Latsis: Economic Reform in USSR, page 4
Unfinished Capital Construction
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But the main reason behind the catastrophic budget deficit seems to be the operations of ministries and departments. Primarily, there was the massive investment in new capital construction. Paradoxically, new factories were being built while many existing ones had only the man-power to operate one shift. New irrigation canals were being laid, with the Ministry of Land Reclamation and Water Resources of the USSR spending 130 billion roubles for the purpose between 1971 and 1988 - and precious little to show for it in economic returns. The country now has 700,000 kilometers of canals - or half as much again as motor roads - but the ministry has asked for another 230 billion roubles for its projects to the year 2005. It makes little sense to keep a ministry which returns a mere 30 kopecks per rouble of investment. The task of cutting back unfinished construction was formulated by the 27th CPSU Congress at a time when there were over 300,000 big and small projects under construction. But the old thinking prevailed, and capital investment targets for the current five-year plan period were set at 170 billion roubles a year, up from an average of 125 billion roubles in 1981.1985. Yet, in 1988 we went so far as to mothball some of the unfinished projects, Naturally, that move created some social problems and difficulties for the work collectives concerned, and involved certain outlays. projects worth a total of 24.2 billion roubles were frozen. But it turned out later that new projects to the tune of around 60 billion roubles were launched simultaneously.[Editor's Note: On October 1, 1989, unfinished capital construction was worth 204.1 billion roubles - a rise of 15% over October 1, 1988.] This, I think, is the root cause of the disaster which has hit the state budget and, ultimately, the consumer market. The introduction of cost-accounting at enterprises seemed to be the answer: they would use their money to expand production, and do that economically and thriftily. But what makes the reform half-hearted is, I repeat, that the ministries still uncontrollably command huge state capital investments. They actually spend money they have not earned, but receive from the state budget-and as much as they can get the government to give them-or wring from the enterprises subordinated to them. The resources at their disposal still remain bureaucratic property. Departments spend money arbitrarily without taking any interest in the resultant social effect. For example, it is more profitable for steelworkers to boost output in terms of weight instead of producing quality and special steels in sophisticated waste-saving shapes which are in demand. Do we need so many ministries and departments? I personally don't think we do, although I understand the logic of those who would like to keep them. A lively debate on the subject was held at the session of the USSR Supreme Soviet in the summer of 1989, with the pros and cons presented forcefully. Today, the number of national ministries has been cut to roughly 50, but figures don't matter: the important thing is that their operations have clearly come into conflict with the standards of efficient economic management. I see a direct relationship between the departments' old functions and spendthrift ways on the one hand, and the budget deficit and shortages on the consumer market on the other.
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