, but also be used to compensate organizations for losses when the terms of contracts with them have been violated. In other words, this would make it possible not only to solve the problem of material incentives and to expand the independence of a scientific institution, but also to ensure the introduction of strict material responsibility on their part.

The danger of mechanically transferring forms of cost-accounting organization of labor, characteristic of industry, to scientific institutions can also be seen in attempts to substantiate the concept of the price of a scientific development, advanced by a number of authors⁴. The concept of price now prevailing in the national economy of the USSR is the average sectoral cost plus profit at a certain percentage.

Such an approach to scientific developments appears unfounded, because in research institutes there are no objective conditions for the formation of cost as stable, decreasing expenditures on the production of repeated output. In scientific institutions, work is always undertaken for the first time; it is unique. If this is not so, then the work loses its scientific character.

Moreover, in essence it is precisely the research institutes that determine the level of expenditures on research and can impose it on customers. Such practice does not provide a firm basis for constructing effective systems of incentives and, consequently, nullifies cost accounting.

If the work of research institutes is planned according to expenditures (cost) or expenditures plus a certain percentage of profitability, calculated arbitrarily (price), then research institutes will strive to overstate the volume of expenditures, and this is within their power. Moreover, under such conditions it turns out that the greater the expenditures, the better the work of the research institute will be considered, as existing practice attests.

That is why it is more preferable to use, for evaluating the activity of scientific institutions, the amount of savings from introducing the results of research into production, despite the difficulties of calculating it for the planned period. This indicator encourages a struggle for its growth, which corresponds to the interests of the national economy, and at the same time, if incentives are built at the expense of the difference between the savings from implementation and the expenditures, it gives rise to an effort to reduce expenditures on scientific developments. But it also does not bind the research institute if, in order to achieve a greater effect, it is necessary to increase expenditures.

All authors who explain the necessity of cost accounting for scientific institutions on the basis of assigning part of scientific labor to productive labor proceed from an understanding of cost accounting as a method of using commodity production under socialism. Meanwhile, not every result of scientific activity, even of those scientific institutions that directly serve the needs of production, can be expressed in commodity-money form. For example, scientific developments aimed at reducing injuries in production, at improving safety engineering, as well as the printed output of scientific organizations, etc., are difficult or even impossible to evaluate in monetary form.

The question therefore arises: how comprehensive is cost accounting in the sphere of science? What are the limits and forms of its application in those

fields of science that only ultimately find their way into production?

It seems to us that, in order to answer these questions, it is useful to return to the causes and essence of cost accounting in socialist production and, on the basis of the formulated principles characteristic of the socialist mode of production in general, to consider the specific features of cost accounting in scientific institutions.

Under socialism, in connection with the socialization of the decisive means of production by the working people, a fundamental commonality of the root economic, material interests emerges. However, alongside this commonality there also exists a certain separateness of the personal economic interest of each worker. The basis of its existence is the substantial differences in the level of skill, the specific merits of each worker’s labor power under conditions in which it is impossible to ensure an abundance of material goods and, consequently, their distribution is organized according to labor contribution to social production.

Under socialism, the worker participates in production not individually but through a collective, which is brought about by the corresponding development of labor cooperation. This, in turn, conditions the existence of a certain economic separateness of the production collective.

A certain separateness of the economic interest of the production collective within the framework of nationwide socialization arises not only because a collective is the sum of individual workers with a certain difference in the economic interest of each, but also because all the workers together constitute a certain unity with a capacity for organization, for the manifestation of initiative, with a certain level of consciousness, discipline, and saturation with highly qualified specialists, etc., that is peculiar only to it. On the other hand, each production collective is placed in specific working conditions peculiar only to it.

All this leads to a different contribution by each collective to social production. At the same time, there exists a need to stimulate the maximum contribution, making use of the particular capacities and conditions in which the given production collective finds itself.

Such stimulation cannot fail to be based on an exact commensuration of the collective’s material remuneration with the magnitude of its labor contribution to nationwide production. It objectively requires the separation of part of the necessary product as a source of material incentives for collectively achieved results, depending on those results, or it must be a source of penalty sanctions for failure to use one’s capabilities, exceeding socially permissible norms. Material stimulation becomes complete only when material remuneration is supplemented by material responsibility.

At the same time, the very fact of the existence of a certain economic separateness of the production collective requires a certain operational and economic independence within the framework of the nationwide coordinated movement of production. This presupposes ensuring the manifestation of initiative, of undertakings on the part of the collective, and assigning to it, for independent use, part of the production resources. In other words, a certain economic separateness of the production collective inevitably entails separateness at the level of the collective not only of part of the necessary product, but also of part of ...

production funds directed toward replacing the means of production used, and of part of the surplus product used for expanding production. The size of the production funds and of the fund for expanding production set apart at the level of the collective, as well as the size of the separated part of the necessary product, must depend on the results of the production activity of the given collective.

Obviously, in order to construct an effective system of economic incentives, it is very important to measure accurately the labor contribution of each collective to social production. Such measurement takes place on the basis of the mechanisms objectively inherent in socialism: the directly social (planned) and commodity (value) accounting of labor expenditures, which are in inseparable unity and mutual interdependence under the primacy of the former for socialism.

Thus, by cost accounting we understand nothing other than the economic separation of the production collective, with all the consequences that follow from it. The cause and principal content of this separation is material interest in the results of labor.

Under socialism, material interest has universal significance. It extends not only to the sphere of production of material goods, but is also the decisive method for attracting people to labor and ensuring its growing efficiency in any field of socially useful activity.

The separation of the economic interest of the worker is also characteristic of the nonproduction sphere. If the necessary differentiation in remuneration in accordance with differentiation in the level of qualifications of workers in this sphere is violated, or if the principle of equal pay for equal labor is not extended to the production sphere, then such an outflow of workers from this sphere will begin (especially of the most highly qualified) that there will arise a necessity to restore the required proportionality in remuneration.

And in the nonproduction sphere, under socialism the labor of workers is predominantly cooperative in character. The result of cooperative, collective labor will also exceed the sum of the results of the labor of individual workers taken separately. In other words, here too cooperation of labor is a method of increasing its efficiency.

The unification of workers of the nonproduction sphere into a collective will also have as its consequence the appearance of a certain separation of the economic interest of the given collective in comparison with others.

Consequently, in the nonproduction sphere as well, the basic methods of cost-accounting organization of labor are in principle applicable. The difference consists only in the fact that separation will occur around the necessary product created not in this sphere, but systematically allocated by the production sphere for the maintenance of workers of the nonproduction sphere. The same also applies to the necessity of separating, at the level of the collective, part of the resources allocated to the nonproduction sphere, which it uses for replacement and expansion of nonproduction funds.

Although the nonproduction sphere exists at the expense of the product created in the sphere of production, nevertheless, since we find it necessary to direct part of this product toward ensuring functions of a nonproduction character, there arises the problem of the most efficient use of this product. The task is, with minimal expenditures of product and labor, to achieve the maximum result in one or another

areas of nonproductive activity can be solved, in principle, by the same methods as in the sphere of production.

The result of nonproductive activity is either a service or an idea. This result cannot always be measured by value methods. Where this is possible—for example, in that part of science which directly serves the needs of production—it is necessary and feasible to use value methods for evaluating both results and labor costs.

However, value assessments do not fully meet the needs of creating the most stimulating systems of cost accounting. This applies equally to the sphere of production and to the nonproductive sphere. Higher results of a collective’s activity, expressed in value form, do not always accurately reflect the efforts of precisely that collective. They are influenced by the level of equipment with means of production, the degree of perfection of these means of production, the level of provision with qualified personnel, natural conditions, i.e., factors that are the result of the activity of other collectives, of society as a whole, or are objects of public property, such as natural conditions. Conversely, lower value indicators of a collective’s activity are not always a reflection of weaker work by precisely that collective. In any case, the construction of material incentives taking into account only value indicators does not meet the tasks of establishing an exact link between the measure of labor and the measure of remuneration.

Therefore it is necessary to supplement value assessments of the costs and results of labor with directly social ones. It is necessary to develop socially weighted, socially necessary norms—units of labor costs and results. Such a task should pursue the goal of preparing the necessary prerequisites for economic management under the conditions of the communist stage of the mode of production, with the withering away of commodity production, and should contribute to solving the urgent questions of the present day.

One way or another, even now we evaluate the activity of collectives in the nonproductive sphere and, in accordance with this evaluation, construct our policy of material remuneration and of their material-technical and financial support. Consequently, the issue is not the necessity or lack of necessity of such an evaluation, but that it should be carried out by methods objectively corresponding to the nature of socialism, should correspond to the specific conditions of activity of nonproductive collectives, and should be scientifically grounded.

This requires a fundamental change in the approach to norm-setting in scientific and other nonproductive institutions. It is obvious that the fairly widespread view that creative labor cannot be normed—and hence the refusal to introduce any scientifically grounded norming of labor in almost the entire nonproductive sphere—must be overcome as inconsistent with present-day conditions and with the significance of so-called nonproductive labor.

Work carried out by a group of economists in scientific research institutes and design-and-engineering organizations of Leningrad shows that practically any labor expended in the sphere of science is subject to norm-setting.^10 The strengthening of the normative base of scientific institutions will make it possible to find a basis for comparing the results of activity of various scientific institutions and their structural

^10 See the articles by V. N. Baranov and I. D. Tyashansky in the collection Problems of Labor Norm-Setting in Scientific Research and Design-and-Engineering Organizations, Leningrad, 1967, published by the Smolninsky District Party Committee of Leningrad.

subdivisions, to determine the principles for allocating funds for the formation of the necessary incentive funds and the development fund of the scientific institution.

The explanation of cost accounting by the presence, under socialism, of a certain separateness of the economic interest of the collective—caused by the differentiation of material remuneration depending on labor contribution—seems to us the most fruitful. Such an approach points to the specificity of the method of management under socialism in comparison with other formations.

In fact, in characterizing cost accounting as a method of management aimed at achieving the maximum result with a minimum of expenditures, we point to what is general, to what the method of management represents in any formation. In this form it is one of the forms of manifestation of the universal law of economy of time. However, each mode of production differs in the means by which this goal is achieved, in the basis on which management in the primary economic unit of society rests. For the material interest of the worker in the results of labor, and the certain economic separateness of the collective of workers caused by it within the framework of national socialization, is peculiar only to socialism.

At the same time, understanding cost accounting as a form of the economic separateness of the collective contributes to understanding the socialist method of management as a link in the ascending chain of development. Socialism, arising on the basis of the capitalist mode of production, where the primary economic unit is separated as private property and the motivating stimulus of development is the material interest of its owner in extracting the maximum profit, breaks the private framework of capitalist socialization, but cannot at once overcome the inherited level of development of the means of production, the cooperation of labor, and the substantial differences in the level of workers’ qualifications. This is what makes necessary a certain economic separation of the primary unit of the socialist economy—the production collective.

On the other hand, the system of effective collective economic incentives, which is the core of cost accounting, encouraging every step in the direction of the public good and the best methods of management, promotes the formation of such behavior in which rational management becomes a habit. The transition to communism means mastering the most effective methods of management, but ones that no longer require individual and collective material incentives for their manifestation. Under communism, the motivating stimulus of rational management will be the nationwide economic interest and, on this basis, the moral interest of the individual.

Other results of the application of cost accounting also operate in the same direction of creating the prerequisites for communist methods of management: overcoming substantial differences in the level of workers’ qualifications, improving the means of production, and, on this basis, raising the productivity of social labor to a level that makes it possible to ensure an abundance of material goods.

If cost accounting is regarded as a form of the use of commodity production under socialism, then the specificity of the socialist method of management is lost. For commodity production is not…

is a specific feature of any one mode of production. It remains unclear why, in the period when commodity production was universal in character, it was associated with an entirely different method of economic management—commercial accounting. The paths of transition to the communist method of economic management also remain unexplained.

Of course, commodity production occupies an essential place in cost accounting, just as planned regularity and other economic laws of socialism do. This merely testifies to the universal connection and interdependence of economic phenomena and processes.

1. See Ekonomicheskaya gazeta, 1967, No. 10, p. 7. ↩

2. See The National Economy of the USSR in 1965, Moscow, 1966, Statistika Publishing House, pp. 708, 709, 784. ↩

3. See Literaturnaya gazeta, 1967, No. 14, article “Institute of the Future,” p. 11. ↩

4. See, for example, L. S. Blyakhman, “Problems of Cost Accounting of Scientific Institutions,” in: Ways of Increasing the Efficiency of Scientific Labor, Part II, Novosibirsk, 1966 (materials of a scientific-practical conference); G. Kuzitskaya, “Raising the Role of Scientific Research in the Economy and Problems of Its Material Stimulation,” in: Cost Accounting and Material Incentives (in Industry and Construction), Moscow, Mysl Publishing House, 1967, p. 162. ↩