soviet regional investment policy [1956-1989] and …and for the foreign currency earned from...

TITLE : Soviet Regional Investment Policy(1956-89) and the Gorbache vReform Program

AUTHOR : Ronald D . Liebowitz

THE NATIONAL COUNCI LFOR SOVIET AND EAST EUROPEA N

RESEARC H

1755 Massachusetts Avenue, N .W .Washington, D.C . 20036

PROJECT INFORMATION:*:*

CONTRACTOR :

Middlebury Colleg e

PRINCIPAL INVESTIGATOR :

Ronald D. Liebowitz

COUNCIL CONTRACT NUMBER :

805-02

DATE :

September 28, 199 2

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Individual researchers retain the copyright on work products derived from research funded b yCouncil Contract. The Council and the U.S. Government have the right to duplicate written reportsand other materials submitted under Council Contract and to distribute such copies within th eCouncil and U.S. Government for their own use, and to draw upon such reports and materials fo rtheir own studies; but the Council and U.S. Government do not have the right to distribute, o rmake such reports and materials available, outside the Council or U .S. Government without thewritten consent of the authors, except as may be required under the provisions of the Freedom o fInformation Act 5 U .S.C. 552, or other applicable law.

' The work leading to this report was supported by contract funds provided by the National Council fo rSoviet and East European Research . The analysis and interpretations contained in the report are those of th eauthor .

CONTENTS

Abstract

Executive Summary i i

Introduction 1

Findings Section 8Trends M Capital Investments 8Unweighted CV Results 1 2Table 1 : CV Tests, by Region 1 3Trends within Regions 1 6Weighted CV Tests 2 2IQR Results 2 4Table 2 : Interquartile Ratios 2 5Conclusions from the CV & IQR Tests 2 7Table 3 :IQRs, Russia 2 8

Divergence and/or Convergence of Selected Indicators 3 3All Union Trends 3 3Trends in Russia 3 5Temporal-Regional Relations and Soviet Leaders 3 8Table 4 40The Perestroika Years 4 9

Regression : USSR 5 1The Model 5 3The Regression Results 5 6Table 5 : Regressions of Per Capita Investment Allocations 5 7Table 6 : Modified Regressions 5 8

Russia 7 0Introduction 7 1The Model 7 3Regression Results for Russia 7 5Table 7 : Regressions of Per Capita Investment Allocations 7 6Table 8 : Modified Regressions 7 7

USSR and Russia Regression Summary 8 3Conclusions 93

Maps 1-7 : Outliers 1956-1989 96

The Gorbachev Reforms and Summary 103

Appendix A : Maps of State per capita Capital Investment 110

Appendix B : Additional Tables 12 7

Sources Cited 130

ABSTRACT *

Regional investment policy in the former USSR during the second half of the Sovie tera (1956-1989) was guided by no single development strategy, despite all the rhetoric to thecontrary . Because no coherent, overarching and mutually beneficial regional developmentstrategy ever emerged out of Soviet central planning, many of the former republics have bee nleft with narrow economies heavily dependent on a "center" that no longer exists, aconsequence of centralized decisions which served Moscow to the detriment of the republics .The only reasons they might want to retain ties would be to keep an assured market for th egoods they produce and to seek substantial subsidies and other forms of income redistributio nguaranteed under the old system . Since the subsidies and centralized financial system ar elargely gone, the remaining ties appear to be those that are likely to hurt these new States th elonger they remain in place .

While they have a strong impetus to break away, the costs of untying unfavorabl erelationships and building alternative sources of income and trade will be extremely high fo rall of the former republics . There is no doubt that large amounts of western aid will b eneeded to replace what has been lost with independence, but investment makes little sens euntil old structures that facilitated irrational schemes are replaced . The change is likely totake a long time .

Within Russia the so called ethnic dimension is less of a factor than conventionalbelief would hold . The presence or absence of Russians in a given oblast did not translat einto higher or lower levels of State investment . Evidence refutes the long-held view tha tRussians were the favored nation when it came to resource allocations . For most of th eperiod an assortment of particular domestic economic and political needs which changed fro mtime to time and from one leader to another dominated investment practice among the State' s150-plus oblasts .

*Composed by the staff of NCSEER

ii

Soviet Regional Investment Policy (1956-89 )Ronald D . Liebowitz

Executive Summary

Investment policy in the former USSR during the second half of the Soviet er a

(1956-90) was guided by no single development strategy, despite all the rhetoric t o

the contrary. Instead, an assortment of domestic political and economic needs,

which changed over time and from one leader to another, was most important i n

determining the variation of investment allocations among the State's 150-plu s

county-level territorial units. Such a broad and sweeping statement is not mean t

to suggest that conscious policies, such as creating a noticeable regional divisio n

of labor among republics, which has severely handicapped local economies, di d

not dominate Soviet development efforts . It does suggest, however, that beyond th e

goal of maximizing economic growth within the limits of a centrally planne d

economy, investment policy did not consistently follow any prescribed "socialist "

or " western" regional economic development principles . Neither the so-called

socialist laws (principles) for economic development, nor the basic principles o f

western or Weberian location theory seem to have guided regional investmen t

allocations from 1956 to 1990 .

The lack of any coherent Soviet or socialist location theory prevented the kind s

of coordination and integration one would expect from a centrally planne d

economy, the results of which included : irrational investment decisions ; an

extremely high percentage of unfinished projects or "incomplete construction ; "

multiple development agendas, which regularly promoted unhealthy competitio n

among non-regionally based planning institutions ; and, of course the eventua l

decline of a national economy .

Despite these findings, questions concerning regional equality and the USSR' s

commitment to reduce wide gaps in living standards and in the productive

ii i

capacities across regions yielded interesting answers . State investment

allocations among the country's 150-plus oblast (county) level territorial unit s

became "more equal" from the mid-1950s to the early 1970s, after which levels o f

inequality remained constant until perestroika, when gaps widened. Such

findings counter the conclusions of earlier works performed on the more gros s

republic level of analysis, which limits the size of the sample from 154 units to 15 ,

and obscures the great variation within republics .

The most significant conclusions drawn form the tests on equality and th e

Soviet commitment to equalization include : (1) regional investments were largel y

extensive during the first half of the study period (1956 to 1970 or 1975), whic h

contributed to a reduction in per capita investment gaps among all-Union oblasts ;

(2) beginning in the 1970s, when energy and natural resources, labor resources ,

and the State's industrial infrastructure developed increasingly unfavorabl e

locational amenities, Soviet investment policy became far more directed, geared

toward ensuring domestic energy supplies and a surplus for export earning s

rather than toward developing new and broadly conceived industrial nodes ; 3) an

overwhelming majority of the twenty-five Ukrainian oblasts received significantl y

less investment than non-Ukrainian oblasts after taking into account their

economic characteristics ; 4) the sovnarkhozy reforms under Khrushchev did littl e

to change the spatial patterns of investment among oblast-level units ; and 5) the

increases in inequality during the 1986-89 period reflect the diminution of power o f

central economic and financial institutions, and underscores the grea t

redistributive powers of those institutions before perestroika .

The results of two descriptive statistical tests confirm noticeable decreases i n

per capita investment gaps from the mid-1950s to 1985, but the reduction i n

inequality took place almost exclusively during the 1956 to 1970 period . More

significant is that the reduction was a function of the most well-off units losing

iv

their superior positions (e .g ., very high allocations) over time and was not th e

result of a conscious effort to increase systematically the investment allocations o f

the relatively poorer oblasts . So while inequality may have declined or at least not

increased from 1956 to 1985, there is little evidence that these trends were due to a

coherent equalization policy .

The issue of equalization is certainly a political one, especially in a

multinational, socialist state with well-defined ethnic homelands . The regression

analysis found that when selected economic and demographic characteristics o f

the oblasts are held constant the so-called ethnic dimension in regiona l

investment allocations is less of a factor than what conventional wisdo m

suggests. The presence or absence of Russians in a given oblast-level unit did no t

necessarily translate into higher or lower levels of State investment . In fact ,

oblasts with between 34 and 66 percent of their populations claiming to be Russia n

received significantly greater per capita investment allocations than those oblast s

having greater than 67 percent of their populations Russian . While this can b e

partially explained by the presence of a large number of predominantly Russian

rural and poor oblasts in central Russia, it refutes the long-held view tha t

Russians were the favored nation when it came to resource allocations .

Non-Russian units in the Russian Republic (ASSRs) were disadvantaged b y

State investment allocations during the 1956-70 period, but from 1971 onward ,

larger investments for oil and gas development, along with other natura l

resource development projects in many ASSRs, narrowed the investment gap

between these ethnic and non-ethnic units. The changing position of the ethni c

units reflects the primacy of economic factors over ethnic factors in determining

levels of investment, especially after 1975 . Thus, if equalization did occur, whic h

appears to be the case for at least the 1956-75 period, it was more the result of a

regionally extensive investment strategy than the result of planned development.

v.

The near geographical randomness of those oblasts that received extremel y

high and low levels of investment (see Maps 1-7 in the longer report) from on e

period to the next reflects the lack of an overarching regional developmen t

strategy . It also supports the view that investment decisions were made first an d

foremost to meet the needs of the national economy with little concern for long -

term or regional consequences . By 1989, Tyumen Oblast, one of 154 tertiary-leve l

units in the former USSR, with barely 1 percent of the Soviet population, receive d

almost 10 percent of total State investments ; fifteen years earlier, its share of Stat e

investments was only 2 .6 percent. The desperate demand for energy resource s

and for the foreign currency earned from selling oil and gas abroad brought hug e

investments to West Siberia, but it sapped funds that would have otherwise bee n

available to heavily populated and more broadly developed areas in the othe r

economic regions . Of the remaining nineteen economic regions, fifteen receive d

smaller shares of total State investment during 1986-89 than they received durin g

the 1971-75 period .

The lack of a coherent regional investment strategy leaves many of the newl y

independent States (former republics) with narrowly developed regiona l

economies that remain heavily dependent on a "center" that no longer exists—a t

least institutionally. While economic relations among the republics will have t o

continue until alternative sources of income and trade develop, the stron g

impetus to break away and to begin establishing new ties will be checked by th e

long-term effects of highly centralized investment decisions that served Moscow to

the detriment of the republics .

Because an overarching and mutually beneficial development strategy fo r

Soviet regions never emerged out of Soviet central planning, the only reasons th e

former republics might want to retain ties would be (1) to retain an assure d

(internal) market for goods the regions continue to produce, and to request (2) the

vi

substantial subsidies and other forms of income redistribution guaranteed under

the old system. Since the subsidies and centralized financial system are largel y

gone (world market prices have not yet been fully introduced and bartering among

former republics is still common), the remaining ties appear to be those that ar e

likely to hurt the new States the longer they remain in place .

These points do not mean to suggest that economic relations ought not (or wil l

not) continue among the former republics . Clearly, the division of labor among

regions, which was an integral part of Soviet development policy (to the detriment

of most regions), will insure that some economic ties will endure. Nevertheless, it

is also clear that much of the economic activity among the former republics toda y

is the result of development schemes that were decided upon long ago in Mosco w

without much input from the regions . Once the impact of local economi c

decision-making can be felt in the newly independent States, economic activity

ought to change significantly and it will change to meet the goals of local interest s

rather than those of Moscow.

The costs of untying unfavorable relationships and building new economi c

structures will be extremely high for all of the former republics . For the poorer

States, losing subsidies, transfer payments, and investment allocations fro m

Moscow will be painful even though the levels of support had been on the declin e

for several years . There is no doubt that large amounts of western aid will be

needed by the former republics to replace what has been lost with independence.

However, it would make little sense to invest in any former republic until the ol d

structures that facilitated irrational development schemes are replaced by thos e

that will be more conducive to establishing and implementing a broad-base d

development strategy . Such a change is likely to take a long time and require

substantial assistance .

Soviet Regional Investment Policy (1956-89 )

Ronald D . Liebowitz, Dept . of GeographyMiddlebury College

This research project seeks to evaluate Soviet investment policie sfrom Khrushchev to Gorbachev in order to describe : (1) thespatial distribution of capital investments across oblast-leve l

units1over time; (2) the change in the regional emphasis of State 2investments from one five-year period to the next ; and (3) th erelative importance of selected variables in explaining th evariation in the level of investment allocations across tertiary-level territories from 1956 to 1989 .

Introduction

The abrupt collapse of the Soviet Union has necessarily transformed th e

focus, if not the essence, of contemporary research on the former USSR .

Major questions about the "Soviet system " and its socialist experiment hav e

become historical questions, and the emphasis on "implications" has

replaced the sections on "projections" common to, and an essential part of ,

recent research on the Soviet Union .

The premature breakup of the Union alters to some extent the focus o f

this particular project . The original intent was to assess the changing

spatial/regional emphasis of capital investments from 1956-1989 and to

1. For this study, the term oblast-level refers to the tertiary level of the former Sovie tpolitical-administrative structure, and it includes oblasts, Autonomous Sovie tSocialist Republics (ASSRs), and krays .

2. The word "state" is capitalized when it refers to a primary political unit (the formerUSSR, the USA, France, etc .) so as not to confuse the same term used for secondarypolitical units in the United States, Australia, Mexico, and other States .

2

discern the most significant determinants of higher or lower investment i n

order to try to project the likely impact of the Gorbachev reform program o n

specific regions and their populations . The question about the regional

implications of the Gorbachev reform program has become, quite obviously ,

anachronistic, and one might argue that the question was already a non -

starter by 1989. But while the disintegration of the Soviet State preclude s

one from assessing "what might have been" in terms of Gorbachev an d

perestroika, it did bring closure to a period—an era—and therefor e

provides the opportunity for a number of "postmortems" to the Sovie t

system. Other questions about Soviet investment policy, including whethe r

there was an "ethnic factor" in the levels of funding given to regions ,

whether Soviet investment policy emphasized "equality over growth"—o r

vice versa—and whether greater investments given to a region translate d

into meaningful improvements in living conditions (and, in Sovie t

parlance, greater productive capacities), remain important questions t o

this project, and contributions to these answers can help provide a fulle r

picture of the Soviet period .

This work, then, will evaluate Soviet regional investment policy on th e

tertiary or oblast (county) level from the Khrushchev period (1956) to wha t

was, in effect, the end of the Gorbachev era (1990) . It will focus on the

spatial component of capital outlays ; the major determinants o f

higher/lower investment levels in county-level territories ; the trends toward

greater equality or inequality in the allocation of State investment ; and the

changing regional emphasis of Soviet investment policy over 35 years and

during 4 political periods—the Khrushchev era, the Brezhnev years, the so -

called zastoi, and the short-lived Gorbachev reform period .

3

Background

Now that the Soviet Union has dissolved into fifteen newly independen t

States, many of the questions related to both its former stability and it s

disintegration have become academic . Whether the "nationality question" i s

what would ultimately lead the State to collapse, or the irrationality of a

centrally planned economy that could not produce both guns and butter, le t

alone enough soap, shoes, or toilet paper, is no longer a central issue in

Soviet Studies circles . Instead, retrospectives of Soviet Communism as a

social system have become commonplace, and this study adds to that ne w

genre of post-Soviet research.

Western specialists on the USSR have long been interested in the State' s

ideological commitment to reducing inequality across regions, betwee n

rural and urban areas, and among the disparate nations of the forme r

USSR. 3 Before the break-up of the Soviet Union, and especially during th e

1950s, 1960s, and 1970s, this topic was important to understanding and

evaluating the political stability of the State, for equality was seen as part o f

the Soviet Government's "social contract" with its population : in exchange

for political quiescence, the State was to provide security for its populatio n

and pledged to reduce gaps in wealth in order to prevent the tensions that ,

according to Marxist-Leninist ideology, accompany social and economi c

inequality .

3. Soviet scholars were prevented from conducting research on this question due t oideological constraints . The few studies that were published were based on macro -region data, usually macro-regions such as quadrants, and were therefore too genera lto provide much useful information . See Schroeder, 1979 ; Koropeckyj, 1972 ; Gillula ,1979 ; Bielasiak, 1980 ; Bahry and Nechemias, 1981 ; Lonsdale, 1977 ; Bahry, 1987 ;Dellenbrant, 1986 ; Ozornoy, 1991 .

4

State-sponsored regional economic development programs were to be th e

method through which the great social inequities plaguing the new Sovie t

State would be narrowed . The commitment to narrowing development gaps,

however, failed to reach the top of the Government's agenda for at leas t

three decades . Beginning with the chaos caused by collectivization, an d

continuing through the purge years of the 1930s, the War years of the 1940s,

and the rebuilding of the western heartland through the mid-1950s, Sovie t

development policies were not—indeed, could not have been—a reflection o f

any overarching "socialist" strategy . Specific goals could be identified, suc h

as the illogical rapid industrialization in the 1930s, an "eastern" emphasi s

due to the War in the 1940s, and a "western" emphasis during the earl y

1950s (to rebuild the west), but these shifts were reactions to great domestic

and foreign events, not part of a planned strategy that was decidedly

socialist .

Following Stalin's death, statements about "equalization" reemerged in

academic circles and could be found in virtually all Party and Plenu m

documents on regional economic issues . Lively debates over developmen t

strategies, and particularly on the siting of industrial enterprises, were firs t

common in the 1920s, a time when a specific socialist or Soviet theory o n

industrial location did not exist and when Soviet economists borrowe d

principles from western theory, particularly from the works of a non -

Marxist, Alfred Weber . Weberian locational theory focused on minimizin g

labor, transport, and material costs, which suited the Sovie t

industrialization drive until the centrality of the national economy in State

planning overshadowed the individual enterprise, which sat at the center o f

Weber's work (Koropeckyj, 1972) .

5

The planning debates reemerged during the Khrushchev era ,

although a Soviet location theory had still not emerged and ideology playe d

a large, if not the greatest, role in economic decision making .4 The dual

development goals of (1) "equalizing" the productive capacities and livin g

standards of Soviet regions and their people and (2) attaining maximu m

economic growth became the common ideological rhetoric of Soviet

planners and Party officials, even though these two goals were necessaril y

contradictory. The unfavorable spatial distribution of the State's industrial

infrastructure, labor resources, and natural and energy resources ,

translated into marked differences in capital and labor productivitie s

among regions . Consequently, the State could not, on the one hand, invest

its capital so that it would bring the maximum economic growth to th e

national economy while at the same time invest its resources so that i t

could reduce existing inequalities . To do the former would requir e

investment in the more prosperous areas, while to accomplish the latte r

goal would mean shifting investments to the lesser-developed regions .

Nevertheless, it was clear that both these goals, rooted in Soviet ideolog y

and not in any sound economic theory, remained a central tenet of Soviet

planners for decades . In fact, development strategy in the USSR, wa s

greatly circumscribed by ideology, which prevented the implementation o f

would-be economic policies if they were believed to promote inequalit y

(Liebowitz 1987) .

4 . For a review of the so-called theoretical premises of Soviet regional developmen tpolicy, see Dyker, 1983 ; Dellenbrant, 1986 ; and Schiffer, 1989 . For earlier Sovietworks on regional development issues, see G. Bakulev, 1958 ; N. Nekrasov, 1959 ; M .Bor, 1960; T. Khachaturov, 1961 ; V. Laptev, 1963; M. Ippa, 1965 ; S. Tokarev, 1970 ; V .Pinayev, 1956 ; A. Danilov, 1957; F. Kurnikov, 1960 ; V. Pavlenko, 1964 .

6

Soviet ideology, until perestroika, contended that socialism could not be

achieved until political, social, and economic equality were attaine d

throughout a State's territory and among its population . Given the great

differences in the levels of socioeconomic development throughout the Stat e

for decades, it is not surprising that many features of what were defined fo r

so long as the guidelines for Soviet and socialist regional economi c

development were specifically concerned with solving regional inequalit y

(Wagener 1973 ; Dyker 1983 ; Bahry 1987). To many western economists,

these principles were economically irrational. In addition to paying a n

economic price for sacrificing growth and/or efficiency in exchange for

reducing regional inequality, there was an unmeasurable yet real cost t o

having to adhere to the most "egalitarian" of ideologies .

Years of irrational investment decisions led to slower growth rates for

the national economy, because the returns on capital and labor were lowe r

in many areas into which large sums of investment flowed, especiall y

during the 1956-65 period . While economic growth rates grew at impressiv e

levels throughout the 1960s, the economic costs of irrational investmen t

decisions were never an issue . However, beginning in the 1970s, when

energy and other natural resources in the western parts of the State coul d

no longer meet the demands of the expanding Soviet economy, the costs of a n

eastward shift in resource exploitation and therefore economic productio n

increased dramatically . Energy development in the Volga-Urals had to b e

augmented and then supplanted by far more difficult and expensiv e

development in West Siberia. This one shift, and there were similar shift s

for several other resources, drove up labor and transportation costs wel l

beyond what they had been in the 1950s and 1960s . The drain on the Soviet

7

economy was noticeable, and Soviet investment policy was forced to becom e

far more directed in order to meet domestic supply needs and to earn foreig n

currency for international trade .

The ultimate collapse of the Soviet Union could be attributed largely to th e

failure of the economic system to provide the basic goods and services t o

what had been a very patient population . It was the realization on the part

of Mikhail Gorbachev that the Soviet economic system had failed that led t o

the final attempt to reform the Communist system through a program o f

economic restructuring . That Gorbachev's economic reform progra m

depended on the loosening of social and political controls, which allowed for ,

and some would argue encouraged, the release of long-suppressed an d

destabilizing nationalist sentiments, confirms how economic failure was

the stimulus for the State's eventual dissolution .

Despite the end of the Soviet system, questions still persist surroundin g

Soviet economic development policy and, in particular, the commitment of

Soviet socialism to promoting equalization through State investmen t

allocations . The following analysis traces the spatial dimension of Sovie t

investment allocations from the middle-1950s to the effective end of the Sovie t

period, and seeks to discern what factors were most influential i n

determining the levels of funding among county-level units . 5

5 . Although the Soviet Union ceased to exist on December 24, 1991, it was clear that by th eend of 1989, many of the central institutions had already lost their credibility and theabsolute power they had exercised for decades . The data that follow below treat th eGorbachev Period as having lasted from 1986 to 1989 .

8

FINDINGS SECTION

Trends in capital investments : Convergence/Divergence

Measuring the Soviet commitment to "equalize " regional living

conditions and productive capacities should not be confused with providin g

conclusions on the success of policies to achieve such goals . In deriving

descriptive test statistics for convergence (greater equality) or divergenc e

(growing inequality) of investment allocations to tertiary level units, on e

must recognize that these test results, in either direction, do not provid e

qualitative evidence on the success or failure of regional development policy .

While a reduction in the coefficient of relative variation (CV) 6 from one time

period to another reflects a reduction in inequality (convergence) in capita l

outlays, it is possible that such a reduction was a result of the more well-off

units in the analysis losing their previous advantages over the less well-off

units, rather than the lower-standing units receiving significantly greate r

investments in the latter period . Similarly, while the second descriptiv e

statistic used to assess trends in equality or inequality—the Interquartil e

Ratio (IQR) —is less sensitive to a small number of extreme values, it, too ,

cannot explain the cause for those trends, or provide any qualitative

assessment of why convergence or divergence has occurred .

The goal of this section is to provide an overview of capital investmen t

trends as they relate to the question of the Soviet and socialist commitment t o

"equalization ." Capital investments are used to reflect government intent .

Due to the centralized nature of economic decision-making, plus th e

6 . The Coefficient of Variation is a descriptive statistic that is derived by dividing asample's standard deviation by its mean .

9

redistributive powers of the former Soviet financial system, Stat e

investments represent the single best variable with which to approximate

regional development intentions . While one cannot draw conclusions abou t

the rationality of the choices made by the highly centralized system base d

solely on their spatial components, since investments influence so man y

aspects of a region's economic profile and its population's profile, one coul d

infer from investment choices how strongly committed a government is in

attaining equality and growth. In this first section, as well as in th e

regression analysis, capital investment is the focus of the analysis and i t

includes :

'Expenses for new construction, the reconstruction, broadening, an dtechnical retooling of operational industrial, agricultural, trans-portation, commercial, and other enterprises, plus expenses fo rhousing, municipal, and cultural construction .

'Capital investment includes expenses for construction work of al ltypes ; expenses for the assembly of equipment ; for acquisition ofequipment ; for the acquisition of productive instrumentation andeconomic inventory included in the estimate for construction ; for theacquisition of machines and equipment not necessarily entering int othe estimate for construction ; and for other capital jobs an dexpenses .

•Included in capital investments for government and cooperative en-terprises and organizations are expenses carried out by a develope rat the expense of centralized governmental capital investments an dof capital investments at the expense of stock funds of enterprise s(organizations) and by means of all-Union communist voluntarywork days, public organizations, housing, construction coops, an dthe Tsentrosoyuz .

•Included in capital investments for kolkhozes are expenses imple-mented by all kolkhozes (including fisheries) and inter-economi centerprises .

•Included in capital investments of the population are expenses forconstruction of private living quarters with the necessary buildingsand additional housing .

1 0

•Investment data by branches of the national economy : industry,agriculture, forestry, construction, transportation, communica-tions, goods and food, material and technical supplies and sales ,purchases, informational and computer services, are shown only b yestablishments of productive meaning; capital investments in hous-ing, municipal cultural entities, and non-productive construction i nthese branches are not included, but appear in the correspondin gnon-productive branch .

*Counted among capital investments in industry for group A are ex-penses for the construction of new enterprises, and the reconstruc-tion, expanding, technical retooling, and maintenance of output o fexisting enterprises and other productive establishments, and als oexpenses for the acquisition of equipment, instrumentation and in-ventory of all mining and processing industries, with the exceptionof enterprises concerned with the production of consumer goods .

*Attributed to capital investments in industry for group B are ex-penses for the construction of new enterprises and the reconstruc-tion, expanding and technical retooling of existing enterprises an dother productive processing establishments (including expenses fo rthe acquisition of equipment, instrumentation and an inventory) o findustries that provide for the production of consumer good s(clothes, shoes, food products, furniture, etc . )

*Capital investments come from both budgetary and non-budgetarysources . 7

Wherever possible and relevant, data and results are disaggregate d

and discussed for specific regions or republics in addition to the all-Unio n

results . Some explanations for the reported trends are included in th e

discussion of the regression analysis, which follows this section . Studies of

social and economic inequality in general, and their spatial dimensions i n

particular, have been lacking, due largely to data constraints in the West

and ideological constraints in the USSR . Published data are ofte n

irregular, hindering time series analysis, and coverage among territoria l

7 . This definition is provided in several publications from the State Committee o nStatistics (Goskomstat) . See, for example, Narkhoz SSR v 1989g (Moscow, 1990), pp .713-715 .

1 1

units often differs in definition and quality (consistency) from one period to

another. And, there are other factors that have made it more difficult t o

assess the equalization goals of the Soviet Government, including th e

simple issue of defining relevant terms . Should "equality" mean the equa l

attainment of specific so-called objective social and economic indicators fo r

an entire population? Should equality be measured by comparing "average "

scores of selected social and economic indicators for ethnic groups or for th e

populations of what are arguably arbitrary administrative units? Fo r

analyses based on areal units, what geographical scale is most appropriat e

for measuring spatial inequality in a country as large and diverse as th e

Soviet Union? And, how does one standardize these social and economic

data when their reliability is questionable, ironically, even more so sinc e

glasnost' . 8

While those familiar with Soviet data in the pre-glasnost' days felt the y

had developed a healthy and necessary skepticism about official Soviet data ,

the avalanche of new information remains difficult to evaluate and us e

because Soviet academics themselves began to question the veracity o f

official statistics published both before and after glasnost' (Selyunin and

Khanin, 1987) . Some charge that before glasnost', data were manipulate d

so as to present a better picture than what actually existed, and afte r

glasnost', some claim that data from specific periods, most notabl y

8 . The question of reliability forces the researcher to go beyond the "standard" problemsof working with Soviet-published data . By standard problems I mean those problem sthat stem from (1) an artificial pricing system, which affects regions and republic sdifferently depending on the economic structures of their economies ; (2) differen tdefinitions for the same phenomena among republican statistical collectio nadministrations ; (3) territorial changes and the varied methods of re-calculating th evalues for assorted variables from one republic to another : plus others .

12

corresponding to the late Brezhnev era or the zastoi (stagnation), wer e

manipulated to make the period look worse than it was in order to highligh t

the need for reform, and to rally support for Gorbachev's reform program .

Consequently, caution and careful data evaluation must accompany the us e

of the new statistical information now available for studies on Sovie t

society . 9 By no means have any of these data been accepted as anythin g

more than an approximation, and perhaps a rough approximation, o f

conditions across an extensive and highly variable territory . They do,

however, permit the testing of some hypotheses that are relevant to ou r

evaluation of the Soviet experiment .

Unweighted CV results :'°

Per capita State investment levels diverged—became "less equal"—fro m

the first five-year period of the study, 1956-60, to the final years, 1986-89 (se e

Table 1). In the interim thirty-five year period, there were two noticeabl e

9. The data in this study was acquired from several sources in Moscow and Alma-Ata .Goskomstat USSR, Goskomstat RSFSR, Goskomstat Kazakhstan, and the Ministrie sof Finance and Economics in Moscow and Alma-Ata supplied various parts of the dat abase. All the investment figures were checked against older sources and an alread yexisting data set I had assembled during the past 4 years . All the investment data andeconomic data used is in current prices ; the numerous territorial changes that hav etaken place among many oblasts since 1956 were reconciled by re-allocating all th edata into 1990 boundaries . Per capita measures were derived by dividing absolutemeasures by population figures taken from 1959, 1970, 1979, and 1989 census volumes .

10. The unweighted CV treats each oblast-level unit with equal weight or importance .Questions geographers tend to ask—those related to territorial or spatial trends—areusually best answered using this unweighted measure . The weighted CV, on the otherhand, weights the contribution of each case—in this study each tertiary leve lterritorial unit—according to its share of the State's population . Economists andpolitical scientists, whose questions are more focused on the individual or the group ,would tend to use the weighted measure more often than the geographer .

Table 1 . COEFFICIENT OF VARIATION TESTS, BY REGIO N

1956-60

1961-65

1966-70

1971-75

1976-80

1981-85

1986-8 9

15 1

58 .4

15 1

64 . 4

15 1

57 . 4

15 1

60 .7

15 1

77 . 9

1 5

28 .1

1 5

28 .0

1 5

32 . 9

1 5

33 . 0

1 5

36 .9

1 5

27 . 9

1 5

27 . 8

7 1

51 .9

7 1

60 . 9

7 1

51 . 9

7 1

59 .5

7 1

76 . 2

7 1

70 . 9

7 1

51 .6

2 5

46 .8

2 5

41 .0

2 5

34 .8

2 5

39 . 2

2 5

57 .3

2 5

27 . 0

2 5

66 .2

2 1

67 . 6

2 1

80 .4

2 1

57 .8

2 1

57 . 6

2 1

54 . 5

2 1

70 .5

2 1

58 . 4

15 0

57 .5

15 0

52 . 5

15 0

68.8

15 0

60 .4

15 0

49 . 3

15 0

51 .5

15 0

52 . 4

7 0

50 . 1

7 0

58.5

7 0

51 .2

7 0

38 . 8

7 0

44 .0

7 0

41 .0

7 0

39 . 6

15 1

50 . 5

15 1

56 .8

15 1

43 .8

15 1

46 . 5

15 1

44 . 3

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

CV

Number of Unit s

WEIGHTED CV

USSR

OBLAST LEVE L

USS R

REPUBLIC LEVE L

RUSSI A

UKRAIN E

CENTRAL ASIA

USS R

w/o TYUMEN

RUSSIA

w/o TYUMEN

USSROBLAST LEVE L

Number of Unit s

WEIGHTED CV

7 1

29 .1

RUSSIA7 1

34 .5

7 1

27 . 2

7 1

26 . 9

7 1

30 .6

7 1

27 .2

7 1

29 . 3

15 0

38. 1

15 0

56 .6

15 0

50 .2

15 0

43 .9

15 0

39 . 4

7 0

34 .1

7 0

30 .5

7 0

27.7

7 0

24 .2

7 0

21 . 8

15 0

40.6

15 0

40 .3

7 0

20 . 2

7 0

22 . 4

Number of Unit s

WEIGHTED CV

Number of Unit s

WEIGHTED CV

USSR

w/o TYUME N

RUSSIA

w/o TYUMEN

14

trends : during the first sub-period, from 1956-60 until 1971-75, th e

unweighted CV declined from 69 .1 percent to 57 .4 percent, after which i t

increased in each of the next 4 periods to 77 .9 percent . 1 1

The reversal in the downward trend in the CV after the 1971-75 perio d

brings to mind the 1972 Brezhnev proclamation on the Soviet nationalities

question. In a speech to the Central Committee, Brezhnev claimed that th e

Soviet nationalities question had been irrevocably solved ." The statement ,

coming during a broader discussion of economic policy options, signaled t o

some that the State would need not any longer give careful attention to th e

relatively backward ethnic groups and their territories when developing it s

economic plans . The "nationalities question" was often used as a

euphemism for the challenges posed by a multinational population ,

socioeconomically stratified largely along ethnic lines . If the nationality

question was proclaimed as having been solved, as Brezhnev claimed it was ,

then the need to pursue "equalization" would have no longer existed as it di d

in the 1950s, 1960s, and early 1970s . Instead, State investments could b e

directed to those regions that would yield the maximum economic retur n

rather than to the relatively backward regions . While the overall trends i n

the all-Union CVs support this hypothesis, the regional trends i n

investment need to be clarified .

One of the 154 tertiary level units alone, the oil-rich and gas-rich Tyume n

Oblast, with barely 1 percent of the State's population, received more than 9

11 . Oblast-level maps showing per capita investment for each time period and for tw olarger time periods (1956-60 to 1971-75 and 1976-80 to 1986-89) are provided in Appendi xA. Note the gradual eastward and northerly emphasis over time, along with th eincreasingly directed investment strategy, evident by singular and seemingl yrandom high investment oblasts .

1 5

percent of total Soviet investment, while as recently as 1971-75, its share was

only 2.6 percent. This dramatic increase in the share of Soviet investmen t

reflects the State's accelerated development of the West Siberian fossil fue l

and petrochemical industry . Fossil fuels earned more than three-quarter s

of the State's hard currency, which was one reason for the emphasis given

to the region, but the decline in oil production elsewhere in the USSR made

it necessary for the Soviets to secure oil from the giant fields of West Siberia .

The rapid increase in capital allocations to Tyumen was also a result of th e

spiraling costs of oil extraction in the environmentally difficult West

Siberian region. In addition to the difficult environment, the technologica l

backwardness of the Soviet energy sector required greater investment i n

order to enable secondary and tertiary recovery, which had become far mor e

important as production from many of the primary West Siberian wells

began to decline by the early 1980s .

Clearly, the dominance of Tyumen Oblast in the Soviet investmen t

profile, is overwhelming. When Tyumen is eliminated from th e

(unweighted) CV test, one gets a different picture of investment trends ove r

the thirty-five year period . Instead of the two clearly marked trends —

convergence or greater equality from 1956-60 to 1975, followed by increasing

divergence or inequality to 1989—one sees sustained convergence for thirt y

years until 1985 (a CV decline from 68 .8 percent to 49 .3 percent), followed by

increasing inequality during the perestroika years—an increase in the CV

from 49 .3 percent to 52 .4 percent (Table 1) .

Part of the increase in inequality during the last period can be explaine d

by the breakdown of the command economic structure associated with

several half-hearted reforms and new laws, many of which were either

16

poorly understood, or never enforced, or both . New laws on enterpris e

financing and budgeting procedures reduced the redistributive powers of th e

central budget and centralized financial institutions . Enterprise profits and

revenues from turnover taxes became more difficult to collect, as ministeria l

control over formerly quiescent enterprises became increasingly difficult .

Consequently, Moscow's ability to reallocate income and wealth throug h

investment allocations and the central budget was curtailed .

While the thirty years of sustained reduction in inequality is meaningful ,

it should be reiterated that this trend could have been due to a relativ e

decline in investment allocations to formerly favored units, rather tha n

having been the (more positive) result of special attention given to formerl y

low-investment territories . On the surface, then, in trying to answer th e

question of whether investments under the highly centralized allocativ e

mechanism became more equitable or less, the unweighted CVs sugges t

greater equality until the mid-1970s . After 1975, when economic growth i n

the western regions began to decline noticeably, investments appear to have

become less equitable, suggesting a more directed investment strategy tha t

will be discussed in more detail below .

Trends within Regions

A closer look at regionally disaggregated unweighted CV results gives

supporting evidence that the single sustained period of convergence one see s

when the largest outlier, Tyumen oblast, was eliminated fro m

consideration, was representative of Soviet investment trends within tw o

major regions . The CV for the 25 oblasts in Ukraine declined dramaticall y

from 66.2 percent in 1956-60 to 27 .0 percent in 1986-89. Such a decline canno t

be attributed to any grand strategy related to all-Union regional economic

1 7

development. Instead, much of the decline can be explained by the relative

decline of the coal and iron and steel industries in the eastern Ukraine ,

which for years had attracted investments far above the other Ukrainia n

oblasts . As the relative levels of investment in this region began to decline i n

the 1970s, the variation in capital outlays between the industrial eastern an d

largely agricultural western parts of the republic also declined, yielding a

much smaller CV . The impressive decline in the CV can also be attribute d

to the increased attention given to long ignored rural regions, primarily as a

means to increase food production . The trends in the CVs within th e

Ukraine, then, point to great convergence, yet the history of receiving level s

of investment that were well below all-Union average continued throughou t

the 35-year period . 1 2

In Central Asia (the former republics of Kirgizia, Tadzhikistan ,

Uzbekistan, and Turkmenistan), the CV declined from 80 .4 percent to 57 . 6

over the thirty-five year study period . As was the case in Ukraine, this trend

can be more readily explained by a relative decline in investment in formerly

high-investment oblasts than by any relative increases in investment goin g

to low-investment territories . Tashkent Oblast, for example, received capita l

outlays for the 1966-70 period that were 2 .6 times greater than the all-Unio n

per capita average, due largely to the 1966 earthquake ; five years later ,

however, the ratio fell to 1 .8 times the all-Union per capita mean, and by

1986-89, the ratio declined to 1 .4 .

12 . There are many possible explanations for prolonged low levels of investment in th eUkraine . Ukrainians have long claimed it was an "ethnic" issue, while Russia neconomists have argued that agglomeration economies, a relatively well develope dinfrastructure, relative ease of transport, and other economic characteristics reduc ethe need for larger investments into these regions .

18

Of the 21 Central Asian tertiary-level units, only 4 territories—Tashkent ,

areas under the administration of the Turkmen SSR, 13 Syr Darya, and

Chardzhou Oblasts—received allocations that were equal to or greater tha n

the all-Union mean in any one of the study's seven periods . Aside from

reasons related to the earthquake, large amounts of investment were mad e

into Tashkent because the Uzbek capital served as the industrial and

commercial center of Moscow's Central Asian periphery, and it house d

substantial and significant military-related (fighter aircraft) enterprise s

and facilities . The sparsely populated territories of the Turkmen SSR ,

whose jurisdiction remained with the republican government in Ashkhabad

and not with any oblast, received very large investment allocations becaus e

of its fossil fuel resources . Major natural gas projects at Darvaza an d

Koturdepe and their associated industries, plus substantial pipelin e

development in western Turkmenia, accounted for substantial Stat e

investments beginning in the late 1950s .

The twenty years during which Syr-Darya oblast received greater tha n

the all-Union per capita investment allocations (1966-85) can be traced to the

development and construction of the largest gas-fed power complex in th e

region at Bekabad, associated iron and steel plants, whose constructio n

required the creation of a new town, Shirin (Shabad, 1969 : 324), plus othe r

related infrastructural development, including the expansion of irrigatio n

canals . Chardzhou's single period of greater than average per capit a

investments (1971-75) coincided with the development of a new refining an d

13. There were some areas in a few Soviet republics that were administered from th erepublican capital city, but were not administratively part of any oblast or ASSR .These areas were treated as separate tertiary-level units in this study .

19

petrochemical center at Shagal . This energy-based industrial hub, initiate d

in 1969, carried with it grandiose plans of making Chardzhou a divers e

industrial node for the production of synthetic rubber, fibers, and plastic s

out of petroleum products (Shabad, 1969 : 311) . Such plans were never full y

realized . Symptomatic of Soviet development in most peripheral regions, 1 4

initial investments did little to create significant downstream linkages i n

the region, and initial plans were curtailed, leaving the oblast with ye t

another narrowly developed industrial node in Central Asia .

While trends within Central Asia (and Ukraine) suggest a convergenc e

in the level of State funding across tertiary level units, the reasons for th e

apparent decline are more important than the decline itself : the greater

equality in capital outlays was hardly accomplished by redressing pas t

neglect in many oblasts ; instead, directed development schemes tha t

initially brought significant capital to many areas were either complete d

without establishing significant nodes that were capable of attractin g

further investment, or were aborted before they were completed .

Trends in the former Russian Republic (RSFSR) mirror those of th e

entire USSR . Since Tyumen Oblast is part of the RSFSR, eliminating tha t

one oblast from the CV tests had the same effect on the RSFSR CV as it ha d

in the USSR example . When Tyumen is included in the analysis, the CV fo r

Russia declined through the 1971-75 period (59 .5 percent to 51 .9 percent), and

then increased sharply from 1976 to 1989 (from 51 .9 percent to 76.2 percent) .

The large increase in the CV reflects, once again, the massive investments

given to the West Siberian oil and gas industry since the mid-1970s . In 1956-

14 . Dienes, among others, has argued that Soviet development policy in Siberia ha syielded a similar, narrowly developed economic structure . See Dienes, 1989 .

20

60, Tyumen received about 75 percent of the all-Union average for per capita

capital investments ; by 1966-70, it received more than 2 .6 times the all-

Union norm, and by 1986-89, it received an astounding 8 .3 times the per

capita Soviet measure . When one eliminates Tyumen from the analysis, the

CV for 70 Russian tertiary units declines for 30 years, as it did for th e

composite USSR, and then increases nominally from the 1985 period to 198 9

(from 38 .8 to 39 .6) . While it is probably not too surprising that investmen t

trends in Russia parallel closely those for the entire country, the trends ar e

more readily explainable for the Russian Republic . In addition to the

centrality of West Siberian oil to the Soviet economy, trends within th e

Russian Republic also reflect the Soviet penchant for huge developmen t

projects, 15 defense considerations, and the specific dual attempt of trying to

stem rural out-migration and increasing food production in central Russi a

through the non-Chernozem zone program . 1 6

The emphasis placed on West Siberian petroleum development for bot h

domestic use and hard currency earnings reached almost unimaginabl e

proportions, which explains, in large part, the marked 47 percent increas e

in the CV for Russia from 1971-75 to 1986-89 . The oil and gas industry, by

1990, brought Tyumen Oblast greater than 1 of every 7 rubles invested i n

15. The Soviet attraction to huge development projects goes back to the early years of th eSoviet period, but it was best embodied, perhaps, by the construction of the Baykal -Amur Mainline (BAM) across East Siberia and the Far East .

16. The non-Chernozem Zone Program was a massive land reclamation project begun i nthe mid-1970s. It sought to improve living conditions in Central and North Russia' srural areas through increasing mechanization, improving soil quality, and carryin gout substantial land reclamation. Despite large amounts of investment committed tothe program, most of the investment was of the productive rather than the non -productive variety, which did little to improve living conditions that was needed t ostem rural out-migration of younger Russians .

21

Russia (13 .9 percent in 1990) . From 1970 to 1989, yearly investment to th e

republic increased by approximately 75 billion rubles . Of those 75 billion

rubles, Tyumen alone accounted for more than 20 percent of the increase, o r

16 billion rubles ; the next highest share of the incremental 75 billion rubles

went to Moscow Oblast, but it accounted for only 3 percent of the total . The

dominance of Tyumen in the investment profile of the republic and in the

entire State reflects the Soviet economy's worsening geographica l

imbalances among available labor resources, the State's industria l

infrastructure, and especially its energy resources (Liebowitz, 1992) . These

imbalances intensified throughout the 1970s and 1980s, and exposed th e

weaknesses of a development strategy that relied on highly specialized and

narrowly developed regional economies, all of which were supposed to for m

a well-integrated national economy . Unfortunately, the economic division o f

labor that evolved in the USSR was based almost exclusively on single

producers and single suppliers, which only contributed to th e

dysfunctionality of the national economy . As the geographical imbalance s

intensified, the economy lacked the flexibility it needed to shift to alternative

supplies of resources, employ different pools of labor or benefit by th e

migration of the existing labor force, or to establish new industrial facilitie s

to counter the changing geography of production . Large portions of the

increases in capital allotments to Tyumen were allocated for costl y

temporary labor and for the increasingly expensive transport costs o f

petroleum to refining centers, mostly in distant western Russia (Dienes ,

1989) .

Without Tyumen Oblast, the CV for capital investments in Russi a

declined for 30 years, and then increased during the final time period, 1986 -

22

89 . As was already noted in the section on all-Union CV results, by 1986-89 ,

the highly centralized allocative mechanism and its rigid ministeria l

dominated decision-making process were already compromised by th e

Gorbachev reform program, and any policy rooted in a particula r

development "strategy," including financial redistribution, could not hav e

been carried out effectively in Moscow . By 1990, State investments overal l

were on the decline, and, with serious challenges to the primacy of all -

Union laws and all-Union institutions (vis-a-vis their republican and eve n

lower-level administrative organs), there appeared to be no clear-cu t

decision-making process to decide who received what investment share s

and where .

Weighted CV Tests

The unweighted CV test, which again, measures convergence o r

divergence among territorial units and not within a population, supports

the so-called " equalization hypothesis" during the second half of the Sovie t

period if one excludes the single greatest outlier from the analysis . For the

unweighted CV, this means that per capita ruble allocations among 15 3

tertiary-level units became less variable, or that funding levels p e r

administrative division became more equitable . Since one unit may have as

few as 40,000 inhabitants, while others have greater than 5 million ,

"spatial" equalization of investments cannot be considered as a surrogate for

the commitment to equalization of living standards for the Soviet population .

The actual trends as they relate to the socioeconomic "equalization" of th e

population, or to the commitment to that goal, assuming there is a

correlation between levels of investment and changes in standards of living ,

need to be assessed using weighted CVs .

23

Interestingly, the weighted CVs 17 offer similar results as the unweighted

coefficients (see Table 1) . Because Tyumen is not heavily populated, it s

weight or influence in the overall CV is less than it was in the unweighte d

test, yet its dominance is still evident . When Tyumen is included in the

analysis, the CV declines until 1975 and then levels off with an increase in

the CV during the 1986-89 period (from 43 .8 to 46 .5 percent) . Without

Tyumen, the downward trend in the CV, which suggests a decline i n

inequality, was more clear-cut and consistent until 1985 . For the 1986-89

period, there was a slight upturn in the CV (from 38 .1 to 39 .4 percent) ;

nevertheless, the overall trend one notes from the weighted CV test support s

the equalization hypothesis for the all-Union case (153 territorial units), an d

supports it more strongly for the Russian Republic (70 units) .

While the decline in the CVs slowed from one five-year period to the nex t

when Tyumen is excluded from the analysis, the trends were consistent ,

which means they were more than random. Due to the nature of th e

coefficient of variation test, which is highly sensitive to extreme values, it i s

instructive to look at the interquartile ratios (IQR) . The IQR focuses on th e

middle two quartiles of a given sample of observations and provide s

information about trends among the "middle-of-the-pack" observations . The

ratio excludes all those oblasts that may have attracted investment becaus e

of a single, expensive development project, as well as those units that

remain too expensive to settle and develop due to environmental constraints ,

or have no physical or human resource attributes worthy of development .

The IQR is insensitive to these cases since it excludes the extreme upper

17 . Each territorial unit was weighted by its share of the state's total population before thestatistic is calculated .

24

and lower observations from the sample .

Interquartile Ratio (IQR) Results

The IQR tests for the USSR paint a similar picture to that provided by the

unweighted CV tests that excluded Tyumen Oblast (see Table 2) . Like the

unweighted CV tests, the IQR provides more information on spatial trends

than on trends among the population, because it uses the territorial unit a s

the object of measurement . The ratio of per capita investments for the 38t h

and 116th ranked units declined significantly from 1956 to 1970, then

declined only marginally for the next fifteen years before increasing slightl y

during the final period, 1986-89 . While the trends in the two tests are

similar, the decline in inequality—as measured by this statistic—leveled off

five years earlier than it, did in the CV tests . By focusing on the investmen t

levels in the middle 77 territorial units, and noting the stagnation in wha t

had been a consistent decline in inequality, one might conclude that a shift

in Soviet regional investment policy began earlier than the 1971-75 period a s

the results of the the CV tests suggested . If the ratio between 38th and 116th

units leveled off during the 1966-70 period while the CV declined for anothe r

five years, it is likely that the changes most responsible for influencing the

CV test statistic were taking place in those territories in which investment s

were extremely high and/or extremely low and not among the middle 7 7

units .

A partial explanation for the leveling of the IQR while the CV continue d

to decline is the reduction in capital allocations given to those units tha t

made up the Virgin Lands territories in northern Kazakhstan and souther n

Siberia . During the 1956-60 and 1961-65 periods, these oblasts receive d

among the highest levels of investment in the entire USSR as part of

Table 2 . INTERQUARTILE RATIOS, USS R

CAPITAL INVESTMENT 1956-60

1 961 -65 1966-70

1 971 -75 1976-80

1 981 -85 1986-9 0

Number of Units 154 154 154 154 154 154 15 4Interquartile

Ratio 2 .57 2 .15 1 .81 1 .82 1 .78 1 .71 1 .8 2

VALUE OF FIXED INDUSTRIAL ASSETS 1970 1975 1980 1985 199 0

Number of Units 151 154 154 154 15 4Interquartile

Ratio 4 .06 3 .31 3 .39 3 .43 3 .3 2

VALUE OF FIXED AGRICULTURAL ASSETS 1970 1975 1980 1985 199 0

Number of Units 105 105 11

1 105 11 1Interquartile

Ratio 2 .86 2 .94 2 .45 2 .39 2 .2 8

GROSS AGRICULTURAL PRODUCTION 1970 1975 1980 1985 199 0

Number of Units 145 146 146 146 14 6Interquartile

Ratio 2 .86 2 .83 2 .74 2 .93 2 .74

Khrushchev's attempt to develop a second major grain belt . Considerabl e

investment was needed and allocated for land amelioration, because the

climate was too arid for the scale and intensity of production planned, an d

because some of the grains sown in the region depleted the soil of nutrient s

and moisture faster than could be replenished naturally. In addition, large

amounts of investment were needed to develop and support th e

infrastructure for the growing population and to transport the increase d

agricultural produce .

By the mid-1960s, however, shortly after Khrushchev's ouster, the Virgi n

Lands had been de-emphasized—ridiculed as one of Khrushchev' s

"harebrained schemes —and investment into the region declined

significantly . All six Kazakh oblasts in the Virgin Lands territory showed

declines in investments relative to the USSR mean ; five of the six registere d

substantial declines . These investment trends were hardly independent of

politics . Years of resentment toward the Virgin Lands program surface d

immediately following Khrushchev's ouster, and many of the radical

agricultural practices that re introduced with the program were replace d

by those from the pre-Virgin Lands period . Former Minister of Agriculture ,

V .V . Matskevich, ousted in 1960, resumed his duties in October, 1964

(McCauley, 1976) .

The changes among those units that had received very high investmen t

allocations, combined with increases in investment greater than the all -

Union average in formerly very low investment oblasts, partially explain th e

reduction in the all-Union CV while the IQR, which only focuses on th e

middle 75 territorial units, showed no decline .

For the 70-plus oblast-level units in Russia, the IQR trends were similar

27

to those derived from the weighted CV tests (excluding Tyumen Oblast) ,

although the timing of the change within the 35-year period was a bi t

different (see Table 3) . The IQR for the Russian Republic declined for 30

years, with significant reductions recorded from 1966-70 to 1971-75 (1 .90 to

1 .67) and, more surprisingly, from 1976-80 to 1981-85 (1 .66 to 1 .43) . Despite

the more concentrated and directed investment strategy during the lat e

1970s and early 1980s, the IQR declined more than in any other five-yea r

period . As was the case with interpreting the CV results, however, th e

decline in the IQR, is not always a positive development . With a greater

proportion of State investment going to energy development in general, and

to places like Tyumen, Guryev, and Tomsk Oblasts in particular, fewe r

funds were available for virtually all other regions . Consequently, even

though the remaining investment resources appear to have been distributed

more equitably, which the results of the IQR suggest, the overall impact o f

increasingly directed investment was negative for the large number o f

"middle-of-the-pack" territories, where a majority of the Soviet populatio n

lived.

Conclusions from the CV and IQR tests

The conclusions one can draw from the CV and IQR tests depend on

whether one wants to focus on spatial equality (unweighted CV measures )

or equality based on what the Soviet Government made available to th e

population (weighted CV measures) . It also depends on how one treat s

extreme cases, such as the oil-rich oblasts and the sparsely-populated ,

environmentally forboding northern regions .

Measuring spatial equality for 35 years through unweighted CV tests,

Table 3 . iNTERQUARTILE RATIOS, RUSSI A

PC CAPITAL INVESTMENT

1956-60

1961-65

1966-70

1971-75

1976-80

1981-85

1986-8 9

Number of Units

73

73

73

13

73

73

7 3Interquartlle Ratio

2 .11

1 .99

1 .90

1 .67

1 .66

1 .43

1 .50

FIXED PRODUCTIVE ASSETS

1980

1985

199 0

Number of Unit s 73 73 73Interquartlle

Ratio 3 .31 2 .90 2 .8 3

PC FIXED PRODUCTIVE ASSETS 1980 1985 199 0

Number of Units /3 7 3 1 3Interquartlle

Ratio 1 .46 1 .47 1 .4 2

VOLUME OF INDUSTRIAL PRODUCTION 1980 1985 199 0

Number of Units 13 13 1 3Interquartlle

Ratio 3 .44 3 .21 2 .9 7

PC VOLUME OF INDUSTRIAL PRODUCTION 1980 1985 199 0

Number of Units 13 7 3 1 3Interquartlle

Ratio 1 .50 1 .48 1 .4 0

% INDUSTRY, GROUP A 1980 1985 199 0


Ratio 1 .13 1 .14 1 .1 5

% INDUSTRY, GROUP B 1980 1985 199 0


Ratio 1 .50 1 .45 1 .39

Table 3 . INTERQUARTILE RATIOS, RUSSI A

GROSS AGRICULTURAL PRODUCTION 1980 1985 199 0

Number of Units 71 / 1 7 1

InterquartIle

Ratio 2 .91 3 .25 2 .9 0

PC AGRICULTURAL PRODUCTION 1980 1985 199 0

Number of Units 71 1 7 1

Interquartile Ratio 1 .93 1 .95 2 .0 3

PC VALUE OF HOUSING STOCK 1980 1985 199 0

Number of Units 13 / 3 73

InterquartIle

Ratio 1 .33 1 .33 1 .3 7

PC INVESTMENTS IN NON-PRODUCTIVE BRANCHES 1980 1985 199 0



PC INCOME, YEARLY AVERAGE 1980 1985 199 0

Number of Units 12 / 2 / 2


PC MEAT PRODUCTION 1980 1985 199 0

Number of Units 70 /0 1 0


PC MILK PRODUCTION 1980 1985 199 0


Interquartile Rollo 2 .02 2 .04 2 .08

Table 3 . INTERQUARTILE RATIOS, RUSSI A

PC EGG PRODUCTION 1980 1985 199 0

Number of Units 7 0 10 I O


PC VEGETABLE PRODUCTION 1980 1985 199 0

Number of Units 70 / u / 0

Interquartlle

Ratio 1 .88 2 .25 2 .2 4

PC MEAT CONSUMPTION 1980 1985 199 0

Number of Units 73 13 7 3Inlerquartlle

Ratio 1 .17 1 .19 1 .2 3

PC DAIRY CONSUMPTION 1980 1985 199 0

Number of Unils 73 / 3 73Interquartlle

Ratio 1 .13 1 .16 1 .1 5

PC EGG CONSUMPTION 1980 1985 199 0

Number of Units 73 7 3 7 3Interquartile Ratio 1 .24 1 .19 1 .1 5

PC VEGETABLE CONSUMPTION 1980 1985 199 0

Number of Units / 3 7 3 1 3Interquartlle

Ratio 1 .34 1 .23 1 .2 5

PC VOLUME OF PAID SERVICES

1985 199 0Number of Units 73 7 3Interquartlle

Ratio 1 .29 1 .20

Table 3 . INTERQUARTILE RATIOS, RUSSIA

PC LIVING SPACE 1980 1985 199 0

Number of Units /3 /3 7 3Interquartlle

Ratio 1 .15 1 .19 1 .1 6

FIXED INDUSTRIAL CAPITAL STOCK1970 1975 1980 1985 199 0

Number of Units 71 71 71 71 7 1Interquartile Ratio 3 .95 3 .61 3 .25 3 .13 3 .08

32

and including all 154 tertiary-level units, 18 investment allocations became n o

more equitable by the end of the Soviet period than they were in the lat e

1950s . However, if one eliminates one unit, Tyumen oblast, one would see a

decline in inequality for 30 years before an upturn during the perestroika

period, 1986-89 . If one views outliers, such as energy-rich areas, as bein g

investment options that planners could not afford to ignore, and se e

resource-poor territories as those to which planners could not be expected t o

devote significant resources, one would turn to the IQR test, whose result s

show a reduction in inequality until 1970, with no significant chang e

thereafter .

Using weighted CVs in order to focus on the population rather than o n

territory, inequality in capital allocations was less in 1989 than it was in th e

late 1950s. However, all the decline in inequality was realized by 1975, afte r

which it increased marginally for three five-year periods . When that one

outlier, Tyumen Oblast, is excluded from the 154-case study, one sees a 30 -

year reduction in inequality, with an insignificant increase (from 38 .1 to 39 .4

percent) during the perestroika period. Therefore, at worst, the Sovie t

highly centralized system of resource allocation reduced inequality fro m

1956 to the 1971-75 period, which supports the assertion that Brezhnev's 197 2

declaration on the nationalities question (and its socioeconomic dimension )

signalled a change in regional investment policy . At best, when one ignores

the massive investments made to West Siberia, inequities in capita l

allotments declined until the Gorbachev reform program, although th e

18 . Although a few outliers, even a single one, can affect descriptive test statistics, theyare part of the equalization question, and they do represent choices for state decision -

33

reduction was minimal after 1975 .

In light of the wide gaps in natural resource endowments, historica l

factors, and location amenities for economic development across such a

large expanse of territory, these trends have to be seen as significant, and a

confirmation of the strong redistributive powers of the Soviet financia l

system (IMF, 1991: 11) . These results also beg the unanswerable questio n

raised by Daniel Bond (1979) more than 15 years ago . Bond substantiated the

transfer of income from one republic to another via Soviet fiscal policy and

the centralized budgetary system, and then asked how great the inequalit y

in investment allocations, fixed capital stock, and other economic and

socioeconomic indicators would have been without redistribution . That

question cannot be readily-answered, but limited oblast level all-Union data,

plus more substantial data for the Russian Republic, allow us to answe r

some questions regarding trends for some selected economic variables ,

especially during the final decade of the Soviet system .

Divergence and/or Convergence of Selected Indicators

All-Union Trends

All-Union oblast-level data for three variables—the value of fixed

industrial assets, the value of fixed agricultural assets, and gros s

agricultural production—allow one assess whether Soviet investment polic y

had any effect on equalizing the productive capacities of the State's 154

territorial units . 19 The value of fixed industrial assets reflects the levels o f

19 . As was described earlier, these data, like all Soviet data, can only be treated as crud eapproximations of what they intend to measure . Aside from the issue of data veracity ,which plagues much if not all of the economic and social data released by

34

capital accumulation within an oblast, which is a key factor in determinin g

industrial production; the value of fixed agricultural assets is similar fo r

agricultural production ; and gross agricultural production relates to bot h

the living standards and food producing capacities of a region .

Unfortunately, parallel data for industrial production were not available fo r

the entire USSR .

The gap in the value of fixed industrial assets narrowed considerabl y

from 1970 to 1975, after which it remained unchanged . One would expect

these trends to mirror those of capital investments, and they do, but th e

nature of the investment data and Soviet financial practices require one to

exercise caution in interpreting these trends . The investment data used i n

this study were those for total investment, which included industrial an d

agricultural investments, as well as both productive and non-productive

investments . The great range in productive versus non-productive

investments across the 154 territorial units makes it difficult to dra w

conclusions on the relationship between levels of investment and the value o f

industrial assets .

The trends in the value of fixed agricultural assets are more erratic, ye t

still register a significant reduction in the IQR measure ; in addition, its

lowest degree of inequality was measured in 1990 . For both these variables ,

it is difficult to associate the level of inequality in a given year with a specifi c

period of capital investments . There is a necessary lag between the tim e

capital is allocated to a territory and when it becomes part of the capita l

stock and can be considered an asset . In the Soviet context, these lags ar e

GOSKOMSTAT, and formerly the Central Statistical Administration, there is als othe problem of how assets are valued (due to the way in which prices are affixed t oproducer and consumer goods) and how assets are depreciated .

a5

legendary, and their lengths vary greatly from one region to another an d

from one branch of industry to another . Therefore, trends in these tw o

variables and, to a large extent, those of the following variable, gros s

agricultural production, are really a function of long-term investment

trends, the nature of those investments, depreciation and amortization

rates, plus other factors that differ from one region to another . 2 0

The trends in gross agricultural production remained virtually

unchanged from 1970 to 1990 ; the slight movements in 1980, 1985, and 199 0

(IQRs of 2 .74, 2 .93, and 2 .74) are well within the expected range of change

from year to year due to variations caused by variable weather condition s

and problems inherent to the data . While it is difficult to draw definitiv e

conclusions from the trends in these four variables, it is interesting an d

perhaps more than coincidental that the IQRs did not increase from 1970 t o

1990 and in two cases registered noticeable declines . These trends mos t

likely reflect the extensive and "leveling" nature of capital investments fro m

the mid-1950s to the early 1970s .

Trends in Russia

Data for more than 20 social and economic indicators for Russia's 7 3

territorial units for the 1980, 1985, and 1990 years, allow one to delve a bi t

further into the question of spatial equalization than was possible for the

whole USSR. 21 For those variables related to production, the results are

20. The relationship between capital investment and industrial assets was clear in th eRussian Republic for which data were available . The correlation between per capit ainvestment and per capita industrial assets was very high (and positive) . The valuesof the coefficients ranged from .829 in 1980 to .880 in 1985 .

21. Although data for earlier years were supposed to be released by April of this year, theyhave yet to be released and therefore had to be excluded from this study . Officials from

3 6

mixed . The IQR value of fixed productive assets declined by almost 1 5

percent (3 .31 to 2.83) between 1980 and 1990 (see Table 3), but the IQR for th e

per capita fixed productive assets measure remained unchanged . The

different picture these results project reflect the relative emphasis given t o

sparsely populated territories for (productive) capital formation since th e

1970s. Concentration on energy development and development projects i n

formerly underdeveloped and relatively sparsely populated oblasts explai n

both a reduction in the overall level of spatial inequality, and no change in

inequality when measured as a per capita measure .

The results from the CV tests for the other economic measures show a

marked increase in inequality over the past decade . Since the CV test s

include all the 73 Russian oblasts, so that extreme outliers are included i n

the test, the different trends from those derived from the IQR reflect th e

significance of the top quarter units in capital accumulation during the

1980s .

The IQR results for the volume of industrial production, measure d

according to absolute volume per territorial unit, declined substantially (14

percent), but showed no change when measured on a per capita basis .

Again, this difference suggests that, while inequality in the volume o f

industrial production across Russian oblasts, ASSRs, and krays declined ,

when one takes into account differences in population, there were n o

significant changes . The CV tests for the same variable show no significant

change in inequality .

the former all-Union Goskomstat, Goskomstat RSFSR, and Goskomstat Kazakhstan ,all stated that retroactive economic and demographic data for economic an ddemographic data would be available at the end of each quarter of 1992 . Thus far, onl yRussia has published significant oblast-level data .

37

For six variables on food production and consumption, 22 the only

significant changes in the IQR were recorded for per capita meat productio n

(increase from 1 .93 to 2 .18) and per capita vegetable production (increase

from 1 .88 to 2 .24). While these variables are no doubt influenced by a

territory's level of capital investment, both are extremely sensitive to specifi c

environmental conditions that change from year to year, and therefore ar e

too random to allow one to draw any conclusions from the limited number o f

years for which data are available . Such an increase probably reflects the

irregularities and inefficiencies of the former Soviet distribution syste m

more than changes in the productive capacities and living conditions acros s

regions . All other IQRs showed no significant change over the decade ,

despite the changes in capital allocations and fixed productive assets .

Differences in a territory's percentage of productive versus non-

productive investments remained constant according to both the IQR an d

CV tests, which means there was little change in the nature of investment s

made across the 73 units during the 1980s . The stability in these variables

reflects, among other things, the difficulty regions faced in trying to develop

and change their economic structures . The primary vehicle for changing a

region's economy, capital investment, was controlled by all-Union

ministerial bodies rather than regional-based institutions . There was littl e

coordination among planning bodies and those enterprises contributing to a

single product, as the interests of the ministries overshadowed any kind of

rational regional policy. During periods of massive capital investments an d

22 . The six variables were : gross and per capita agricultural production . per capita meatproduction and consumption, per capita milk production and consumption, per capit aegg production and consumption, per capita vegetable production and consumption ,and per capita dairy production and consumption .

38

increments to the capital stock—from 1956 to the early 1970s—bottlenecks

and inefficiencies were less noticeable or at least their effects were less felt .

By the 1970s, the rate of growth in capital stock began to decline, mos t

industries had become dominated by a small number of suppliers and

producers, and labor and/or capital constraints limited coordination an d

any chances for the diversification of most regional economies .

For variables related to consumption, the IQRs were unchanged fro m

1980 to 1990 . The ratios between the 18th and 55th ranked units for per

capita income, per capita value of housing stock, per capita volume of pai d

services, and per capita living space, remained constant . For the CV tests ,

only per capita income changed, and it declined by 10 percent . This decline

suggests that the lowest ranked 18 units, which were excluded from the IQ R

tests, registered larger increases in per capita income during the decad e

than the remaining units . Once again, the measured decline in inequality

did not necessary mean that there were absolute gains made across th e

country, or even among the poorest regions . Instead, the rate of growth o f

national income was declining, and the reduction in inequality was th e

result of the poorest units increasing their income (relative to the all-Unio n

mean) more than the wealthiest units .

Temporal-Regional Relations and Soviet Leaders

Several questions relating directly to the policies of specific Soviet leader s

and their commitment to equalization have been raised in past works on

Soviet regional economic development policy. The most general question i s

whether Soviet leaders had specific regional emphases or biases and, if so ,

what might be some of the likely reasons . In trying to link specific leaders

with regional emphases during the 1956-90 period, we can treat the 1956-65

39

period as the Khrushchev era, the 1966-75 period the "high" Brezhnev era ,

the 1976-85 period as the zastoi (or stagnation), and the final period as the

Gorbachev years, or the period of perestroika .

Using investment data for economic regions, 23 regional shifts during th e

ten-year Khrushchev period were most noteworthy in their apparent

deemphasis on the Russian Republic (Table 4) . Only two of the 11 Russian

economic regions increased their shares of Soviet investment (the Central

Chernozem, with a negligible increase in its share, and East Siberia) ;

Kazakhstan and Central Asia registered the largest increases .

The most interesting regional pattern one notes during the Khrushche v

period is that the relatively backward and previously most neglecte d

economic regions (based on the level of State investments) received th e

largest percentage increases in their shares of total State investments. The

two relatively backward Ukrainian regions (Southwest and South) ,

Transcaucasia, Central Asia, Kazakhstan, Belorussia . 24 and Moldavia al l

experienced larger shares of the investment pie during the 1961-65 period

than they received in the previous five-year period .

Aside from the Virgin Lands program, it is difficult to explain th e

emphasis given to the periphery of the State during the Khrushchev era.

Some have proposed that the advent of modern military capabilities in th e

23. In order to gain a more general sense of regional emphases, the oblast-level data wereaggregated into their 20 Economic Regions . The number of economic regions over th estudy period changed from 19 to 20 . Oblasts were reallocated to make the region scomparable over the 35 years .

24. Despite Belorussia's favored investment profile by the 1970s, five of the sixBelorussian oblasts received among the lowest levels of per capita capital investmen tin the USSR during the 1956-70 period .

Table 4 . INVESTMENT TO THE REGIONS : % Change, % of USSR Total s

1956-60

to 1961 65

to 1966-70

to 1971-75

to 1976-80

to 1981-85

to 1956-60

t o% CHANGE In Investment 1961-65 1966-70 1971-75 1976-80 1981-85 1986-89 1986-90 '

West Siberian region 46 6 43 9 65 4 56 9 53 4 46 3 1127

1Moldavia SSR 101 .0 69 0 61 0 29 8 20 0 20 5 925 8Belorussia SSR 92 5 67 6 52 7 31 2 20 0 31 4 919 8Central Asian region 104 .7 73 0 39 0 27 8 23 6 8 4 742 7Urals region 30 .0 29 7 38 7 26 8 12 6 24 0 617 9Far East region 51 6 53 1 48 8 32 4 18

1 28 7 594 7Transcaucasus region 64 3 52 7 28 2 33 2 35 2 28 .5 594 1Baltic

region 81 9 47 1 38 1 19 5 19 9 27 9 576 8Central Chernozem region 57 4 45 0 59 4 28 1 19 9 12 8 530 0Volga-Vyatka

region 43 .4 39 1 53 5 32 8 22 9 25 3 525 8Kazakh SSR 86 .4 34 .3 30 1 22 b i 4 9 24 9 472 9South region 74 1 45 0 28 5 25 8 11

2 30 2 459 1Northern region 48 5 42 2 43 5 38 2 9 7 19 6 448 9East Siberian region 59 .1 29 9 38 5 34 4 10 4 27 3 441

1Southwest region 64 3 50 7 45 3 26 7 18 5 13 0 412 7North Caucasus region 51

1 43 9 43 0 31 6 7 0 15 8 406 8Northwest

region 47 5 34 0 43 1 31 2 10 0 23 5 403 9Central

region 36 9 30 .9 42 9 26 7 10 9 23 2 343 1Volga region 39 7 53 0 49 6 22 1 10 0 23 .1 310 9Donets-Dnieper region 36 .9 27 .0 36 1 15 6 6 .7 22 0 256 . 2

% Shares of Investment 1956-60 1961-65 1966-70 1971-75 1976-80 1981-85 1986-8 9

West Siberian region 6 .65 6 .41 6 52 7 54 9 15 11 .88 13 .8 3Central region 14 .19 12 .78 11 .83 11 .82 11 58 10 .88 10 .6 6Urals region 10 86 9 .29 8 .52 8 27 8 .10 7 .73 7 .5 6Volga region 7 .38 6 .78 7 .33 7 67 7 .24 6 75 6 9 9Kazakh SSR 6 .44 7 89 7 .50 6 82 6 .46 6 29 6 2 5Donets-Dnieper region 9 69 8 .72 7 .83 7 46 6 .66 6 02 5 8 5Central Asian region 3 85 5 18 6 .33 6 16 6 08 6 37 5 .49Far East region 4 .39 4 37 4 73 4 93 5 04 5 04 5 1 6East Siberian region 5 26 5 51 5 06 4 91 5 10 4 77 4 8 3Southwest region 3 98 4 30 4 .59 4 66 4 57 4 58 4 .6 9North Caucasus region 4 .94 4 91 5 .00 5 00 5 .09 4 61 4 2 5Transcaucasus region 3 .29 3 56 3 84 3 44 3 .54 4 06 4 00Northern region 3 .54 3 46 3 .48 3 49 3 73 3 46 3 29Belorussia SSR 1 .89 2 39 2 83 3 02 3 07 3 12 3 26Northwest

region 3 54 3 43 3 25 3 26 3 30 3 08 3 02Baltic

region 2 .56 3 06 3 18 3 .08 2 84 2 88 2 9 3Volga Vyatka

region 2 .64 2 .49 2 .45 2 .63 2 .70 2 .81 2 80Central Chernozem region 2 .17 2 .25 2 .31 2 .57 2 .55 2 .59 2 .3 2South region 2 .22 2 .55 2 .61 2 .35 2 .28 2 .15 1 .9 3Moldavia SSR 0 .51 0 .67 0 .81 0 .91 0 .91 0 .92 0 .89 0

'Data were only available for 1986-89, so the total was inflated by twenty-five percent to allow for comparability .

4 1

late 1950s and early 1960s no longer made it feasible for Soviet planners to

sacrifice locational amenities when citing industries for the sake of defense

considerations . 25 Building factories and enterprises in interior Russia wa s

consistent with the locational principle calling for securing the State's

defense, and development patterns immediately following WW I I

underscored its importance . But more important to the question of regional

trends during the Khrushchev era, was the potential impact of th e

sovnarkhozy (regional economic councils) administrative reorganizatio n

initiated by the maverick leader during the mid-1950s, and which laste d

until shortly after his ouster in 1964 .

The sovnarkhozy reorganization attempted to decentralize economi c

decision-making from the powerful all-Union ministries in Moscow to 105

regions (Dellenbrandt, 1986) . Most significant about this change for

questions concerning resource allocation was the alleged shift to a

regionally based approach to planning from the highly centralized and long-

dominant branch/ministerial method . The sovnarkhozy scheme was

supposed to yield better planning, because a major criticism of th e

branch/ministerial approach was that decisions were made in Moscow

without sufficient knowledge of local conditions, and because succes s

indicators for planners were those that promoted the well-being of th e

ministries rather than the regions and their populations .

While the sovnarkhozy system was intended to redress flaws in the

highly centralized planning system, it never was able to receive the kind of

25. The advent of the high-altitude bomber, which could easily penetrate Soviet airspac eand avoid anti-aircraft fire, forced the Soviets to reassess the costly citing of industryin isolated and interior locations far from markets and resources .

42

support it needed from the institutions it was intended to improve . Special

interests in the ministries balked at sharing, let alone devolving, substantiv e

decision-making powers to regional planning bodies, which is hardl y

surprising . Nevertheless, for a large part of the Khrushchev period ,

planning and resource allocation responsibilities were given to 105 regional

councils, and were not fully phased out until after Khrushchev 's ouster in

1964 .

The short-lived reorganization scheme begs several questions related t o

resource allocation, especially since the "region" was to be the organizin g

principle around which decisions would be made . The conventional wisdo m

surrounding this question had been that under the sovnarkhozy system ,

investments should have been more "rational," where rational only mean t

that attention to specific needs for a local production process and social

needs could be more easily identified and addressed, and where local

enterprises could identify and establish least-cost contract relations with

suppliers for their production processes . Unfortunately, as is wel l

documented, the necessary additional institutional changes, such as in the

State Supply Organization (GOSNAB), were never fully carried out, an d

instead of developing a more effective and decentralized system of plannin g

and resource allocation, there developed instead a far more chaotic an d

confused system .

The variation in regional investment allocations during the 1961-65

period, a period one might view as the height of the sovnarkhozy period, 2 6

was not very different from the preceding 1956-60 period . The shift in th e

26 . While sovnarkhozy operated from 1957-64, the 1961-65 period would best reflect an ychanges caused by the intended decentralization in decision-making .

43

regional shares of investment that was pointed out earlier from th e

Russian economic regions to the periphery) was based on aggregate trends ,

and would not necessarily reflect the influence of the sovnarkhozy reforms

on changing existing gaps in investment allocations . Instead, the CV and

IQR tests would provide a better reflection of how the decentralization effort

affected gaps in the spatial variation of State investments .

The CV results (Table 1), for both the weighted and unweighted tests ,

suggest a reduction in inequality from the 1956-60 to the 1961-65 period,

which may or may not be significant by itself . What is probably more

significant is that the downward trend in inequality leveled off after the

reintroduction of the branch/ministerial system of planning, but did not

increase . Similar trends are given by the IQR results ; the middle ranked 75

oblasts in the study had the largest reduction in inequality between 1961-6 5

and 1966-70, after power was returned to the ministries, which probably

reflects the redistributive power of the Soviet financial system, especiall y

when the centralized institutions held decision-making power .

The Brezhnev period, defined here as 1966 to 75, 27 not only saw the

reaffirmation of the ministerial approach to planning, but also included th e

Kosygin reforms of 1965 . These reforms, which went hand-in-hand with the

policy reversals in agriculture (see McCauley, 1976) when Khrushchev was

ousted, focused on reducing centralized control over enterprises and thei r

managers and replacing the former gross output success indicator with

27. Some Soviet analysts use the late 1970s as the benchmark for the so-called period o fzastoi, or stagnation, while others use the early 1980s. The middle-to-late 1970s seemsto be the better starting point, since economic growth rates had already begun to declin efor a majority of the county's economic regions by that time, and social indicators ,such as infant mortality rates, middle age male mortality, and incidences ofinfectious diseases were already on the rise (see Feshbach and Friendly, 1992) .

44

total sales, or realizedoutput. The role played by the all-Union budget in the

overall allocation of investment funds was to be reduced, subsidies were to b e

cut, and enterprises were to become more responsible for their ow n

financial needs (Gregory and Stuart, 1990 : 445-46) . Enterprise manager s

were to be encouraged to be less dependent on central planners, and instea d

were supposed to react to new economic indicators and the new freedoms of

dispensing with "profits" as they chose—for new investment or workers '

bonuses .

As would become the rule for Soviet reform efforts to the end of the Soviet

period, for every sign of encouragement, there were institutional constraint s

placed upon the reforms, and in particular on the enterprise, both explicitl y

and implicitly . Large State committees (on prices, technology, and materia l

supplies) were established with the goal of yielding economies of scale, bu t

instead only served to constrain individual enterprise managers fro m

establishing new and potentially more cost-effective supply links . In

addition, regulations supported by those who viewed greater enterpris e

autonomy as threats to the centralized economy increased the power of th e

ministries to limit enterprise freedom to create and use their newl y

approved decentralized funds .

The relevance of the :L965 Kosygin Reforms to the spatial allocation o f

resources is tied to the goal of decentralizing decision making on th e

production and investment end of the planning process . The consensu s

among western economists is that these reforms did little to encourage an y

change in enterprise behavior and, in fact, they had the opposite effec t

(Schroeder, 1979) . With greater control over investment and production

decision making in the hands of the central planners, the link between

45

actual investment allocations and State priorities was not compromised, but

strengthened.

During the first 10 years of Brezhnev's rule, 8 of the 11 economic region s

in the Russian Republic improved their relative shares of total Stat e

investment ; the only exceptions were the Urals region, which saw its share

of total investment decline in all seven of the study's periods, the Centra l

Region (Moscow), and East Siberia . Outside of Russia, Transcaucasia ,

Kazakhstan, and the South and Donets-Dnieper regions of the Ukraine

registered declines in their relative shares of total State investment, whil e

Belorussia, Central Asia, and Moldavia gained most. The 1966-75 period

can be described as one that witnessed a 'back to the west" emphasis ,

despite the Central Region losing some of its share of total investments (i t

was still the region with the greatest share of investments) and th e

impressive gains made by Central Asia .

It should be reiterated that the gains in Central Asia were largel y

concentrated in Tashkent due to earthquake damage and the development o f

military related production sites, 28 and the impressive gains in 1966-70

leveled off shortly thereafter. In addition, the gains made by the region i n

investment allocations did not match its rapidly growing population, fastes t

of all Soviet regions .

The CVs during the Brezhnev years, weighted and unweighted, leveled

off, and without Tyumen Oblast declined only marginally . The IQR was

unchanged from 1966-70 to 1971-75, which means the gap in allocations

among those oblast in the middle of the pack (the middle 75 units) did no t

28. Based on interviews with members of the then Kazakh Ministries of Finance an dEconomics in Alma-Ata, November 23-25, 1991 .

46

change . 29 The Brezhnev period, then, was one during which a renewed

emphasis was given to Russia and the greatest relative decline i n

investment levels was recorded in Kazakhstan . The share of total State

investment given to Russia increased from 61 .9 percent in 1961-65 to 63 .8 by

the 1976-80 period . Kazakhstan experienced the opposite ; its share of all-

Union investment declined from 7 .9 percent in 1961-65 to 6 .46 in 1976-80 . A

significant portion of the increased share of investment given to Russi a

during the Brezhnev years was due to new West Siberian energ y

development and possibly to the often-heard bias of central planners towar d

Russia . Although the role of the planners was supposed to decrease to th e

benefit of enterprise and regional managers, it didn't, and old areas o f

preferential investments received greater attention than under th e

sovnarkhozy period . The significant decline in investment allocations t o

Kazakhstan was almost exclusively due to the rapid deemphasis on th e

Virgin Lands program .

The 1976-1985 period, which corresponds to what has become popularl y

referred to as the zastoi, or period stagnation, saw a continuation o f

attempts at domestic economic reform, but with little evidence of success o r

change . 30 The volume of overall State investments during the second five -

year period of the zastoi increased 52 .7 percent from the period preceding th e

zastoi, which was only about half the increase in investments experience d

during the Brezhnev period . 31 Regional emphases shifted somewhat over

29. When we extend the Brezhnev period to 1980, the results are no different .

30. For a review of the reforms introduced during the 1970s and early 1980s, see Gregor yand Stewart, 1990 .

31. Total state investments in 1971-75 increased 102 .1 percent from the 1961-65 period .

47

the ten years . West Siberia, of course, increased its share of total investment

(from 7 .5 percent to 11 .9 percent), but several Russian economic regions

received smaller portions of the pie . The North, Northwest, Central, North

Caucasus, Urals, East Siberia, and the Volga regions all received smaller

percentages of State investments than they had received during the first ten

years of the Brezhnev era . The overwhelming increase in West Siberia still

compensated for the decline in these Russian economic regions, as th e

Russian Republic improved its share of total investment (62 .3 to 63.7 in 1981 -

85) .

The case of East Siberia deserves some attention . The region was one of 8

Russian economic regions to have lost some of its share of total State

investment during the 1976-85 period so it is certainly not an exception.

However, the decline is somewhat surprising and certainly interesting

when one considers the amount of resources that were tied up by the Baikal -

Amur Mainline (BAM), once called the "project of the century," but mor e

recently referred to as a huge white elephant . Construction on the project

began in 1974, and while it crosses through extremely resource-ric h

regions, the development of those resources to any significant degree has yet

to commence.32 The failure to coordinate the development of the BAM region

The 1981-85 total was only 52 .7 percent greater than 1971-75 period . The growth in stateinvestments increased at about half the rate it had for the previous decade, which is notsurprising given the declining economic growth rates in all of the state ' s economicregions from the middle 1970s onward .

32. It should be noted that, while this region's share of investment declined during theperiod of BAM construction, its share of non-productive investments increased whilethe its share of productive investments declined . This somewhat counter-intuitiv etrend can be explained by the enormous social costs of developing the BAM region .Yet, quite reflective of the problems of Soviet planning, despite such huge increases i nnon-productive investments to the region, the social conditions for workers an dsettlers were among the worst in the country, which explains, in part, the inability o fauthorities to attract a skilled and permanent labor force to the region . That the share

48

beyond building the railway is typical of the lack of coordination one finds i n

Soviet planning efforts and the massive waste of resources as a

consequence . Billions of rubles poured into the region, yet an infrastructur e

suitable to house a permanent and productive labor force was neve r

developed .

Outside Russia, the Donets-Dnieper region experienced the greates t

decline in its share of State investment during the 1976-85 period: at the

beginning of the Brezhnev period in 1966, the region received 7 .8 percent o f

total allocations ; by 1975 the figure declined to 7 .4 percent, and by 1985, th e

region accounted for 6 .0 percent of State investments . The relative decline i n

investments to this region reflects the changing position of coal in the Sovie t

energy mix as well as the-increasing difficulty of, and declining productio n

in, mining the Donetsk Basin (Donbas) . In addition to switching t o

alternative coal sources (Kuznetsk Basin, Karaganda, Ekibastuz, an d

Kansk-Achinsk) as the rising costs of production in the Donbas reduced th e

distance its supply could be transported, there was also a short-lived attemp t

to switch the energy mix of some Soviet industries away from coal, which

contributed to a decline in associated industries in the eastern Ukraine .

The most relevant trends one sees during the zastoi are 1) the decline i n

the growth of total State investments ; 2) the subordination of all regions t o

the needs of the the West Siberian energy industry ; and 3) the (continued )

declining position of the Ukraine and all three of its economic region s

of productive investments did not keep pace with the growth in non-productiv einvestments in this targeted region, begs the question of how great the commitmen twas to the entire BAM project . It also provides yet another example of how the Sovie tplanning system is unable to coordinate the most basic components of a huge nationa lproject . For more information on investment flows to Siberia, see SovietGeography,1991, and on BAM in general, Shabad and Dienes, 1977 .

49

relative to the rest of the State . The CV and IQR results, of course, reflect

the skewed nature of allocations due to Tyumen and a few other energy-ric h

territories. However, the downward trends in inequality one notices when

Tyumen is not included in the study is less significant than the declinin g

rates of growth in total State investments, which both reflected an d

contributed to declining economic conditions throughout the State .

The Perestroika Years

Although the Gorbachev era was relatively short-lived, and for this stud y

only includes the 1986-89 period, a review of the trends and patterns i n

regional investment is valuable in that it provides some information on ho w

sensitive regional investment levels are to those aspects of the centralize d

allocative mechanism that eroded and ultimately collapsed durin g

perestroika . 33 That is, given the attempted changes made between 1986-89 ,

what were the noticeable regional shifts in capital allocations across

economic regions and among the 154 tertiary-level units?

It was already noted that investment allocations became "less equal, "

during perestroika as the IQR, weighted, and unweighted CV tests al l

recorded increases between the 1981-85 and 1986-89 periods. The increase in

inequality could be best explained by the weakening of the centralize d

financial institutions that for 30 years redistributed wealth quit e

substantially, so that areas that depended on large subsidies and othe r

33. If we accept the hypothesis that the "center" controlled virtually all investmen tdecisions of importance, then the removal of these controls, at least according to th eplans of perestroika, would have led, or should have led, to different spatial patterns .The changing patterns enable one to offer some conclusions on the spatial impact o fgovernmental intervention by noting those changes in a post-interventionis tenvironment .

50

forms of income transfers were noticeably handicapped as power shifte d

from center to local areas (Mitchneck and Berkowitz, 1991) .

The most significant changes in the spatial distribution of State funds

was the marked drop in the share of total investment given to Central Asia ,

as its dropped share from 6 .4 percent in 1981-85 to less than 5 .5 percent

during the 1986-89 period. This decline was all the more meaningful fo r

Central Asia, because it came at a time when its population growth was b y

far the most rapid of any Soviet economic region, and the social an d

economic conditions were noticeably deteriorating (Lewis, 1992) . Increasing

underemployment and unemployment rates were apparent since the lat e

1970s, and the Soviet policy of creating regional divisions of labor within th e

national economy left Central Asia with a narrowly developed economy ,

overly dependent on cotton, and unable to create employment opportunities

for the rapidly growing working age population (Liebowitz . 1992). The

extremely low levels of out-migration among indigenous Central Asian s

intensified the already grave economic conditions .

West Siberia continued its dominant position, increasing its share of total

State investment to almost 14 percent, which means that almost one in every

7 rubles invested in the entire State went to that region .34 At the other

extreme, the Urals region, the heart of Soviet heavy industry from the 1940s

to the 1970s, continued its thirty-five year downward trend, falling from 10 . 9

percent of all State investment in 1956-60 to 7 .6 percent during perestroika .

The North Caucasus region of Russia received its smallest share of tota l

investment funds during perestroika, as did the Central and Northwest

34 . Tyumen Oblast alone accounted for 14 .3 percent of all investment in Russia and mor ethan 9 percent of all State investment .

51

regions of Russia, the Donets-Dnieper and Southern regions in the Ukraine ,

and Kazakhstan.

While the Gorbachev era was too brief a period to notice great shifts i n

investment trends, some of the regional changes described above ar e

consistent with some of the reform efforts' goals . Too much stock, however ,

should not be placed in some of what admittedly can be merely coincidental

occurrences. The questionable nature of the data and, more importantly ,

the likelihood that less of what Gorbachev proposed was accomplished b y

design than by accident should cause one to exercise caution when trying t o

attribute any changes to the reforms . Some explanations for spatial trends

(and changes) in investment during the Gorbachev era, along with those

from other periods, will be discussed below as part of the regressio n

analysis .

REGRESSION: USSR

The regression analysis allows for more specific questions to be pose d

about Soviet investment policy than the descriptive statistics used in the

preceding section. While the coefficient of variation and interquartile rang e

statistics provide an overview of trends in investment among 154 territoria l

units, neither explains what factors were most important in explaining th e

variation in the levels of funding .

Regression models are presented for both the former USSR and for th e

Russian Republic for each of the seven time periods in the study . The

availability of relevant oblast-level data for the USSR beyond per capit a

capital investment, the dependent variable, was limited, so the analysis i s

necessarily less inclusive than what was possible for the Russian Republic .

52

For the former Soviet Union, answers to the following questions wer e

sought from the regression analysis : 3 5

1. How important was the ethnic composition of oblast-level units i nexplaining the variation in capital allocations? Specifically, ho wimportant was the presence of Russians in the State's 150-plusterritories in explaining the level of funding to the territorial units ?

2. How important was the designation of a territory within theadministrative structure of the State as being an "ethnic" unit i ndetermining the level of State investment it received? This questionspeaks to the relevance of the Soviet federal structure and it sinstitutions, rather than to the importance of a specific ethnic groupliving within given units . Since Soviet federalism was hierarchica land centralized, this question tests the long-held view that decisio nmaking took place above the tertiary level and, as a consequence, al lthings being equal, one would expect to see no noticeable differences i ninvestment allocations for ethnic (ASSR) versus non-ethnic unit s(oblasts and krays) . Since several autonomous territories hav esignificant Russian and Slavic populations, there is more than a subtl edifference between this question and Question 1 above .

3. How significant was a territorial unit's accessibility to energy source sin determining the level of investment? The focus for the territoria lproduction complex (TPC), an approach to regional economi cdevelopment revived in the 1960s, was the availability of fossil fuels .Was this variable significant in explaining the variation in investmentlevels across territorial units?

4. How significant were Weberian (or western) tenets of industriallocation theory in influencing investment decisions? Huzinec (1976)and Schiffer (1989), among others, argue that a clear-cut set o fprinciples that guided development strategy or the citing of productiv eforces across Soviet territory never emerged . Instead, there wereseveral broad and sometimes conflicting goals, including maximizin geconomic growth and pursuing greater equality, that would preclud ethe ability to identify any particular characteristics as havingconsistently guided investment and development policies .

5 Did the relative importance of selected variables change over time, an d

35. Similar questions were posed for the Russian Republic .

53

change with specific Soviet leaders? Certain Soviet leaders have bee nassociated with specific development projects, but beyond these "pe tprojects," little attention has been given to shifts in the spatialemphasis of national economic policies with each leader .

6 . Was there an East-West differential in investment emphasis and, if so,how did this differential change over time? This question addressesthe old east-west debate of regional economic development amongplanners, Party members, and government officials . 36 Those whoopposed massive (and expensive) resource development in Siberia andthe Far East often claimed that, had as much time and money beenexpended developing the western parts of Russia (and in Ukraine andBelorussia), significant and more cost-effective resource developmen tcould have been accomplished . The oblast-level data in the regressionanalysis will enable us to discern regional patterns in per capitainvestment independent of economic factors .

The Model

To examine the effects of both economic and regional factors influencin g

investment allocations, regressions for each of the seven time periods wer e

fit to the cross section of 154 territorial units of the following form :

PCINV = a + b1ASSR + b2%URBAN +b3RUSS1 + b4RUSS 2

+ b5UKR.AINE + b6EAST

where

PCINV = per capita investment for each time period .

ASSR = 1 for all ASSRs; otherwise ASSR is equal to zero .

%URBAN = percentage of the tertiary level unit that is urban .

RUSS1 = 1 for all tertiary-level units with a Russian population betwee n

34 and 66 percent of the unit's population ; 0, otherwise .

RUSS2 = 1 for all tertiary-level units with a Russian population betwee n


36 . See Dienes, 1989 .

54

UKRAINE = 1 if the tertiary unit was located in the Ukraine : 0 ,

otherwise .

EAST = 1 if the tertiary-level unit was located east of the Urals ; 0 ,

otherwise .

Beginning with the 1966-70 period, the model was modified to includ e

variables on each unit's (1) value of fixed industrial productive assets ,

ASSETS (expressed in millions of rubles) and (2) value of gross agricultural

production, AGPROD (also expressed in millions of rubles) .

In the original model, two locational variables were used in order to tes t

the hypothesis that Soviet investment policy, during specific time periods ,

favored or discriminated against specific regions of the State . Specifically ,

by including the EAST variable, we were able to test, all other things bein g

equal, whether eastern territories, from the Urals to the Pacific, received

greater than expected investment as has been argued by the so-called pro -

westerners of past regional planning debates . The Ukrainian dummy

variable, UKRAINE, isolated the 25 oblast-level units in Ukraine to see

whether that republic had been given extremely small investments, al l

other things being equal ., as has been argued strongly by many Ukrainia n

and western economists .

Three ethnic-related variables were included : two of them were include d

in order to test the common belief that the Russian nation was favored i n

investment allocations during the Soviet period . 37 RUSS1 were those unit s

37 In fact, the percentage of the population that was Russian was divided into three binar y0-1 dummy variables . RUSSO, those units in which Russians account for less than 3 4percent of the tertiary unit's population, was excluded from the regression equation s oas to avoid the so-called "dummy variable trap ."

55

in which Russians comprised anywhere from 34 to 66 percent of the

territory's population and RUSS2 were those units whose populations wer e

at least 67 percent Russian . By dividing units in this way, we could treat all

oblast-level units on the basis of their ethnic compositions and no t

according to their location in a particular republic . The third ethnic -

related variable, ASSR, was included in order to see whether tertiary-leve l

territories that were designated as "ethnic" units fared any better or worse

than non-ethnic units . The answer to this question can lead to others about

the impact of the Soviet federal system on State integration and barriers t o

unity: the designation of these units as "autonomous" and their

legitimization through 70 years of socialist rhetoric and legal assurance s

via the Soviet Constitution ran counter to the goals of Soviet nationalitie s

policy (merging and creating a singular "Soviet" nation) .

The final variable in the original model was an all-encompassin g

surrogate for level of economic development, %URBAN . Urban areas in the

USSR maintained special status within the Soviet planning system and it s

administrative structure, and this variable captures many of the expected

economic characteristics of a region : developed infrastructures for

transport, production, and labor. It also reflects a source for a more

educated population, the potential for economies of scale and saving s

through agglomeration economies, and greater political clout than on e

finds in rural areas . It was included in our model because of the alleged

bias Soviet planners have long held toward industry and industrial region s

largely in urban settlements .

Beginning with the 1966-70 period, the model was modified due to the

availability of additional data . Two other economic-related variables were

56

added to the model: IND Assets and AG Prod . The IND Assets variabl e

added the per capital value of industrial assets in each territorial unit ,

which enabled us to see how strong investment histories influenced late r

investment levels . Several economists 38 have argued that the existing stoc k

of industrial assets was a key determinant for future investment, althoug h

this relationship was never tested empirically . 39 The AG Prod variable ,

which reflects the value of agricultural production per capita for eac h

territory, adds more information with which to test th e urban/industrial

bias of Soviet development and investment policy. When these two variable s

were added to the model, %URBAN was excluded due to its high degree o f

multicollinearity between each of the two new variables .

The Regression Results

The results are summarized in Table 5 . Table 6 shows the results of th e

model modified to include IND Assets and AG Prod .

1956-60 : For this, the first five-year period, the variables that wer e

statistically significant in explaining the variation among the State's 15 4

tertiary level units were : the regional dummy variable defined for th e

Ukraine ; whether the unit was located in the East, where "East" wa s

defined as those units east of the Urals Region ; whether the unit was an

ethnic unit (an ASSR) ; the percentage of a unit's population living in urba n

38. See Schiffer's (1989) comments on this relationship .

39. For the value of fixed productive assets across former Soviet economic regions . seeAppendix B .

Table 5 . REGRESSIONS OF PER CAPITA INVESTMENT ALLOCATIONS, USS R

PERIOD Constant ASSR %URBAN RUSS1 RUSS2 UKRAINE EAST Adj

R-squar e

1956-60 -49.45 -230 .91 16 .99 286 99 7 .28 - 1 54 95 217 .05 60 . 3(-2 .89)' (10 .74) (3 .74) (0 .10) (-2 .10) (2 .89) [60 .41 "

1 961 -65 119 .80 -436.80 21 .20 382 .70 -215 .70 -394 20 295 .60 54 . 8

(-3 .94) (9 .48) (3 .58) (-2 .15) (-3 .82) (2 .84) [54 .7 ]

1966-70 377 .00 -371 .40 24 .12 396 .70 -286 .90 -544 .70 570 .60 45 . 3

(-2 .36) (7 .30) (2 .50) (-1 .97) (-3 .60) (3 .76) [46 .6 ]

1971-75 629.30 -428 .20 25 .35 527 30 -113 .80 -632 70 928 .60 39 . 9

(-1 .93) (5 .09) (2 .33) (-0 .54) (-2 .96) (4 .37) [45 .3 ]

1976-80 842 .50 -402 .00 26 .33 773 .40 13 .90 -725 .70 1306 .60 31 . 1(-1 .20) (3 .40) (2 .19) (0 .04) (-2 .26) (4 .06) [439 ]

1981-85 680 .30 -324 .20 33 .06 687 30 -85 .10 -805 .70 1589 .10 26 . 2(-0 .76) (3 .20) (1 .50) (-0 .20) (-1 .94) (3 .86) 146 .0 ]

1986-89 176 .00 -413 .00 38 .81 598 .40 -181 .40 -853 .90 1691 .00 27 . 3(-0 .93) (3 .60) (1 .26) (-0 .40) (-1 .96) (3 .98) [48 .8]

*Figures in parentheses are t-statistics .

"Figures in brackets are the adjusted R-squares without Tyumen Oblast .

able 6 . MODIFIED REGRESSIONS OF PER CAPITA INVESTMENT ALLOCAT IONS, USS R

PERIOD Constant ASSR RUSS1 RUSS2 UKRAINE EAST IND Assets AGR Prod Adj R-squar e

1966-70 1406 .7 -414 596 .5 156.3 -273

1 670 0 .091 -0 .288 36 . 2(-2 .33)' (3 .34) (1 .01) (-1 .61) (4 .17) (3 .16) (-3 .85) [35 .41 "

1971 -75 1977 .7 -552 .7 618 .3 111 .7 -512 .9 938 .1 0 .0838 -0 .312 32 . 7

(-2 .27) (2 .56) (0 .80) (-2 .17) (4 .1

1) (2 .70) (-2 .88) 133 .8 1

1976-80 2370 .1 -505.3 794 .3 194 .9 -670 .6 1286 .2 0 .09 -0 .366 28 . 8

(-1 .43) (2 .22) (0 .63) (-1 .99) (3 .88) (2 .98) (-2 .54) 133 .50 1

1981 -85 2667 .5 -481 .7 625 .7 50 .4 -620 .4 1263 .2 0 153 -0 .563 32 . 7

(-1 .12) (1 .44) (0 .13) (-1 .52) (3 .12) (5 .12) (-3 .57) 133 .90 1

1986-89 2438 .3 -472 602 .5 54 .6 -569 .7 1080 8 0 .16 -0 .640 47 . 1

(-1 .19) (1 .52) (0 .16) (-1 .51) (2 .87) (8 .45) (-4 .75) [35 .301

'Figures in parentheses are t-statistics .

"Figures in brackets are the adjusted R-squares without Tyumen Oblast .

59

areas ; and the unit's percentage of Russians .40 The adjusted R 2 for this

model was 60 .3 percent .

Of greatest interest is not only which of the variables were statisticall y

significant in explaining the variation among oblasts, but the direction o f

their influence . The estimated coefficients for both the Ukrainian and th e

ethnic dummy variables were negative . For 1956-60, then, all other things

being equal, per capita investment in units located in the Ukraine was o n

average 155 rubles less than elsewhere in the former Soviet Union . This

relationship supports the long held view by both Ukrainian and wester n

economists that the Ukraine contributed disproportionately to the all-Unio n

coffers relative to what the republic received (Bandera, 1973 ; Melnyk, 1973) .

Similarly, the negative coefficient for the ethnic variable suggests that fo r

the 1956-60 period, the ethnic units received, on average, 231 rubles les s

investment than non-ethnic units .

The question about Russian favoritism in the USSR certainly extended t o

regional development and investment decisions . As the favored nation ,

Russians, or more precisely their "homeland" within the Soviet federation ,

supposedly received preferred treatment from planners, the Party, an d

government officials. During the 1956-60 period, the variable for the th e

heaviest concentration of Russians (greater than 67 percent of a unit' s

population) was statistically insignificant in explaining the variation i n

investment among all Soviet units while the middle-ranged variable was

both significant and positive . All other things being equal, these result s

suggest that a greater percentage of Russians in a given territory (greate r

40. Only the middle range 34-66 percent variable was statistically significant (p < .001) ;the highest level of Russians, 67-99 percent, had a p-value of .917 .

60

than 66 percent of the unit's population) does not necessarily translate int o

higher per capita investment allocations ; however, those oblasts with

between 34 and 66 percent of their populations "Russian" received o n

average 287 rubles more per capita than other units .

In all the regression models, the energy accessibility variable 41 was

significant for this time period, but the coefficient was negative—it had th e

opposite effect from what one would expect and was ultimately eliminate d

from the best-fit model . Greater accessibility to fossil fuels did not serve to

attract greater investments, even though these sources were supposed t o

serve as magnets for regional economic development . An agglomeratio n

economies surrogate measure—population density—was insignificant ,

most likely due to the relatively very high investments given to the sparsel y

populated eastern territories during this period .

1961-1965 : The same model that was used for the 1956-60 period yielded an

adjusted R2 of 54.8 percent for this time period, which is slightly lower than

for the earlier period . Once again, the Ukrainian variable was significant

(p< .001) and negative ; the East variable was also significant, but positive .

On average, Ukrainian oblasts during this period received 395 rubles pe r

capita less investment, and the eastern territories received 296 rubles more

investment, than would have been expected . And this time, the tw o

Russian variables were significant : the same middle range variable (34-6 6

percent Russian) plus the higher percentage variable (67-99 percent) . The

sign on the higher percentage of Russian variable was negative while th e

sign on the mid-range variable was positive. All else equal, units with 34 to

41. This variable was calculated for 1960, 1970, and 1975 by Olson and Berenten, 1981 .

61

66 percent Russian enjoyed larger per capita investment allocations (3 8

rubles) than expected, while units with very high percentages of thei r

population being Russian received, on average, 215 fewer rubles per capita

than expected.

On closer examination, this relationship is less surprising than on e

might suspect . Many of the rural oblasts in Central Russia received among

the lowest per capita investment allocations in the entire country, especially

before the non-Chernozem program began in the 1970s . The extremel y

depressed conditions in the Russian countryside have been responsible fo r

the massive out-migration of the younger generations, which prompted th e

government to begin the non-Chernozem program . Despite the rhetoric ,

outmigration from the region continued and relative per capita investmen t

remained well below the all-Union average . Nevertheless, the rather

dramatic shift in the magnitude and sign of this variable's coefficient

suggests a change in investment policy worth noting . The Urals region ,

the Central region (both of these are in Russia) and the Donets-Dnieper

region (in the eastern Ukraine) lost the most ground among the State's 2 0

economic regions during this period, and all three regions were heavil y

populated by Russians . They were also important centers of Soviet industr y

and could have suffered most from the somewhat chaotic resourc e

allocation methods associated with the sovnarkhozy experiment that were

in place during this period .

1966-1970: For the 1966-70 period, when the central ministries reasserte d

their dominance over economic planning and resource allocation, there

were no significant changes in the standard model used in the previous two

five-year periods . The coefficient on the highest level Russian variable (67 -

62

99 percent Russian) became marginally significant (p= .051) but it remaine d

negative and the coefficient on the middle range Russian variable

continued to be positive and significant (p= .014). Again, units with

exceptionally high percentages of their populations being Russian, al l

things being equal, received 287 rubles less per capita than other units ,

while those with between 34 to 66 percent Russian populations receive d

almost 400 rubles more per capita than other units .

When the model was expanded to include variables that measure th e

value of industrial fixed assets and agricultural production, the highest

level Russian variable was no longer significant, and neither was th e

Ukrainian dummy variable ; all other variables were statisticall y

significant . 42 The estimated coefficient on fixed industrial assets wa s

positive (p= .002), while the coefficient on agricultural production was

negative (p< .001) The percent urban variable was excluded from the model

due to its very high correlation with the fixed industrial assets variabl e

(r= .664) .

The negative coefficient for agricultural production suggests that th e

higher the level of agricultural production, the lower the levels of per capita

investment, which may seem difficult to explain . However, the

relationship could reflect the long recognized urban bias in Soviet

investment decisions, and the logical relationship between the value of a

territory's fixed industrial assets, its level of urbanization, and its

propensity and need to attract further investment .

These results support the hypothesis that Soviet investment was highl y

42. Data on the value of industrial fixed assets and gross agricultural production were no tavailable prior to 1970 .

63

attracted to developed areas (Schiffer, 1989)—that there is considerabl e

attention given to agglomeration economies—as is the case in capitalis t

economies, and that economic factors, regardless of how "rationale" or

"irrational" their choices may appear, were important determinants of

investment allocations since the 1960s . The ethnic territory variable (ASSR

or not) remained significant and negative, which, when combined with the

strong relationship between industrial fixed assets and capital investment ,

may raise some basic questions about the Soviet commitment t o

"equalization." That is, if the Soviets (in 1966-70) were gearing thei r

investment decisions so that they would reduce gaps in living standard s

and production capacities among regions, one would have expected mor e

muddled or "noisy" results in the form of less influence from the fixe d

assets variable and no statistical significance from the ethnic variable . The

ethnic units (ASSR) on average received 414 rubles less than non-ethnic

units, so that any substantive attempt at equalization should have rendered

the variable statistically insignificant . That the variable remaine d

significant and negative suggests that the commitment to equalization was

not very strong, or at least it was not as strong as other factors influencin g

levels of investment, such as the economically related goals mentioned

earlier . One cannot, however, confirm the claim that equalization was no t

a concern, or at least that it did not influence policy decisions . The gap in

investment could have well been greater than the 414 rubles cited above if

the goal of equalization had not intervened to some degree to allocat e

greater funds to the ethnic areas .

1971-75 : For this important period, during which levels of inequality in

investment allocations ceased to decline (review the results from the CV

64

and IQR tests in Tables 1-3), the original model explained almost 40% of th e

variation in per capita investment allocations, and all the variables tha t

had been statistically significant in the 1966-70 period (except the highes t

Russian variable), remained significant in 1971-75 . When the industria l

assets and agricultural production variables were added to the model fo r

this period, all the variables that were significant remained so, althoug h

the adjusted R-square fell to 33 percent . 4 3

Despite the anticipation of shifts in the criteria for investmen t

allocations associated with Brezhnev's 1972 statement on the nationalit y

question, there were no changes evident in the variables shown to b e

significant in the model . The relative importance of the value of industria l

assets, for example, declined from the previous five-year period, although i t

was significant in both periods . The statistical insignificance of the othe r

economic-related variables included in alternative regression models

suggests that there was no noticeable shift in investment strategy towar d

more economic-based criteria, toward economies of scale, toward greate r

fossil fuel accessibility, or toward any other cost-reducing and/or profi t

maximizing methods .

Interactive variables between industrial assets and the percentage of a

unit's population being Russian did not affect the model and wer e

statistically insignificant . In other words, the effect of the value of a unit' s

industrial assets on per capita investment was not discernibly different fo r

a unit with a high percentage of Russians from that in a unit with a lo w

43 . It is during this time period when the investment levels in West Siberia, an dparticularly in Tyumen Oblast, skew the data, not only for the CV tests, but also for th eregression models . The standardized residual for Tyumen was 6 .34 for the 1971-75period .

6 5

percentage of Russians .

Since Tyumen Oblast began to exercise so much influence on th e

regression models beginning in the 1970s (during the West Siberian energ y

rush),44 it is worth noting the regression results without that one outlier .

Without Tyumen, the R 2 for the original model increased from 39 .9 percent

to 45 .3 percent, but there were no changes in the number of variables that

were statistically significant. For the modified model, the R 2 changed only

nominally (34 percent to 33 percent), and the variables that were significan t

remained so .

1976-1980 : The most notable change in the original regression mode l

during this initial stage of the so-called zastoi (stagnation) was the chang e

in the ethnic variable (ASSR or oblast) . For the first four five-year periods ,

this variable was statistically significant and its sign was negative . For the

1976-80 period, the sign remained negative, but the gap in ethnic versu s

non-ethnic territorial investment was statistically insignificant (the

measured difference was likely to have been what it was by chance alone ;

p= .231) . This shift from significance to insignificance may be explained b y

the large increases in investment made in several ASSRs in the Volg a

Region in order to increase oil production (largely secondary recovery) i n

the region's declining oil fields ; investment in the Yakut ASSR was als o

well above the all-Union norm . Consequently, several of the ASSRs

improved their relative positions enough to reduce the gap between ethni c

and non-ethnic units, leaving the the difference statistically insignificant .

44 . By 1971-75, Tyumen Oblast recorded a standardized residual of 5.50, which places theper capita investment level in that oblast more than 5 standard deviations from th emean .

66

The East variable remained significant (p< .001) in the late 1970s, as di d

the industrial assets, the middle level percentage Russian, the percentag e

urban, and the Ukrainian oblast variables . Interestingly, while the highest

level Russian variable was not statistically significant, its sign changed to

positive, suggesting that oblasts that had received lower than the Stat e

norm for investment, were now receiving more than the norm, althoug h

the difference was not statistically significant . The change can be partl y

explained by increased investments to the non-Chernozem zone of Centra l

Russia, a region with an extremely high percentage of Russians and on e

that had long been ignored by central planners . It can also be explained b y

the relative decline in investment levels of those territories in which fe w

Russians resided : namely the non-Slavic south (Transcaucasus and

Central Asia), and particularly in the rural oblasts to which, unlike the th e

capital cities of this region, few Russians migrated .

When Tyumen was excluded form the original regression model for thi s

time period, the explanatory power of the model increased from 31 percen t

to 43 .9 percent . Once again, the variables that were significant wit h

Tyumen in the model retained their significance when Tyumen wa s

removed . In the model that included industrial assets and agricultura l

production, the R2 improved from 28 .8 percent to 32 .7 percent, and ther e

were no changes in terms of which variables were statistically significan t

or insignificant .

1981-1985 : The explanatory power of the original model was significantly

reduced by 1981-85, suggesting, at the least, that other factors not in th e

model were becoming more important in explaining the variation i n

investment, The Ukrainian variable was marginally significant (p=.055),

67

the ethnic variable was insignificant for a second time, the middle rang e

Russian variable was no longer significant (p= .135), and the adjusted R2

declined to 26 .2 percent . When the industrial assets and agricultura l

production variables were added to the original model, both wer e

significant, along with the East variable, and the adjusted R 2 improved to 33

percent.

The ASSR (ethnic) variable, which was significant in explaining th e

variation in investment allocations early in the study period, was no t

significant in the 1976-80 and 1981-85 regressions . This trend is all the

more interesting when one considers how the levels of inequality during the

1980s either remained constant or increased, trends that would probably

lead one to conclude that this variable would not become insignificant, bu t

rather more significant . These combined trends suggest that, while th e

ethnic units (ASSRs) improved their relative investment positions so tha t

the differences between them and the non-ethnic units were no longe r

statistically significant, other oblasts (non-ethnic units) fell further behin d

the all-Union norm, which contributed to a greater measure of inequality .

The ethnic characteristics of a territory, then, no longer seemed to be a

factor in investment differences, or at least low investment no longe r

correlated with a particular ethnic profile .

The decline in the levels of significance for most of the variable s

suggests a growing randomness in the levels of investment among the

study's 154 oblast-level units . Outliers, like Tyumen Oblast, reduced the

strength of the 1981-85 regression model (adjusted R2 =26.2), 45 as it did for

45. The post-1971-75 models for the Russian Republic, described below, were run with andwithout Tyumen Oblast .

68

all the periods since 1971-75 . Changes in formerly significant variable s

provide useful information for understanding, and for asking furthe r

questions about, the level of intervention by central planners and/or th e

continual randomness of the investment process .

When Tyumen is removed from the original regression model for the

1981-85 period, the R 2 increased substantially from 26 .2 percent to 46 . 0

percent . This difference underscores, once again, the way in which one o f

154 units could influence the regression model . The only changes of not e

concerning the variables in the model were that the Ukrainian dumm y

variable, which had been marginally significant (p= .055), was significant to

p= .001, and the 34-66 percent Russian variable moved from bein g

statistically insignificant to significant .

For the modified regression model, the R 2 changed only nominally, and

the shifts in significance that occurred for the original model also occurre d

in the augmented model .

1986-1989: The original regression model for the study's final period coul d

account for only 27 .3 percent of the variation across territorial units, an d

only two of the original variables—the East variable and the level o f

urbanization variable—were statistically significant . The modified model ,

which added industrial assets and agricultural production, improved th e

R 2 to 47 .1 percent, and both of the new variables were significant (p< .001).

That no other regional dummy variables (other than the East variable) or

additional economic-related variables were significant reflects how man y

other factors were likely to have contributed to the great variation in

69

investment among tertiary units during the final years of the Soviet State . 46

When the original regression model was run without Tyumen, the R 2

improved from 27 .3 percent to 48 .8 percent. The only switch in th e

significance of the independent variables was once again in the middl e

range (34 to 66 percent) Russian variable . Without the great influence of the

predominantly Russian unit (Tyumen's population is more than eighty

percent Russian), the middle range Russian variable became significant .

For the modified regression model, the East variable remained significant ,

along with the two economic-based variables, industrial assets an d

agricultural production . Without Tyumen Oblast, the explanatory powe r

declined from 47 .1 to 35 .3 percent, the Ukrainian dummy variable becam e

significant, the middle range Russian variable was significant, the high

range (67 to 99 percent) Russian variable became significant again, 47 and

the other variables were unchanged. That the exclusion of Tyumen woul d

weaken the regression model suggests that certain characteristics o f

Tyumen Oblast had become more representative of what influenced highe r

investment (for the 1986-89 period) than they were in the past . Thus, one

might infer from these changes that the during the perestroika years ,

investments were in fact far more directed than in the past, aimed a t

regions with a higher percentage of their industrial production under th e

jurisdiction of all-Union ministries, greater per capita industrial assets ,

and a large percentage of their populations comprised of Russians .

46. Factors more closely related to issues of jurisdiction over enterprises and income -producing facilities are likely explain variations in investment allocations and thi srelationship will be addressed in the section below on the Russian Republic .

47. When Tyumen was included in the regression, the coefficient for the highest Russia nvariable increased from 54 rubles above the expected allocation to 470 rubles .

70

RUSSIA

The greater availability of selected social and economic data on th e

Russian Republic, especially for the second half of the study period, allowe d

for more detailed regression models than were possible for the entire USSR .

With per capita capital investment serving as the dependent variable ,

the independent variables included at various stages of the regression

analysis were selected either because of their relationships to state d

principles of Soviet development or because of long-held, although largel y

untested, hypotheses about their relationships to regional investmen t

decisions . They included : the size of the labor force in each territory ; the

percentage of workers in productive versus non-productive branches ; the

value of fixed productive assets ; the value of per capita fixed assets; the

value of total assets ; the volume of industrial production ; the per capit a

volume of industrial production ; the percentage of industrial productio n

under all-Union jurisdiction ; the percentage of industrial production unde r

Republican jurisdiction ; gross agricultural production ; per capita

agricultural production ; the value of non-productive fixed assets ; per capita

investment in non-productive branches of the economy ; the percentage o f

investment in non-productive branches ; the percentage of a unit' s

population that was Russian ; the percentage of a unit's population that wa s

Slavic; energy accessibility ; population density; degree of urbanization ; the

value of fixed industrial capital stock ; and per capita productive

investment . In addition, dummy variables were added to distinguis h

oblasts from ethnic units (ASSRs) in order to answer questions about th e

relative treatment given territories that are "non-Russian," at least i n

terms of the State's administrative structure .

7 1

In focusing on Russia, the dominant and by far the largest republic, on e

loses the ability to measure the relative importance of a republic's political

influence in explaining differences in investment allocations within the

context of the State. With an all-Union analysis one is able to control fo r

other factors that influence investment decisions to see whether being part

of a particular republic may have been significant, all other things bein g

equal . One cannot, of course, do that with an analysis of a single republic ,

but one can still attempt to explain the all important "ethnic issue," albeit

in a slightly different manner. Since all 73 units in the regression analysi s

are part of the same republic, one can ask questions, for example, about th e

relationship between a unit's level of funding and the relative size of it s

Russian population without having to account for specific ethnically -

motivated agendas of non-Russian republican leaders and bureaucrats . 48

Similarly, testing whether there were differences in the determinants o f

per capita investment for the former USSR and for the Russian Republi c

can contribute to our understanding of how much power the forme r

republics really had in making decisions regarding the spatial allocation o f

resources within their borders .

Introduction

Although there was more detailed information for the Russian Republi c

than for the entire USSR, particularly for the post-1971-75 period, th e

48. Such an approach was taken by one of the few regional studies on equality and livin gconditions in Russia conducted on the oblast level . Nechemias (1980) analyzed trendsin social and economic equality solely in the Russian Republic and highlighted as abenefit not having to account for the specific agendas of non-Russian republica nleaders in interpreting those trends.

72

results of the regression analysis were similar ; that is, virtually the sam e

measures were significant in explaining the variation in per capit a

investment across Russia's as among all the former USSR's tertiary level

units . The same questions that were posed earlier for the entire USS R

remain central to this section on Russia, and they are repeated here with

some additional questions specific to the Russian Republic .

1. How important was the ethnic composition of the oblast level units i nexplaining the variation in capital allocations ?

2. How important was the designation of a territory within theadministrative structure of the State as being an "ethnic" unit i ndetermining the level of State investment it received ?

3. How significant was a territorial unit's accessibility to energy source sin determining the level of investment allocations ?

4. How significant were Weberian (or western) tenets of industriallocation theory in influencing investment decisions ?

5. Did the relative importance of selected variables change over time, an dchange with specific Soviet leaders ?

Due to the availability of data, an additional question was posed for th e

Russian Republic analysis :

6. How significant was the share of a territory's enterprise productio nunder the jurisdiction of all-Union ministries in explaining thevariation in investment across tertiary-level units? This questionspeaks to the all-encompassing influence ministries appear to hav eexercised over the territories in which their enterprises operated . Inaddition to State investments, which pass through the central budget ,there were retained enterprise "profits" that were invested in newhousing stock and for other largely consumer-oriented pursuits . Thepower of the ministries ought to be reflected in greater investments t othose regions in which the all-Union ministries have greatest contro lover the means of production . The significance of this variable alsospeaks to the question of Soviet federalism and to the degree to whic hregional interests in the economic sphere are subordinated to a unitar ydecision-making structure in Moscow.

73

The Model

To examine the effects of economic and regional factors influencin g

investment allocations, regressions for each of the seven time periods were

fit to the cross section of 73 territorial units of the following form:

PCINV = a + b1ASSR + b2%URBAN +b3RUSS1 + b4RUSS2 + b5EAST

where

PCINV = per capita investment for each time period .

ASSR = 1 for all ASSRs ; otherwise ASSR is equal to zero .

%URBAN = percentage of the tertiary level unit that is urban .

RUSS1 = 1 for all tertiary-level units with a Russian population between

34 and 66 percent of the unit's population ; 0, otherwise.

RUSS2 = 1 for all tertiary-level units with a Russian population between


Beginning with the 1966-70 period, the model was modified to includ e

variables on each unit's (1) per capita volume of industrial production ,

INDPRO, and (2) the percentage of industrial production under all-Unio n

jurisdiction , %UNION

The variables selected for the original Russian model were the same a s

those for the USSR,49 with the exception that a population density variabl e

was included and the Ukrainian regional dummy variable was exclude d

(since there are no Ukrainian units in the RSFSR) . Population density

(POPDEN) was a more salient variable in the Russian model and replace d

the percent urban variable . This change was made to capture the influence

of the sparsely populated Russian territories east of the Urals that, despit e

49 . See the variable selection explanation above in the USSR regression section .

74

having such small populations, were classified as highly urban on accoun t

of the Soviet definition of what constituted an "urban" settlement . 5 0

In the modified Russian model, which corresponds to the five periods

beginning in 1966, the percent urban variable was included in the mode l

once again, mostly because of its interaction with a new variable ,

%UNION . This new variable (%UNION) reflects the percentage of a

territory's industrial production that was under the jurisdiction of all -

Union ministries in Moscow (as opposed to joint jurisdiction between the

center and republic, or simply the republic) . The inclusion of this variabl e

allows one to delve deeper into the workings of Soviet federalism and in

particular into the economic side of the former Soviet system . Based on the

very strong hierarchical nature of the Soviet planning apparatus, on e

would hypothesize that the greater control all-Union ministries had ove r

enterprise profits and production in a given territory, the greater would b e

their investment allocations, regardless of how well federated the Sovie t

p olitical administrative structure might have been . The information

provided by this variable will enable us to ask more detailed questions abou t

the relationship between Soviet economic federalism versus politica l

federalism, something that has not heretofore been explained in th e

literature . 5 1

50 For example, Magadan Oblast and Primorskiy Kray are sparsely populatio nterritories, yet they report 77 and 76 percentages of their respective populations a sliving in "urban" areas, and all three regions east of the Urals are more "urbanized "than the entire former USSR .

51. Recent works by Gleason, 1990 and Kux, 1990 provide fine overviews of Sovie tfederalism, especially as it relates to ethnic/national issues . They do not, however ,link the impact of political rights and structures on the one hand, with economi cinstitutions and their powers on the other .

75

Regression Results for Russia

The regressions for Russia are summarized in Table 7 . The regression

for the model modified to include %UNION and IND Prod are summarize d

in Table 8 .

There was little change in the regression model for the first two five-yea r

periods . In the first model, there were two statistically significan t

variables—percent urban (p< .001) and population density (p< .001). The

percent Russian variables 52 (RUSS1 and RUSS2) and the ethnic uni t

dummy variable (ASSR) were not statistically significant, while they wer e

for all of the USSR. These results suggest that a predominance of Russians

(as a proportion of total population) in a given oblast did not have a

significant impact on the level of capital allocations, and that, all othe r

things being equal, ASSRs within the Russian Republic were neithe r

favored nor disfavored in State funding, although they did, on average ,

receive 159 fewer rubles per capita than oblast (non-ethnic) units in 1956-60

and 183 fewer rubles in 1961-65 .

The difference in the significance of the ethnic variables in the Russian

and USSR models could reflect and even confirm the alleged predominant

(favored) position of the Russian Republic within the Soviet Federation i n

economic matters, including the allocation of resources . So far as the

USSR model is concerned, only tertiary units with 34-66 percent Russia n

seem to be favored. That the only two variables that were significant wer e

economic-related variables suggests that during the first 10 years of th e

52. Once again, there were two variables : one for oblasts that had 34-66 percent of thei rpopulations "Russian," and the other for territories with Russians making up greate rthan 67 percent of their populations .

Table 7 . REGRESSIONS OF PER CAPITA INVESTMENT ALLOCATIONS, RUSSI A

PERIOD Constant ASSR RUSS1 RUSS2 %URBAN POPDEN Adj R-squar e

1956-60 267 .2 -158 .80 21 .30 -160 .20 19 .78 -8 .52 61 . 0

(0 .80) (-0 .83) (0 .09) (-0 .53) (8 .23) (-3 .83) "[61 .0 ]

1961-65 495.5 -182 .80 -38.30 -328 .60 23 .32 -11 .86 60 . 6(1 .20) (-0 .79) (-0 .13) (-0 .91) (7 .66) (-4 .76) [60.6 ]

1966-70 1429 .0 -384 .60 -1 .60 -710 .70 26.37 -22 .35 54 . 3(2 .37) (-1 .24) (-0 .00) (-1 .34) (5 .60) (-5 .80) [58 .1 ]

1 971 -75 2624 .0 -641 .50 -106 .00 -1047 .40 27.17 -32 .92 35 4

(2 .49) (-1 .21) (-0 .14) (-1 .14) (2 .87) (-5 .25) [47 .6 ]

1976-80 3511 .0 -590 .10 -190 .00 -1226 .00 29.40 -44 .71 22 . 1(2 .07) (-0 .67) (-0 .17) (-0 .87) (1 .69) (-4 .25) [48 .2 ]

1 981 -85 3418 .0 -476 .00 -359 .00 -1420 .00 40.56 -50 .74 15 . 1(1 .41) (-0 .39) (-0 .23) (-0 .72) (1 .52) (-3 .57) [48 .2 ]

1986-89 2883 .0 -517 .00 -613 .00 -1768 .00 52.12 -54 .07 16 . 2

(1 .10) (-0 .41) (-0 .37) (-0 .86) (1 .76) (-3 .68) [50 .7]

'Figures in parentheses are t-statistics .

**Figures in brackets are the adjusted R-squares without Tyumen Oblast .

Table 8. MODIFIED REGRESSIONS OF PER CAPITA INVESTMENT ALLOCATIONS, RUSSI A

PERIOD Constant ASSR RUSS1 RUSS2 %URBAN POPDEN %UNION Adj

R-square

1966-70 1044 .0 -353 .20 -6 .00 -636 .80 20 .82 -22 .29 9 .54 56 . 6

(1 .69) (-1 .17) (-0 .01) (-1 .23) (3 .93) (-5 .94) (2 .09) [59 .1] "

1 971 -75 1858 .0 -585 .30 -53 .50 -800 .30 12 .12 -31 .85 21 .43 41 . 7

(1 .79) (-1 .17) (-0.07) (-0 .91) (1 .16) (-5 .34) (2 .79) [51 .1 ]

1976-80 2278.0 -447 .2 329 -374 1 .15 -42 .38 33 .04 27 . 8

(1 .33) (-0 .53) (0 .30) (-0 .27) (0 .06) (-4 .17) (2 .46) [51 .0 ]

1981-85 2100 .0 -334 401 -202 -0 .07 -45 .17 40 .25 19 . 4

(0 .86) (-0 .28) (0 .26) (-0 .10) (-0 .00) (-3 .21) (2 .09) [49 .3 ]

1986-89 1435 .0 -293 213 -425 8.78 -46 .48 44 .65 19 . 7

(0 .54) (-0 .24) (0 .13) (-0 20) (0 .24) (-3 .12) (1 .93) [51 .1)

*Figures in parentheses are t-statistics .

**Figures in brackets are the adjusted R squares without Tyumen Oblast .

78

study period, investment decisions within the Russian Republic appear t o

have been based primarily on economic and demographic factors . For the

1956-65 period, characteristics associated with levels of urbanization an d

population density explained more than half the variation in investmen t

allocations (adjusted R 2 =.61 in 1956-60 and .606 in 1961-65). Areas that

were more highly urbanized received, all other things equal, greater pe r

capita investment, and those areas that were more densely populate d

received significantly less per capita investment . This last relationshi p

seems counter-intuitive until one takes into account the high levels o f

investment made in the extremely sparsely populated regions in Siberi a

and the Far East, plus the per capita cost to establish any kind of economi c

and/or social infrastructure in these and other underdeveloped parts of the

former Soviet Union .

With none of the ethnic variables significant, the differences i n

investment between ethnic and non-ethnic units, or between units with

larger and smaller percentages of Russians among their total populations ,

could be largely attributed to the economic profiles of the units; that ASSRs

received on average measurably fewer rubles per capita than non-ethni c

units could be explained as having been a function of their differences i n

economic endowments (characteristics associated with higher levels o f

urbanization and population densities) and not to their ethni c

compositions . 5 3

53 . The best-fit regression model selected for Russia differed from that used for the entir eUSSR. Population density was used instead of the eastern locational variable, EAST ,in the Russian model because the strongly negative correlation between the easter ntertiary level units and population density (- .493) left the East variable insignificantwhen the two were included in the model .

79

For the next two five-year periods, 1966-75, additional variables were

added to the regression models, and each regression was run with an d

without Tyumen Oblast . For the 1966-70 period when Tyumen wa s

included, the urban variable remained significant and a new variable, the

percentage of industrial production under all-Union ministeria l

jurisdiction, was also significant (p= .041) . The estimated coefficients on

%URBAN and %Union were positive and significant, while the population

density variable was negative . These results (R 2 =56.6 percent) support the

claims that the presence of all-Union ministerial control in a given territory

does tend to play a significant role in influencing investment allocations ,

and that Soviet regional investment strategy (at least during the late 1950 s

and early 1960s and at least in Russia) favored regions with characteristic s

similar to those of market economies in their early stages of economi c

development (Williamson, 1965) . That is, since units in which all-Unio n

ministries held great control were the relatively well-developed areas with

heavy and strategic industrial enterprises, finding that they received, o n

average, significantly greater investments than those units in which the

all-Union ministries held less sway is only sensible . The influence of the

population density variable rendered the East variable statisticall y

insignificant, but that is not surprising since there is a strong negativ e

correlation between these two variables . In fact, due to this relationship ,

the population density variable can be treated as something of a prox y

measure for the regional East dummy used in the Soviet model .

When Tyumen Oblast is excluded from the analysis, the influence of th e

all-Union ministries variable becomes statistically insignificant (p= .120).

This change reflects the very high percentage of industrial production

80

under all-Union ministerial control in Tyumen, which is hardly surprisin g

given the dominance of the energy industry there and the way in which

"economic centralism" ensured that Moscow held virtually full control ove r

important economic activities . That the all-Union ministries' control was

statistically insignificant in determining investment allocations among the

remaining 72 units for 1966-70 suggests that (at least up to 1970) othe r

economic decision-making institutions within the Soviet politica l

administrative system played significant roles in influencing an d

allocating investment . These other institutions in turn probably

contributed to a substantial redistribution of economic resources (see the

CVs and IQRs reported in Tables 1 and 2) .

For the 1971-75 period, the population density variable was significan t

(and negative) whether or not Tyumen was included in the regression ,

reflecting the strong eastern emphasis in investment policy . The eastern

emphasis underscores the Soviet propensity to develop relatively sparsel y

populated territories for resource exploitation and to house military-relate d

facilities and can be explained, in large part, by : extensive work on the

BAM, port development and military-related investments in the Maritim e

Kray, resource exploration and exploitation in Yakutia, Magadan, an d

Sakhalin, and the extremely high cost of settlement and construction i n

these regions in general . 54 The ethnic variables remained insignificant ,

but, interestingly, the ministerial jurisdiction variable was significan t

whether or not Tyumen was included in the model, a change from th e

54. Developing the eastern regions entails very high transportation costs, constructio ncosts due to permafrost and severe climatic conditions, and extremely expensive labo rcosts, which the former Soviet Government met through a (relatively unsuccessful )regional wage coefficient system to attract workers .

8 1

previous five-year period . This change reflected the growing influence o f

the all-Union ministries in allocating investment resources and could b e

interpreted as a further reduction in the attention given to regiona l

interests in favor of seeking greater revenues from a more directed ,

resource-focused investment strategy .

These results, combined with the slowing reduction in inequality o f

investment allocations that began during this period (see Tables 1 and 2) ,

suggest that the early and mid-1970s in fact represented a watershed i n

regional investment strategy . Whereas in the first 15 to 20 years of th e

study period investments were allocated in a more regionally extensive

than intensive manner, 55 by the mid-1970s, the importance of the energy

sector to the domestic economy and to foreign currency earnings, combine d

with the increased specialization within the Soviet economy, required a far

more directed investment and accompanying regional economi c

development strategy. The realization that economic growth rates wer e

declining as the State's natural resources, labor resources, and it s

industrial infrastructure were growing farther apart and more difficult t o

coordinate efficiently also contributed to an increasingly more directed

investment strategy .

By the late 1970s, the overwhelming influence of Tyumen reduced th e

adjusted R2 of the original Russian model to 22 .1 percent (48 .2 percent

without Tyumen) and the modified model to 27 .8 percent (51 .0 percent

without Tyumen) . The ministerial jurisdiction variable remaine d

55. Here, "extensive refers to the practice of expanding the productive capacities acros sSoviet territory rather than refurbishing and modernizing, or reinvesting in, alread yestablished infrastructure .

82

significant whether or not Tyumen was included in the analysis ,

confirming the strong influence of the all-Union ministries . The

population density variable also remained significant (and negative) with o r

without Tyumen Oblast, but the urban variable was only significant whe n

Tyumen was in the model . The ethnic variables coefficients remaine d

insignificant, but once again, since population density could be viewed as a

proxy measure for the East locational variable that was included in th e

USSR model, one can see that investment was highly skewed toward areas

that were sparsely populated, which for Russia are areas in West Siberia ,

East Siberia, and the Far East .

During the 1980s, the ministerial control variable remained significan t

when Tyumen was in the analysis (p= .041 for 1981-85 and p= .058 for 1986-

89), but was insignificant when Tyumen was excluded from the mode l

(p=.135 and p= .230, respectively) . The explanatory strength of the modifie d

model, however, was low when Tyumen was included (R 2 = .194 percent for

1981-85 and R2 = .197 percent for 1986-89) ; when Tyumen was excluded, both

the population density and urban variables were significant, and the R 2

improved to 49 .3 percent for 1981-85 (R2 .511 for 1986-89) . The substantial

difference in the explanatory power of the model when Tyumen is exclude d

from the model reflects how much of an outlier the energy-producing oblast

had become by the 1970s .

For the 1986-89 period, the original model, which could only be viewed a s

an "agglomeration economies" model, 56 accounted for only 16 .2 percent of

56. This model was the one used in the USSR regression analysis and its most significan tvariables were : percentage of a unit that was urban (p=.084) and the level of populationdensity (p< .001). Both of these variables are rather all-encompassing surrogat emeasures for a host of economic and social characteristics . They capture many

83

the variation in investment among Russian units when Tyumen wa s

included in the analysis . Without Tyumen, the model explained 50 . 7

percent of the variation . Once again, the population density and the urban

variables were statistically significant with or without Tyumen, and th e

ethnic variables were insignificant in both cases . For the same time perio d

(1986-89), but using the modified model, the all-Union ministerial variable

was not significant at the .05 level with or without Tyumen, which may very

well reflect substantial changes in, if not the collapse of, the plannin g

mechanism and financial system as a result of reforms and changes tied t o

perestroika .

The population density variable was negative and significant in bot h

cases for both models (the original and modified models) . The %URBAN

variable, once again reflecting the influence of a single territory on th e

regression results, was significant when Tyumen was excluded from th e

analysis, but was insignificant when it was in the model .

USSR and Russia Regression Summary

The results from the regression analysis are, to say the least mixed .

Some of the questions posed at the outset of this section can be answered ,

albeit with caveats and qualifiers . The overall sense one gets from the

regression models is that during the earlier periods (1956-70) of the study ,

Soviet investment was directed by an extensive development policy, throug h

which tertiary-level units in the East were favored and those in the Ukrain e

were not, which had the concomitant effect of equalizing investmen t

allocations among the State's more than 150 disparate tertiary level units .

attributes of economic development .

84

The trends toward convergence, or equality, apparent in the CV an d

IQR results (Tables 1 and 2) appear to have been more a function of the

State's economic geography than to any ideological commitments to attai n

"equality ." During the latter twenty years of the study period, when a n

unfavorable geographical relationship among the State's infrastructure ,

labor, and natural resources emerged as a major brake on economi c

growth, 57 investment strategy was forced to become far more directed an d

intensive, which had the effect of limiting any intended or subsidiar y

convergence in investment allocations .

Conclusions about Russian favoritism as it related to regional economi c

development decisions and investment allocations are a bit different for thi s

oblast-level analysis than what have been offered by studies on the mor e

gross republican level (Dellenbrandt, 1986 ; Jones and Grupp, 1984) . By

increasing the number of cases in the regression from 15 (republics) to

more than 150 (oblasts, ASSRs, and krays), the "Russian factor" insofar a s

resource allocations are concerned was neutralized . That is, there is n o

doubt that over the years the Russian Republic has received the lion's shar e

of State investment funds, particularly since the early 1970s . However ,

when one treats the Russian Republic as more than a singular ,

homogeneous statistical entity, the favored position of the Russian nation i s

highly qualified . Given what have been the most important determinants o f

Soviet regional investment, even if they are considered to have bee n

irrational by western standards, the share of a territory's Russia n

population was insignificant in influencing the level of investments i n

57. For a detailed description of this geographical imbalance, see Liebowitz, 1992 .

85

virtually all time periods . For those regression models and time period s

when it was significant, the relationship was negative : for those units in

the USSR with greater than two-thirds of their populations being Russian,

investment allocations were significantly less than for units with smaller

proportions of Russians . For the Russian Republic alone, the Russia n

factor was insignificant. The oblast-level data, of course, picks up the large

number of predominantly Russian-inhabited rural and relatively backwar d

oblasts in central Russia that the republic-level data lose or smooth over"

due to the influence of some very high investment territories (Tyumen ,

Yakut ASSR, Maritime Kray, Sakhalin) .

The question concerning the magnitude of allocations to ethnic versu s

non-ethnic units has less to do with evaluating a general "ethnic" bias i n

investment allocations than it does with the workings of the Sovie t

"federation . Within the Soviet territorial administrative structure ,

autonomous republics were guaranteed a certain degree of social ,

economic, and political control over their territories that equivalent non-

ethnic units (oblasts) did not require since their interests were represente d

by ethnically similar Union Republics . The gap between what wa s

permitted and institutionalized in the Soviet Constitution s and how

decisions of importance were really taken, of course, is known to have been

extremely wide . However, specific questions over the role of territorial o r

regional institutions, such as republican-level Goslpan y59 within the larger

58. For a review of the Soviet Constitution and the rights given to the republics and otherinstitutions, see Sharlett, 1978 .

59. Gosplan was the State Planning Agency . There was an all-Union Gosplan, and 1 5republican Gosplan agencies whose charge it was to coordinate yearly and longer -term plans with that of the national Gosplan effort .

86

planning network and, more specifically, whether these agencies wer e

effective in influencing resource policy decisions, have often been answere d

without any empirical evidence .

All else equal, the ASSR or ethnic unit designation was significant i n

explaining the variation of resource allocations during the first half of th e

study period. From 1956-60 to 1971-75, those units designated as ASSRs

received, on average, significantly fewer rubles per capita than non-ethni c

units. That is, when one controls for differences in the characteristics that

seem to be most influential in determining resource allocations, the ASSR s

still received significantly lower levels of investment than what one would

expect during the 1956-1975 period . 60 These results support the charge that

Soviet federalism, especially when it came to economic issues, was a

misnomer . From 1976 onward, the ASSR designation appears to have ha d

less influence on investment allocations, although the difference betwee n

average per capita investments remained quite high . The difference wa s

no longer statistically significant most likely because several of the ASS R

units received special attention on account of their energy resources . As

the energy crunch became more apparent to Soviet planners in the 1970s ,

many oil fields, especially in the Volga region, received added investmen t

funds specifically for modernization in order to increase the volume o f

secondary recovery efforts, which were still well below the world norms .

Therefore, greater attention to the Bashkir, Tatar, and Komi ASSRs serve d

to render the gap in investments, while still apparent, statisticall y

insignificant. This change should not lead one to conclude that Sovie t

60. In 1956-60, the difference between ASSRs and oblasts was 231 rubles, for 1961-65 it wa s437 rubles, for 1966-70 it was 371 rubles, and for 1971-75 it was 428 rubles .

87

federalism became a more decentralized system after 1975 . In fact, the

increased funding to some ASSRs after 1976 reflects the highly centralized

nature of the system, and supports the long-held view that little power wa s

given to local regional authorities and institutions when it came to large

economic issues related to the national economy .

The regression analysis did little to further our understanding of the

role that energy accessibility played in influencing Soviet investmen t

decisions, other than refuting the general premise that fossil fuels were to

serve as nodes or poles of large-scale regional development schemes during

the latter stages of this century . Energy accessibility indices were found to

have no influence on investment decisions . In all of the preliminary

regression models the variable's coefficient carried negative signs in all

periods, suggesting that the greater a unit's access to fossil fuels, th e

smaller the per capita investment it received . The only logical explanation

for this relationship would be that investments that would have gone into

energy development in other units may have rendered overall investmen t

levels to these oblasts less than they should have been given their othe r

characteristics ; this, however, is unlikely . The kind of development

envisioned as part of the territorial production complexes (TPCs) was to be

large-scale and extensive . While few of the many TPCs planned were ever

developed or even begun (Lydolph, 1991 ; Dienes, 1990 ; Taffee, 1984), it is

clear that access to fossil fuels was not a good predictor of oblast-level Sovie t

investment allocations .

The question of whether Soviet development and investment policie s

were directed by principles different from what one might term western o r

Weberian principles is difficult to answer due to all the problems associated

with a command economy . The absence of a rational pricing system makes

it difficult to assess profitability and other standard measures agains t

which these principles could be evaluated . Soviet rhetoric, especially up t o

the early 1970s, claimed there were two sets of principles that guide d

planners : one that spoke to overall economic growth and a second tha t

committed the State to pursuing regional economic and socioeconomi c

equality . 61 The results of the regression analysis, in which variable s

associated with agglomeration economies were significant in virtually al l

the models and in every time period, implies a certain similarity with rule s

of western location theory . This relationship, more than most others, mus t

be treated with great caution due to the lack of a rational pricing system ,

the all-encompassing nature of the variables used in the regressio n

equation, the inability to obtain meaningful data on transportation and

labor costs, and the inability to control for factors such as barriers t o

internal migration . Yet while the significance of the urban, populatio n

density, per capita fixed assets, and agricultural production variables i n

various models in the all-Union and Russian models suggests economic -

based variables similar to those used in market economies were importan t

in determining investment allocations, and (excluding Tyumen Oblast )

explained about half the variation in per capita investment, it is extremel y

difficult to quantify the principal factors influencing investmen t

allocations .

The temporal question—whether the significance of certain variable s

can be associated with specific Soviet leaders—yielded interesting, bu t

61 . For a review of these principles, see Wagener, 1973 and Dyker, 1983 .

89

rather inconclusive results . It is possible to identify changes in investmen t

emphases over time, but it is far more difficult to ascribe these changes to

particular leaders, especially when the influence of the General Secretarie s

over economic decision making is nearly impossible to discern from on e

period to the next .

The Khrushchev period was one of extensive development, best reflected

in the attention given to the Virgins Land Program, and it was a period i n

which the levels of variation in investment allocations decline d

consistently . Investments were dispersed throughout the Russian

Republic, Kazakhstan, and Central Asia, yet the ethnic-based variable s

were significant.

The Brezhnev years (at least the "pre-zastoi" 1966-75 period) saw a

regional tilt toward the eastern regions, which is hardly surprising .

Brezhnev was a champion of the huge BAM project, and he also oversa w

the military build-up in the Far East associated with the increase d

(perceived) Chinese threat and the rise of the Soviet Pacific Fleet . The

Brezhnev period was also influenced by an anticipated increase in join t

agreements with Japan and the United States for resource development in

East Siberia and the Far East that was to emerge during and after detente .

These factors, along with the diminution of the Virgin Lands program ,

changed the regional emphasis from that which Khrushchev established .

Interestingly, there were no significant changes gleaned from the

regression models that could be tied to the elimination of the sovnarkhozy

experiment during the 1966-70 period . The return of ministerial-base d

planning under Brezhnev had little effect on the variables that were most

influential in explaining the variation in investment among all-Union

9 0

tertiary-level units . One difference between the Khrushchev and Brezhne v

years is the more favorable treatment accorded units with a high proportion

(more than two-thirds) of Russian residents .

Other than the worse-than-expected treatment given to Ukrainian

oblasts until the 1981-85 period, there seemed to be no clear-cut "ethnic "

dimension to the Brezhnev investment program . 62 The less-than-expecte d

levels of investment in the Ukraine is somewhat surprising in that both

Khrushchev and Brezhnev were ethnic Ukrainians . The fact that

agricultural production was a statistically significant variable i n

explaining investment allocations, that its coefficient was negative, an d

that several oblasts in the Ukraine are predominantly agricultural wit h

high levels of agricultural production, all explain, to some extent, how th e

region received, on average, investment levels significantly below the all -

Union norm. That this difference became statistically insignificant durin g

the 1980s is more likely attributable to factors external to the Ukraine than

to any greater attention given to the region. When Tyumen Oblast was

removed from the all-Union regression models, the Ukrainian variabl e

became significant (and negative) once again .

For the Gorbachev period, the regression models suggest a mor e

directed investment strategy than ever before . If true, and if one accepts the

claim that most central institutions and its financial system lost power

during this period, one would be inclined to conclude that the ol d

centralized system of resource allocation was responsible for resource

62 . This is the case, at least, when other factors tied to regional development were take ninto account. That is, while there appear to be large difference in the absolute levels ofinvestment given to ethnic and non-ethnic units, when one takes other variables int oaccount, the differences are "expected " so that they are not statistically significant .

9 1

redistribution in the form of more regionally extensive allocations, whethe r

or not they could be defended as having been "rational . "

For questions specifically addressed toward the Russian Republic, th e

regression analysis provided the following answers . The question

concerning the east-west debate in Soviet development circles could not b e

answered directly from the best-fit and modified models used in th e

Russian regression analysis . Due to the strong (negative) relationshi p

between the East variable and population density, the East variable wa s

excluded from the two models . It is clear, however, that there was a

discernible eastern emphasis in Soviet investment policy into the 1980s .

Although the regression results are not reported here, when EAS T

replaces POPDEN in the regressions for 1981-85 and 1986-89 (Table 6), th e

coefficient on EAST is positive and significant (p= .02). By the 1988-89 period ,

the East-West difference was more than 1100 rubles per capita . As was

mentioned earlier, this difference is due, in part, to the expense of

developing what are in many respects pioneer regions : construction costs

are exceedingly high due to environmental conditions ; labor costs were a t

least 2-3 times the wage rates paid in the western parts of the State before

wages were freed from the control of central planners ; and transportation

is both difficult and expensive . Yet, despite the high levels of investment i n

the eastern regions of the State during the Soviet period, the return on th e

investments, by the late 1970s, no longer justified the eastern emphasi s

(Dienes, 1991) . And, if one were to disaggregate the data for the thre e

easternmost economic regions, one would note that an overwhelming shar e

of the heavy investments in the East went to four units : Tyumen ,

Krasnoyarsk Kray, Yakut ASSR, and Maritime Kray .

92

The question having to do with the influence of all-Union ministr y

jurisdiction over a territory's industrial production is one that touches onc e

again on the question of Soviet federalism and the power of the regions

versus the center . The Soviet budgetary system was both complex an d

predictable : enterprises were beholden to one of three levels of jurisdiction.

Virtually all important industrial production fell under all-Unio n

ministries ; light industry usually was under union-Republic jurisdiction ,

which meant there was split oversight ; and relatively unimportant

consumer goods and service producing enterprises were under republica n

or local control . Profits were sent to the appropriate level of jurisdiction

with varying but very limited funds guaranteed for the local municipalit y

on whose ground the enterprise operated . 63 Connections between all-Union

ministries, often needed to guarantee the supply of intermediate products ,

highlighted the way in which all-Union ministries controlled the financia l

resources indirectly, if not directly, from the Center . In addition to thi s

influence, the ministries were free to use as they pleased the funds they

accumulated from profits and turnover taxes . Therefore, in addition to th e

indirect influence th y exerted on regional economies through suppl y

arrangements, the central ministries also had a direct way to influenc e

investment flows . This influence was confirmed by the regression analysi s

(see Table 8) .

From 1966 until 1989, the variable reflecting the level of all-Unio n

ministerial control over enterprises was statistically significant an d

63 . Under Gorbachev, the "tax" levied on enterprises by local municipalities increased ,but the collection of these taxes was not always easy . On average, enterprises had t opay nominal operating taxes to local authorities .

93

positive. The higher percentage of all-Union control over a territory' s

enterprise production resulted in higher investment allocations . Regional

planning bodies, including republican Gosplany, were subordinated to th e

all-Union ministries until the Gorbachev era (1986), after which th e

dominance of most central institutions began to erode, first, perhaps, by

design, but then due to a lack of direction and finally due to inertia .

Conclusions

The results of the regression analysis, then, are mixed at best .

Although we did not see great changes in the importance of many variable s

across the thirty-four year period, one can identify three periods in whic h

specific emphases seemed to have held sway over all others, but the reason s

remain not fully clear . The early period, from 1956 to 1970, was one o f

extensive investments, yet investments were still attracted to existin g

industrial infrastructure and urban areas . Ethnic units received, on

average, less than non-ethnic units despite impressive declines i n

inequality in investment among all tertiary level units . Within this period ,

there seemed to have been no sign that the switch from the sovnarkhozy

planning system had an impact on investment allocations (whereas in the

CV and IQR there were noticeable changes) . From 1971 to 1985, regional

investment policy was dominated by investment in the energy sector, an d

particularly in West Siberia . Reductions in the levels of inequality amon g

oblast-level units (for investment allocations) ceased, yet by the middle o f

this period, there was no longer a statistically significant difference i n

investment going to ethnic and non-ethnic units . The final period, 1986-89 ,

was one during which the once omnipotent and stable central allocative

94

mechanism began to unravel . Control over enterprises and therefore thei r

profits and the entire financial system began to erode . State investments

appear to have been driven by economic factors, the most important o f

which seemed to have been the desire to generate foreign exchange fro m

increased resource development and their sales. Ethnic factors, all other

things being equal, were insignificant .

While some variables may have exhibited greater importance tha n

others during certain periods, there were no recognizable patterns when i t

came to the oblasts that received exceedingly high or low levels of per capit a

investment, all other things equal . By mapping standardized residual s

from the modified regression model (USSR), one can see whether ther e

were any spatial or locational patterns created by these "outliers ." A map

of residuals for each of the periods reflects the rather random nature of ver y

high or very low investment : Tyumen was clearly a significant outlier from

1966-70 onward (Maps 3-7) ; some Virgin Land oblasts received (Map 1) wel l

above what was expected given their other attributes (1956-60) ; Magadan

and Kamchatka Oblasts were routinely above expected investment level s

(Maps 1-5, Map 7) ; and selected oblasts (Guryev, areas in Turkmen SSR ,

Komi ASSR) can be identified as positive outliers (Maps 1-5, Map 7) due t o

energy development during various five-year periods . Nevertheless, there

are no spatial patterns one might infer from these results, and some of th e

negative outliers could serve to raise further questions .

In 1981-85 (Map 6) and again in 1986-89 (Map 7), Moscow, Leningrad ,

and Donetsk were all negative outliers, which meant that, despite receivin g

investment that was above the all-Union per capital mean, all other thing s

equal, they received significantly less than was expected . Interestingly,

95

despite the very low investment in Ukrainian oblasts throughout the period ,

Donetsk, in the final two periods, was the first and only Ukrainian unit t o

have been an outlier—a case well below what was expected given othe r

attributes of the territory . If the final decade of Soviet rule was supposed to

be one in which the power of central institutions was to direct investmen t

flows and control other political and economic activities, the loss of such

power translated into lower investment than what would have bee n

expected, which is consistent with a lessening of central controls . That is ,

had the system maintained the power to direct investment resources as i t

had for decades, we would most likely not have seen Moscow or Leningra d

lose such significant shares of investment .

There are, quite obviously, many other less easily quantifiable factor s

that could have been included in an attempt to explain regional investmen t

trends and the variation of investment across Soviet or Russian territories .

The obvious omission here was the exclusion of political factors in trying to

explain investment differences . Bahry (1972, 1987) and Hough (1969) amon g

others have tried to assess the influence of local leaders on "the center" i n

general and in obtaining greater levels of economic resources durin g

several periods of Soviet rule in particular . There is no consensus on th e

findings and, in fact, at least four interpretations on the extent of loca l

influence in economic decision-making have been offered . 64

Other than what one might capture with the ethnic variables and the

importance of the ministries' control over enterprise production, this stud y

has intentionally excluded surrogate variables for "political clout" i n

64. See Dellenbrant's review, 1986, pp . 23-30 .

Map 1 . Outliers1956 - 60

Standardized Residual s

I -2 .21 to -2 .0 3

1

2 .20 to 3 .52

r


2 .30 - 3 .39

3 .40

4 .38

Map 5 . Outliers1976 - 8 0


[ ; 2 .28 - 2 .65

7 .96

Map 7 . Outliers1986 - 89


-3 .11 to -2 .2 4

2 .07 to 2 .63

8 .49

103

looking at investment allocations, which is not to say politics did not play an

important role in Soviet economic decision-making and regional

investment policies . The major focus of this study, however, was to explai n

the regional trends in Soviet investment policy and then to isolate certai n

characteristics that appear to have been most important in determinin g

who received what, when, and where .

The Gorbachev Reforms and Summary

The Soviet goal of building the first communist State and providin g

prosperity and equality to its disparate peoples was never realized . In fact ,

the commitment of successive Soviet regimes to attain equality appears t o

have been no greater than in many market-oriented economies . In one o f

the first cross-sectional studies on trends in equality, Jeffrey Williamso n

(1965) found that most market-oriented States in his study experienced

decreasing inequality with the onset of modernization followed b y

increasing levels of inequality after a certain level of development . The

Soviet commitment to reducing inequality, as measured by the trends in pe r

capita investment allocations among tertiary level units, shows a simila r

U-shaped pattern : from the 1950s to the early 1970s, levels of investment

converged and then leveled off before beginning to increase at the end of th e

period .

The reasons for these later trends in the Soviet case are far differen t

than they were in most market-oriented economies . In the former USSR ,

gaps in both income and investments were far less the result of

differentiated rates of accumulation among regions than they were th e

result of poor economic decisions, some of which seem to have been drive n

by the need for hard currency earnings . While it is difficult to conclude that

104

"equalization" was a chief concern of Soviet planners at any time, it is clea r

that the trends in inequality, combined with the results of the regressio n

analysis, confirm the strong redistributive powers of the highly centralize d

financial system .

While a major focus of this project—how the Gorbachev refor m

programs were likely to influence the spatial trends in Soviet investment

allocations—had to be aborted when both the Gorbachev reform effort an d

the Soviet Union itself were no longer, some comments about the progra m

and the 1986-89 period are appropriate .

If the proposed changes associated with the Gorbachev reform program

had been fully implemented, one would have expected the East locational

variable to have become less significant . The (early stated) emphasis o n

modernizing/retooling the existing industrial base instead of building ne w

facilities should have meant a noticeable investment shift to the western

parts of the State . While this was not apparent from the results of th e

regression analysis based on the oblast-level data, 65 it was also non -

apparent when we viewed the regional trends in the the shares of tota l

investment covering the thin-fives years of the study (see Table 4) . During

the 1986-89 period, the share of total investment given to Central Asia di d

decline substantially, but the shares of several other regions in the mor e

developed western parts of the State—regions that should have receive d

greater shares of investment according to the goals of perestroika

65. Regressions were run with other regional dummy variables (a Slavic variable, aSouthern Tier variable, a West variable, and a Kazakh variable) and none of the mwas significant . The only significant regional variables were those in the origina lmodel explained throughout this section—the Ukrainian dummy variable and th eEast variable .

105

declined as well . The industrially advanced Baltic Region, for example ,

received a smaller share of State investments during perestroika (2 .9% )

than it did in all but two of the seven periods in the study ; its share was

smaller only during the 1956-60 and the 1976-80 periods . Similarly, all six

economic regions in the western part of the Russian Republic receive d

smaller shares of total State investment during the 1986-89 period than the y

received five years before .

While Gorbachev and his economic advisers sought a policy o f

intensification over extensification, it was both the centrality and th e

continued decline of the West Siberian oil industry that prevented the level s

of investment in the already-developed regions from receiving what had

been envisioned by the architects of perestroika . Had one in every seven

rubles invested in the entire State not gone to West Siberia to secure energy

resources and the hard currency from their external trade, other region s

might have received significantly greater investment shares . From the

1976-80 period to the 1986-89 period, the volume of total State investmen t

increased by 118,100 million rubles . Greater than 38 percent of that

increment went to one of the State's twenty economic regions, West Siberia

and Tyumen Oblast alone accounted for 33 .6 percent of the entire 118, 100

million ruble increase .

A second anticipated change one would have expected to see was a

decline in investment among the poorer oblasts as a result of enterpris e

self-financing, or khozraschet . The goal of khozraschet, which was first

discussed and attempted in a different environment of reform during the

mid-1960s, was to improve economic efficiency by reducing subsidies and b y

allowing for the elimination (through eventual bankruptcy) of unprofitable

106

enterprises . In this way, accountability was introduced into the system .

Under khozraschet, enterprises would have been more responsible for wha t

they produced . They would have been in control over a greater share o f

their profits, able to use them as they pleased instead of sending them t o

Moscow or to their republican capitals . 6 6

The expected regional implications of khozraschet, had it been fully or

successfully implemented, would have surely been a reduction i n

investment and income for regions with low capital and labo r

productivities . How one was to measure "profit" or profitability" wa s

never made clear, and no rational measure could have been used until a

new pricing mechanism was introduced . Nevertheless, it is virtually

certain that with any method used to measure profitability and efficiency ,

the less-developed southern tier, and especially Central Asia, would hav e

fared poorly relative to the rest of the State and would have therefor e

experienced the greatest economic hardship . As was noted above ,

Kazakhstan and Central Asia did experience noticeable declines in thei r

shares of investment allocations from past years, but it is difficult t o

attribute these trends, which have been evident for some time, t o

khozraschet .

It is also difficult to confirm whether the augmented regression mode l

was already picking up changes associated with different financin g

procedures tied to the Gorbachev reform program. It is clear, however ,

66 . Where proceeds/profits were sent depended on the level of subordination of eac henterprise . If the enterprise was under all-Union ministerial jurisdiction, it srevenues were sent to Moscow . If the enterprise was under what was known as union -republic jurisdiction, Moscow and the republic shared revenues ; and if the enterprisewas under republican or local jurisdiction, the republic received the revenues .Virtually all large and important enterprises were subordinated to Moscow .

107

that enterprise revenues (both from turnover taxes and straight " profits" )

were being withheld by newly empowered local officials occupying variou s

layers of bureaucracy by 1988 and 198 9

Finally, the decentralization of political power and its concomitant shif t

in economic decision making, a major part of perestroika, should have also

contributed to increasing income and developmental gaps between th e

relatively developed and lesser-developed republics . Theoretically, a

decentralization of economic decision-making would have allowed for mor e

informed decisions on planning projects and investment decisions, bu t

such an outcome depended on several assumptions that would have bee n

difficult to accept in the Soviet context . Earlier attempts at decentralization ,

such as during the sovnarkhozy experiment, saw the exchange o f

ministerial domination for regional chauvinism, so that the inefficiencie s

of one approach to planning was largely substituted for another form o f

inefficiency .

With the republican economies still so heavily tied to the former all -

Union economic structures—and will remain helplessly so until, at least ,

price reform in Russia forces each of the former republics to explor e

alternative sources of supplies and new markets—the verdict on ho w

political decentralization affects economic relations and decision making

remains unknown. It is a question, however, that can still be monitore d

until the republics manage to break free of the old economic relationship s

that have outlasted, and will continue to outlast, the seventy year ol d

political ties that were imposed from the center . 6 7

67 . The then-Deputy Minister in the Ministry of Finance of the Kazakh Republi csupported these views in an interview in Alma-Ata in late November, 1991 . At that

1 08

The issue of how State investments would be allocated in a differen t

political environment can no longer be assessed, for the centralized

allocative mechanism is dead, and it was dead before the official end of th e

Soviet Union (December 24, 1991) . One would be hard pressed to explai n

with any confidence the most important factors that caused the regiona l

shifts we see during the short-lived Gorbachev reform effort . As wa s

already mentioned, the one thing we can be certain about is that an y

regional investment strategy since the 1970s, if one existed, wa s

circumvented by the emphasis given to oil and natural gas development ,

and that all other State investments were subordinated to that number on e

priority .

In short, it appears as if Soviet regional investments were guided not b y

any single overarching view of economic development, but rather by an

assortment of needs that changed over time, depending on domesti c

political and economic needs . The former appeared to be most important

during the earlier Soviet periods, while economic forces and exigencie s

seem to have dictated investment policy since the 1970s . Importan t

questions remain unanswered, yet proper attention must now turn to ho w

the newly independent States (of the former USSR) are supposed to brea k

the ties that have been formed as a result of the past three or four decades o f

highly centralized investment decisions . It would seem that, whil e

economic relations among the republics will have to continue unti l

time, Kazakhstan had declared "sovereignty, " but there was still a Soviet Union an da Soviet economy with which republics like Kazakhstan were trying to reestablish th eterms of their relationships with the "center." The Deputy Minister concluded that ,regardless of the political changes that were about to unfold, including the dissolutio nof the Soviet State, which occurred less than a month later, Kazakhstan would be tied t oMoscow and Russia for the foreseeable future . He put it this way : "For the next 5 years ,when Yeltsin sneezes, we will reach for our handkerchiefs . "

109

alternative sources of investment and trade develop, the impetus to brea k

away and to begin establishing new ties should be strong enough to make

the process shorter than would otherwise appear to be the case . No matter

the length of time, the transition will be extremely difficult for all the new

States .

With an overarching and symbiotic development strategy for most

former oblast-level units (beyond the energy sector) never having emerge d

out of Soviet central planning, the only reasons for the former republics t o

retain ties to the old system would be (1) an assured (internal) market fo r

whatever goods the regions continued to produce, and (2) the substantial

subsidies and other forms of resource distribution guaranteed under the old

system . Since the subsidies and centralized financial system are largel y

gone, the remaining ties appear to be those that are likely to hurt rather

than help the new States the longer they hold on .

These points do not mean to suggest that economic relations ought not or

will not continue among the former republics . Clearly, the division of labor

among regions, which was an integral part of Soviet development policy (to

the detriment of most regions), will insure that some economic ties wil l

endure . Nevertheless, it is also clear that much of the economic activit y

going on today among the former republics is the result of developmen t

schemes that were decided upon long ago in Moscow without much inpu t

from the regions . Once the impact of local economic decision-making can

be felt in the newly independent States, economic activity ought to change

significantly and it will change to meet the goals of local interests rathe r

than those of Moscow .

APPENDIX A

Maps of State per capita Capital Investment

Map 8. Per Capita Investment, 1956-60

Map 9. Per Capita Investment, 1961-6 5


Map 11 . Per Capita Investment, 1971-7 5




Map 15. Percent Change in Per Capita Capital Investment, 1956-60 to 1961-6 5






Map 21 . Percent Change in Per Capita Capital Investment, 1956-60 to 1971-7 5



110

Map 8. Per Capita Investmen t1956 - 60

Rubles

150-312 653-103 4

313-483 1035-257 1

484-652

Map 9 . Per Capita Investmen t1961-65

Ruble s

246-530 986-1459

531-741 1460-329 4

742-985

Map 1 0 . Per Capita Investmen t1966-70

Ruble s

404-848

1379-1763

849-1053

1054-1378

1764-5022

Map 1 2 . Per Capita Investmen t1976-80

Ruble s

744-1646 2880-7128

1647-2093 14757

2094-2879

Map 1 3 . Per Capita Investment1981-85

Rubles

793-1803 IM 3087-797 0

1804-2388 20659

2389-3086

Map 1 6 . Percent Change in Capital Investmen t1961/65 - 1966/7 0

r

Percent Chang e

1 -6 .0 - 29 .0

55 .1 - 73 . 0

29 .1 - 41 .0

73 .1 - 356 . 0

41 .1 - 55 .0


Percent Change

-18 .0-31 .0 48 .1 -58. 0

31 .1-39 .0 58 .1-141 .0

39.1 - 48 .0


Percent Chang e

-6 .0 - 7 .0 20 .1 - 28. 5

7 .1 - 13.0 28 .6 - 93 . 0

13 .1 - 20 .0

Map 2 0. Percent Change in Capital Investmen t1981/85 - 1986/90

Percent Chang e

-19 .0 - 10 .0 19 .6 - 27 . 5

10 .1 - 15 .0 27 .6 - 74 . 0

15 .1 - 19 .5


Percent Chang e

62 .61 - 174 .0 349 .0 - 925. 0

175 .0 - 251 .9 1865 .0 - 1982 . 0

252 .0 - 348 .9

Map 2 2 . Percent Change in Capital Investmen t1976/80 - 1986/90

Percent Chang e

23 .0 - 58 .9

101 .0 - 216 . 0

59 .0 - 73 .0

537 .3 473 .1 - 100 .0

Map 2 3. Percent Change in Capital Investmen t1956/60 - 1986/90

APPENDIX B

Additional Tables: Fixed Productive Assets, Russian Republi c

Table 9.

Fixed Productive Assets and Percentage Change by Economi cRegion, Russia, 1980, 1985, 198 9

Table 10.

Ranked Fixed Productive Assets by Economic Region, Russia ,1980, 1985, 189

127

Table 9 . FIXED PRODUCTIVE ASSETS AND CHANGE BY REGION, RUSSI A

Economic Regions

1980 Fixe d

Productive

Asset s

(billions

of

rubles)

1985

Fixe d

Productive

Asset s

(billions

of

rubles)

1989

Fixed

Productive

Asset s

(billions

of

rubles )

Central Chernozem region 36 .6 51 .3 62 . 2

Central

region 112 .1 151 .2 184 . 2

East Siberian

region 52 .0 72 .2 88 . 9

Far East region 48 .8 69 .4 86 . 6

North Caucasus region 62 .7 83 .9 99 . 1

North-West

region 35 .2 47 .5 67 . 6

Northern

region 39 .5 55 .1 57 . 3

Urals

region 103 .5 140 .0 172 . 0

Volga region 88 .1 119 .1 145 . 6

Volga-Vyatka

region 32 .9 46.8 58 . 8

West Siberian region 81 .4 132 .3 192 .6

Percentage

growth, Percentage

growth, Percentage

growth ,

Economic Regions 1980 to

1985 Economic Regions 1985

to

1989 Economic Regions 1980 to

198 9

West Siberian region 62 .5 West Siberian

region 45 .6 West

Siberian

region 136 . 6

Volga-Vyatka

region 42 .2 North-West

region 42 .3 Volga-Vyatka 78 . 7

Far East region 42 .2 Volga-Vyatka 25 .6 Volga

region 65 . 3

Central Chernozem region 40 .2 Far East region 24 .8 Urals

region 66 . 2

Northern

region 39 .5 East

Siberian

region 23 .1 Northern

region 45 1

East

Siberian region 38 .8 Urals

region 22 .9 North-West

region 92 . 0

Urals

region 35 .3 Volga region 22 .3 North Caucasus 58 . 1

Volga region 35 .2 Central

region 21 8 Far East region 77 . 5

North-West

region 34 .9 Central Chernozem 21 .2 East

Siberian

region 71 . 0

Central

region 34 .9 North Caucasus 18 .1 Central

region 64 . 3

North Caucasus region 33 .8 Northern

region 4 .0 Central Chernozem 69 . 9

Table 10 . RANKED FIXED PRODUCTIVE ASSETS, RUSSIA

129

Economic Regions

1980

Fixe d

Productive

Asset s

(billions

of

rubles) Rank 1980

Central

region 112 .1 1

Urals

region 103 .5 2

Volga

region 88 .1 3

West Siberian region 81 .4 4

North Caucasus region 62 .7 5

East

Siberian

region 52 .0 6

Far East region 48.8 7

Northern

region 39 .5 8

Central Chernozem region 36 .6 9

North-West

region 35 .2 1 0

Volga-Vyatka

region 32 .9 11

1985

FixedProductive

Asset s

(billions

of

rubles) Rank 1980 Rank 1985

Central

region 151 .2 1 1

Urals

region 140 .0 2 2

West

Siberian

region 132 .3 4 3

Volga

region 119 .1 3 4

North Caucasus region 83 .9 5 5

East

Siberian

region 72 .2 6 6

Far East region 69 .4 7 7

Northern

region 55 .1 8 8

Central Chernozem region 51 .3 9 9

North-West

region 47.5 10 1 0

Volga-Vyatka

region 46.8 11 1

1

1989

Fixe d

Productive

Asset s

(billions

of

rubles) Rank 1980 Rank 1985 Rank 198 9

West

Siberian

region 192 .6 4 3 1

Central

region 184.2 1 1 2

Urals

region 172.0 2 2 3

Volga region 145.6 3 4 4

North Caucasus region 99 .1 5 5 5

East

Siberian

region 88 .9 6 6 6

Far East region 86 .6 7 7 7

North-West

region 67 .6 1 0 1 0 8

Central Chernozem region 62 .2 9 9 9

Volga-Vyatka

region 58 .8 11 11 1 0

Northern

region 57.3 8 8 1

1

130

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