western technology in the soviet union

CHAPTER X

Western Technology inthe Soviet Union

CONTENTS

PageTHE HISTORY OF WESTERN TECHNOLOGY IN

THE SOVIET UNION. . . . . . . . . . . . . . . . . . . . . . ..................205

THE NATURE OF THE SOVIET ECONOMY. . . . . . . . . . . . . . . . . . . . . .209

The Communist Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........209The Government Apparatus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........209Economic Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............209

DECISIONMAKING ON FOREIGN TECHNOLOGY.. . . . . . . . . . . . . . .211

Institutions Involved in the Acquisition of Foreign Technology. . .........211State Apparatus and Technology Acquisition . . . . . . . ...............211The Communist Party and Technology Acquisition . ................215

TECHNOLOGY ACQUISITION AND PLANNING. . ................216

Criteria and Priorities for Technology Purchases . . . . . . . . . . . . . . . . . . . . .. .217

THE ROLE OF WESTERN TECHNOLOGY IN THESOVIET ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .219

Absorption and Diffusion of Western Technology . . . . . . . . . . . . . . . . . . . . .. 219The Economic Impacts of Western Technology . . . . . . . . . . . . . . . . . . . . .. ..225

Chemicals ... ... ... ... ... ... ... ... ... ... ... ... a s . . . . . . . . . . . . . 227Machine Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......230Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . ..+...... . .............237

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........240

Table 36.–Western and U.S. Computer Sales to the U.S.S.R., 1972-77 . ...........234Table 37.–First Production of Comparable Soviet and Amercian Computers . ......237Table 38.–Soviet Imports of Western Oil and Gas Exploration and Extraction

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............239Table 39.–Breakdown of U.S. Oil and Gas Equipment Sales to the U.S.S.R . ......239

Figure 12. –U.S.S.R. Council of Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...213Figure 13.-Organizational Structure of Operational Management of Foreign Trade .214Figure 14.-Composition of Soviet Imports From the Industrialized West, 1977 ....216

CHAPTER X

Western Technology inthe Soviet Union

THE HISTORY OFTHE

WESTERN TECHNOLOGY INSOVIET UNION

Debates in the United States over the national security implications of bol-stering the Soviet economy through the sale of advanced technology are of rela-tively recent origin, but the desire to profit from Western technological ad-vances vastly predates both the cold war and the creation of the Soviet State. Inthis sense, Western technology transfer to the U.S.S.R. has had ample prece-dent; foreign technology and capital infusion have played a relatively large rolein Russian economic growth for the past 300 years. From Petrine times until thepresent, Russian statesmen have attempted to compensate for domestic inabili-ty to generate competitive innovation by importing know-how from abroad. Themotivation for this interest in technical and economic progress has varied, andtechnical advance, economic growth, and military power have all been closely in-tertwined. Successive heads of both the Russian and Soviet Governments haveemphasized the necessity of competing with the advanced states of Europe notonly in terms of domestic standard of living, but also in terms of nationalsecurity.

The first systematic and nationwide at-tempts at modernizing the Russian Statethrough Government edict occurred duringthe reign of Peter the Great (1682-1725).During his tenure, the number of manufac-turers and mining enterprises quadrupled.Western impact in this period was felt morethrough the transfer of know-how, ideas, andpeople than through the transfer of hard-ware. The main thrust of the Petrine eco-nomic reforms directed toward the develop-ment of an efficient, modernized Russianarmed force that could match those ofPoland and Sweden, Russia’s major Euro-pean adversaries. The almost continuousstate of war, punctuated by periodic inva-sions of the Russian homeland, made the de-velopment of a modern navy and munitionsindustry seem crucial to the survival of theTsarist State.

The State bureaucracy under Peter I,remolded along Western lines, was the primemover in the development of key military-related sectors of the economy. This estab-lished a pattern which was to persist untilthe October revolution. Growth in the newarmaments, metallurgy, shipbuilding, andtextiles industries was encouraged by guar-anteed demand for their products from theGovernment sector. The State, in turn,strictly regulated the quality of the product,demanding standards comparable to Ger-man and Dutch industry. In 1702, Peter ini-tiated a drive to induce foreigners to settle inRussia. This was intended to be a spur to in-novation; Russia was importing both thenecessary know-how and what the Tsar re-garded as superior Western cultural traits.

Peter attempted a deep and comprehen-sive Westernization of Russia, but it was

205

206 ● Technology and East-West Trade

based on narrow premises. While a relativelycompetitive military sector was establishedby the middle of the 18th century, the struc-ture of the new industries precluded ongoinggrowth and innovation in the absence ofState influence. Manufacturing was basedon serf labor, and there was no impetus todiscover labor-saving and capital-intensivemodes of production. Product quality andquantity in those industries wholly depend-ent on the State were in many cases deter-mined by administrative decree, but lowquality in the private sector was tolerated inthe absence of alternatives. Finally, raisingthe proportion of foreigners in the intelli-gentsia was an insufficient first step towardthe comprehensive educational system nec-essary for permanent increases in workerproductivity and domestic innovation.

The 18th and early 19th century moderni-zation drives depended for the most part onState resources as their motive force, but, bythe end of the Crimean War, it was clear thatthis technique could not support industrialdevelopment on a par with that in WesternEurope. It was not until Count SergiusWitte became Minister of Finance in 1892that Government financial policy deliber-ately focused on industrial development.Witte stabilized State finances, returned theruble to the gold standard and borrowed ex-tensively abroad. At the same time, he chan-neled a great deal of foreign capital into theexpansion of the railway system, thus lend-ing an added impetus to growth.

Witte was a disciple of Frederick List,whose ideas on tariff protection for develop-ing industries had helped to industrializePrussia. The result of these policies was asurge of industrial growth unprecedented inRussian history, and based essentially onprivate initiative. Between 1892 and 1903,when Witte left office, the annual rate of in-dustrial growth consistently exceeded 8 per-cent.

During this period, the major vehicle oftechnology transfer was the import of for-eign machinery. Its role in the modernizationprocess was considerable: in 1912, only 55percent of the ruble value of all machinerysold in Russia was of domestic origin, and

imports of agricultural machinery increasedfrom 6 million to 50 million rubles from 1895to 1914. Foreign investment in the last Tsar-ist period was particularly important in themining, metallurgy, textile, and chemical in-dustries.

The success of the October revolutionended the period during which economicgrowth was nurtured by private initiative.According to Lenin, the industrial growth ofthe prerevolutionary era was based on theexploitation of the masses by the capitalistclass and had fostered backwardness in theRussian worker. The Soviet task was to re-build through State control a society as pro-ductive as the most advanced Western na-tion. Western assistance remained vital tothis enterprise.

Lenin’s New Economic Policy, which cameinto effect after 1921, had as its centralmechanism of technology transfer the grant-ing of concessions to Western entrepreneurs.Technical assistance contracts, the employ-ment of foreign engineers and experts in theU. S. S. R., and the dispatch of Soviet expertsto training positions in the West were alsoutilized.

Over 200 concessions were made to for-eign firms between Lenin’s death and thefirst 5-year plan. While Soviet literaturedowngrades the contributions of foreigntechnology transfers accomplished throughthis medium, it is clear in retrospect thatmuch of the rapid growth of the 1920’s wasdependent on foreign operative and technicalskills. The Soviets at this time made little orno attempt to develop completely new mech-anisms of domestic productions; even ex-perimentation was limited and soon aban-doned. They concentrated on acquiring newproductive processes from the West, train-ing politically reliable engineers, and estab-lishing basic and applied research institutes.

By the end of the 1920’s the Soviets wereconvinced that they had found a more effec-tive mode than the pure concession or thejoint venture for the transfer of Westernskills and technology. After 1928, technical-assistance agreements and individual workcontracts with foreign companies, engineers,skilled workers, and consultants replaced

● 2 0 7

208 Technology and East-West Trade

the pure and mixed concessions. Under thesearrangements the capitalist firms could nolonger claim a share of ownership. In addi-tion, the control of technology transfer oper-ations lay totally in the hands of the Soviets.Existing concessions were closed outthrough taxation, breach of contract, harass-ment and, in some cases, physical force. 1

In their place, in the summer of 1929,many wide-ranging technical-assistanceagreements were concluded with foreignfirms. These were to be of specific, limitedduration. The units designed and begun be-tween 1929 and 1932 were some of thelargest in the world, so large in fact that inmany cases contracting Western firms hadnot previously dealt on a similar scale. De-sign and layout of these complexes camemostly from America, with Ford, GeneralMotors, Packard, General Electric, and U.S.Steel contributing heavily. And althoughnearly a half of the installed equipment wasGerman, it was very often manufactured inGermany to American specifications.

For 2 years there was an unparalleled infu-sion of foreign technology in the form ofskilled labor, technical data, and equipment.Although most of the engineers were goneby 1932, they left behind designs based onWestern models which contributed to a largeincrease in manufacturing capacity. Until1941, production increases in most Soviet in-dustrial sectors were the result of the in-stallation and expansion of the Westernplants acquired in the massive transferswhich took place during this brief period.

Stalin had used the threat of war to initi-ate the new era of industrialization and col-lectivization in 1919. First priority wastherefore given to the military departmentsof the new works, and many plants built inthis period simultaneously produced civilianand military equipment. After World WarII, the most significant vehicle of technologytransfer was the stripping of German indus-try. It has been estimated that at least two-

I Anthony Sutton, 14re.stern Technology and Sol~iet Eco-nomic DeL’elopmen t, 1930 to 1945 (Stanford, Calis., 1977), pp.20-26.

thirds of the German aircraft and electricalindustries, most of the rocket production in-dustry, several automobile plants, severalhundred ships, and a host of military equip-ment were transferred en masse to theU.S.S.R.

In the late-1950’s, the Soviets turned theirattention to technology transfer in indus-tries where the German acquisitions hadbeen slight–the chemical, computer, ship-building, and consumer industries. Duringthis period, the U.S.S.R. began a massivecomplete plant-purchasing drive. Between1959 and 1963, at least 50 complete chemicalplants were bought for chemicals not previ-ously produced in the U.S.S.R. In addition, alarge ship-purchasing program was initiatedin order to expand the Soviet merchant fleet.

In sum, whatever the role of technologytransfer in the contemporary Soviet econ-omy, it is clear that Western technology haslong been looked on as a way to overcome do-mestic economic shortcomings. These im-ports have played a major—and continu-ous—role in both the Russian and SovietStates. In this sense, Soviet efforts to obtainimported technology are neither surprisingnor new. In addition, throughout both Rus-sian and Soviet history such transfers ofknow-how and capital from the West havebeen conscious tools of State economic andmilitary policy. The centralization of eco-nomic decisionmaking, particularly as it re-lates to the selection and use of foreign tech-nology, has been practiced in Russia for atleast 300 years.

Equally normal, however, has been greatvacillation in the ways in which foreign ex-porters and technicians have been treated.While Western-Soviet trade has had a longhistory, this history has been characterizedby periodic State-imposed deteriorations oftrading conditions and by a conspicuous lackof predictability in commercial contacts. Onthe basis of the historical evidence, at least,there is no reason to expect that increasedsales of technology to the U.S.S.R. will muchenhance the opportunities for Western ex-ports of manufactured goods.

Ch. X— Western Technology in the Soviet Union 209

THE NATURE OF THE SOVIET ECONOMY

THE COMMUNIST PARTY

No market mechanism officially operatesin the U.S.S.R. Instead, economic decisionsconcerning allocation of resources and ratesof expansion of different sectors are madeadministratively, and basic economic policyformulation is one of the principal functionsof the Communist Party.

The Party exercises control and supervi-sion over the economy in a number of ways.Many branches of the Government reportdirectly to Party organs. The State PlanningCommittee (Gosplan), for example, reportsdirectly to the Politburo (Executive Commit-tee) of the Party.2 At lower levels, buildingprojects are first submitted to the Partybefore being submitted to the appropriateGovernment office. At the enterprise level,the Party organization both mobilizes work-ers to fulfill the plans and monitors the activ-ities of enterprise managers.

The most potent tool used by the Party todirect the economy is the nomenklatura sys-tem. The nomenklatura is a comprehensivelist of appointments under Party control. Itnominates individuals to all important postsin the State, industry, and army. As a result,although only about 6 percent of the Sovietpopulation belongs to the Party, nearly allagricultural or industrial managersty members.

THE GOVERNMENTAPPARATUS

are ‘Par-

The State apparatus administers the de-tailed planning and organization of the econ-

‘P. Gregory and R. Stuart, Souiet Economic Structure andPerformance (New York, 1975), p. 118.

omy. The Soviet economy operates under aministerial system in which individual enter-prises belonging to a particular branch of theeconomy (petrochemicals, metallurgy, etc. )are subordinated to a single ministry. Thereare three types of ministries: the all-unionministries run the enterprises under theircontrol directly from Moscow, and theseenterprises are not answerable to regionalauthorities; the union-republic ministrieshave offices both in Moscow and the repub-lics; and the republic ministries direct enter-prises in their own republics. The heads ofthese ministries are either members of theCouncil of Ministers of the U.S.S.R. or of theother republic Councils of Ministers.

ECONOMIC PLANNING

Coordination of ministry activities is doneprimarily by Gosplan, the principal planningagency.3 While only a limited number of com-modities are centrally planned and distrib-uted by Gosplan, the planning process is ex-tremely complex.

The first step in this process is for the Par-ty to establish priorities, in the form of out-put targets, for the upcoming plan period.These targets are sent to Gosplan, whichtentatively formulates a detailed set of out-put goals and determines the resources re-quired to produce them. These goals or “con-trol figures” are sent down through the plan-ning hierarchy to the individual enterprises.At this point, enterprises and ministries for-mulate their own input estimates for Gos-plan’s output targets. Gosplan must recon-cile the two. Should demand for a particularcommodity input exceed supply over the

‘Ibid., p. 119.

210 . Technology and East-West Trade

economy as a whole, Gosplan may decide toreduce demand, to draw on stocks, or to im-port. After it has arrived at this “materialbalance, ” Gosplan submits the plan to theCouncil of Ministers for approval and/ormodification. The finalized targets are thencommunicated down the hierarchy to indi-vidual firms.

This system of material balance planningis cumbersome and slow; it stresses quanti-tative output goals and requires the mainte-nance of a vast bureaucracy. While it strivesfor consistency (equating outputs to inputs),it has proven incapable of achieving optimal-ity, i.e., the most productive resource mix fordesired production levels. On the positiveside, material balance does permit the Gov-ernment to channel growth in high-prioritysectors while maintaining strict control overthe economy.

The monetary counterpart of each enter-prise’s input and output plans are financialplans. These facilitate planner control overenterprise operations to the extent that devi-ations from the financial plan signal devia-tions from the physical plan. This control isreinforced by the fact that all legal interfirmtransactions, with the exception of certaininvestment allocations and foreign trade, arehandled by the State Bank (Gosbank), whichis the sole center for settling of accounts.

Each year, Gosplan formulates and theCouncil of Ministries approves an invest-ment plan for the entire economy. The plan iscarried out by “project-making” organiza-tions in charge of investment planning at theenterprise level, and its implementation issupervised by Gosplan and the ministries.Thus, decisions to expand enterprise capaci-ty are made outside the enterprise itself. In-vestment choice in the U.S.S.R. is hamperedby the inefficiencies that arise from the re-luctance of planners to rely exclusively onprofitability criteria, and from overly taut in-vestment planning.

Soviet enterprises operate on an independ-ent “economic accounting” system. This isoften taken to mean that they operate tomaximize profits. The system guarantees,

however, only that enterprises have financialrelations with external organs such as Gos-bank and that their operations are evaluatedin terms of value indicators using officialprices. Under this system, future productiontargets bear no relation to profits.4

The plan, formal and informal constraints,and the managerial incentive structure havemade gross output the most important indi-cator of enterprise performance. A manageris rewarded primarily for rapid expansion inphysical output in a given planning period,irrespective of poor performance in otherareas. Managers therefore tend to avoidchange, expecting negative impacts from in-novation in process or products.

These factors, which inhibit incentivesand may result in misallocation of invest-ment funds, are endemic to the Soviet sys-tem of economic organization. Even where ameasure of local decisionmaking power ex-ists, such decisions must conform to thewishes of the central planners, who performwithout necessarily according priority toissues such as prices or profits.

The declining rate of economic growth inrecent years has lent impetus to attempts toreform the Soviet economy. In 1965, PremierKosygin submitted a plan designed to re-duce the number of enterprise targets setfrom above and, most important, to replacegross output by “realized output” (sales) asthe primary indicator of the success of anenterprise. Further, profits were to be an im-portant source of funds for decentralized in-vestment by enterprise managers and wereto be used as a source of funds for bonuspayments to workers. These changes were tobe phased over 5 years.

The period since 1971 has witnessed a re-versal of official attitudes toward the solu-tion of basic economic problems. Ratherthan relying on economic “levers” at theenterprise level—the basis of the Kosyginreforms—attention is being increasinglydirected toward improving planning meth-ods and increasing control over enterprises

‘Ibid., pp. 179-230.

Ch. X— Western Technology in the Soviet Union ● 211

to improve economic performance. Empha- nology are therefore more likely to comesis is now on new planning methods such as from technological infusions from the Westperspective planning, automated plan calcu- than from domestic R&D.lations, automated information retrievalsystems, and new organization methods.

One of the major motivations of the 1965reforms and of the later modifications tothem was the continuing reluctance of man-agers to introduce new technology and raiseproduct quality. The subsequent recourse tomore centralized administrative techniquesmeans that those features of the economythat deterred innovation in the past continueto exist.’ Major innovations in Soviet tech-

‘)See Gertrude Schroeder, “Recent Development in SovietPlanning and Incentives,’” in .~ot’iet Economic Prospects forthe .’$e[’entie.s, Joint Economic Committee, 1973.

In conclusion, while modest attempts atreform have been undertaken in the Brezh-nev era, the basic problems of economic in-centive in the innovation process have not,in the final analysis, been seriously ad-dressed. The economic reforms of 1965 havebeen so modified as to dilute their effect. Inlieu of emphasis on economic “levers” asspurs to innovation, reorganizational and ad-ministrative solutions have met with littlesuccess. Western technology continues to beimportant to future Soviet economic growth.

DECISIONMAKING ON FOREIGN TECHNOLOGY

INSTITUTIONS INVOLVED INTHE ACQUISITION OF

FOREIGN TECHNOLOGY

Decisions concerning the purchase of for-eign technology, like any other economicdecision in the Soviet Union, take placewithin the framework of a system of centraleconomic planning. A brief catalog of themajor institutions involved in this processsuggests the variety of the interests in-volved in such purchases and the complexityof the process itself. These actors fall intotwo major categories, the State and theCommunist Party apparatus.

State Apparatus and TechnologyAcquisition

The Council of Ministers.–At the top ofthe Soviet Government organization is theCouncil of Ministers of the U.S.S.R. Thisbody is the formal repository of all State au-thority. As such, it is the theoretical locus ofadministrative responsibility for trade mat-ters. In practice, however, decisions are usu-ally taken in ministries and agencies thatoperate under the Council and are rubber-stamped at the highest level. To administer

the massive Soviet economy, the Govern-ment relies on the operation of a variety ofgeneral and specialized bodies.

Gosplan.–Gosplan, the State PlanningCommission, is the central Government’schief agency for conducting the work of gen-eral economic planning. Part of its work con-sists of import planning, which is conductedby Gosplan’s own Department of ForeignTrade. The primary responsibility of thisDepartment is to integrate foreign trade intothe national economic plans. In addition,Gosplan is responsible for planning R&Dand innovation. This work is carried out in aseparate Department for the ComprehensivePlanning of the Introduction of New Tech-nology into the National Economy.6

Gostekhnika.–Known in the West as theState Committee on Science and Technology(SCST), this organization bears primary re-sponsibility for the coordination of R&Dwork throughout the economy.7 It is chiefadvisor to the central Government on na-tional technological policy. Part of the latter

‘See Joseph S. Berliner, The Inno[fation Decis[on in Societ~ndustq~ (Cambridge, Mass.: MIT Press, 1976).

‘Ibid.


function consists of developing strategies toacquire Western technology and integrate itwith domestic R&D capabilities. SCST par-ticipates in negotiation for the acquisition ofsophisticated technology from the West,often providing technical expertise.

U.S.S.R. Academy of Sciences.—Thisbody consists of about 600 members whobear the responsibility for supervising thegreater part of scientific research work in theU.S.S.R. The Academy’s jurisdiction in-cludes about ZOO scientific establishmentsemploying some 30,000 scientists. Throughits Administration of Foreign Affairs, theAcademy not only monitors scientific devel-opments in the West, but plays an active rolein scientific exchanges. While the Acad-emy’s primary concern is basic research, it isobliged to submit proposals to SCST con-cerning applied R&D leading to innovation.

Military Industrial Committee of theU.S.S.R. Council of Ministers.–The exist-ence of this committee has never been offi-cially confirmed, but it is probable that itholds primary responsibility in the Statestructure for the coordination of all activitiesin the area of armaments production. Whilethe role of the Military Industrial Committeein technology acquisition is unclear, it un-doubtedly participates in decisionmaking ontechnology purchases.

Ministries. –The central administrationcould not possibly directly supervise each ofthe 43,788 industrial enterprises that fallunder the Soviet system of central planning.An intermediate level of administration istherefore provided by ministries, which areinterposed between enterprises (or produc-tion associations) and the central and repub-lic Governments.

Ministries are organized by branch andthose dealing with the economy are differen-tiated by product (e.g., Petroleum Ministry)(see figure 12). A major function of the eco-nomic ministries is to formulate and imple-ment technical policies in relevant sectors.This function is accomplished through theMain Technical Administration of each min-

istry. Each ministry also includes a Depart-ment of Foreign Affairs.

Different economic ministries are involvedin acquisition decisions to the extent thatforeign technology can be incorporated intotheir sectors. At present, the extractive in-dustries, chemicals, and machine tools areespecially active in foreign trade.

The Ministry of Foreign Trade adminis-ters all Soviet trade; no foreign trade oper-ations can be processed outside of its struc-ture. The Ministry encompasses dozens ofimport-export foreign trade associationsorganized according to product category.These associations act as intermediaries be-tween relevant Soviet ministries and foreignfirms and are empowered to sign contracts.They are governed by boards which are com-posed of specialists of the associations andrepresentatives of the relevant ministries.

Administrative decisions in the Ministryof Foreign Trade are made through the coop-eration of three internal divisions:

1.

2.

3.

The trade-political administrations.These are divided by region. A separatetrade-political administration exists fortrade with the United States, while asecond administration deals with allother capitalist countries.Functional administrations for plan-ning, currency, legal matters, etc.Administrations for single commoditygroups. A separate administration ofthis type exists for machinery andequipment imports from capitalistcountries. The relationship of these ad-ministrations to their import-export as-sociations is shown in figure 13.

Other Agencies. –There are many otherGovernment agencies involved in some por-tion of the process of technology acquisition.The Ministry of Finance participates in thedevelopment of hard-currency plans and ad-ministers their implementation. The Vnesh-torgbank, or Bank of Foreign Trade, is sub-ordinated to the State Bank. It gives creditto all Soviet organizations for foreign trade


\

mco.-%.-;am

n>


in rubles and deals with clients in hard cur-rency. The All-Union Chamber of Commerceprimarily arranges exhibitions and contactsbetween foreign firms and Soviet organiza-tions.

Within the Soviet R&D establishment, or-ganizations exist which in many cases adaptWestern technology purchases and advancesin applied research to domestic production.Research and development institutes (underindividual ministries) specialize in appliedresearch in a specific technological area.Once a new product or process has been de-veloped to a point where it is thought readyfor commercial application, it is handed overto engineering-design organizations, whichmark out the details of materials, grades,sizes, shapes, and other technical specifica-tions of the final product and the precisemachinery, assembly quality control, andother production arrangements for manufac-turing it. If reverse engineering of a Westernproduct is possible, these organizations willhave the expertise to accomplish it. Thereare over 2,000 such organizations in theU.S.S.R. subordinated to various ministries.

In addition to the organizations listed, anumber of other segments of the State struc-ture intercede in the process of technologyacquisition. In particular it is clear that theMinistry of Defense is not only concernedwith Western technological achievements,but may have a deciding voice in individualimport decisions. The precise structure ofthe relationship between the Ministry of De-fense and the negotiations conducted by theMinistry of Foreign Trade is not, however,known in detail.

The Communist Party andTechnology Acquisition

All levels of Soviet administration—in-cluding that of the Communist Party—may

provide inputs in the process of foreign tech-nology acquisition. In the most generalsense the Government, including the plan-ning bodies, exercises detailed control overplanning and purchase of technology, andthe Party bureaucracy avoids direct involve-ment in practical decisions once broad policygoals have been met. The relationship be-tween State and Party in technology acquisi-tion is, however, ambiguous and varies notonly with time but with the political sen-sitivity of a given purchase. Under the pres-ent regime, Party organs ordinarily exercisea veto over initiatives made by the statebodies while eschewing contact with repre-sentatives of Western firms.

In addition to its functions of policy for-mulation and monitoring of administrativeoperations, the Party bureaucracy exercisesultimate control over technology acquisitionas it would over any other Government func-tion, through its absolute control of person-nel in the State structure. All officials con-cerned with technology acquisition are care-fully screened not only by State but also byrelevant Party organs.

The influence of Party organs is not con-fined to the national level. Party structureson the republic and provincial levels oftenhave considerable input in technology acqui-sition. This is particularly true in the case ofconstruction of facilities to house new equip-ment and machinery. Local Party organiza-tions are directly responsible for monitoringconstruction of all plants in their regions.Their inability to organize such efforts hasoften proved to be a major barrier to swiftimplementation of Western technology pur-chases.


TECHNOLOGY ACQUISITION AND PLANNING

There are indications that the role offoreign technology transfer in the foreigntrade planning system as a whole is beingreevaluated. At present, import decisionsare made as part of annual planning cycles,and foreign trade is often utilized as a meansof filling short-term planning shortfalls. Theresult of this is that, as figure 14 demon-strates, the vast majority of Soviet importsfrom the industrialized West have consistedof non-technology-intensive manufacturedgoods, and agricultural and other primaryproducts. Attempts to more fully integratecurrent and prospective foreign trade plansinto national economic plans are likely to re-sult in a greater proportion of hard-currencyexpenditure devoted to more productivehigh-technology imports.

The acquisition of technology from theWest is accomplished in two general stages.First, hard currency is allocated among sec-

Figure 14.—Composition of Soviet ImportsFrom the Industrialized West, 1977

tors. Secondly, individual purchases aredetermined through the participation of min-istries, their production associations, re-search institutes, and engineering-designbureaus. In sensitive cases, detailed deci-sions are formally made by higher levels ofadministration.

Both the distribution of hard currency andconcrete purchases are accomplished eitherin the framework of the 1- and 5-year plansor through irregular (ad hoc) decrees ofrelevance to single industrial branches orenterprises. From year to year the allocationof hard currency—the primary quantitativedeterminant of imports—is basically pre-served across sectors. Changes in particularpriority targets or drastic reductions in thehard-currency stock do, however, periodical-ly alter these proportions. World marketprices quoted in hard currencies are utilizedfor export-import operations with the West.

As is true of all aspects of Soviet planning,hard-currency allocations are determined onthe basis of level achieved—every year theallocation is marginally increased as com-pared to the preceding year (subject to high-level changes in national economic prior-ities).8

Engineering-design bureaus, which pro-ject new construction or modernizationneeds, determine which particular types ofWestern technologies can be used. They pre-sent to their ministries specifications ofneeded equipment and know-how. Ministriesthen send drafts of their requests to Gosplanand the Ministry of Foreign Trade.

If these requests are within the limits ofthe hard-currency plan, they are routinelyapproved and included in the trade plan. Butthis is usually not the case. Ministry re-quests often exceed the hard-currency allo-cation. Such discrepancies are resolvedthrough bureaucratic negotiation between

primary products3.90/0

SOURCE Off Ice of Technology Assessment

“Igor Birman, “From the Achieved Level, ” Souiet Studies,xxx (2).

Ch. X— Western Technology/n the Soviet Union ● 217

ministries, SCST, local Party organs, etc. IfGosplan cannot resolve the discord, it isusually settled by a Deputy Chairman orChairman of the Council of Ministers and, inthe most crucial cases, by the Politburo ofthe Party.

National economic plans specify onlylarge purchases of Western technology. Inaddition, ministries are allocated limitedamounts of hard currency with which to dealdirectly with the associations of the Min-istry of Foreign Trade. In recent years somelarge enterprises engaged in the productionof goods for export have similarly been per-mitted relatively small amounts of hard cur-rency to be used at their own discretion forthe purchase of capital goods.

Flexibility in planning is achieved throughirregular decrees, issued every 3 to 7 yearsby the Central Committee of the Party andthe Council of Ministers for each branch ofthe economy. Such decrees often plan shiftsin the distribution of hard currency amongsectors and are very concrete in nature, ex-actly itemizing equipment and technology tobe imported. They are incorporated into sub-sequent national plans.

Decisionmaking on individual technologypurchases is based on a coordinated systemof collecting and processing Western scien-tific and technical information. This is super-vised by SCST. Nearly all R&D bodies—inparticular the engineering-design bureaus—and many large enterprises collect relevantinformation. In addition, each ministry in-cludes at least one Institute of Scientific andTechnical Information, one of the functionsof which is to process available Western sci-entific and technical data

Under this system, Western technical lit-erature is translated, published, and madeavailable to relevant specialists in a relative-ly short time. Specialists who are sentabroad are required to report on Westerntechnological achievements. Soviet intelli-gence services also engage in scientific andtechnical espionage.

As a buyer of Western technology, theU.S.S.R. actively encourages trade fairs andother exhibitions in which foreign firms maybring their most advanced and salable prod-ucts to Moscow. While such exhibitions areaccepted practice in overseas marketing, it iscommon Soviet practice to attempt to obtainas much detailed technical and operationaldata as possible on desired products withoutactually concluding purchase agreements.

The Soviet system of information gather-ing on Western technological developments,while not ideal, guarantees that the Sovietnegotiator is relatively well-informed andcognizant of both the technical specifica-tions and availability of a given product indifferent Western markets.

CRITERIA AND PRIORITIESFOR TECHNOLOGY

PURCHASES

Writing in 1941, Soviet economist D.Mishustin summarized the basic aims ofSoviet technology acquisition from theframework of import policy:

The basic task of Soviet importation is touse foreign goods, and first of all machinery,for the rapid accomplishment of the plans ofsocialist construction and for the technicaland economic independence of the U. S. S.R.9

Then, as now, one of the fundamentalgoals of Soviet import policy in general wasto improve the technological base of produc-tion with the help of foreign technologywhile at the same time carefully avoidingdependence on those imports.

In the Brezhnev era the concept of com-parative advantage has been added to thedominant theme of technical and economicindependence:

In the final analysis, the purpose of for-eign trade is the procurement of importedgoods and services a) which are not produced

‘IL), hl ishustin, L’nc.qhna>!a Torgo[l>ta SS&’R ( N 1O S C O W,194 1), p. 6.

54-202 0 - 79 - 15


within the country at all, b) are produced, asa result of whatever temporary reasons, ininsufficient quantity and c) whose produc-tion within the country is more expensivethan their purchase on the foreign market. 10

After hard currency is distributed sec-torally in the planning process, a number ofcriteria based on these general policies oftechnical independence and economic advan-tage are utilized to make individual purchasedecisions. These criteria are not entirelyeconomic. Since the middle of the 1960’s,Soviet economists have attempted to deter-mine the economic benefits of import choicesthrough the use of foreign trade efficiency in-dices. These are formulae that provide ameasure of the cost to the national economyof producing a good for export relative to theforeign exchange received abroad, or of theforeign exchange expended abroad in pur-chasing a good or technology relative towhat it would have cost to produce the gooddomestically. ” Thus far, such attempts havebeen singularly unsuccessful, and there is atpresent no reliable method of measuring for-eign trade efficiency at the disposal of deci-sionmakers. At the heart of the problem liesthe insulation of the Soviet price systemfrom world markets and the failure of inter-nal prices to reflect relative scarcity. In lieuof reliable economic evaluation of technologypurchases, Soviet buyers simply attempt tominimize hard-currency cost within the con-text of a shifting set of preferences and prior-ities.

The first of these is military. All other fac-tors being equal, those types of technologythat directly or indirectly enhance militarycapabilities are given first priority. Whilemany Soviet purchases do not, in fact, em-body any military potential whatsoever, it istrue that some transfers of an ostensibly

‘“G. Smirrmv, “K Voprosu Ob Otsenki Economicheskoi Ef-fektivnosti Vneshnei Torgovlyi SSSR, ” in Voprosy Ekono-rniki, No. 12 (1965), p. 94.

‘lSee I.awrence J. Brainard, “Soviet Foreign Trade Plan-ning’” in Souiet Ecvnom>f in a Neu’ Perspective, J o i n tEconomic Committee, 1976.

purely civilian nature have been given higherallocation priority due to their potential con-tribution or convertibility to military use.

A second factor involves a general prefer-ence for disembodied as opposed to em-bodied technology, i.e., know-how as op-posed to products. The transfer of disem-bodied technology may require a relativelyhigh domestic contribution of R&D, but buy-ing large amounts of hardware generallyraises hard-currency costs. Since an individ-ual ministry is allocated a fixed sum of hardcurrency, whenever possible it will attemptto minimize the cost of Western inputs whilemaximizing relative domestic inputs in thedevelopment of a given innovation.

Third, purchases of technological com-plexes are preferred to purchases of singleitems or processes, so long as the hard-cur-rency cost is not prohibitive. Such system-atic transfers ensure the swiftest and mostproductive utilization of foreign technologypurchases.

Another element in setting technologypurchase priorities is that preference be af-forded those products and processes thatcan be easily duplicated for production in theU.S.S.R. This tendency stems from the de-sire to minimize increasing dependence onWestern technology.

Finally, an increasingly important criteriafor technology purchases involves their usein export industries. Since the generation ofhard currency (and further imports) is direct-ly dependent on export potential to theWest, increasing priority has been given toprojects producing goods for Western mar-kets. It is impossible to definitely rank thesecriteria in order of their importance in thedecisionmaking process. The factors influ-encing the choice of an individual technologypurchase are often ambiguous and prioritiesvary according to situation. It is clear, how-ever, that a lack of definitive economic for-mulae for import decisions allows for the in-fluence of noneconomic–e.g., military –fac-tors in the decisionmaking process.


THE ROLE OF WESTERN TECHNOLOGY IN THESOVIET ECONOMY

ABSORPTION AND DIFFUSIONOF WESTERN TECHNOLOGY

A recent study of Soviet technologicallevels done under the auspices of the Univer-sity of Birmingham (England),12 found thatin most of the industries it examined—arma-ments, nuclear, electric power, metallurgy,machine tools, computers, and chemicals—the technology gap between the U.S.S.R.and the West has not diminished substan-tially over the past 15 to 20 years, either atthe prototype/commercial application stagesor in diffusion of advanced technology. TheBirmingham study further concluded thatSoviet growth has been largely based on out-put using traditional technology. For exam-ple, the study points out that even thoughthe higher technology sector of petrochemi-cals has grown relative to the chemical in-dustry overall and dominates the total in-dustry output, petrochemical products aremanufactured with older, proven technol-ogies.

This pattern of growth, a result of slow ab-sorption and diffusion of new technology,can be seen in the areas in which Soviet in-dustry has performed best. The U.S.S.R.'smost productive technological developmentscame in industries that were based on well-established technology, with advances com-ing primarily from successful scaling-up ofexisting technology. Advances in the metal-lurgy, power generation, and power trans-mission industries, for example, are theresult more of engineering than of innova-tion in processes.

The pattern of better performance of thoseindustries that are not based on rapidlychanging technology is part of the reasonbehind the apparent shift in the technologyimport policies of the U.S.S.R. over the pastdecade. As the Soviet economy expanded

during the early postrevolutionary years,and again following World War II, the in-dustries most needed to support growthwere traditional ones such as metallurgy,machine-building, machine tools, and theenergy sector. The growth was produced byrelying on slowly changing technologies,limited but sometimes essential imports offoreign technology, and massive increases inthe supply of labor and capital.

This chapter has already shown that tobring about the rapid industrialization of theeconomy envisioned by the first 5-year planwhich began in 1928, the U.S.S.R. turned tolarge imports of machinery and equipment.Prior to this period, such imports had aver-aged only about 0.3 billion rubles per year;during the next 5 years, they rose to an aver-age of 1.4 billion rubles per year. Followingthe end of the first plan, imports of machin-ery and equipment dropped back to an aver-age of 0.3 billion rubles per year. 13 Relationswith Western firms supplying technologywere designed to be short-lived, with the aimof minimizing Soviet dependence. This aimalso guided the country’s overall import andexport policy.

The fear of relying on a potential adver-sary was one reason for the Soviets’ strongdesire to minimize dependence on the Westfor technology and products. In time, suchtechnology transfers were also limited byconstraints imposed by Western export con-trols.

The Soviets began to copy prototypes ofequipment that they had been able to obtainfrom the West. The ultimate failure of thispractice, coupled with an inability to rely ondomestic innovation, has led to severalchanges in import policies during the pastdecade: an apparent shift toward greater re-liance on Western technology; a willingness

‘JR. Amman, J. I’vl. Cooper, and R. W’. Davies, cd., TheTechnological I.e(ei of .Yo(’iet Industr?’ (New Haven, Corm.:Yale Uni\’ersity Press, 1 977).

‘‘George Ho]liday, “The Role of M’estern Technology in theSoviet Economy,’” in l.~sue.s in li’ast- 1! ‘es t {’commercial Rela-tions, Joint I+~conoic Committee, January 1979, p. 47.


to permit—in fact encourage–long-termagreements involving large volumes of for-eign exchange with Western firms supplyingtechnology; and in some cases, limitedchanges in Soviet management practices.

Although the Soviet Union is not willingto open its economy to full interdependencewith the West, more extensive use of West-ern technology is no longer feared. At thesame time, the West has also liberalized itsconstraints on export control. In the UnitedStates, for instance, the Export Administra-tion Act of 1969 as amended has reduced thelist and raised the permissible performancecharacteristics of controlled items (see chap-ter VII).

Soviet technology transfer policy is alsostrongly affected by the country’s growthpolicy, which has been revised. The SovietUnion no Ionger enjoys vast pools of under-utilized labor that could be mobilized foreconomic growth by transfers from the agri-cultural sector to industry or by increasedlabor participation rates of women. Accord-ing to the Central Intelligence Agency’s(CIA) projections, the Soviet Union will ex-perience a sharp decline in the rate of expan-sion of its labor force in the 1980’s to lessthan 1 percent per annum by 1982.14 Otherfactors, such as the distribution of popula-tion, will further strain the amount ofgrowth that can be obtained through largerlabor inputs.

This labor constraint also comes at a timeof decreasing productivity of capital inputs.Furthermore, an increasing share of Sovietcapital investment is now going by necessityto agriculture, the consumer goods indus-tries, and other sectors that do not directlyincrease the productive capacity of the econ-omy. As a result, increases in labor produc-tivity are expected to account for up to 90percent of all growth in industrial output,and virtually all growth in the agriculturalsector.

“Central Intelligence Agency, So[’iet Economic Problemsand Prospects: 1977, p. ii.

Technological improvement is to be thebasis of planned increases in Soviet laborproductivity. Industries based on traditionaltechnology are becoming less importantrelative to those based on sophisticated,rapidly changing technology. These includethe organic chemical, electronics, and com-puter industries. More traditional sectors,such as oil and gas and machine tools, arebeing modernized with technology from theelectronics industry: computer numericalcontrol for precision machine tools, com-puter analysis of seismic data, and auto-matic control of hydrocarbon production.

The growing importance of new technol-ogy, and the increasing importance of in-dustries that are experiencing rapid ad-vances in technology, coincides with a con-tinuing weakness in the Soviet economic sys-tem’s capacity to absorb and diffuse tech-nology. The U.S.S.R. problems in this areaincrease the need for importing technologyfrom the West, since the transformation ofdomestic innovation into new technology isoften slow. On the other hand, the sameproblem reduces the effectiveness of im-ported technology. The problem lies not somuch in the quality of Soviet basic research,nor in the level of theoretical knowledge, butrather in the system’s inability to turn theo-retical knowledge into prototypes, and evenmore importantly, to move rapidly from pro-totypes to large-scale industrial production.The reasons for this lie in such factors as in-sufficient incentive, poor organization, andthe rigidities that result from central plan-ning.15

In the West, innovation and new technol-ogy development are encouraged by a desireto beat the competition and thereby maxi-mize profits and cut costs. Rewards for firmsthat innovate successfully, and competitivepressures felt by those firms that do not in-novate or at least duplicate new technology a

1 sDavid Granick, so~,jet IntroductionA Depiction of the Process, StanfordJanuary 1975.

of Neu’ Technology:Research Institute,


short time after a competitor does so, pro-vide sufficient incentive to ensure Westerncapabilities for development, absorption,and diffusion of new technology.

Large research institutes are responsiblefor R&D in the U. S. S. R., but such instituteslack incentives to consider adequately thepractical application of their work. Plannersdetermine the direction that scientific in-quiry will follow in research institutions.They are encouraged to develop ideas thatqualify as innovations, but not to apply theideas to the production process. Separate in-stitutions, called Engineering Design Orga-nizations, have responsibility for applyingnew technologies, but their successes do notreflect as favorably on the research insti-tutes as does the propagation of additionalnew ideas, whether practicable or not. Re-search and development receive the greatestemphasis, followed by application engineer-ing and—with the least concentration offunds and effort–product development. Inthe West, the emphasis is reversed.

A number of other factors at the enter-prise level also inhibit the introduction ofnew technology. The use of new processesand the development of new products in-volve risks; since not all attempts are suc-cessful in the West, the risks must be mini-mized and the rewards for success maxi-mized in order to promote such efforts. TheSoviet system works in reverse, maximizingrisk and minimizing reward. Success for aproduction enterprise in the U.S.S.R. ismeasured primarily in ability to exceed theoutput quota set for the year, although re-cent reforms permit limited consideration ofother factors in determining bonuses forworkers and plant managers. The risk of try-ing a new technology or product is great,since an unsuccessful effort is bound toresult in failure to meet the plant’s outputgoal for the year. Even if the innovation ismoderately successful, the increased outputonce the new equipment is operating maynot be sufficient to offset the loss of outputduring conversion. The benefits of very suc-cessful efforts are short-lived, because whilea jump in output due to the introduction of

new technology will surely result in bonusesfor managers during the first year, they willjust as surely result in a jump in the plant’soutput quota the following year.

In the West, managers often try severalnew technologies before finding one that pro-vides sufficient long-run benefits to justifythe cost of all the experimental efforts.Similarly, managers find that new processesoften require several years to work the“bugs” out of the system. The ability tojudge a new technology on its return over along period of time, and the willingness to ac-cept the fact that most innovations willprobably not prove to be successful, are ma-jor advantages of the Western competitivesystem over the Soviet model.

Cost reduction is a major incentive for in-novation in the West. In the U. S. S. R., on theother hand, even otherwise successful in-novations often produce unacceptably highoverall costs due to the rigidities of centralplanning. A Soviet plant seeking to employ anew process often must rely on other plantsto supply related new equipment, and mayfind the necessary equipment unavailable. Inthe latter case, the plant may be forced todevelop the equipment on its own at relative-ly high cost. Similarly, a Soviet plant begin-ning to produce a new product does not havethe right to determine the price at which thenew product will be sold. This means thatthe centrally determined price may not coverthe plant product development and produc-tion costs.

The rigidities of central planning lead toanother problem which tends to inhibit thediffusion of technology. In the U.S.S.R. ex-tensive use is made of vertical integration ofproduction facilities. This minimizes theenterprise’s dependence on outside suppli-ers. While this structure does encourage afirm to develop equipment and technology tomeet its own needs, it also leads to a lack ofstandardization and to the inefficient pro-duction of equipment in small quantities.Furthermore, this horizontal independencemeans that new technology is less likely to


be transferred to other plants that mightbenefit from it. ”

In theory, the Soviet Union should have adistinct advantage over the West in the dif-fusion of technology, since new technologiesdeveloped in the U.S.S.R. are State propertyrather than trade secrets, and should be free-ly available to any enterprise able to usethem. In practice, however, communicationamong Soviet production enterprises is poor,and there may be long delays in the publica-tion and dissemination of information aboutnew developments. The slowness of journalsto publish research papers and report otherdevelopments may result in a great deal ofduplicated effort. It has been reported thatthe average time between submission of apaper and its publication in the importantSoviet journal “Electrochemistry” was asmuch as 2½ years, and individual articleshave been delayed as long as 4 years.17 Coop-eration and communication among plantswithin the same industry, and between orga-nizations in different industries, are seri-ously inadequate.

The factors mentioned above all inhibitthe introduction and diffusion of new tech-nology throughout the Soviet economy; as aresult, the share of total output in theU.S.S.R. due to the introduction of newmethods or new products is lower than thecomparable share for other industrializedcountries. When performance is measuredsolely in terms of increased output, there islittle incentive to change the form of the out-put. This leads to production of unchangedequipment over a long period of time, ofteneven after better equipment has been devel-oped.

Other forces also encourage U.S.S.R. en-terprises to continue using outdated produc-tion equipment. Because of shortages of

“John Hardt and George Holliday, “Technology Transferand Change in the Soviet Economic System, ” Issues in East-West Commercial Relations, Joint Economic Committee,January 1979, p. 74.

“M. Perakh, “Utilization of Western Technological Ad-vances in Soviet Industry, ” in East-West TechnologicalCooperation (Geneva: NATO Colloquium, 1976), p. 179.

equipment and the lack of direct connectionbetween the cost of production and the costof the final product, depreciation rates forSoviet equipment are set very low by West-ern standards. In the West, out-dated ma-chinery is taken quickly out of productionand replaced by newer equipment that willlower production costs. High depreciationrates for equipment encourage these shifts,as does a strong market for secondhandequipment. No such secondhand market ex-ists in the U. S. S. R., so the equipment con-tinues to be used at the plant. As a result,the replacement rate for Soviet equipment inmost industries is much lower than in cor-responding industries in the West.

Many of these same problems reduce theeffective introduction of new technology im-ported into the U.S.S.R. from abroad. Thisseems to be particularly true for thosetechnology transfers that require applicationof Soviet design and manufacturing engi-neering to the imported technologies and canbest be seen in U.S.S.R. attempts to dupli-cate Western technology based on trade pub-lications, product literature, plant tours, per-sonal conversations, etc., or the import of asmall number of product units to serve asmodels or prototypes for Soviet production.As previously noted, the U.S.S.R. also main-tains an extensive collection of Westernjournals, some of which are systematicallytranslated into Russian.

While the use of Western equipment asprototypes for production of new technologyreduces the need for Soviet R&D, it still re-quires significant application of domestic ef-fort, particularly in terms of developing pro-duction methods. For rare pieces of equip-ment or products that can be dismantled soas to uncover production techniques by ex-amination, “reverse engineering” is relative-ly simple. With more sophisticated products,such as integrated circuits or petrochemi-cals, however, reverse engineering is muchmore difficult and impractical.

One of the highest cost components in in-novation in the West, and one of the greatadvantages of the competitive market sys-


tern over central planning, is the determina-tion of which products and processes willeventually prove to be economically andtechnically viable. In the West, the marketsystem makes this selection based on effi-ciency and profitability, thus screening outinnovations that are not worth further devel-opment. The work done on products andprocesses that never reach the final stage ofcommercial introduction and acceptance isas much a cost of technological advancementas the work done on successful innovations.Marx considered this process to be a majorflaw in the capitalist economy–a wastefulmisallocation of resources. The innovationengendered by this method of selection, how-ever, tends in the long run to more than com-pensate for its real costs. Thus, by concen-trating their efforts only on those new prod-ucts or processes that have already beenscreened by the Western market mechanism,the U.S.S.R. is able to avoid the cost offollowing infeasible or uneconomical ideas.

According to East European officials, anaverage of 5 to 7 years elapses between thebeginning of efforts to copy a Western prod-uct and successfully readying it for produc-tion in worthwhile quantities.18 This time-lag means that the copied equipment is oftenoutdated, at least in Western terms, by thetime it is used. This period may, however, beshorter than the time it would have taken forthe U.S.S.R. to develop the product com-pletely on its own.

But the U.S.S.R. is increasingly interestedin obtaining from the West technology of thetype that is difficult to copy without assist-ance. The Soviet desire and willingness toseek more active forms of technology trans-fer is enhanced by the rate at which Westerntechnology is advancing in such leading in-dustrial fields as petrochemicals, electronics,and precision instruments. In the past, if thetechnology embodied in a piece of equipmentcould be duplicated within a few years, theU.S.S.R. could remain only slightly behind

the level of technology being used in theWest. Now, where technology is advancingrapidly, keeping up with the West is moredifficult, and there is pressure to increase thespeed with which technology is importedfrom abroad, assimilated, and diffused.These circumstances also encourage greateremphasis on more efficient selection of tech-nology imports.

Studies by Western specialists have notedseveral factors that make Soviet technologyacquisition less efficient than it could be.One frequently voiced criticism is the lengthof time it takes for the Soviet Union, once adecision has been made to import certainequipment or technology, to decide whichnation and firm will supply it, and then to ac-cept delivery and get the equipment set upand into working order. One study has com-pared the time required for the U.S.S.R. toaccomplish this with the average time re-quired in the West in the chemical andmachine-tool sectors. It found first, that theU.S.S.R. required about twice as long to signa contract for a particular need as wouldhave been the case in the West. This was dueto several factors. Initial inquiries from theSoviet Union were frequently vague, and theform of the final order was often differentfrom the original specifications. The studyconcluded that vagueness at the initial stageprobably results from a genuine lack of Sovi-et knowledge or decision on what will be thebest choice, rather than from any deliberateattempt to make the process more difficult.

Second, the Soviets require much more ex-tensive documentation than other countries.While some of this may be attributed to alack of trust on the part of Soviet trade of-ficials, there is no doubt that the additionaldocuments ultimately make it easier for theU.S.S.R. to assimilate and possibly dupli-cate the technology being provided.

Third, there is no direct contact betweenthe supplier of technology and the final user.This is an important source of delay in theacquisition process. The supplier must workwith the Foreign Trade Organization which


handles that type of equipment, and commu-nication between the supplier and user takesmuch longer and is subject to greater possi-bilities of misunderstanding than would bethe case in the West. Inexperience in the in-stallation, operation, and maintenance ofcomplex equipment, along with poor man-agement and planning, frequent shortages ofadequately trained personnel to learn tooperate and repair equipment, and problemswith the quality of raw materials or other in-puts to be processed with the new equip-ment, are additional factors that lengthenthe time between equipment delivery andproper startup. ”

Delays, the desire to reach certain produc-tion levels within a set period of time, andthe inability of Soviet industry to supplysufficient equipment to meet those goals, arealso important factors in the Soviet decisionto import machine tools and chemical equip-ment. Once a decision to import is made, theuser typically seeks the best equipmentavailable. This leads to the purchase ofequipment with performance characteristicsthat exceed anything the U.S.S.R. is itselfcapable of producing.

The Soviet Union seems to be increasinglyaware of the need to use foreign trade andtechnology acquisition to improve its eco-nomic performance. Foreign trade is nolonger viewed as a necessary evil; in fact,there is a growing awareness that the de-mands of Western markets can have a posi-tive effect on the quality of goods producedfor export, and thus on the level of quality inthe entire economy. Some of the hard curren-cy earned by an enterprise’s exports is beingreturned to the enterprise, providing an in-centive to improve the technology used bythe plant, as well as the means by which theenterprise can afford to import additionalWestern technology .’” Importing Westerntechnology has become more attractive dur-ing the 1970’s, as Western suppliers havecompeted for the Soviet market, as long-term credits have been made increasingly

l“l)hilip IIanson and T’Y1. R. }Iill, unpublished manuscript.“’l{olliday. op. cit., p. 55.

available, and as Western firms have becomeincreasingly willing to accept product buy-back provisions as a means of financingtechnology imports.

The increased attractiveness of technol-ogy transfer, coupled with the U.S.S.R.’sgrowing need, has resulted in more pur-chases of machinery and equipment from theWest, together with the use of cooperationagreements and other arrangements withWestern firms and countries to promotetechnology transfer. The CIA and othersources have estimated that as much as 10to 12 percent of total Soviet investment inmachinery and equipment has come fromabroad during the 1970’s. While purchasesof equipment from the West have increasedrapidly, purchases of licenses have beengrowing quickly as well; according to Sovietofficials, license purchases are expected toincrease even faster than equipment pur-chases. 21

The U.S.S.R. has signed Government-to-Government cooperation agreements withmost countries of the West since its initialagreement with the United States in 1972.Some 150 authorized projects are eitherunderway or planned on the basis of thesetechnology agreements with the UnitedStates. A number of American, West Euro-pean, and Japanese firms have also signedprivate cooperation agreements with theState Committee for Science and Technol-ogy. These cooperation agreements havebeen concentrated in high-technology areassuch as electronics, computers, instruments,and various types of engineering.

But while the U.S.S.R. has expanded thenumber and variety of technology transfermechanisms available to it, the most effec-tive form of technology transfer, the jointventure, has not been permitted. Joint ven-tures with Western interests have been usedin Yugoslavia since 1967, in Romania since1971, and in Hungary since 1972.

~)Z. Zeman, “East-West ‘1’echnology Transfers and TheirImpact in Eastern Europe, ” in East- 14’e.st 7’ethnological(’oop<~ration, op. cit., p. 171.


It is very difficult to estimate the actualimpact of Western equipment and technol-ogy on the performance of the Soviet econ-omy. The available information does noteven permit an accurate determination of theshare of Soviet capital equipment that comesfrom the West, although most specialistswho have studied this problem estimate theshare to be between 4 and 6 percent. This lowlevel is the combined result of the shortageof hard currency in the U. S. S. R., the Sovietpolicy of wanting to avoid excessive depend-ence on the West, and Western export con-trols.

In sum, however, a general picture ofSoviet import policies and their effectivenessmay be drawn. The U.S.S.R. has had a longhistory of systematically utilizing Westerntechnology to compensate for domestic eco-nomic shortcomings. The present systemthrough which decisions regarding importedtechnology are made is incompletely under-stood in the West, and is characterized by itscomplexity and slowness. The prioritizationof technology for import seems to be domi-nated by the availability of hard currencyand the potential economic and military im-pacts of the technology, but no consistentand universally applicable set of criteria hasemerged. The Soviets are well-informed,however, about Western technologies underconsideration and their selections usually re-flect careful evaluation of the properties ofthe technology relative to their specificneeds.

The absorption and diffusion of Westerntechnology in the U.S.S.R. have been re-tarded by structural features of the Sovieteconomy and the rigidities inherent in cen-tral planning. The Soviets appear to beaware of these defects and may attempt tocorrect them with further purchases ofWestern management and other know-how.Meanwhile, the economic impact of importedtechnology is not as great as it might havebeen on a Western nation purchasing on asimilar scale.

THE ECONOMIC IMPACTS OFWESTERN TECHNOLOGY

Several factors affect the degree of eco-nomic benefit to be derived from the pur-chase of any technology. Obviously the ini-tial selection is important. In situationswhere the availability of hard currency posesrestraints on the amount of technology thatcan be acquired, a Communist country can illafford to make a poor choice—either in termsof the industry or sector singled out as liableto benefit from Western technology, or in theselection of a particular machine or processfrom all those available in the West. The cri-teria that ideally govern this choice includefundamental investment decisions (thechoice of capital versus labor-intensive tech-nologies); the sophistication of available do-mestic technology relative to the importedtechnology; the indigenous capabilities ofthe country’s R&D sector; and the availableinfrastructure.

A Western technology may prove econom-ically beneficial in several ways. First,assuming the existence of the necessaryinfrastructure, including trained manpower,the productive capacity of an industry maybe enhanced. Even if no diffusion of thetechnology occurs, this may be a net gain tothe economy. Of course, in the absence of in-frastructure, the new technology may pro-duce a net loss in macroeconomic terms. Thisis the case with “resource-demanding’ tech-nologies, i.e., those that require substantialcapital or labor inputs before they becomeoperative.

Second, the economic benefits of the tech-nology may be enhanced if it can be used toincrease productivity in other industrial sec-tors, or if the technology embodied in im-ported equipment can be replicated in equip-ment produced by the domestic economy.Such diffusion requires certain capabilities


in the domestic R&12 sector, yet this alone isnot sufficient to close a technology lag orgap. The true test of the effectiveness oftechnology transfer is not only whether im-ported technology can be diffused at a tech-nological level comparable to that of theWest, but if it can also be the basis of domes-tic R&D efforts to upgrade it. It is only whenimported technology can be fully absorbed inthe economy—and improved on—that tech-nology gaps can be reduced.

It is generally true that innovations in theSoviet economy have followed their intro-duction in the West. This impression is sup-ported by a number of studies, some of themconcentrating on a single industry, otherstaking a broader perspective and attemptingto measure the effects of technology transferon Soviet productivity, income, and techno-logical level.

The impact of Western capital equipmenton Soviet economic performance appears tobe much larger than the small Western shareof total capital stock would suggest. Thedecision to import technology and equip-ment is based on the judgment that it willproduce better results than if that moneywere spent on domestic equipment. Thus,theoretically at least, the worth of a givenunit of imported equipment has a greater ef-fect on economic performance than the sameunit’s worth of the domestic equipment forwhich it is being substituted.

Whether all import decisions are madewith net productivity as the deciding factoris, however, open to question. Import deci-sions are based partly on noneconomic cri-teria, and the Foreign Trade Organizationnegotiating a purchase often does not knowthe grounds for the decision or the net effectof the purchase on the industrial sector. Thisis not only due to a lack of communicationbetween organizations responsible for put-ting any new process into production, butalso to the administered price system whichdoes not reflect relative scarcities. Withinthe Council for Mutual Economic Assistance

(CMEA), a growing body of literature on theuse of foreign trade indexes, which would ad-dress this problem, has appeared. But suchindexes are not used extensively and provideonly one of many kinds of information onwhich import decisions are based. It must benoted, however, that in spite of the Soviets’inability to determine precisely the profit-ability of proposed technology imports, theyhave rarely had to make decisions on proj-ects of marginal value. Owing to the rela-tively small volume of trade, the Sovietshave had their choice of transactions inwhich productivity gains were clearly high.

An econometric study conducted jointlyat the Stanford Research Institute andWharton School constructed an input-out-put model of the Soviet economy (SovMod),which attempted to determine the effect ofthe growth in equipment and technology im-ports from the West between 1968 and 1972on Soviet overall economic performance.22

The study concluded that if Western exportsduring this period had stayed at 1968 levels,the Soviet Union would have had an in-stalled stock of Western equipment that was20 percent below the actual 1973 level, andthat Soviet growth during this period wouldhave dropped from 32.1 to 29.6 percent. Thisconclusion implies that Western equipmentaccounted for approximately 2.5 percent ofthe U.S.S.R.’s rate of growth during thisperiod, or several times the share of thisequipment in Soviet capital investment.

Studies like this are controversial, how-ever. The assumptions on which the model isbased have been questioned and other re-searchers have reached significantly dif-ferent conclusions using the same data. Ithas been contended, for instance, that theexistence of significant differences betweenthe productivity of Western and Soviet capi-tal equipment is not supported by statisticalanalysis. 23 This finding implies that the con-tribution of Western equipment to the per-

“See Herbert Levine and Donald W. Green, “Implicationsof Technology Transfer for the U. S. S.R., ” in li’a.st-u’est 7’ech -nologicul Cooperation, op. cit.

“Philip Hanson and M. R. IIill, unpublished manuscript.


formance of the Soviet economy is not sig-nificantly different from the contribution ofSoviet equipment. More than anything else,the conflicting results obtained from thesemacroeconomic approaches point to the wis-dom of reverting to the study of the actualeffect of Western equipment and technologyon the capacity of individual sectors of theSoviet economy. A disaggregate approachin which each industry is examined individ-ually to determine what equipment and tech-nology has been transferred, how well andhow quickly it has been absorbed and dif-fused, and what changes there have been incomparative levels of technology, may bemore productive and accurate. It must benoted that such information is very difficultto obtain even in the West, where access toinformation is relatively free. The details as-sembled here must necessarily be taken aspartial and impressionistic. This report willconcentrate on two in-depth examinations ofthe industries in which Western technologyis most important—the oil and gas equip-ment industry, and the computer industry.This will be preceded by brief discussions ofthe other Soviet industries that have re-ceived significant attention from researchersconcerned with Western technology trans-fer; they are chemicals, machine tools, andmotor vehicles.

Chemicals

The Soviet chemical industry has beenlong and heavily dependent on the West as asource of both technology and productivecapacity. The subsectors of the chemical in-dustry in which technology has remainedfairly traditional–basic inorganic chemicalsand the production of phosphates and po-tash fertilizers—have performed relativelywell. But performance in petrochemicals andnitrogenous fertilizers has lagged consider-ably. In the latter two areas, modern tech-nology in the West has changed rapidly inways that have allowed a significant expan-sion of plant size at reduced productioncosts. The Soviet chemical industry has beenunable both to duplicate the technology andto keep up with the constant development of

new processes and products in the petro-chemical field. The demand for Westerntechnology in these areas is significant, notonly for this reason, but also because theseare areas in which the U.S.S.R. has sought torapidly expand output. These two factorshave combined to demand large expend-itures of foreign currency for turnkey plantsthat will provide modern technology andrapidly expand the industry’s productivecapacity.

In the late 1950’s and early 1960’s, whenthe U.S.S.R. initiated its drive to importtechnology in chemicals, the Soviet chemicalindustry seemed likely to remain about 10years behind the West in a number of areas.It was then taking 6 to 7 years to import andabsorb technology that was already about 3or 4 years old in the West. In recent years,however, the chemical industries of the Westhave experienced excess capacity and therate at which new plants and equipmentemploying the latest technology have beencoming onstream has slowed considerably.The chemical engineering companies thatprovide new technology and equipment havenot slowed their innovations, and have beenselling their latest technology to anycustomers in the market for new capacity.As a result, some of the new plants beingbuilt in the U.S.S.R. incorporate technologythat is as advanced as that coming onstreamin the West.

But despite significant contributions fromWestern plants, the Soviet chemical indus-try continues to lag considerably in the in-troduction of new products and technol-ogies, and the output profile of the industryremains biased toward the production ofchemicals based on older and simpler tech-nologies.

In the case of plastics, for example, therehas not been a single documented instance inwhich the U.S.S.R. first produced a majorplastic material; in fact, the U.S.S.R. isusually the last industrialized economy tobegin commercial production of each major


group.24 In synthetic fibers, total productionin the U.S.S.R. between 1955 and 1973 ex-panded at a more rapid rate than in Westerncountries, but it took 11 years for syntheticsto increase from 10 to 33 percent of allchemical fibers produced, while in the UnitedStates, Japan, Britain, and West Germany,this diffusion of new technology took only 5to 8 years.25 Even when synthetic fibersreached a significant share of total chemicalfibers, output was dominated by those syn-thetics based on older technology.

These impressions were confirmed in theCIA’s recent report on the sale of turnkeyplants to the Soviet chemical industry andthe share of Soviet chemical output ac-counted for by Western plants.26 This study,based on a survey of more than 100 turnkeychemical plants purchased from the Westbetween 1971 and 1977, concluded that theSoviet Union depends heavily on Westernchemical technology. The U.S.S.R. placedorders for slightly more than $3.5 billionworth of turnkey chemical plants between1971 and 1975, and ordered an additional $3billion or more during the following 2 years.The study concluded that these imports didnot lead to a noticeable advance in the levelof overall plant technology in the U.S.S.R.Although since plants ordered as early as1971 have only been in place for a few years,the effect of technological diffusion fromthem may only begin to show up over thenext several years. The study also concludedthat gains in overall efficiency and productquality have come more slowly and at great-er cost than Soviet planners had anticipated.

The value of Western plants ordered be-tween 1971 and 1975 equaled an estimated20 to 25 percent of total Soviet investment inchemical industry equipment during thatperiod, an amount that may have been high-er than planners had in mind. When domes-tic and East European equipment supplierswere unable to meet commitments, the

24 Amman, Cooper, and Davies, op. cit., p. 275.‘51 bid., p. 53.“Central Intelligence Agency, “Soviet Chemical Equ@-

ment Purchases From the West: Impact on Production andForeign Trade, ” October 1978.

U.S.S.R. was forced to increase orders fromthe West in order to meet planned outputgoals. The East European chemical industryhas concentrated in the more traditionaltechnology areas of basic chemicals and fer-tilizers. Soviet output based on plants fromEastern Europe is significant for severaltypes of chemicals, with 20 percent of sul-furic acid output, 25 percent of ammonia out-put, and 40 percent of urea production in1975.

In comparison, the CIA estimated thatplants supplied by the West accounted in1975 for 40 percent of the Soviet output ofcomplex fertilizers, 60 percent of polyethyl-ene production, and 75 to 85 percent of poly-ester fiber output. In addition, they wereresponsible for 72 percent of new ammoniaproduction capacity to come onstream from1971. to 1975, and 85 percent of the sched-uled new ammonia capacity for 1976-80.Some plants supplied by Eastern Europealso incorporated some Western technologywhich was thereby transferred to theU.S.S.R. indirectly.

The largest share of chemical plants sup-plied to the U.S.S.R. from the West camefrom Italy (26.4 percent), followed by France(22 percent), West Germany (17.5 percent),the United States (14.3 percent), and Japan(14 percent). The prominence of WesternEuropean nations is largely explained bytheir willingness to accept product buy-backprovisions in payment,

All Soviet orders for U.S. plants camewhile the U.S.S.R. had Export-Import Bank(Eximbank) credits available, but technologyhas also been supplied by American multina-tional firms with subsidiaries in countriesthat provide the U.S.S.R. with competitivefinancing. This means that although Ameri-can chemical firms supply the technology,the United States does not receive the eco-nomic benefits of major equipment ordersand is unlikely to do so until Eximbankfinancing is once again available to theU.S.S.R.

The CIA conjectures that the U.S.S.R.has had only limited success in attempts to


copy Western chemical technology, althoughit is still possible that the new ethyleneplants being built by the U.S.S.R. might in-corporate some features of larger ethyleneplants that have been supplied by the West.The increasing complexity of modern equip-ment not only makes it more difficult for thetechnology in the equipment to be copied,but also makes it increasingly difficult todetermine the origin of a given technology.

Technology transfer in the chemical sectorhas also been felt indirectly in other sectors,particularly agriculture. A recent study byPhilip Hanson of the University of Birming-ham attempted to measure the economic im-pact of Western technology in the Sovietmineral fertilizer industry by first estimat-ing the increased fertilizer output that couldbe attributed to Western plants, and then es-timating the increased agricultural outputattributable to expanded supplies of thesefertilizers. Hanson concluded that between1970 and 1975 the Soviet Union achieved ap-proximately 4 billion rubles of additionalagricultural output by using fertilizer plantsimported from the West and installed be-tween 1960 and 1975, at a cost of approx-imately 2 billion rubles.27

All studies of the Soviet chemical industryconclude that the problems experienced bythe U.S.S.R. are in developing technologyand bringing it into industrial production inareas where technology is changing rapidly,where there must be close communicationbetween research and production work, andwhere the number of unsuccessful experi-ments is high compared with the limitednumber of successful innovations. In thefuture, the Soviet chemical industry mayneed to choose between continued relianceon Western technology and turnkey plantcapacity, or scaled-down targets for produc-tion growth, concentrating on increasesbased primarily on current technology.

Machine Tools

The Soviet Union has the largest stock ofmachine tools in the world; in the early1970’s, its inventory of metal-cuttingmachine tools was about one-third largerthan that of the United States. Sovietmetalforming equipment also outsizes thecomparable U.S. stock. When measured interms of performance and capability, how-ever, even Soviet specialists have admittedthat American machine tools exceed theirSoviet counterparts .2’

Demand for machine tools still far exceedssupply in the U.S.S.R. This is due in part tothe inefficient use of existing equipment.Soviet machine-tool output is dominated byrelatively simple, general purpose machines,which are more easily built than the morecomplex equipment that machine-tool usersincreasingly demand. More than 60 percentof Soviet machine tools have been mass-pro-duced with few design changes over manyyears. 29 In contrast, most machine tools inthe United States are specialized modelsdesigned for a specific purpose and built insmall quantities according to the needs ofeach customer.

The shortage of specialized machine tools,combined with the need for many plants tobe self-sufficient, means that specializedmachine tools built in the U.S.S.R. are oftendesigned and produced by the users them-selves. In these circumstances it is relativelyunlikely that any machine-tool innovationswill be diffused through the industry asrapidly as they would be if a regular ma-chine-tool supplier had produced the innova-tion. The user-builder has no incentive to de-ploy new technology elsewhere.

Studies of the machine-tool industry con-cur that traditional Soviet machine tools—drills; lathes; boring, grinding, milling equip-ment; and transfer lines—do not differ sig-

“Philip Hanson, “The Impact of Western Technology: ACase-Study of the Soviet Mineral Fertilizer Industry, ” pre-sented at the Conference on Integration in Eastern Europeand East-Yt’est Trade, Bloomington, I rid., October 1976.

‘sAmman, Cooper, and Davies, op. cit., p. 122.“’James Grant, “Soviet Machine Tools: Lagging Technol-

og and Rising I reports,”” unpublished paper, p. 25.


nificantly from those used in the West,although Western models often perform bet-ter in terms of operating speed, tolerances,or durability. The greatest difference be-tween Soviet and Western technology lies inthe area of advanced machine tools, such asnumerically controlled equipment. Due totechnological lags in the Soviet electronicsindustry in the 1960’s, Soviet numericallycontrolled machine tools began to fall in-creasingly behind the Western technology.In 1968 the Ministry of Machine Tools andthe Ministry of the Aviation Industry–thelatter an important user of numerically con-trolled equipment—decided to step up pro-duction. As a result, output of these machinetools in the U.S.S.R. jumped from 200 unitsin 1968—about 7 percent of U.S. produc-tion—to about 2,500 in 1971, exceeding thelevel of American output.30

This rate of growth was made possible byassistance from the West. Since 1968, theU.S.S.R. has signed agreements with firmsin Japan, France, and West Germany. At thesame time, Soviet cooperation with EastEuropean enterprises in this field has also in-creased. East Germany has been a leader inthe development of computer numerical con-trol having shown models at the LeipzigFairs as early as 1972.3’ Computer numericalcontrol, which first appeared in the UnitedStates in the late-1960’s, allows a great dealof flexibility and precision. There are no in-dications that the Soviets have been able toimprove on this technology, however.

Furthermore, even with these boosts, anddespite lengthy effort, the U.S.S.R. has ex-perienced a great difficulty in trying to copyWestern gear-cutting and grinding technol-ogy. This may be an indication that the So-viet Union will continue to find it difficult toraise the productivity, reliability, and levelof precision of conventional machine tools,and will have problems keeping abreast oftechnological development in sophisticatedmodels .32

301 bid., p. 20.~lAmman, Cooper, and Davies, OP. Cit., P. 190.“Grant, op. cit., p. 38.

The latter have been restricted by West-ern export controls, but during the past fewyears, as export regulations on advancedmachine tools have been liberalized, theshare of advanced machine-tool imports hasrisen.

Motor Vehicles

The Ford Motor Company first helpedprovide technology and equipment forSoviet automobile plants at Gorky andMoscow in the 1920’s; since then, theU.S.S.R. has continued to look to the Westfor assistance with motor vehicle produc-tion. The initial contract signed by Fordcalled for the company to transfer any newtechnology developed during the 9 contractyears, yet the U.S.S.R. chose not to in-troduce the V-8 engine developed by Fordduring this period, electing instead to staywith older and somewhat simpler technol-ogy. Soviet specialists reportedly recognizedlimits to their technological capabilities andthe problems they might have in absorbingnew technology .33 These problems have per-sisted. Adequate R&D facilities have neverbeen established in this field and the Sovietshave difficulty keeping abreast of techno-logical innovations.

Although the stock of trucks in Westerneconomies is usually several times smallerthan that of private automobiles, until adecade ago Soviet vehicle output was domi-nated by trucks. Owing to lack of productioncapacity, Soviet planners very early on re-stricted private ownership of automobiles.In the late-1960’s, however, in response to aplan to increase worker incentives throughmajor concessions to consumers, the deci-sion was made to rapidly increase the pro-duction of cars.

In order to accomplish this, the SovietUnion’s automobile industry received amassive infusion of Western technology. It

“John Hardt and George Holliday, “Technology Transferand Change in the Soviet Economic System, ” in Issues inEast-West Commercial Relations, Joint Economic Commit-tee, January 1979, p. 71.


contracted with Fiat for a huge automobileplant at Tolgliatti . The Italians coordinatedthe selection and integration of technologyfrom various sources. Some $550 million inWestern equipment, primarily machinetools, were purchased from the West for theplant, with additional Soviet investment, in-cluding plant construction, coming to atleast another $1 billion. ”

Fiat was also asked to provide a largenumber of technicians and to train others inItaly. Ultimately 2,500 Western techniciansassisted in equipment installation, training,and startup, and 2,500 Soviet technicianswere trained in Italy .35 This direct personalcontact was instrumental in reducing theproblems of absorbing the new technology.

One important test of the U.S.S.R.’s abili-ty to absorb and diffuse the Fiat and otherWestern technology would measure im-provements in the technology employed atthe Tolgliatti plant and duplications of thetechnology at other plants. Significantly, theU.S.S.R. has twice chosen to renew the con-tract with Fiat, first in 1970 and again in1975. It would appear from this that thetechnology employed at the plant has notbeen significantly improved upon by theSoviets and that further Western importsare needed. Moreover, in the Soviet motorvehicle industry, as in most other industries,output increases more from the expansion ofexisting plants than from the construction ofnew ones. The technical level of the ex-panded plant tends to be similar to that ofthe original plant, leading to growth, but lit-tle modernization.36

A desire for new production technology,and for a rapid expansion in capacity, led toa second major project involving the trans-fer of Western technology to the Sovietmotor vehicle industry in the past decade. Inbuilding the huge Kama River truck plantwith assistance from the West, the U.S.S.R.had hoped to entice a Western truck manu-facturer to provide the same leadership that

“i bid.. p. 6H.“’I bid., p 7’7“)1 bid., p. 75.

Fiat had for the Tolgliatti plant. But noWestern firm was willing to act as generalcontractor. This was probably due to a num-ber of factors, including the size of the proj-ect and awareness of the difficulties ex-perienced by Fiat in dealing with the Sovietsystem. At the time, the U.S. Secretary ofDefense opposed having an American com-pany act as contractor for a plant capable ofproducing vehicles that might eventually beused for military purposes. The U.S.S.R.therefore served as its own general contrac-tor, selecting firms to supply the major com-ponents of the plant, who then chose subcon-tractors in turn.

Problems at Kama River appear not tohave resulted from the choice of major sup-pliers, but from poor coordination and in-tegration of technologies from differentsources. This is a frequent problem and ap-pears to be a major reason behind Sovietwillingness to spend so much of its hard cur-rency for Western turnkey plants. TheU.S.S.R. is as much in need of expertise in in-tegrating technologies and systems into effi-cient, highly automated plants as it is inneed of new technology.

These industries—chemicals, machinetools, and motor vehicles—have been themost dependent on technology and produc-tion capacity of Western origin. AlthoughWestern technology has made crucial contri-butions in all three, it has neither eliminatedSoviet lags with the West nor apparentlymuch aided domestic abilities to absorb, dif-fuse, and improve on the technology. TheSoviet computer industry has also been tech-nologically dependent on the West, butWestern export controls and corporate in-terests have limited the computer produc-tion capacity that could be imported by theU.S.S.R. The question of technology trans-fer has become vital in the Soviet oil and gasequipment industry, due to Soviet needs andthe state of energy supplies worldwide.These two industries are reviewed in depthbelow, in discussions of the comparativelevel of technology in these industries, theextent of technology transfer from the West,the predominant forms that these transfers


have taken, and the overall impact of West-ern technology transfer on industry per-formance.

Computers37

To an increasing extent, the computer in-dustry plays a key role in the overall plan-ning, development, and capabilities of theSoviet economy. Because of the usefulnessand interchangeability of computer systemsin both civilian and military applications, thequestion of technology transfer is relevant toU.S. policy for both economic and securityreasons.

The United States is presently the leadingdeveloper of computer technology, a positionit has held since the early 1950’s. For foreignproducers, American dominance in the in-dustry has meant not only extensive contactwith American products and services, butalso problems of competition from Americanfirms in overseas markets. Restriction ofAmerican inroads by competing Stateswould, in practical terms, have meant de-priving themselves of the advantages thataccess to American technology could offer.

During the early years of the developmentof the U.S.-dominated international com-puter community, the U.S.S.R. remained ata distance. This choice reflected both Sovietdesire to develop an indigenous capabilityand a narrow perception of the potentialvalue of computers. In the late-1950’s, how-ever, the Soviet view of the computer beganto change. Beyond its capabilities in themilitary sector, computer technology wasnow seen as crucial to low-level data process-ing and industrial process control.

The Soviets thus discovered that somecontact with Western computer producerswas necessary to develop a domestic com-puter industry suitable to the needs of theireconomy. While they possessed significant

“See Seymour E. Goodman, “Soviet Computing and Tech-nology Transfer: An Overview, ” in World Politics, vol. XX-XI, No. 4, July 1979, pp. 539-570.

Photo credits: Control Data Corporation

Soviet computer equipment displayed in a recent trade fair

domestic potential for hardware R&D, theychose to utilize the Western market mecha-nism to weed out those new processes andtechnologies that were not viable. This pol-icy was particularly useful in the computerindustry, with its rapid rate of technical in-novation. Thus it is not surprising that theSoviets developed a close relationship withthe Western world in this industry.

The Soviet-U.S. computer technology gaphas grown over the years. In 1951, the firstSoviet stored program electronic digitalcomputer became operational, less than ayear after its American counterpart. Themachine was put into serial production only2 years later, again less than a year behindthe United States. These early successessuggested a substantial indigenous com-puter capability.


There was little transfer of technologyduring this period, despite a certain similari-ty between Western and Soviet hardware.Technical literature was the major vehiclefor what little interaction took place.

Unlike the United States, the SovietUnion did not have a well-developed busi-ness equipment industry, nor an establishedorganizational structure of user support.Close interaction between the designers andfinal users of equipment is typical withmarket-oriented firms like IBM; such rela-tionships are virtually nonexistent in theU.S.S.R. This interaction is vital in the com-petitive and fast-changing business equip-ment market, and it provided a crucial ad-vantage to U.S. firms in developing new andusable technology.

The Soviet military could have divertedsufficient resources into the computer in-dustry to close the widening gap with theUnited States in the early 1960’s; apparentlyit chose not to do so. While the Sovietsfollowed the basic pattern of Western tech-nical achievement, the pace of innovation inthe U.S.S.R. fell far behind. It produced nomajor new practical contributions and itbuilt functional equivalents of some Westernproducts long after they had originally beenintroduced.

The Soviets began to change their atti-tude toward the computer in the early1960’s, when recordkeeping and data-proc-essing tasks required the production of anupward-compatible series of computers.Such a system consists of a sequence of in-creasingly powerful computers that havebeen designed so that programs and datarun on a smaller machine can also be run onthe larger ones. The first Soviet attempt toproduce such a series came in 1965. The U.S.functional counterpart to this machine hadappeared in 1960. Here the U.S.S.R. initi-ated its policy of minimizing technologicalrisk by using a proven U.S. system as amodel for its own efforts.

In 1966-67, the Soviets began working onanother upward-compatible series of com-puters, which attempted to copy the archi-

tecture of an IBM system that had appearedin 1965. The attempt was abandoned afterthe production of several machines.

In its next attempt, however, the U.S.S.R.organized a cooperative effort with five otherCMEA countries–Bulgaria, East Germany,Hungary, Poland, and Czechoslovakia–allof which had computer industries. East Ger-many enjoyed access to IBM technology.

The fruits of this collaboration, the Ryadcomputers, began appearing in late-1972.They are not reverse-engineered from theIBM model; rather, they are functional du-plications. The Soviet-led consortium re-quired as long to design the Ryad com-puters, put them into production, and adoptthem to IBM operating software as it tookIBM to design, produce, and place the orig-inal family in operation. In spite of this, theRyad system represents a significantachievement. It gives the U.S.S.R. and East-ern Europe a much improved indigenouscapability for the production of computers,and has provided extensive experience in thedesign of computers based on foreign mod-els. Ryad computers are still not produced atthe rate at which IBM produced the originalline, nor is the performance of the Ryadequipment strictly up to the standards of theIBM models. Nevertheless, U.S.S.R. andEast European satisfaction with this pro-gram is indicated by the decision to moveahead with Ryad 2, also based on IBM mod-els. By early 1977 most of these new modelswere well into the design stage, and the firstprototypes of some models began appearingin 1978.38

The Ryad 2 program will concentrate onincreased production of higher quality pe-ripheral equipment, an area of significanttechnology lag and a source of past com-plaints by customers in the U.S.S.R. Thecore memory capacity for most Soviet com-puters is relatively small compared with theoperating speed of the central processing

‘“N. C. Ila\’is and S. k:. (;oodman, “rI’he So\riet BIOC’S LJni-f ied System of Computers,”” in (’omputing Surl~e.v.s, J u n e1978, pp. 109-110.

54 -202 0 - 79 - 16


unit, thus limiting system capabilities. It ishoped that core storage for Ryad computersin this new series should at least be doubled,if not quadrupled. 39

The U.S.S.R. also cannot match the Westin the quality and availability of magnetictapes and disks. IBM introduced the firstmagnetic disk in the early 1960’s, permittingthe storage and readier availability of vastquantities of information compared to tape.The first Soviet computers to use disk stor-age may have appeared as early as 1970, butit was not until 1973 that such equipmentregularly appeared with any models .40

Large memory capacities and input-out-put devices are important for a variety ofdata-processing applications. A larger pro-portion of Soviet input continues to be of thepapertape and cardreader types, varietiesthat are being progressively phased out inthe West. Soviet output devices, such asprinters, plotters, and graphic displays, alsoleave much to be desired compared withWestern systems. Much of the best Eastern-bloc input-output equipment is produced inEastern Europe rather than in the U. S. S. R.;a number of models are produced underlicense from Western firms. Soviet softwarecapabilities have been limited by each of theabove-mentioned factors. By making use ofthe IBM operating system for the Ryad com-puters, the U.S.S.R. was able to gain accessto software which required only minor modi-fication for use on Ryad hardware, comparedwith what would have been involved in de-veloping such software independently. De-signing its own software is a major Sovietgoal, yet it is questionable whether suchcopying aids this process.

Application programs tell the computerhow to process data that is entered. Prob-lems with hardware have held back applica-tion software development in the U. S. S. R.,despite recent improvements. The lag be-tween Soviet and Western software capabil-ities, as in other areas, has systemic origins.

“’Amman, Davies, and Cooper, op. cit., p. 386.““Da\ ’is and Goodman, op. cit., p. 98.

The Soviets lack the Western motivation tolook for more efficient and less expensiveways to accomplish given tasks.

Calculating the precise value of computersshipped from the West to the U.S.S.R. is dif-ficult, due to the nature of Western andSoviet trade data. Neither provides break-downs into categories for computers, andcase-by-case information about sales islimited. One report, based on detailed tradedata for each Western country that suppliescomputers to the U. S. S. R., has produced thefigures shown in table 36. Several industryexperts believe these figures to be mislead-ingly low, particularly as regards productstransferred by American firms via theirWestern European subsidiaries. These salesare not completely accounted for in Depart-ment of Commerce statistics. Orders placedin 1977 and later indicate that the downwardtrend observed in 1977 has been reversed,and 1978 U.S. data show a near return to therecord 1976 levels.

The commercial interests of Western com-puter manufacturers and export controlshave together strictly limited the transfer ofmanufacturing technology to the U.S.S.R.Only one Soviet plant order–for purchase ofa Japanese facility for production of mini-computer memory devices—has been re-corded. In addition, Romania and Poland(and perhaps other East European nations)have purchased Western licenses for produc-tion of several computers and peripheralequipment.

Table 36.—Western and U.S. Computer Sales tothe U. S. S. R., 1972-77

(in millions of dollars)

Sales from Total sales fromUnited States the West

1972 ., . . . ... $ 4.1 $ 16.11 9 7 3 4.0 15.71974 : : : : : : 3 7 2011 9 7 5 9.4 28.31976 17.2 41.61977 : : : 5.7 28.3

1 9 7 2 - 7 7 t o t a l . $441 $1501

SOURCE IRD, Inc. The Market for Computers in the PRC and the USSR (NewCanaan Corm January 1979)

Ch. X— Western Technology in the Soviet Union ● 235— .

Although the Soviet Union has not ac-quired any licenses, some of the productiontechnology obtained by Eastern Europe islikely to have been made available to it. TheU.S.S.R. has thus derived its greatestbenefits from importing computer systemsto provide models of new technology to aidthe Soviet computer R&D sector and pro-vide capabilities otherwise unavailable. Ex-port controls prevent the U.S.S.R. from im-porting the most advanced Western comput-ers, although some sales have given themunits with better reliability, software, and in-put-output capabilities than the best Sovietmodels.

Except for 1977, the 1970’s have seen anupward trend in Soviet purchases of comput-ers from the West (see table 36). Most com-puter sales are of systems costing severalmillion dollars each. Users of large Westerncomputer systems in recent years have in-cluded reservation systems for Intourist andAeroflot, analysts of seismic data for geo-logical prospecting, controllers of large in-dustrial enterprises (particularly in themotor vehicle sector), and systems for inven-tory control and management. All these ap-plications involve handling and managinglarge amounts of data. Soviet computers areless well-suited to such work in terms ofmemory and input/output capabilities, andthe software required to perform such func-tions is frequently unavailable in theU.S.S.R. The purchase of these systems maysometimes be motivated as much by the de-sire to gain access to software as to hard-ware. The most important factor in a pur-chase decision, however, is generally thedesire of the end-user management to obtainan entire system that, with a minimum ofrisk, will safely, effectively, and reliably ad-dress applications problems.

Scientific institutes and Governmentplanners also buy Western computers toobtain good computer capability. Thesesmaller sales receive much less press cover-age than the headline-making orders formillion-dollar computers. But as plannersand scientific users have become more awareof the many uses to which computers can be

put and given higher priority to the purchaseof Western equipment, such sales havegrown in importance.

Turnkey plants imported from the Westalso frequently include computers or sets ofcomputers as part of the process controlsystem. Almost without exception, theU.S.S.R. has insisted that plants importedfrom the West contain the latest processcontrol and automation equipment. Whilethis request may be partly motivated by thedesire to obtain the embodied technology, itis also a reflection of the U.S.S.R. acuteshortage of skilled operators for many in-dustrial sectors; such automation is seen asan efficient means of reducing the labor re-quirements of new plants.

Because of its desire for maximum feasi-ble self-sufficiency in such a strategic field,the U.S.S.R. cannot be expected to become avery large customer of Western computers.The Soviets will continue to rely on Westernimports to meet certain needs. Such pur-chases may even reach a level several timeshigher than that of the past, but computerneeds will compete with needs for otherequipment and materials. Imports will tendto be restricted to those cases where the costof doing the work without a computer is ex-ceptionally high.

In addition to these constraints on theSoviet side, Western export license restric-tions inhibit West-to-East computer sales.Often, the sales that are prohibited are thevery ones which the U.S.S.R. desires most,i.e., they are sales of systems with thosecapabilities that the U.S.S.R. finds it mostdifficult to produce domestically. If exportrestrictions were eased, it is likely that thepurchase of these systems would be of suffi-ciently high priority that hard currencywould almost certainly be allocated for them.Under these conditions, the volume of suchimports would probably rise sharply.

Computer sales to the U.S.S.R. tend to bewon by those firms that are most aggressivein pursuing the Soviet market. Thus, themarket share for American computers ismuch lower in the U.S.S.R. than in other


markets around the world. The Japanese,like the Americans, have not yet pursued theSoviet computer market vigorously, but theWest Europeans–particularly the Britishand French—have long sought involvementin the market.

The United States does enjoy a distinctadvantage over competitors in the quality ofits computer technology. This advantage ispartially offset, however, by the strongdisadvantage of uncertainty and delay dueto export control. Only the United Statesfails to provide its companies with early in-dications that a license can or cannot be ob-tained. Only the United States will block asale for political rather than strategic rea-sons. The United States takes longer thanany other nation to approve a license, andregularly enforces stricter licensing regula-tions than those set by CoCom. As a result,American firms are sought as supplierswhen they are able to provide productsmarkedly better than those available fromJapan or Western Europe, but not as suppli-ers of first choice when all else is equal. Thedifficulties experienced by American com-puter exporters lead to much of their busi-ness being handled out of Europe, since atleast some of the problems are then avoided.

In many industries, the amount of time re-quired for delivery is a factor in the selectionof a supplier. American computer manufac-turers should compete very well with suppli-ers from other Western countries in this re-gard, since U.S. firms often have more ex-perience in putting together custom-de-signed systems. This potential advantage isfrequently more than offset, however, by theregulatory delays a U.S. supplier may face.Even if the license is ultimately approvedwithin a reasonably short time, the initialuncertainty of the outcome of the licensingprocedure can chill the negotiations betweenan American computer supplier and theU.S.S.R. and can impose higher costs on thesupplier, the Soviet Foreign Trade Organiza-tion negotiating the contract, and the Sovietuser waiting for delivery of the equipment.

Financing is a factor only in those casesinvolving sales of computers for process con-trol. The United States sells very few proc-ess control computers. The selection of turn-key plant suppliers is highly dependent onfinancing and on the willingness of the sup-plier to accept buy-back contracts for prod-ucts produced at the plant. In both regards,the United States is at a disadvantage.Often, even though a plant is based on U.S.technology and incorporates an Americanlicense, it is financed and equipped by aJapanese or Western European firm. In sucha case, the computer for process control, likeall the other equipment for the plant, willcome from the country that is supplying thecredits for the plant. All U.S. turnkey plantsthat have been supplied to the Soviet chemi-cal industry during the past few years re-sulted from orders that qualified for Exim-bank credits, which have since been disal-lowed. No further chemical turnkey plants–and no process control computers for Sovietchemical plants—have been purchased fromthe United States since then.

It is difficult to assess the impact ofWestern computer sales on the economicperformance of the U.S.S.R. The effect ofany computer is difficult to measure in quan-titative economic terms, but one can identifythose areas of the Soviet economy that havebenefited the most from Western computers.Western computers have had a strong im-pact on the motor vehicle manufacturing sec-tor, as British and, more recently, Americancomputers have been used to control produc-tion processes at a number of plants. West-ern computers have also become importantfor the analysis of seismic data, thus bene-fiting the identification of oil and gas re-serves. Other sectors of the economy thathave benefited include the chemical indus-try, from both the process control computersin imported turnkey plants, and the Minis-try of the Chemical Industry’s purchase ofseveral computers to assist in the design ofnew chemical plants. Gosplan has received


some Western computers, but has not usedthem with optimum efficiency. The greatestbeneficiaries of Western imports have prob-ably been scientific organizations, partic-ularly those involved with nuclear physics.

In conclusion, virtually all major devel-opments in Soviet computer technologyhave first taken place in the West. TheU.S.S.R. has been a follower rather than aninnovator in the computer technology field.Once a new technology has appeared in theWest, the U.S.S.R. has usually succeeded inreproducing the technology domestically, al-though the timelag between Western and So-viet introduction of similar technologies hasnot diminished over time (see table 37).

As long as the U.S.S.R. continues in therole of follower, the technological lead of theWest is assured. Even if the difficulties ofmoving swiftly through development stagesinto actual production of hardware aresolved, the Soviets will still face difficultiesin diffusing and effectively using the hard-ware they produce. Such problems do notlend themselves to ready solutions.

Oil and Gas

The U.S.S.R. is the world’s leading pro-ducer of oil, and one of the largest suppliersof natural gas. Most of the equipment used

Table 37. —First Production of Comparable Sovietand American Computers

—Similar Date ofSoviet appearance in Lag

American computer model the U.S.S.R. (in years)——-— . ——————I B M 6 5 0 , Ural 1 1955 1I B M 7 0 2 , Ural 4 1962 7IBM 1620, : : Nairi I 1964 4IBM 7094 . . . . . . . BESM-6 1966 4IBM 360 series ES series 1972-3 6-8

Soviet lag in entering successive generations of computers

First Second Thirdgeneration generation generation

First Soviet computer 1952 1961 1972 —

First American computer 1946 1957 1965Lag (in years) 6 4 7

— — . ———aComparison of dates of first American commercial Installation and first Soviet

lndusrial production

SOURCE M Cave Computer Technology in The Technological Level ofSovief Industry, Amann Cooper and Davies eds (London 1977)

for exploration, drilling, and extractioncomes from within the U. S. S. R., with its rel-atively strong oil and gas equipment indus-try. The bulk of Soviet reserves of oil and gasis located in relatively shallow and very largefields, making it possible to reach high pro-duction levels without the most advancedtechnology.

But the Soviet concentration on theseshallow deposits reflects the country’slimited geological prospecting capabilities,which make the exploration of deeper re-serves difficult. Recently, the U.S.S.R. hasshown interest in acquiring more advancedWestern prospecting equipment, such as so-phisticated seismic mapping equipment andfield units to assist in the recovery andanalysis of seismic data. A number of com-puters have been sold to the U.S.S.R. to pro-vide this analytical capability.

The turbodrill has long facilitated signifi-cant advances in the productivity of Sovietdrilling. About 85 percent of Soviet drillingwas done by turbodrills in the early 1960’s;since 1970, the share has stabilized near 74percent. Turbodrill technology was attrac-tive because it permitted the industry to usepipe and tool joints which were readily avail-able, while reducing breakdowns and in-creasing speed. Unfortunately, however, thedrill loses effectiveness when deeper drillingis required. The high drill speed required forefficient use of the pumps that run the drillresults in comparatively short drill-bit life,so the deeper the well, the more time lost inreplacing bits. The power transfer to the bitalso becomes less effective when used withjet bits. Finally, while good for drilling inhardrock formations, the drill is far less ef-fective in soft formations. The Soviet oil andgas equipment industry has addressed theseproblems by providing improved designs fornew turbodrills, rather than by increasingproduction of rotary drills, which are mostcommon in the West, even though as early as1960 some planners recommended develop-ment work on rotary drills .4*

“Robert Campbell, Trends in the So[’iet 0/1 and Gas Zndu.s-trv {Baltimore, Md., 1976), pp. 20-22.


A 1977 CIA study of the Soviet oil indus-try pinpointed the inefficiency of Soviet drill-ing as a major reason for probable problemsin meeting future production goals.42 TheCIA estimates that the U.S.S.R. will need 50percent more drilling rigs by 1980 to meet itsdrilling targets. The U.S.S.R. hopes, how-ever, to reach its increased drilling goals pri-marily through improved rig productivity.

The quality of Soviet drill bits has alsobeen blamed for poor drilling performance.The U.S.S.R. recently agreed to purchase aturnkey drill-bit plant from U.S.-based Dres-ser Industries to help remedy this situation.

Soviet technology for wellhead equipmentis reasonably good, although better wellheadequipment is reportedly needed when the oilor gas being extracted is particularly cor-rosive or under very high pressure. Therehas also been a lag in the U.S.S.R. develop-ment of multiple completion equipment.This equipment permits a number of produc-ing wells to exist on the same structure.

Soviet oilfields are being depleted rapidlybut with a relatively poor rate of recovery.The Soviet economic system, with its pro-duction quotas and demands for immediateresults, is one reason why fields in theU.S.S.R. are exploited quickly. Soviets in-ject water into wells on about 80 percent ofU.S.S.R. fields to increase immediate pro-duction rates. This practice, known as sec-ondary recovery, increases field pressure andthe flow rate of the well, and may increasethe ultimate field recovery. According to theCIA, however, this method may also reducethe field’s long-term production potentialand result in a serious fluid-lifting problem.Centrifugal pumps must be installed topump out the water and oil; while the SovietUnion produces such pumps, their capacityand service life do not match that of theequipment produced in the United States.

Alternatively, secondary recovery mightinvolve the injection of detergents, poly-mers, steam, or carbon dioxide instead of

“See Central Intelligence Agency, The So[iet Oil Industry,April 1977; and The So[!iet Oil Industry: A SupplementaryAnal}lsis, June 1977.

water. To learn more about these methods,the U.S.S.R. has increased its testing of suchprocedures and has imported equipment andmaterial from the West.

Soviet experience and technology lag farbehind that of the West in all phases of off-shore work. The U.S.S.R.’s offshore drillingand production has been limited largely toactivity on fixed platforms in shallow coastalwaters of the Caspian and Baltic Seas, withonly limited experience in jack-up drilling.The Soviet Union has avoided work furtheroffshore because of technological difficultiesand much higher production costs. TheU.S.S.R. buys a larger share of its offshoreequipment from the West than for any otherphase of the oil and gas industry. U. S. S. R.-built equipment can only be used in limitedwater depths and for relatively shallowwells. The U.S.S.R. also lacks experience insubsea completion equipment, which is atthe forefront of current Western technology,in underwater storage and transport, and inother advanced phases of offshore activity.

An offshore development project off Sak-halin Island, north of Japan, has producedthe most active joint cooperation to date be-tween the U.S.S.R. and the West. Japan isthe U.S.S.R.’s principal partner in the proj-ect, although Gulf Oil plays a small part in it.In exchange for providing the technologyand financing the exploration, the Westernpartners are assured a share of any resultingoil or gas production. The U.S.S.R. experi-ence in this project will help it in further ef-forts to expand offshore drilling and produc-tion.

A similar arrangement will permit thejoint development of gas onshore in Yakutia,in Eastern Siberia. For this project, Japa-nese and two American firms hold sharesamounting to 50 percent of the project, withthe U.S.S.R. retaining the other 50 percent.The progress on this project has been slow,largely because Eximbank financing for theAmerican share of the cost is unavailable,and because sufficient gas reserves at thesite to justify the project have yet to beproven. If successful, the project will entail


the construction of a pipeline to theU.S.S.R.’s Pacific coast, a distance of some3,100 kilometers. The U.S.S.R. claims onetrillion cubic meters of reserves exist atYakutia.

The Yakutia project will require sizablequantities of Western technology for theconstruction of the pipeline, and for drillingand extraction under extremely cold condi-tions. To exploit the field on its own, theSoviets would face much higher costs in bothtime and money, and time may be the criticalfactor. To meet increased production goals,the U.S.S.R. needs both increased suppliesof equipment that is in short supply, and bet-ter technology. If the United States restrictsthe sale of certain types of equipment ortechnology, it is likely that the U.S.S.R. willseek it from other Western sources (see chap-ter IV).

The difficulties of measuring the amountof equipment and technology sold by theWest to the Soviet oil and gas explorationand extraction sector is shown by the widediscrepancies between Soviet data andWestern estimates, as shown in tables 38and 39.

The Soviet-supplied data in table 38 ex-cludes pumps, but this omission does not ful-ly account for the discrepancies between itand CIA figures. The problem is furthercompounded by a third source, the NewYork-based consulting firm of Frost andSullivan, whose recent study contained thefollowing figures for U.S. sales of oil and gasexploration and extraction equipment to the

Table 38.—Soviet Imports of Western Oil and GasExploration and Extraction Equipment

(in millions of dollars)

Purchases from - Total purchasesUnited States from the West

1972 ., ... ... .-. . ‘- ‘$-4.6‘- ‘- $ 19.4 –

1973 . . . . . . . ., 4 3 23.51 9 7 4 5 9.01975 : : : : : 49.5 150.11976 . . . . . . 406 22651977 . . . . ... 29.3 1210

NOTE These figures do not include turnkey manufacturing equipment ‘SOURCE Vneshnaya Torgovlaya (Soviet Trade Data) category 128

Table 39.—Breakdown of U.S. Oil and GasEquipment Sales to the U.S.S.R. (1972-76)

(in millions of dollars)—— ——— . . — —— -.—.—-—— — - -

Category Value.. —...——— ——Pipelines, ., “ ~ $304S u b m e r s i b l e o i l p u m p s : 148Offshore and refining equipment 49O t h e r 49

T o t a l $550

SOURCE Central In tell Intelligence Agency The Soviet 0il Industry A- SupplementalAnalysis June 1977

U. S. S. R.: $3.7 million in 1973, $28.5 millionin 1974, $10.9 million in 1975, and $34.0 mil-lion in 1976. The CIA data covered ordersplaced as sales, while the other two sourcesrecorded actual deliveries. Subsequent in-vestigation has shown that the CIA figurefor submersible pumps was high by about$50 million, partly because of an order thatwas never filled.

It can be said with certainty that since1976, the volume of Soviet orders for West-ern oil and gas equipment has risen signifi-cantly. There has also been a shift towardturnkey projects, either for plants to pro-duce equipment or materials required by theindustry, or for full-service contracts withfirms to provide all equipment needs for anentire project. A recent order to a U.S. firmto supply gas equipment for wells in West-ern Siberia is an example of the latter.

The U.S.S.R. clearly realizes that it mustimport this equipment and technology to in-crease production of oil and natural gas atrates that meet domestic needs and allow itto sell surpluses to Eastern Europe and tothe West, thereby earning hard currency.The sale of oil and gas has accounted for ap-proximately half of all Soviet hard-currencyearnings in recent years. These earnings areused for financing continued imports ofWestern grain, equipment, and technology.

Failure to meet oil and gas productiongoals would involve extreme costs in the lossof this earning power. But, if the U.S.S.R.were extremely concerned about its futureoil and gas production, it would be logical forit to permit greater involvement of Western


firms in joint production projects to speedup development of reserves. Instead, theU.S.S.R. has chosen for the present to con-centrate on acquiring equipment and tech-nology beneficial to the long-run productioncapabilities of the country, with special em-phasis on technology that requires only rel-atively short leadtimes to produce increasesin output of oil or gas.

The selection of equipment and technol-ogy suppliers for the Soviet oil and gas in-dustry is based on a number of factors, in-cluding financing and the kind and quality oftechnology. The oil and gas industry, as amajor earner of hard currency, receives avery high priority when it comes to the allo-cation of foreign exchange for imports.When the technology offered by differentsuppliers is relatively the same, financingterms may determine the chosen supplier. Inmost cases, however, differences in technol-ogy will provide the basis of the choice.When a multinational firm can have equip-ment produced in a country that will providebetter financing than the United States, thepackage becomes more attractive to theU. S. S. R.; American firms have done this anumber of times.

The Carter administration decided inmid-1978 (during and presumably because ofthe Soviet dissidents’ trials) to place alloilfield equipment on the Commodity Con-trol List. This action may have affected So-viet perceptions of American firms as reli-able suppliers. Although no sales of oil andgas equipment have been denied licensessince the order was given, in some cases theU.S.S.R. may have decided not to pursue ne-gotiations with American firms to avoid thepossibility that the license might be blockedfor political reasons.

In other cases involving equipment suchas seismic prospecting instruments or com-puters used to analyze seismic data, thestricter controls placed on American suppli-ers are more than offset by the superiorAmerican technology, which ensures thatthe American firm is the most likely choiceas supplier.

In summary, the U.S.S.R.’s pattern ofrelying on Western technology to rapidly in-crease its capabilities in offshore operationsand secondary recovery suggests that theprimary interest of the U.S.S.R. in importingthis equipment and technology is more togain the productive capacity which theequipment represents than to obtain the op-portunity to duplicate new technology. Forthe most part, oil and gas equipment im-ported from the West has not been inte-grated with Soviet equipment, partiallybecause equipment purchases have primari-ly included complete units. This approachallows the U.S.S.R. to achieve the greatestpossible productive capacity with the equip-ment it imports. The recent shift toward im-ports of turnkey plants will, however, in-crease the U.S.S.R.’s exposure to Westerntechnology, and may speed the rate at whichthis equipment is absorbed by the Soviet in-dustry.

It is still too early to tell how efficientlythe U.S.S.R. will absorb most of the equip-ment and technology it has imported for oiland gas development. It may be expectedthat the rate of active oil and gas technologytransfer between the West and the U.S.S.R.will increase inSakhalin Island,advance.

CONCLUSIONS

the future, particularly asYakutia, and other projects

Western technology has made a marked eralizations, however, either concerning ag-impact on each of the Soviet industrial sec- regate economic effects of Western importstors considered here—chemicals, machine or motivations for importing Western tech-tools, automobiles, computers, and oil. Gen- nology are misleading. There are two basic

Ch. X— Western Technology in the Soviet Union . 241

rationales for importing foreign industrialtechnology and/or products: 1) such itemscould not, under any circumstances, be pro-duced domestically and 2) it is economical toimport rather than to produce domestically.But the role of imports in each particular in-dustry is markedly different. Thus, a sophis-ticated and useful approach to sectoral im-pact of imports must recognize that betweenthese two points lie a range of rationales forindividual import decisions in any given sec-tor. Motivations for foreign imports areclosely associated with the capabilities ofdomestic industry. The range of categoriesof imports relative to domestic productivecapacity is as follows:

1.

2.

3.

4.

5.

technology and/or products that cannotbe domestically developed or producedat any cost;technology and/or products that can bedeveloped or produced domestically atgreat cost in time and resources, andthe lack of which create bottlenecks inother productive processes;technology and/or products that can bedeveloped at great expense in time andresources, but do not create bottle-necks;more productive versions of technologyor products similar to those alreadyavailable in the U. S. S. R.; andtechnologies that can lead to capacityincreases in products equivalent tothose available domestically or prod-ucts providing marginal economic re-turns.

This range of choices may be regarded as acontinuum, and the rationale for individualimports from the West may fall anywherealong it. Given the decision by Soviet plan-ners to increase production in all the sectorsunder consideration, those imports that fallin the initial categories will be most benefi-cial in an economic sense. But products oftechnologies that the Soviets are incapableof producing at any cost are extremely rare.Most analysts have concluded that only timeand commitment separate the Soviets fromany given advance otherwise available tothem through imports. At the opposite end

of the spectrum, it is highly unlikely that im-port decisions are often made for cases ofmarginal returns, both because a wide rangeof more productive processes are alwaysavailable in the West and because of Sovietpropensity to avoid expending hard curren-cy on cases of doubtful return.

The relative role of Western imports in in-dividual sectors may be determined bywhere in the range of import types purchasesof Western products and processes cluster.In the chemical industry imports are gener-ally used as a vehicle to acquire new equip-ment and processes that could be producedin the U. S. S. R., but at great R&D cost.Chemical output is also central in capacityincreases in other crucial sectors—agricul-ture in particular. Imports in the chemical in-dustry tend to occur in the higher range ofimport choices; equipment and processes ac-quired are consequently crucial to plannedgrowth in the industry.

While imports in the automotive sectorare made at all levels of the choice range,large imports tend to be made both for pro-ductivity and capacity increases. The So-viets are perfectly capable of producing au-tomobiles with domestic technology, butWestern imports increase the speed, efficien-cy, and overall capacity of their industry.

In the area of machine tools, productivityand capacity increases also appear to be themajor factors behind imports. In this sectoras well as in the oil industry, a relativelystrong domestic industrial base exists. TheSoviets have, however, planned large capaci-ty increases in both. The fastest and most ef-ficient way to accomplish this goal isthrough imports of Western capital, whichtransfer Western technological advance inaddition to adding to capacity.

Soviet computer imports fall into thehigher range of import types; R&D costs inthis industry would be immense in theU.S.S.R. This is due both to the speed withwhich innovations are developed and the factthat they are often motivated by the needsof the user. A centrally planned economy isparticularly unsuited to high levels of in-


novation in this industry. Soviet practicehas been to wait for major innovations to beproven viable in Western markets before at-tempting to incorporate them into its ownproduction.

In conclusion, the impact of Western im-ports differs significantly across sectors,both from a qualitative and quantitative

point of view. There can be no doubt thateconomic benefits have accrued to all the in-dustries under consideration as a result ofimports from the West; the process by whichthis has been accomplished is complex anddiffers from industry to industry. It is clearthat any policy aimed at affecting the eco-nomic impact of Western technology in theEast must be tailored to achieve specific ef-fects in specific industries.

western technology in the soviet union

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