THE FINANCING OF INDUSTRY .sx IN SOVIET RUSSIA .sx The avowed aim of present economic policy in Russia is to concentrate on industrial development , so that agricultural Russia may be enabled .sx in the shortest possible space of time to equal and then to surpass the level of industrialisation reached by the advanced capitalist countries of the world .sx It therefore becomes a matter of interest and importance to examine the methods by which it is hoped to accompIish this formidable task .sx AGRICULTURE .sx It is impossible to consider industrial development at any point apart from home agriculture , since the latter forms the raw material .sx and foodstuffs basis for industry , and also provides its great market for finished goods .sx Since Russia cannot afford to import freely , the chief problem confronting her industry is that of securing from agriculture a steady and sufficient supply of essential raw material at prices calculable in advance .sx The main obstacle to a solution of this problem is the fundamental difficulty of linking up industry , which is mainly socialised , conducted on a large scale and susceptible to the control of the Government planning system , with agriculture , which is predominantly small-scale ; conducted on an individual basis , and which consequently does not lend itself to accurate forecasting or control of results .sx The present attempt to socialise agriculture is the Government's main contribution to a solution of this primary problem of industry .sx Figures so far available indicate that individual farming is still overwhelmingly predominant , although State and collective farming are making perceptible progress .sx Thus individual farming in 1930 still accounts for 88 % of the total farms , 86 % of the total area under crops , 85 % of the total gross production of agriculture , and 95 % of the total live-stock .sx Only in the sphere of market production has the predominance of individual farming been considerably reduced , the figure there being 54% .sx Figures relating to the financing of agriculture , however , indicate that the tendency is for individual farming to remain stationary , while socialised farming expands rapidly .sx With regard to capital investments , for example , a larger absolute sum is still being devoted to the individual sector in 1929-30 , viz .sx , 2,623 million roubles as compared with 1,251 million roubles which are being directed into the socialised sector .sx But further analysis shows striking differences :sx of the total investments in the individual sector , 77 % are being directed to cover necessary renewals , wear and tear , etc. ; and only 23 % to expansion :sx exactly the opposite is taking place in the socialised sector , where only 8 % is devoted to current renewals , and 92 % to expansion .sx The " contract system " is also being developed as a useful adjunct to the movement for complete socialisation .sx This system works on a basis of joining together a given number of peasant producers into cooperative associations .sx These associations guarantee to deliver their produce , when harvested , to government agents , receiving in return certain credit privileges which assist the associated members to secure their necessary supplies of seeds , implements and other requisites .sx Its object is to rationalise the whole machinery ofsupplying raw material to industry , and when its application is further extended it will undoubtedly be a considerable advance on the system of " free " supply from an enormous number of small producers .sx At present about 65% of the technical cultures , such as cotton , wool , flax , tobacco and others , upon which industry depends , are included in the contract system .sx 1 .sx Surveying the actual progress so far achieved in this sphere , it is clear that a complete solution of the raw material problem of industry cannot be looked for within the limits of the present five-year plan , although the situation should be somewhat easier towards the end of the period , assuming the present rate of progress to be maintained .sx 2 .sx CAPITAL ACCUMULATION .sx Budget figures for the current year give a striking indication of the colossal national effort involved in financing industrial development in Russia on the basis of internal resources .sx 2 The national balance sheet totals eleven milliards of roubles .sx Of this , more than half has been collected from the population by means of taxes , both direct and indirect , the remainder being derived from indirect sources , namely , State participation in the profits of industry , transport , credit operations and so on .sx Of the total eleven milliards , close on five milliards are being directed into the economic development of the various branches of the national economy , industry coming first with 1,790 million roubles out of 4,814 million roubles , or 37% , transport following with 26% , agriculture 13 % , trade 8% , electrification 6% , and minor allocations to Cooperation , communal economy and others .sx A more detailed analysis of the collection and distribution of long-term funds for industry reveals present dependence upon three main methods , the first two representing the method of compulsory capital accumulation , the third voluntary accumulation .sx ( 1 ) Budget :sx the State imposes taxes , issues loans , and uses the proceeds for industrial financing .sx ( 2 ) Reinvestment of industrial profits :sx a certain proportion ( usually 10 % ) of the profits of each industrial enterprise are compulsorily deposited with the Industrial Bank .sx These go to form a central pool of resources which are thereafter redistributed among the different branches of industrial activity in accordance with the decisions of the State Planning Department .sx ( 3 ) Credit system :sx the banks attract free resources from the population and redirect part of these into industry , both as short-term and as long-term credits .sx Recent statistics reveal a steadily increasing tendency to rely on compulsory accumulation rather than voluntary , and a further tendency to stress the reinvestment method rather than the Budget method :sx There can be no doubt therefore that economic construction is being financed largely on the basis of price policy .sx Prices of industrial products are kept at a high level both by the excise duties imposed upon articles of wide consumption , and by the deliberate fixing of prices which will ensure a sufficient margin of profit to the producing industries .sx This policy has been attacked on the ground that a high price level for industrial goods lowers labour stimulus , both urban and rural .sx At present , however , it is held to be inevitable , as the only safe method of securing the necessary funds for industrial development with sufficient certainty and rapidity .sx CREDIT SYSTEM .sx It is clear that in the provision of long-term funds to industry , the banks in Russia have ceased to exercise the active influence which characterises their operation under capitalist conditions .sx Long-term credit is dispensed by various institutions , which , as their names imply , finance different sections of the national economy :sx the Electric Bank , the Agricultural Bank , the Long-term Credit Bank for Industry , the Municipal Bank , the Cooperative Bank .sx These institutions have their headquarters in Moscow , and branches all over the Soviet Union , and are all alike in that they work almost entirely on resources supplied by the Government and have hardly any attracted resources .sx The State Bank , for example , obtains its funds partly as a direct allocation from the Ministry of Finance , partly from the issue of notes .sx The funds of the Industrial Bank are derived partly from the Ministry of Finance , partly from participation in industrial profits , as explained above .sx It follows that under Soviet conditions the discount rate is no longer manipulated by the Central Bank as a weapon for regulating the supply of , and the demand for , loanable funds , since the latter are allocated to variousenterprises in accordance with the Government's plans for economic development , and the various banks act simply as channels for the distribution of the " planned " credits .sx Hitherto the provision of short-term funds for industry , which has been practically concentrated in the State Bank , has been less amenable to government control .sx The Credit Reform Act of January , 1930 , however , brings commercial credit also within the orbit of the planning system , by making certain fundamental alterations in the manner of its distribution .sx Previously , short-term funds were passed from the State Bank to the various industrial enterprises , which in turn redistributed these funds to the different units per-forming the commercial operations of buying and selling .sx There were thus in existence two streams of credit , one flowing from the State Bank to the sphere of production , the other flowing from the sphere of production to the sphere of distribution .sx The Credit Reform Act abolishes the second stream , and substitutes for commercial credit , direct bank credit at every step in the productive and distributive process .sx All socialised units , i.e. , State enterprises , cooperative organisations , and " mixed " joint stock companies not employing foreign capital , are now prohibited from supplying goods or rendering services to each other on credit .sx All transactions have to be settled in cash , and bank credits are no longer advanced to the sellers of goods , in the shape of the discounting of bills of exchange , but direct to the buyers of goods in order to enable them to make the necessary purchases on a cash basis .sx An immediate result will be the disappearance of the bill of exchange .sx The latter is held to be an anachronism under Soviet conditions , based as it is on the factor of trust between individuals and firms .sx This becomes pointless when industrial production is coming increasingly under government control , and when , therefore , factories carrying out given economic processes have what amounts to a tacit guarantee of the State behind them .sx Since the reform will not be in complete operation until July or August of the present year , it is premature to criticise its possible effects .sx It is claimed that it will greatly simplify and clarify the whole movement of credit , and bring the financial structure of the country into harmony with the industrial structure by completing the subservience of both to the State planning system .sx Credit as a whole is now destined to become " the counting-house of planned production and distribution on a social scale .sx " 1 Further experience will be .sx necessary before it can be seen whether such a system possesses the merits of elasticity and flexibility so necessary to the efficient working of a credit machine .sx CAPITAL MARKET .sx The capital market in Russia necessarily presents many contrasts with the corresponding institution under capitalist conditions .sx Most objects of large-scale investment now belong to the State , which also controls the credit system and the whole apparatus of trade .sx There is , therefore , no basis for carrying out typical Stock Exchange transactions ; so that buying and selling for differences and speculation accordingly disappear .sx Again , the replacement of the profit-motive in industrial activity by State direction and control has permanently undermined the principle underlying the issue of industrial shares .sx Hence there is no longer in Russia the divorce between the ownership of industrial capital and the control over that capital which is so marked a feature of capitalist economy .sx Certain banks and trading organisations are formed as joint stock companies , but the resemblance between them and their capitalist confreres is purely superficial .sx In the case of the Russian organisation , shareholders are generally members of a narrow circle of institutions and individuals directly interested in the activity of the undertaking and permanently connected with its working .sx Further , the shares are not marketable , and are only transferable under certain carefully prescribed conditions .sx When viewed against this background , it is not surprising to find that Government bonds are the only securities at present available on the Russian money market .sx The total indebtedness of the Soviet Union at the end of February , 1930 , was 2,900 million roubles , of which 2,000 million roubles represented indebtedness to the population in respect of various industrialisation and agricultural loans .sx According to the Decree of 21 February , 1930 , these numerous loans are now to be consolidated in the " Five Year Plan in Four " loan , to be placed during the next two years .sx a Energetic measures are taken to popularise State bonds , by the " State Credit Aid Societies " formed in every factory and office , and also by propaganda in the villages .sx Investors are morally bound to hold the bonds until maturity , and their transference or sale is only permitted in exceptional cases of severe illness or family misfortune , when it has to take place under special regulation and control .sx This rigidity of the Russian money market is the inevitable result of .sx present conditions , namely , the Government's reliance on methods of .sx compulsory accumulation of capital , and the absence of free resources .sx among the population .sx