TECHNICAL PROGRESS AND SERVICE LIFE OF MACHINES

V. N. SHCHUKOV

(Presented by the scientific seminar of the Department of Industrial Economics and Enterprise Organization)

The service life of machines and equipment largely determines intersectoral proportions and the rates of development of machine-building industries. Therefore, determining rational service lives for active means of labor is one of the important economic tasks.

The service lives of machines and equipment are increasingly affected by the moral obsolescence of technology and by the rates of technical progress in the corresponding branches of material production. Moreover, contemporary scientific and technical progress is characterized by ever-accelerating rates of renewal of machines and production equipment. Thus, in the manufacturing industry of the United States, the weighted average age of equipment at large firms decreased from 11.35 in 1958 to 10 years in 1962 and to 9.4 years in 1966 [1].

The average age of equipment in U.S. machine building is 8 years, and in the aviation and rocket industry about 6.6 years. According to depreciation laws, the standard service life of equipment is about 8.5–9 years in the United States and 10 years in the European Common Market countries.

Accelerated renewal of technology and the abandonment of equipment before its complete physical wear contribute to increasing the economic efficiency of socialist production.

Many researchers emphasize a direct relationship between the rates of renewal of technology and the rates of development of production.

To analyze the actual rates of renewal of fixed assets, so-called coefficients of retirement or renewal of assets are usually used; these are determined by the ratio of the absolute amounts of retirement to the volume of fixed assets introduced [3].

However, the proposed renewal coefficients characterize only the correspondence between the amounts written off from fixed assets and the planned norm of depreciation deductions, adjusted for the increase in fixed assets. These indicators do not determine the extent to which the actual rates of renewal correspond to the rates of technical progress, but show to what extent the retirement norms coincide with the service lives reflected in the depreciation norms. Consequently, if the depreciation service life of fixed assets does not correspond to the rates of technical progress in a given industry, this is not reflected in the proposed renewal coefficients.

From this, the erroneous conclusion is sometimes drawn that the rates of renewal of the machine stock are sufficient. But such a conclusion is refuted by the already unjustifiably high share of capital repairs. Thus, expenditures on capital repairs of industrial equipment significantly exceeded the amount of retirement due to wear (in 1968 almost 1.5 times; in electric power engineering almost 4 times; in ferrous metallurgy more than 3 times; in machine building 1.6 times) [3].

An analysis of the rates of renewal of technology, without taking account of the rates of technical progress, can only distort the real picture. As a result, an impression is formed of high rates of equipment renewal, since renewal rates are considered from the standpoint of the correspondence between the actual service lives and their normative values fixed in depreciation norms.

Thus, the chief shortcoming of the existing approach to the analysis of the rates of renewal of machines and equipment is that this approach does not answer the question: do the adopted normative service lives of fixed assets correspond to the rates of technical progress; do the depreciation service lives take into account the moral obsolescence of technology?

Consequently, the task is to determine such operating lives of machines and equipment as would correspond to the rates of technical progress and moral obsolescence at the present stage. In this case the service lives of equipment would reflect the economic efficiency of its accelerated renewal.

Sometimes the service lives of machines are linked with the advisability of carrying out capital repairs. It is assumed, for example, that if the costs of the next capital repair are lower than the cost of reproducing the machine, then it is advisable to extend its service life by one more repair interval. However, the restoration of technology by means of repairs means its reproduction at the previous technical level, and in many cases leads to a deterioration of technical-and-economic indicators.

The substitution of capital repair for the actual reproduction of technology leads to an increase in the role of repairs as a whole. The substantial expenditures on repair work, in particular on capital repair, can be explained only by the hypertrophying of the economic role of repair and capital repair in particular.

Thus, the starting point for planning the necessary rates of renewal of machines and equipment is the determination of the rates of technical progress in the given field of instruments of labor and of the economic efficiency of replacing the machine stock.

An indirect indicator of the rates of technical progress in one or another field of instruments of labor may be the periods for changing models of machines.

Table 1 shows approximate ratios between the service lives determined by the existing renovation norms and the periods for changing models of the most mass-produced types of machines.

As can be seen from Table 1, the periods for changing models of most types of machines are significantly lower than the adopted depreciation service lives, which indicates insufficient rates of their renewal and a correspondence between normative service lives and the rates of technical progress in these fields. Therefore, the reduction of service lives by one repair interval (on average from 17 to 14 years), proposed by a number of authors, is economically justified. Practice shows that in the transition to new models of machines there is a significant reduction

specific capital costs and operating expenses. Thus, for example, the transition of power equipment to higher unit capacities in the postwar period ensured a reduction in specific capital costs by more than half. Fuel consumption decreased from 345 g of standard fuel for a 100 MW turbine to 297 g of standard fuel per kWh for an 800 MW turbine.

Table 1

*) Taken according to the 1963 depreciation norms.

Taking into account that in production there are sometimes several obsolete models of machines whose technical-and-economic parameters are significantly inferior to their contemporary level, higher rates of renewal would ensure a greater economic effect.

The economic effect from accelerated renewal of equipment is also expressed in an improvement in the quality of machines and equipment, which contributes not only to reducing costs for users—for example, as a result of higher reliability, etc.—but also contributes to the creation of new means of labor. New means of labor, fundamentally different in their technological operating principles, have higher potential possibilities for increasing labor productivity and reducing costs, and also lead to a change in the qualitative structure of production.

Consequently, the higher the technical level of the equipment being used, the higher its potential possibilities for further improvement.

The main unfavorable aspect of accelerated renewal of equipment, of the fastest replacement of morally obsolete machines and equipment, is the growth in the volumes of production of fixed assets going to replace the means of labor being withdrawn, and, accordingly, the increase in the amount of additional capital investments.

However, as the practice of other countries shows, shortening the service lives of machines need not necessarily be accompanied by an increase in the equipment stock. This depends to a considerable extent on the level of productivity of new machine models. An increase in the productivity of the new models of equipment being created leads not only to a reduction in operating expenses, but also to a reduction in the number of machines

in physical terms, for a stable volume of production. In other words, the higher the productivity of new equipment, the fewer machines are required to perform a given volume of work. The reduction of the machine fleet as a result of their greater productivity has a substantial effect on the size of additional production capacities.

For this reason, greater importance attaches to the rates of growth in the productivity of new machine models, as well as to the relative reduction in the prices of new machines in comparison with their productivity.

However, in a number of cases there is a tendency toward a decline in the rates of growth of machine productivity in the transition to subsequent models. Thus, the productivity of 1.4-ton tractors, with an overall increase of 37%, rose by 22% in the transition from the first to the second model, and by only 7% when the third model was replaced by the fourth. A similar situation is also observed for screw-cutting lathes with a maximum diameter of 400 mm. In the transition from the first model to the second, productivity rose by 25%; from the third to the fourth, by 15%. The highest rates of growth in the unit capacity of aggregates are observed in power-generating equipment. In recent years the unit capacity of turbine-generator units has increased 4–5 times and has now reached 1000–1200 MW, which has ensured a significant reduction in their specific cost and in capital investments as a whole.

The unfavorable factors of accelerated renewal can largely be offset by freeing up the production capacities of repair services, which at present in a number of sectors account for up to 30% of all production capacities.

Thus, the economic efficiency of accelerated renewal of equipment gives rise to the need to shorten the standard and actual service lives of machines and equipment. At the same time, the economically optimal replacement periods for specific types of instruments of labor are determined by the rates of technical progress in the corresponding sectors.

REFERENCES

1. D. M. Palterovich. The Fleet of Production Equipment. Moscow, “Nauka,” 1970.

2. N. Silonova. Methodological questions in determining capital investments for the replacement of fixed assets. — Voprosy ekonomiki, 1969, No. 6.

3. V. Budavei, N. Konovalova. Renewal and depreciation of fixed assets. — Voprosy ekonomiki, 1971, No. 7.