USSR: Measures of Economic Growth and Development, 1950-80

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products. The purpose of Bergson’s adjusted factor-
cost standard (AFCS) is to adjust Soviet prices so that
they more closely approximate the theoretical stand-
ard. This section first examines the basic nature of
Soviet prices and then describes Bergson’s AFCS, its
justification, and its limitations.
Soviet Established Prices
In most countries, GNP is computed only in terms of
market prices. The related prices in the Soviet Union
are the so-called established prices.“ Most prices in
the Soviet Union are established by administrative
decision rather than by market forces. They are
intended to cover material costs, wages, depreciation
allowances, social security allowances, other direct
costs, and a profit surcharge—in other words, average
cost plus a profit markup. While the profit surcharges
are intended to average about 15 percent of the stock
of fixed and working capital, in practice they are
computed as a percentage of input costs. The costs
computed are those that would be incurred by an
average enterprise producing according to required
standards and following normal procedures, rather
than the actual production costs of any one enterprise.
Thus some enterprises should make above-average
profits because of better-than-average production con-
ditions, while other enterprises will make less-than-
average profits or even losses. This method of price
formation, however, does not apply to all prices.
Agricultural prices include a bewildering array of
procurement, above-plan procurement, direct deliv-
ery, zonal, and collective-farm-market prices. The
construction industry does not have a standard prod-
uct; hence, its prices are formed on a cost plus basis
for each construction project.
The profits included in Soviet prices are intended to
cover the normal uses to which an enterprise is
allowed to put its profits while leaving enough for the
needs of the state budget. Since the economic reforms
in the late 1960s, the enterprises have been allowed to
form increased material incentive and other funds
from profits and have had to pay a charge to the state
for the use of enterprise capital stock. The allowance
for profits has, therefore, been increased.
“' The term “prevailing prices” is also used in Western literature.
See Bergson, 1961.
Established prices in the USSR have several aspects
that make them unsuitable as weights in computing
the real growth of the Soviet economy. These aspects
include large turnover taxes (levied primarily on
consumer goods), rapidly growing subsidies on hous-
ing and industrial purchases of agricultural goods,
widely varying profit rates when computed as a return
to capital, differential prices for the same good, and
inflated prices of new products. Each of these prob-
lems will be discussed briefly.
Finding a Basis for Valuing Soviet GNP
The important uses of national income statistics in-
clude the analysis of resource allocation and the
measurement of the growth of economic production
capability. A considerable amount of Western litera-
ture centers on measurement of national income for
these purposes and on what can or cannot be implied
from the results.“ In practice, Western countries
construct GNP accounts using existing market prices
as if they met the theoretical requirements for use in
measuring resource allocation or economic growth.
Although the requirements are never perfectly met,
market prices of most Western industrialized coun-
tries fit the theoretical model reasonably well, so that
the distortions probably are small.
The Soviet Union’s centrally established and fre-
quently arbitrary prices diverge greatly from the
theoretical model. The principal requirements of this
model are that the relative prices of two goods should
be equal to their relative marginal costs and that the
rate of return to each factor of production should be
equal in all of its uses. Soviet procedures for price
formation violate these requirements. A price based
on the average direct cost of all enterprises producing
a product does not allow for the differential cost of the
capital resources being used, for the different utility
“ Among the classic articles are: J. R. Hicks, “The Valuation of
Social Income," Economica 7, May 1940, pp. 105-124; Simon
Kuznets, “On the Valuation of Social Income,” Economica 15,
February-May 1948, pp. 1-16, 116-131; J. R. Hicks, “On the
Valuation of Social Income,” Economica 15, August 1948, pp. 163-
172; P. A. Samuelson, “Evaluation of Real National Income,"
Oxford Economic Papers 2, January 1950, pp. 1-29; and Richard
H. Moorsteen, “On Measuring Productive Potential and Relative
Efficiency,” Quarterly Journal of Economics 75, February 1961,
pp. 451-467.
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