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This article was downloaded by: [Tufts University] On: 12 November 2014, At: 11:01 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Journal of Baltic Studies Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rbal20 Evaluating economic growth in Latvia George J. Viksnins a a Georgetown University Published online: 01 Mar 2007. To cite this article: George J. Viksnins (1981) Evaluating economic growth in Latvia, Journal of Baltic Studies, 12:2, 173-188, DOI: 10.1080/01629778100000161 To link to this article: http://dx.doi.org/10.1080/01629778100000161 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan,

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This article was downloaded by: [Tufts University]On: 12 November 2014, At: 11:01Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH,UK

Journal of Baltic StudiesPublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/rbal20

Evaluating economic growth inLatviaGeorge J. Viksnins aa Georgetown UniversityPublished online: 01 Mar 2007.

To cite this article: George J. Viksnins (1981) Evaluating economic growth in Latvia,Journal of Baltic Studies, 12:2, 173-188, DOI: 10.1080/01629778100000161

To link to this article: http://dx.doi.org/10.1080/01629778100000161

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all theinformation (the “Content”) contained in the publications on our platform.However, Taylor & Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness,or suitability for any purpose of the Content. Any opinions and viewsexpressed in this publication are the opinions and views of the authors, andare not the views of or endorsed by Taylor & Francis. The accuracy of theContent should not be relied upon and should be independently verified withprimary sources of information. Taylor and Francis shall not be liable for anylosses, actions, claims, proceedings, demands, costs, expenses, damages,and other liabilities whatsoever or howsoever caused arising directly orindirectly in connection with, in relation to or arising out of the use of theContent.

This article may be used for research, teaching, and private study purposes.Any substantial or systematic reproduction, redistribution, reselling, loan,

Page 2: Evaluating economic growth in Latvia

sub-licensing, systematic supply, or distribution in any form to anyone isexpressly forbidden. Terms & Conditions of access and use can be found athttp://www.tandfonline.com/page/terms-and-conditions

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E V A L U A T I N G E C O N O M I C G R O W T H IN L A T V I A

George J. Viksnins, Georgetown University

It is rather difficult to make economic comparisons between market-oriented economies and systems utilizing central planning since the process of price determination is quite different. 1 In the former case, the value of output is primarily determined by consumer sovereignty although monopoly elements complicate the analysis and government activities (price floors and ceilings, standards and regulations, and the like) undoubtedly affect the calculation. In the USSR, prices are generally adjusted rather infrequently and have little relation to supply and demand although the so-called collective farm markets for agricultural products, largely produced on private plots, are an important exception. Soviet national income and output statistics do not include the ser- vices sector, which necessitates arbitrary adjustments to compare production levels with Western standards. The official exchange rate is a most serious prob- lem in making such comparisons; prior to 1961, a ruble was officially valued at 25 cents (though the "black-market" rate was reportedly even lower), but it was revalued to $1.11 in the early 1960's and raised to the $1.60-$1.85 range in the 1970's. 2 Yet another complicating factor in making per capita income com- parisons is the existence of the illegal "second economy" in the USSR, for which data are very hard to estimate, but which apparently is very significant. 3

Despite these difficulties, the temptation to make comparisons with the West is quite strong. One such study, by Professor I.S. Koropeckyj of Temple Univer- sity, calculated the following per capita GNP figures for 1970:

USA $4710 Latvia $2406 Canada 4047 Japan 2365 France 3585 East Germany 2320 West Germany 3110 Czechoslovakia 2240 Estonia 2725 R.S .F .S.R. 2219

JBS, Vol. XII, No. 2 (Summer 1981) 173

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Great Britain 2693 Lithuania 2208 Australia 2664

It is generally recognized that the Baltic republics produce considerably more on a per capita basis than the other parts of the USSR. Koropeckyj mentions a number of explanatory factors: (1) high labor force participation rates ("rela- tively fewer children per each working person"); (2) well-developed and well-

managed consumer industries (providing "tangible incentives to the local labor force"); (3) more productive agriculture; (4) "considerable economic develop- ment long before their incorporation into the USSR;" and (5) historical ties to the West, which "imbued the population with a rationalistic life outlook. ''4

Growth in Latvia's industrial output has been particularly rapid, and the Baltic republics have been in the vanguard of technological progress in the Soviet Union. A listing of such industrial accomplishments is provided by a handbook of economic growth published in occupied Latvia:

Although in terms of population the Latvian S.S.R. ranks 13th among the "feder- ated republics," and it contains only 1% of the total inhabitants of the entire U.S.S.R., in terms of industrial production the Latvian S.S.R. occupies an important place in the Soviet Union. Using the value of industrial output as a yardstick, it ranks 6th in the total, but, on a per capita basis, even as high as 2nd among the "federated repub- lics" of the U.S.S.R. Our republic produces 29% of total passenger wagons for raft transport, including all of the coaches for electric trains, almost half of all telephone receivers, motorcycles, every fourth radio receiver, 22% of all trolley-cars, 15% of diesel engines, 10% of synthetic fibers, 12% of all washing machines, 8% of electric lightbulbs, 7% of plywood, 5.5% of rubber footwear, 3.5% of paper and woven over- coats, 3.4% of butter, and also accomplishes nearly 6% of the Soviet Union's fish catch. 5

The same handbook also notes very rapid growth in per capita national income over the 1951-1969 per iod-near ly a five-fold increase overall, with an average

compound growth rate of 7.5% per year. The authors note that this rate is well above that realized by West Germany's "economic miracle" with 5.1% per an- num for the same period.

Rapid growth in output and income appears to have contributed to a con- siderably higher standard of living in the Baltic region than elsewhere in the USSR.

As Professor Gertrude E. Schroeder of the University of Virginia has pointed out:

One of the most significant of these indicators-annual per capita consumption of food products in kilograms-is available only for the RSFSR, Ukraine, and the Baltic republics. The data show that the Baltic peoples consistently had much higher- quality diets than did people in the RSFSR and in Ukraine. The former consumed much more meat, milk, fish, and eggs, a dietary pattern characteristic of peoples with relatively high incomes. Data are also available on regional sales of various kinds of consumer durables in physical units. These data, although incomplete, show great variability over time and among products. Nonetheless, a clear and familiar pattern emerges. The Baltic republics are almost always found at the top of the range, usually by wide margins. The RSFSR and Ukraine usually rank next, and the Central Asian republics typically trail far behind. 6

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Table 1 provides a rather comprehensive comparison of the various republics in terms of four economic and social indicators. It can be seen that the Baltic republics consistently rank at the top of the list, in some cases by surprisingly large margins. Personal income per capita in Estonia and Latvia is nearly twice as high as in a couple of the Moslem republics. Retail sales in Latvia and Estonia exceed the level in Tadzhikistan and Azerbaidzhan by an even !arger margin, suggesting that the central authorities have been rather careful not to tax away all of the productivity gains from the Baltic region. Yet, it should be pointed out that these retail sales figures for the Baltic republics probably include consider- able shopping by tourists from the "other brotherly republics," and that the distribution of income is far from equal. Gundar J. King of Pacific Lutheran University has pointed out that the minimum wage level in the early 1960's stood at 300 to 400 rubles (old par value) per month, while certain scientists, authors and enterprise managers earned as much as 6000 rubles. 7

TABLE 1 FOUR INDICATORS OF LEVELS OF LIVING IN THE

REPUBLICS IN 1978

Personal Retail Number of Urban Income Sales of Doctors Housing

Per Capita Non-Food Products Per Capita Space Per Capita Per Capita

Index Rank Index Rank Index Rank Index Rank USSR 100 100 100 100

RSFSR 111 4 i04 4 108 4 101 6 Ukraine 96 6 97 7 97 6 107 4 Belorussia 98 5 100 6 91 8 99 7 Uzbekistan 72 12 70 13 75 14 76 14 Kazakhstan 88 9 89 9 84 10 90 8 Georgia 94 7 92 8 124 1 110 3 Azerbaidzhan 63 14 64 15 89 9 76 13 Lithuania 115 2 118 3 104 5 104 5 Moldavia 90 8 100 5 83 11 89 9 Latvia 114 3 154 1 120 2 120 2 Kirgizia 70 13 77 12 76 13 78 12 Tadzhikistan 60 15 68 14 64 15 75 15 Armenia 87 10 85 10 97 7 83 10 Turkmenia 75 11 80 11 76 12 82 11 Estonia 127 1 150 2 113 3 124 1

Source: Gertrude E. Schroeder, "Regional Living Standards," in I. S. Koropeckyj and Gertrude Schroeder, eds., The Economics of Soviet Regions (forthcoming, 1981, Praeger).

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It may also be noted that income and consumption levels in the Baltic repub- tics compare favorably with standards for the U.S.S.R. as a whole, which are still quite low. According to Bronson and Severin, "even in 1972, the average month- ly wage of Soviet workers (130.3 rubles) was less than two-thirds that necessary to maintain a family of 4 at the minimum standards. This explains, in part, the high participation of women in the labor force and the low birth rate. ''8 More recently, per capita consumption in the U.S.S.R. is estimated as ranging between 30 and 45% of the U.S. level. The gap is particularly great in consumer durables and housing, but smallest in health services and education (King also points out that in terms of most quantitative measures of health services Latvia ranks among the best in the world.) Generally, however, "the per capita dollar comparison of total consumption (U.S.S.R. 45 percent of U.S.) suggests that the U.S.S.R. still has some distance to go before it catches up with other de- veloped countries. ' '9 This comparison refers to 1976 data, a relatively good year in the U.S.S.R. and a severe recession in the U.S. During the past year, according to expatriate visitors in Riga, it is getting harder for the average worker to make ends meet. While skilled industrial workers earn 140-180 rubles per month (in- cluding a so-called "thirteenth-month bonus" for fulfilling Gosplan targets), ordinary office workers receive salaries of 70-120 rubles and no bonus, nurses 70-90 rubles, hospital attendants 60-70, and many pensioners even less. These income levels can be compared to some typical prices for food items (in rubles):

Kilogram of." 1 o Official Actual

Beef R 1.90 R 4-6 Pork R 2 R 4-6 Bread R 0.16-0.40 R 1.0-1.50 Butter R 3.50 (seldom available) R 3.40 Milk (liter) R 0.26 (seldom available) R 0.22 (low

butter fat) Cottage Cheese R 0.40-0.74 R 1.50-3.0 Potatoes R 0.12 R 1.20 Sauerkraut R 0.12 R 3-10 Tomatoes R 1.20 (in season) R 3-10 Onions R 0.60 (in season) R 1-3 Chicken R 1.60-2.80 n.a. Fish R 0.30-2.00 n.a. The "official prices" above refer to prices charged by government retail outlets, while the "actual" prices refer to the collective farm markets, largely run on free- enterprise principles, which work to equate supply and demand at the margin. The article cited above leaves the impression that Latvia's superiority in food availability has been eroded in recent years and tt~at diets of the working class have deteriorated. Visitors report serious shortages of foodstuffs in 1980, per- haps in connection with the "Potemkin Village" of the Moscow Olympics. The recently announced reduction in American grain exports can be expected to drive

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the price of meat products even higher in the next several years, though increased slaughtering is currently being reported, and prices may decline somewhat in the short run.

Industry and Central Planning An identifying feature of the Stalinist growth strategy is its emphasis on in-

dustrialization, especially heavy industry. Table 2 shows the structure o f output and income in Latvia from the mid-1950's to the mid-1970's. Industrial output now stands at more than forty-fold its 1940 level, while agricultural product ion has increased only slightly. This rapid industrial growth is partly explained by Latvia's strategic location, its skilled labor force, and its superior infrastructure o f energy, communicat ion and transport facilities. It is also undoubtedly partly due to Moscow's desire to integrate the Baltic minorities into the Gosplan net- work as thoroughly as possible, making them dependent on the rest of the Soviet Union for various inputs. This strategy o f industrialization and "integrat ion" was clearly foreseen more than thirty years ago in the following citation:

The USSR is promising to turn the Baltic countries from agrarian states into tech- nically highly advanced soviet socialist republics in short order. This grant of largesse will be forcibly made, breaking the existing economic order, and destroying the ec- onomic foundation of the nation-the small family farm-and making all of one's life in fact subservient to the Gosplan of the USSR. Huge factories and integrated production facilities, which the soviet order will undoubtedly establish to foster industrialization in the harbor cities of the Baltic states, will not build up the lives of the native peoples. Instead they will be built following Moscow's plan, Moscow's face, and Moscow's likeness. These establishments will work for the "Big Mother- land"-they will contribute to Mother Russia, working with Russian raw materials, machinery and also under Russian management and with Russian workers.11

The Stalinist strategy of heavy defense and investment expenditures can be feasible only where the planning authorities deny the existence of a rate of interest, as the Soviets did until the mid-1960's. Given the assumption of a zero price for money, a mill ion ruble return on a hydroelectr ic project in Siberia in 1999 is formally equivalent to a million rubles earned by a housing project in Riga. In other words, large increases in investment and industrial product ion have taken place, but whether the projects and the products have been optimal from an economic point of view is another question. First, a substantial port ion o f Latvian product ion must be diverted to the defense sector. While it is true that Latvia has largely specialized in light industry and consumer-oriented pro- duction (see Table 3), its strategic locat ion mandates a substantial military pres- ence at all times, which must place quite a drain on the local economy. Although precise estimates of the "defense burden" in terms of Soviet GNP are hard to develop, recent revisions have raised this percentage to the 11-13% range (com- pared to 4-5% in the U.S.) from its earlier, lower level. Thus, a significant part of Latvia's industrial product ion must be diverted to this sector. The invasion of Afghanistan and heightened international tensions sugggest that such uses of

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Latvian output will be rising in the near future-not to mention Latvian con- scripts being sent off to fight for the extension of the empire. 12

Table 2 THE STRUCTURE OF ECONOMIC ACTIVITY IN LATVIA, 1956-1977

(as percent of total)

Production 1956 1960 1970 19 77

Industry 61.6 66.0 64.8 65.4 Construction 5.3 6.3 7.4 7.3 Agriculture 24.5 18.7 18.4 15.8 Transportation and

Communications 1.9 2.9 3.4 4.1 Trade and Miscellaneous 6.7 6.1 6.0 7.3

National Income

Industry 55.5 56.9 52.9 53.6 Construction 4.9 5.9 7.5 8.5 Agriculture 26.8 22.8 23.3 16.4 Transportation and

Communications 1.7 3.5 4.4 5.6 Trade and Miscellaneous 11.1 10.9 11.8 15.8

Sources: "Tautas Saimnieciba," in Latvijas PSR Maz~ Enciklopddija, (Riga: "Zin]tne," 1970), III, 499, and Latvi]as PSR Tautas Saimnieciba 1977. Gada (Riga: "Liesma," 1978), 238.

Table 3 THE STRUCTURE OF INDUSTRIAL EMPLOYMENT IN LATVIA (as percent

of total)

1960 1970

Machinery and metal-working 26.4 33.3 Light industry 23.0 21.6 Food processing 14.6 13.4 Wood and wood products 18.7 13.0 Chemicals 2.2 5.3 Construction materials 5.5 5.0 Electrical equipment 1.4 1.6 Glass and porcelain 1.6 1.3 Miscellaneous 4.7 3.2

Source: G. Baltil~ and T. Ieva, Latvijas PSR Tautas Saimniec~bas lzaugsme (Riga: "Liesma," 1971), 45.

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A second well-known shortcoming o f the Soviet industrial system is the set o f problems associated with central planning being undertaken largely in physical terms. While there have been some at tempts to decentralize decision-making and to introduce more economic control measures during the mid-1960's (these " reforms" are of ten known as "Libermanism" in the West), most of the dif- ficulties of resource allocation seem to still exist. Many, if not most enterprise managers "h ide" their true product ion capacity and "hoard" inputs - inc luding labor needed only for peak-load ope ra t ions - in order to overfulfill their plan target. There is periodic "s torming" o f special targets to celebrate anniversaries, to earn awards in "socialist compet i t ion ," and the like. Absenteeism and anti- social behavior are reportedly serious problems. Enterprise managers do not worry very much about pollut ion or health standards since they are seldom held accountable for such matters. Low-quali ty output seems to be endemic to Soviet industry, as shown by the rising savings figures (a sign of "repressed inflation," as consumers refuse to buy shoddy merchandise). During the Ninth Plan (1970- 1975), inventories worth approximate ly five billion rubles were "discounted" (i.e., judged unsaleable). This issue has also been extensively debated by Soviet writers:

During 1975 only one of the five models of washing machines belonging to the Ministry of Electrical Equipment Industry bore the Quality Emblem;none of the eight brands of electric irons was certified . . . . [Another ministry's enterprises] produced 28 models of refrigerators; only three of them were in the highest quality category, and 14% of the total output was not submitted for certification at all. la

While the quali ty o f output in the Baltic republics appears to be somewhat bet- ter, serious problems of coordinat ion and distr ibution r ema in - in particular, from a seasonal point o f v iew-as shown by the following citation:

More than half of the republic's enterprises did not fulffil their contractual obligations in the first six months of the year (1979). Enterprise managers continue to try to create an illusion of well-being chiefly by concentrating on total production, without paying attention to distribution. As an example, the forestry enterpriseS of the republic remained in arrears for more than 40,000 cubic meters of timber, which they were to deliver to end-users. The lumber and woodworking enterprises, in turn, did not deliver promised amounts of plywood to several other ministries and enterprises including the economically significant factory "Radiotehnika." However, the Woodworking Min- istry's own enterprises within the republic were supplied with quantities of plywood well above scheduled amounts. ''14

Another Soviet source reveals long delays in construction due to faulty planning machinery. As of 1965, 69% of all construction projects were un- finished; in 1975, unfinished projects rose to 75%, and as of 1977 to 85%. The main reason for this seems to be an undue emphasis on the quant i ty o f projects (nearly a quarter million individual construction jobs are currently under way in Latvia) and long delays in complet ion (the average time to competion

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is 6.6 years, with up to 10 years for large projects). These delays are in large part due to the enormous red tape involved in securing the necessary permits, contracting for inputs, arranging financing, and so on, with most procedures be- ing repeated on an annual cycle. The author concludes as follows: "During the 11 th Five-Year Plan the basis for further industrial development in the Latvian SSR should not be the initiation of new construction projects, but rather the reconstruction and modernization of existing production."15

Various reforms are being suggested to improve planning efficiency and im- prove product quality. For example, under the Eleventh Plan, the plan targets of an enterprise will not be considered satisfied if individual contracts remain un- fulfilled, regardless of the aggregate output level reached. Also, individual enter- prises, associations and ministries will share in any profits earned above the plan target-with 50% goingto general budget funds (if the plan profit is exceeded by more than 3%, then three-fourths goes to the state treasury). 16 Various supple- mental payments to individual workers and supervisors are being contemplated for reducing redundant labor and making improvements in productivity. A great deal of emphasis is being placed on the use of mathematical models, sophisticated and detailed !input-output tables, and linear programming. One Latvian economist reports extensive testing of a multi-stage linear programming model of the repub- lic's agro-industrial complex, even allowing for technological progress in a simula- tion exercise. 17 Often, however, these elaborate exercises are ignored by the enterprises and ministries involved; the "rules of the game" seem to change quite frequently. As Professor Schroeder aptly summarizes: "So ceaseless has been the search for new panaceas and so numerous have been the changes in the rules that one may advance the hypothesis that perennial administrative change is becom- ing a part of the problem, rather than contributing to its solution. ''1 a

Costs and Benefits of Rapid Industrialization One additional issue needs to be raised concerning Latvia's industrial develop-

ment during the past three decades. Has rapid industrialization benefitted the Latvians, or have their energies and skills been used to subsidize others in the "fraternal" republics? This is, of course, a very touchy issue politically and a complex problem economically. First, growth in Latvia's industrial output has led to rising demand for labor, most of which could not be met locally. From 1959 to 1970, Latvia's population increased by 13%,but roughly half of this rise was due to migration. 19 In recent years, the demographic situation has worsened. The birth rate in Latvia is less than 14 per thousand inhabitants, compared to about 18 for the USSR as a whole, but the death rate in the Latvian SSR, about 12 per thousand, is the highest in the Soviet Union. The resulting net increase is also the lowest among all the republics, which means that any further labor force expansion will have to be met largely through migration. Such an influx of foreign workers has been perceived as a threat to the very identity of the Latvian nation. During a 1970 visit the author was told that only about one-third of the popula- tion of Riga consists of ethnic Latvians although the census of that year indicated

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a figure of 41%. It can be noted that Russian is heard on the streets much more often than Latvian. The Soviet "party-line" answer is that Riga has always had a large non-Latvian population and that many other industrial countries (e.g., the "Gastarbeiter" in Germany) have at times imported workers from less rapidly growing areas, a° On balance, the threat of Russification is a serious one, especial- ly in urban areas, and ethnic Latvians are well advised to ask whether the bene- fits of more rapid economic development are worth its costs. The Baltic elites are in a rather curious position politically in the Soviet Union on this score. On the one hand, if the economic success of the Baltic region is advertised too openly, they are likely to be inviting redistribution measures, as well as being accused of bourgeois nationalism. On the other hand, any criticism of Soviet economic policies must be couched very carefully indeed. It is quite remark- able that Baltic economists have been rather outspoken in recent years on such subjects as greater national and regional independence, more emphasis on rates of return and economic rationality, and so on. Whether such discussion and polite criticism actually influence Gosplan decision-makers in Riga and Moscow is difficult for an outside observer to judge, a 1

From a purely economic point of view, it is quite interesting to raise the question of Latvia's "gains from trade" with the rest of the U.S.S.R. The Soviet writers naturally treat this issue quite gingerly. They are quick to point out that there are large economies of scale with Latvian industry producing output for an extensive market and that Latvia is a resource-poor country, needing raw materials from other sources. This is also quite true for most energy inputs; as Baltirj~ and Ieva point out, electricity consumption more than doubled in the 1959-65 period, while local production expanded by less than 10%. 22 By 1970, locally produced energy (mainly peat, wood, and hydroelectric power) covered only roughly 20% of Latvia's needs. Similarly, the republic's machine- tool and metal-working industry-especially the integrated steel mill "Sarkanais Metalurgs" in Liep~ja-is dependent upon raw materials from the other repubfics. Thus, in a sense, Latvia has a mercantilistic relationship with the rest of the Soviet Union; it imports raw materials and exports mainly finished products, as can be seen from Table 4.

The analysis of gains from trade is carried a step further by considering the relationship between national income produced and used for local consumption and capital accumulation. Some recent work on this topic has been done by James W. Gillula of the U.S. Bureau of Census, who finds that the ratio of in- come used is considerably larger than income produced "in seven of the eight southern-belt republics," with the ratio at its highest (118 percent) in Kazkhstan and Turkmenistan. On the other hand, "national income used was less than pro- duced national income by 4 percent in Ukraine, 7 percent in Latvia, and 8 per- cent in Moldavia." When the basic data are converted into index number form, the republic-by-republic results of Table 5 emerge. Latvia ranks first in produced per capita income and second in both consumption and capital accumulation; it is far ahead of all other republics in the positive export-import balance cate-

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Table 4 SELECTED COMMODITIES IN THE LATVIAN ECONOMY, 1966

Imports Exports Total distr, a

Iron ore (tons) 155,848 15 178,619 Coal (tons) 1,727,000 - 1,729,156 Natural gas (m 3 x 103) 655,600 - 665,600 Electric power (kwh x 103) 1,830,000 688,002 3,988,170

Timber (m 3) 159,987 106,944 1,357,165 Planed plywood (m a) 1,499,000 144 8,940,000 Cement (tons) 192,709 183,466 972,298 Rolled ferrous metal (tons) 601,521 182,170 888,021

Steel (tons) 15 Radio and TV receivers (units) 133,259 Diesel engines and generators (HP) 15,450 Electric apparatus (rubles x 103) 12,122 Refrigerators (units) 17,970 Washing Machines (units) 19,653 Railroad passenger cars (units) 27 Linoleum (m 2) 71,000

107,896 332,960 1,358,606 1,542,906

169,815 200,250 4,277 26,707

47,807 69,451 440,259 500,579

554 608 3,736,000 4~90,000

a Total distributed is the sum of imports and production in Latvia. Source: Daniel L. Bond, Input-Output Structure o f a Soviet Republic: The Latvian SSR (Duke University Center for International Studies, September 1975), 24.

gory . 23 While it is tempting to label the last column an "exploitation ratio," price setting in the Soviet Union is a very complex matter; "essentially opposing points of view have developed on whether it is even possible to calculate national income for republics and regions of the U.S.S.R. within the framework of the existing system of price formation. ''24

The Lagging Agricultural Sector Last, but not least, some specifics concerning agriculture in Soviet Latvia

seem to be in order. While industrial output had increased forty-fold in the 1940- 1976 period, Latvia's agricultural production in 1976 was only 1.4 times its depressed 1940 level. 25 It might be noted, in passing, that all Soviet statistics are published using 1913 and 1940 as base-year comparisons in order to improve their economic performance cosmetically (and to downplay progress during the independence period). For example, agricultural output in 1940 was 21% below the 1938 level, but the latter year seldom appears. The collectivization of agri-

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Table 5 INDEXES OF PRODUCED AND USED NATIONAL INCOME PER

CAPITA FOR REPUBLICS, 1966

183

Used national income Produced Export- national Capital import

Republic income Total Consumption accumulation balance

Total U.S.S.R. 100.0 100.0 100.0 100.0

R.S.F.S.R. 109.2 109.2 109.6 108.0 -108.2 Ukrainian S.S.R. 98.2 92.5 93.8 89.1 184.7 Moldavian S.S.R. 86.2 77.9 78.6 75.9 335.4 Belorussian S.S.R. 85.6 84.7 89.5 71.9 - 37.6 Latvian S.S.R. 138.3 126.7 135.6 103.2 449.1 Lithuanian S.S.R. 111.5 107.6 110.8 98.9 86.0 Estonian S.S.R. 134.0 132.7 137.2 120.5 - 66.2 Georgian S.S.R. 74.8 81.4 85.8 69.6 -410.0 Armenian S.S.R. 81.6 84.8 79.3 99.7 -248.0 Azerbaidzhan S.S.R. 67.5 66.0 67.9 60.8 8.6 Kazakh S.S.R. 88.5 102.0 90.4 132.9 -773.4 Uzbek S.S.R. 62.9 70.4 67.1 79.0 -439.7 Kirgiz S.S.R. 70.2 80.3 77.0 89.3 -587.0 Tadzhik S.S.R. 60.8 65.3 64.2 68.0 -290.3 Turkmen S.S.R. 73.9 85.7 73.8 117.6 -674.5

Source: James W. Gillula, "The Economic Interdependence of Soviet Republics," JEC 1979, 627. This sort of information is no longer being made available, according to Gillula.

culture in Latvia shows up vividly in post-World War II statistics. In 1950, total agricultural output stood at 70.5% of its 1938 level, while livestock production was 57.7%. By 1960, livestock production was eventually raised approximately 11% above 1938, having received a very high priority from the planning author- ities, but other categories of agriculture still produced about 20% less than in 1938.

In the past twenty years, Latvian agriculture has become increasingly large- scale, mechanized and capital-intensive. The number of collective farms stood at 1,974 in 1950, but 227,000 individual farms operated by "kolkhoz" members were still in operation. By 1977, the number of collective farms had been consolidated to 358, and family-operated units in the kolkhoz sector had t:allen to 123,000. On the other hand, the state-owned farms ("sovkhoz"), an even larger production unit, have expanded from 57 in 1950 to 243 such organiza- tions in 1977. The sovkhoz is a production unit averaging more than 10,000

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acres, having on the average 55 tractors, and several thousand heads of livestock- a far cry from the Latvian family farm of the past. 26

While there has been some increase in Latvian agricultural output in recent years, progress has been rather slow, uneven, and costly. From 1965 to 1977, farm output rose by 25%, but population also expanded by 11%. Thus, per capita agricultural production has inched upward at a compund growth rate of less than 1% per year (well below rates of growth in less developed countries such as India). In 1970, farm output was 25% above 1965 (excluding the live- stock sector), but by 1975 this index stood at only 100.6 of the 1965 level- to expand sharply in 1976, and to fall again in 1977. Here it might be noted that the more steady and rapid growth in livestock production may not be doing much to raise the living standard of the average Latvian, for about a quarter of all meat production is destined for export. 27 The fact that whatever progress has taken place in Latvian agriculture has been capital-intensive and costly is shown by the following citation:

In 1965, labor input per hectare of kolkhoz land was 35 man-days, while the costs cf non-agricultural inputs (chemical fertilizer, fuel, processed feed, chemicals, medicine and other biological preparations, electricity, heating materials, amortiza- tion, etc.) amounted to 81 rubies. By 1978, the former measure had decreased to 27 man-days, while the other had risen to 258 rubles-in other words, to 3.2 times the former level. 28

As has been mentioned earlier, the "private plot" and the collective farm market play an important role in Soviet agriculture and consumption. Despite the small size of the private garden, which takes up a large part of the leisure time even of urban dwellers during the season, and the fact that it is a bit of an embarrassment to a socialist propagandist, it is quite productive. The average plot is about 3/4 of an acre, but in 1969 it apparently accounted for 67% of potatoes, 39% of vegetables, 35% of meat, 37% of milk, 56% of eggs, and 35% of fruit and berries, for the USSR as a whole, a9 In Latvia, even though only about 5% of arable land is privately tilled, and with an urban population of about 70%, the same mini-farms account for 54% of potatoes, 31% of milk, 23% of eggs, 24% of meat, and 32% of all vegetables, a° Of course, prices in the open market are considerably higher than in state stores, and as a result, such production benefits those with high incomes.

Another important factor in the analysis of Soviet-style agriculture is the fact that production gains do not necessarily translate themselves into higher consumption levels because of a cumbersome distribution system. Commodities delivered to the state do not have to meet the market test of quality-dumping in a little sand and not checking for spoilage will result in a higher delivery weight and help meet the plan quota. Arranging for storage and prompt delivery are additional problems, as shown by the following:

In 1978 the trade organizations of the (Latvian) republic-largely due to inadequate

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storage facilities-were forced to write off in losses 2871 tons of potatoes and 2646 tons of vegetables. In addition, 9068 tons of potatoes and 5871 tons of vegetables had to be returned to the kolkhozes, where they were used as animal feed . . . . This implies a loss of some 800,000 man-hours of iabor time. 31

In the 1970's especially, there has been a very substantial decline in the physical turnover index in the kolkhoz markets. In 1970, this index stood at 153 (1965 = 100), but fell to 66 in 1974- to recover somewhat to 82 by 1977 (this index

covers sixteen such markets in Riga, Daugavpils, Liepgja, and Ventspils). In turn, the index of prices paid rose to 165 by 1977; an inflation rate of nearly 20% was shown by the 1976-77 year. In general, while the productivity of the Latvian agricultural sector is probably somewhat better than in other Soviet republics, and consumption standards somewhat higher, problems of socialist organization are illustrated most clearly in this area.

It is rather difficult to summarize the economic development experience of occupied Latvia during the past thirty-plus years. Undoubtedly, consider- able economic progress has taken place during this period, but whether this advance has benefitted the ethnic Latvians is a hard question to answer. To quote Gundar J. King:

During these thirty post-war years the Latvian economy was fully integrated into the economic system of the Soviet Union. During this period a highly centralized planning system dominated all decision-making, and this principle has not changed very much recently. Even though the central planning agencies in Moscow and planners in Riga have eventually reached a stage where they must consider raising the living standard of the population according to modern principles, during the period the Latvian economy has lost its autonomous character of the pre-war years . . . . This has involved an enormous cost. The nation's labor force suffered large losses during the post-war integration period. Thereafter, one sees very intensive labor force use (or exploitation), using workers in necessary and unnecessary, rational and irrational Soviet enterprises. "Coercion by the ruble" has continued during all of these thirty years, and one doubts whether the economic accomplishments on bal- ance outweigh economic and social losses. 32

A thorough and impartial set of conclusions is not easy to develop, especially for a distant observer of the Latvian economy. On the positive side, there can be little doubt that the Baltic republics have done somewhat better than the rest of the Soviet Union; output , income, and most socioeconomic indicators appear to be at the very highest levels attained within the U.S.S.R. However, most indica- tors of material well-being in the U.S.S.R. are well below Western standards. Any discussion of economic progress during the past three or four decades should implicitly consider what might have been if the Molotov-Ribbentrop Pact had not been signed by the U.S.S.R. and Nazi Germany and the Baltic countries had remained independent entities in the trading system of the "free world."

It would seem that the most severe single criticism of economic progress in the Baltic region has to be sociological. Today, only about one-half of the

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population of the Latvian SSR consists of ethnic Latvians, Riga has become a largely Russian city, and the minori ty groups in Latvia (such as the Belorussians, Ukrainians, and the Poles) appear to find knowledge of Latvian totally un- necessary.3 3

In terms of economic evaluation, we have noted the serious problems as- sociated with physical targets and quantitative "success indicators," which appear to be mainly responsible for the slowing of growth in the U.S.S.R. as a whole. Although certain modifications of the "fulfill-the-quota" approach have been introduced, changes in management and organization have not been very effec- tive. In the case of the Baltic countries, economic improvements may not have had their full impact on the regional standard of living, being "taxed away," directly or indirectly, to help the other "brotherly republics." In the area of agriculture, once the mainstay of the region, gains have been erratic and rather small, on balance. Recent reports on food availability and cost are quite bleak, with a number of commodities being in very short supply (e.g., meat, butter, and fresh vegetables). The deterioration of the economic situation in Poland, as well as in much of the rest of Eastern Europe, probably means a further belt- tightening for the average Soviet consumer, and it seems probable that belts in Riga will have to be pulled a bit harder than they will be in Moscow.

NOTES

1 This article summarizes the keynote address to the Seventh Conference on Baltic Studies, held at Georgetown in June 1980. Comments by Paul Wiedemann (Wiener Institut fur Internationale Wirtschaftsvergleiche) and Gundar J. King (Pacific Lutheran University) are gratefully acknowledged, as is the rather more strident criticism of Soviet economists I. Kirtovskii and A. Fedotov in Ekonomicheskie nauki, No. 6 (1980), 85-92.

2 For further detail, see George J. Viksnins, "Current Issues in Soviet Latvia's Economic Growth," Journal o f Baltic Studies, 7 (1976), 344-345. Another analyst concludes: "the official exchange rate is arbitrarily set and does not reflect the relative purchasing power of the two currencies." Cf. Toll Welihoziy, "Automobiles and the Soviet Con- sumer," in Joint Economic Committee of the U.S. Congress, Soviet Economy in a Time of Change (Washington, D.C.: Government Printing Office, 1979), 825 (hereafter JEC 1979).

3 See Gregory Grossman, "Notes on the Illegal Private Economy and Corruption," JEC 1979, 834-855. Grossman notes a "wide network of home workers" producing lipstick cases "under direction of management personnel at a Riga cosmetic factory" (p. 839), which suggests that even some light industrial activity is sometimes carried out privately.

4 I.S. Koropeckyj, "National Income of the Baltic Republics in 1970," Journal of Baltic Studies, 7 (1976), 61-73. His findings are largely confirmed by somewhat more recent data analyzed by Imogene Edwards, Margaret Hughes and James Noren, "U.S. and U.S.S.R.: Comparisons of GNP," JEC 1979, 369-401.

5 G. Baltir~§ and T. Ieva, Latvi]as PSR Tautas Saimniecibas Izaugsme (Riga: "Liesma," 1971), 11.

6 Gertrude E. Schroeder, "Regional Differences in Incomes and Levels of Living in the USSR," in V. N. Bandera and Z. L. Melnyk, eds., The Soviet Economy in Regional Perspective (New York: Praeger, 1973), 183. These somewhat higher standards of living,

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greater freedom in national cultural expression, and lesser repression of Western-leaning consumption (teenagers flaunting T-shirts and tunics embellished with a variety of U.S. Army and Air Force patches) patterns are part of a "price" that the Soviet leaders are willing to pay to keep Baltic states "in custody." Cf. William Attwood, "The Baltic States: In Custody," The Atlantic Monthly (April 1980), 14-21.

7 Gundar 1. King, Economic Policies in Occupied Latvia (Tacoma, Wash.: Pacific Lutheran University Press, 1965), 271.

8 David W. Bronson and Barbara S. Severin, "Soviet Consumer Welfare: The Brezhnev Era," in Joint Economic Committee, Soviet Economic Prospects for the Seventies (Washington, D.C.: Government Printing Office, 1973), 379 (hereafter JEC 1973).

9 Imogene Edwards, Margaret Hughes, and James Noren, "U.S. and U.S.S.R.: Com- parisons of GNP," JEC 1979, 379.

10 "Tautas Uzturs Klust Arvien Trucigaks," LAIKS (February 13, 1980), 1. 11 Professors M. M., Latvijas Ekonomiski-Geografiskie Pamati (Stockholm: Zelta Abele,

1947), 182-183, cited in George J. Viksnins, "Current Issues," Journal o f Baltic Studies, 7 (1976), 350.

12 For further discussion of the overall defense burden, see Abraham Becker, "The Meaning and Measure of Soviet Military Expenditure," in JEC 1979, 352-368, and Earl R. Bru- baker, "The Opportunity Costs of Soviet Military Conscripts," in JEC 1973, 163-174.

13 A. Khodzhaev, "The Problem of Satisfying Consumer Demand," Problems of Economics (August 1978), 85. In Latvia itself, only 11.4% of industrial output received the State Quality Emblem, according to the 1978 statistical yearbook (p., 50).

14 M. Ta~akovs, "Pilnveidot Ekonomikas Vadisanu," Padomju Latvijas Komunists (Sept. 1979), 29-30.

15 G. Libermanis, "Socialistisk~fs Saimnieko]anas Meh~nisma Pilnveido~anas Galven~s Probl~mas," Padomju Latvijas Komunists (Nov. 1979), 17-24.

16 Libermanis, 24. 17 B. Treijs, "Republikas Agr~ri Rfipnieciskais Komplekss," Padomju Latvijas Komunists

(Aug. 1979), 42-48. A Western expert points out that "on various occasions the Baltic republics have been put forward as laboratories for the development of large, computer- ized, economic planning networks to be used as models and test beds for the entire U.S.S.R. The Latvian Academy of Sciences claims to have built a substantial time- sharing network in Riga." See S.E. Goodman, "Computing and the Development of the Soviet Economy," JEC 1979, 545.

18 Gertrude E. Schroeder, "The Soviet Economy on a Treadmill of 'Reforms,' " JEC 1979, 313.

19 For further details, see F. Douglas Whitehouse, "Demographic Aspects of Regional Economic Development in the U.S.S.R.," in V.N. Bandera and Z.L. Melnyk, eds., The Soviet Economy in Regional Perspective, 154-166.

20 See Bruno Me~gailis, "Da~as Demogrgtfiskas Probl~mas Latvij~,"Jauna Gaita, No. 5/1979 (Issue No. 126), 11-14. A commentary by Juris Dreifelds in the same issue suggests that labor force shortages in the Soviet Union generally might be alleviated by asking a couple hundred million of China's population surplus to come and lend a hand. One could probably expect considerable economic progress, and Chinese in fact could then become the business language of the USSR; eliminating antiquated views about nationality.

21 At times, this criticism has erupted into more open dissent-witness the 1972 letter by 17 Latvian communists charging that economic progress was being used by the central authorities to increase their control over the local population. The letter mentioned a number of large firms where one could find very few Latvians and others where the management did not understand Latvian. For further detail, see Richard Shryock, "Indigenous Economic Mangers," in Edward AUworth, ed., Nationality Group Sur- vival in Multi.Ethnic States: Shifting Support Patterns in the Soviet Baltic Region (New

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York: Praeger, 1977), 91-93. 22 Balti9~ and Ieva, Latvi/asPSR Tautas Saimniecfbas Izaugsme, 27. 23 James W. Gillula, "The Economic Interdependence of Soviet Republics," JEC 1979,

626-627. 24 Gillula, 628. 25 lu. Vorob'ev, "The Economy of Union Republics Under the Conditions of Developed

Socialism," Problems o f Economics (July 1978), 45. Since expatriate economists have been accused of downplaying Soviet Latvia's agricultural development, perhaps this section will fill a void in the files.

26 Statistics cited from Latvi]as PSR Tautas Saimniec~ba (Riga: "Liesma" 1978), 113-170. For more detailed analysis of the agricultural sector, see Arvids Namsons, "Die Entw_ick- lung der Landwirtschaft in Sowjetlettland," Acta Baltica, 9 (1969), 135-172.

27 Daniel L. Bond, Input-Output Structure o f a Soviet Republic: The Latvian SSR (Duke University Center for International Studies, September 1975), 2-5.

28 Treijs, 42. Treijs also points out that the cost of inputs in a kolkhoz averages 11.28 rubles per man-day, while it is 12.07 rubles in a sovkhoz. Thus, both are highly capital- intensive operations.

29 Karl-Eugen W~idekin, The Private Sector in Soviet Agriculture (Berkeley: Univ. of California Press, 1973), quoted in Wayne A. Leeman, Centralized and Decentralized Economic Systems (Chicago: Rand McNally, 1977), 79-81.

31 Treijs, 46. 32 Gundars K~nin~ (Kings), "P~rdomas par Latvijas Saimniec]bas Attist]bu," Archivs,

16 (1976), 188-189. 33 In 1979, the Latvian population of the Latvian SSR was 1,344,105 (of a total of

2,502, 816). Of these Latvians, 783,607 reported their Russian language as fluent. On the other hand, 821,464 inhabitants were Russian, of whom only 156,743 spoke Lat- vian. Among Belorussians, only about 14,000 of 111,000 spoke Latvian; for Ukrain- ians, about 4,000 out of 67,000 did, and among Poles, about 25% did. It was only among Lithuanians that a slight majority had learned Latvian as a second language (14.9 thou- sand versus 14.1 thousand), while living there. See Vestnik statistikL No. 10 (1980), 72.

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