6 - Construction

Summary

Introduction

This chapter discusses construction as a distinctive element of the Soviet planning system. Construction, with its unique locational, technological, and supply characteristics, creates special problems for the Soviet economic bureaucracy. Construction takes place in an atmosphere of severe overbidding for and overallocation of investment resources. This chapter explains the sources of overbidding and overallocation and its consequences. It discusses the problem of negotiating contracts between buyers and sellers and the monitoring solutions used, and it explains why so much construction is undertaken by nonspecialized organizations.

Overbidding for investment

The principle of Soviet investment planning is that new plant and equipment should be selected to yield planned output increases. Theoretically, each enterprise has a claim to sufficient new capital to meet the planned growth of its outputs. Consequently, a ministry has a claim to that amount of new capital that enables it to meet the planned growth of its production targets.

Investment hunger

The investment hunger of Soviet enterprises and ministries is well documented in the literature. “Investment hunger” means that the Soviet economy generates a demand for investment that far exceeds the resources available at established opportunity costs. Curiously, this demand is translated into permission by responsible authorities to carry out projects that far exceed real investment resources. As a consequence, Soviet investment in plants and structures is characterized by extraordinary completion delays. Soviet studies conclude that the total lead time between design assignment to capacity operation is from two to two and a half times what would be normal in Western countries.