SCIENTIFIC AND TECHNOLOGICAL PROGRESS AND THE TIMING OF EQUIPMENT RENEWAL UNDER SOCIALISM

Yu. V. Kuznetsov

(Presented by the scientific seminar of the Department of Political Economy)

Scientific and technological progress is the decisive condition for increasing the efficiency of social production. The introduction of new equipment leads to a sharp increase in labor productivity, a reduction in the cost of the products produced, and an improvement in their quality indicators. At the same time, the character, content, and conditions of labor change. Under socialism, on the basis of the achievements of scientific and technological progress, the growing material and spiritual needs of the working people are satisfied. Therefore, under socialism, the progress of technology must objectively be planned and managed. In modern conditions, more than ever before, the equipment in use quickly becomes morally obsolete. Consequently, in order for the economic effect from the use of equipment to be maximal, it is necessary to establish the optimal limits of this use.

In theory it is usually not emphasized that the problem of the economic limits of the use of equipment essentially consists of two interconnected, but relatively independent, parts. The first is connected with the principles and criteria for the creation and introduction of new equipment into production. Here the question concerns the pre-production stage of equipment: research and design-and-engineering developments, and the stage of experimental production. The second consists in finding the most optimal limits for the use of the given equipment.

The initial methodological basis for solving the first problem is provided by the well-known indications of K. Marx: “If machines are considered as a means of cheapening the product, then the limit of their application is determined by the fact that the labor which their production costs must be less than the labor which is replaced by their ...”

application.”¹ As we see, Marx finds the basic criterion of the advisability of introducing machinery in the effectiveness of the labor expended, in its productivity. This is the general condition for the effectiveness of the machinery being introduced. “However,” Marx continues, “for capital this limit is drawn more narrowly. Since it pays not for the labor employed, but for the value of the labor power employed, the use of a machine is, for it, advisable only within the limits of the difference between the value of the machine and the value of the labor power displaced by it.”²

The question arises whether the indicated criteria are applicable to the conditions of socialist production. On this matter there are different opinions among Soviet economists. Most theorists unconditionally assign the first criterion to the conditions of socialist production, making it decisive and universal. In our view, something needs to be clarified here. After all, in this case Marx makes the reservation: “...if machines are considered as a means of cheapening the product...” Thus, Marx also has in mind other criteria for introduction. And indeed, machine technology not only makes the product cheaper by making labor more productive. To a decisive degree it changes the content, character, and conditions of labor, making labor easier and more spiritualized. It follows from this that under socialism the introduction of machinery is possible even when it does not save the labor being applied, but makes it easier.

We therefore do not share the view of L. Vaaga and S. Zakharov, who assert that “from the point of view of economic calculations, the limit to the use of a machine under socialism and capitalism coincides.”³ Of course, comparing the costs of the labor being introduced and the labor being replaced is of primary importance. However, this is only one criterion of the effectiveness of introducing new technology. Under socialism, purely economic relations are organically connected with social relations and determine them, and therefore the limits to the introduction of technology here are significantly broader than under capitalism.

For the same reason, and also because labor power under socialism does not have a commodity nature, the second criterion of the advisability of introducing new technology is inapplicable.

The decisive criterion for introducing new technology under socialism is the future socio-economic effectiveness of its use: an increase in the effectiveness of social production, i.e., a reduction in the value of the output produced and an increase in the productivity of the labor expended, improvement of quality, a change in the character and conditions of labor, etc.

These basic criteria for introducing new technology under socialism are realized in the process of its direct use and to a significant degree determine service lives. At the same time, the periods of use of technology are also affected by a whole series of other factors of a technical, economic, and social nature. This totality of factors affects the conditions and limits of the use of technology in the most contradictory, and sometimes mutually exclusive, manner. The most important of these factors are:

¹ K. Marx, Capital, vol. 1, p. 398.
² Ibid.
³ Socio-Economic Problems of Technological Progress. Moscow, Publishing House of the USSR Academy of Sciences, 1961, p. 336.

1) the degree of development of the material and technical base and the possibility of satisfying the need for equipment replacement;

2) the degree of physical and moral wear;

3) the depreciation rate;

4) modernization and major repair;

5) the degree of utilization of equipment;

6) the size of the replacement fund;

7) the material interest of the enterprise;

8) the level of prices for new equipment;

9) the social factor, etc.

We believe that it is impossible to derive a universal mathematical formula that would express the optimal service life with absolute precision. To do so would require giving strict quantitative definiteness to each influencing factor and bringing them into a comparable form. But, on the one hand, not all of them are amenable to quantitative expression (for example, material interest). On the other hand, they are dynamic and are largely determined by the specific conditions of place and time.

At the same time, we do not share the point of view according to which it is generally impossible to determine the limits of the use of equipment. Of course, this problem is very complex, and its solution is largely approximate in character; nevertheless, the objective necessity of finding expedient service lives is beyond doubt.

On the scale of the national economy and of its individual branches, the problem consists in finding average values expressing the socially necessary conditions for the reproduction of equipment. Within an individual enterprise these values may be determined more precisely, taking into account the individual conditions of production.

The degree of development of the material and technical base has a decisive influence on the periods of use of equipment. From the history of the development of the domestic economy it is well known that during the period of industrialization, in the years of the war, and in the period of restoring the economy destroyed by the war, equipment was operated for an exceptionally long time, to the point of complete physical wear, proceeding from its technical possibilities. Gradually, social production becomes more and more saturated with various technical means; the growing volume of their production creates the possibility of more frequent replacement of equipment. Economic criteria for justifying the service life are already being brought to the fore. Nevertheless, even now the period of operation of equipment in our country is still extremely long. According to the calculated norms, it is about 20 years. It is known that the level of development of the material and technical base of the USA is still higher than in the USSR. In 1969 the volume of industrial production of the USSR amounted to about 70% of the volume of industrial production of the USA^4). This also explains the shorter period of use of equipment in industrial production in the USA. According to available data, the average period of use of equipment in the USA is approximately 13 years. From 64 to 80–90% of all gross investment in fixed capital in the USA is directed toward replacement of fixed assets^5). Some bourgeois economists assert (for example, Gran Norwin) that in developed capitalist

^4) Political Self-Education, 1970, No. 1, p. 35.
^5) See: Yu. I. Lyubimtsev. Turnover, Payback, Efficiency. Moscow, Ekonomika, 1968.

countries it is advisable at the present time to renew equipment after 6–10 years. A. G. Terborgh even believes that the optimal period of equipment use should be 1–3 years. Undoubtedly, in this case, on the one hand, the shortening of the periods of equipment use is caused by reasons independent of the social form of organization of society. But, on the other hand, it is obvious that monopoly capital seeks to increase the depreciation rate and thereby conceal part of its profit and at the same time accelerate the process of capital turnover.

Some economists believe that, for the economy of the USSR, the task can be set in the coming years of bringing the service life of equipment to 14–15 years. For this purpose annual replacement should amount to 6.5–7%¹. However, at the existing rates of replacement, solving this problem is rather difficult. In 1969 the stock of metal-cutting machine tools in the national economy amounted to about 3,500 thousand units. If the indicated scale of replacement is to be ensured, then, for renewal alone, it is necessary to produce annually 230–240 thousand such machine tools. But it must be borne in mind that, for the time being, a significant (if not the greater) part of the increase in metal-cutting machine tools (206 thousand units were produced in 1969) goes to the expansion of existing enterprises and to equipping enterprises newly under construction. Mainly for this reason, the replacement of existing fixed assets is proceeding at extremely slow rates. According to the calculations of E. A. Ivanova², each year about 1.3–1.5% of industrial fixed assets are retired because of decrepitude and wear. The consequence of such insignificant renewal is the physical and moral aging of the existing stock of equipment. The data of the 1962 census of fixed assets indicate that, in industry, there was a tendency for an increase in the share of metal-cutting machine tools more than 20 years old. Such a tendency substantially reduces the effectiveness of scientific and technological progress and the efficiency of social production. At present, the moral wear of equipment occurs much earlier than physical wear. For example, in machine-tool building, one basic model of equipment now replaces another on average after 5–7 years. A change of model raises labor productivity by 15–30% and more. If, at the same time, the production technology is improved, then the increase in labor productivity reaches 40–45%³.

The need to renew the equipment in use under the influence of moral wear may be judged approximately with the aid of the indicator of the coefficient of moral wear⁴.

When both cheaper and more productive equipment is introduced, the final result will be the same. In both cases the cost of a unit of output decreases. Therefore, for an enterprise that has introduced new equipment, its technological cost will for a certain time be below the industry level. As equipment and technology develop, the two values gradually converge, then become equal, and finally the second value becomes smaller. In the latter case moral wear has occurred. To avoid the—

losses from obsolescence, or they can be reduced in various ways, for example:

1) by raising depreciation rates;
2) by modernizing equipment (!);
3) by replacing obsolete equipment;
4) by intensifying the use of equipment.

Until 1963 depreciation rates were constructed proceeding only from the physical wear of equipment, on average by branch. The depreciation rates introduced in 1963 are differentiated by types of fixed assets and, to a certain extent, take obsolescence into account. Thus, whereas before 1963 the average service life of fixed assets according to the depreciation rate was 30–33 years, at present it is about 25 years. At the same time, for the active part of fixed assets, i.e. machines, mechanisms, and equipment, this period is shorter. Thus, for universal metal-cutting equipment it is 15–20 years, for special-purpose machine tools 12–16 years, for forge-and-press equipment 20 years, and so on. But the problem is still far from solved. Therefore, indispensable conditions for increasing the efficiency of the equipment in use are the systematic revision of depreciation rates and their more scientifically grounded differentiation by branches and within fixed assets.

The service life of equipment is significantly influenced by its modernization. Scientific and technological progress, generally speaking, not only shortens the service life of equipment; at the same time it creates the material prerequisites for increasing the time it is used. The objective necessity of modernization is also caused by the fact that at present it is not possible to replace all obsolete equipment in a short period of time.

The facts show that modernization is often more effective than new capital investment. According to available data, expenditures on modernization do not exceed, on average, 30–50% of the cost of new equipment. Modernization makes it possible to eliminate both the physical and the moral wear of equipment. As a result, the technical and economic indicators of production improve significantly. They sometimes turn out to be higher than the analogous indicators of new equipment.

The question of the expediency of carrying out modernization is resolved by means of careful economic calculations of its effectiveness in comparison with the effectiveness of new equipment. In the opinion of I. L. Lebedinskii, for the machine-tool stock of Leningrad industry the modernization of equipment aged 12–14 years is currently the most effective—equipment that has not yet received the “lethal dose of obsolescence,” but already needs renewal⁵.

At the same time, the accelerated rates of scientific and technological progress and the more rapid replacement of basic models of equipment make it necessary to modernize equipment of a younger age as well (up to 5–10 years). The effectiveness of modernizing such equipment follows from the fact that the overwhelming majority of assemblies, parts, and accessories have not yet worn out, and therefore expenditures on modernization will be insignificant.

But losses from obsolescence can also be avoided (or reduced) in other ways. Obsolescence is often caused by insufficiently intensive use of equipment, as a re-

as a result of which part of its value, by the time the new model appears, proves to be unamortized. The most characteristic indicator of the intensity of equipment use is the shift coefficient. Unfortunately, this indicator of the efficiency of the use of machinery is still not high enough. Even in such most important branches of the national economy as machine building and metalworking, it amounts to 1.3–1.4. The large reserves for increasing production efficiency through better use of machinery may be judged from Leningrad machine building. Here, in 1965, 45% of mechanized production lines and 29% of automatic lines worked only 7 hours per day⁶.

Large reserves also lie in raising the degree to which the technical parameters of equipment are used. A survey of a number of machine-building enterprises in Leningrad showed that lathes of the 1A-62 type are used rationally in terms of power and spindle speed in only 15% of all operations, and 1A-62 machines—in 30%⁷.

However, all these measures, which reduce the effect of obsolescence, have their limits. In the case when neither modernization nor the efficiency of equipment use can provide at least the socially average conditions for producing output, an objective necessity arises to replace obsolete machinery⁸.

The achievements of scientific and technological progress can be realized in the best way when the corresponding economic conditions exist for this. The degree of efficiency with which machinery is used depends to a large extent on the enterprise’s interest in this. Consequently, it is necessary to create such an economic mechanism as would unite the interests of society and of the enterprise with respect to the most efficient use of machinery. The economic reform, the introduction of the principles of full cost accounting, is precisely intended to solve this problem.

Cost accounting makes it possible, by economic means, to include the enterprise in the national-economic production mechanism. Such a form of organization under socialism makes it possible to use production assets, and above all machinery, most efficiently. But the degree of development of cost accounting may differ (which is determined by concrete economic conditions). Hence there are differences in the efficiency with which machinery is used.

It is known that the system of cost accounting that had developed before the economic reform suffered, in many respects, from substantial shortcomings. In the course of the economic reform a significant part of these shortcomings was eliminated. Cost accounting became more complete and rose to a qualitatively new stage of development. All this has a favorable effect on the efficiency of the machinery used. Enterprises began to approach its evaluation differently. Economic calculation is increasingly becoming the decisive criterion of evaluation.

Under the new conditions of economic management, the source of technical improvement of production became the development fund. The development fund—

…production is intended to solve an entire complex of techno-economic problems: replenishing the stock of equipment, replacing worn-out and morally obsolete equipment, modernizing existing equipment, raising the technical level of production, etc. This complex character of the fund’s purpose explains the procedure by which it is formed from various sources: profit, depreciation deductions, and the value realized from the sale of retired and surplus equipment. In 1968, deductions from profit in the fund amounted to about 36%, depreciation deductions to 54%, and proceeds from the sale of retired property to about 9%⁹. With the formation of the development fund there arose an acute problem of supplying enterprises with material resources. In 1967 the development fund was used only to the extent of 69%¹⁰. In 1968 the situation improved, and the development fund was already used to the extent of 73%¹¹.

What is the role of the development fund in renewing fixed assets? The majority of economists dealing with the problem of the efficiency of funds believe that, in order truly to increase the efficiency with which fixed assets are used, it is necessary substantially to enlarge the development fund and to accumulate in it a larger quantity of resources. According to the calculations of E. F. Vasil’eva¹², at present the production-development fund provides, by 50–60%, only for simple reproduction of fixed assets. And if one takes into account that this fund finances not only renewal but also a whole range of other measures, then its size must, over time, be increased by 2–2.5 times.

The main role in the development fund is theoretically intended to be played by the depreciation fund for renovation. As is known, this fund is now distributed between the state and the enterprise. This proportion is established by the corresponding ministries, proceeding from the structure of production assets, production conditions, and the degree of physical and moral wear. The norms for deductions to the development fund from depreciation for renovation range from 15% in the fishing industry to 45% in light industry, the oil-refining and petrochemical industries, chemical and petroleum machine building, etc. These resources, left at the disposal of enterprises, are far from sufficient for effective renewal of technology. The interests of full cost accounting require that the enterprise receive at its disposal the entire depreciation fund for the full restoration of worn-out fixed assets. Then its share in the development fund will rise substantially, and it will perform the main functions in the effective reproduction of fixed assets.

But the development fund must be enlarged not only at the expense of the depreciation fund for renovation. Now, when the main emphasis in the technical re-equipment of production and in increasing its efficiency is placed on the resources of enterprises, it would be advisable to accumulate in the development fund also all resources for capital repairs and the reconstruction of enterprises.

1. See: Increasing the Efficiency of Technical Progress. Moscow, Mysl, 1967, p. 40. ↩

2. E. A. Ivanova, Reproduction and Use of Fixed Assets. Moscow, Ekonomika, 1968, p. 205. ↩

3. Increasing the Efficiency of Technical Progress, pp. 38–39. ↩

4. I. L. Lebedinskii, Technical Progress and Equipment Service Lives. Leningrad, 1968, p. 63. ↩

5. See: I. L. Lebedinskii, Technical Progress and the Service Life of Equipment, p. 77. ↩

6. Increasing the Efficiency of Technical Progress, p. 130. ↩

7. Increasing the Efficiency of Technical Progress, p. 131. ↩

8. We assume that society has at its disposal the corresponding stock of new machinery, and the enterprise has the monetary resources for acquiring it. In the absence of these conditions, it becomes necessary to continue production on the old technical basis with reduced profitability, or even at a loss. ↩

9. The National Economy of the USSR in 1968, p. 772. ↩

10. The National Economy of the USSR in 1967, p. 885. ↩

11. The National Economy of the USSR in 1968, p. 773. ↩

12. See: Cost-Accounting Incentives for the Work of Enterprises, Moscow, Mysl’, 1969, p. 71. ↩