Payment for Production Assets

As has been shown, under the system of cost accountability the rate of profit is presented as "the supreme criterion of the efficiency of an enterprise", and functions in practice as the regulator of social production.

But the rate of profit is the amount of profit made by an enterprise as a percentage of the total cost of production assets (land, buildings, machinery, labour power etc.) used by the enterprise in the creation of that profit. Land, buildings and machinery (less depreciation) constitute fixed production assets, while materials, labour power and depreciation constitute circulating production assets and are "used up" in each cycle of production.

In orthodox capitalist society, production assets (or the money used to obtain them) constitute capital -- fixed and circulating respectively. In Marxist-Leninist terminology, production assets are termed capital only when they are utilised in association with the exploitation of the working class:

"Means of production... become capital only under circumstances in which they serve at the same time as means of exploitation and subjection of the labourer"

(K. Marx: "Capital", Volume 1; London; 1974; p. 717-8).

And since contemporary Soviet propagandists maintain that workers in the Soviet Union are not exploited, most prefer to use the term "production assets" in preference to the term "capital" and to deny that production assets in the Soviet Union constitute capital:

"Payment for assets... radically differs from interest on capital".

(B. Rakitsky: "Bourgeois Interpretation of the Soviet Economic Reform", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform; Main Featurs and Aims"; Moscow; 1967; p. 134).

However, the more candid contemporary Soviet economists, especially when writing in journals with a specialised readership, make no bones about referring to production assets in the Soviet Union as capital:

"The objective in profitability is defined in the form of the relationship of profits to the annual average planned value of productive fixed capital and normative circulating capital....

One of the important elements of the new system.. is the introduction of payment for capital".

(R. Krylov, L. Rotshtein & D. Tsarev: "On the Procedure and Conditions for Changing to the New System", in: "Planovoe khoziaistvo" (Planned Economy), No. 4, 1966, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 2; New York; 1966; p. 259, 272).

Clearly, the rate of profit made by an enterprise could have no reality if production assets of varying amounts continued to be allocated to enterprises by the state without cost, as had been the practice under the socialist system which formerly existed in the Soviet Union. In order that the rate of profit might be made a reality, therefore, the demand was put forward in the propaganda campaign which preceded the "economic reform" that production assets (including natural resources such as land, minerals and water) should be paid for in full by the enterprise makin g use of them:

"The time has come to eliminate the situation in which fixed assets allocated by society to any given production entity are given without charge".

(V.S. Nemchinov: "The Plan Target and Material Incentive", in: "Pravda" (Truth), September 21st., 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 110).

"Normative charges on fixed and circulating assets represent one of the forms of expressing the minimum demands of society in relation to the expected economic results from the use of production resources. Charges on fixed assets should be regarded as an objective method of planning the profitability of an enterprise....

The introduction of compulsory normative charges on fixed assets will make it possible to put an end to the latter's gratuitous character".

(V.S. Nemchinov: Socialist Economic Management and Production Planning", in: "Kommunist" (Communist), No. 5, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 186).

"The use of profits as a criterion of an enterprise's efficiency presupposes the correct solution of the problems of payment for production assets...

The introduction of the principle that production assets must be paid for would serve as a powerful stimulus for the better utilisation of these assets".

(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 210).

"Payment for productive assets will become a powerful economic lever in stimulating their intensive utilisation".

(V. Garbuzov: "Finances and Economic Stimuli", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 41, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 52).

In September 1965 the Central Committee of the Communist Party of the Soviet Union endorsed the principle that enterprises should pay for the production assets which they utilised, and only the amount and method of payment remained to be decided:

"It is necessary to introduce deductions in favour of the state budget from the profits of enterprises in proportion to the value of the fixed and circulating assets allocated to them, with these deductions being considered as payment for production assets...

These payments are not proposed as additional contributions to the state budget over and above the payments which the enterprises are making now; the idea is to divert a considerable portion of the payments to the state budget through a new channel. In the future, payments for assets will become the most important part of the state's income, and the importance of other payments, including the turnover tax, will be correspondingly reduced".

(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 24).

"The proclamation of the principles of the economic reform by the September (1965) Plenum of the Central Committee of the CPSU put an end to the discussion of the expediency of introducing charges for productive capital... The question is no longer whether the actual principle of charges corresponds to the principles of socialist management, but rather pertains to.. the size of the charges and the rules for collecting them".

(E.G. Effimova: "On the Economic Content of Capital Charges", in: "Izvestia sibirskogo otdelenya Akademy Nauk SSSR: Seriia obshchestvennykh Nauk" (Bulletin of the Siberian Section of the Academy of Sciences of the USSR: Social Science Series), No. 1, 1971, in: "Problems of Economics", Volume 14, No. 11; March 1972; p. 49).

In the case of natural productive assets, such as land and water, utilised by enterprises, differential payments were introduced --

according to fertility, size, location, etc. in the case of agricultural land;

according to size, location, etc, in the case of building land;

according to size, location, the quality and location of deposits, etc. in the case of mining land;

according to quality and quantity available in the case of water:

"In the extractive industry, the productivity of labour, production costs and profitability depend, first, on the quality of natural resources.... and, second, on the location of the natural resources relative to the earth's surface, transportation lines and markets...

In order to remove the effect of natural and geographic factors upon profits in the extractive industry, it is necessary to introduce monetary payment for the development of natural wealth. The rates of payment should be differentiated depending on the quality and location of the natural resources....

In this case, the enterprise's profit will reflect only the level of economic efficiency of its personnel and will not depend on the given quality and location of the natural resource".

(V. Shkatov: "What is Useful for the Country is Profitable for Everyone", in: "Pravda" (Truth), September 1st., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 203, 204).

"The level of profitableness can be influenced by.. location and favourable natural conditions... But the economic reform envisages that such unequal conditions of operation.. can be smoothed over by differences in the level of payments for the use of assets".

(E.G.Liberman: "Plan, Direct Ties and Profitableness", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 56).

"Unequal conditions of work... can be evened out by differences in the level of payment for the use of assets and in the rent payments".

(E.G. Liberman: "Profitability of Socialist Enterprises", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 51, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 230).

"Differences in the size of profit obtained by different enterprises are often caused by the fact that some of them have more favourable natural conditions than others. Thus some enterprises extract coal by the open-cast method, while others have to resort to underground mining.. There are oil-wells with big and low yields. Individual enterprises extract raw materials with a high useful content, while others obtain materials or inferior quality sold at a relatively low price.

Special rent payments made by enterprises to the state budget have been introduced to stimulate the full use of natural resources and to even out the income of collectives operating in different natural conditions".

(P.G. Bunich: "Methods of Planning and Stimulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 46).

"The introduction of pay for water, differentiated depending on its quality and scarcity in some or other regions, will be of great importance".

(A.G. Aganbegyan: "Territorial Planning and the Economic Reform", in: ibid.; p. 95).

With regard to the method of payment for production assets, the procedure adopted at first was the payment of an annual sum by the enterprise to the state budget:

"The norms for payments for fixed assets and circulating assets will be established for a prolonged period of time -- several years -- so that a normally functioning enterprise will have profits left, after making its payments, for setting up incentive funds and for covering its planned expenses".

(A.N. Kosygin: ibid., p. 24).

In 1965 the annual payments averaged 15% of the value of the production assets being utilised by the enterprise. (L. Vaag: "According to a Single Rate of Profit", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 45, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 144).

In the case of new plant, the enterprise was permitted to begin payment of these annual sums after an initial period of adjustment:

"New machines, newly installed equipment, and shops and enterprises just put into operation cannot always produce their maximum effect immediately, and enterprises might experience certain financial difficulties in this connection. Therefore, it is proposed that payments for assets be made only after the end of the planned period envisaged for the full utilisation of capacities".

(A.N. Kosygin: ibid.; p. 24).

Later an alternative method of payment for production assets was introduced; the payment of a lump sum once and for all equal to the value of the assets concerned. This lump sum might be paid out of the enterprise's own funds or, if these were insufficient, financed by means of a bank credit granted to the enterprise; this credit would be repayable, with interest, over the period which the asssets concerned were regarded as likely to operate efficiently (the "depreciation period"):

"If investments are made with a received credit, enterprises, in addition to the interest rate, have to repay the loan... The period of repaying the loan is equal to the period of depreciation of the built project".

(P.G. Bunich: ibid,; p. 45).

Of course, if the equipment concerned can be made to function after the end of the depreciation period, it can continue to be utilised by the enterprise for the creation of profit without any further payments in connection with it:

"Can there be a situation when a credit is repaid, while the project created with it continues to function? Yes, if the conditions of operation of the given project have been exceedingly rational and it continues to function beyond the limit set by the depreciation period".

(P.G. Bunich: ibid.; p. 45).

It follows that, in pursuit of the maximum rate of profit, enterprises have an interest in paying a lump sum for ther production assets rather than annual sums, as well as in making old (and possibly obsolete) equipment operate as long as possible.

In 1971 industrial enterprises contributed, on the average, 17% of their profits to the state in the form of payments for fixed and circulating assets. (A.D. Kursky: "Economic Reform", in: "The Soviet Planned Economy"; Moscow; 1974; p. 303-4).

The question arises: since the introduction of payment by the enterprise for production assets, who owns these assets -- the state or the enterprise?

In the case of land and mineral resources, the state clearly retains ownership, so that the enterprise functions as a tenant paying ground rent (both absolute and differential) to the state as landlord:

"Pay for natural resources in effect represents differential rent".

(A.G. Aganbegyan: ibid.; p. 91-2).

The question of the ownership of production assets other than natural resources will be discussed in Section 6: "Ownership of the Means of Production".

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