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Development under Two Systems: Comparative Productivity Growth since 1950

Published online by Cambridge University Press:  18 July 2011

Abram Bergson
Abram Bergson
Affiliation:
Harvard University
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Extract

A Familiar and yet notable feature of socialism is the nature of the countries where that form of social organization prevails. With few exceptions, all are economically among the less advanced countries of the world. At least, they were so at the time socialism emerged in them.

In those countries, then, socialism rather than its great rival, capitalism, has been the instrument for further economic development. How have they fared in consequence ? What in particular of the claim often made by proponents that socialism is a superior system for such development?

Type
Research Article
Information
World Politics , Volume 23 , Issue 4 , July 1971 , pp. 579 - 617
Copyright
Copyright © Trustees of Princeton University 1971

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References

1 International Publishers (New York 1932), 11–14.

2 The Council for Mutual Economic Assistance, founded in 1949. Yugosalvia too has been associated with this agency, but as an observer rather than a member. I shall also pass over Albania, however, even though it is a European member.

3 Organization for Economic Cooperation and Development, established in i960 as the successor to the Organization for European Economic Cooperation. Among OECD countries, I omit Luxembourg and Iceland because of their tiny size, Spain because of the lack of needed data, and Finland because of its somewhat special status. I must again bypass Yugoslavia, though it participates in some OECD activities as well as being an observer in COMECON.

4 The USSR apart, this means primarily the work of Dr. Thad P. Alton and his associates in the Research Project on National Income in East Central Europe at Columbia University, as collated in Dr. Maurice Ernst in “Postwar Economic Growth in Eastern Europe,” Joint Economic Committee, Congress of the United States [hereafter cited as JEC], New Directions in the Soviet Economy [hereafter cited as New Directions], Part IV (Washington 1966), and by Thad P. Alton, in “Economic Structure and Growth in Eastern Europe,” JEC,Economic Developments in Countries of Eastern Europe [hereafter cited as Eastern Europe] (Washington 1970). From one standpoint, the present essay might be considered as, in good part, an attempt to round out and explore the import of die voluminous data on Eastern Europe compiled in these studies of Ernst and Alton, though almost inevitably that has sometimes required reworking the data as well.

5 See Kuznets, Simon, Postwar Economic Growth (Cambridge, Mass 1964), 69ft, 99sCrossRefGoogle Scholar.

6 The incongruously high figure for 1950, compared to that for the prewar period, for Poland apparently reflects in part the wholesale boundary changes occurring as a result of the war. Per capita national income in 1950 in the postwar territory is compared with per capita national income in 1937 within the prewar boundaries.

7 I have focused on the level of output per worker as of a date, 1960, falling within the period 1950–67 to which the rate of growth of output per worker relates. F01 present purposes, would it not be more appropriate to refer instead to the level of output per worker at the beginning of the period, that is, in 1950? There certainly it much to say for doing so, but in that case the relationship between level and growth would become especially sensitive to statistical errors. An underestimate in output per worker in 1950, for example, might in itself mean that a low level was associated with rapid growth. I focus on i960 in order to limit the effect of such errors.

In somewhat technical language, reference is, of course, to the “regression” of the rate of growth on the level of output per worker. It should be observed that here and elsewhere, where such a relation is considered, or where reference is to an issue such. as that just posed concerning the significance of observed differences in tempo betweer COMECON and OECD countries, I take into account results of further calculation; of a conventional statistical kind set forth in the appended technical note.

The relative inexactness in the data for lower productivity OECD and COMECON countries is due partly, if not chiefly, to the limitations in available employment statistics, particularly the incomplete and uneven coverage of “helping family members” ir agriculture. I refer below, however, to comparative data on the rate of growth of national income per person of working age. It is reassuring that these figures seerr plausibly related to those in Table II.

8 In comparing rates of growth set forth in the text, note that the one which relates to output per worker in the labor force for COMECON countries is unchanged if East Germany is excluded, as is done for the corresponding figure from Table II on output per employed worker. By comparing employment with the labor force in COMECON countries, may we answer, after all, the recurring question concerning the level of unemployment in those countries? Because of the peculiarities of the COMECON concept of, and data on, the “labor force,” not really; at least not in any sense comparable to that in which unemployment is understood in the West. Compilation of meaningful comparative data on the growth of output per worker in the labor force does not seem precluded, although, to repeat, such data are no doubt fairly inexact.

Rates of growth of output per worker in the labor force, and per person of working age, are derived by use of essentially the same sources and methods as those used in deriving rates of growth of output per employed worker.

9 Though, according to the usual OECD practice, repairs generally are treated as an expense, in the case of Norway I understand that appreciable outlays of that sort are capitalized, and so included in both investment and national income. It should also be noted, however, that in compiling data on fixed investment shares for COMECON countries, I rather arbitrarily take one-third of so-called “capital repairs” as representing investment and national income. Capital repairs are major renovations that are intended to restore an asset to full working power; for example, replacement of a defective heating system. Such a category of outlay has no counterpart in OECD national income accounts. In practice, the bulk of such repairs must be classified, along with repairs generally, as expense, but, most likely, appreciable amounts find their way into investment and national income instead. Among COMECON countries, the one-third of capital repairs that are here treated in that way come to an estimated 6.8 per cent of gross fixed investment exclusive of such repairs.

10 To return to the relation between domestic and all investment among OECD countries studied, as implied, net foreign lending, the source of the difference between the two categories, has lately tended to be limited. That is not necessarily always so, but if my comparison of Soviet and OECD investment errs on that account, most often the error must be in the direction of overstating OECD investment. Where OECD net foreign lending is consequential, it almost always takes the form of net foreign borrowing. That holds true particularly for Greece, Portugal, and Norway, where net borrowing during 1952–66 amounted to 3.7, 2.9, and 2.3 per cent and during 1955–66 to 3.9, 2.8, and 2.1 per cent of the gross national product. Data on net foreign borrowing are lacking for Turkey and are incomplete for other countries. Canada too is probably a net borrower on some scale. Since the USSR was no doubt a net lender during the intervals in question, all investment for it must exceed domestic investment, while for Greece, Portugal, Norway, and Canada all investment must fall appreciably short of the domestic kind.

Inclusion of foreign lending in all investment is, of course, the conventional procedure. The procedure also has its logic, for net earnings on foreign assets are included in gross national product. The practice, however, is apt to be misleading. As we need not ponder long to realize, a country should usually gain more from borrowing than it remits abroad in the form of earnings on the borrowed assets. Hence, all investment, which excludes such borrowing altogether, should understate the increment of capital contributing to growth. By similar reasoning, for a net lender all investment should overstate the additions to capital contributing to growth. In short, even for Greece, Portugal, Norway, and Canada, my comparison of Soviet and OECD investment in terms of rates of domestic investment should not really be far off the mark after all.

Cited ratios of net foreign lending and borrowing to output are compiled from data on such lending and borrowing and the GNP in current prices. See United Nations, Yearbook of National Account Statistics, 1959 (New York 1960)Google Scholar, and corresponding volumes for 1961 and 1957; and United States Department of Commerce, The National Income and Product Accounts of the United States, 1929–1965 [hereafter cited as National Income, 1929–1965] (Washington 1966), 74–75.

I refer below in the text to investment in a more or less inclusive sense in COMECON countries other than the USSR. Data on net foreign lending by those countries are incomplete and obscure. All probably are, like the USSR, net lenders on a very limited scale. Comparative investment there and in OECD countries should be viewed accordingly.

11 See particularly the data on investment rates in the USSR, Hungary, Poland, and Czechoslovakia in Bergson, Abram, The Real National Income of Soviet Russia since 1928 (Cambridge, Mass. 1961), 235ffGoogle Scholar; Becker, Abraham, Soviet National Income, 1958–64 (Berkeley 1969), 94ff, 526–29Google Scholar; Alton (fn. 4), 59.

12 This presupposes that each country's output ideally should be measured in terms of its own “scarcity values.” That is indeed the case for an inquiry such as this, but it is illuminating that a further revaluation of output in terms of U.S. dollar prices would most likely raise the Soviet investment rate relative to that of Italy, though not to that of the USA. We may judge this from the fact that in 1955 a ruble of factor cost was worth, relative to a dollar, 94 per cent as much in respect of investment goods as in respect of output generally. The corresponding ratio for the Italian lira was 72 per cent. See Abram Bergson, “The Comparative National Income of the USSR and USA,” Conference on Research in Income and Wealth, International Comparison of Prices and Incomes (forthcoming). On the valuation problem posed by pricing distortions in COMECON countries, sec Bergson (fn. 11).

13 There can be no question about the capital stock per worker. That coefficient is, almost as much as output per worker, a hallmark of a country's economic development. According to every indication, capital per worker also tends to vary with output per worker as between countries. Evidence regarding the capital stock per unit of output, however, is meager and somewhat conflicting. At least that seems so for reproducible capital, which is of concern here.

14 Reproducible capital here also omits net foreign assets, and in the case of OECD countries, stocks in “general government” are also omitted. For fixed capital, reference is to an average of two index numbers, one representing gross and the other net assets. While housing was proverbially neglected in the USSR under Stalin, the stock increased at an impressive rate during 1950–62. With the inclusion of housing, Soviet reproducible capital still grew during that period at a rate of 8.9 per cent yearly. See Bergson, Abram, Planning and Productivity under Soviet Socialism (New York 1968), 81–82, 92–95Google Scholar, and the sources cited there.

15 Inclusive of housing, the Czech stock of gross fixed capital grew during 1950–62 by 4.8 per cent yearly. See Gregor Lazarcik, Czechoslovak Gross National Product by Sector of Origin and by Final Use, 1937 and 1948–65, Research Project on National Income in East Central Europe, OP-26, 1969, 71–73; United Nations, Economic Survey of Europe in 1961, Part II (Geneva 1964), p. 26.

16 Compare Kuznets, Simon, “A Comparative Appraisal,” in Bergson, Abram and Kuznets, Simon, eds., Economic Trends in the Soviet Union (Cambridge, Mass. 1963), 357Google Scholar.

17 As the more specialized reader will be aware, the coefficient that has been computed is similar to the “incremental capital-output ratio” (ICOR) familiar in economic growth analysis, though not quite the same thing. For the ICOR, one compares the increment of capital with the increment in output that is associated with it. For the coefficient computed here—perhaps it should be called the “incremental capital-productivity ratio” (ICPR)—one also compares the increment of capital with that of output, but after the latter is reduced by an amount proportional to the increase in employment. Neither the ICOR nor the ICPR represents the marginal cost of production in terms of capital inputs, as that is understood in economic theory, for the increment of output considered in both cases results not only from the increase in capital but also from technological progress. For the ICOR, it also results from the increase in employment. For the ICPR, the output increment is in effect discounted for the. latter, though crudely, in a proportional way.

The ICPR has been computed previously in Simon Kuznets, “Long-Term Trends in Capital Formation Proportions,” Economic Development and Cultural Change, ix (July 1961), Part II, 27ft.

18 See the appended technical note.

19 May not COMECON capital requirements also be inordinately large because the COMECON countries have concentrated especially on investment projects in “capital-intensive” industries—that is, in industries where capital-output ratios tend, for technological reasons, to be high? Is that not likely to be particularly so for the investment goods whose production the COMECON countries have been so concerned to expand? In other words, might not COMECON investment rates be high, at least in part, simply because they are high, and here too, therefore, without technological progress being any die slower?

Such queries are familiar, but, as already explained, for the economy as a whole, capital-output ratios do not appear by any means to have been notably high in COMECON countries. Even so, the volume of new investment evidently does turn out to be inordinately large there, relative to the increment of output per worker, if not of output, with which it is associated. But COMECON preferences and technology still seem improperly viewed in the way the questions posed suggest: as an additional, consequential cause of that relation.

What is in question essentially, I believe, is whether, because of the nature of their preferences and the technological constraints on factor proportions, COMECON countries had to undertake investment projects that were not only capital-intensive, but relatively unprofitable. While the technologies open to a country at any time are not very susceptible to generalization, presumably there is, in the expansion of one or another industry, usually a decided latitude to determine factor proportions in the light of relative “factor scarcities” in the economy in general. It should be possible, therefore, to extract from any project a rate of return comparable to that earned on capital in the economy generally. Through resort to foreign trade, it is also possible to assure the same result in determining the comparative stress on different industries.

COMECON countries admittedly have hesitated to conduct foreign trade on such principles, and there is much evidence that, even apart from that, they have tended to overcapitalize some economic branches at the expense of undercapitalizing others. The resultant sacrifice of efficiency, however, is properly seen here as a factor in, rather than apart from, COMECON performance regarding technological progress.

As to comparative capital intensities in different industries, that is a matter on which data are at hand only for the United States. Interestingly, the facts there are probably other than suggested. According to a study in progress, by Peter Petri, American capital-output ratios tend to be somewhat higher for consumption than for investment goods. At least that is so for fixed capital in 1958, the year investigated.

20 See, for example, Bergson (fn. 14).

21 I am indebted to Robert Allen for assistance in carrying out the calculations of regression relations presented here; and to Professor Earl R. Brubaker for helpful advice on the derivation of formula (vii) below.