July 1967, which, however imperfect, will undoubtedly improve the existing price structure.

While acknowledging that these refinements will improve the working of the Soviet economic machine, we should bear certain reservations in mind. As we have seen, the scope of the reforms is very limited and represents a compromise between what is economically rational and what is politically feasible. The fundamental powers of the central planners have not been diminished, and they will continue to determine input and output mixes. Thus although, for example, the index of profitability has been accorded more importance as a criterion of an enterprise's performance and will influence to a greater extent the scale of material rewards for the enterprise's staff, resources will not respond to higher profitability, and a high profit plant cannot expand output beyond the plan. The first enterprises to be converted were aboveaverage in their size, efficiency and profitability, so it is hardly surprising that they continued to register an above-average performance. Regrettably, the TSSU has yet to make available any meaningful data which illustrate the effects of the new system on the performance of these enterprises. The real problems lie ahead, when the average and lagging plants are converted, although by that time some of the present difficulties of instituting piecemeal reforms should be overcome.

The experiences of the first year have highlighted bureaucratic inertia as perhaps the most formidable obstacle so far encountered in the path of the reforms. No Soviet Rankovic, at the head of an "anti-party group," can be discerned to be actively sabotaging the implementation of the reforms; rather the blame should be attributed to the resistance to change displayed by Soviet officials at all levels and in all branches. These men have been following set procedures for two generations and can only with great difficulty be persuaded to accept innovations. As yet little managerial resistance can be identified, but it may well appear as the less successful enterprises are converted.

Certain provisions of the reforms, such as the enhanced significance of the production develop ment fund and the extension of financing through bank credits, will take several years to show their full effect, and it is difficult to assess their merits at the present time. There is as yet little indication that the new system is overcoming or alleviating some of the endemic weaknesses of the Soviet economy such as the dissipation of resources, the continuing decline in the marginal efficiency of capital, and the negative aspects of overfulfillment.

Many other problems still await solution. The new prices should ensure over-all branch profitability, but there will continue to be planned-loss enterprises; it is not clear how the incentives system will work in these. Birman and others have posed the question of how unprofitable a plant must be before it is closed down; to this no satisfactory answer has been published. Among other questions that occur: what safeguards exist against the monopolistic or oligopolistic powers of the increasingly powerful associations (obedineniia) in the absence of competitive imports? What can be done to curb the excessive zeal displayed in imposing khozraschiot (economic accountability) on all kinds of unsuitable sub-units? How much of the materialtechnical supply system can be operated on a wholesale trade basis in the face of the existing pressure of demand?

The greatest shortcoming of all in this modest program of reforms will prove to be price formation. So long as prices do not give the correct signals, non-optimal products will continue to be made, profit maximization will not necessarily improve the output mix, and plants will have to be compelled to produce non-profitable and less profitable items through the nomenklatura list. The second major weakness could well turn out to be the unfavorable reaction or just plain apathy of the workers and employees if substantial increases in productivity and work norms are rewarded with only marginal increases in earnings.

Ideally, to make even this limited decentralization work, it would be desirable to create a bit of slack, to take the tension out of the economy. Yet the reforms have been introduced at a time when the pressure on available resources is as high as ever. The main sources of this pressure are the continuing commitment to a high rate of economic growth; the long-delayed pumping of funds into the agricultural sector in the hope of raising it from its slough of despond; an unremitting endeavor to match the United States' offensive and defensive military capacity; a steady deterioration in the Soviet Union's international terms of trade; and

increasing internal inflationary trends. These drains on the economy are not likely to lessen during the foreseeable future. In the meantime the chronic ailments for which the reforms provide a partial remedy will hardly disappear of their own accord. In sum, Kosygin was compelled to begin the course of treatment even though circumstances were far from favorable. It will be interesting to watch how the major part of the Soviet economic body reacts to the prescription during the forthcoming months.

is a voluminous literature in Russian on matters of budgeting, costing, and administering education.1 But for the most part such study displays a slavish concern simply to explain official regulations, abjuring any theoretical discussion or critical approach. There is virtually no recognition of the problem of providing education efficiently, except in crude terms of how to keep expenditures per unit (per pupil, or per class) below the norms set by the central authorities. Discussion is almost totally absent concerning the desirability of substituting relatively cheap inputs for relatively dear inputs in the schools, or about ways of doing this, or about the limits to which substitution should be carried.

The second branch of the economics of education is concerned with attempts to relate the output of the educational system to the needs of the economy for educated labor. Of course, this too is an old concern of governments. Peter I established many schools of navigation, mathematics, and the industrial arts in order to lessen Russia's dependence on expatriate skilled manpower, although his educational and training innovations were hardly comprehensive in scope. When this is done on a broad scale, covering most of the manpower needs of an economy, we can talk about an "education and manpower plan." The Soviet regime inherited from the Tsars a population which had been making rapid strides in educational attainment, especially in the cities. Ideology and economic interest both pointed in the same direction-toward an ambitious program of eliminating illiteracy and building an educated proletariat and peasantry from one end of the Soviet Union to the other. With the advent of the "planning era" in 1927, the first conscious attempts in history were made to relate the output of school graduates to the labor needs of

1 See, for example, P. I. Zubok, et al., Finansirovanie prosveschcheniia: sbornik zakonodatelnykh materialov, Gosfinizdat, 1946; N. A. Pomanskii (comp.), Finansirovania prosveshcheniia i zdravookhraneniia: sbornik postanovlenii, rasporiazhenii, i instruktsii, Gosfinizdat, 1949; E. I. Selina, Finansirovanie kulturno-prosvetitelnykh uchrezhdenii, Gosfinizdat, 1954; L. Potekhin, et al., Planirovanie raskhodov na soderzhanie uchrezhdenii prosveshcheniia i zdravookhraneniia, Gosfinizdat, 1955; and the second edition of this work, published under a slightly different title in 1962.

This is a fact that has been much ignored, overlaid as it has been by Soviet figures of illiteracy and lack of schooling under the Tsars, especially in the rural and Moslem areas. The census figures of 1897 reported a literacy rate of 21 percent; this had risen to about 40 percent by 1914. "Another decade of the same rate of development would have solved the problem of illiteracy and would have placed Russia amongst the most progressive countries"-Nicholas Hans and Sergius Hessen, Educational Policy in Soviet Russia, London, P. S. King & Son, Ltd., 1930, p. 7.

developing industry on a comprehensive scale. The Soviet planners estimated not only in terms of raw material and intermediate product "balances," but also in terms of "labor balances." It was all done pretty crudely-for that matter, it still is done pretty crudely-but it was a beginning.

hese first two branches of the economics of education are intensely practical in nature. They have direct applications to the enterprises which constitute the schools, and the value of studying them is immediately apparent to working administrators. The third branch of the subject presents a different aspect. It arises out of the attempt to estimate the importance of the educational factor in explaining such empirically observed phenomena as differences in pay and earnings, differences in unemployment rates, patterns of migration, demographic variations, occupational choice, economic growth, and so forth. The last ten years have seen an impressive growth in this branch of the economics of education in the West. If we designate the first two branches as the "engineering" aspects of the economics of education, this third branch is the "science" of the subject. It seeks causal explanations of observed phenomena, and is only indirectly concerned with practical applications and the making of educational policy.

In Russia development of this aspect of the economics of education has been hesitant and incomplete. It began early, in 1896, with the publication of a collection of articles which investigated the relationship between literacy and factory workers' earnings and between education and promotion to higher skill-grades, the ability to master new skills, and so forth.3 The authors of this collection showed that they were not only acquainted with the preliminary work in the field that had been undertaken in the United States, England, France and Germany, but that they were quite able to carry these studies further in the context of burgeoning Russian industrialization. After 1896 there occurred a 20-year hiatus in such work. Then in 1924, S. G. Strumilin published his famous article, "The Economic Significance of National Education," in Planovoe khoziaistvo. The opening paragraph

3 I. I. Ianzhul, et al., eds., Ekonomicheskaia otsenka narodnovo obrazovaniia, St. Petersburg, 1896; 2nd edition, 1899. +S. G. Strumilin, “Khoziaistvennoe znachenie narodnovo obrazovaniia," Planovoe khoziaistvo, No. 9-10, 1924.

skillfully combined the practical and theoretical implications of the research he reported:

The work launched by the State Planning Commission on a ten-year plan for expanding the network of schools of the National Commissariat for Education, with a general view to reconstructing our national economy and with the particular aim of satisfying the needs of the country by improving the degree of skill of the labor force, has again presented us, though in a different guise, with the problem of the more important factors in the degree of

skill of labor.

Strumilin then went on to report the results of empirical investigation into the relative importance of age, length-of-work experience, formal education, and on-the-job training for the skill-level of a group of Leningrad workers in the metal trades, and to estimate the returns which the country as a whole might expect from investment in universal primary and secondary education. The calculations of returns made no provision for discounting the value of future returns back to the date when the costs were to be incurred, nor did Strumilin make allowance for the probable intercorrelations between additional education and greater intelligence, better health, and parental and class factors -all of which must give an upward bias to his calculated figures of returns to education. But the article stands as a signal contribution to the development of the economics of education: it stood virtually alone in Soviet economic literature until the contributions of V. E. Komarov in 1959,5 and it was paralleled nowhere in the West until T. W. Schultz's contributions in the late 1950's and early 1960's. The intervening 30-35 years witnessed a gigantic expansion of Soviet education," but as far as the published record goes, this was accomplished without the benefit of economic analysis of the alternative routes which expansion could have taken and of the set of routes actually followed.

6

As the economic problems of providing educa

tion multiplied and as the demands made by the planners upon the educational system increased, interest in the economic analysis of education finally revived in the Soviet Union. This coincided with an increased political acceptance of empirical studies of social phenomena (witness the recent mushrooming of empirical sociological research) and led to the establishment in 1964 at the Lenin Pedagogical Institute in Moscow of a "problem laboratory" devoted to the "socio-economic problems of education" and dedicated to pushing forward with empirical study. A couple of conferences have been held, and a book containing papers read at the first conference has been published under the general editorship of V. A. Zhamin, an economist who also happens to be Rector of the Institute. One can safely forecast that the laboratory will have much work to do, for despite Soviet insistence on planning both educational and economic development, the study of the economics of education has been as neglected in the Soviet Union as it was until quite recently in the West. At last, however, the need for study seems recognized. After all, the Soviet Union is not a country with resources to squander, and in trying so hard to reach and overtake the advanced countries of the West, the planners have created a host of competing demands upon its wealth. Education secures a formidable slice of these scarce resources,' 10 and is therefore expected to make the best use of what it is given and to help as much as it can in solving some of the pressing economic problems of Soviet society.

The Structure of Education: Assets and Liabilities

Turning from these general remarks to some of the characteristic structural features of Soviet education, let us try to determine where economic analysis might be applied with profit.

5 V. E. Komarov, Ekonomicheskie osnovy podgotovki spetsialistov dlia narodnovo khoziaistva, Izd-vo Akad. Nauk SSSR, 1959; and V. E. Komarov, "Ekonomicheskic problemy vosproizvodstva kvalifitsirovannykh spetsialistov," in Problemy politicheskoi ekonomii sotsializma, M. Rabinovich, ed., Gos. izd-vo politicheskoi literatury, 1959.

6 See Theodore W. Schultz, The Economic Value of Education, New York, Columbia University Press, 1963, for a summary of Schultz's own contribution and a survey of the contributions of others.

By 1960, there were 36.2 million enrolled in formal general education, 2.1 million in secondary specialized education, and 2.4 million in VUZs, compared with 12 million, 189,000, and 169,000 respectively in 1927. Narodnoe khoziaistvo SSSR v 1964, p. 667, and Cultural Progress, loc. cit.

8 G. Vokhmianin and V. Ermolaev, “Ekonomiki obrazovaniia," Uchitelskaia gazeta, Oct. 29, 1964, p. 2.

9 V. A. Zhamin, ed., Aktualnie voprosy ekonomiki narodnovo obrazovaniia, Izd-vo "Prosveshchenie," 1945. This work will be published in English by F. A. Praeger, New York, in December 1967 (tr. & ed. by Harold J. Noah).

10 In 1962, schools of general education alone cost the state 3.9 billion rubles. This was a sum large enough to cover the annual salaries of 3.75 million Soviet teachers. (For the US in 1966, the comparable figure was 3.6 million teachers.) The state spent 9.1 billion rubles in 1962 on all formal education activities- or about 11 percent of the entire state budget. Narodnoe khoziaistvo v 1964, pp. 636-47.

In the educational system of the United States the unit of control is usually quite close to the unit of production. Thus, there are thousands of relatively independent local school boards, each running one or two schools and each with its own taxing powers, salary schedules, and administrative rules. (There are exceptions-e.g., the huge New York City school network and the state-administered system of schools in Delaware-but these are not typical.) In American higher education, too, there is not one system but a multiplicity of systems, each composed of a single institution or a very limited number of separate institutions.

By contrast, the outstanding administrative and economic characteristic of the Soviet educational system is the degree of central control over the more than 220,000 producing units that make up the system, enrolling in all about 53 million students." Although there is formal decentralization of control from Moscow to the Union-Republic ministries of national education and of secondaryspecialized and higher education, in practice the republic-level ministries are little more than executive arms of the central ministries and exercise only minor policy-making powers. Again, although financing of the schools is formally arranged through Union Republic channels, in all matters of budget and finance federal prescription and control is predominant.

Now this bears directly on one of the most critical areas of the economics of education: the problems occasioned by the external capture of returns to education. In the United States, with its myriad of small school administrations, any particular school board knows that a large fraction of the returns to the schooling it provides will be captured in the future by other areas. The children at present in the schools will move out of the district during their adult lives, and those other areas will become the beneficiaries of their schooling. Some school boards can hope that what they lose on the swings of out-migration they will gain (or more than gain) on the roundabouts of in-migration, but there can be no guarantee that this will be so. There is thus a considerable incentive for an area which believes it will be a net loser on account of migration to reduce its commitment to education, and to follow the precept that returns which it will not capture will not be considered when fixing the size of the investment to be made. Although each area of the country has a tangible

11 Ibid., pp. 668, 678.

interest in the level of educational provision of all other areas, to date only the most rudimentary apparatus has been devised for expressing that interest in the form of incentive grants, federallyimpacted area grants, equalization payments, and so forth.

In principle, one of the great economic advantages of any centrally administered and financed system of education, such as the Soviet system, is that it can deal with the problem of externallycaptured returns. It can take the long view and the broad view. Although young people in the rural areas of the Soviet Union display as intense a desire to move to the towns as do young people in the West, no rural oblast or raion education authority has a fiscal incentive to cut back on its provision of schooling. All returns can be regarded, and it seems are regarded, as going into one big collective pot. In consequence, no single authority need think in terms of equating costs and returns on its own separate investment. Indeed, this writer's research seems to indicate that the Soviets have succeeded in reducing the differences in elementary and secondary education from one republic to another (as measured by expenditure ratios) far below the level of the differences between states in the United States 12-which is no mean achievement, if one recalls the gross differences between levels of school provision in the various provinces of the Tsarist Empire.

Centralized control of the Soviet educational system goes far beyond the regulation of enrollment totals at all levels and the standardization of admissions, curricula, textbooks, graduation examinations, and teaching qualifications and conditions of service. It extends from these types of "physical" planning controls to some interesting aspects of "pricing." All-Union legislation sets forth uniform salary schedules according to which all school teachers and university instructors in the Soviet Union are paid. There are the usual provisions for increments, for additional years of training and pedagogical service, but these provisions do not meet the common problem which has to be faced by any wage system based upon a relatively small number of arbitrary wage-differentials-the prob

12 Harold J. Noah, Financing Soviet Schools, New York, Russian Institute of Columbia University, Teachers College Press, 1966, pp. 142-52.