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Finances of Socialist Enterprises (Associations) and Sectors of the National Economy of the USSR
a basic element in the unified system of Soviet public finance. Finances here include the relations of enterprises (associations) with their employees, with higher-level organizations, with other enterprises, and with the finance and credit system. The constantly growing financial resources of enterprises (associations) and economic sectors are the principal means of covering planned expenditures and providing revenue for the state budget.
In the USSR, a distinction is made between the finances of state enterprises (associations) and those of cooperative and kolkhoz enterprises and organizations. State enterprises form wages funds, funds for fixed assets and working capital, incentive funds, funds for the introduction of new technology, and other funds. Kolkhozes have, for example, funds for labor payments and indivisible (capital) funds. In accordance with the various sectors, there are finances of industry, agriculture, capital construction, transportation and communications, trade, and housing and municipal services. The finances of socialist enterprises (associations) are the basis of the finances of the corresponding sector. The soundness of the financial position of enterprises (associations) is a requisite for the soundness of sectoral finances since by far the largest part of a sector’s monetary resources are in circulation in enterprises (associations).
The organization of finances is subordinated to the general principles of planned management in a socialist economy and is carried out on the basis of profit-and-loss accounting. It is designed to facilitate in every way possible greater efficiency in social production and to bolster the policy of economies. Financial resources conform to the targets contained in the national economic plan; this correspondence promotes coordination between the individual elements of the plan and helps to identify and use internal economic resources. Profit-and-loss accounting presupposes that all expenses incurred by the enterprise (association) in the production and sale of output will be covered by enterprise revenues; it also assumes that the enterprise will show a profit, which in turn will be used for the further expansion of production, for the formation of incentive funds, and for the fulfillment of payment obligations to the budget. Enterprises have control over their own working capital; they set aside reserve funds to ensure the uninterrupted circulation of capital and to cover any temporary financial difficulties including those for which bank credit is also used. Ministries and industrial associations use deductions from profits to create financial assistance funds; they also set up depreciation reserve funds (up to 10 percent of the total amount set aside for the financing of overhauling) and reserve and central economic incentive funds, funds for the introduction of new technology, bonus funds for the development and introduction of new technology, and other funds.
Industry. The finances of industry in the USSR figure prominently in the finances of the economy’s various sectors. Industry contributes more than 63 percent of the gross social product, more than 50 percent of the national income, and approximately 64 percent of all profits in the national economy. The financial departments of industrial enterprises (associations) and ministries must see that the resources necessary to meet targets of production, capital investment, and the introduction of new technology and to cover other planned expenditures are available. They must also identify reserves that can reduce production costs, increase profits, and raise profitability. Financial departments must see that all obligations to the state budget and to banks, suppliers, and higher-level organizations are met, and they must promote the most efficient use of production assets and capital investment.
Enterprises (associations) and ministries have close financial links with the USSR state budget, Gosbank (the State Bank of the USSR), and Stroibank (All-Union Bank for Financing Capital Investments) of the USSR. The relationship with the budget revolves around the payments to and allocations from the budget. Dealings with Gosbank involve the deposit of proceeds from sales of goods and services, the. withdrawal of payroll funds, the granting of short-term and long-term credits, the redistribution of working capital, and the keeping of accounts. The links with Stroibank comprise the enterprises’ transfer of depreciation deductions and deductions from profits and other capital and the obligations arising from long-term financing and crediting of capital construction by the bank.
Revenues and income are determined in the financial plan of the enterprise (association) or ministry on the basis of estimates relating to profits, amounts of working capital required, and sources of finance for capital construction and overhauling. Profit is channeled in three major directions. One part is transferred to the state in the form of payments for fixed productive capital stock and normative working capital, fixed payments, and contributions from net income; in addition to profits, many enterprises also pay turnover tax to the budget. Part of the profit is retained by the enterprise (association) to cover its own needs, and part is transferred to higher-level organizations for subsequent redistribution. Capital construction and overhauling are financed by depreciation deductions, which are assigned for the complete renovation of the fixed assets (minus deductions paid into the fund for the expansion of production), by deductions from profits, by the use of internal resources (when an enterprise acts as its own general contractor), by long-term credits, and by budget allocations. Capital investment in industry between 1971 and 1975 totaled 176.5 billion rubles (compared with 125.9 billion rubles between 1966 and 1970).
Expenditures and deductions in financial plans are set forth as the sum of capital investments, expenditures on overhauling, increases in normative working capital, and payments to economic incentive funds. Capital investments are planned on the basis of the cost-estimate prices introduced on July 1, 1967. The increase in normative working capital is the difference between the normative amount at the beginning of the year covered by the plan and the amount at the end of the year. Expenditures on overhauling usually figure in the depreciation deductions of the enterprise (association).
Agriculture. The finances of agricultural enterprises (sovkhozes, kolkhozes, and interkolkhoz organizations and enterprises belonging to the supply organization known as Sel’khoztekhnika) contain special features arising from the dependence of production on natural and climatic conditions, the use of a considerable part of agricultural output by the farm itself, and the different types of ownership and economic activity.
Expenditures on agricultural development are financed by the funds controlled by sovkhozes, kolkhozes, and organizations belonging to Sel’khoztekhnika, by allocations from the state budget, and by bank credit. During the ninth five-year plan (1971–75), capital investment in agriculture totaled 131 billion rubles. Approximately 50 percent of this sum represented the agricultural enterprises’ own capital. In 1979 the volume of capital investment in agriculture by the state amounted to 21.6 billion rubles. In addition, kolkhozes financed capital investments in the sum of 10.2 billion rubles using their own capital and bank credits. The volume of capital investment in agriculture during the tenth five-year plan (1976–80) was projected at 170 billion rubles, of which 40 billion rubles were to be used for land reclamation.
Sovkhozes derive their revenues primarily from the sale of their output at the purchase prices (with extra charges) established for kolkhozes. Profit is defined as the difference between proceeds from the sale of products, on the one hand, and production costs plus selling expenses, on the other. Virtually all profit is left at the disposal of the farms, where it is used for the expansion of production, the formation of economic incentive funds, and the building up of herds; profits are also used for centralized capital investments.
Kolkhozes derive their monetary income from the sale of agricultural products to the state (state purchases) and to other organizations and enterprises; they also receive income from sales in the kolkhoz market and sales to kolkhoz members. Proceeds from the sale of products to the state depend on the quantities sold and the prevailing purchase prices; proceeds from kolkhoz trade depend on market prices and prices accepted on the kolkhoz. The net revenue of kolkhozes is calculated by excluding from gross revenue the expenditures for labor and the contributions to the centralized fund of social insurance and social security for kolkhoz members. Net revenue is used to pay income tax, to augment the indivisible (capital) fund, and to establish or replenish the cultural and service fund, the social security fund, the financial assistance fund, and the material incentive fund.
Sel’khoztekhnika enterprises derive their revenues from production, trading, and supply. The revenues, profits, and losses from production are determined in the same way as in industrial enterprises. Gross revenue from trading and supply activities is the aggregate of fixed trade margins and markups, which are fixed by the State Committee on Prices of the Council of Ministers of the USSR in consultation with the All-Union Soiuzsel’-khoztekhnika Association and the councils of ministers of the Union republics; profit is the difference between revenues and distribution costs.
Capital construction. Finances in capital construction characterize the economic relations associated with the formation and use of monetary funds for extended socialist reproduction.
The reproduction of fixed capital stock is effected through centralized and decentralized capital investments. Centralized investments are financed by the enterprises’ own capital (amortization deductions and profits), by budget allocations, by internal construction resources, and by long-term bank credits and other funds. The sources chosen at the time of financing and the amount taken from each source depend on the nature of the project, the length of the recoupment period, and the allocation of expenditures for new construction or for the expansion or reconstruction of existing enterprises (associations). Decentralized investments envisaged in the state plan are financed by special funds, among them the fund for the expansion of production, the cultural and service fund, the housing fund, and the fund for the development of local industry; investments of this type are also financed by long-term bank credits. The fund for the expansion of production finances more than 50 percent of all decentralized capital expenditures.
The financing and granting of long-term credits for capital investments in the national economy are regulated by Construction Financing Rules, approved by the Council of Ministers of the USSR on Oct. 8, 1965. Capital investments are for the most part financed through grants. The grants are made for specific purposes, and the money is appropriated on a regular basis during the course of construction; the amount of money appropriated depends on the extent to which the plan is being fulfilled, but it cannot exceed the limits stipulated in the approved estimate. The procedure for financing construction essentially depends on the amount and nature of the work to be performed, the period of time involved, and the methods to be employed in the construction and installation operations.
When work is performed by outside contractors, a financing account is opened for the contracting enterprise at a branch of Stroibank. This account reflects the funds received for new equipment and for financing construction and reimbursing project-making organizations and contractors for planning, surveying, construction, and installation operations. The contracting enterprise transfers funds to the settlement account of the outside contractor in payment for construction and installation work performed. The account is used to cover the contractor’s expenses for labor, construction materials, components, parts, and other needs.
The procedures for financing are different when an enterprise does its own construction work. On projects estimated to cost less than 100,000 rubles for construction and installation, financing is governed by the expenditures earmarked to cover each separate type of work performed. For projects estimated to cost more than 100,000 rubles, financing depends on the work completed during a given period. During the ninth five-year plan, capital investments for the creation of new fixed capital stock and the reconstruction and improvement of existing stock exceeded 500 billion rubles. A 24–26 percent increase in overall capital investments was projected for the tenth five-year plan. In making allocations, priority is given to projects that accelerate progress in science and technology and to the retooling and reconstruction of existing enterprises.
The bulk of the financial investment in capital construction is concentrated in industry. Almost two-thirds of state capital investments in industry are for retooling, reconstructing, and expanding existing enterprises.
Transport and communications. Transport finances include the finances of railroad, motor-vehicle, maritime, river, air, and pipeline transport. The organization of the finances of the various modes of transport reflects the special features of production and economics in the enterprises and organizations corresponding to a particular mode. These differences manifest themselves in the planning of revenues and expenditures and in the distribution of profits. They are also seen in the organization, structure, and norms governing working capital, in the system for financing capital construction and overhauling, in the structure of income statements of enterprises, and in the interrelations between transport enterprises, higher-level organizations, and the state budget.
Transport organizations derive their income from moving freight and carrying passengers, baggage, and mail; from performing handling operations, repair and construction work, freight forwarding, and production services; and from operating public transport. The magnitude of an organization’s revenue depends primarily on the volume of work performed and on the existing freight and passenger rates. Most of the revenue in railroad transport derives from the shipment of freight, while civil aviation’s mainstay is the transportation of passengers.
The operating expenses of transport enterprises include payroll costs, material expenditures, and depreciation deductions. Wages and depreciation deductions account for a significantly higher proportion of expenses than is the case in industry. For example, in the mid-1970’s wages accounted for approximately 40 percent and depreciation costs 30 percent of railroad transport’s total operating costs (compared with 14.8 percent and 5.7 percent, respectively, in industry).
Transport enterprises seek to show a profit. In 1974, 66 percent of all profits went to the budget; this figure included the 35 percent representing capital charges. The amount of profit left at the disposal of enterprises was 34 percent, including the 12 percent of the total that was allocated for incentive funds and the 15 percent used for capital investment. The financial relations between transport enterprises and ministries are usually based on the centralization of all monetary resources, including a part of the depreciation fund for financing capital investments and overhauling.
The organization of the finances of communications enterprises depends on the nature and special features of the enterprises’ activity. Communications enterprises can be divided into two groups depending on the methods used in realizing revenue and covering expenditures. The first group includes enterprises with a complete production cycle, that is, enterprises in charge of all aspects of a particular service (urban telephone and radio relay networks, local television stations); all revenue derived from the services is used to cover operating costs. The second group includes enterprises with an incomplete production cycle (post offices, long-distance telephone exchanges, telegraph branch offices and central offices); these enterprises are intermediary links, performing only part of a service. At the same time, however, they receive payment from their customers for all phases of the service. Therefore, only the part of the revenue corresponding to the amount of work actually performed by these enterprises can be classified as their own. Communications ministries redistribute the difference between the full rate and the amount of the rate retained by the enterprise among the other enterprises in the communications network.
Trade. Working capital, mostly in the form of inventories, predominates in the finances of trade organizations. As of Jan. 1, 1975, inventories accounted for 86.1 percent of the working capital of state trade enterprises. Bank credit is the principal means of raising working capital (60.5 percent as of Jan. 1, 1975). The turnover of the working capital of trade enterprises depends not only on the availability, assortment, and quality of merchandise but also on the effective demand of the population.
The proceeds that trade enterprises realize from the sale of goods are the source of gross revenue. The magnitude of this revenue is determined by multiplying the volume of retail trade turnover by the fixed trade margins or markups. Gross revenue is used to cover distribution costs and make a profit, the latter being the difference between gross revenue and total distribution costs. Profitability is calculated as the ratio of profit to either the volume of commodity turnover or to distribution costs. In 1974 the profitability of state and cooperative trade enterprises was 1.5 percent of the value of commodity turnover and 25.2 percent of distribution costs. The profit of trade organizations is used for replacing fixed capital stock and circulating productive capital, for building up commodity clearance funds and incentive funds, and for making payments to the state budget.
Housing and municipal services. The economic and financial activity of housing and municipal enterprises is geared toward providing services to the population and raising the material and cultural standard of living of the working people. During the ninth five-year plan, 73.5 billion rubles were spent on the construction of housing, and 13.3 billion rubles were spent on the construction of municipal facilities. A large-scale construction program for housing and municipal facilities has been carried out during the tenth five-year plan. Housing, which constitutes approximately one-fourth of the total fixed capital stock of the national economy, is financed mainly through budget allocations. The amortization deductions for residential buildings are used exclusively for major repairs. Urban major repair funds (created by setting aside 20 percent of the rent payments from nonresidential buildings) are also used for the repair of housing stock, as are borrowed funds in the form of debts to contractors, and bank credits and budget allocations. Supplies, low-cost and fast-wearing items, and tenants’ arrears of rent and special fees figure prominently in the structure of working capital. (The norm for working capital is established on the basis of accounts receivable from tenants, taking into account the recurring nature of these arrears and the necessity of meeting the payroll for the employees of housing organizations.) The expenditures of housing organizations are broken down into operating costs (administrative and managerial costs, labor costs for service personnel, maintenance and repair costs) and the costs incurred in providing municipal services. The revenues of housing organizations come primarily from apartment rents and the rent from nonresidential buildings.
Enterprises providing municipal services derive their revenues from the sale of goods and services. Centralized capital investments are based for the most part on amortization deductions, profits, and budget allocations. Budget funds, bank credits, and the fund for the expansion of production are the sources of decentralized capital investments.
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Birman, A. M. Ocherki teorii soveiskikh finansov, fascs. 1–3. Moscow, 1968–75.
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N. G. SYCHEV