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FINANCE AND CREDIT IN THE US
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[BEGIN] V.PERESLEGIN __TITLE__ Finance and Credit in the USSR __TEXTFILE_BORN__ 2007-05-10T23:30:35-0700 __TRANSMARKUP__ "Y. Sverdlov" PROGRESS PUBLISHERS Moscow SEP 9 1977 [1] Translated from the Russian by Don Danemanis B. H. 0 E P E C JI E P H H *HHAHCbI H KPEflHT B CCCP Ha OHSMIUCKOM >!3blKe __COPYRIGHT__ First printing 1971The production, distribution and consumption of material things is the most important condition for the existence and development of human society. In modern times material production involves the manufacture, distribution and use of things not for personal consumption but for exchange, that is, they are made to be sold and bought.
For the producer of an article designed for the consumption of others to be able to acquire some other product in exchange, his product must undergo a metamorphosis---it must be transformed into money. This means that a commodity producing society inevitably uses money and inevitably engages in trade. Under these conditions the relations between people, groups and classes become commodity-money relations, that is, they are regulated by the exchange of commodities through the medium of money. The development of commodity-money relations thus gives rise to the need for finance and credit and to their extensive use.
Citizens of all countries have dealings with finance and credit institutions. Finance and credit matters are sources of controversy, and give rise to political and class struggles. Government 5 bodies and political parties, public institutions, organisers of production, individuals and entire classes, are all concerned with finance and credit. This is why most people take an interest in financial problems and want to know about the workings of finance and credit, and why they assume such an important rale in the life of ordinary people and in relations between states.
__ALPHA_LVL2__ What Is Finance?Finance is a necessary part of any modern economy. Finance concerns money and its utilisation in the economy. In essence, finance comprises the economic relations that arise in society in connection with monetary transactions and the formation of monetary incomes and expenditures.
Finance exists wherever there are money incomes and money is spent, i.e., where payments are made.^^1^^ Obviously, money incomes and expenditures are possible only where commodities are produced and distributed, that is, where commodity-money relations prevail. Incomes and expenditures relating to financial transactions have the following features: first, they are monetary in form; secondly, they are the result of the actions of people; and thirdly, the methods by which incomes are made, and the nature of payments, depend on definite conditions of social development. In particular, they are connected with the existence of the state. Monetary incomes and accumulations go to form financial reserves; their use provides the money for the various _-_-_
~^^1^^ The term ``finance'' derives from Latin ``financia'', meaning ``a money payment''.
6 requirements of individuals, institutions, classes and the state.The economic content of finance and credit, their role in social life and the range of relations they embrace, are determined by the mode of production, the level and the content of the productive forces, the relations of production within the framework of which these productive forces operate, the class nature of the state, and the extent to which commodity-money relations are developed.
It is not the private finances of individuals that are important in the life of people, classes and the state, in the development of a country and its economy, but public finances, that is, those expressing relations between groups and classes, and between the state and classes, and between the state and individuals and groups.
Financial science deals with public finance. It is concerned with the way monetary resources form and for what purpose they are used. These problems are important because public finance has a major bearing on the economic life of a country, on its government's activity, and fiscal policy and legislation, which affects the interests of all members of society, all classes, the financial interests and activities of all institutions and organisations. Taxes, duties, excises, loans, subsidies and grants are all closely connected with public finance.
__ALPHA_LVL2__ What Is Public Finance?Public finance has to do with the accumulation and utilisation of money resources by collectives of people and by society as a whole (and not by individuals). Therefore, the formation and utilisation of such money resources is linked with the activities of public organisations or institutions:~
7Public finance includes:~
a) state finance;~
b) finance of public institutions and enterprises;~
c) finance of public organisations.
State finance comprises the finance of the state (the budget, the finance of state-owned enterprises) and the finance of state bodies and institutions.
There are public institutions and enterprises in every country---co-operatives, credit institutions (societies), insurance companies, communal services, welfare services, etc. It is the monetary incomes, accumulations and expenditures of these institutions that comprise the finance of public institutions and enterprises.
The finances of various public organisations, such as political parties, trade unions and other voluntary organisations, also relate to. public finance.
The aggregate finances of state and public institutions and enterprises and voluntary organisations constitute public finance. But this designation of the parts of the aggregate, by a common name---public finance---is no more than superficial; common to them is only their difference from private finance. The specific economic content, the sources and forms of incomes, the methods and purposes of the distribution of financial resources, and the designation, purposes and nature of payments differ in the case of state finance from that of public institutions. The state, for example, imposes and collects taxes, while public institutions cannot and must not do it. The expenditures of the state too differ radically from those of public institutions and organisations. For example, there are pronounced differences in form and content between the finances of trade unions and those of the state.
8A clear distinction should be made between the public finances of capitalist and of socialist countries. Even though both are called public, there are fundamental differences between them.
__ALPHA_LVL2__ Public Finance in Capitalist CountriesThe fundamental differences between the economic and political systems of capitalist and socialist states, between the nature and functions of their economic systems make capitalist and socialist public finance quite different.
Private ownership of the means of production and of the products of labour is the typical feature of the capitalist system. Most of the national wealth and the key positions in the economy are in the hands of capitalist monopolies or individual owners. In capitalist countries, production and the economic activities of public institutions and enterprises are conducted solely for the sake of profit. State finances, including the state budgets, and the finances of state-owned enterprises and organisations account for the bulk of public finance under capitalism.
Under that system, state finances cover the finances used by the capitalist state to carry out its functions. Taxes are the principal source of revenue, accounting for 80 to 90 per cent of the state's finances. Karl Marx pointed out that taxes are the economic expression of the existence of the state.
The working classes---the workers and the peasants---are the principal makers of the money income of the state and of public institutions and enterprises. Their labour yields profits to stateowned enterprises. Besides, they put part of their earnings at the disposal of the state in the form of taxes and dues. Public financial resources 9 are formed from these profits, taxes and other payments.
Typical of modern capitalism is the growth, and the wide-spread activity and influence of monopolies and all other kinds of companies and corporations. The formation and growth of monopolies leads to the direct intervention of the state in the economy in the interests of the ruling class. The capitalist state takes various measures to regulate the economy and uses state finance in the interests of the ruling class.
The government seizes part of the working people's earnings by means of taxation and uses this revenue for subsidies, grants, compensation payments, armament orders, road construction, building and other state expenditure profitable to the capitalists. In this way it puts part of the meagre earnings of the working people back into the pockets of the capitalists. The capitalists and their monopoly associations thus exploit the state in their interests. The capitalist state spends part of its financial resources to maintain a police force, courts and jails, and to conduct political propaganda (press, radio, etc.) in favour of its system. Taxes, that is, the non-returnable and compulsory withdrawal from the population of part of its income are the main source from which these expenditures are covered. It follows that under capitalism public finance does not help to improve the living conditions of the people, but rather worsens them by redistributing part of their incomes to the capitalists.
__ALPHA_LVL2__ Public Finance in Socialist CountriesUnder socialism the means of production and the results of production belong to the people as a whole (state property) or to. individual 10 collectives (co-operative property). The state holds the key positions in the national economy. Public finance thus represents the finance of the whole national economy. It is a system of economic relations by which funds of money resources are formed and used in a planned way. The main purpose of public finance in socialist countries is to promote the most rational and effective utilisation of all national economic resources for the fullest satisfaction of the people's material and cultural requirements.
In socialist society, public production is the material basis of all finance. The incomes and accumulations of the state-operated and co-- operative enterprises provide the financial resources of the state and state-owned and public enterprises, which are used to develop the production of material wealth and to satisfy the growing economic, social and cultural requirements of the people. This makes the planning of public finance necessary. State and co-operative organisations determine the amount and the sources and dates of the money they expect to receive in the course of one, five or more years, and the amount, type and purpose of their expenditure. Thus, public finance in the socialist countries becomes a means of planned economic development.
__ALPHA_LVL2__ Public Finance in Developing CountriesIn those countries that have flung off the yoke of colonial dependence and embarked on independent political, economic and cultural development, social and economic reforms have extended to public finance. It is being reshaped to promote the creation and development of their own industry, carrying through land reforms, abolishing the vestiges of feudalism and the aftermath of 11 colonialism, struggling against neo-calonialism, and implementing measures for the organisation and advancement of education, public health and culture.
State finance is playing an increasing role in the public finance of these countries; the finances of public co-operative organisations and enterprises are gradually extending and becoming mare influential, and the finances of the state sector arc growing stronger and beginning to play a greater part in the economy. Public finance in these countries is thus becoming of increasing importance for their economic and cultural development.
[12] __NUMERIC_LVL1__ CHAPTER II __ALPHA_LVL1__ MODERN STATE FINANCIAL SYSTEMS __ALPHA_LVL2__ [introduction.]State finance has a long history. It emerged together with the state and developed with it.
__ALPHA_LVL2__ Definition of State FinanceState finance is a system of money relations between the state and the various classes and groups of the population on the basis of which the money funds of the state are formed and used for its many tasks and functions.
This concise definition does not fully reveal the content of state finance, but it shows that it is not money itself but money relations that determine its content, relations which have an economic and social character. The nature of these relations depends on the political system of the state. The state levies taxes, maintains the government machinery, issues bonds, and maintains an army. The state collects money resources and uses them for the performance of its numerous tasks and functions.
The tasks and functions of all capitalist states, and particularly of imperialist states such as the USA, West Germany, France and Great Britain, have little in common with the tasks and functions of the developing countries and differ entirely from the tasks and functions of the socialist 13 states---the USSR, Poland, the German Democratic Republic, etc. State finance in each group of countries has, therefore, a different economic content and structure, i.e., the character of the money relations and the aims and tasks assigned to state finance differ in each group.
__ALPHA_LVL2__ The Role of State FinanceIn the lives of different peoples and different countries state finance serves a different purpose and plays a different role. This is because the states themselves differ. Marx said that the capitalist state was a committee taking charge of the bourgeoisie's affairs. The socialist state, on the other hand, is a servant of the working people. Taxes paid by the working people are the main source of revenue in the capitalist countries. In fact, the working people pay about one-third of their income in taxes. The taxes imposed by the bourgeois state are a source of the additional exploitation of the people. The capitalist state uses most of its financial resources unproductively---to militarise the economy, pursue the arms race, maintain its machinery of suppression (the police, courts, jails, the army), and grant huge sums to capitalists in the form of subsidies, compensation payments and other privileges.
The content, structure, aims and purpose of state finance under socialism are entirely different from those under capitalism; they play an entirely different role in the lives of the people. The socialist state derives 80--95 per cent of its revenue from the income and accumulations of the national economy and not from the personal incomes of the working people. The bulk of the funds concentrated in the hands of the state is used productively---to develop and improve 14 production, to build new factories, to train and improve the skills of all categories of workers, to advance science and to raise the material and cultural level of the people.
In the countries which have flung off the colonial yoke and embarked on independent development, state finance is increasingly used to reorganise political and economic life, to wipe out the remnants of feudalism and colonialism, and to counter neo-colonialism. In these countries the role of the state grows from year to year and with it that of state finance. Financial resources are increasingly used to develop industry, advance agriculture and build cultural facilities. The economic and financial initiative of the local bodies of self-government in these countries is encouraged by the central governments.
In the course of their financial activities all states evole definite financial systems.
__ALPHA_LVL2__ General FeaturesThe state financial system comprises (a) the aggregate of money relations evolving from the forms and methods by which a state raises and employs its revenue, and (b) the system of financial bodies and institutions of a country procuring and employing the revenue of the state.
The first part of this definition refers to the socio-economic content of the state financial system, which is closely connected with the class nature of the state. The second part refers to the structure of the state financial bodies and institutions which implement the state's financial policy.
The state financial system consists of the following parts:~
the budget system, in which the leading role 15 is played by the state budget, the annual estimate of state income and expenditure;~
the taxation system, consisting of the sum-total of all taxes (compulsory contributions to the budget), and the forms and methods by which these are levied and organised;~
the state credit system, enabling the state temporarily to use moneys belonging to others which it later returns with interest. These funds are raised by floating loans, issuing bonds and drawing on the deposits of the population in savings banks (which invest their funds in state-issued securities);~
income from state-operated enterprises, which deposit part of their profits into the money funds of the state;~
customs revenues, consisting of moneys received as customs duties, i.e., as taxes on imported goods.
These are the principal links in the financial system, providing the state with financial resources.
As for the utilisation, state funds are channelled through the state financial system (a) to finance the various needs and undertakings of the state, i.e., to issue grants, subsidies and subventions, pay for the maintenance of the army, the government machinery, the police force, the development of science, etc.;
(b) to grant loans to other states, banks and organisations;
(c) to pay interest on loans previously received, and (d) to pay off state credits.
These are the main expenditures of the state. The economic content, structure and role of every part of the state financial system are determined by the social system and the class nature and functions of this or that state. Socio-economic conditions also determine the structure of financial bodies.
16As regards their organisational structure, state financial systems operate on two levels:~
a) central institutions acting on a country-wide scale and~
b) institutions acting on a local scale (regiun, district, community, province, etc.).
According to the nature of their financial operations, we distinguish:~
a) budget-financing bodies and institutions;~
b) tax offices;~
c) credit institutions (banks, savings banks, cooperatives, associations).
In capitalist countries the central financial bodies are generally represented by the Ministry of Finance (Treasury) which draws up and executes the budget, takes charge of tax collection, drafts financial laws and organises financing.
There are considerable differences in the financial, budget and taxation systems of various countries. We shall deal only with the characteristic features in the financial systems of capitalist and socialist states.
__ALPHA_LVL2__ Specific Features of the Financial SystemBecause of their identical class-economic content, the financial systems of all capitalist countries have much in common and there are no fundamental differences between them.
The typical features of the financial systems of all modern capitalist countries are:~
a) the limited nature of the state financial system, which is almost entirely concentrated in the budget system;~
b) the complicated, divided and anti-- democratic nature of the budget system.
In capitalist countries the means af production 17 are mainly in the hands of capitalists and their associations (monopolies). The state machinery is the servant of the bourgeoisie, the financial magnates, the true owners of the economy. For this reason, the state finance of these countries is limited to the state budget, which reflects the role, scope and functions of the state in safeguarding the interests of monopoly capital.
There is a great variety of capitalist budgets, estimates and funds. Yet the budget system lacks internal unity. Often, the state budget of a country does not unite the financial resources of the budgets of all administrative territorial units. The budgets of the many local state bodies are not subordinate to the central state budget. Budgets or separate estimates of state institutions and special extra-budgetary funds exist alongside the budgets of the administrative-territorial units. Thus, in the USA, the funds of the budgets of the individual states, local administrative bodies, the Agency for International Development, the Federal Aviation Agency and others are not part of the federal budget.
The US federal budget accounts for about twothirds of the budgetary system's financial resources, while one-third of the budgetary revenue and expenditure is accounted for by the budgets of the individual states and local administrative bodies: counties, municipalities, townships and towns. In all there are 85,000 administrative units having budgets af their own.
The income and expenditure of the British state budget is divided into two parts---the `` budget above the line" and the ``budget below the line''. The first covers all the ordinary revenue of the Treasury and the expense of maintaining the Royalty, most military spending and a few other expenditures. The second covers Treasury 18 operations connected with the issue of loans and the settlement of state debts, payment of subsidies to nationalised enterprises, etc. France has a state budget, special accounts, associated budgets, autonomous budgets, budgets of overseas departments and territories, special funds and extra-budgetary funds. At the time of the colonial war in Algeria, France also had an estimate for ``extraordinary expenditures in North Africa''. West Germany has an ordinary and an extraordinary budget. Italy also has two such budgets, and, in addition, a third named ``the movement of capital''. In Japan the state budget is supplemented by dozens of special accounts.
The abundance of budgets, funds, accounts and estimates complicates parliamentary control of state finance. The increasing centralisation of state finance and the limitation of the financial rights of local government bodies lends the budget system of the capitalist state an anti-- democratic complexion. The financial resources of the state are increasingly concentrated in the hands of the central government, while the financial resources and rights of local authorities are being continuously curtailed. Between 1913 and 1955 the share of local budgets in the general budget has decreased from 58 to 16 per cent in the USA and from 47 to 20 per cent in Britain.
The centralisation of state finance continues in these countries to this day. In the 1968/69 budgetary year the US federal budget included a number of extra-budgetary, so-called specialpurpose funds (social security, road construction, etc.) which accounted for 47,000 million dollars, that is, for almost 25 per cent of the total budget expenditure for the fiscal year.
In the principal capitalist countries taxes account for 85 to 95 per cent of the budget revenue. __PRINTERS_P_19_COMMENT__ 2* 19 Direct taxes from the population constitute 55 to 60 per cent of the total revenue of the US budget, and about 70 per cent of the British budget. If the taxes shifted by the capitalists to. the working people are taken into account, taxes from factory and office workers and farmers comprise over 80 per cent of all the revenue flowing into the US federal budget and the state budgets. The prime source of revenue in the latter are indirect taxes, comprising 75 per cent of all tax receipts. The states are entitled to introduce taxation. Between 1960 and 1964 the tax revenue in the state budgets increased by 50 per cent. Owing to the increase in prices on essentials, the main burden of indirect taxation is being borne by the working people. Since identical taxes are levied on goods by different bodies, the same commodity is taxed several times. The price of a cotton dress includes about 125 different taxes, of a man's suit---189, of petroleum---210. Taxes account for 56 per cent of the price of bread, for 64 per cent of the retail price of milk, 60 per cent of the price o.f footwear. In France, direct and indirect taxes paid largely by the working people constitute more than 90 per cent of the total budget revenue. Incomes other than taxes ( receipts from state-owned enterprises, sales of property, etc.) account for only five per cent of US budget revenue and for seven to eight per cent of British and six to seven per cent of French budget revenue.
Military appropriations constitute the principal item of expenditure in the budgets of capitalist countries. Direct military spending, indirect and concealed military expenditure, military pensions and payments an state debts (mainly connected with wars and war preparations) amount to 75 to 80 per cent of the federal budget expenditure 20 in the USA, 40 to 45 per cent in Britain, 30 to 35 per cent in France and over 35 per cent in West Germany.
Direct military expenditure has grown 70-- fold in the USA in the past 30 years, 2.5 times in Britain and nearly twice in France in the past fifteen years, and 3.5-fold in West Germany over the past ten years. In the 1967/68 fiscal year the direct military expenditures of these countries reached fantastic amounts: over 70,000 million dollars in the USA, 2,250 million pounds sterling in Britain, 23,500 million francs in France and almost 20,000 million marks in West Germany.
In connection with the enormous growth of expenditure on militarisation, deficits in the budgets of capitalist countries are becoming habitual. In the 46 years from 1914 to 1959 the US budget was drawn up with a deficit 29 times, that af Britain 32 times and France 42 times. In later years too the budgets of these countries were often drafted and executed with big deficits.
The figures given below show the rate at which the budget deficits of the principal capitalist countries are growing:
Budget deficit? (in current prices) 1951-- 1952 1954-- 1955 1958-- 1959 1962-- 1963 1966-- 1967 USA '000 rain, dollars 4 4.1 12.4 6.3 9.9 Britain mln. pounds sterling 149 763 182 74 948 France '000 mln. new francs 3.08 3 . 4 6 6.90 6.09 3.45 West Germany mln. marks 1,720 2,755 4,167 5,493 10,726 21To cover these budget deficits resulting mainly from the growing military expenditure, the capitalist states raise taxes and also issue bonds and large amounts of new paper money. The issue of bonds leads to the rapid growth of the national debt. In 1967 the US national debt was 326,300 million dollars as compared with 231,500 million dollars in 1955, that is, it increased in twelve years by 94,800 million dollars or by 41 per cent. The state pays annually about 14,000 million dollars interest on this debt alone. In Britain the national debt exceeds the total yearly national income. In France the national debt has increased by 30,000 million francs in the past ten years.
All this has weakened the state finances of the capitalist countries and thrown the capitalist world into a currency-financial crisis. The pound sterling and the franc have depreciated, and the purchasing power of the dollar has dropped. This has given a fresh impetus to the ``currency war": of the dollar against the pound and the franc, of the franc against the West German mark and the dollar, and of the West German mark against the pound, the franc and dollar. In these conditions the monopolies, aided by the governments of their respective states, do all they can to shift the economic burden of the currency crisis onto the shoulders of the working people. They have launched a new onslaught on the rights and basic interests of the people--- who as always have to pay for all the machinations of the financial magnates.
The militarisation of the economy and the budgets of the capitalist countries, the fall in the purchasing power of their currencies, the growth of the prices of consumer goods and of taxes, and the constantly increasing unemployment are all 22 impeding economic development and impoverishing the people.
__ALPHA_LVL2__ The Financial System of Socialist CountriesThe financial system of the socialist countries is entirely different. Its distinctive and advanced features are:~
a) it is a single, ramified system;~
b) its various parts are harmoniously linked;~
c) its material basis is stable;~
d) it develops and functions according to a plan;~
e) it serves the interests of the whole people.
The most important branches of the state financial system of the socialist countries are the budget system, credit, social insurance, property, life and accident insurance, and the finances of state and co-operative enterprises and organisations. Taken together they form a single state financial system. Each branch, and the system as a whole, has the same social basis.
The financial system of the socialist countries expresses the socialist principles and relations of these countries. It is subordinate to the people's state and the state uses it and directs the development of all its branches in the common interests and aims of the state and the people.
All the branches of the system are interrelated---the budget with credit, social insurance with the budget and the finances of enterprises; and property and private insurance with the budget and the finances of co-operative enterprises. The finances of socialist enterprises are linked primarily with the budget and with credit, but also with all other branches.
It is a distinctive feature of all the branches of the financial system, and of the system as a whole, that their material basis is stable. This 23 basis is formed by socialist production, which is in the hands of the state and serves the interests and requirements (if the working' people. The incomes and accumulations of the socialist econ omy are the main stable financial resources of the state and of every branch of the financial system.
The financial system of the socialist countries is planned. The sources of the revenue and its utilisation are planned for every branch of the system, and financial plans are binding. They determine the tasks and trends in the development of every branch and of the system as a whole. The state conducts its fiscal policy and influences the economic life of the country through its financial plans.
Centralised planning is combined with the initiative of local administrative, financial and economic government bodies.
The socialist financial system serves the people's state, whose basic functions are economic organisation, cultural and educational work, and the defence of the country. In keeping with these functions the socialist state uses the financial resources at its disposal mainly to expand production, develop science, culture and education, guard the health of the nation, improve living standards, and reinforce the country's defences.
Even a casual examination of the state budget of socialist countries, its revenues and appropriations, reveals the progressive character of socialist finance. In the budgets of most socialist countries the income from the socialist economy comprises 80 to 93 per cent of the total revenue. Taxes collected from the population constitute only 5 to 10 per cent. Appropriations for economic development account for 43 to 65 per cent, and for 24 social and cultural measures (education, public health, etc.) for 22 to 38 per cent.
The budgets of all socialist countries have a stable economic basis and are usually drawn up and executed with a credit balance (income exceeding expenditure). This ensures the stability and soundness of the whole financial system and of currency circulation.
In the socialist countries state finance serves the interests of the people by helping to satisfy diverse social needs. It serves to replace used productive assets and to expand existing ones; to pay the people who work in material production in accordance with the socialist principle of distribution according to the quantity and quality of work done; to provide material incentives for increasing production and higher labour productivity; to accumulate and preserve stocks of materials and financial reserves in the national economy; to maintain the apparatus administrating the various branches of the economy and government institutions; to protect state frontiers; to maintain the armed forces and carry out measures for the country's defence; to take measures to safeguard the life and health of citizens; to ensure public education, cultural development and the right of every member of society to rest, work and education; and to provide for citizens in the event of temporary or permanent disability (old age, sickness). The money incomes and accumulations of state-owned and co-operative enterprises provide the resources necessary to satisfy the above requirements. They are the main source of revenue. Other sources, including a certain share of the incomes and savings of the population also form part of the revenue. In the socialist countries the financial system is used to distribute and redistribute the national income 25 between the branches of the economy, between the various forms of property (that of the whole people [state property], co-operative and personal property), between the economic and administrative territorial districts of the country, between the enterprises of each branch of the economy, and between the various social groups of the population. The financial system carries out its distributive functions according to plan.
By distributing incomes and accumulations by means of its financial system, socialist society, as represented by the state and its various bodies, controls the production and distribution of the social product and the national income, checks the fulfilment of financial plans and commitments, the correct formation and utilisation of funds of maney at enterprises, institutions and organisations, and sees to it that financial discipline be strictly observed. This, in short, is the control function of state and public finances in socialist society.
This control function enables the state to enlist the assistance of financial bodies in safeguarding and multiplying socialist property (the property of the whole people and co-operative property), in raising the effectiveness of social production, in ensuring strict economy, and in raising the profitability of socialist enterprises and economic organisations.
Socialist finance plays a progressive role not only in the economy. It exerts a certain influence on every individual citizen, on every member of socialist society. The financial system helps to raise the people's living standards. The social insurance of factory and office workers and collective farmers serves this purpose. It provides for the employees of state and co-operative enterprises and institutions in the event of 26 temporary or permanent disability (old age, sickness, pregnancy and the post-natal period), and finances health measures and public welfare and cultural facilities. State enterprises and institutions provide the money for these purposes by remitting to the social insurance funds an amount proportional to the total wages. These sums arc not part of the wage fund; they are deducted from the profits of enterprises. In socialist countries the social insurance system is run by the trade unions.
The practical experience of the socialist countries shows that their financial system is both stable and sound. It is based on the steadily growing socialist economy, promotes production and improves cultural and communal services.
__ALPHA_LVL2__ The Financial SystemThe state financial system of the countries that have freed themselves from colonial dependence and embarked on the path of independent development has special features of its own. The economic and financial systems which these countries have inherited from colonial times are being radically reorganised.
The developing countries have large natural and human resources. They account for over 68 per cent of the world's territory, about 70 per cent of the world's population, close on 86 per cent of the capitalist world's oil reserves, 94 per cent of its tin, 62 per cent of its iron ore and about 70 per cent of its copper.
The former colonial oppression, the economic dependence of the developing countries on the imperialist states and their monopolies, still tells on their economies. Typical of them is the low 27 level of development of then forces of production.
The developing countries face the task of abolishing their economic dependence, reorganising their economy and gaining their independence from the imperialist monopolies and former metropolitan countries. Some of the newly-free countries have chosen a socialist orientation in their development and have begun to reorganise their economy on democratic lines. The financial systems of these countries are subordinated to this aim. The social and economic changes in these countries have a bearing on their finances, too.
The state finances of many developing countries are still in a very early stage of development. In countries whose governments are taking effective steps to transform finances from an instrument preserving the rule of foreign monopolies, feudal lords and the compradore bourgeoisie into an active lever for national economic development and for winning and strengthening economic independence, the reorganisation of state finance is proceeding quickly and is beginning to serve the interests of the nation.
The budget system is the most important part of the financial system of these countries. The budget system includes the central state budget and the local budgets of territorial units, such as states, provinces and districts. In addition to defraying the usual expenditures on the maintenance of the state machinery and the army, etc., the state budget is used to reorganise and develop the national economy, to expand and strengthen the state sector in the economy.
Every year a greater portion of the state budget resources of the developing countries is appropriated for capital investments provided for 28 in long-term economic reconstruction and development programmes.
Democratic changes are taking place in the financial systems of the countries which have chosen the socialist path of development: the development of local budgets keeps pace with that of the central state budget, taxes levied on the working people are gradually being reduced, while those imposed on the rich and feudal lords are being raised, and more money is being spent on education, public health, social insurance and defence. Part of the budget is used to organise and maintain national armies and the machinery of state.
In most newly-free countries the government is constantly increasing its spending on economic development. In the UAR, for example, such spending increased sevenfold between 1959 and 1963, and in India it grew fourfold between 1954 and 1963. This spending accounts for 20 to 50 per cent of the total budget expenditure in the developing countries. In those countries that have embarked on the non-capitalist path of development the expenditure on the national economy is much higher (as a percentage of the total budgetary expenditure) than in those countries that are still dependent on the former metropolitan countries. Capital investments play a major role in any country's rate of economic development. In the developed capitalist countries capital investments account for 20 to 30 per cent of the GNP (in Japan they accounted for 40 per cent between 1960 and 1965), but in the developing countries they account for only 12 to 18 per cent. Some countries (the UAR, Algeria, Kenya, Uganda, etc.) are appropriating a greater share of their budgetary resources to investments, but in most developing countries (especially in 29 Southeast Asia), capital investments are increasing exceedingly slowly, and in some (Burma, Ceylon) they have even exhibited a tendency to fall in recent years.
Lack of funds greatly hampers economic and cultural development in the newly-free countries. The national economy, which is only just beginning to advance, accumulates far too little. Taxes still account for 70 to 90 per cent of the budget revenue, indirect taxes making up the lion's share---they account for 60 to 80 per cent of all tax receipts. Customs duties account for up to 33 per cent af the indirect taxes.
Having far too few financial resources of their own the developing countries often have to seek outside financial assistance. They pay a heavy price for the ``aid'' they receive from the developed capitalist countries and monopolies, and this only retards the process of their liberation from economic dependence.
The difficult financial position of the developing countries can be seen from the deficits in their budgets. Of the 40 countries whose budgets are published in the UN Statistical Yearbook, about 35 have a budget deficit. Between 1959 and 1963 the average yearly deficit (expressed as a percentage of the total budget expenditure) ranged from 9 per cent in Iran to 35 per cent in Pakistan and 62 per cent in Jordan.
The foreign state debt and the governmentguaranteed long- and short-term debts of the developing countries grow every year. In 1955 they amounted to 10,000 million dollars, and in 1967 to 45,000 million dollars, a figure approximately equal to their total yearly exports.
One of the main reasons for the deficit in the balance of payments of most developing 30 countries and for the deterioration of their currency and financial positions is the unfavourable terms of foreign trade that result from the steady fall in world prices of the goods exported by them and the simultaneous rise in the prices of the goods imported by them.
The figures given below show the capital sums exported by the developed capitalist countries to the developing countries and the yield.^^1^^
Unit Yearly average between 1961 and 1965 19G6 1 . Means granted to developing countries (loans, credits, investments, subsidies) including ....... '000 mln. 8.46 9.09 a) loans, investments, credits percentage of total .... dollars » % 4.25 50.2 4.92 54.1 b) subsidies .... percentage of total ..... '000 mln. dollars % 4.21 49.8 4.17 45.9 2. Yield on capital : profit, interest, dividends . '000 mln. 4.25 5. 56 percentage of total means granted . . dollars % 50.2 61.2 percentage of investments, loans, credits % 100 113 _-_-_~^^1^^ See Finansy SSSR (USSR Finances) No. 11, 1968, p. 85.
31The export of private capital to the developing countries and the repatriation of profits also serves to aggravate the position of these countries. Between 1962 and 1966 private capital granted the developing countries and international agencies f4,400 million dollars for loans, credits and investments, and in return received from them 21,500 million dollars as profits, dividends and interest. Thus, the capitalists netted a profit of 7,100 million dollars, that is, far every 100 dollars of exported capital they collected from those who had availed themselves of their credits and loans a profit of 150 dollars.
In an attempt to improve the developing countries' financial position and to resolve some of the problems facing them, their delegates at international conferences (the Algiers meeting in October 1967 and UNCTAD 11 in FebruaryMarch 1968) have asked for greater funds at more favourable terms, and for the introduction of an international tax for development purposes. They have also asked for the revision of the terms on which ``aid'' is granted, the lowering of interest rates, an extension of the period for which credits are granted and the period of grace, and the setting up of a multilateral fund to level interest rates---in order to cover the difference between the rates on loans obtained on international capital markets and low-cost loans for development purposes.
Obviously, the imperialist states and private capital will grant financial assistance to the developing countries only if this is profitable to them, if such ``aid'' holds out the prospect of fresh profits. The metropolitan countries give this ``aid'' in order to maintain their commanding position in the ex-colonies, and in some cases succeed in their purpose. In a number of 32 countries, however, especially those steering a socialist course, economic changes and financial reforms are stabilising the state financial system, making it more and more independent of their former masters. These countries include the UAR, Algeria, India, Kenya, Guinea, and some others. The financial basis e.f these countries is steadily growing more stable, the national financial resources at the disposal of the state are increasing, and this enables them to speed up their socio-economic development.
The financial assistance selflessly rendered to the newly-free countries by the USSR and other socialist countries helps them to reorganise and develop their national economy, quickly rid themselves of their economic dependence on the imperialist powers, build up their productive forces, and abolish poverty and cultural backwardness.
By the beginning of 1967 the socialist countries in CMEA (the Council of Mutual Economic Assistance) alone had rendered economic assistance to more than fifty developing countries, and had granted them about 5,500 million rubles' worth of credits. They are helping the young states in the building of some 2,000 industrial enterprises, in the construction of such big projects as the Aswan High Dam in the UAR and many educational establishments. Between 1955 and 1965 the CMEA countries granted the young states longterm credits to the amount of 4,500 million rubles. This includes 3,000 million rubles granted by the USSR, 400 million by Czechoslovakia, and 229 million by Poland. These credits are granted on easy terms---for periods ranging from 8 to 12 or more years and at an interest of 2 to 2.5 per cent per annum, which is one-half to onethird of the interest rates charged for credits by 33 the capitalist countries. Moreover, (lie developing countries pay off the credits through deliveries of their staple export commodities, an arrangement favourable both to the creditor and debtor countries.
The financial assistance of the socialist countries is helping to put the national economies of the young developing countries on their feet. Credits granted by the socialist countries accounted, for example, for a large share of the resources used to finance the first three-year national development plan of the Guinean Republic.
The iron and steel works under construction in Annaba with assistance from the Soviet Union will satisfy Algeria's needs for rolled ferrous metal. And Bulgaria is helping Algeria to expand its cotton-growing areas tenfold.
The newly-free countries are taking steps to decrease their budget deficits by abolishing a series of unproductive expenses and introducing measures to promote the rational and thrifty expenditure of budget finance. At the same time they are looking for ways and means to develop further and reinforce their state finances and to use growing incomes to. accelerate their economic and cultural advance.
Every country that has freed itself from colonial dependence, or is in the process of doing so, faces the task of securing its economic independence. It has to decide the question of what road it should take in its socio-economic development---the capitalist road or the socialist road.
The peoples and governments of many young countries know from experience that capitalism has brought them nothing but poverty, unemployment, illiteracy and economic stagnation. Their sad experience in the past and the economic and political developtoent attained by some 34 former colonies, who arc now conducting an independent policy, increasingly prompt progressive leaders and members of the governments of these countries to adopt the ideas of scientific socialism. Progressive tendencies are becoming ever more pronounced in these countries and they are building up the prerequisites for taking the socialist road. This is leading to a decrease in unemployment, to the abolition of illiteracy, to the allotment of land to landless peasants, the promotion of the co-operative movement and the nationalisation of some corporations.
The young national states insistently look for sources and methods to finance industrialisation and the progressive development of agriculture, raise the cultural level of their peoples and improve their welfare, and thus to win complete independence. This is no easy task. It cannot be done by capitalist ways and means, which only leave countries in the firm grip of the imperialist powers and make them victims of neo-- colonialist policies. Practical experience has demonstrated, however, that the economic development, industrialisation and the cultural development of a country and the raising of living standards can be achieved without the fettering loans and ``aid'' of monopoly capital by taking the socialist road of development and applying democratic methods for the formation and the use of financial resources.
For historical reasons the Soviet Union was the first country in the world to throw off the fetters of feudal landownership and capitalism and to take up the building of socialism, a task now completed. From the very first days of its existence the Soviet Union placed its entire financial system at the service of socialism, peace and democracy.
35In the USSR finances played a major role in abolishing feudal relations, in destroying the capitalist system of economy and in building socialism. The effective fiscal policy of the Soviet Government, the flexible organisation of the financial system and the rational use af financial resources all played their part in establishing socialism in the Soviet Union.
Soviet experience in the organisation of finance and credit could be of great help to the peoples of the developing countries, especially those following the socialist path. It could help them in their efforts to accelerate their economic and cultural development and achieve their aim of socialist development.
[36] __NUMERIC_LVL1__ CHAPTER III __ALPHA_LVL1__ STATE FINANCIAL SYSTEM OF THE USSR __ALPHA_LVL2__ [introduction.]Finance and credit are component parts of the Soviet economy. In socialist society finance and credit have much in common. Both concern money relations and serve the socialist state as instruments for farming and using social, notably state, funds, and both financial and credit resources are made up from the incomes of enterprises, economic and public organisations, and the incomes and savings of the population. They also have common tasks and functions: both serve the cause of socialist and communist construction, both serve to distribute and redistribute the social product and the national income, and both have a distributive and control function to play in society. The content and aims of the measures taken by the socialist state in the financial and credit fields are similar in many respects and comprise in aggregate the financial policy of the state, which is part of its general economic policy.
At the same time the finance and the credit systems have distinctive features as regards the methods and forms for forming and utilising funds of money. The one-way and non-returnable movement of money is typical of finance, both in the process of the formation of money funds 37 (money income, taxes, dues, deductions, customs duties) and also in their utilisation (financing, subsidies, grants, payment of insurance premiums, pensions, etc.). But the two-way ( returnable) movement of money is typical of credit: funds belonging to third parties (savings, current receipts) are turned over to others for temporary use and are eventually returned to their owners.
The planned system of money relations in socialist society farms in fact a single system of finance and credit, but because ot the specific ways and means by which the movement of money is organised, it is necessary to treat finance and credit in planning, organisation, accounting and control as two separate systems.
In the more than half-century's existence of the Soviet financial system, it has traversed a complicated and difficult path. At the different historical stages in the building of socialism, the Soviet state has adapted the financial system to the prevailing economic conditions and to the tasks arising in connection with the socialist reorganisation of society.
We shall consider the questions connected with the organisation and utilisation of the Soviet financial system in the following four periods:~
a) the emergence of the financial system;~
b) the building of the economic foundations of socialism;~
c) the building of socialism;~
d) the building of communism.
__ALPHA_LVL2__ The Emergence of the Soviet Financial SystemOver half a century ago, in October 1917, a new type of state---the Soviet socialist state---was born in the October Socialist Revolution. This 38 made it necessary to create a new financial system in the country, one suited to the tasks of the revolution, one able to help the state and the people steer a socialist course.
The measures adopted by the young Soviet state in the financial field were successful because they relied on such economic reforms as the nationalisation of the land, railways, large-scale industry, the introduction of state monopoly in foreign trade, public ownership of the means of production in the decisive branches of the economy and the transformation of all natural resources into the property of the people.
For the first time in history state finance became a tool for undermining private ownership and for the expropriation of the expropriators. For the first time it began to promote the emergence and growth of socialist relations in society.
The Soviet government inherited from the old system a war-devastated economy. Industry and the railways were working inefficiently, there was a financial crisis in the country and the black market, hunger and poverty reigned supreme. The Soviet state faced the task of abolishing the dislocation and poverty, of rehabilitating all economic branches and launching the construction of a socialist economy.
The Soviet government destroyed the former tsarist government's state machinery, created a new Soviet state machinery, abolished all class privileges and national oppression, and seized the key positions in the economy.
Financial measures played an important part in all this. The most important of them were: 1) the nationalisation of the banks; 2) the abrogation, because of foreign intervention and the enormous damages incurred through the temporary occupation of part of the Soviet land, of 39 debts contracted by the former government of the Russian landowners and bourgeoisie and 3) the establishment of state control over all types of insurance and, later, of a state monopoly of insurance.
The financial system had to secure a large increase in revenue and the strictest economy of funds. Emission of money had to be reduced and ultimately discontinued. Banking had to be expanded in order to promote the growth of the state sector in the economy.
One of the most important factors in normalising the financial and credit system was the money reform completed in 1924. The old depreciated paper money was replaced by new Soviet treasury notes and silver and copper coins. Hand in hand with the money reform, budget and tax reforms were carried into effect. These furthered the aims of the economic policy of the state, strengthened the alliance between the working class and the peasantry, and strengthened the role of socialist elements to the detriment of exploiting elements.
Measures were taken to do away with the deficit in the budget: state expenditures were reduced, and the income from state-owned enterprises was increased primarily by introducing payments for goods and services and augmenting tax revenue, notably by substituting cash taxes for taxes in kind, and by developing credit operations to supply enterprises with circulating assets. The practice of financing enterprises directly from the budget was abandoned. Before the reforms all the needs of enterprises were paid for by the budget but enterprises did not receive money from the state for the goods they produced. Concurrently, local budgets were introduced (regional, district, territorial and 40 Republican). Some expenditures (mainly for local needs) were transferred from the central state budget to local budgets. And to reduce the cost of maintaining the state machinery, the number of government offices and their staffs were reduced.
While budget expenditures were decreased, new sources of revenue were looked for. State bonds sold to the population by voluntary subscription became an important source o.f cash. In the three budget years 1922--23 to 1925--26 budget revenue increased fourfold. By 1925 the budget deficit had been wiped out. Most of the available funds were earmarked for the development of the economy, and for culture and public health. State and social insurance was established at that time and the Soviet government made insurance of all kinds and forms a state monopoly.
Since the end of 1921 social insurance was carried out by insurance offices, which gave financial help to workers in the event of temporary disability, during pregnancy and in the postnatal period, issued maternity grants, defrayed funeral expenses, paid unemployment benefits (through the then existing special unemployment insurance offices) and pensions to invalids disabled by disease, mutilation ar old age, and paid for the medical treatment of factory and office workers.
It took some four or five years to create a new financial system with a sound socio-- economic basis. A resolution of the Third Congress of Soviets of the USSR (May 1925) noted that the Soviet Union ``had set up a sound financial system not only without foreign assistance but, moreover, in conditions of financial blockade, a system that enables the Soviet state to carry on 41 efficient work in all branches of the economy".^^1^^ By 1925--26 the Soviet financial system was able to promote the active implementation of the scientific plan of socialist construction evolved by Lenin, which provided for the industrialisation of the country, the socialist co-operation of farms and a sweeping cultural revolution.
Once the Soviet economy had regained its prewar level (1926--27), the Soviet state was able to begin building the material and technical basis of socialism, that is, to create the economic foundations of a socialist economy. For this it was necessary to accelerate the development of industry, notably heavy industry, to encourage co-operative farming and to increase the size of farms, to develop the socialist (public) sector of the economy and to raise the cultural level and living standards of the people.
The country's financial system was called upon to assist in the solution of these tasks.
__ALPHA_LVL2__ Organisation and FunctionsIn order to, build the material and technical basis of socialism the Soviet Union had first to lay emphasis on the production of means of production (machines, tools, coal, metal).
Without the industrialisation of the country it would have been impossible to ensure its defence and to raise the living standards of its people.
The Soviet state could not adopt the capitalist _-_-_
~^^1^^ Directives of the. CPSU and Soviet Government, on Economic Questions, Gospolitizdat, Moscow, 1957, Vol. 1, pp. 537--38 (Russ. cd.).
42 methods of industrialisation, that is, resort to colonial plunder, looting, unequal loans and binding concessions. These were incompatible with the principles of Soviet government.Lenin said: ``Our position is particularly difficult because we lack the means to restore our fixed assets, i.e., machinery, tools, buildings, etc.; and it is precisely that part of industry known as heavy industry which is the main basis o.f socialism. In capitalist countries these fixed assets are usually restored by means of loans. We are refused loans until we restore the property of the capitalists and landowners; but this we cannot and will not do. The only road open to us is the long and extremely arduous road of slowly accumulating our savings, of raising taxes in order to be able gradually to repair our destroyed railways, machinery, buildings, etc."^^1^^
The Soviet government adopted these methods. It industrialised the country without foreign loans, raised the funds within the country and practised the strictest economy.
The accumulation of funds alone does not resolve the tasks of industrialisation. It is no less important to spend these funds economically and rationally. All misappropriations and waste had therefore to be eliminated. Ten days after the establishment of Soviet power Lenin appealed to the population, saying: ``Be watchful and guard like the apple of your eye your land, grain, factories, equipment, products, transport---all that from now onwards will be entirely your property, public property."^^2^^ Lenin described the hardships the country was going through and added: ``At such a time---and for a genuinely _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 33, [>. 370.
~^^2^^ Ibid., Vol. 26, pp. 297--98.
43 communist society, it is always true---every pood of grain and fuel is veritably sacred...."^^1^^Lenin linked the safeguarding of socialist property not only with the preservation of public wealth but also with the inculcation of a communist consciousness in the masses, the spread of socialist and communist ideas among the people.
In his article ``Better Fewer But Better'', written in 1923, Lenin said that we must build a state in which we could ''. . . by exercising the greatest economy remove every trace of extravagance from our social relations".^^2^^
Lenin not only called for economy, but in his practical work saw to it that it was practised in every field. He took measures to save fuel, food and expenditure on the administrative machinery. In his speech on the occasion of the 5th anniversary of the Russian revolution Lenin said: ``We are economising in all things, even in schools."^^3^^ This was done to o.btain the funds to rehabilitate and develop industry, primarily heavy industry.
Lenin drew the attention of the Communist Party of the Soviet Union to the fact that it was not only necessary to use social funds thriftily, but also to ``accumulate'' more grain and coal, that is, to run the economy effectively and rationally, to achieve the best possible results in all economic fields. In his article ``Fourth Anniversary of the October Revolution'', he wrote: ``The proletarian state must become a cautious, assiduous and shrewd `Businessman'."^^4^^
Thus at all the stages of the building and _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 27, p. 397.
~^^2^^ Ibid., Vol. 33, p. 501.
~^^3^^ Ibid., Vol. 33, p. 426.
~^^4^^ Ibid., Vol. 33, p. 59.
44 development of the socialist economy, the Communist Party and the Soviet Government have attached the utmost importance to strict economy. This applied during the industrialisation period, during the period of the full-scale construction of socialism, when the building of socialism had been completed and the transition to the building of communism begun.The First Five-Year Plan (1928--32) was drawn up to govern the building of the economic basis of socialism. The finance and credit system of the USSR concentrated at that time on increasing socialist accumulations, on mobilising the funds of the population for the country's socialist industrialisation. The progress of industrialisation was attended by a steep rise in state incomes. In the 1927/28 budget year these incomes accounted for 5,700 million rubles (in the then valid currency), and in 1932 for 31,900 million rubles, i.e., a 5.6-fold increase.
Industrialisation resulted in the steady and rapid growth of the socialist sector, while rich exploiters in the villages and capitalist elements in the towns were increasingly restricted and ousted. On the one hand, taxation policy served as a means of mobilising resources for socialist industrialisation and, on the other, of restricting and ousting capitalist elements and furthering the development of socialist forms of economy and co-operative forms of agriculture.
The state's financial resources were used to accelerate the development of socialist industry, to form peasants' co-aperatives, to help provide agricultural co-operatives with machinery, seed and credits, and to raise the living standards of the people. Of the total of 120,100 million rubles spent under the First Five-Year Plan, 66.8 per cent went on financing the national 45 economy, 20 per cent on .social and cultural measures (public health, education, the development of science), 7.5 per cent on administration and deience, 1.9 per cent to pay for winnings and interest on internal loans, and 3.8 per cent on other expenses (maintenance of the procurator's office, courts, etc.).
Capital investments in industry amounted during the First Five-Year Plan period to 27,600 million rubles, of which 23,100 million rubles went to heavy industry.
During the First Five-Year Plan period the socialist sector became the dominant sector of the economy and small farms generally amalgamated in co-operatives based on machine farming. Formerly an agrarian country, the Soviet Union became an industrial-agrarian country and won technical and economic independence. The living standards of the people improved considerably. The foundations of the socialist economy had been laid.
__ALPHA_LVL2__ DevelopmentBy the end of the First Five-Year Plan (1932) socialist forms af economy had become dominant in the Soviet Union. The accumulations of socialist industry and trade grew steadily. The private capitalist sector had to all intents and purposes vanished, and the peasants were increasingly taking up co-operative forms of farming. The tax system that had been patterned before the First Five-Year Plan, when the private sector was still prominent in the economy, no longer suited the changed conditions. The complicated system of taxes obstructed economic 46 planning and price-fixing. The time had come, therefore, to unify the system of payments made by enterprises and organisations of the socialist economy and to simplify their relations with the state budget.
In 1930--31 a tax reform was introduced. The wide range of taxes paid until then by the socialised economy was reduced to two principal payments to the budget---a turnover tax and deductions from profits in the case of state-owned enterprises, and turnover and income taxes for co-operatives.
The financial basis of the rural budgets also had to be consolidated. The sources of revenue of Republican and local budgets had to be reinforced and stabilised. The Republican, territorial, regional and district (in towns) bodies had to be encouraged to fulfil state and local revenue plans. This was achieved by turning over part of the turnover tax to the Republican budgets (a certain percentage of the total collected). The Republican budget, in turn, turned over part of this revenue to the local budgets.
Compulsory agricultural insurance was reorganised at the same time. On October 1, 1931, differential insurance rates were introduced instead of the then existing unified rates. They were considerably reduced for co-operatives, while exploiters paid double the rates levied on individual working peasant households.
Agricultural taxation was reorganised to assist the organisational and economic consolidation of co-operatives and to encourage them to develop agricultural production.
To decrease the cost of industrial production lower rates were charged for operations of the USSR State Bank and long-term deposit and savings banks. At the same time the interest paid 47 by the state on bonds was lowered from 8 to 4 per cent, and the maturity of loans was extended from 10 to 20 years.
To improve financial discipline, financial control bodies were reorganised and a special Supervision and Inspection Department subordinated to the People's Commissariat of Finance was set up.
In 1936, changes were made in the method of taxing collective farms. Until then collective farms had paid an agricultural tax per hectare of the planned sown area and planned harvest. This agricultural tax was replaced by an income tax, payable on the gross income of the past year as recorded in the annual report of the farm concerned.
The growth of the socialist economy, the greater profitability of industrial production and the growth of incomes from agriculture helped to fulfil the financial programme of the Second Five-Year Plan (1933--37). A revenue af 469,400 million rubles^^1^^ was collected during this period, almost four times more than during the period of the First Five-Year Plan. The structure of the financial system that took shape during the building and the completion of the building of socialism is shown in the diagram on p. 49.
The present-day structure of the financial system of the USSR has in the main preserved the same socio-economic links and their interrelations.
The German invasion in 1941 interrupted the peaceful efforts of the Soviet people and made it necessary to mobilise enormous financial resources for defence against the aggressors. The Soviet financial system coped successfully with its _-_-_
~^^1^^ At 1937 prices.
48 __MISSING__ Organizational Chart. __PRINTERS_P_49_COMMENT__ 4---2729 49 new tasks and supplied the funds necessary to vanquish the enemy.During the war (1941--45) 55,100 million rubles (in current prices) were spent on direct military expenditure. These expenditures accounted for over 50 per cent of the total budget expenditure.
During these years the country's finances were concentrated in the hands of the state to the utmost possible extent. The obligatory and voluntary contributions of the population grew considerably. They accounted for 27,000 million rubles (26 per cent of the budget revenue) with the socialist economy providing over 70 per cent of the revenue. A war tax and taxes on bachelors, single persons and persons with small families were introduced during the war. Receipts from internal loans subscribed by the population also increased substantially. Many Soviet people contributed voluntarily to the defence fund and the Red Army fund to finance the building of tanks, aircraft and other military equipment.
A monetary reform was carried through in the Soviet Union soon after the war (in 1947). This raised the real value of wages and increased the importance of other financial levers in economic development such as cost accounting, costs, profits, finance and credit. Steps were taken to raise living and cultural standards: the working day was shortened, the wages of people in the lowerpaid brackets increased, social security improved, pensions raised and given to more people, tuition fees in the higher classes of secondary schools and at university-level establishments abolished, and the taxes on people in the lowerpaid bracket reduced and partly abolished. Later, on January 1, 1961, new money was issued, worth ten times as much as the old.
50The 1947 monetary reform had a beneficial effect on national economic development and on the growth of the Soviet people's living and cultural standards. In 1949--50, wholesale prices were adjusted and this made it possible to. put an end to the granting of state subsidies to industrial enterprises, and to raise the profitability of enterprises and the various branches of industry as a whole.
During the Fourth (1946--50), Fifth and Sixth (1951--60) Five-Year Plan periods the incomes of socialist enterprises and economic branches were the principal sources of revenue. These incomes were paid into the budget in the form of turnover tax, deductions from profits and income tax (from co-operative enterprises). The share of taxes from the population in the revenue decreased.
Expenditure on the national economy and on social and cultural measures accounted for the bulk of the budget expenditure. As compared with the war period (1941--45) there was a major cutback in defence spending. All parts of the Soviet financial system continued to develop, and began to play a greater role in the implementation of the economic, social and political tasks outlined in the Five-Year Plans.
In 1957 a new system of income taxes was introduced for collective farms (agricultural cooperative enterprises): instead of four rates (for different kinds of incomes), a single rate (12.5 per cent) was introduced, with differentials for the various Republics, regions and districts.
From January 1, 1957, income tax was no longer imposed on earnings below a certain minimum. In 1958 a considerable segment of the population was exempted from the payment of the tax levied on bachelors, single persons and 51 persons with small families. In I960 the Soviet government decided to discontinue floating loans for public subscription.
With the complete and final victory of socialism in the USSR, the economic, social, political and spiritual prerequisites for the transition to the building of communist society had been created, and the financial system of the Soviet Union was now subordinated to this task.
__ALPHA_LVL2__ The Soviet Financial System DuringThe 22nd Congress of the Communist Party of the Soviet Union (October 1961) adopted a new programme which maps out the basic tasks of communist construction in the USSR: the creation of the material and technical basis of communism, the formation of communist social relations, and the education of the new man.
The creation of the material and technical basis of communism on the basis of the development of science and technology, mechanisation and automation, and the constant growth of labour productivity has been declared the main economic task of Soviet society.
The decisions of the 23rd Congress of the CPSU (March-April 1966), which approved the Directives on the Five-Year Plan for 1966--70, laid a comprehensive basis for the fulfilment af the tasks outlined by the 22nd Congress.
All parts of the Soviet financial system are called upon to achieve an improvement in the wages system and in financial control over the quality and quantity of the work of enterprises and their workers, to encourage and extend cast accounting (a method of economic management in socialist society based on the commensuration 52 of expenditure and income from production), and in this way to achieve a saving of resources, a reduction of costs and an increase in the profits of enterprises.
The successful fulfilment of financial plans by every link of the financial system, strict economy and the rational spending of every ruble belonging to the people will hasten the advance of the Soviet people towards communism.
The state budget plays a cardinal role in marshalling resources for the building of the material and technical basis of communism, for raising the material and cultural level of the people and rendering financial assistance to the developing countries.
``The important role of the state budget in distributing the social product and national income,'' the Programme of the CPSU reads, ``will prevail throughout the period of full-scale communist construction."^^1^^
The role of the state budget in ensuring the economical and effective use of state finances is also enormous. Let us therefore examine how the Soviet budget system took shape and developed.
_-_-_~^^1^^ ``Programme of the CPSU'', 'the Road to Communism, Moscow, p. 536.
[53] __NUMERIC_LVL1__ CHAPTER IV __ALPHA_LVL1__ THE SOVIET BUDGET SYSTEM __ALPHA_LVL2__ [introduction.]The budget system is the principal link in the Soviet financial system. If we view any budget system apart from the social system of the country in which it exists, we may define it as the sum total of the budgets of all the administrativeterritorial regions and institutions of the country. In the Soviet Union the budget system covers the aggregate of all budgets plus all the juridical standards determining the competence of central and local organs in the compiling, approving and executing of budgets.
__ALPHA_LVL2__ Composition of the Soviet Budget SystemThe budget system of the Soviet Union includes: a) the Union budget; b) the budgets of the 15 Union Republics comprising the Union of Soviet Socialist Republics; and c) the state social insurance budget. Taken together these budgets comprise the USSR state budget.
The USSR state budget is the principal financial plan for the formation and utilisation of the ail-Union centralised fund of the Soviet state. The state uses the state budget to distribute and redistribute a considerable part of the national income among the two social sectors of the 54 national economy (the state sector and the cooperative sector), the branches of the economy, the Union Republics and the economic regions. Part of the national income flows through the budget to the centralised state fund and is distributed for the planned development of the national economy, for public education, the training of personnel, the public health service, social maintenance and for strengthening the country's defences and the maintenance of the state apparatus. In other words, the Union budget finances measures of ail-Union, country-wide significance.
The Soviet state budget also includes the state social insurance budget, which is drawn up and executed by the trade unions. The revenue of the social insurance budget consists of payments made by enterprises, organisations and institutions. Hence, social insurance in the USSR is paid for out of the incomes of the national economy and is ultimately effected at the expense of the state. Resources from the state social insurance fund are used to pay pensions, sick benefits and grants during pregnancy and the post-natal period, to send people to sanatoria and rest homes, and to pay for other measures aimed at securing improvements in the people's living and cultural standards.
The state budgets of the 15 Union Republics finance the economic and cultural construction carried out by the Republican authorities. The state budgets of the Union Republics consist of the Republican budgets and the state budgets of the Autonomous Republics (within Union Republics) and local budgets. The state budgets of the Autonomous Republics comprise the Republican budgets of the Autonomous Republics and local budgets.
55Every territory, region, autonomous region, area, district, city, town and village Soviet in each Autonomous or Union Republic has its own budget, known as the local budget.
The divison of revenues and expenditures of the state budgets of the Union Republics among the Republican budgets of the Union Republics, the state budgets of the Autonomous Republics and local budgets is governed by the legislation of each Union Republic.
The present structure of the USSR budget system may be depicted as shown on p. 57.
Even though there are tens of thousands of budgets in the Soviet Union at present, they together comprise an integrated and harmonious budget system. This is ensured by the fact that they are all component parts of the state budget of the USSR. Their unity is a consequence of the unified political and economic basis of the socialist state and of the unity of the aims and tasks of all organs of state power and administration. This unity also means that the development of the budget system is governed by the national economic plan, which is based on the conditions and targets of economic and social development in accordance with the policy of the Soviet state.
The unity of the Soviet budget system is
secured by the socialist economic system, which is
based on socialist (public) ownership of the means
of production and develops according to a unified
economic plan. All the parts of the budget
system are governed by a unified system of
government based on the principle of democratic
centralism and this ensures the organisational unity
of the budget system. The unity of the Soviet
state budget determines the organisation of the
budget system as a whole---it served the build--
56
USSR State Budget
State budgets
State
social
Union
budget
of the Union
insurance
Republics
budget
Budget of
region, territory,
Autonomous
Republic
District
budgets
Budgets of
cities and
towns of
regional, territorial
(Autonomous
Republican)
subordination
Town, workers'
Budgets of
District
township and
towns of
budget
village
Soviet
d istrict
budgets
subordination
[57]
ing of socialism and now serves the building of
communism. In these circumstances there can be
no, opposition between the interests of central and
local bodies.
The Soviet budget system developed gradually over a number of years into what it is today. At the time of the foreign military intervention and the Civil War the Soviet state had no stable budget system. It began to develop only when the country set out on the rehabilitation of the economy and the creation of the prerequisites for the building of socialism in 1922, and had taken final shape by the end of this period (1926). Its organisational structure was recorded in the Constitution of the USSR adopted in 1924. According to the Constitution, the Soviet state budget comprised: the all-Union state budget, the state budgets of the Union Republics, the state budgets of the Autonomous Republics and the budgets of the local organs of power. The Constitution laid down the economic and juridical standards fo.r the distribution of incomes and expenditure among the various budgets. It also stipulated that the right to ratify the unified state budget, introduce all-Union taxes and dues, and determine the deductions from the all-Union revenue to the budgets of the Union Republics be vested in the supreme organ of state power--- the Central Executive Committee of the USSR.
The all-Union budget included the whole revenue of the state other than taxes, all revenue from direct taxes, dues and duties, all indirect taxes (excises and customs duties) and 58 extraordinary income from the realisation of all-Union assets.
The expenditure of the all-Union budget included all expenditures specified in the financial estimates of all-Union People's Commissariats and departments.
The revenue of the Union Republican budgets included all revenue of the state other than taxes, established according to the financial estimates of the Central Executive Committees and Councils of People's Commissars of the Union Republics. The sources of revenue of these budgets also included all direct taxes and dues established for the Republic, deductions from all-Union taxes and duties, and additions to them; deductions from state loans; and subsidies from the allUnion budget when the budget of the Republic concerned showed a deficit.
Budget expenditures covered maintenance of the departments and institutions of the Union Republics and the financing of some economic measures in the Republics related by special decision to the Republican budget.
The local Soviets, the local organs of power, were in charge of the local economy and were therefore also given budgetary rights. According to the Statute on Local Finances (1924) the revenue of local budgets consisted of: 1) incomes other than taxes from enterprises and properties under the jurisdiction of local Soviets; 2) deductions from all-Union taxes and other revenue and additions to them; 3) special local taxes and dues.
State budget revenue increased from 925 million rubles in the 1922/23 fiscal year to 5,877 million in 1926/27, i.e., more than sixfold. State expenditure grew correspondingly. The growth of the resources of other budgets kept pace with the Union budget. The development of all 59 budgets is illustrated by (in million rubles).
Fiscal year Total expenditure Union budget Republican budgets Local budgets 1923---24 ..... 2,022 1,227 272 523 1924---25 . . 3,065 1,825 388 852 1925---26 ..... 4,210 2,344 654 1,212 1926---27 . . . 5,779 3,259 858 1,662The Union budget accounted for more than 50 per cent of all expenditure, while local budgets expended 27 to 30 per cent of all state resources, and Republican budgets---12 to 17 per cent. The Republican and local budgets grew at a very rapid rate.
The building of the basis of the socialist economy (1928--32), industrialisation and the transition to collective farming caused no major changes in the structure of the budget system.
__ALPHA_LVL2__ State Budget Revenue DuringThe Soviet Union needed large financial resources to reconstruct the economy and create the foundations of a socialist economy. This was to be achieved by the all-out development of largescale industry and the collectivisation of growing agriculture. The necessary funds were accumulated as revenue by the state budget. The sources of this revenue are shown in the table below:~
60 the budget expenditures USSR STATE liUDGET REVENUE (million rubles) ] ncluding Fiscal year 1923--24 1925--26 1927--28 Total revenue ..... 2,056 4,246 7,320 including: a) taxes of all kinds . . 991 2 . 193 3,523 b) revenue other than taxes . 538 1 237 2 018 c) state loans ..... 184 146 727 d) social insurance dues 670 1,052During the four years that the national economy was being rehabilitated the budget revenue increased more than 250 per cent. Taxes accounted for almost 50 per cent of the total revenue. Other-than-tax revenue increased more than threefold. By the end of the rehabilitation period it accounted for 28 per cent of the total budget revenue.
The taxation policy was at that time influenced by the central problem facing the state, i.e., to collect resources for the reconstruction of all branches of the economy, and also by the economic conditions in the country. In those years there were three basic economic sectors in the country---the socialised state sector, the private capitalist sector and the small-commodity sector, consisting of the working peasantry and petty craftsmen. The basic tasks of the Soviet state at that time were to reconstruct and develop the socialised state sector, to contain and oust private capitalist elements from the economy in town and country, and to help the working peasantry run their farms and the petty craftsmen their 61 workshops and to encourage them to adopt the co-operative path. The taxation policy of the state in those years was designed to further these aims.
Much of the taxes were paid by capitalist elements. By taxing the private capitalist sector the state not only collected considerable cash funds but limited accumulation in the capitalist sector and gradually ousted it from the economy.
A differentiated tax policy was applied to the peasantry: poor peasants were exempted from taxation, middle working peasants were granted tax privileges, and rich, essentially capitalist, peasants paid higher taxes.
The table below shows the main types of taxes then in existence and their role in the budget revenue.
COMPOSITION OF BUDGET TAX REVENUE (million rubles) Fiscal year 1923--24 1925--26 1927--28 Total tax revenue . . . 991 2,193 3,523 including: a) agricultural tax . . . 231 252 354 b) industrial tax .... 234 483 704 c) income tax ..... 76 186 297 d) excises ....... 241 842 1,492 e) customs duties . . . 67 151 260Let us now see how these taxes were levied and who had to pay them.
The agricultural tax was paid by the peasants. It constituted a certain fixed percentage of the total farm income, with allowances for the size 62 of the family, area of arable land, haying, available livestock and crop yields.
The industrial tax played a more important role in those years. It was divided into two subgroups---licence fees and equalising levies. Licence fees were paid by trading and industrial enterprises (state, co-operative and private) for the right to operate. Different types of enterprises paid different licence fees, depending on their class.
The equalising levy was collected from the turnover of the enterprise (the sale of goods or output) as a percentage of the turnover.
In 1924 income tax replaced the former incomeproperty tax. It became the principal type of direct tax levied on the income received by physical or legal persons (enterprises, firms). It was levied on profits, wages and other incomes. In those days it was paid by people with independent incomes, joint-stock companies, all private and state-owned enterprises, credit institutions and foreign firms allowed to operate in the country. There were different rates for different categories of taxpayers. The greater the income of the taxpayer, the higher was the rate.
Excises, i.e., indirect taxes, constituted a considerable part of the revenue. These taxes were included in the prices of goods. This indirect form of taxation was prompted by the multiplicity of economic sectors and by the fact that the state had no efficient revenue machinery at its disposal. Besides, the state urgently needed huge amounts of money to reconstruct the national economy.
The Soviet state also used excises to combat the bourgeoisie. Very high excises were imposed on luxury items and relatively high taxes on certain consumer goods such as wine and liquor and some groups of textiles and imported luxury 63 items. Essential items such as salt, kerosene, sugar, etc., were taxed lightly.
Revenue other than taxes accounted for a smaller portion of the budget. It consisted mainly of deductions from the profits of state industrial and trading enterprises, credit institutions, housing, transport, etc.
Forestry dues were another source of revenue. They consisted of a tax on the felling of timber, income from the accessory use of forests, fines for violations of forestry by-laws, and fines imposed on buyers of timber for overdue payments.
Revenue from mineral resources included charges for areas leased to mining enterprises and rent by contract.
The state also received an income from rents on leased peat-bogs, fisheries, hunting districts and deductions from the profits of farming enterprises working on a cost-accounting basis and from the profits of state insurance.
The internal state loans floated by the Soviet state and the money accumulated by savings banks (known as state credit) played an important role as sources of budget revenue. Loans were distributed among factory and office workers by collective subscription and also among stateowned and co-operative enterprises. Among capitalist elements, who. sought to sabotage this measure, bonds were distributed compulsorily. When acquiring licences and paying the incomeproperty tax, capitalists were compelled to buy bonds in proportion to taxes paid. A ramified network of savings banks was opened during the rehabilitation period; these placed their idle funds at the disposal of the state budget.
During the First Five-Year Plan period, when the basis of the socialist society was being laid, two major changes were made in the budget 64 system: 1) as from 1931 the fiscal year was made to coincide with the calendar year (Jan. 1 to Dec. 31), and 2) the taxation system was reformed. In 1930 the multiple taxes in the socialised economy were fused into ane tax, the turnover tax. By that time the socialised sector had grown considerably (especially in industry) and the private sector diminished, while the number of cooperative enterprises and organisations had increased greatly. The many taxes and payments imposed, and the complexity of calculating and collecting them, made it difficult to control production and obstructed the exchange of commodities. It also made price policies extremely complicated.
It was essential, therefore, to reform the taxation system. The government replaced the 61 different state and local taxes then being paid by the socialised economy with two types of payments into the budget---the turnover tax, which amalgamated 54 different payments, and deductions from profits, which amalgamated seven payments.
In a socialist economy the turnover tax is not an excise in the real meaning of the word but part of the money accumulations of socialist enterprises (part of the value of the socialist surplus product), and is preliminarily included in the planned prices of goods as part of the centralised income of the socialist state. Its economic content also differs from that of excises. It constitutes a part of pure profit made by society and is not a deduction from the wages or the private incomes of working people collected by raising prices (as in the case of excises). It is created in the sphere of material production and is placed wholly at the disposal of the state.
On the face of it, the turnover tax resembles __PRINTERS_P_1931_COMMENT__ 5---2729 65 accumulation by taxation (payment is compulsory, the terms and size of payment are strictly defined, and it is not returnable to the taxpayer). But its external features, like its name, do not reflect its true economic content.
The second type of payment introduced was the system of deductions from the profits of state enterprises and organisations. Only profits which, according to plan, cannot and must not be used by the enterprise itself, are taken by the budget. The minimum deduction was set at ten per cent and the maximum at 81 per cent of the total profit.
During the First Five-Year Plan period the state budget revenue grew considerably. Here are the indices showing its growth by types of revenue.
REVENUE OF THE STATE BUDGET (million rubles) Fiscal year 1928--29 1931 1932 Total revenue . 8 830 25 264 38 042 including: a) turnover tax .... b) deductions from profits . 3,146 557 11,672 2 158 19,595 2 023 c) taxes from co-- operatives and other enterprises and organisations ....... 162 402 791 d) taxes from the population . . 1 029 1 876 2 500 e) state loans . . . 725 3,269 3,922 f) customs duties . . . g) receipts from state social insurance . . . 258 1,221 281 2,242 282 3,577 66The considerable increase in the budget revenue from the socialised economy (turnover tax, deductions from profits, social insurance dues) reflected the changes in the country's economy--- the rapid growth of state industry, agriculture and trade.
__ALPHA_LVL2__ State Budget Expenditures DuringIn the rehabilitation period it was necessary to reconstruct existing factories, revive agriculture and normalise the country's economic and cultural life. This purpose was served by finances entering the budget as revenue.
The following table shows the pattern of the budget expenditures during those years.
EXPENDITURES OF THE USSR STATE BUDGET (million rubles) Fiscal year 1923--24 1925--26 1927--28 Total budget expenditure including: a) economic rehabilitation b) social and cultural development 2,022 557 355 4,210 1,224 746 7,205 2,815 1,275 c)defence . . 402 569 765 d) maintenance of stale machinery ...... c) payment of winnings and interest on state loans ........ [) social insurance . . . 283 75 532 123 670 477 300 1,052 67Most of the budgetary spending (45 to 55 per cent) went on economic rehabilitation and for social and cultural measures. From the total appropriated far the national economy, 25 to 35 per cent was spent on industry (mainly on major repairs and the reconstruction of factories), 15 to 25 per cent on the rehabilitation of agriculture, principally the development of various kinds of co-operatives (consumer, supply, credit and agricultural).
In four years expenditure on social and cultural measures increased nearly fourfold, while that on the maintenance of the state machinery decreased in the last two years of the period by over ten per cent.
During the period of industrialisation and the transition to co-operative farming state expenditure on national economic development rose steeply. This can be seen from the following figures:~
BUDGET EXPENDITURES (million rubles) Fiscal year 1928--29 1931 1932 Total budget expenditure including: a) economic development b) social and cultural measures ..... 8,784 3,687 2,627 25,097 15,976 5 396 37,995 24,784 7 580 c) social insurance . . . 1,221 2,242 3,577During the First Five-Year Plan period all budget expenditures increased 330 per cent, while appropriations for economic development increased 570 per cent.
State allocations for the development of industry grew 970 per cent, and of agriculture 450 per cent.
68The bulk of the budget appropriations for the development of industry was spent on the building of new factories and mines (investments).
During the Five-Year Plan period the budget appropriated 9,540 million rubles for the development and collectivisation of agriculture. State resources (budget, credits) were instrumental in supplying agriculture with modern equipment (tractors, sowers, mowers, etc.). In addition to helping the collectivised farmers acquire equipment, the state granted them tax privileges, gave them loans on favourable terms to acquire seeds and food, and sometimes wrote their debts off. By the end of the First Five-Year Plan period (1932) almost two-thirds of all peasant households had joined producer co-operatives, and these accounted for 75 per cent of the total area sown by the peasants. During the First Five-Year Plan period the budget helped lay the economic foundations of socialism: industry became the dominant branch of the national economy, a heavy industry was built up anew, most of the farms were collectivised, and the living and cultural standards were raised.
__ALPHA_LVL2__ The Budget System DuringThe 1936 Constitution of the USSR stipulated that the approval of the consolidated state budget of the USSR and of the report on its fulfilment, and the determination of taxes and revenues of the Union, Republican and local budgets, was the responsibility of the Union of Soviet Socialist Republics as represented by its higher organs of state power and administration. The rights of Union Republics and local organs were considerably extended. A number of enterprises were 69 transferred to Republican subordination. This increased the role of the Republics in organising their budget revenue and in financing industry, agriculture, trade and social and cultural measures. The development of the socialist economy and the extension of the competence of local bodies also led to the growth and consolidation of local budgets. These processes, however, did not reduce the importance of the Union budget in procuring finances for all-Union measures and in redistributing the financial resources among the Union Republics and the various branches of the national economy in accordance with the national economic development plan.
The changes in the structure of the state budget and in the role played by the various budgets are shown in the following figures on budget spending during the Second to Sixth Five-Year Plan periods.
BURDEN OF SPENDING BORNE BY THE VARIOUS BUDGETS Fiscal year 1933 1940 1950 I960 USSR state budget (thous. mln. rubles) ........ 3.7 17.4 41 3 73 2 including (per cent): a) Union budget 70 75.8 76 8 41 2 b) Budgets of the Union Republics including: Budgets of Autonomous Republics and local budgets ...... 21 10 2 24.2 17.2 23.2 15.1 58.8 19 ?,The growth of the Republican budgets by 1960 was due to the reorganisation of the management of industry---to the transfer of many enterprises to Union Republican subordination.
The increase in the expenditures of the 70 Republican budgets made it essential to provide stable sources of revenue. This was done by raising the share of the deductions from the turnover tax to the Republican budgets, by allocating to them part of the incomes of enterprises of all-Union subordination and all sums received from forestry revenue, income taxes paid by consumer cooperatives and collective farms, and from the agricultural tax.
There were no other fundamental changes in the budget system of the Soviet Union between 1936 and 1960. In 1936 the agricultural tax on co-operative farms was replaced by an income tax, which is valid to this day.
On the expenditure side of the budget, the principal state spending went to finance the national economy and social and cultural measures. These expenditures continued to grow steadily.
In 1960, 80.8 per cent of the budget resources were spent on financing the national economy and social and cultural measures; 12.7 per cent on defence; 1.5 per cent on administration and 1.0 per cent c.n payments on state loans.
__ALPHA_LVL2__ Development of the Soviet State BudgetLike all previous budgets, the budgets for 1961 to 1971 reflected the policy of the Soviet state to encourage the peaceful economic and cultural development of all Soviet Republics, and the policy of mutual assistance between the peoples aimed at consolidating the multi-national Soviet state and strengthening the friendship of the peoples inhabiting the country, now marching along the road to communism.
After the 22nd Congress of the CPSU, the 71 state budget began to develop at a particularly rapid rate. The budget revenue and its structure changed between 1960 and 1971 as follows:
(in thousand million rubles)^^1^^ I960 1965 1971 (plan) amount % amount o/o amount o/o Total revenue 77.1 100 102.3 100 160.8 100 including: a) from the so-- cialist eco-- nomy 70.1 91.0 93.9 91.8 147.0 91.4 including: turnover tax 31.3 40.7 38.7 37.8 54.1 33.8 deductions from profits 18.6 24.2 30.9 30.2 54.8 34.3 b) from the population 6.9 9.0 8.4 8.2 13.8 8.6The budget revenue increased during this period 100 per cent. Revenue from the socialist economy (state-owned enterprises, collective farms and consumer co-operatives) accounted for more than 90 per cent of the total budget revenue. Revenue from the population (state taxes and bonds sold to the population) grew by 60 per cent, mainly as a result of increases in the wages of factory and other workers. However, their share in the total budget revenue remained practically unchanged at about 9 per cent.
Changes in Soviet state budget expenditures between 1960 and 1971 are shown in the table below:
_-_-_~^^1^^ USSR National Economy in Figures for 1967, p. 886; Pravda, December 9, 1970 (Report by Garbuzov on the State Budget for 1971).
72 (in thousand million rubles)~^^1^^ I960 1965 1971 (plan) amount o/o amount Vo amount o/o 1 . Total expen-- lan) diture 73.1 100 101.6 100 160.7 100 ------ including: °'° a) national eco-- nomy . . . 34.1 40. 7 44.9 44.2 77.0 48.1 100 including: industrial deve-- lopment and construction . . 15.6 21.3 21.0 20.7 29.5 18.4 91.4 b) social and cultural oo Q measures . . 24.9 34.1 38.2 37.6 55.5 34.6 c) defence . . 9.3 12.7 12.8 12.6 17.8 10.2 34.3 d) administra-- tion . . . 1.1 1.5 1.3 1.3 1.7 1.1 8.6During that period the total budget expenditure increased 120 per cent, including 130 per cent on the national economy and 120 per cent on social and cultural measures. In the 1971 plan expenditure on the national economy and social and cultural measures accounts for 82.7 per cent of the total budget expenditure. In addition to budget expenditure, large internal resources--- profits, depreciation deductions, etc., were also spent on developing the various branches of the economy.
A comparison of the main items in the 1969 budget with the national income and its division into consumption and accumulation given below^^2^^ will help the reader to appreciate the economic _-_-_
~^^1^^ Soviet National Economy in Figures for 1967, p. 886, Pravda, December 9, 1971; USSR Finances No. 1, 1969, p. 11.
~^^2^^ Soviet National Economy in Figures for 1967, p. 886, Pravda, December 11, 1968.
73 Amount thous. mln. rubles As a percentage of the national income 1. National income used for consumption and accumulation^^1^^ ...... 252 4 100 2. State budget revenue . . 3. Budget expenditure a) on national economic development .... b) on social and cultural measures ...... 134.1 58.3 51 1 53.1 23.1 20 3 c) on defence ..... d) on administration . . 4. Payment of pensions . . 17.7 1.6 15.0 7.0 0.6 5.0 role of the Soviet state budget, its peaceful and constructive nature, and its progressive effect in advancing the economy and welfare of the population.The 1969 state budget redistributed 53.1 per cent of the national income---43.4 per cent (23.1+20.3) to the development of the national economy and to raising the people's living and cultural standards, 7 per cent to defence, and only 0.6 per cent to state administration. Pensions and grants accounted for 5.9 per cent of the total national income. This is proof of the progressive content of the budget under socialism.
The correct execution of the state budget depends to a great extent on the procedures governing its compilation and approval, as well as on the organisation and methods of its execution. The USSR state budget is drawn up, approved and executed in accordance with the principle _-_-_
~^^1^^ The national income has been computed on the basis of data of the Central Statistics Board for 1967, 7.2 per cent being added for 1968, and 6.5 per cent on the planned figure for 1969.
74 of democratic centralism (combining guidance by the central authorities with local initiative). This principle safeguards the sovereign rights of the Union and Autonomous Republics, the local Soviets of Working People's Deputies (the local organs of power), and the integrity of the budget system and the fiscal policy of the Soviet state. __ALPHA_LVL2__ Compilation of the Draft State BudgetIn the Soviet Union the national economy is managed according to plan, and the USSR state budget is drawn up to accord with the national economic development plan and the plans of the Union Republics.
The fiscal year begins on January 1 and ends on December 31. The draft state budget is drawn up at the same time as the draft economic development plan. Compilation of the draft budget is begun by the local authorities, continued by the competent bodies of the Union Republics and completed by the USSR Ministry of Finance.
When the budget revenue is drafted, account is taken of the economic plan targets for the production and realisation of output, the growth of profits and the profitability of enterprises, the relative decrease in the cost of production and the marketing of goods, and the expansion of trade and extension of services to the population.
Budget expenditures cover planned capital investment, public education, public health, the training of specialists and other measures.
The drafts of the various budgets are drawn up on the basis of financial plans and estimates. Financial plans are drawn up by all enterprises working on a cost-accounting basis, and by Ministries and departments. These plans reflect the 75 incomes and expenditures of the various enterprises and branches of the economy and their relation to the state budget, i.e., they specify turnover tax, deductions from profits and other payments to the budget, and financing by the budget.
Estimates are the main documents governing the financing of enterprises, organisations and institutions covered, fully or in part, by the state budget. Estimates may be individual or summary (by branches). Individual estimates set out the expenditure of an institution (school, kindergarten, hospital, etc.). The branch or summary estimate covers the expenditures of a group of identical institutions located in a certain area---for example, the schools or hospitals of a district, town, region or Republic.
When planning the budget it is important to ensure unity in the incomes and expenditures planned for similar institutions, enterprises and undertakings. Such unification is facilitated by the budgetary classification of revenues and expenditures. According to this classification all revenues and expenditures are grouped in definite sections, paragraphs and articles. The various types of revenue are shown in the sections, the sources of state revenue (branch of the economy, Ministry) in the paragraphs, and the branches of industry paying turnover tax and the categories of other payers of revenue in the articles.
Budget expenditures are divided into groups, sections, paragraphs and articles. Expenditures related to the national economy are classed in the first group, social and cultural measures in the second group, and defence, etc., in the third group.Within these groups expenditures are divided into sections arranged according to territories and branches of the economy. For example, 76 the expenditures of the various Ministries and departments are shown in separate sections of the first group. Expenditures on social and cultural development are divided into branches (education, public health, etc.). The sections are divided into paragraphs, which contain the outlays on separate types of institutions (schools, orphanages, etc.). The paragraphs, in their turn, are divided into articles classifying expenditures into wages, office and other overheads, travelling expenses, tuition, etc.
The USSR Ministry of Finance, the Ministries of Finance of the Union and Autonomous Republics and local finance bodies organise the drafting of the budgets. They direct the work of subordinate financial bodies, the financial departments of Executive Committees, and budgetary institutions and economic bodies, the drawing up of estimates and financial plans. They then study the materials received from these institutions (draft budgets of subordinate government bodies, financial plans, estimates and other accounts and documents), co-ordinate them in a summary draft budget and submit it for approval to the relevant Executive Committee or Council of Ministers. After the draft budget has been considered by the local organs, the finance bodies submit it to their superior finance bodies for endorsement and inclusion in the draft of the higher level budget: local budgets to the Republican budget, the latter to the ail-Union budget. The USSR Ministry of Finance submits its final draft for consideration to the USSR Council of Ministers, and the latter submits it for approval to the USSR Supreme Soviet of Working People's Deputies.
Compilation of the budget usually begins with an examination of the execution of the current budget. This is done by analysing budget 77 execution for the period from the beginning of the fiscal year and estimated execution for the remaining period.
The finance bodies give thorough consideration to the financial plans and estimates submitted by enterprises, institutions, Ministries and departments. They check the revenue estimates for correctness and completeness and see whether outlays and work targets, on which the income and expenditure of enterprises are based, are justified and in accordance with the draft national economic plan.
Work on the compilation of budget drafts proceeds as follows: the USSR Ministry of Finance draws up the draft Union budget on the basis of draft financial plans and estimates of the USSR Ministries and departments. The drafts are examined jointly with representatives of the respective Ministries and departments. The USSR Ministry of Finance makes a preliminary examination of the draft social insurance budget in consultation with representatives of the trade unions, and the drafts of the Union Republican budgets with representatives of the Union Republics. The draft USSR state budget is based on the drafts of the Union budget, the Union Republican budgets and the social insurance budget. The draft of the USSR state budget is then submitted to the USSR Council of Ministers.
__ALPHA_LVL2__ Approval of the State BudgetThe USSR state budget, the state budgets of Union Republics and local budgets are approved in an identical manner.
The draft USSR state budget is submitted by the Ministry of Finance to the government, the USSR Council of Ministers.
78The USSR Council of Ministers considers the draft budget and the resolution on it by the State Planning Commission, resolves differences that may have arisen between the Ministries and departments over the financial plans and estimates, the draft social insurance budget and the Union Republican budgets. After approval by the government the budget is submitted to the Supreme Soviet of the USSR. Here it is considered together with the draft of the national economic development plan for the corresponding year by the permanent commissions of the Soviet of the Union and the Soviet of Nationalities of the Supreme Soviet of the USSR. For this purpose a planning and budgetary commission and branch commissions for industry, transport and communications, for construction and the building materials industry, for agriculture, for public health and social security, for education, science and culture, for trade and communal services have been set up both in the Soviet of the Union and the Soviet of Nationalities.
The Commissions of the Soviet of the Union and the Soviet of Nationalities of the Supreme Soviet of the USSR hear the reports of the USSR Ministries and departments on their work, on the draft development plans for the relevant branches, on financial plans and estimates, the reports of the Councils of Ministers of the Union Republics on the fulfilment of plans for the past year and on the draft plans for the coming year relating to the revenue and expenditure of the budgets of the Union Republics, and the report of the All-Union Central Council of Trade Unions on the social insurance budget. These commissions consider all proposals on amendments in the relevant sections of the draft national development plans relating to budget 79 revenue and expenditures, and draw up resolutions and recommendations on the draft national development plan and on the USSR state budget for the coming year, which they submit to the Supreme Soviet of the USSR for approval at its session.
The Supreme Soviet of the USSR considers the USSR state budget according to the report made on it by the USSR Council of Ministers, takes into account the resolutions of the planning and budget and other commissions of the Soviet of the Union and the Soviet of Nationalities and also any proposals made by deputies to the Supreme Soviet of the USSR during debates on the plan and the budget. The debate and approval of the budget is based on democratic principles. The production, financial and economic activities of Ministries, departments, as well as enterprises, organisations and institutions under their jurisdiction, are thoroughly examined during the debate. The USSR state budget for the following year is approved at the close of the current fiscal year and acquires the force of law.
The Supreme Soviet of the USSR approves:
a) the revenue of the USSR state budget as a whole, itemising the main sources of income ---payments by state-owned and ca-operative enterprises and organisations---and total expenditures detailing appropriations for economic, social and cultural development, defence, and maintenance of the machinery of state and the courts and procurator's office;
b) the Union budget;
c) the total revenue and expenditure of the state budget of each Union Republic;
d) the deductions allocated from ail-Union state taxes and revenues to the state budgets of the Union Republics.
80The draft Union Republican budgets, considered and approved by the Union Republican Councils of Ministers, are submitted for approval to the Republican Supreme Soviets.
The Supreme Soviet of each Union Republic considers the draft budget. It hears the Minister of Finance, who reports on behalf of the Council of Ministers of the Republic concerned, and the co-report of the Planning and Budgetary Commission. The Supreme Soviet of the Republic also considers the findings and proposals of the Planning and Budgetary Commission and the proposals of deputies made during the budget debate. The extensive discussion of the budget by the deputies and the fact that they have the right to propose amendments on budget revenue and expenditure, combined with the widespread publicity the debate is given, guarantee the democratic character of the Soviet budget system.
When the Supreme Soviets of the Union Republics consider the Republican state budgets they are allowed to increase the sum totals of revenue and expenditure established for the Union Republic by the Supreme Soviet of the USSR, but cannot alter the deductions from the all-Union revenues and taxes. Revenue received in excess of plan during the execution of the Union Republican state budgets is used to finance the national economy and social and cultural development in the Republic.
The Supreme Soviet of the Union Republic approves: a) the revenue of the state budget of the Union Republic as a whole, itemising the main sources of revenue, and the expenditure as a whole, itemising appropriations for the national economy, social and cultural needs, maintenance of the organs of state power and administration, and the courts; b) the total revenues and __PRINTERS_P_82_COMMENT__ 6---2729 81 expenditures of the Republican budget and the budgets of every Autonomous Republic, and every region (territory) and town of Republican subordination; c) the deductions from all-Union state revenue and taxes to the local budgets; d) the cash balance (money reserves at the disposal of the budget executors).
The budgets of territories, regions and towns of Republican subordination are approved in an identical manner. The regional Soviet of Working People's Deputies, for example, considers the budget of the region according to the report of the Executive Committee and the findings of the Planning and Budgetary Commission, and takes into account proposals by the deputies of the Soviet submitted during the debate of the regional budget.
The budgets of districts, small towns and village Soviets are approved in the same manner as those of regions. The draft drawn up by the district finance department is submitted to the Executive Committee of the district Soviet, which considers it together with the findings of the Planning Commission in the presence of the chairmen of the Executive Committees of village and town Soviets of Working People's Deputies. If there are differences of opinion on the submitted draft budget, they are resolved by the Executive Committee or by a specially appointed commission. The draft budget approved by the district Executive Committee, with all the amendments made during its debate, is submitted for approval to a full meeting of the district Soviet of Working People's Deputies.
Before the district Soviet discusses the draft budget, the latter must be examined by the Budgetary Commission. The district Soviet takes into account the amendments proposed by the 82 Budgetary Commission and individual deputies before approving the district budget.
Regional, district and town Soviets approve: a) the total revenue of the budget of the region or district, itemising the main sources of revenue, and the total expenditure, itemising appropriations for the local economy, social and cultural needs, and maintenance of the local administration; b) the total revenue and expenditure of the regional or district budget; c) the deductions from all-Union state revenue and expenditure, and taxes to the budgets of districts or village Soviets; d) the cash balance.
The budgets of districts and towns under regional jurisdiction and of village Soviets are established in lump sums for the revenue and expenditure of each district, village Soviet and town, in the budget of the region or the corresponding district.
__ALPHA_LVL2__ Execution of the State BudgetThe USSR state budget approved by the Supreme Soviet of the USSR and the state budgets of the Union Republics approved by the Supreme Soviets of the Union Republics have the force of law and are binding on all organs of state, and all enterprises, economic organisations and institutions.
The USSR Council of Ministers organises the execution of the budget through the USSR Ministry of Finance, the various other Ministries and departments and the Republican Councils of Ministers. They control the raising of the revenue provided for in the budget and the economical spending of financial resources for the purposes stipulated in the budget in accordance with the fulfilment of production and financial plans. 83 The USSR Ministry of Finance and its bodies control revenue receipts and the financing of expenditures. Government financial bodies analyse the accounts of the departments and organisations financed by them, and whenever necessary recommend to the corresponding government bodies measures for the improvement of the economic and financial activities of these organisations.
While the budget is being executed financial bodies are entitled to exact from enterprises and organisations overdue taxes and other payments to the budget, and to limit or stop further budget subsidies if they have misspent budget funds issued to them earlier or violated other rules and regulations, or when planned measures and tasks are not fulfilled.
The budget is executed according to an itemised prescription of revenue and expenditure drawn up by the financial bodies for all subdivisions of the budget once the budget has been approved. Such a prescription of revenue and expenditure is made for every budget and is endorsed by the heads of the corresponding financial bodies. This is the principal document for the execution of the budget, used for guidance and the control of receipts and expenditures.
The execution of the budget in cash terms is effected by the USSR State Bank. The branches of the bank accept funds from enterprises, organisations and the population at large, crediting them to the corresponding budgetary accounts; issue resources according to instructions from the financial organs to enterprises, organisations and institutions; keep account of the revenue and expenditure of the Union budget and the Union Republican budgets; transfer a share of the state revenue and taxes to the 84 Republican and local budgets; control the use of wage funds, expenditures on the maintenance of the administrative machinery, and carry out other functions connected with the execution of the budget.
Use of the state budget funds is controlled by the Ministries of Finance of the USSR, the Union and Autonomous Republics and local financial bodies. They keep account of and draw up reports on the execution of the budget. These reports are submitted to the corresponding organs of state power---the Councils of Ministers and the Executive Committees of the Soviets of Working People's Deputies. The report on the execution of the USSR state budget is drawn up by the Ministry of Finance of the USSR and is submitted by it for consideration to the USSR Council of Ministers, which submits it in turn for consideration and approval to the Supreme Soviet of the USSR. Before the report on the execution of the budget for the current year is approved, it is first analysed by the Planning and Budgetary Commission and other commissions of the Soviet of the Union and Soviet of Nationalities of the Supreme Soviet of the USSR, who submit their findings on the report to the session of the Supreme Soviet of the USSR. The report on the execution of the USSR state budget is approved by the session of the Supreme Soviet of the USSR and those on the execution of Republican and local budgets by the corresponding organs of supreme power at the same time as the budgets for the coming year receive approval.
[85] __NUMERIC_LVL1__ CHAPTER V __ALPHA_LVL1__ SOVIET FINANCE AND THE ECONOMIC REFORM __ALPHA_LVL2__ [introduction.]The economic reform begun in the Soviet Union in 1965 essentially aims at improving planning and economic stimulation in the management of the economy.
It changes the financial relations between the state and enterprises and economic organisations, restructures the finances of enterprises and branches of production, boosts the role of the country's finance and credit system, and changes the organisational forms and methods for the accumulation and utilisation of money resources by enterprises, economic organisations and the state budget.
__ALPHA_LVL2__ The Main Aim of the Economic ReformThe top-priority economic development task in the socialist countries is to step up production in the shortest possible time. This means that social production must be extended and accelerated not so much through an increase of productive capacity (the building of new enterprises and the enlistment of additional labour force) as through the more intensive and more productive utilisation of existing enterprises, means of production and labour time. There is no unemployment in 86 the Soviet Union and most of the other socialist countries carrying through the economic reform. This rules out the possibility of increasing productive capacity through the building of new enterprises and increasing the size of the labour force. Hence, this increase must be achieved by higher labour productivity, and greater effectiveness of social production in all branches of the national economy.
Among the economic tasks of communist construction in the Soviet Union that of raising the economic effectiveness of social production is particularly urgent. The Directives on the FiveYear Plan for 1966--70 adopted by the 23rd Congress of the CPSU stipulate the main economic tasks for the planned period. One of them is to raise the effectiveness of production. The Congress has not only set the task but also shown how to achieve it. The Directives of the Cangress say that the effectiveness of production is to be raised ``through technical progress, improvement of the organisation of labour and production, better use of production assets and capital investments, improvement of the quality of products and stringent economising".^^1^^
The economic effectiveness of production is determined by the results obtained from it with the existing means of production and in the prevailing conditions of production. The increase in the effectiveness of the production of enterprises and economic organisations, on building sites and in the services sector of the economy is expressed by the increase in the output, income or services per unit of means of production or social labour time, that is, per unit of social labour _-_-_
~^^1^^ 23rd Congress of the Communist Party of the Soviet Union, Moscow, 1966, p. 324.
87 expenditure. The more and the better the output or services obtained per unit of living or embodied labour (in man-hours or man-days), the higher the economic effectiveness of production.Different yardsticks have to be used to measure the effectiveness of production (and changes in it) in the economy as a whole and in individual branches and enterprises, and the effectiveness of capital investments, etc. The best criterion for measuring the effectiveness of production in the national economy as a whole, in our opinion, is the ratio obtained by dividing the national income by the expenditure of social labour. The national income per gainfully employed, per head of the population, per unit (ruble) of productive assets (fixed assets and assets in turnover) or per unit (ruble) of total outlay in material production could be used as such a yardstick.
The national income or output (gross, marketable, realised) per ruble of capital investment on commissioned projects could be used to measure the effectiveness of capital investments. When the planned and actual effectiveness are measured in this way it will appear that effectiveness is the greater, the greater the national income for the given period per unit of outlay or per person.
In the branches of the economy and at enterprises (as well as at building projects) the following criteria could be used to establish their effectiveness: profitability, realised output, labour productivity, product to assets ratio, assets to product ratio, changes in the ratio between the growth of labour productivity and wages, between the increase in the number of workers and the increase in the fixed productive assets, between the increase in output and the increase in equipment and electric power available per worker, the 88 lowering of costs with a simultaneous improvement in the quality of output, the decrease in labourintensity in production, etc.
A series of indices (not individual ones) could and should be used to measure, plan, account, analyse and control the increase in the general and particular economic effectiveness of production at enterprises, in production branches and in the national economy.
Increasing the effectiveness of production is regarded in the Soviet Union as an important and reliable way of developing the socialist productive forces and socialist relations and as a means of creating the material and technical basis of communism---in short, of strengthening the country's economic and defence potential.
__ALPHA_LVL2__ The Content of the Economic ReformThe economic reform has become a major component of the Party's economic policy.
The main aims of the economic reform are: to ensure a more comprehensive use of economic levers in the management of the national economy; to extend considerably the rights and the economic initiative of enterprises and their workers while strengthening the leading role of the centralised planned economic management by the state; to raise economic (material and moral) incentives for good results in the performance of enterprises, economic bodies, production collectives and individual workers; to introduce on a wide scale improved cost accounting.^^1^^
_-_-_~^^1^^ Cost accounting is a method of planned economic management in socialist enterprises; it consists in comparing in money terms the expenditure on the production of output and the results of economic activities; in com-- __NOTE__ Footnote cont. on page 90. 89
The implementation of the economic reform involves the introduction of the following measures:~
the wider application of economic methods of management and of such economic levers as price, profit, profitability, bonuses, finance, and credit;~
the improvement of the planning system;~
the extension of the economic independence, rights and initiative of enterprises, associations and economic bodies;~
the introduction of greater economic incentives for increased labour productivity, production development and the improvement of the quality of output;~
the introduction of schemes to encourage members of production collectives to take an interest in improving the performance of their enterprise as a whole;~
the transition of enterprises to a new system of financial relations with the state budget;~
the introduction of a new system of crediting enterprises and associations;~
the transfer of enterprises, associations, economic bodies and branches to cost accounting;~
the reform of wholesale prices and tariffs;~
the extension of the rights of the Union Republics in economic and cultural development.
All these elements and measures of the reform are interlinked. Since it is impracticable to implement all the measures at once, the reform is being carried out gradually, in stages.
The results of the reform have been good from the very start and this has helped to step up _-_-_ __NOTE__ Footnote cont. from page 89. pensating for the expenditure of the enterprises out of their own incomes; and in ensuring profitability of production.
90 economic development rates and improve qualitative indices.The results obtained by enterprises and industrial branches in which the new reform has been introduced show that the aims of the economic reform have been achieved.
Most enterprises operating under the new conditions have improved their most important technical and economic indices, stepped up their production growth rates, sold more output and made greater profits. These enterprises have in the past three years produced 9,000 million rubles' worth of output in excess of the planned targets, yielding them profits of 2,000 million rubles.
__ALPHA_LVL2__ New Planning ConditionsThe economic reform provides for a series of measures designed to improve planning both on a national economic scale and at enterprise level. Centralised planning by the state is being improved accordingly. The Five-Year Plan is the principal form used by the state for planning national economic development. The targets of the Five-Year Plans are defined and detailed in annual plans (endorsed by the Supreme Soviet of the USSR annually), which take into account the course of economic development and the changes in the resources and requirements of the national economy and the population. Measures have been outlined and are being taken to raise the scientific level of planning, to extend the use of the balance method in planning, to combine planning by branches and territories to better effect, to make use of mathematico-economic methods in planning, and to utilise electronic computers in drafting plans.
91The performance of enterprises transferred to the new conditions is appraised according to realised output, profits (the profitability of production) and the fulfilment of the targets for the assortment of the deliveries of key items of output. Only plan indices covering key targets are handed down to enterprises by superior bodies (chief administrations, Ministries). These indices are:~
a) output---total volume of output to be marketed, production of key commodities in physical terms (also export commodities), including quality indices;~
b) labour---total wage fund;~
c) finances---total income and profitability (as a percentage of the total value of the fixed assets and established circulating assets), payments to the budget and budget allocations;~
d) capital construction---total volume of centralised capital investments, including the volume of building and assembling work, and the commissioning of fixed assets and production capacities by centralised capital investments;~
e) introduction of new equipment---targets for the production of new commodities and the introduction of new processing techniques, comprehensive mechanisation and automation of production of special importance to the development of the relevant branch of the economy;~
f) material and technical supply---volume of deliveries of raw and other materials and equipment distributed by the superior organisation.
All other plan indices in the plans of enterprises need not be approved by Ministries but are drafted by the enterprises themselves and are used by the planning bodies in the compilation of plans.
These include such indices as those for labour 92 productivity, cost of output, quantity, composition and skill of the labour force. They are drafted by the enterprises themselves; they help them manage their economic activity, and show the degree of efficiency and rationality to which they use their resources and potentialities. As was mentioned above, only the wage fund as a lump sum is fixed for enterprises by the Ministry. All other plan indices on labour and wages are drafted by the enterprise, which decides for itself how many industrial, office and other workers it should employ and of what speciality. It also decides what labour productivity should be achieved during the plan period and what average wage (including bonuses) should be paid to each worker of a definite category.
The plan indices on labour and wages are interlinked. To use the allotted wage fund rationally and to ensure a rise in the wages of factory, office and other workers, every enterprise must use its labour force in the most rational way, mobilise all its reserves in order to produce and sell more output, ensure in all its computations and other data used in working out its plan an appropriate increase in labour productivity. In short, it must select the most effective methods for developing production, improving the quality of its output and increasing its profits. This can only be achieved if the strictest economy is practised.
Under the new conditions increments in the earnings of workers depend on the size of the material incentive fund created at enterprises. The size of that fund, in its turn, depends on the increase in the sale of output, or the size of the profit, and the planned profitability, that is, on the results of the enterprise's performance and on its economic effectiveness. The incentives offered for 93 the overfulfilment of the plan are relatively small compared to those offered for the achievement of the targets envisaged in the plan. This prompts enterprises to disclose reserves opportunely and to strive for higher plan targets, which again helps combine planning with the practice of strict economy.
Because prices are fixed, the profits made by an enterprise depend primarily on its costs of production. The fact that profit targets are fixed in centralised plans makes it even more important to lower costs, and the systematic lowering of costs therefore continues to remain the key task of all executives.
__ALPHA_LVL2__ The Profit of EnterprisesUnder the new economic conditions profit and profitability have begun to play a much greater financial and economic role.
Profits are used by enterprises working according to. the new system to pay the charge for the use of their productive assets, interest on credits, ``fixed payments'', to form incentive funds, clear credits received for capital investments, supplement their circulating assets, form a reserve fund for mutual financial assistance, and to pay the deductions to the budget.
Increases in wages and the improvement of amenities at enterprises are also geared to profit and its rate of growth.
The profit made by socialist state enterprises is the amount by which cash income exceeds cash expenditure. Thus, profit indicates the financial result of the enterprise's economic activity.
It should be realised, however, that the above is only an external manifestation of profit, its formal expression used for accounting purposes. 94 This external manifestation should be distinguished from the true or internal economic content of profit which determines the important role it plays in the activity of socialist enterprises and economic branches.
The economic and social relations connected with the production of the surplus product or net income of society and the distribution of the latter constitute the economic content of profit in a socialist society.
In a socialist society the workers in the sphere of material production create the product used to satisfy the growing requirements of the workers themselves and of their families. This product is called the necessary product. The product created in excess of the necessary product is needed by society to expand production, to pay for the labour of workers in the service sector, to maintain the administration and the machinery of state, to pay for the defence of the country and for cultural development and other general state requirements. The product used to satisfy all the above needs is surplus as far as the production sphere is concerned, but it is necessary to society.
So long as commodity production and commodity-money relations prevail in socialist society both the necessary and the surplus product have use value and value. According to the laws governing commodity production and circulation the value of commodities is expressed in terms of money.
The value of the surplus product in its concrete monetary expression forms the net income of society.
In the Soviet economy the net income of society consists of the profits of enterprises and the various branches of production, the turnover tax, deductions for social insurance, interest on 95 credits, money accumulations (the net income of collective farms) and certain other forms of income. Hence, profit in a socialist society is part of the value of the surplus product expressed in money terms.
In the practice of state-owned socialist enterprises, profit is that part of the net income of society which is placed at their disposal and constitutes part of the value of the surplus product created over and above the amount received by workers as wages.
Profit is produced by the labour of the workers in production. It cannot be created other than through the production of commodities, that is, without the expenditure of labour.
In socialist society profit plays an important socio-economic role. It is a means of accumulation and distribution, and also a stimulus for the production of the most important part of society's net income. As a means of accumulating the net income of society, profit serves the social interest ---a growth of profit increases the income of society, multiplies the national wealth. This makes profit one of the main indices of the economic effectiveness of the performance of enterprises. The better an enterprise works, the more expediently it uses its material, labour and money resources, the more high-quality goods needed by society it produces, that is, the more effectively it operates, the greater are its profits and the more quickly the social wealth grows.
In the new economic conditions profit should be regarded not only as a means of multiplying the country's wealth, but also as a form expressing the socialist relations connected with the distribution and utilisation of that wealth. These relations could and should serve as an economic lever for the optimum combination of the 96 interests of society (the national economy) with the interests of each branch of the economy, each enterprise and each worker. The distributive function of profit is linked with the fulfilment of these aims. In its turn, the distributive function of profit is closely linked with its stimulating function. The growing importance of profit in the Soviet economy and the dynamics and structure of the net social income (in the form of money accumulations) can be seen from the table below:^^1^^
(in '000 mln. rubles) Form of money accumulations 1940 1950 1960 1966 1969 Total accumulations . . . including: profit . . 3 3 27.1 5 2 65.2 25.2 89.4 44.1 121.7 72.7 turnover lax ...... 10.6 23.6 31.3 39.3 44.5 other . . . 8.7 6.0 4.5Between 1940 and 1969 the yearly profit made by the Soviet economy increased almost 23-fold, while the turnover tax increased only fourfold. Beginning with 1966 sum total profits began to exceed the sum total turnover tax and accounted for almost 50 per cent of the economy's money accumulations (including collective farms).
In 1969 profits were 70 per cent higher than the turnover tax and accounted for over 50 per cent of all money accumulations.
The economic reform attaches great importance to profit. This does not mean, however, as some _-_-_
~^^1^^ The Soviet National Economy in Figures for 1969, p. 741.
97 bourgeois economists aver, that the Soviet economy has taken up capitalist methods of economic management and that profit has become the sole aim of production. The statement made by the Mao Tse-tung group that ``capitalism is being restored" in the Soviet Union is equally slanderous. Under capitalism profit is a transformed form of surplus value, the result of the exploitation of the working class and other working people by the capitalist class. In capitalist society all profits are appropriated by the capitalists. All this does not apply under socialism. Socialist profit differs fundamentally from capitalist profit. It is not the result of exploitation but of the efficient economic activity of enterprises. Profit expresses the new, socialist content of social relations, notably the relation between the product needed for the satisfaction of personal requirements and the product necessary to ensure extended reproduction on a social scale.In socialist society profit does not go ``into somebody else's pocket" but is placed at the disposal of the working people. Lenin pointed out that ``the surplus product goes not to a class of owners, but to all the working people, and only to them".^^1^^
The profits made by enterprises reach the working people both directly---that is, as material incentives to the individual workers or the workers' collective of the given enterprise out of the incentive fund, which is formed from part af the profit---and indirectly, that is, through the state budget and the system of the financial plans of enterprises for the extension of socialist production, the enlargement of social consumption funds, and for national requirements.
_-_-_~^^1^^ Lenin Miscellany XI, 1931, pp. 381--82 (Russ. ed.).
98The measures taken under the economic reform have introduced fundamentally new features in the planning of profit and in the methods of its utilisation. They are aimed at raising the role of profit in developing production and in making production more effective. Thus, the economic reform has introduced the profitability index, the charge for the use of productive assets, the ``fixed payments" to the budgets, the incentive funds formed at enterprises, and the new way of distributing profits.
Under the new system profitability has become one of the most important indices of an enterprise's performance. It is directly connected with the planning and evaluation of the enterprise's economic and financial performance and with the fixing of quotas for the transfer of part of the profit to material incentive funds.
__ALPHA_LVL2__ Profitability of EnterprisesThe category ``profitability'' characterises the yield obtained from production in general, from an individual product or an individual enterprise. When the performance of an enterprise is planned, accounted for and evaluated, profitability is expressed as a fraction (percentage). It is expressed as the ratio between the profit and a base magnitude---the assets or the cost of production. The choice of the base magnitude will depend upon whether one wishes to establish the profitability of a branch, of an enterprise as a whole, of some definite aspect of an enterprise's activity (overall performance, procurements, auxiliary activity, agricultural activity, communal services, etc.), or the profitability of some definite group of products or services (transport, auxiliary shops, etc.), or of individual products.
99 Emacs-File-stamp: "/home/ysverdlov/leninist.biz/en/1971/FCU179/20070510/179.tx" __EMAIL__ webmaster@leninist.biz __OCR__ ABBYY 6 Professional (2007.04.30) __WHERE_PAGE_NUMBERS__ bottom __FOOTNOTE_MARKER_STYLE__ [0-9]+ __ENDNOTE_MARKER_STYLE__ [0-9]+The level or rate of profitability is used to facilitate the rational planning and control ol the performance of a whole enterprise and of its individual departments, to promote the greater economic effectiveness of production and economy of resources, and to raise profits and ensure material incentives to the staff of an enterprise.
Under the economic reform superior organisations hand down to enterprises profit targets for the plan period and targets for levels of profitability. The level of profitability of an enterprise is the ratio (expressed as a percentage) between its profit and its total productive fixed assets and established circulating assets. The profit shown in the balance sheet of an enterprise is used to compute its general profitability; the balance sheet profit minus the charge for the use of assets, ``fixed payments" to the budget and interest on bank credits---to establish the `` accounting profitability''.
Hence, the calculation of profitability involves relating profit to the productive assets and established circulating assets used to create that profit; that is, the ratio between these two magnitudes (profit and productive assets) expressed as a percentage characterises the size of the profit (in kopeks) received from every ruble of the value of these assets.
Thus, profitability depends on two connected magnitudes: the size of profits and the size of the enterprise's productive assets. The greater the size of the profits and the smaller the size of the fixed productive assets and established circulating assets participating in the creation of these profits, the higher the level of the enterprise's profitability, and vice versa.
The profitability of a branch, enterprise, department, or particular output can be 100 calculated by one of two methods: either as the ratio between profit and total fixed productive and established circulating assets, or as the ratio between profit and full cost of production.
The correlation of profit with the fixed productive and established circulating assets (first method) gives a very important index, namely, the economic effectiveness with which assets are used.
In practice it is advisable to determine not only the profitability of an enterprise as a whole but also that of the various articles produced. For this the second method is used. The index thus obtained shows the economic effectiveness of current production, the financial and economic effectiveness of the expenditure on production, how this expenditure is recouped, and the direct profitability of production. It shows how well enterprises cope with the task of getting maximum results with a minimum outlay of labour and material and financial resources.
The better results an enterprise achieves in its production and economic activity the higher are its profits. Thus, the effectiveness of the productive and economic activity of an enterprise is reflected in the profitability of production.
The measurement of profitability by the ratio between the profit and the cost of production ignores the enterprise's fixed productive and established circulating assets and the effectiveness of their utilisation. This is a major shortcoming of this method. At the same time profitability expressed as the ratio between profit and the productive assets also has shortcomings---it does not reflect the amount of living labour used in production and the effectiveness of its utilisation, does not show the connection between profit and the size of the wage fund and the effectiveness 101 of its utilisation. It should be emphasised that profit is created by living labour, depends on the effectiveness of its utilisation and on its productivity.
In order to use profitability as an economic lever for ensuring the strictest economy in production, the profitability of every article must be systematically calculated, for only in this way will it be possible to disclose and use reserves in the economically most rational way.
The higher the profitability of individual articles, the higher is the profitability of production as a whole and of the enterprise (calculated as the ratio between profit and fixed and circulating assets); conversely, the more effectively and rationally fixed and circulating assets are used, the higher is the profitability of production as a whole and of every kind of output.
Since the levels of the different kinds of profitability are determined by different aspects of the activities of an enterprise, by different elements and components of productive and economic activity, they differ at individual enterprises, branches of the economy and in industry as a whole.
Thus, the profitability of an enterprise expressed as the ratio between profit and cost differs quantitatively and qualitatively from its profitability determined as the ratio between profit and the size of its productive assets. At some enterprises this difference is significant. In the new economic conditions the planned balance sheet profit and the general and ``accounting'' profits of an enterprise, related to its fixed productive and established circulating assets, are handed down to the enterprise by its superior organisation. Other profitability indices and the cost of production as a whole and also of the different 102 kinds of products, are worked out by the enterprises themselves. The planning bodies can use these indices as accounting data for the drafting of plans.
To establish the different kinds of planned profitability it is necessary to calculate the balance sheet profit of the enterprise as a whole, the average yearly size of its fixed productive assets and established circulating assets, the total charge for the use of these assets, the interest to be paid on bank credits, and compulsory payments (rent and other ``fixed'' payments) to the budget. The enterprise has to calculate many economic indices when the profitability index is introduced. But the more active and systematic utilisation of this index holds out great promise in the fight for economy and the improvement of the financial work of enterprises.
__ALPHA_LVL2__ Charge for the Use of Productive AssetsUnder the reform part of an enterprise's profits are paid to the state budget as a charge for the use of its fixed productive and established circulating assets. This charge has been introduced to encourage their fuller utilisation. It is deducted from the enterprise's profits and transferred to the budget as a top-priority payment. The charge is proportional to the value of the fixed productive and established circulating assets and is fixed for a number of years in advance.
The Ministries and Departments of the USSR and the Councils of Ministers of the Union Republics established the size of the charge for the use of assets in co-ordination with the Interdepartmental Commission of the State Planning Committee of the USSR. It has been fixed at 6 per cent of the value of fixed productive and 103 established circulating assets, except for some sectors of the economy with a relatively low accounting profitability, in which it was set at 3 per cent. In exceptional cases the Ministries and departments may lower the charge paid by some groups of enterprises with a low profitability from 6 to 3 per cent.
Enterprises whose profits do not suffice to farm economic incentive funds even if they pay only 3 per cent for their assets, as well as enterprises whose plan provides for their operation at a loss are freed from the payment of the charge.
__ALPHA_LVL2__ Fixed Payments to the BudgetThe profitability of different enterprises varies within wide limits. Sometimes this difference does not depend on the efficiency and effectiveness of their operation. The high profitability of some enterprises in the extracting industry (oil, gas, ore) is explained by particularly favourable natural and transport conditions (high iron content of the are, near-surface deposits of oil or gas, short transport hauls, etc.). These favourable conditions give such enterprises an additional net income or profit. In some enterprises in the manufacturing industry profitability is above the average for the branch of the economy because of better technica-economic conditions of production (more up-to-date equipment, more highly skilled workers, more electric power available per worker, etc.).
In order to equalise the profitability of enterprises working in different conditions and to deprive enterprises working in particularly favourable natural, transport or technico-economic conditions of their differential net income, they have to remit part of their profits to the budget.
104Care is taken not to set this ``fixed payment" at a figure that would make the profitability of the enterprise drop below the average for the branch.
__ALPHA_LVL2__ Distribution of the Profits of EnterprisesThe new system of planning and economic stimulation provides for a new unified system of distribution of the profits of all enterprises. It is based on the following principles: profit is an important source of finance for 1) payments to the state for the use of fixed productive assets, circulating assets and other charges; 2) material incentives to the enterprise and its staff; 3) all the planned requirements of the enterprise.
Accordingly, the profits of enterprises are used (in the order mentioned):
a) to pay to the budget the charge for the use of productive assets, fixed payments, and interests on bank credits;
b) to form the economic stimulation (material incentive) funds;
c) to pay off credits channelled to capital investments (except the part cleared out of the production development fund), to finance centralised capital investments, supplement the enterprises' own circulating assets, caver losses resulting from the exploitation of housing and municipal utilities and other expenditure within the limits envisaged in the plan; and finally to form the reserve funds of Ministries for financial assistance to enterprises and for other purposes (the formation of a bonus fund for the production of high-quality goods, improving their assortment, etc.).
d) The difference between the balance sheet profit and the above payments, deductions and expenditures is paid to the budget as the free balance of profit.
105With the above obligatory payments deducted from the balance sheet profit, the remaining balance (the accounting profit) and the value of the productive assets are used to determine the accounting profitability, which governs the quotas for the formation of economic incentive funds.
Overplan profits are used (in the urder mentioned):~
to make obligatory payments to the budget--- the charge for the use of assets, fixed payments, interest on bank credits, etc.---if these payments exceed the amount envisaged in the enterprise's financial plan;~
to form a material incentive fund of an established size. However, the quota for this is 30 per cent less than that governing the distribution of planned profit;~
to pay bonuses to winners in the socialist emulation drive;~
to pay off bank loans received during the execution of the annual plan for an increase in the production of consumer goods, the production of new output and the improvement of the quality of output. These loans are granted for a period of up to one year on condition that they will be recouped and repaid during that time out of profits made from the sale of that output.
Profit is also used for other purposes. In particular, the Ministries of the USSR are entitled to remit part of an enterprise's free overplan profits to other enterprises under their jurisdiction for bonuses to winners in socialist emulation drives, if these enterprises have not enough overplan profits for this purpose themselves.
Sums remaining from the averplan profits after the above payments; and deductions go to the state budget.
106If an enterprise fails to make the profit envisaged in the plan, that is, if its profit target is not reached, profit is distributed in a different way. The charge for the use of productive assets, fixed payments and interest on bank credits are paid first. After that deductions are made to the material incentive fund according to. fixed quotas. For every per cent by which the enterprise has failed to reach the planned profit (the sale of output) and the profitability target, the quotas for deductions to the material incentive funds decrease by no less than 30 per cent, as compared to the quotas fixed in the yearly plan for the formation of these funds.
The distribution of profits in the national economy can be seen from the table below:^^1^^
196 5 196 3 sum '000 mln. rubles % sum '000 mln. rubles % Total profit in the national economy ..... 44.1 100 72.7 100 Payment to the budget out of profits Balance left at the disposal of enterprises and economic organisations ..... 30.9 13.2 70 30 44.3 28.4 61 39 including share used for formation of material incentive funds . . . 3.5 8 9.4 13 _-_-_~^^1^^ The Soviet Motional Economy in Figures for 1967, pp. 857 and 858; The Soviet National Economy in Figures for 1969, p. 742.
107Thus, there has been a marked increase in the total profit and in the share left to the enterprises and economic organisations, notably in the share earmarked far the formation of material incentive funds.
An analysis of the structure and types of payments to the budget from the profit of enterprises will help to give a picture of the financial relations between the enterprises and the state budget in the new conditions.
Type of payment amount Payment to the budget from the profits of enterprises transferred to the new system ........... including: a) charge for the use of productive assets ...... b) fixed payments...... c) free balance of profits . . . 32,700 mln. rubles 100 11,300 2,600 18,800 34.5 8.0 57.5Sources: Pravda, December 11, 1968; l:KKH I'inniicKK, No. 1, 1969, p. 6.
The charge for the use of the productive assets accounts for over one-third of the payments. Fixed payments account for a relatively small amount and share. On the other hand, the free balance of profits (57.5 per cent) accounts for a large share of the payments to the budget. These moneys are redistributed to cover various general state requirements.
__ALPHA_LVL2__ Formation of Material Incentive FundsA part of the profits of industrial enterprises working according to the new economic 108 conditions goes to the creation of a material incentive fund, a fund for social and cultural measures and housing construction and a production development fund. The material incentive fund and the fund for social and cultural measures and housing construction are formed from deductions from profits.
The bonuses paid to workers from the wages fund are included in the material incentive fund too.
The size af the material incentive fund (that part of it formed from profits) and the fund for social and cultural measures and housing construction (the whole fund) is determined by quotas for deductions from profits established for groups of enterprises.
If the profitability of production of enterprises within the same group differs substantially for reasons beyond their control differential profitability quotas may be established for some enterprises.
The quotas for the deduction from profits to the material incentive fund are fixed in proportion to. the wages fund.
The production development fund is formed from the following sources: a) deductions from the profits of enterprises; b) part of the depreciation deductions designed for the complete restoration of the fixed productive assets (from 15 to 45 per cent of these deductions); c) the proceeds from the sale of unwanted and surplus property listed as part of the fixed assets (after deducting expenditure connected with its sale).
The quotas for the deductions from profits to the production development fund are established as a proportion of the average yearly value of the fixed productive assets. The deductions are calculated:~
109 for each per cent by which the sales volume (or balance sheet profit) exceeds that of the past year, as envisaged in the yearly plan;~for each per cent of the accounting profitability provided for in the annual plan.
The quotas for the deductions from profits to the production development fund are fixed for groups of enterprises and take account af the composition and the service life of the assets, notably of their wear.
Through the material incentive fund, enterprises are able to use part of their profits for the following purposes:~
to issue bonuses to workers, leading engineering and technical personnel and office workers according to the established bonus systems;~
to increase bonuses paid to workers from the wages fund;~
to issue lump sum grants ta workers who have distinguished themselves in fulfilling particularly important production tasks;~
to reward workers, leading managerial, engineering and technical personnel and office workers for the good results of the enterprise's performance during the year;~
to give material assistance to workers.
Profits channelled to the fund for social and cultural measures and housing construction are used:~
to improve the welfare and medical services of the workers of the enterprise, provide accommodations at rest homes and sanatoria, purchase equipment for canteens and buffets, rest homes, sanatoria, clubs, children's establisments, pay for sports facilities, provide better food for children in kindergartens, creches and young pioneer camps, and for other measures designed to improve the workers' way of life;~
to build, extend and carry out major repairs to 110 housing, clubs, rest homes, sanatoria, clinics, young pioneer camps, kindergartens, creches, canteens, buffets, sports facilities and amenities.
Part of an enterprise's profit goes to the production development fund and is used to finance capital investments:~
to introduce new equipment, mechanisation and automation, to modernise equipment, renew fixed assets, improve the organisation of production and labour;~
to expand and organise the production of consumer goods and to improve their quality;~
to finance other measures to develop production, master the manufacture of new kinds of output, raise labour productivity, lower costs and improve the quality of output, and to raise the profitability of production.
Money from this fund can also be used by an enterprise to pay for building and assembling connected with the replacement and installation of equipment, and other measures financed from the production development fund.
__ALPHA_LVL2__ Financial Relations Between the BudgetUnder the new economic conditions the multifarm system of financial relations favours its utilisation as a means of raising the effectiveness of production in all branches of the national economy.
Under the economic reform the Soviet financial system is used above all as a state-organised system of monetary relations expressing the planned formation, distribution, and utilisation of new funds of money and the more rational utilisation of old funds.
111Various funds are formed in the national economy. They have different sources and serve different purposes. Among them are the fund for replacing used up means of production, the accumulation fund and the consumption fund. The reform has produced changes in the principal monetary funds farmed and used on a national scale---in the budget, the social insurance fund, the defence fund, the social consumption fund, and the state property and personal insurance funds. This also applies to funds formed by state enterprises and economic organisations: the depreciation fund, wages fund, fund of the enterprise's own circulating assets. New material incentive funds have been established. At the same time the ``old'' funds---the fund for the production of consumer goods, the bonus fund, foreman's fund, temporary financial assistance fund (at Ministries), fund (reserves) for payments in prospect and fund for the mastery of new technology---have lost none of their importance.
Under the economic reform bath the old and new financial funds can and must be used effectively by the state and its bodies and enterprises for developing production and economising resources.
The funds have been assigned a greater role in the disclosure, assessment and comparison of the quantitative and qualitative indices of the work and development of enterprises and entire economic branches. Financial indices can be used to exert a wider and more systematic influence on the fulfilment of plans. The reflection by them of the achievements and failures af economic activity enables the state to use them in the new conditions for more effective financial control, for the disclosure and mobilisation of economic 112 reserves of production, and fur more rational business management.
The new system of calculating and appraising the profitability of enterprises as the ratio between the profit and the value of the fixed productive assets and established circulating assets induces enterprises to decrease their productive assets and stocks of finished goods. This is because a growth of profitability can be ensured only through a rational and effective use of the assets, that is, by systematically raising the profits obtained per ruble invested in the productive fixed and circulating assets. The fact that a charge is imposed for the use of the assets and for credits used for capital investments also makes for the rational and thrifty use of the finances set aside for the expansion of the fixed and circulating assets. In this way the new financial relations are designed to make enterprises interested in the thrifty and rational use of their productive assets. Economy on the productive assets increases the part of the profit fram which deductions are made for payment into the material incentive funds. At the same time the less productive assets an enterprise uses to fulfil its plan, the higher is the level of its accounting profitability and, hence, the higher is the quota for the deductions from the profit to the material incentive fund.
Under the new system, financial sanctions--- fines, penalties, indemnities for the violation of contractual commitments connected with goods deliveries---directly effect the results of an enterprise's economic performance (its profits and losses). And the interest on credits is paid out of profits before deductions are made to the material incentive fund, while losses incurred through the exploitation of housing and communal __PRINTERS_P_114_COMMENT__ 8---2729 113 utilities, as well as expenditure on the maintenance of educational establishments and young pioneer camps, are defrayed out of the profits remaining after the material incentive fund has been formed.
An important feature of the new financial relations is that enterprises which have wasted part of their circulating assets are obliged to replace them by mobilising all their reserves and potentialities to that end. Such losses are not made good by the budget.
Important changes have also been introduced in the budget financing of capital investments. These investments were formely largely financed by non-returnable budget grants. Now State Bank or Construction Bank credits provide a large share of the funds used for capital investments.
The capital investments under the centralised plan for the reconstruction and expansion of operating enterprises which have been transferred to the new system are now effected at the expense of the enterprises' awn funds (depreciation deductions and profits), and if these are insufficient, they are supplemented by a loan by the Construction Bank of the USSR for this purpose. The budget finances the reconstruction of enterprises only with the express permission of the Council of Ministers of the USSR.
When a whole branch of the economy is transferred to the new system, the finances needed for capital investments, envisaged in the centralised plan for the building of new enterprises are supplied by the Construction Bank of the USSR and from the funds of the branch concerned that have been earmarked for that purpose in the financial plan. This applies to projects which are expected to pay off the expenditure on their 114 building within five years from the date of their being commissioned.
Thus, budget allocations that were formerly envisaged in the plans for the financing of centralised capital investments have in a number of cases been replaced by the funds of enterprises themselves, and, when these do not suffice, by Construction Bank credits.
If it takes more than five years to recoup the expenditure on the construction of a new enterprise, its building is financed by the state budget, the enterprise's profits and by part of the latter's depreciation deductions for the full restoration of the fixed assets (to the extent stipulated in the financial plan).
The system governing the formation and use of the material incentives and the production development funds is particularly important in organising the finances of enterprises working under the new conditions.
Economic levers can be assigned a greater role in business management, and the rights, independence and initiative of enterprises can be extended only if the roles of centralised planning and of the unified financial state policy are also increased. A unified, centralised financial system and a unified financial policy are absolutely essential under the new system. In modern conditions centralised finance means that the state establishes a single system for the formation and use of every fund of money throughout the country, in all enterprises and economic branches, in all economic districts and Republics. Each fund is formed from definite and strictly regulated sources and used for strictly defined purposes.
The state establishes quotas and rules for the formation and utilisation of every monetary fund. The strict, timely and complete adherence __PRINTERS_P_114_COMMENT__ 8* 115 to quotas and the observance by enterprises of their financial commitments vis-a-vis the state budget, and the observance of expenditure, quotas and rates and rules for the formation and use of monetary funds---all this is part of financial discipline.
State financial discipline requires that enterprises and economic associations should be financed in strict accordance with their actual requirements for cash resources. Government funds must be used rationally and effectively and only for specified purposes. Thus, the observance of financial discipline and, hence, strict economy, plays an important part in developing production, in raising its effectiveness, in strengthening material stimuli and in successfully implementing the economic reform.
__ALPHA_LVL2__ The Wholesale Price ReformThe correct, economically founded expression of the social value of commodities in their prices is of basic importance to economic development. The scientific calculation of the prices of goods, and the use of such prices in planning and in economic management, makes it possible to establish correct proportions in the development of the economy as a whole and of the various branches of production. It also promotes the growth of the net income of society, of the social wealth, gives an impetus to technological progress and helps to economise human and material resources.
A correct formation of prices in general, and of wholesale prices in particular is of great importance to the smooth functioning of financial relations in the national economy.
The wholesale prices for industrial goods which had been valid in the USSR since 1955 116 became obsolescent in recent years. They became detached from their real basis, i.e., from their value as determined by social labour expenditure. The social and individual expenditure in production began to exert an ever smaller influence on prices. This gave a distorted picture of the profitability of different branches of industry and of different goods. Far too little consideration was given to the interchangeability and quality of goods when prices were fixed. As a result, the old wholesale prices did not promote the rational organisation of the finances of enterprises and branches of the economy, and inevitably undermined the cost accounting method by which Soviet enterprises are managed. The internal prices for output and services in the various sub-divisions of enterprises (workshops, sections, departments) were virtually ignored in planning and management.
In view of this situation the September (1965) Plenary Meeting of the Central Committee of the CPSU decided that adjustments be made in the wholesale prices of industrial goods, power costs and freight tariffs, considering this one of the most important elements of the economic reform.
Preparations for the reform of wholesale prices and tariffs were made in 1966 and 1967. New wholesale prices for heavy industrial goods and new tariffs were introduced on July 1, 1967. New wholesale prices for the goods produced by the light and food industries were introduced somewhat earlier (at the beginning of 1967).
The effect of the reform was to make prices reflect more fully the socially necessary costs of production, i.e., the amount of social labour expended in the manufacture of goods. The new wholesale prices were based on average costs for 117 a branch of industry. The new prices were fixed so that they should:~
a) take fuller and more accurate account of the cost of output and put an end to the unprofitable operation of some branches of industry;~
b) ensure an economically well-founded level of profitability in all branches of industry in order to create conditions favouring the development of cost accounting in them and enabling every normally operating enterprise to recoup its outlay and make a profit at least large enough to pay the charge for the use of its productive assets and to form a material incentive funds;~
c) bring the prices for interchangeable goods into proper relation;~
d) provide incentives for improving the quality and increasing the durability and reliability of manufactured goods.
The reform of wholesale prices, carried out in conjunction with the improvement of price-fixing in general and of the methods used for the establishment and utilisation of wholesale prices in particular, is helping to improve the economic indices characterising the work o.f industry as a whole, of its individual branches and of every individual enterprise. The new prices have created conditions in which it is becoming both possible and essential for enterprises to disclose and use new production reserves, to calculate and plan systematically and more accurately the cost of their products, to study more accurately the structure and size of their productive assets and to strive for their fuller and more effective use. The introduction of new wholesale prices on July 1, 1967 for the output of heavy industry had an immediate effect on the profitability indices of all the key branches of Soviet industry.
With the introduction of the new prices every 118 normally operating enterprise is now able to compensate fully its production costs and to make a profit at least large enough to pay the charge for the use of its productive assets, fixed rentals and other payments, and to form an incentive funds.
Thus, the newly introduced wholesale prices have created the conditions for the transfer of enterprises and branches of industry to the new system of planning and economic stimulation and for the further development of cost accounting.
__ALPHA_LVL2__ Development and StrengtheningThe further development and strengthening of cost accounting, or economic accounting as it is sometimes called, is an inseparable part and important aim of the economic reform.
The most important principles of cost accounting are: (a) enterprises are granted economic and operational independence, (b) production costs are met by them out of their own income, (c) they must earn a net income (profit), (d) in their activity they use material and moral incentives to stimulate efficient operation, and (e) they bear material responsibility for their work and are subject to financial control.
Under the economic reform, which aims at the wider use of economic methods and levers, cost accounting has grown in importance. When Lenin explained the cost accounting method of organising the work of state enterprises, he linked it directly with increasing labour productivity and the profitability of enterprises, and avoiding waste and losses.
Cost accounting is a method of socialist economic management based on the objective laws of 119 socialist production, notably on the fact that socialist enterprises produce goads for sale. In a socialist commodity-producing economy cost accounting has the objective of unleashing the initiative of socialist commodity producers (factories, associations and other economic bodies), making them interested in production and instilling in them a sense of responsibility. In solving the tasks set by the planned development of production, cost accounting tends to lower the costs of production and distribution and to raise incomes (accumulations) to the utmost.
Speaking of cast accounting and profit, Lenin said: ``I think that trusts and factories have been founded on a self-supporting basis precisely in order that they themselves should be responsible and moreover, fully responsible, for their enterprises working without a deficit."^^1^^ This is now of particular relevance for all Soviet enterprises and the national economy as a whole.
Cost accounting encourages collectives of commodity producers and their members to strive for higher profits and profitability, i.e., to increase their income by increasing the value of their surplus product. In this way the national income is increased too.
At the same time, the successful implementation of cost accounting is possible only if all commodity producers at all enterprises are interested in achieving its objectives not only indirectly but directly. There must be material incentives to evoke such interest.
Cost accounting should also be regarded as a method of promoting economy and thrift. Therefore, consistent and comprehensive efforts to secure economic and rational management through _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 35, p. 546.
120 the initiative, enterprise and prudence of the people are all part and parcel of the cost accounting method.Cost accounting requires the day-to-day recording and checking of the work of an enterprise to see that it obtains maximum results with minimum outlays. The results of all efforts and the enterprise's activity must be foreseen and combine the general interests of the state with those of the enterprise and every worker.
Before the economic reform cost accounting was practised at enterprises formally. In many respects the initiative of enterprises was limited, since they were regimented from above, and had essentially only the ``right'' to execute the targets and instructions handed down to them, and they had to obtain sanction from higher authority before they could dispose of their resources.
Profits and profitability were not used as indices in the national economic plans and far too little importance was attached to them. Whole branches of industry, 20 to 25 per cent of all enterprises, and 40 per cent of all industrial articles produced, were planned to sustain losses. The system of material incentives and material responsibility did little to make enterprises and their collectives interested in improving their activity; little account was taken of the need to combine the interests of the people as a whole with those of enterprises, their collectives and their every member.
Financial control of economic activity was superficial. Moreover, cost accounting was practised only at factories.
The transition from formal to proper cost accounting in industry, the transfer of state farms and other agricultural state enterprises to cost accounting and the extension and improvement 121 of cost accounting relations in all other branches of the economy, have created good conditions for the growth of profitability, the practice of strict economy and thrift, and the improvement of financial relations in all parts of the economy.
The principal methods used to extend and improve cost accounting in the national economy are: = a) the use of more stable and more scientific long-term and current planning of the separate branches of the economy and the activities af separate enterprises and sub-divisions of them; = b) the development and improvement of rating at all levels; = c) the extension of direct links between industrial and agricultural enterprises with trading, supply and marketing organisations, etc.; = d) the speediest possible removal of all difficulties standing in the way of the economic reform, notably the establishment of long-term quotas for the creation of incentive funds, the improvement of the methods used to encourage enterprises to raise to the maximum their plans for the sale of output and to increase their profitability and the improvement of the methods used to calculate and apply profitability indices; = e) the improvement and more differentiated application of the systems of material incentives provided for individual workers, groups and productive collectives at enterprises; = f) the further improvement and development of the system of financial relations between enterprises and the budget ( differentiated charges for the use of assets, a simpler system for the collection of the turnover tax, a decrease in the share of the free balance of profit paid by enterprises to the budget, a more extensive substitution of bank credits for budget financing, etc.); = g) the development of voluntary bureaus of economic analysis, design bureaus, rating bureaus, councils of innovators and other 122 creative groups farmed by workers, engineers, agriculturalists, etc.; h) the development and improvement of the economic knowledge of all personnel (through courses and the exchange and dissemination of experience).
Cost accounting spreads in the economy in two directions---vertically and horizontally.
Vertically, in that cost accounting methods are being introduced and improved at all levels--- teams, sections, workshops, enterprises, associations and the boards and Ministries of all branches of the economy. Horizontally, in that cost accounting methods are strengthened and wider applied in the relations between supplier and consumer enterprises, between the various branches of the economy, between industry, transport, supply organisations and building organisations, etc., between enterprises of the different branches of production, research institutions, banks, the financial system, trading organisations, etc. The development of inter-branch cost accounting is also to be based on the extension of material incentives (rewards and sanctions) for the provision of better services and on stricter financial control over the fulfilment of mutual commitments.
[123] __NUMERIC_LVL1__ CHAPTER VI __ALPHA_LVL1__ CREDIT AND CREDIT SYSTEMS __ALPHA_LVL2__ [introduction.]Alongside the financial system, the credit system helps to form and use funds of money resources, and to distribute and redistribute the social product and the national income in their monetary form. The credit system channels money in the form of loans granted on definite conditions to persons, enterprises and organisations. This form of movement of money has a number of special features. Like the financial system, the credit system is closely linked with commodity production, is based on commodity-money relations and is part of the money system, and both finance and credit operate in the sphere of money relations. However, these relations assume different concrete forms in each of the two systems. The methods used for the formation of money funds, their purpose and the principles of their utilisation, also differ in the two systems.
__ALPHA_LVL2__ The Content and Role of CreditThe word ``credit'' is derived from the Latin ``creditum'', meaning a loan or a debt. However, it is not the sum of a loan or debt that we are concerned with but with the economic relations 124 that arise when moneys or commodities are transferred by one person, enterprise, organisation or state to another for temporary use on the condition that they are returned at a fixed date in the future together with a charge for their use called the interest on the loan.
Who grants credit to. whom and in what form and on what terms depend on the economic conditions of life of nations and classes and of the social system concerned. Credit relations are widespread in modern society because credit has become a mass phenomenon, and crediting ( lending and borrowing, the granting and receiving of credit) is not only a private matter between individuals but is also handled by special institutions, such as banks. There are many such institutions in all countries. The credit system can therefore be defined as the aggregate of the credit (monetary) relations, and the forms and methods of credit, established in a given country, or as the complex of credit institutions existing in a given country at a given time.
We shall now examine the credit relations of modern societies (both capitalist and socialist) and then characterise the credit systems of different types of states on the basis of the credit institutions operating in them.
__ALPHA_LVL2__ Credit Under CapitalismUnder capitalism credit is a form of the movement of loan capital. Credit enables the owner of capital to use it for the production of surplus value through other capitalists and to obtain part of this surplus value far himself in the form of interest on his capital.
In modern capitalist society credit takes various forms: commercial, bank, state (national and 125 international) and consumer credit. But the main forms of credit are commercial and bank credit.
Commercial credit is the credit which working capitalists (industrialists and merchants) grant each other in the form af commodities. The commodities are given by the seller to the buyer while payment is deferred. Industrialists sell their goods to merchants on credit, merchants grant such credit to each other and also to industrialists. Industrial capitalists grant each other commodity credits when they supply raw materials, machinery and equipment.
Commercial credit is necessary because the time required for the production and that for the circulation of commodities does not coincide in the different sectors of the economy. Some capitalists have already produced their commodities and are able to sell them while other capitalists have no ready cash with which to buy them because their capital is tied up in production or in other as yet unsold commodities. Capitalists overcome this difficulty by granting each other credit and this contributes to the continuity of production and the circulation of commodities and promotes the accumulation of capital. As a rule commercial credit is granted for short terms---for several months on a bill of exchange. Because of its widespread and historical role, commercial credit forms the basis of the credit system in capitalist society.
Another form of credit under capitalism is bank credit. This credit takes the form of money granted by the owners of money, whether individuals, institutions or banks, to industrial or trading capitalists. Bank credit is particularly widespread in the big metropolitan countries where monopolies dominate the economy.
126State credit under capitalism is credit obtained by the bourgeois state by floating loans (national credit) or credit granted by one country to others (international credit). International credit can assume the form of commercial credit and of bank credit granted by banks and financial institutions to foreign governments and private monopoly associations. Such credit becomes an instrument in the competitive struggle between capitalists of different countries for sales markets and sources of raw materials, for enslaving politically the peoples af developing and colonial countries, and for enriching the imperialist bourgeoisie through the exploitation of the working people of other countries.
Consumer credit is credit granted by capitalists to the general population far the purchase of consumer articles and durables by instalments. This form of credit has been developed in modern capitalist society to broaden the consumer demands of working people. It helps capitalists sell their goods. They also use it to dispose of articles for which there is little demand and to reap additional profits at the expense of the consumer.
Thus, capitalist credit serves capitalists first and foremost. It is linked to the movement and growth of capital, especially loan capital. Credit helps capitalists to increase their capital by enlarging their enterprises and accelerating and expanding production. They then derive added profits by intensifying the exploitation of their workers. Credit in the hands of imperialist countries also helps capitalists to pump wealth out of colonial and dependent countries and thus serves as an instrument of plunder and intensified exploitation abroad. In short, all forms of credit under capitalism help to develop 127 capitalist production and at the same time deepen the contradictions between capital and labour.
__ALPHA_LVL2__ Credit Under SocialismThe role of the credit system in socialist countries differs fundamentally from that under capitalism. In socialist society it exists and develops on the basis of the public socialist ownership of the means of production. It is not born of relations of exploitation and does not produce or deepen contradictions in society, but promotes its progressive advance. Under socialism credit is a specific system of monetary relations which systematically helps to mobilise the temporarily idle monetary resources of enterprises, organisations and the general population, and to. use them according to plan (as loans to be returned with interest) for the development of the national economy and the raising of the welfare of the population.
In the socialist world, planned credit is used to redistribute money resources in the economy according to the growing needs of production. The redistribution of money resources is effected by lending the idle portion xjf these resources (as loans to be returned with interest) to those who need them.
Under socialism the need for credit is generated by the objective conditions of economic development. In the course of their economic and financial activities enterprises, organisations and institutions find themselves in possession of temporarily idle money. This happens at enterprises during the turnover and circulation of productive assets. They gradually accumulate depreciation deductions. Money is also accumulated on the current accounts of enterprises (a) for the payment 128 of wages and the purchase of raw and other materials, and (b) when products have been sold but the proceeds have not been put fully back into, circulation.
Idle funds also appear in agricultural co-- operatives because of the seasonal nature of production: income is received only after harvesting while expenditures are spread over the year. Again, idle resources of money also form during the execution of budgets because of the yearly excess of revenue over expenditure and the time lag between receipts and spendings. The private savings of the general population also go to form idle accumulations of money.
On the other hand, at certain times enterprises and organisations may be in great need of money: for the purchase af seasonal stocks and materials, or for the expansion of production and similar needs. In these conditions it is only natural that the use of temporarily idle money be allowed to those who need it. In a socialist economy this task is fulfilled by credit.
Credit makes it possible to use temporarily idle money to accelerate the development of production. Credit relations substitute for a part of the money resources in the turnover of payments which enhances financial control over the economic activities of enterprises, especially their use of materials, labour and money resources.
In the early stages of the building of socialism both commercial and bank credit were used. Commercial credit was given when enterprises and economic organisations handed over commodities to others on the strength of a promise to pay on a stipulated date or the issue and acceptance of bills of exchange. Such credit, however, involved unplanned redistribution of money in the economy, weakened bank control over the 129 work of enterprises and did little to improve financial planning or strengthen financial discipline. As the socialist economy developed and planning improved, commercial credit was ousted by direct bank credit.
The forms of credit employed in a developed socialist society are bank, state, international and consumer credit.
Bank credit may be short-term or long-term. Short-term credit is granted by banks to enterprises and economic organisations for a period of one month to one year to allow them to replenish their circulating assets. This credit, sometimes termed credit on circulating assets, serves to cover temporary money shortages resulting from seasonal fluctuations in production, supply\ and sales, or from the temporary freezing of assets in the process of circulation. The term of a loan is determined by the period of circulation of the assets of the enterprise being credited: the raw and other materials available, and by the ready production in stock or en route to the buyer.
Short-term credit is also granted when the money is needed to restore fixed productive assets (on account of future depreciation deductions) or for their renewal and expansion (for the introduction of new equipment, the automation and mechanisatian of the production process), when such expenditures can be recouped quickly. Long-term credits are usually granted for terms of over one year for the reconstruction and expansion of enterprises and similar needs.
Bank credit is organised and effected according to the following principles: a) it is planned and given by the bank to finance measures provided for in the plan of an enterprise; b) crediting is direct, i.e., given by the bank directly to the enterprise; c) credits must be repaid, i.e., 130 money received from the bank must be returned to the bank; d) credit is granted for a definite period, i.e., it must be returned on a set date, depending for the most part on the actual term required for the realisation of the circulating assets of the enterprise being credited (which must, however, be within the limits provided by the plan); e) it must be secured by material values belonging to the credited enterprise; f) a charge is made for credit, i.e., the money received is returned with interest, the rate of which is determined by the state.
State credit in the socialist countries is the means by which the state obtains the use of funds, consisting mainly of the savings of the general population, fur the good of the people. These funds are collected: a) by savings banks which accept deposits from the population and b) by issuing state bonds subscribed to by the population. The credit granted by the state to the population for the building of dwelling houses and for the purchase of manufactured goods (so-called consumer credit) is also a form of state credit.
International credit is credit granted by one country to another in the process of foreign trade, non-commercial operations (transportation of goods, tourism), or in the form of loans.
Consumer credit in socialist countries is mercantile credit, given by trading organisations to the population in the form of articles of consumption such as clothes, durable goods, etc. The buyer pays for such items by instalments over several months. The terms for the clearing of such credits are established by the government. Purchases are paid by monthly deductions from wages.
All socialist credit relations are based on the planned development of the economy and credit __PRINTERS_P_130_COMMENT__ 9* 131 operations are therefore planned: state credit institutions compile and execute credit plans. The planned development and utilisation of cred it makes it an essential and useful lever that can he employed by the state in the interests oi the people.
The socialist credit system is used to enhance economic co-operation and mutual assistance. Bank credit is used to further foreign trade and other forms of economic co-operation between socialist countries. The Soviet Union and the other socialist countries render considerable assistance to developing countries who have freed themselves from colonial oppression by granting them credits. Credit also helps to promote economic- relations between socialist and capitalist cc.iinliies.
__ALPHA_LVL2__ Credit InstitutionsEvery modern state has a number of special institutions engaged in crediting---borrowing money and lending it to individuals, enterprises and organisations. All such credit institutions taken together comprise the credit system of a country.
Different types of states have different types of credit systems. Each type has a network o.f special credit institutions which play definite roles and carry out definite functions. Let us look at the credit institutions of the different types of states.
__ALPHA_LVL2__ Credit Institutions in Capitalist CountriesIn modern capitalist countries the credit system comprises a great number of banks and other credit institutions which collect idle maney capital, including part of the private incomes of the 132 population, and use it to grant loans for a charge. In addition to banks, the credit system includes various financial and credit societies, investment trusts, loan and savings societies, life insurance companies, savings banks, private pension schemes, credit cooperatives and pawnshops. The capitalist credit system is subordinated, to, and serves Hhe interests of, the capitalists ---the ruling class in capitalist society. The credit system in big capitalist countries has greatly expanded under imperialism and a network of large monopoly credit institutions has sprung up.
The bulk of the money capital available for credit is concentrated in the hands of the large banks and banking monopolies.
Modern capitalist banks are powerful monopoly enterprises carrying on diverse functions with a single aim---to derive the greatest possible profit for the monopoly bourgeoisie (the bank owners). They conduct the following operations: a) they act as intermediaries in credit operations---receive capital from finance capitalists and loan it to industrialists and merchants; b) serve as intermediaries in payments---keeping the money resources o.f capitalists and other owners and making payments on their behalf; and c) transform idle money into capital---collect small savings and the incomes of various groups and sections of society and loan them (in the form of money capital) to industrial and trading capitalists in whose hands these funds become working capital.
Besides, a number of banks (so-called emission banks) are authorised to issue money ( banknotes).
Under monopoly capitalism, the large banks buy up the shares of industrial associations and 133 issue shares themselves, i.e., they take part in organising new industrial enterprises and transport and trading organisations. Modern banks have become powerful monopolists and command huge accumulations of capital. They have become the centres of economic life, owners of the greater part of the means of production, and owners of sources of raw materials not only in their own countries but in other countries too.
__b_b_b__At the beginning of the 20th century capitalist banks engaged mainly in various credit operations: accepted money deposits, settled accounts, granted loans, etc. Most of them were commercial banks. In addition, some banks were entitled to issue money (banknotes). In the thirties and forties investment banks became widespread. They issued their own shares and bonds and bought up the shares of enterprises and monopoly associations they were financing. Such banks are in business not only to collect interest (bank profits) from credit transactions but also to make profits from indusrtrial and other concerns by buying up their shares and bonds. By buying and selling the shares and other securities of industrial, construction, trading and other companies, banks steadily bring them under their influence.
The accumulation of capital in capitalist industry led to the growth of loan capital and an expansion in the activities of banks. As bank capital grew and became more concentrated it merged more and more with industrial capital, and the result was the emergence and development of finance capital.
The expansion of banking transactions and the centralisation of bank capital in such countries as the USA, Britain and France led to the appearance of two basic kinds of specialised banks: 134 commercial or deposit banks, and investment banks (which invest capital in industry).
The high concentration of money capital in the capitalist countries has givert rise to giant banks and extremely powerful banking monopolies. The degree of concentration in banking is best illustrated by the example of the USA. In 1967 there were 13,700 independent banks in the USA. The number of banks holding deposits of over 100 million dollars accounted for only 0.2 per cent of the total number of banks but they controlled 62 per cent of all bank assets (their own and borrowed funds), and employed 55 per cent of all bank employees. These giant banks carried out close on two-thirds of all credit transactions in the country and made 60 per cent of all bank profits.
In modern capitalist society, notably in the major imperialist countries, the tendency has become pronounced for the giant banks not to ruin small banks and other credit institutions but to absorb them, that is, to subordinate them and make use of their network and personnel. In this way the main banking monopolies set up ramified multi-branch banking systems conducting transactions on vast territories within their own countries and abroad.
At present a few dozen big banking monopolies dominate the credit system of the capitalist countries. Now, in the second half of the 20th century, 50 superbanks are competing among themselves. Some of them command capital of 15,000 to 18,000 million dollars, while the capital controlled by the biggest industrial monopolies does not exceed 10,000 to 12,000 million dollars. In 1967 these 50 superbanks controlled between them a capital of about 292,000 million dollars, that is, a wealth equal to the annual 135 national income of Britain, West Germany, France, Italy, Canada and Japan combined. The data given below shows in what countries these superbanks are based, the share of these countries in the assets of the biggest banking monopolies and the rate at which these assets have grown.^^1^^
Their share in the total assets of hanks and changes Number in their share of super-- banks 1961 1966 Changes (percent-- ages) USA 16 44.1 39.8 ---4 3 Japan . . 12 14.5 21.6 +7.1 Britain 6 13 7 10 5 ---3 2 Italy ...... 5 6.7 9.0 +2 3 Canada 4 10 9 7 2 ---3 7 France ....... 3 4.3 6.0 + 1 7 West Germany . . . Brazil ........ 5 8 5 9 +0 1 Spain Total number of banks 50 100 100 their assets (in '000 million dollars) --- 183.0 291.9 + 59.5 (32.5 pur cent)Modern banking monopolies have become very aggressive in their attempts to expand their sphere of domination and in developing new fields for the application of banking capital. They also make wide use of the latest _-_-_
~^^1^^ Supplement of the EkoHomichcskuya Ga:cta for N, Issue 3, p. '2.
136 achievements of the scientific and technical revolution. This makes them even more powerful and influential and helps them to subordinate nonmonopoly credit institutions and industrial, trading and agricultural associations. Bringing small depositors under their influence and enabling them to obtain greater consumer credits, giant banks like the Bank of America are gradually extending their domination to the various layers of bourgeois society and intensifying their financial exploitation of the broad mass of working people.The sharp intensification of the expansionist policy of the imperialist powers after the Second World War and the spread of state-monopoly capitalism and its greed for high profits gave birth to inter-governmental credit and to banking organisations engaging in international credit transactions. The International Bank for Reconstruction and Development (IBRD), founded under the UN in 1946, is such an international credit institution. Actually this bank is an instrument of the US imperialist monopolies. Its capital exceeds 20,000 million dollars. Most of that capital belongs to the USA. The International Finance Corporation (IFC) is to all intents and purposes a branch of the IBRD. In 1963, 73 states were members of the IFC, while 35 per cent of its capital belonged to the USA. The International Development Association is also a subsidiary of the IBRD. The USA owns 35 per cent of its capital and rules it undividedly. The USA also owns about 50 per cent of the 1,000 million dollars capital of the Inter-American Development Bank. Similar credit institutions function in Europe, for example, the International Credit Insurance Association and the International ConIcdcration lor Small-Scale Credit.
137In an attempt to use the co-operative movement in Western Europe in the interests of the US monopolies, the Co-operative League of the USA has succeeded in bringing about the establishment of a special bank---the International Co-operative Bank, the profits of which are divided between its main members: the USA, Great Britain, West Germany and several othcr West European countries.
Monopoly bank capital uses all these international credit institutions to exploit the working people of the countries in which they have branches and departments and to make ever higher profits.
Credit and the credit institutions in the capitalist world thus deepen the contradictions between labour and capital, and between the metropolitan and colonial and dependent countries.
The role of the credit system in socialist countries differs greatly from that in the capitalist countries. Here it plays a progressive role in the life of the socialist countries and their people.
Credit Institutions in Socialist Countries
Credit and credit institutions in socialist society emerge and grow on the basis of public socialist ownership of the means of production, and the concomitant emergence and development of new social relations. Karl Marx wrote: ``...The credit system will serve as a powerful lever during the transition from the capitalist mode of production to the mode of production of associated labour."^^1^^
The socialist countries not only need a new credit system for the transition from capitalism to socialism, they also need it to build full _-_-_
~^^1^^ K. Marx, Capital, Vol. Ill, p. 007.
138 socialism. Lenin pointed out that ``without big banks socialism would be impossible".^^1^^In socialist countries the credit system is the aggregate of credit institutions formed by state banks, savings banks and pawnshops.
Pawnshops give loans to the population on security and charge interest on them.
Credit institutions in socialist countries are a state monopoly and state-owned. They are operated in the interests of the people. The credit system is controlled and managed by the higher central organs of state power and state administration.
The credit system and its institutions are used by the socialist state to build, reinforce and develop the socialist economy, to accelerate the building of socialism and to raise the material and cultural level of the people. The credit system, thus, serves society and furthers its progressive development.
In socialist society credit cannot be a form of the movement of loan capital because there is no loan capital in a socialist society. The bulk of the credit resources is concentrated in credit institutions, in the accounts of socialist enterprises, organisations and collective farms and in the personal accounts of savings bank depositors. In socialist society credit functions are carried out no.t by private banks, as under capitalism, but by the State Bank, which together with all its resources is the property of the whole people and operates in their interests.
Credit and credit institutions in socialist countries are used not only for the building and development of socialism in individual countries but also for economic co-operation between them, and for promoting mutual assistance in their _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 26, p. 106.
139 common striving lor peace, progress and the building ot fully Hedged socialism in them. The International Bank of Economic Co-operation (IBEC), organised in October 1963, is an example of how credit organisations are organised and used for this purpose. Bulgaria, Hungary, the German Democratic Republic, Mongolia, Poland, Rumania, the USSR and Czechoslovakia are members of the bank. The initial statutory capital of the bank is 300 million transferable rubles.^^1^^The IBEC carries out the following transactions: it effects multilateral settlements in transferable rubles and grants credits to finance foreign trade and other transactions of member-countries. It pays interests on moneys in current accounts and deposits, the rate depending on the length of time for which they are deposited. It issues credits to the banks of member-countries on the condition that they are returned by a definite date (generally for periods not exceeding one year). Credits are granted: to ensure that goods are paid for on time when expenditures temporarily exceed incomes (credit pending clearance); to cover requirements connected with seasonal and other production and fluctuating sales conditions, and with delays in the delivery of goods or the extension of trade over and above the quotas agreed between countries; and to finance the joint construction, reconstruction and operation of industrial and other projects. In addition the IBEC carries out clearing, credit, depository and other transactions in freely convertible currency, and gc.ld transactions.
_-_-_~^^1^^ Transferable ruble---the money unit in which the IBEC has since 1964 been effecting multilateral settlements between member-countries of the Council of Mulual Economic Assistance. Tt has the same gold content as the Soviet ruble (0.9X7412 gramme of pure gold).
140In 1967, the turnover of the IBEC increased 29 per cent over 1966 and reached 47,400 millio.n rubles, The payments of the bank amounted to 26,600 million transferable rubles.
In 1967, as in former years, trade transactions were of decisive importance in IBEC activities, accounting for over 94 per cent of the bank's turnover. Clearings between member-countries are effected on the basis of bilateral and multilateral agreements.
The credits granted by the IBEC during 1967 to the banks of the member-countries increased 19.3 per cent over the 1966 total and reached 1,900 million transferable rubles, while the share of credits in the total payments of these banks reached 12.4 per cent, compared with 11.7 per cent in 1966.
Transactions in freely convertible currency amounted in 1967 to 9,000 million transferable rubles, an increase of 138 per cent over 1966. It should be noted that the IBEC does not seek to make maximum profits. In 1967 it granted some credits without interest. Its profit in 1967 amounted to only 1,322,000 transferable rubles. In 1968--71, the IBEC continued all its activities successfully. Before we go on to show how credit and credit institutions are used by a socialist society in the building and consolidation of socialism by quoting the example of the Soviet Union (in the next chapter), we shall stop to look at the special features of the creation and use of credit institutions in the formerly colonial countries.
__ALPHA_LVL2__ Credit Institutions in Developing CountriesThe credit systems and credit institutions of the countries that have recently freed themselves from colonial dependence are impaired by the 141 adverse legacy of their recent past. In conditions of colonial oppression, imperialist forms of capitalist credit pervaded the economy of these countries and monopoly bank credit interwove with usurer's credit (predatory credit by usurers, who exacted extremely high interest from the working people for loans they granted in cash or kind). Foreign capital and foreign credit institutions predominate in the credit systems of some of these countries. Countries still dependent on their metropolitan country have virtually no national credit institutions. The countries that have achieved political independence are gradually ousting the credit institutions of the former metropolitan countries and laying the foundations of independent national credit systems.
The collapse of colonialism and the embarkation of many formerly enslaved countries on the road of national revival has completely changed the role and function of banks in their economies. The active intervention of the governments of these countries in their economic development, and the strengthening of the national bourgeoisie, are generally attended by the expansion and reinforcement of the national banking system and the weakening (in some countries even the liquidation) of foreign imperialist banks. But these two interconnected trends manifest themselves in different countries to different degrees and in different forms.
The imperialist banks, the strongholds of colonial domination in the developing countries, have played a major role in building up the power of foreign finance capital and in increasing its concentration in the key economic branches of these countries.
The liberation of a country from colonial dependence enables it to change the role of its 142 credit institutions. This is particularly important in countries that have chosen the path leading to socialist development. The reorganisation of the credit system in them requires the more or less intensive concentration of the banking system in the hands of the state, the largest owner, which is able to make it serve the national economy. This reorganisation of the credit system is a progressive phenomenon. The quicker and deeper the reorganisation, the sounder becomes the country's economy and the more favourable are its prospects for development and for freeing the people from private capitalist oppression.
The organisation of a state bank in a developing country (or People's Bank, as it is called in some of them) and the support given it by the state, the granting to it of the right to engage in crediting and the issue of money---and the creation of special national banks for the various economic branches (industrial, investment banks, etc.)---enables these countries to use their credit systems more actively and more effectively for the purpose of attaining economic independence.
It should be emphasised that in a number of countries progressive sections of the population are becoming increasingly aware of the fact that the domination of private capital in the banking system and, above all else, the domination of foreign monopoly banks, prevents the rapid accumulation of capital in the hands of the state, which it could use to reorganise the country's economy on national lines. Countries which correctly understand their national interests and the ways in which these can best be promoted are taking measures to organise their own national credit system and credit institutions and to put them to better use.
143As the developing countries succeed in setting up such systems, their governments use them ever more effectively for the accelerated economic and cultural development, for establishing their complete economic independence and for freeing their peoples from the domination of foreign capital and foreign banks.
[144] __NUMERIC_LVL1__ CHAPTER VII __ALPHA_LVL1__ THE ORGANISATION AND DEVELOPMENTThe Soviet credit system has gone through a long and complicated process of development. It was created when the country's economy was being rehabilitated, and served to lay the foundations of the socialist economy. It then helped the Soviet people and the state both to build and strengthen socialism. Now it is an effective instrument in the building of the material and technical basis of communism, and communist society.
__ALPHA_LVL2__ The Emergence and OrganisationThe Soviet credit system emerged together with the new social order and grew and improved as the country developed. From the first days of its existence it differed fundamentally from the system that had existed in tsarist Russia. The first major changes were made in the banking system. Lenin considered the banks a state mechanism essential for the control of production and trade, for the strengthening of money circulation and for the development of the new socialist economy.
Russian and foreign capital used the large monopoly banks in tsarist Russia to control the country's economy.
145One of the initial and most important measures of the Soviet Government headed by Lenin was the nationalisation of the State Bank and after that of all private commercial banks. Banking was declared a state monopoly. The People's Bank ol the RSFSR was organised. The Moscow People's Co-operative Bank was preserved and assigned the task of helping co-operative organisations. Later this bank was amalgamated with the People's Bank of the RSFSR and became an independent branch of the latter.
To help the nationalised enterprises the People's Bank organised a loan and discount committee of representatives of economic and workers' organisations. The committee controlled the issue of loans and resources for production needs and also the withdrawal of money from current accounts.
To combat the monetary power of the bourgeoisie, the withdrawal of money was restricted, and steps were taken to ensure that the entire commodity and money circulation should pass through the current accounts in banks.
After the Civil War the central problem was to rehabilitate the economy and to create the prerequisites for the building of a socialist economy. During that period the key task of the credit system, and primarily af the banks, was to credit state-owned and co-operative enterprises and to help them in their struggle against private capitalist enterprises. Financial help to working farmers was part of this task. Credits were given to assist the development of state and co-operative trade, strengthen the economic ties of town and village and consolidate the alliance of workers and peasants.
To achieve these aims all credit was to be concentrated in the hands of the State Bank, which was then managed by the supreme state bodies. 146 At the end uf 1921 the State Bank of the RSFSR was organised for the purpose of furthering the development of industry, agriculture and trade, controlling money transactions and carrying out other measures to secure sound money circulation. However, the State Bank, having only a limited number of branches, could not cope with these tasks. A number of auxiliary credit institutions had to be established. These were subordinated to the State Bank and did not interfere with its leading role.
The years 1922--24 saw the emergence and evolution of a system of specialised banks. The first to be organised (in 1922) were the Consumers' Co-operative Bank (abbreviated as Pokobank: in 1923 it was reorganised to form the AllRussia Co-operative Bank or Vsekobank), the Commercial and Industrial Bank or Prombank, the Ukrainian Co-operative Bank, and the Russian Commercial Bank or Roskombank, charged with developing foreign trade (reorganised in 1924 into the USSR Bank for Foreign Trade or Vneshtorgbank). Private mutual credit societies were also allowed to operate, and in 1922 permission was given for credit and savings societies to be organised in the countryside to develop agriculture and handicrafts.
In addition to the organisation of state credit a wide network of mutual credit societies was set up. Mutual credit societies united small commodity producers in need of mutual credit. Their capital consisted of membership fees and money deposited by the members of the co-operative, interest on granted loans, credits from banks and subsidies (free financial aid) from the state.
These credit societies were organised in towns (town credit societies) to help craftsmen and artisans, and in the countryside (agricultural credit __PRINTERS_P_147_COMMENT__ 10* 147 societies) to assist the peasant poor and to help them become independent of their rich (private capitalist) neighbours. The rich peasants were also induced to participate in the agricultural credit societies, because in that way their funds did less to harm the poor than they would have if the crediting of poor peasants had remained direct and unorganised. The weak and poor households which joined credit co-operatives were granted a number of privileges: they were exempted from membership fees or allowed to pay them at reduced rates or in small instalments.
The extensive development of agricultural credit societies made cheap credit available to the peasants and helped to drive the usurer out of the countryside. The Moscow Central Agricultural Bank was organised in 1924. Its purpose was to give state credit to the peasants and financial help to agricultural credit societies. An agricultural bank was also organised in the Ukraine. Local communal banks were set up and subordinated to the Central Communal Bank.
By 1926 the credit system of the country had taken final shape. On October 1, 1926, there were 1,374 credit institutions in the country (including branches). Banks issued long-term and short-term credits.
In addition to the above there were 9,114 agricultural credit societies.
The distribution of credit in millions of rubles is given below:
1 Short-term Long-term Total On October 1, 1923 419 122 541 On October 1, 1924 952 219 1,171 On October 1, 1925 2,087 415 2,502 On October 1, 1920 2,580 840 3,420 148About two-thirds of the short-term crediting was done by the offices of the USSR State Bank.
Paper credit (circulation of bills of exchange) was legalised at that time and banks issued credit against either goods or bills of exchange. The discount of bills of exchange kept the banks busy.
Bank resources consisted of: a) idle money paid into, deposit and current accounts (this grew sixfold between 1923 and 1926); b) funds obtained through the sale of their own shares (these funds increased almost tenfold in the same threeyear period).
The table below shows the main recipients of credit and changes in its distribution (per cent):
1923 1924 1925 1926 State-owned enterprises . . Co-operatives .... Gl.O 27 5 72.0 26 0 77.5 20 0 81.0 17 0 Private persons and firms . 11.5 2.0 2.5 2.0 100.0 100.0 100.0 100.0The bulk of the funds was used to credit state and co-operative enterprises and organisations. This gave them an advantage in their struggle against private capital.
The resources of the credit system being limited, it was able to grant credit to state-owned industrial enterprises only for the purpose of replenishing working funds. Few loans were granted for capital investments.
At that time industrial enterprises were in especial need of working funds. The banks gave preference to enterprises of the textile, food and consumer goods industries because they were connected with trade and were able to repay loans 149 quickly. But from 1925 greater credit resources were available and credits were granted to enterprises of the fuel (coal and oil), metallurgical and metal-working industries.
The Soviet credit system was put on a sound footing during the rehabilitation period (1922-- 26) and this created the basis for its further growth and more effective utilisation in the period in which the foundations of socialism were laid.
__ALPHA_LVL2__ Early DevelopmentThe building of the foundations of socialism set the credit system new tasks. Huge resources were needed to industrialise the country and collectivise agriculture. To procure them, and put them to the best possible use, the banks had to intensify their efforts in marshalling the money resources of enterprises, organisations, institutions, public bodies and the general population and to channel them primarily into, industry. They also had to improve the planning of credits, giving priority to the development of heavy industry and the collectivised farms, to exercise better financial control over production and trade, accelerate the circulation of assets, and see that the strictest economy was practised and unproductive expenditures kept to a minimum.
In these conditions it was essential to change the organisational structure of banks in order to segregate long-term from short-term credits and to delimit the functions of individual banks more precisely.
To strengthen the planned management of the credit system it was decreed that the State Bank would credit all banks, control the use of credits and the channeling of all financial resources to the separate brandies of the economy in 150 accordance with the credit policy of the state, and keep the idle funds of all other banks and the funds of the unified USSR state budget, the savings banks, the state insurance bodies and the social insurance funds.
The subordination of all credit institutions to the State Bank was an important organisational measure. It unified the entire credit system. The functions of the various banks were strictly defined. The State Bank was charged with the short-term crediting of credit institutions and the crediting of the vital fields of the economy, procurements, transport, state-owned trading enterprises and large industrial enterprises and combines. Special lists were drawn up to show which co-operative organisations were to be credited by the State Bank, the Co-operative Bank ( Vsekombank), the Ukrainian Bank and the Central Agricultural Bank. Local state industry was divided between the State Bank and local communal banks.
The successful industrialisation of the country, the collectivisation of the bulk of peasant households, the concentration of wholesale trade in the hands c.f the state and retail trade in the hands of the state and the consumers' co-operatives, and the resulting rise in the living and cultural standards of the people formed a sound basis for the socialist economy. Credit and the credit policy of the Soviet state played a major role in bringing all this about. The next task was to build and consolidate socialism.
__ALPHA_LVL2__ The Soviet Credit System DuringThe building of the economic basis of socialism was completed during the First Five-Year Plan 151 period. Socialist forms of economy became dominant: the question of ``who will conquer whom" (socialism or capitalism) was settled in favour of socialism in both town and country.
During the First Five-Year Plan period the parasitical classes were in the main abolished and the basis and sources of exploitation rooted out.
At that time the credit system was adjusted to suit the new economic conditions in the country and the new tasks facing the Soviet people and government. One of the most important economic measures was the credit reform of 1930--32.
Prior to the reform payments for goods between enterprises and economic organisations were effected in the main by means of bills of exchange, by-passing banks. Enterprises granted one another extensive commercial credits. The banking system consisted of a great number of links. All this made it difficult to ensure the use of money resources according to plan, i.e., interfered with the planning of credits, led to violations of the cost-accaunting principle and to an unplanned redistribution of funds in the economy, slackened financial discipline and obstructed the channels for the movement of credit and the flow of cash. In fact, the existing credit system had become a hindrance to the further development of the socialist economy.
A credit reform was carried out in the early 1930s to do away with these contradictions and difficulties. Essentially, it amounted to the abolition of commercial credit and its replacement by direct bank credit, organised on the principles that credits were repayable, were granted only for specified periods and specific purposes and only against security. At the same time, new and more rational forms of settlements (payments 152 made through banks by written authorisation) were introduced, all short-term crediting and clearing of accounts was assigned to the State Bank, while long-term credits and the financing of capital investments were administered by specialised banks, serving the individual branches of the economy: Prombank (industry), Selkhozbank (agriculture) and Torgbank (trade).
The substitution of commercial credit by bank credit and the principle that credits were issued only in accordance with the actual progress made in the fulfilment of plans established a direct link between crediting and plan fulfilment. Banks now directly controlled and helped in the fulfilment of economic and financial plans and helped to promote cost-accounting.
According to the new system economic organisations received circulating assets large enough to enable them to acquire the minimum stock of inventories (raw and other materials, fuel, spare parts, packing materials, etc.). Short-term bank credit was granted for strictly defined purposes: to finance goods in transit, as advances for seasonal production processes, to allow the accumulation of seasonal stocks of raw and other materials, fuel, finished goods and products, and also for other temporary needs arising in the course of production and trade. Bank credit was thus given only for definite purposes and specified periods (to be cancelled when the specified period expired) and was secured by goods or other material values.
The fact that economic organisations were granted their own circulating assets encouraged personal responsibility in their use, drew a line between expenditures to be defrayed by the actual funds of an enterprise and by credit funds, and created an incentive for economic 153 organisations and enterprises to preserve and increase their own assets, i.e., to fulfil accumulation plans. This also normalised stocks of inventories, and permitted control of their turnover and use.
After the system of payments between enterprises by bills of exchange had been abolished, loans on inventories and goods and money in transit became prevalent in the short-term crediting operations of the State Bank. By the end of 1932 virtually all short-term loans and payments by authorisation were concentrated in the hands of the USSR State Bank.
The State Bank thus became the only disposer of short-term loans and the clearing centre in the country. It had 589 branches on January 1, 1930, but by January 1, 1932, their number had increased to 2,465. The merging of all district agricultural credit societies with the State Bank in 1931 largely accounts for this increase.
The sum of short-term bank credits granted by October 1, 1929, was 5,053 million rubles, and by January 1, 1933, 10,567 million rubles.
Four special long-term investment banks were organised in 1932---Prombank, Torgbank and Selkhozbank---all of which were subordinate to the People's Commissariat of Finance---and Tsekombank (Central Communal Bank), which was subordinated to the communal credit system.
The main functions of the banks were: to mobilise all investment resources (profits, depreciation, etc.) for planned capital investment, to finance capital investments and exercise control over their use according to designation.
After the merger of the district agricultural credit societies with the State Bank, the latter also took charge of long-term production crediting of agriculture. Later, this function was assumed by the newly organised Selkhozbank.
154The credit system that took shape in the 1930s did not change in any essentials in the period of the full-scale construction of socialism, except for certain improvements in crediting techniques (the issue of loans, their use and return).
The rapid advance of all fields of the socialised economy led to a considerable growth of credit investments in the national economy. During 1933--40 credit investments increased 3.7-fold; short-term credits more than 5-fold and longterm credits 1.3-fold.
During the Great Patriotic War (1941--45) the banks used all their credit to help enterprises, collective farms and the population to marshal all their resources for the destruction of the enemy.
After the war credit and the banks of the USSR helped to restore the economy to its pre-war level. This level was attained in 1949. This sparked off the new economic upsurge which led to the consolidation and further development of socialism in the USSR.
In the post-war period the short-term crediting of construction increased greatly---almost 35-fold over the 1940 level. The loan balances in this branch of the economy increased 26-fold in the 1950s while loans to industry increased only 2.1 times in the same decade.
Between 1940 and 1960 long-term credit investments in the economy grew 4.5-fold, while those in collective farms grew 10-fold (3.6-fold between 1950 and 1960).
Long-term credits granted to the population for individual housing construction increased 8.9-fold, while long-term credit investments in state enterprises dropped by 18 per cent.
Short-term credits were distributed as follows:
155 LOAN UALANCES AT THE END OF THE YEAIf (in III. rubles)^^1^^ 10 ',0 1950 I960 19fiO as a percentage oT 1940 Short-term -7credits---total .... 5,574 17,328 42,741 700 on production stocks .... 1 ,074 2,898 8,390 780 on work in progress .... 100 472 843 527 on finished floods .... 242 724 1,895 783 on commodities 1,860 0,357 18,687 1,000 on invoices and goods in transit ..... 1,887 4,994 8,281 439While the balances of short-term credit loans in the economy increased 7.7-fold, loans on goods (in the distribution sphere) grew 10-fold. Loan balances on production stocks increased during the two decades 7.8-fold. In the second decade they increased almost 3-fold.
Outstanding loans on work in progress increased 5.3--fold during the two decades but only 1.8-fold during the second decade. These data show that the production cycle became shorter, that is, that goods were finished in less time.
The sale of finished goods also proceeded quicker in the second decade. This can be seen from the following data: loan balances on finished goods increased 7.8-fold during the two decades, but only 2.6-fold during the second decade. At the same time the volume of industrial output increased during the second decade more than _-_-_
~^^1^^ The Soviet Economy in Figures for 1967, p. 892.
156 3--fold. The same applied to the general turnover of resources in the economy. The gross social product increased between 1950 and 1960 2.6-fold while the loan balances on goods in transit ( invoices) increased during that period only 1.7-fold.The temporarily idle money resources of enterprises, organisations and institutions in their current accounts in banks comprised the bulk of the credit resources at that time. The structure of the balances of these resources can be seen from the data below:
RESOURCES OF STATE. CO-OPERATIVE, TRADE UNIONThe rapid growth and consolidation of socialist property, notably of property belonging to the whole people (state property), and the _-_-_
^^1^^ The Soviet Economy in Figures for 1959, p. 809.
157 greater role of centralised national economic planning made it necessary to reform the credit system and its institutions in order to make them suit the new ecunomic and political tasks, and to introduce some changes in the organisational structure of the credit institutions. The followingchanges were made in the banking system of the Soviet Union: in 1957 Torgbank (Trade Bank) was closed and its functions were turned over tu Selkhozbank and Tsekombank.Up to 1959 long-term capital investments were financed and credited by Prombank, Selkhozbank and Tsekombank with its many local branches. Capital construction in the various branches of the economy was financed by the corresponding specialised banks.
The existence of several long-term investment banks resulted in parallel operations and made it. difficult to control the fulfilment of capital investment plans. In a number of cases identical undertakings were financed by different banks. Housing construction by local Soviets was financed by communal banks, that by industrial enterprises by Prombank and that by agricultural organisations by Selkhozbank. Sometimes the customer dealt with one bank and the contractor with another.
This called for a reform of the long-term investment banking system. Selkhozbank and the communal banks were closed in 1959 and their functions assumed by the USSR State Bank. Prombank was renamed USSR Stroibank ( Construction Bank) or the All-Union Bank for Capital Investments.
This is how the Soviet credit system was organised and used for socialist construction. It now successfully serves the purpase of communist construction.
[158] __NUMERIC_LVL1__ CHAPTER VIII __ALPHA_LVL1__ THE SOVIET CREDIT SYSTEM TODAY __ALPHA_LVL2__ [introduction.]The Soviet Union possesses a developed, modern socialist credit system. All its institutions belong to the state, i.e., they are the property of the people as a whole. It is used, together with other economic levers, to strengthen and develop the socialist economy, to raise the living and cultural standards of the people, and to create the material and technical basis of communism and solve the tasks of communist construction in the USSR.
__ALPHA_LVL2__ The Structure of the Soviet Credit SystemThe complete and final triumph of socialism in the USSR enabled the Soviet people to begin the building of communist society. The new conditions of the Soviet economic development had a bearing also on the credit system.
The modern Soviet credit system is based on a planned and rapidly advancing socialist economy and therefore operates according to plan. The credit system is a state monopoly: all credit institutions belong to the state and are managed by the higher organs of state power and state administration. The structure and activities of the credit system are determined and guided by state 159 plans. The main form oi credit in the Soviet Union is bank eredit.
In addition to the planned redistribution ol temporarily idle resources credit transactions make it possible to carry on a large part of rapidly growing trade without ready cash. Credit money (banknotes) is used instead of gold coins and credit transactions make it possible to effect many mutual payments without cash.
The Soviet credit system has developed continuously and now constitutes a highly organised, centralised and unified system. The present system of credit relations in the Soviet Union comprises: a) long-term and short-term bank credit; b) deposits by the population in savings banks; c) distribution among the population of the 3% lottery loan, freely sold and bought by the savings banks; d) granting of credit to other countries; e) granting of mercantile credit (sale of goods on instalments) to the population; f) loans to the population on personal belongings ( pawnshops).
Short-term bank credit to enterprises and organisations enables them to maintain circulating assets necessary for the uninterrupted production and sale of products, and the successful fulfilment of production targets. Such credit accelerates the circulation of the assets of enterprises and makes for their economical and rational use. It also helps to extend cost accounting principles and to develop and strengthen the economic ties of industry and agriculture. By granting longterm credits to construction and agricultural cooperatives the state renders them considerable financial help.
The credit system is at present operated by the USSR State Bank (Gosbank), the Bank of Foreign Trade (Vneshtorgbank), the All-Union 160 Bank for Capital Investments (Stroibank), the state savings banks subordinated to the State Bank, and the state pawnshops.
__ALPHA_LVL2__ Functions and Tasks of Soviet BanksThe USSR State Bank is the only centre for the issue of currency. It provides credit to all fields of the national economy. It is the centre for clearing accounts and the country's exchequer.
The USSR State Bank is one of the biggest banks in the world. It has the following functions: it issues currency and regulates money circulation in the country; grants shart-term and partly long-term loans; accumulates the temporarily idle money resources and funds of enterprises and institutions; organises and effects transfer payments for goods, other material values and services; effects transactions to provide cash for enterprises, ecanornic organisations and institutions; supplies the cash to execute the state budget; works out farms of international settlements and methods of crediting foreign trade (through Vneshtorgbank); and exercises financial control over the economic and financial activities of enterprises and organisations.
In the field of money circulation the State Bank acts in accordance with Government instructions and the relevant cash plans, and with the planned balance of the monetary incomes and expenditures of the whole population. It also emits and withdraws cash from circulation.
In addition to shart-term crediting the State Bank also issues long-term credits to collective farms and consumer co-operatives, finances capital construction in state farms and the organisations of the consumer co-operative system.
__PRINTERS_P_162_COMMENT__ 11---2729 161As the country's clearance house, the State Bank handles the entire turnover of payments. The bulk of the payments for values and services is made through the bank in the form of paper transfers and this considerably decreases cash requirements. All enterprises, organisations and institutions in the Soviet Union keep their money in their special and current accounts at the branches of the State Bank. When an enterprise has to pay a debt to another enterprise the Bank is authorised to debit the account of the debtorenterprise and to credit the account of the creditor-enterprise.
The USSR State Bank's payments turnover was 325,400 million rubles in 1959, and 384,000 million rubles in 1960.
The State Bank issues cash to enterprises, organisations and institutions to enable them to pay wages, to pay collective farmers their cash earnings, to pay out pensions, students' and other grants, and to pay for business trips and various administrative and overhead expenses.
All cash receipts, tax and other state budget revenue, as also the issue of cash fram budget accounts, are handled by the State Bank, which is charged with the cash handling of the entire USSR State budget. In this connection the State Bank exercises financial control over the economic and financial activities of enterprises and organisations. It checks that loans issued to them are properly secured and used for designated purposes. It sees to it that enterprises use their own and borrowed funds correctly and controls the expenditure of the wage fund, the fulfilment of the profits plan, and of contracts. The bank is also obliged to see that the circulating assets of enterprises are used properly and are secure, that the enterprises apply the cost accounting method 162 correctly, and carry out their financial, credit, cash and payments transactions in accordance with established procedures.
The USSR State Bank handles all foreign currency transactions. It buys and sells all available foreign currency, cheques, bank remittances and other payments documents in foreign currency. The State Bank buys gold, silver and other preciaus metals within the country and abroad. Once a month it publishes the exchange rates of foreign currencies (their relation to the Soviet ruble).
The USSR State Bank has branches in all districts and major towns of the Soviet Union. The branches are managed by the territorial, regional and Autonomous Republican Offices of the State Bank. Every Union Republic also has a Republican Office of the USSR State Bank. These credit institutions are headed by the Board of the USSR State Bank in Moscow which is subordinated directly to the Council of Ministers of the USSR.
Stroibank is the All-Union Bank for Capital Investments. Its functions include: the financing of capital investments in all branches of the national economy (except agriculture); the issue of short-term credits to building contractors and building projects and long-term credits to enterprises of the local industry and municipal enterprises to finance the production of consumer goods and to set up various welfare enterprises; the long-term crediting of co-operative individual housing construction in towns and workers' settlements; the marshalling of the monetary resources of enterprises and organisations for planned capital investments (depreciation deductions, part of the profits), and also of other resources used for the short-term crediting of contractors 163 and building projects (out of idle money resources); the execution of paper transfers (payments) connected with the financing and crediting of building organisations and projects; and financial control of the progress made in construction and in the lowering of costs.
In its capital investments, Stroibank is guided by the ``Rules for the Financing of Construction" endorsed by the USSR Government. It checks the designs and estimates of projects, sees that the resources earmarked for capital investments are spent for designated purposes, controls the expenditure of the wage fund by the organisations, enterprises and projects financed or credited by it, checks that they observe the established quotas for overhead and administrative expenses, and that the funds of enterprises and organisations earmarked for the financing of capital investments are paid into the bank in time and in full.
Stroibank applies a differentiated approach in its financing and crediting transactions. Projects and building contractors who fulfil their plans for the construction and commissioning of productive capacities and fixed assets (as regards both volume of construction and costs) are granted privileges by the bank. Conversely, the bank applies financial and credit sanctions (fines, clearance ahead of time, refusal of further finance, etc.) to projects and organisations which do not fulfil plans and targets.
Straibank has a statutory fund, a reserve fund, a fund of fixed assets and a depreciation fund. The statutory fund is used for the crediting of enterprises and building projects, and the reserve fund to cover possible losses connected with the bank's transactions. During the past few years Stroibank has been making a profit on its 164 transactions. This profit is derived mainly from interest an loans.
The bank is managed by a Board subordinated to the Soviet Government. There are Stroibank offices in every republic, region and territory. In regions where large-scale building is carried out Stroibank sets up a department, or else has a representative at the branch of the State Bank.
Stroibank finances at present housing construction, the building of various amenities, and communal and industrial projects.
Vneshtorgbank deals with foreign trade. It handles the various transactions connected with the collection of debts, commissions and letters of credit; settles other accounts with foreign banks; keeps clearing accounts for those banks in connection with trade and other payments; credits foreign trade with its own and borrowed funds; opens current accounts in foreign and Soviet currency; and renders services to foreign diplomatic representatives, delegations and tourists, as well as to Soviet tourists going abroad. The bank has no branches outside the capital. In the localities its functions are handled by the USSR State Bank.
__ALPHA_LVL2__ The Crediting of Enterprises,As a result of the higher economic development rates and the growth of production and trade in the country during the building of communism, banks are investing ever larger sums of money in the economy. Their credit ties with all branches of the economy are steadily expanding and their influence on the economic and 165 financial activity of enterprises and organisations i§ growing. Credit is playing a greater role in thd implementation of the economic reform, in combining the material interest and the responsibility of enterprises and their collectives in the economical and effective use of their own and borrowe funds, and in strengthening and developing full cost accounting.
At present Soviet state enterprises receive frorr the USSR State Bank short-term credits for the purchase of seasonal stocks of raw and other materials, fuel, semi-finished and finished products and for other temporary needs arising in connection with the overfulfilment of plans or with other money shortages arising through no fault of enterprises, for the introduction of new equipment, and for the organisation and expansion of consumer goods production.
Enterprises receive credits for the purchase of seasonal stocks and stocks of material values over and on seasonal expenditure above the quotas envisaged in the plan if this expenditure cannat be covered by their own established circulating assets.
In issuing loans the State Bank takes care not to allow the spending of money on goods of low quality, or on excessive or unnecessary materials; it also takes care not to issue credits on stocks of goods produced in excess of plan targets and not easily marketed.
When issuing credits to enterprises the State Bank checks that they are secured by inventories. It checks that the value of the inventories is correctly shown in the books, and that they are properly stored. This is done to prevent enterprises from using credits to cover losses.
Loans for temporary needs are a form of financial help extended to enterprises when they 166 experience temporary financial difficulties in fulilling production and goods turnover plans. The need for such crediting arises in connection with the irregular receipt by enterprises of materials necessary to expand production or to improve the Duality of products. Sometimes, an enterprise weeds such credit because a superior body changes she quarterly or monthly production plan, or ipecause suppliers have shipped to the enterprise inventories against funds allocated for the next quarter. Enterprises are entitled to credit if their stocks of goods in process exceed the quota because of delays in the delivery of planned cooperated supplies.
In recent years an ever greater number of enterprises, especially heavy industry enterprises, are using a specific kind of credit, which has become known as credit on the turnover of material values. Under that scheme the State Bank supplements the enterprise's own circulating assets. Thus, both the enterprise's own funds and the bank's resources go to pay for the material values acquired under this scheme. The State Bank participates in the payment for the material values and production costs to the extent of 40 to 50 per cent.
Should the enterprise accumulate sums in excess of payments it has to make under this scheme these sums are deposited in a special account in the State Bank. The money in it is used by the bank for the issue of short-term loans. No interest is charged for this type of credit.
When the bank grants credits on the turnover it pays all the bills of suppliers and twice monthly adjusts accounts with the enterprise to make sure it pays its share for the acquired values in full. When the finished product is sold the bank issues credits to the enterprises on invoices and clears 167 the credits granted on the purchase of materials. There is thus a constant turnover of material values in which bank credits participate.
The most common loans are loans on payments in transit. These are given to enterprises when the date of the shipment of goods does not coincide with the date of payment. These credits are cancelled as soon as the manufacturers receive notice from the buyer's bank that payment has been made.
In addition to the above loans, the bank also grants credits to pay for major repairs to fixed assets. These loans are granted when the expenditures of the enterprise on major repairs at a given moment exceed the amount written off on depreciation.
As a result of the growth of production and the development of commodity relations (trade, supply and marketing) on the one hand, and the increase of the banks' credit resources and the expansion of their credit relations with enterprises on the other, the loan balances of short-term credits have increased considerably. There has been a particularly sharp growth of loan balances on finished goods, production reserves at enterprises, and on stocks of commodities in trading and supply and marketing organisations.
In crediting industrial enterprises, the State Bank controls the fulfilment by the enterprises of the production, sales and profit plans, and sees to it that the enterprises' own and borrowed circulating assets are used for designated purposes. It checks the condition of stocks of inventories, the state of the accounts and makes sure that payments are made in time.
When an enterprise has money difficulties through no fault of its own, the State Bank is obliged to help it by issuing credits in good time. 168 When the difficulties are a result of unsatisfactory work, the State Bank demands of the management that measures be taken to do away with the economic or financial shortcomings. If the enterprise does not take the necessary measures, the State Bank requests its superior economic organisation to intervene. On its part the State Bank takes financial sanctions against such enterprises: it stops credits, grants loans only when these are guaranteed by the superior organisation and demands that the enterprise settle its debts before the term of credit has expired.
State Bank credits to pay for the introduction of new equipment, the improvement of the technology of production and the modernisation of equipment are playing a particularly important role at present. The bank grants loans for these purposes for a term of up to six years on condition that the expenditure will be fully recouped during that period and that the loans will be cleared during that time out of the production development fund and the profits obtained from the investment.
Bank credits help many enterprises to evolve and use new equipment and to improve the technology and organisation of production.
State Bank credits are also granted to enterprises to expand or organise the production of consumer goods and to improve their quality. Enterprises receive loans for these purposes for a term of up to six years on condition that the outlay will be fully recouped during that period and that the bank credits will be cleared during that time out of the profits received from the organisation or expansion of the production of these goods.
The bank also issues loans to improve welfare services---they are issued for three years, while __PRINTERS_P_169_COMMENT__ 12---2729 169 credits for the output of new products or for improving their quality, reliability and service life are granted for one year on condition that the expenditure is recouped and the credit is cleared during that time out of the profits obtained from the sale of that output.
The changes in the sizes of bank credits granted for the introduction of new equipment and the expansion of the production of consumer goods can be seen from the table below:^^1^^
(million rubles) 1960 1965 1967 1969 Credits for introducing now oquip-- ``Sfi 6oci 877 Q1O Loan balances at the end of the year 370 671 1,075 1 475 Credits for the expansion of consumer goods production: Credits issued ........... ?S1 fiQ1 1 -183 1 f^Q Loan balances at the end of the year 502 969 1,811 2,728The first kind of credit increased during the seven-year period by more than 2.2-fold a year the second kind---by mare than 3-fold.
The State Bank also credits state-owned agricultural enterprises. These are credited to cover seasonal expenses in connection with their production activities (farming and animal husbandry), to put in stocks of seasonal supplies of fodder, fuel, spare parts and other stocks.
_-_-_~^^1^^ The Soviet Economy in Figures for 1967, p. 892.
170Agricultural ca-operative enterprises ( collective farms) also receive short-term credits from the State Bank. These are granted to cover current production needs (purchases of spare parts, materials, fodder, grass seeds, fuel) and for capital investments provided for in the production and financial plans of these enterprises.
Loans for capital investments are issued when the funds of the enterprise (incame) set aside for capital investments are received irregularly and their receipt does not correspond to the time when the capital investments have to be made. Loans for production needs are generally issued for a term of up to one year. Loans for the purchase of yaung cattle are issued for a term of up to two years.
Short-term crediting of building contractors is effected by Stroibank in a manner similar to that used by the State Bank to credit industrial enterprises. Loans are granted for the purchase of building materials, seasonal and in excess of plan, for capital repairs to building machines, on payments in transit, etc.
Building projects receive credits to pay for the purchase of large processing and power equipment before its installation; for expenses connected with the mechanisation and introduction , of new equipment; to make payments when quarterly plans for capital work are overfulfilled and the funds allocated to the project in the current quarter are insufficient to cover the additional expenditure.
Trade enterprises and organisations are credited by the USSR State Bank. They receive loans to build up market stocks (in excess of their own assets), for seasonal procurements of supplies and to meet temporary needs arising in connection __PRINTERS_P_171_COMMENT__ 12* 171 with various contingencies arising through no fault of the enterprise.
The development and the kinds of long-term credits issued in the 1960s can be seen from the table below.^^1^^
LOAN BALANCES AT THE END OF THE YEAR (mln. rubles) I960 1965 1967 1967 as a percentage of 1960 Long-term cre-- dits---total . 3,794 6,018 10,403 275 including: to collective farms . . . 2,378 3,890 6,729 282 to the population 1,027 809 785 76 State-owned and co-operative (except collec-- tive farms) enterprises and house-- building co-- operatives 389 1,319 2,889 744While long-term loan balances have grown by an average 170 per cent, the balances with collective farms have grown 180 per cent. Longterm credits to the population (mainly for the construction of individual housing) have dropped because fewer credits were issued to the urban population. This is due to the organisation in towns of special house-building co-operatives, whose loan balances have during these years grown 7.4-fold. Between 1965 and 1967 alone they have increased 2.2-fold and reached a total of 2,889 million rubles. This shows that the state _-_-_
~^^1^^ The Soviet Economy in Figures for 1967, p. 891.
172 is greatly helping the co-operated urban population to improve its housing conditions.Agricultural co-operative enterprises receive long-term credits from the State Bank principally for the expansion of their fixed assets---the building of production premises and structures, schools, the purchase of equipment, cattle, the planting of perennial plantations (vineyards and gardens), and the improvement of meadows and pastures. These loans are repaid out of the accumulations received by the enterprise from its co-operative production. The terms of these loans range from 3 to 15 years, depending on the purpose (up to 15 years for the building of premises for livestock, and power stations--- and for nursery gardens---perennial plants---up to 3 years).
__ALPHA_LVL2__ International and Domestic State CreditState credit takes two forms: international loans and domestic loans. The international credit relations of the USSR with other countries involve the receipt by the Soviet Union of credits from other countries and the granting by the Soviet state of credits to other countries. Such credits may be either long- or short-term.
With the formation of the world socialist system after the Second World War, the international credit relations of the Soviet Union underwent substantial changes. Formerly the Soviet state itself needed foreign credits but the capitalist countries virtually refused to grant it any. In the exceptional cases when such credits were granted, they involved only very small amounts and were given for very short periods. But with 173 the growth of the Soviet Union's economic potential, the emergence of the world socialist economy and the collapse of colonialism, it became possible for the Soviet Union to grant large credits to the countries of the world socialist system and to the developing countries.
The Soviet Union grants credits on very favourable terms in order to help receiver countries develop the key branches of their econo.mies ( especially heavy industry) and raise their living and cultural standards. All the international credit relations of the Soviet Union are based on recognition of the equality of the sides entering into credit relations and on observance of the principle of mutual advantage in economic cooperation between countries. The Soviet Union now grants credits for economic development to many of the developing countries.
The domestic state credit of the USSR covers mainly the credit relations between the state and the population. In this way the Soviet state, on the one hand, mobilises the free money resources of the population and, on the other, gives financial assistance to citizens requiring the temporary use of funds.
At present the temporary free money resources of the population are received by the state in one of two ways: a) through the issue and free sale to the population of the 3 per cent domestic lottery bonds and b) by drawing the free money of the population into savings banks.
The state grants the population credits by a) giving consumer credit on goods, that is, enabling the population to buy goods on the instalment plan in state trading enterprises, and b) issuing loans on security through pawnshops.
The growth of savings bank deposits can be 174 seen from the following figures (balances at the end of the year)^^1^^:
1967 as a Unit 1960 1965 1967 percentage of 1960 Total '000 mln. deposits rubles 10.9 18.7 26.9 247 Number of mln. rub-- deposits les 52.2 57.4 64.0 123 Average deposit rubles 209 326 419 200Between 1960 and 1967 the total deposits grew almost 2.5-fold. The average deposit doubled and reached 419 rubles. The deposits of the rural population grew particularly quickly. With the aggregate growth of the total deposits during those years by 150 per cent---in towns and workers' settlements it was 130 per cent and in rural areas 220 per cent. Early in 1968 the deposits of the population in savings banks reached almost 27,000 million rubles and the interest on them amounted to almost 700 million rubles a year. It should be noted that at that time, in addition to the money deposited in savings banks, about 128 million rubles were deposited in the branches and offices of the State Bank.
The deposits of the population continued to grow as quickly in 1968. By January 1, 1969, they amounted to 32,400 million rubles. They grew by 20.4 per cent between 1968 and 1969. At the beginning of 1969 there were 68 million depositors.
_-_-_~^^1^^ The Soviet National Economy in Figures for 1967, p. 699.
175 __ALPHA_LVL2__ Planning of Credit in the USSRThe distinctive feature of credit in the USSR is that it is planned. Planning means that the amount and use of resources (and their sources) are determined for a certain period in advance (five years, one year, three months or one month), i.e., it is planned in advance how much money will be given and to whom, for what purpose and for how long, and where this money will be obtained by the banks.
The planning of credit is used by the state to help enterprises and economic organisations in their economic activities, to ensure the economical and rational use of state funds, to mobilise the internal resources of the enterprises and to maintain the requisite proportions in the use of the country's money resources.
Credit plans are drawn up by credit institutions and economic organisations. They are based on the production and financial plans of enterprises and economic organisations and are closely linked to the plan for money circulation and to the state budget.
Credit planning developed together with the socialist economy and the system of economic planning in general.
The first quarterly summary credit plan covering the credit operations of all banks in the USSR was drawn up in 1925. In 1926, the plan showed the distribution of credits among the various sectors of the economy and individual enterprises. Yearly credit plans have been compiled since 1928. At present, the planned requirements in credits are calculated by Union Ministries and by economic organisations at republican and regional levels. These plans (requirements) are sent to local (territorial, regional) and republican 176 branches of banks and by them to the central banks. The requirements of the Union Ministries are also forwarded to the central banks. Planning of the sources of credit funds is centralised and this is done by the Boards of Directors of the USSR State Bank and Stroibank.
The credit plans of the State Bank are at present drawn up for the various branches of the economy (industry, agriculture, etc.) and also territorially---for the republics, territories and regions. The plans specify the kind of credit and its recipient. The State Bank draws up both quarterly and yearly plans.
The planning of credits includes not only the drawing up of plans, but also measures to ensure that plans are executed and an analysis of their execution. This analysis is used to control the fulfilment of plans; it reveals the causes of deviations from the plan, permits the planning of measures that will make for the most effective use of credit resources and their sources, hastens the settlement of loans and strengthens financial discipline.
The summary credit plan of the State Bank is presented as a balance sheet, one side reflecting the resources of the bank grouped according to the sources of income (funds and profits of the bank, state budget funds, current accounts and deposits, etc.), the other showing the distribution of these resources (loans against inventories, on expenditure connected with the installation of new equipment, on payments in transit, for temporary needs, etc.).
The credit plan drawn up by the State Bank is executed only after it has been approved by the government.
The credit plan of Stroibank (Construction Bank) is drawn up separately for: 1) the 177 short-term crediting of building contractors and building projects, and 2) long-term crediting. The plan for short-term crediting is drawn up for a year and shows the quarterly distribution of credits and credit sources; the balance (loans and resources) is shown at the end of each quarter. The long-term credit plan is drawn up for a calendar year; this shows the amount of credits planned and the income from payments for previously granted loans. In other words, it is not the balance but the turnover of resources that is planned. The credit plan of Stroibank, as that of the USSR State Bank, is drawn up territorially and based on credit requirements and demands by Republican Ministries, departments and the Executive Committees of local Soviets of Working People's Deputies.
The planning of credit in the USSR enhances the role of credit in accelerating the growth of production and trade, improves money circulation, develops and strengthens the cost-accounting principle and the financial basis of socialist enterprises.
__ALPHA_LVL2__ The Greater Role of CreditUnder the economic reform measures are being taken to boost the role of credits and to improve credit relations in the Soviet economy.
At the beginning of 1967 the Soviet Government adopted a special decision ``On Measures for the Further Improvement of Crediting and Settlements in the National Economy and for Augmenting the Role of Credit in the Stimulation of Production''.
The Government decision obliges the USSR State Bank to ensure the most rational channelling of credit resources for the development of 178 progressive branches of production. It recommends that credits be granted in the first place towards increasing to the utmost the output of products needed by the economy and in demand by the population, and also to expand paid services. Credits are to promote the greater profitability of enterprises and to improve the circulation of money.
The new system introducing a new credit procedure encourages the wider application of credits in the economy. The branches and offices of the State Bank and Stroibank have been granted wider rights, new forms of crediting have been introduced and at the same time enterprises and organisations have been charged with greater responsibility for the fulfilment of their commitments and also as regards timely payment for goods and the repayment of loans. The rate of interest for credits on material values is generally geared to the size of the charge for the use of the productive assets. When the settlement of a debt is delayed, the defaulter usually has to pay an annual interest exceeding his charge for the fixed productive and circulating assets by 2 per cent.
The measures taken to heighten the role of credit in the new system of planning and economic stimulation have enabled separate enterprises and the various sectors of production, and also institutions and banks, to make better use of credit and interest for economic development and for raising the effectiveness of social production.
Soviet credit institutions see to it that loans are issued to enterprises and economic associations when they are really needed and that they are used effectively. Loans must be issued in stricter keeping with planned targets and further the 179 interests of the national economy as a whole, individual enterprises and their workers.
Credits are to raise the material and moral responsibility of enterprises and associations for the thrifty and effective utilisation of their own and borrowed funds for designated purposes only. At the same time the banks are to give enterprises and associations full and timely assistance in their initiatives to develop and improve the production or circulation of commodities, and to improve the material and cultural conditions of their workers.
The checking by the banks of the rational and effective use by the enterprises of their own and borrowed funds, and the application by credit institutions of different approaches to enterprises that function well and those that work badly, and apply sanctions against the latter, is helping to raise the role of credit in the building of the material and technical basis of communism.
[180] __ALPHA_LVL0__ The End. [END]REQUEST TO READERS
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[181] THE FOLLOWING PUBLICATIONS
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Abramov V. The Basic Principles of the Organisation of Soviet Agriculture
The author provides a lucid analysis of the basic problems of agricultural economy and its rational organisation in the light of the contemporary development of agricultural science and technology. The book spotlights the tasks, specific features and advantages of socialist large-scale farming, its branch pattern, the economic benefits of specialisation and a proper combination of branches, the organisation of the main branches, investment policy, labour productivity, remuneration, planning and agricultural management under socialism.
The book may be used as a manual for the training of farmers.
[182]Gogol B. Organisation of Domestic Trade in the USSR
The author defines the principles of state administration and the planning of trade, its ties with production, the organisation of wholesale and retail trade and public catering. Special importance attaches to the remuneration of the labour of commercial workers, the formation of trade profit and price formation under the economic reform, and the study of the people's demand and the prospects of Soviet home trade.
[183]