Goods manufactured and used in further manufacturing, processing, or resale. Intermediate goods either become part of the final product or lose their distinct identity in the manufacturing stream, while capital goods are the plant, equipment, and inventories used to produce final products. The contribution of intermediate goods to a country's gross domestic product may be determined through the value-added method, which calculates the amount of value added to the final consumer good at each stage of production. This series of values is summed to estimate the total value of the final product.
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Soviet industry was usually divided into two major categories. Group A was "heavy industry," which included all goods that serve as an input required for the production of some other, final good. Group B was "Soviet consumer goods" (final goods used for consumption), including foods, clothing and shoes, housing, and such heavy-industry products as appliances and fuels that are used by individual consumers. From the early days of the Stalin era, Group A received top priority in economic planning and allocation.
Following the October Revolution of 1917, the economy of the Soviet Union, previously largely agrarian, was rapidly industrialized. From 1928 to 1991 the entire course of the economy was guided by series of ambitious five-year plans. (see Economic planning in the Soviet Union) The nation was among the world's three top manufacturers of a large number of basic and heavy industrial products, but—as a result of historical factors that made emphasis on consumer industries a development only roughly since the 1960s—it tended to lag behind in the output of light industrial production and consumer durables. One result of this was that consumer demand was only partially satisfied.
Although there was an effort to emphasize public consumption over private consumption in the Soviet Union, nevertheless households earned incomes that they could use for the purchase of consumer goods or for savings. If households were unable to convert income into goods, a variety of incentives could arise. For example, in the event of excess demand for consumer goods, one would expect households to react by working less and/or accumulating savings. From the planners' viewpoint, it was necessary to balance the output of consumer goods and services with the flow of income to the population.
Soviet planners fought a constant battle for the consumer goods balance throughout the Soviet era. In the early years, wages were rising and priorities were shifting from consumer to producer goods. The result was both open and repressed inflation. After World War II, Soviet planners kept wages under better control, and increased the output of consumer goods. By the end of the Soviet era, however, Soviet planners were plagued by what they perceived as a substantial and growing monetary overhang, which took the form of supply shortages.
After the industrial stagnation in the 1970s and early 1980s (see Soviet economic development), planners expected that consumer industries would assume a more prominent role in Soviet production beginning with the Twelfth Five-Year Plan. But despite a greater emphasis on light industry and efforts to restructure the entire planning and production systems, very little upturn was visible in any sector of industry in 1989. High production quotas, particularly for some heavy industries, appeared increasingly unrealistic by the end of that plan. Although most Soviet officials agreed that perestroika was necessary and overdue, reforming the intricate industrial system had proved difficult.
Increased availability of consumer goods was an important goal of perestroika. A premise of that program was that workers would raise their productivity in response to incentive wages only if their money could buy a greater variety of consumer products. This idea arose when the early use of incentive wages did not have the anticipated effect on labor productivity because purchasing power had not improved. According to the theory, all Soviet industry would benefit from diversification from Group A into Group B because incentives would have real meaning. Therefore, the Twelfth Five-Year Plan called for a 5.4% rise in nonfood consumer goods and a 5.4 to 7% rise in consumer services. Both figures were well above rates in the overall economic plan.
Consumer goods targeted included radios, televisions, sewing machines, washing machines, refrigerators, paper, and knitwear. The highest quotas were set for the first three categories. Although in 1987 refrigerators, washing machines, televisions, tape recorders, and furniture were the consumer categories making the greatest production gains compared with the previous year, only furniture met its yearly quota. Furthermore, industrial planners had tried to use light industries to raise the industrial contributions of such economic regions as the Transcaucasus and Central Asia, which had large populations but lacked the raw materials for heavy manufacturing.
In the 1980s shortages continued in basic consumer items, even in major population centers. Such goods occasionally were rationed in major cities well into the 1980s. Besides the built-in shortages caused by planning priorities, shoddy production of consumer goods limited actual supply.
When analyzing shortages in Soviet Union, one needs to realize that not everything could have been taken at its face value. For example, both Moscow and Leningrad, which were heavily visited by foreigners, were supplied much better than the rest of the country and did not have rationing until the late 1980s. Similarly, presence of goods on the shelves in a state store in a minor city often could simply mean that these goods were rationed and could not be bought at will. But in most cases shortages simply meant either empty shelves or long waiting lines. There were also some hidden channels of good distribution; for example, in many cases goods were directly distributed/sold at places of work totally bypassing the store shelves.
While it was often possible to buy meat, milk and most kinds of produce on farmers markets (колхозный рынок), the prices there were typically 2-4 times higher than in state stores and the availability was highly seasonal.
During the 1980s, the wide availability of consumer electronics products in the West demonstrated a new phase of the Soviet Union's inability to compete, especially because Soviet consumers were becoming more aware of what they were missing. In the mid-1980s, up to 70% of the televisions manufactured by Ekran, a major household electronics manufacturer, were rejected by quality control inspection. The television industry received special attention, and a strong drive for quality control was a response to published figures of very high rates of breakdown and repair. To improve the industry, a major cooperative color television venture was planned for the Warsaw Television Plant in 1989.
Western specialists regarded the quality of goods available to be poor when judged by their standards. However, when judged by Russia's own past, the Soviet record was more mixed. The economies of the Western capitalist nations developed from a far more advanced position at the time of the Soviet Union's founding; and the Soviet Union did see rapid growth in industrial investment and economic development—a process carried out against a hardly favorable internal and external background throughout the Soviet years.
By the end of the 1980s, shortages became worse. By the time of the Soviet Union's collapse at the end of 1991, nearly every kind of food was rationed. Non-rationed foods and non-food consumer goods had virtually disappeared from state owned stores. While the gap was partially filled by non-state stores which started to appear in the mid 1980s, the prices in non-state stores were often 5-10 times higher than in state stores and were often out of reach for the general population.