Modernization of Enterprises

Modernization of Enterprises

 

in the USSR, the totality of measures providing for an increase in the volume of output and the development of new products at existing enterprises, for the conversion of existing enterprises to new production methods, for the introduction of the scientific organization of labor, for the growth of labor productivity, and for the improvement of working conditions; a special form of the reproduction of production of fixed assets.

Modernization is distinguished by a high degree of effectiveness. If the production capacities of operating enterprises are increased by the introduction of advanced production methods or by the modernization and replacement of obsolete and worn-out equipment, it is possible, as a rule, to increase product output without expanding the production area and in a shorter time and with fewer expenditures than are required for the construction of new facilities. For example, between 1965 and 1974 the modernization of enterprises in the building materials industry of the Ukrainian SSR required three to four times less in expenditures than would have been required to build new enterprises of the same capacity.

Enterprises are modernized in conformity with a plan for a number of purposes, including raising the technological level of production by replacing obsolete and worn-out equipment. (In such instances, the assortment and volume of product output remain the same.) In addition, modernization may be aimed at raising the organizational and technological level of an enterprise, thereby increasing the volume of output by eliminating “bottlenecks,” systematizing production, and improving management. Modernization may be intended to change the production structure of the enterprise (through specialization, for example) or to improve product quality by converting to a new production method or by improving the comprehensiveness of the use of raw materials. (As a rule, this type of modernization necessitates the rebuilding of enterprises.) Social results may also be among the purposes of modernization (for example, ecological measures such as the establishment of purification facilities, or measures related to industrial aesthetics).

In terms of the volume of work it involves, modernization is classified as minor, moderate (or average), or complete, with replacement factors for fixed capital stock of less than 0.2, 0. 2–0.4, and 0.4, respectively. The replacement factor for the active portion of the capital (machinery and equipment) may even equal 1, but for the passive portion (buildings and installations) the replacement factor will not exceed 0.4–0.5. (See Table 1.)

Table 1. Proportion of the total volume of centralized capital investments used for the modernization, expansion, and technical reequipping of operating enterprises (in percent)
 19701973
Total for industrial projects ...................5865
Electric power ...........................2025
Ferrous metallurgy ........................6072
Chemical and petrochemical industries ...........4549
Machine building and metalworking..............6370
Lumber, wood products, and pulp and paper industries . .5763
Light industry............................4048
Food processing..........................6660

The decision to modernize is made by the leadership of an enterprise (association) or by the relevant ministry (department). Modernization measures are financed from the state budget (in conformity with the plan for centralized capital investments) and from the production development fund of the enterprise. When an enterprise is modernized, the necessity of maintaining the skills of the workers is taken into account, as is the possibility of retraining them, if there are to be changes in the specialization of the production units that are being modernized. At the same time, modernization plans often envisage significant capital investments to demolish old production buildings and installations, auxiliary facilities, and administrative buildings and build new ones. Such plans are associated with a decline in economic efficiency indicators.

Developed socialist society pursues a policy of intensive economic development chiefly by means of the modernization of sectors of the national economy. This entails an increase in the proportion of expenditures for modernization in the total volume of centralized capital investments for industry, as well as for many other sectors.

The modernization of enterprises and of sectors of the national economy is also a major policy in other socialist countries, especially the German Democratic Republic, the Czechoslovak Socialist Republic, and the Polish People’s Republic.

REFERENCES

Krasovskii, V. P. “Perspektivnye problemy kapital’nykh vlozhenii.” Problemy ekonomicheskoi nauki i praktiki. Moscow, 1972.
Metodicheskie polozheniia po opredeleniiu ekonomicheskoi effektivnosti kapital’nykh vlozhenii na rekonstruktsiiu i rasshirenie deistvuiushchikh promyshtennykhpredpriiatii. Sverdlovsk, 1973.
Smyshliaeva, L. “Sovershenstvovanie struktury kapital’nykh vlozhenii.” Voprosy ekonomiki, no. 4, 1974.

V. P. KRASOVSKII

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