Theoretical Issues in Determining the Economic Potential of Applied Scientific Research
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The article examines how to assess the economic potential of applied scientific research, understood as the expected economic effect of introducing research results into production through new machines, instruments, materials, and processes. It criticizes prevailing methods for understating efficiency by reducing new technology to identical effects with existing variants and by using static calculations that neglect qualitative changes, periods of model renewal, obsolescence, production dynamics, and the time factor. The author argues that evaluation should account for new use values and, where monetary calculation is difficult, relevant natural indicators, while also forecasting the effective application, output volume, and actual economic life of equipment models.
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THEORETICAL ISSUES IN DETERMINING THE ECONOMIC POTENTIAL OF APPLIED SCIENTIFIC RESEARCH
V. N. Shukov
(Presented by the scientific seminar of the Department of Political Economy)
At present, considerable attention is being devoted to increasing the role of applied scientific developments, that is, research directly aimed at creating new models of machines and instruments, and more progressive technological processes and materials. This is expressed, in particular, in an increase in allocations for applied scientific research. The importance of the indicator of the economic efficiency of scientific research is growing in the planning of scientific and technological progress and in the evaluation of the results of the activity of sectoral research institutes and design bureaus. Moreover, the economic efficiency of applied developments and of the new equipment produced on the basis of these developments must be directly linked with the economic indicators of the development of the sector.
In this connection, the development of methods for determining the economic efficiency of applied scientific research acquires exceptionally great importance. A specific indicator characteristic of the assessment of the efficiency of applied developments, as well as of research and development work as a whole, is their economic potential.
Economic potential is the total expected economic effect from the use of scientific research in production. However, it should be borne in mind that the economic effect of applied scientific developments is manifested through the economic efficiency of the new equipment created on the basis of a given development. Therefore, economic potential is calculated on the basis of the expected technical and economic indicators of new models of machines and instruments and the expected volume of production of these machines over a certain calculation period.
The methods currently used for determining the economic potential of applied scientific research understate
...satisfactory economic efficiency. This is explained, first, by the fact that the qualitative effect of creating new types of equipment that satisfy fundamentally new social needs and contribute to overcoming the limited nature of natural resources is not taken into account. Second, the expected economic effect is determined without taking into account the duration of the economic functioning of machine models and the influence of the time factor.
Scientific and technical progress is manifested not only in the reduction of the social costs of production. The creation of new use values, of a new quality of equipment, is also a most important result of the development of science and technology. The emergence of a new use value leads to a change in the qualitative structure of production, which, in turn, becomes the driving force of its further development. Thus, the invention of the steam engine had a significant influence on the development of material production in the eighteenth and nineteenth centuries. Today it would be difficult to imagine the development of modern industry without the introduction of automation equipment, electronic computing technology, etc., which determine a new stage of further economic progress.
Scientific and technical progress plays an enormous role in overcoming the limitation of natural, labor, and material resources, a role that has not yet found sufficient reflection in determining the economic efficiency of scientific and technical progress. The creation of new materials (synthetic rubber, polymers, artificial diamonds) plays an essential role in the development of modern production.
However, determining the economic efficiency of scientific developments that lead to a substantial change in the qualitative structure of production is a major independent task, connected with determining the economic efficiency of scientific and technical progress as a whole, and is not considered in detail in the present article. Here, only the influence of the qualitative effect on the calculation of the magnitude of the economic potential of applied research is of interest, when the latter leads to savings of social labor.
A number of authors, when calculating the economic efficiency of new equipment, proceed from the mandatory requirement of reducing the new variant to an identical effect with the old, replaced variant in all parameters. This approach was reflected in the new Standard Methodology for Determining the Economic Efficiency of Capital Investments1.
Reducing a new variant of equipment to an identical effect, by which is understood the reduction of qualitative differences to differences in one-time and current costs among the variants, makes it possible to calculate the economic potential on the basis of the magnitude of capital and operating costs for the compared variants. However, in evaluating the economic efficiency of scientific research, reduction to identity in many cases becomes unjustified. Scientific and technical progress leads to the emergence of a new use value, a new quality. Therefore, reduction to identity is excluded, since the new quality cannot be provided by any other method. More
therefore, the requirement of mandatory identity in all parameters, including quality, contradicts the economic meaning of such reduction. It encourages researchers to orient themselves toward the creation of low-progress technology, diverting them from the search for fundamentally new types of machines, materials, etc.
In those cases where scientific research leads to the creation of fundamentally new types of equipment, it becomes necessary to determine the full economic effect from the application of these models of machines and materials. The full economic effect may be expressed through a reduction in production costs for consumers, caused by an increase, for example, in product quality or labor productivity. Thus, the application of new radiation methods of materials testing (electron accelerators) makes it possible to detect defects at depths of up to 500 mm, which was not provided by other methods of inspection. This, in turn, makes it possible to increase the reliability of petrochemical and boiler equipment and to avoid its accidents or unscheduled shutdowns.
In a number of cases, determining the full economic effect from the use of scientific developments that lead to the emergence of a substantially new quality of technology is made difficult by the complexity of the calculations and does not ensure the required accuracy, or becomes altogether impossible—for example, in the case of improving safety technology, improving working conditions, or satisfying a new need (color television). In this case there arises a need for additional accounting of the qualitative effect in natural indicators.
A. S. Konson points to the role of the qualitative effect in determining the economic potential of scientific developments; he believes that the formal requirement of reduction to identity, as a mandatory requirement applicable to research-and-development work, is unacceptable in most cases.2
One of the most substantial shortcomings in determining the full expected economic effect of applied scientific developments is the static approach to its evaluation. It is manifested in the fact that the duration of the economic functioning of a scientific study, the lifetimes of machine models, the time factor, and the moral obsolescence of equipment are not taken into account. Such an approach contradicts the dynamic character of scientific and technological progress and ultimately leads to an underestimation of the economic efficiency of scientific developments.
Applied scientific research is realized in one or several models of machines. Any new model of machine has quite definite calendar lifetimes. Once it has arisen, a scientific idea is subsequently embodied in material form—for example, in a new model of machine. After a period of adoption, the new model is realized in the form of the production of machines of that model. Moreover, the production of machines increases gradually and, at a certain moment, reaches its maximum. As it ages, the production of machines of that model steadily declines. The latter is explained by the fact that the given model is replaced by a new, more progressive model of machines.
The lifetimes of machine models depend on two factors: first, on the technical level of the development itself, that is, on the—
since it has absorbed the latest scientific and technical achievements and, second, on the rate of technical progress taking place for the given type of machine. At the given technical level of a new design, the period of its economic operation is determined no longer by the development of the model itself.
The periods for renewing machine models—that is, the timeframes of substantial qualitative improvement—depend on the rate of technical progress observed in each given type of equipment. Thus, in the newest branches, such as radio electronics, aviation, and computers, the periods of substantial renewal are about five years. For traditional types of equipment (machine building, electrical engineering), these periods reach up to 10 years. However, the appearance of a new model does not yet mean the immediate disappearance of the old one. There are usually areas of application for machines of earlier models where they prove sufficiently effective. But the appearance of a new model of machines with the same functional purpose sharply limits the area of use of the old-model machines, which is expressed in a reduction in the volume of production of machines of the former model.
Consequently, the calendar lifetimes of one or another model of machine are objectively determined. Therefore, the more time is taken by designing and mastering the production of a given design, the shorter the period of its economic operation and the smaller the volume of production of machines of this model. Correspondingly, the smaller the aggregate economic effect from the new design.
S. I. Golosovsky points to the need to take account of the duration of the operation of equipment.^3 He believes that economic potential should be measured by the maximum economic effect that can be achieved when the results of research and development are introduced into production over the calculation period. However, S. I. Golosovsky recommends limiting the calculation period to five years from the start of implementation for designs, instruments, and technological processes, and to ten years for materials. The author provides no justification for such an arbitrary period, apart perhaps from a reference to the experience of some research institutes. Meanwhile, the magnitude of the economic potential of these developments depends substantially on the period over which the aggregate economic effect of new designs is calculated. The shorter the calculation period, the smaller the volume of production of machines of the given model. Therefore there can be no arbitrary calculation period. It must correspond to the period of renewal of machine models, to the period of their economic operation. However, calculation beyond a twenty-year period loses meaning because of the effect of the time factor. In this case, economic indicators fall within the limits of permissible accuracy.
Because of the action of the time factor—that is, the inequality of the same magnitude of economic effect obtained at different points in time—the law governing the distribution of machine output of a given model during the calculation period has a significant influence on the magnitude of the aggregate economic effect. If there is more intensive growth in the volume of production at earlier points in time, then the magnitude of the economic effect increases; and conversely, when machine output is shifted to la—
^3 S. I. Golosovsky. The Efficiency of Scientific Research. “Ekonomika,” Moscow, 1969.
at later moments of the calculation period, the total economic effect decreases.
For determining the economic potential of applied scientific developments, forecasting the areas of effective application of new technology and the volume of production (demand) for machines becomes of great importance, since its magnitude depends directly on the number of machine models and the quantity of output produced for each model. The rapid implementation of scientific developments in production also has a significant influence on the economic potential, i.e., the reduction of the time required for designing and mastering new machine models, owing to the effect of obsolescence and the accelerated renewal of technology.
Finally, the economic potential is determined, first of all, by the magnitude of the economic effect from the use of a single machine produced according to one or another model. The determination of the economic efficiency of using machines as such is usually carried out as the difference between the annual reduced costs for the old, replaced variant and for the new variant.
However, even in this case the rates of obsolescence and the duration of the economic functioning of machines are not taken into account. Annual reduced costs proceed from the uniformity of the annual economic effect throughout the entire service life, i.e., here too a static approach is observed, which contradicts the dynamic character of scientific and technological progress and the many-year operation of equipment. In reality, equipment is constantly being improved; new ideas and more advanced machine models appear. As a result, the difference between the cost reduction individual to a given machine and the average social reduction in costs is diminished, i.e., the degree of economy of the new machine decreases. The economic effect does not remain constant over a long interval of time. Under the influence of the time factor, its magnitude continually decreases until the period of obsolescence of the machine arrives.
The period of economic functioning of the machine as such is determined by the term of its obsolescence, which, in turn, depends on the rates of scientific and technological progress in a given field of technology. Throughout the entire period of obsolescence, the machine ensures a reduction in the social costs of production. Therefore, calculating economic efficiency on the basis of annual reduced costs diminishes the actual efficiency of technology, since the annual effect does not reflect the full economic effect. Moreover, depending on the length of the period for which the economic effect is calculated, the correspondence between one-time and current costs is disturbed. When variants are compared over a shorter period of time than the term of their obsolescence, the role of one-time costs relatively increases. Consequently, in this case less capital-intensive variants gain an advantage; these, as a rule, are less progressive and require greater operating expenditures. Accordingly, the economic efficiency of more capital-intensive variants is understated, i.e., of more expensive technology but one having lower operating costs.
Therefore, the calculation of the economic efficiency of a machine should be carried out for its entire service life, if the latter reflects the period of obsolescence of the machine. This requirement has found its expression, in particular, in the methodology for determining economic
the effectiveness of improving the quality of equipment of the Academy of Sciences of the USSR. However, the service lives of machines do not reflect the actual rates of scientific and technical progress. Thus, on average in machine building the renovation period is 17 years, whereas the renewal of machine models takes place much more rapidly.
In this connection it is necessary to forecast the actual periods of moral obsolescence, the periods of renewal of particular types of equipment.
Sometimes some economists interpret the formula of annual reduced costs as total costs, reduced with allowance for the time factor, over an infinitely long service life of an object. Such an interpretation of annual reduced costs is explained by the circumstance that depreciation is included in operating expenses. Depreciation deductions, accumulating, make it possible after the expiration of the machine’s service life to restore the machine. Thus, an “infinite duration” of the object’s functioning is ensured. In the present case, however, the real economic process is completely ignored. The latter is replaced by its financial reflection, the contradiction of which is manifested here especially clearly. In this case it is not taken into account that the reproduction of the machine over the course of its infinitely long functioning is carried out at a different technical level. In essence, the machine is reproduced in an entirely different qualitative determinacy, performing only a homogeneous function. Therefore, if one proceeds from the real economic process, it is incorrect to regard the machine as an infinitely long-lived object and to determine the total economic effect over a given service life. The reproduced machine is a new model, often situated at an entirely different qualitative level. The development of each subsequent machine model is, as a rule, the realization of another scientific study. Depreciation, as it were, depersonalizes the discreteness of the development of equipment, the discontinuity of its improvement. Consequently, the interpretation of annual reduced costs as a formula that takes into account the duration of machine functioning is untenable.
Thus, the determination of the economic potential of applied scientific developments must be carried out with allowance for the qualitative effect of the new equipment created on the basis of these developments, and with allowance for the duration of functioning of models of machines and of machines as such, produced according to each new model.