All the circumstances listed above, which take place inside industry, together with a whole host of other circumstances external to industry, cannot fail to influence the progress of capital construction. First and foremost, the movement of production costs (even if we take the formal figure for the cost reduction as the correct one) has created an imbalance in the financial plan. Taking into account that each percentage fall in production costs ought to yield approximately 130 million rubles, a five per cent underfulfilment of the plan over the year creates a deficit of about 600 million rubles. In any event, the eight months for which we have information already show a real deficit of about 440 million rubles. If we allow further that the general plan for the growth of output is also going to be underfulfilled by several per cent, the annual deficit increases to 700 million rubles (on condition, of course, that production costs remain at the level already attained). However, this is not the only deficit. As we have already noted, 117 million rubles is to come from a four percent deduction from the capital construction of other branches. Since these other branches are just as badly off as industry, it is highly doubtful that industry is going to receive any of these deductions. What is more, the financial plan, as we have also noted, contains its own imbalance of 221 million rubles. Finally, the Council of People’s Commissars, in its decree of May 2nd, made an additional allocation of 340 million rubles, but it is not known where it is going to come from. It is difficult to imagine that the resources to cover a single one of these sums could be found. Even if we assume, however, that the four per cent deduction (117 million) is forthcoming, that the unbalanced 221 million are somehow covered, and that there even takes place a substantial reduction in production costs, there still will remain a deficit of some 800-900 million rubles. How is it going to be covered? Industry can cover it internally either by underfulfilling its nominal wage plan or through greater mobilization of its own internal resources. As for the first source, attempts undoubtedly are being made in this direction: for eight months nominal wages went up by 5.4 per cent over the average monthly wage last year and by 8.1 per cent compared to the first eight months of last year. According to the plan they were to rise by 9 per cent. Each per cent underfulfilment yields between 50 and 60 million rubles from the urban proletariat alone. However, the resources that might be created from this are being eaten up by the excess in the number of workers above the plan.
The plan for mobilizing industry’s own internal resources – originally projected to be about 600 million rubles – has even been overfulfilled. It would appear that here we have a potential source for covering the deficit. However, even here not all is going smoothly. The fact is that this mobilization of internal resources, as well as the direct relative decline in the circulating capital of industry and the syndicates, have created a shortage of circulating capital. Industry is compensating for this by diverting funds allocated to it for capital construction into circulating capital. I. Miroshnikov (Pravda, 28 May), using data for the first half year, comes to the conclusion that during this period industry has been “applying allocations for capital construction not to the purposes for which they were assigned, but to enterprises’ circulating capital”. In any event, even if this source yields something, it will not nearly be enough to bridge the gap, which is enormous. The only source that could cover it is the budget, which in the current situation cannot avoid a deficit as it is. I shall deal specifically with the question of the financial state of the economy in its proper place (see the section Finance and Monetary Circulation). Here I shall note only that in eight months the budget has already issued industry with 70.8 per cent of what has been allocated to it for the year, while the plan for capital construction is only 36 per cent fulfilled. As we shall see, this imbalance (together with numerous others) is impelling centrism to make rather liberal use of the printing press. Outwardly it appears as if capital construction is encountering no financial difficulties whatsoever and that, from the financial viewpoint at least, things are doing well. The problem is that in our system it cannot fundamentally appear otherwise. In any capitalist country it would be totally different: Wherever a capitalist or group of capitalists is in possession of certain (material) resources, another group can obtain them only if it has the appropriate means of purchase. In this way the absence of real values assumes the form of financial difficulties. With us, however, where the state is the principal owner of all material resources and has sole command over them, the absence of real resources appears directly, as such, without manifesting itself through financial troubles. Hence what shows up as an imbalance in the financial plans is in fact merely the manifestation of a shortage of real resources, of material values.
General data for plan fulfilment on capital construction over eight months gives the following picture. In value terms the plan as a whole is 36 per cent fulfilled.  Here the dislocations that characterized last year’s plan fulfilment are revealing themselves even more sharply this year. Whilst the plan for group “B” is 47.2 per cent fulfilled, that for group “A” has been fulfilled by only 34.3 per cent. On the other hand, while overall fulfilment for the plan for new construction is 34.4 per cent, for heavy industry it is only 27.6 per cent. However, one has to deduct from these figures what has gone to fill the gaps from last year; more important, it is necessary to keep in mind that this year even more than last, plan fulfilment in value expression says nothing about its fulfilment in physical terms. The figure for plan fulfilment only tells how much has been spent – it says absolutely nothing about what has been done.  It is impossible to compute the size of this divergence with existing data. We have evidence that on a whole number of construction projects vast resources have been squandered doing pointless jobs; the cost of construction is enormous – several times what was outlined in the plan. But the plan projected an overall decline in construction costs of 14 per cent, and of 18 per cent on new projects. Precise figures exist for only one extremely important element of construction costs – construction materials. According to the plan, production costs were to have gone down by 13 per cent. In fact, the fall was 3.9 per cent. Thus for an important component of construction, prices are nearly 10 per cent higher than planned, leaving quality out of account. If we include quality, the percentage cost rise turns out even higher.  It is possible to form some general conception of the rise in construction costs from the fact that, according to an estimate of the Supreme Council of the National Economy, one quarter of the plan for capital jobs has been fulfilled over eight months (Za industrializatsiyu, 20 July). If this calculation is correct, it means not only has the cost of construction failed to decline, it has gone up: there is a disjuncture between the value and material expression of more than 25 per cent. If this ratio has been correctly calculated, and if we allow for the fact that the greatest cost overruns have taken place in new construction, this means that in material terms the plan for new construction has been at most 20 per cent fulfilled in eight months, and even less for heavy industry.
What are the concrete reasons for this disruption in the plan for capital work? The basic causes are as follows:
In a word, any defect, small or large, in any part of the economy has a ten-fold impact on construction. The character of these defects is such that they cannot be eliminated in the short run. The country does not possess – and will not possess in the near future – those real resources that are needed to do away with these obstacles; least of all can it create these resources through the rapacious employment of labour power. The plan for capital construction is going to be frustrated to a considerable degree. This brings us back to the question posed at the very outset, when we were discussing quantitative indicators: The only normal basis on which the future growth of quantitative indicators can proceed is not going to be created in the immediate future. This fact foreordains the fate of the quantitative indices.
Previous policy did nothing at all to prepare either the growth in total output or the capital construction that had been called for by the plan. Within industry, the whole of preceding policy was reducible in essence to expanding the utilization of old fixed capital; in a number of branches this utilization was purely and simply rapacious, without the slightest regard for the future. In the sphere of distribution of the national income, the entire policy – especially price policy – led to industry having extorted from it even those slender profits it was able to make, not to mention having no resources pumped in from outside. People began to chink about tomorrow only when today reminded them of it. This is all so well known that it is superfluous to discuss it. I shall cite merely two illustrations from branches basic to the whole rest of industry. Characterizing the state of the Krivoi Rog region, which feeds our iron and steel industry with 72 per cent of all its iron ore, S. Dubinker writes: “So long as extraction was not intensive and it was possible to draw on what had been prepared during the pre-war period, it seemed that all was well in the Krivoi Rog. But then work tempos were changed ... prepared deposits began to be exhausted, and the question arose of forcing capital construction” (Za industrializatsiyu, 17 May). There is nothing more to add: the question of capital construction in the iron ore industry was posed only when the deposits prepared in the pre-war period had come to an end. An analogous situation existed in the coal industry. Here “planning careered cowards the old Donbass”, with operations being constrained by the working of the “old Donbass’s obsolete, tattered, small-scale installations” (Za industrializatsiyu, 9 May). It never occurred to anyone to build new pits until we found the old Donbass completely spent. As Shveltovsky notes (Na planovom fronte, No.9-10), “We were scandalously late in preparing production reserves in the coal industry”. In fact, coal extraction throughout the USSR in 1929-30 is nearly double the pre-war level; at the same time 90 per cent is coming from old mines.
Only in the light of these facts can we understand what right there is to upbraid the workers for failing to fulfil the plans for increasing output and lowering production costs. The situation is roughly the same in other industries, which even in the best of cases have restricted themselves to the current repair of existing fixed capital. Centrism had hoped to overcome this legacy at a single bound – to skip stages and jump directly to super-American tempos – by putting pressure on the working class and by resorting to what it calls “socialist competition” and shock work – all in the context of a steady deterioration in the working class’s material situation. The greater the impact of failures in other areas, the more practical policy opted to follow the line of least resistance: pressurizing the working class. With such great achievements in this field, it is hardly surprising that for the most part this reserve soon exhausted itself simply from the point of view of profit and loss accounting. The use of this reserve has reached its limit: its further application, exhausting the worker as it does, will yield nothing to the economy and will even do it harm. The concrete expression of this is the contradiction between quantity and quality.
The policy of the last two years has completed from the other end what the policy of the preceding years had started. Widening all the disproportions, deepening all the shortfalls, it created a stupendous demand for resources that the country does not in fact have. After a while, the process became characterized by a growth of quantitative indicators at the expense of exhausting the working class. Once this reserve had been spent, it became clear that we were dealing with a lack of real resources. This fact then determined the course of capital construction. What will this situation mean for industry? Underfulfilment in capital construction does not mean simply underfulfilling the plan for a single sector of the national economy. Under existing conditions it means frustrating attempts to provide the national economy with a new industrial base and to set industry itself on a new technological footing in the immediate future. There is no need to point out that the failure of capital construction in one branch has a corresponding impact on other branches, that it creates shortfalls in the quantitative indicators that then affect the further progress of capital construction, etc., etc.
All this is beyond debate. However, it is necessary to emphasize one factor that is going to take on decisive significance in the immediate future. To underfulfil any construction project even by two or three per cent means that none of this construction can yet enter the ranks of functioning capital. Until it is finished, all the resources expended on it will remain dead capital. Hence the enormous importance assumed by the rate of construction. The larger the project in question, the more significant its delay becomes. If the plan for construction, let us say, is 70 per cent fulfilled, this in no way means that 70 per cent of the planned number of new factories, aggregates, etc., will go into operation. Only perhaps 10 to 20 per cent can do so. Under these conditions everything can hinge on just a few percentage points of plan fulfilment. And when we are talking about tens of percentage points, the real impact will be ten times greater.
Assessing the actual situation, not only can we positively establish that the collapse of the whole centrist industrialization is inevitable (in fact, it has already begun), but we can even pinpoint the breach through which the crisis is going to burst. The breach will come at the disjuncture between old fixed capital going out of service and the impossibility of new fixed capital being there to replace it at the right moment. The total value of the remaining fixed capital plus the resources invested in construction might well exceed the value of the fixed capital with which we began the five-year plan, nevertheless industry still is going to experience a severe crisis of fixed capital so long as the resources invested in unfinished construction projects continue to lie as dead capital. At first the crisis might take the form of a sharp fall in the quantitative indicators sneaking-up from various directions: the impossibility of any further rise in the intensity of labour (or more accurately, a fall in labour intensity, since it is physically impossible to sustain the existing level for any length of time), the failure of the plan for capital construction, or (finally) the severe shortage of agricultural raw materials – already one of industry’s most serious problems. Through a number of intermediary links the worsening food situation works in the same direction. Together with this collapse in the quantitative indicators (or perhaps somewhat later) the crisis of fixed capital will break out with full force, owing to the breakdown of capital construction. The industrial crisis can no longer be averted – in fact it is already upon us. The longer present policy continues, the more abrupt and sharp will be the collapse and the further back shall we be driven. The attempt to vault over the entire legacy of past policy, to by-pass it through the shady practice of shifting the full weight of industrialization onto the working class, is approaching its inevitable end. Given the manner in which the centrists belatedly set about industrialization, the effort was doomed to failure. The collapse of centrist industrialization at the same time will totally discredit industrialization per se in the eyes of the working class. For, with the present policy, the working class identifies it with unprecedented pressure and the drastic decline in its standard of living.
“Energy is one of the worst bottlenecks in the development of industry and the national economy”, says Kuibyshev in his Theses to the Sixteenth Congress. Translating this into concrete language, Kukel’-Kraevsky writes that “an electricity famine is impending” (in an article of the same name in Za industrializatsiyu, 6 June). “It is enough”, he says, “to go over the numbers of Za sndustrializatsiyu for the last two months to be convinced that a real ‘electricity famine’ already exists in every industrial region of the USSR ... The country has not a single spare kilowatt of electric power”. Any breakdown – the number of which is steadily increasing, owing to the fact that we continue to work with “equipment that is past its useful lifespan” – causes a halt in the supply of current. Even if new industrial construction was going according to plan, the new factories still would be unable to go into operation because they would have no electricity. The example of electric power construction is convincing proof of how little one can judge the actual state of things from the data on plan fulfilment. The plan for electric power capital construction has been 37 per cent fulfilled, a figure slightly higher than the average for industry. However, the programme is already disrupted, with three quarters of all construction projects having come to a halt (ibid.). And why? All for the same reason: the absence of real resources, the lack of building materials and equipment. “The shortage of building materials”, writes Kukel’-Kraevsky, “did not become the decisive reason for the failure only because a large part of the unfortunate construction sites had previously had to close down because they had no equipment.” A large proportion of orders for imported equipment have been cancelled, others, although filled, have reached our factories four to 18 months after the time specified in the plan. However, many orders could not be filled internally and were again abandoned to wait for orders to come in from abroad. The failure of this year’s plan for electric power construction has already determined the fate of next year, at the end of which we shall face an unavoidable deficit of at least a half million kilowatts. For Moscow and Leningrad this will mean a deficit of 30 to 33 per cent – and even then only on the assumption that not a single power station goes out of action and that there is no overburning of fuel (which would upset the fuel-power budget from the other direction). New electric power construction in 1930/31 can still save the situation in 1932, but only if next year’s construction is substantially greater than the preliminary control figures are calling for.
The situation with regard to electrification displays yet another of our already innumerable disproportions – this time, that between industry and its energy base – and yet another limit to industrial development.
Electric power construction, transport, and other areas have had their resources taken from them and thrown into industry. This year [1929/30] allocations for electric power construction amounted to 14.1 per cent of allocations to industry, against 32.7 per cent in 1925/26. However, since the transfer of resources does nothing to increase their, overall quantity, this merely created additional disproportions. Kukel’-Kraevsky gives an excellent characterization of centrism’s policy – which shoots for quick results without regard for the future – when he melancholically remarks: “Since the results of electric power construction only make themselves felt after several years, no-one has given them much thought or paid any attention to the protests of Glavelektro [the Main Electricity Boards].” All the same, he does not grasp the heart of the matter. He sees only a “ staggeringly thoughtless attitude on the part of our industrial leadership”, when in fact it is a question of not having the real resources.
The situation in transport is catastrophic in the most literal sense of the word, as testified to by the accelerating frequency of railway disasters. In transport too, there has been substantial growth in the quantitative, indicators. But here it is absolutely clear that this is based on the out and out plunder of fixed capital without any serious attempt to replace it. In 1928/29, our rail transport system was first in the world in the intensity with which it utilized its rolling stock. However, this took place, and is taking place still, at the cost of its massive depreciation. In previous years transport has been neglected no less than other sectors of the economy. Thus, when it was “ascertained” that it was necessary to develop industry, an attempt was made to sacrifice transport. Far from saving the situation, however, this created yet another disproportion in the national economy. Transport already has become perhaps the most troublesome disproportion for both industry and agriculture. The following comparison will give as a general idea of the strain under which transport and transport’s resources are working.
In 1928/29 in comparison with 1913:
This year the gap has widened even further as both rail beds and rolling stock have continued to wear out. What this disproportion means in physical terms and just how hopeless it is to expect any kind of short-term improvement are both clear from the following: To haul the amount of freight that will have to be carried by the autumn of this year, the five-year plan envisaged a need to invest seven billion rubles (including 4.5 billion on the existing rail network and 2.2 billion on new construction). We can pose the question even more sharply by pointing out that concretely this would mean: more than 3000 new locomotives; 24,000 kilometres of new rails; 17,000 kilometres of new rail bed; seven million tonnes of metal; 95 million creosoted sleepers; 59,000 kilometres of train control telegraph wires; and the universal introduction of automatic brakes. None of this has been received; nor, as Rudzutak declared to the All-Ukrainian Party Conference, “will it receive it in the near future”. What is more, transport is receiving barely enough to cover current depreciation. The percentage of large locomotives on the different roads fluctuates between 11.2 and 23.9 per cent (Order of NKPS [People’s Commissariat for Transport] Pravda, 13 July). More than 10,000 kilometres of rails have outlasted their useful life. On the southern railroads as much as 37 per cent of the rails are worn out and will not accommodate the stock that travels over them. There are rails with between 10 and 12 millimetres worn away. The lapu are completely unsuitable and a huge proportion of the couplings demand immediate replacement. Thirty-eight per cent of water pipes also need to be replaced. A number of bridges are in such a state that not only can they not transport the heavy stock, they are endangering traffic. Warehousing has been totally neglected. Of the enormous number of items that transport needs it is getting nothing. To obtain “anything at all” it has to fight for it. Actual deliveries from the timber industry of the Supreme Council for the National Economy for the first half year were: 10 per cent of ties (instead of 20 per cent); 12 per cent of the rail crossing timbers (instead of 20 per cent); 13 per cent of the timber materials needed for haulage (versus 40 per cent); and nine per cent of the timber materials needed for bridges (as opposed to 20 per cent) (Ekonomicheskaya zhizn’, 10 July).
Although transport needs 460,000 tonnes of rails it has managed to order only 420,000; yet even this order goes unfilled, with transport getting only 115,000 tonnes in the first half of the year. The Council of Labour and Defence [STO] found it necessary to issue a special decree ordering rolling mills to start filling this order, but this soon reflected itself in a cut-back in iron girders and U-bars for industrial construction. In a number of places – particularly in Siberia, where it is especially important – the construction of second road beds has had to be abandoned. It has been necessary to cut 500 kilometres off the laying of rails on new construction sites and to postpone the replacement of rails on old beds. Yet even where transport obtains rails, laying them still represents an out and out waste: whereas pre-war rails lasted 30 to 40 years, our present-day rails last less than five years (Ekonomicheskaya zhizn’, 21 June). Despite this situation, transport finds itself having to cope with greater and greater demands, thanks to which the size of loads is ever rising, and with it the rate of wear and tear. Under such conditions, it is hardly surprising that transport is suffering a greater number of stoppages. The number of so-called “incidents” is rising rapidly, including “serious accidents accompanied by damage to rolling stock and even by loss of human life” (Ekonomicheskaya zhizn’, 8 July). In June more than 8000 locomotives were damaged in accidents alone. In the first half of July the figure was already up to 5000, as against 1920 accidents in all of last year. Is transport really in any state to cope with the workload being placed upon it? Hardly anyone still could think this a serious possibility. Miracles do not happen. If last year, with a daily load of 45,000 cars, transport still suffered serious stoppages, can there be any doubt that this year, when the situation is that much worse, it will be unable to sustain a daily load of 25,000 cars?  If throughout the year transport has not been able to cope with the freight needs just of construction, can anyone think that it will cope any better when it also has to carry grain and fodder? If transport is to carry the grain procurements it will have to stop carrying building materials. And so we see reinforced yet another factor undermining the progress of construction.
The situation with river transport is even worse, in terms of both its quantitative indices and new construction. The situation in both rail and river transport is such that not even the application of those great cure-alls, socialist competition and shock work (delays in wage payments are already worse in transport than in industry) can do any good. Here, too, the question hinges on the absence of real resources, of which a colossal quantity are required. The attempt to force industrial development at the cost of depriving electric power construction and transport of real resources has had the effect of turning them into backward branches which themselves are becoming a brake on the development of industry.
14. The insufficient detail with which I am treating the empirical side of the matter is because comrade Trotsky has devoted a special article to this question, and I refer the reader to it. It is difficult to discern to which article Rakovsky is referring. In his article The New Course in the Soviet Economy (Writings of Leon Trotsky 1930 [New York, 1975], p.116) Trotsky promised to produce “an extensive work” of this description. However, the only piece of any substance to appear in this period was the December 1930 article, The Successes of Socialism and the Dangers of Adventurism (Writings 1930-31 [New York 1973], pp.88-107); the article is empirically thin and seems to borrow almost the whole of its argument from Rakovsky himself – Translator.]
15. After writing these lines I read the following in a leading article of Za industrializatriyu: “These figures are for fulfilment of expenditure, and not for construction in the proper sense. Given the conditions under which construction currently is proceeding ... fulfilment of the construction plan and fulfilment of the expenditure plan are far from being one and the same thing”.
16. Za industrializatsiyu of 26 July, discussing the change in production costs of building materials, tells us: “Although building materials this year are cheaper ... building sites have been left completely without automotive or animal-drawn transport, so that the enormous, excess sums laid out to pay for the delivery of materials are totally eating up this saving”. As regards the fall in overall construction costs this same article reports char “the government directive on reducing. production costs by 18 per cent has not been fulfilled”. A leading article in Za industrializatsiyu of 27 July declares, “Not only is there no assurance that construction costs will fall as projected, there is no guarantee even that they will remain stable,” which in the opinion of the editorial, “is evidence above all of how conditional are the data for plan fulfilment in capital construction for the first three quarters”.
17. [Editor’s note: This is probably a misprint which should read 75,000 cars.]
Last updated on 16.6.2004