Capital and Output in the Soviet Union, 1928-1937

Abstract

T HE whole problem of capital requirements in economic growth has received increasing attention in recent years under double impetus of post-Keynesian preoccupation with full employment in more highly developed countries and new interest in theory and strategy of economic development for underdeveloped areas. Growth models such as those of Harrod, Domar, and Fellner explicitly focus on productivity of investment, i.e., productivity of incremental additions to capital stock, as a determinant conditioning full-employment rate of growth.' At same time, most of projections for underdeveloped areas are based on models in which capital-output ratio figures as one of principal growth variables.2 In this context, there have been two schools of thought as to comparative levels of marginal capital-output ratios in developed versus underdeveloped economies. The first school, following good classical doctrine, maintains that on an a priori basis one would expect a comparatively low marginal ratio in underdeveloped countries, where capital is relatively much scarcer than labor. On other hand, second school argues that in early stages of development a large share of investment resources will need to be allocated to social overhead capital, productivity of which is low. Therefore on this account, as well as owing to shifts in industrial structure, while initial marginal capital-output ratio tends to be high, it will decline at more advanced stages of economic growth. For instance, Colin Clark maintains that the figure of capital requirements per unit of output rises . . . in early stages of industrialization, but that later effect of modern technology is to bring this figure down. I With this background in mind, it seemed to us that an investigation of incremental capital-output ratio in Soviet Union might throw some additional light on factors impinging upon problem of capital requirements during periods of rapid growth in early stages of development. The Soviet process of economic growth with its marked emphasis upon development of producers' goods and defense industries has been generally considered a highly capital-intensive one. However, as we will attempt to show, this conclusion seems to be belied by realities of Soviet development experience for economy as a whole, although it does have some validity for industrial sector alone. Specificially, in this paper we propose (i) to develop measurements of aggregate and industrial incremental capital-output ratios in Soviet Union, (2) to indicate some of factors which may account for comparatively low ratios observed, and (3) to point to some of implications of our results for measurements in general.