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25X1C1OB Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Next 1 Page(s) In Document Exempt Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 25X1A2G pptuveU rut reIectbe 5/08/17 : CIA-RDP78-03061A000400030011-4 November 1968 CZECHOSLOVAK ECONOMIC REFORM: LITTLE ROOM FOR OPTIMISM Ivan Svitak, formerly professor of philosophy at Charles University and one of the leading intellectual reformers of Communist Czechoslovakia succinctly summarized the evolution of his country's crisis during a lecture on 6 July 1968: "Czechoslovakia's democratization process of 1968 had its origin in the events of 1956, the year which began with the de- nunciation of Stalin at the Twentieth Soviet party congress and ended with the Hungarian uprising. In the wake of the Moscow congress, the Czechoslovaks felt that the long night of Stalinism was ended, and that the communist party would lose some of its oppressive character. When, however, it became clear that the communist leaders were still guided by Stalin's democratic cen- tralism and that the old methods would prevail, a deep-seated mood of disappointment set in, aggravated by a seemingly insolu- ble economic crisis. The explosion of 1968 arose out of these conditions.... "What might be called the winter period started with the January 1968 Central Committee meetings, at which Novotny was removed from the party leadership and the so-called democratiza- tion process was launched.... Up to this point, the reformers in the party were interested primarily in making those personnel changes which would facilitate the implementation of the economic reforms. "The second, or spring stage then began.? Writers and publicists were responsible for the breakthrough in the second phase; the intellectuals and scientists brought on the third stage..., It was, in effect, an appeal for the purification of intellectual life." ("Before the Occupation: Political Crisis in Czecho- slovakia," Ivan Svitak, East Europe, October 1968) At this stage, two months after the Warsaw Pact Five's invasion of Czechoslovakia, the political and economic "liberalization" issues are so intertwined that the demise of the former can only result in the con- tinued stagnation of the latter. The prognosis for Czech and Slovak economic health is a gradual return to "normalcy" as it is defined by the Kremlin: Preservation of the command system with an occasional pal- liative thrown to this or that element (such as injecting a little economic Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 sense into the pricing system, etc.) and a foreign trade structure hide- bound by CEMA family ties. What made the Soviets nervous about the economic-industrial experi- ments being introduced by Academician Ota Sik was their stimulative ef- fect in promoting demands for political freedom. A modicum of political liberty and the momentary absence of censorship gave the economic reform- ers latitude to publicize the facts behind the Czechoslovak "economic fantasy." By exposing the underlying causes for the economic stagnation that has characterized the period of Soviet-style economic domination, Ota Sik -- then Deputy Premier -- hoped to woo the workers and trade unionists who felt threatened by the impending loss of that great so- cialist boon -- job security -- and to mollify plant managers facing a future bereft of unearned subsidies. In a TV lecture series dur- ing June and July 1968, Deputy Premier Sik put the facts before the public and described economic malpractice in his country as being "so widespread it had become part of the national subconscious" The extent of support mustered during this brief period of free articulation, by Ota Sik and the other economic reformers from among the conservative, old-line party hold outs and the nervous managers and trade unionists will never be measured. Soviet tanks silenced the campaign. Meanwhile, until the end of August 1968, Soviet criticism of the Czech New Economic Model (legislated in 1967) and of the economic as- pects of the New Action Program (adopted in May 1968) was by inference only. Even the Warsaw Pact letter of mid-July 1968, which spelled out to the Central Committee of the Czechoslovak Communist Party all that was expected from the Party in getting the country "back onto the path of socialism," implied a hands-off policy for internal economic matters: "We do not interfere with the methods of planning and management of the Czechoslovak Socialist Republic, the activity aimed at perfecting the economic structure, the development of socialist democracy...." Soviet condemnation of this vital aspect of Czechoslovak life be- gan late August 1968, and has since continued unabated, with Soviet press polemics at first abusing not the economic reform so much as its architect, Deputy Premier and Chairman of the Economic Commission, Ota Sik. Assessed by the Kremlin as obstreperous and politically dangerous, Sik was first accused on 30 August as a traitor to the party for having publicly questioned the price structure of Czechoslovak-Soviet economic agreements, criticized the quality of Soviet goods, and complained of the Soviet Union's mounting ruble debt to Czechoslovakia. The invasion, on 21 August, found Sik in Yugoslavia from where, on 2 September, he submitted his formal resignation as Deputy Premier to remain in Belgrade as economic counselor to the Czechoslovak embassy. By mid-October Ota Sik had arrived in Switzerland where, at this writing, he is reported to have asked for political asylum. Soviet allegations that Czechoslovakia, influenced by the "bourgeois theories" of Ota Sik, was on the "road to capitalism" appeared in the Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 2 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 5 September issues of Pravda and Izvestiya, signalling the first of a series of "ideologically correct" party think-pieces. Led by the old- line, neo-Stalinist critics of the Soviet Union's own economic reform efforts, a systematic pecking away has begun at all that was pragmatic about Prague's approach to eliminating state-subsidized waste and inef- ficiency and to launching Czechoslovkia as a competitor in the Free World market. Soviet press polemics charge that Czechoslovak reforms will lead to unemployment, lower living standards and the penetration of foreign monopolies into the country's economic life (thereby rekindling the emo- tional reactions fostered by Novotny in his shadowy support of the same economic reforms). In a long article of 2 September, Pravda outlined the "advantages" to Czechoslovakia of trading primarily with the Soviet Union and the Communist Bloc and declared that "only a pitiful handful of political ignoramuses" in Prague were interested in trade with the West and in soliciting hard-currency credits. A series of articles highly critical of the Yugoslav "economic re- form in practice" began in the Polish newspaper Trybuna Ludu in early September. The series was rerun and/or commented on with approbation in the Soviet Pravda (13 September) and Ekonomicheskaya Gazeta (No. 38). In the London Times (21 September) Kyril Tidmarsh discusses an Izvestiya article that decried the pitfalls of Yugoslavia's system of worker par- ticipation in management and claimed that such a system was "in fact the cause of economic stagnation." (!) In the September Vo_prosy Ekonomiki (Questions of Economics) old- guard Soviet economist Academician Stanislav Strumilin took advantage of the increase in post-invasion conservatism to publish a year-old speech of his and to attack Soviet reforms that parallel those in Czecho- slovakia. The tirades will. continue. Why? From Prague, Dan Morgan writes in the Washington Post (17 Sep- tember 1968) "The attacks on the Czechoslovak economic plan are viewed as particularly cynical since one of the occupying powers, Hungary, is much further along in implementing radical reforms than the Prague re- gime and another, East Germany, does nine percent of its trade with 'revanchist' West Germany," (The Soviet Union does six percent of its trade with the same "revanchist" partner.) To better adjust their in- dustries to foreign market conditions, three of the occupying states (Hungary, Poland, and East Germany) have been just as active as Prague in whittling away at the Soviet-conceived "monopoly principle of for- eign trade." Each has been granting greater freedom to its large in- dustrial plants, permitting direct links with foreign buyers and sup- pliers. Even the USSR, while defensive about the historical justifi- cation (established by Lenin) for maintaining the state monopoly of for- eign trade in socialist countries, has been increasingly permissive about direct foreign and Soviet industrial liaisons. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 3 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Is it because industrial Czechoslovakia, as the key element in the Communist Bloc (CEMA) system, might have been too successful in redirect- ing its trade westward?* Has the Kremlin decided, quite apart from po- litical considerations, that if Czechoslovakia were to obtain her re- quired $450-500 million in hard-currency credits, then the New Economic Model, with teeth, could succeed and Czechoslovakia emerge as the "show case" of Eastern Europe? Or is the Kremlin fearful that its own lumber- ing and hesitant implementation of economic reforms could, by the exam- ple of Czechoslovakia, be precipitated into even greater politico-economic crises ("crises" by communist definition!) than those faced by Czecho- slovakia? The question is wide open. Even with censorship reimposed, the Czechoslovak Party press has not let, the Soviet press go unanswered. On 16 September, thirteen leading economists (none, however, government officials) defended Prague's re- form movement in a signed letter published in Rude Pravo. On 24 Septem- ber, a group of fifty Czech and Slovak economists detailed "The Economic Policy We Need" in a reiteration of the basic concepts of the Sik eco- nomic platform; their declaration, too, was published as a signed arti- cle in Rude Pravo. While East Germany has essentially echoed Moscow's polemics, Hungary on 20 September came strongly to the defense of her own economic reforms, which resemble those of Czehcoslovakia. Premier Jano Pock said that Hungary had tried to make other Socialist countries understand the "pro- cess going on in our country -- in the hope that they would agree with our course, if possible." The Premier emphasized to a group of techni- cal and scientific federations that Hungary will "continue to stick to this attitude." Alvin Shuster, from Budapest (New York Times, 21 Septem- ber) wrote that "this was the first time since Hungary joined in the Soviet-led invasion a month ago that the Premier had spoken out ... Janos Kadar, Communist party leader, has not yet made a public post- invasion statement.... The economic ideas of Dr. Sik ... were studied by *As part of the big picture, $30 to $40 million in hard-currency annual earnings is not much. But in the context of delicately balanced east- west trade and the competitive market -- the amount has considerable potential. The figure represents the average 1966-1967 earnings for Czechoslovak sales of Skoda's "snappy, rugged, compact auto -- the 1000MB." Time, 10 March 1967, cites the Skoda success of proof that "Communism can at least try to compete in highly competitive Western auto markets ... Russia's ZIL and East Germany's Trabant have failed to even dent the same market -- but Skoda is becoming increasingly popular on roads from Cologne to Christchurch, New Zealand." Significantly, Skoda management has been convinced for some time that foreign sales could probably be doubled if the government did not insist their product be marketed by a "state trade organization" (MOTOKOV) that handles some 50 other products and knows nothing about the car it is trying to promote. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 economists here in preparing Hungary's program.... In some respects, experts say, the program here goes even further in theory than the preinvasion Czechoslovak liberalization." The main difference between the Czechoslovak and the Hungarian ap- proaches to economic reform was that the former committed heresy by simultaneously legislating freedom of the press; the latter did not. By telling the world that the fine balance of the Czechoslovak economy had been all but demolished by the heavy-handed application of Marx' gospel and Stalin's master plan, the Czechoslovak reformers tromped on the most sensitive of Moscow's hypersensitive toes. As goes an old Russian proverb: "You don't carry your garbage outside of your own house!" (Ne vynosi' sor iz izby!") What the Soviet Party press has overlooked is that hard economic facts do not easily lend themselves to frothy propagandistic polemics. And maybe that is the optimistic note in the long-term forecast for Czechoslovakia's (and East Europe's) economic development. * * * * * * * * * Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 5 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 CURRENT HISTORY April 1967 According to this specialist, "formidable obstacles lie in the ways of the success of Czechoslovakia's New Economic Model, NEM. If the bold experi- ment succeeds, he concludes, the Czechs may see "signs of rejuvenation not , only of their economy but of their political scenery as well." CPYRGHT Czechoslovakia's Half Century By VACLAV E. MARES IIE FIRST HALF-CENTURY Of Czecho- slovakia's national history consists of , three sharply distinct periods. The first began in 1918 with the dissolution of the old Hapsburg Empire and ended in 1937 , with the death of Czechoslovakia's president- , liberator, Thomas G. Masaryk. In this period the new republic stood close to the democra- cies of West Europe to which both its people , and its president had long-lasting cultural and ipolitico-idcological ties. This period was followed by a second ; period of ten chaotic years during which the , country lost its political identity and became , a defenseless victim of European great power , politics. This was the period of the Munich partition and of the Nazi occupation, the , period of the Yalta pact and the illusion of a regained national sovereignty. It ended in 1947 with the Kremlin showdown that pre- vented? Czechoslovakia's intended participa- tion in the Marshall Plan. This buried the ; hope that the country could assume the func- tion of a bridge between Europe's West and East?a policy concept promoted by its demo- crude politicians. Czech capitulation to ' Stalin's order without a single resignation , from the coalition government set the stage ' for the third period of Czechoslovakia's mod- ern history, oriented toward Europe's East. The following 20 years of Communist Party rule were marked by a radical change of the ? social objectives of the young republic, the downgrading of Masaryk's role in its establish- ment, the rejection of his political concepts incorporated into its first constitution, and the reshaping of the country's economy to the role assigned to it in the Soviet bloc. This policy twisted the development of Czecho- slovakia from the course chartered by its his- tory. It undermined the balanced structure of its economy, crippled its self-propelling forces, and threw its operational mechanism ,out of joint. The present regime is now try- ingf tai?fl talir ttilliet o riefr would CI NO II CPYRGHT amount to the repudiation of many doctrines that had been sacred to the Party.' The ex- periment is under way, and its outcome is uncertain. If successful, it might mean that the fourth period of Czechoslovakia's modern history is just beginning. The striking accomplishments of Masaryk's republic?political integration of the formerly separated provinces, cooperation with na- tional minorities, social legislation, balanced expansion of the production base and, mainly, the fabulous and widespread increases of in- dividual prosperity?were achieved by the close cooperation of its socialist and middle- class parties. Most of their leaders were men trained in practical life who had a common- sense rather than a doctrinaire approach to the problems they had to solve. They re- spected the dynamic forces At work in Czecho- slovakia's economy and never tried to push their reforms against them. With more than 70 per cent of its labor force in manufactur- ing; trade and other services, the country was earning, by the sale of its luxury products on Western markets, enough pounds and dollars to pay for imports of equipment needed for its plants. A wide diversification of production and a high productive efficiency were the main sources of its strengths. Czechoslovakia offered good employment opportunities to both men (i.e., in mining, heavy industry) and women (i.e., in textiles, costume jewelry) in most of its major industrial regions. HUMAN RESOURCES DRAIN When, in 1948, Communist Party leaders took charge of Czechoslovakia's economy, they ignored the working rules of its ingenious pooling system of labor and capital. They destroyed its functional interconnections by their ambitious growth policies?overexpand- ing capital goods industries at the cost of all lorto sena l'gratte refers hers end in the test AUErtitttle ebrAfRWRIle $43sechts? other ANitcingrkIgNkak9nPUIPPO cbuggPRA91%act9A41419t3494 amtstrotis tor, however contributed to their troubles, for the lon run even if in production records t e party planners could boast of some spec- tacular achievements.1 In 15 years, the man- I try more than quadrupled the output of elec. tricky, fertilizers and building materials. It trebled the output of steel, cement, and lig- rites, and nearly doubled the output of coal, paper, and beer. This helped it become the world's largest per capita beer consumer. On the other hand, the planners failed in their efforts to stimulate agricultural producj: don, which for the same period showed an., index figure increase from 100 to 146 in the animal, and only to 113 in the vegetable sector (the latter caused mainly by industrial raw materials of vegetable origin). Thus the country's prewar self-sufficiency in food pro- duction was lost, and during the past years it has frequently needed to supplement it, domestic production by imports! for which they could not be held solely re- sponsible. This was the loss of expert techni- cal and management personnel which Czech- oslovakia had suffered in the preceding decade and which was unmatched in its magnitude in any other industrialized coun- try of the world. This unusual drain of precious human re- sources was the result of mass purges and population transfers during and after the war. The deportation of Jews under the Nazi occupation deprived the country, first, of many technical and commercial employees and of individual Jewish businessmen. Since the Hapsburg days, these people had con- trolled many sectors of Czechoslovakia's ex- port trade. In the same years, many Czech employers were removed from their executive positions, where the Nazi administration did not trust them. With the end of the war came the transfer of the Sudeten Germans ' which, in turn, removed several hundred thousands of specialized craftsmen from their manufacturing jobs. With them left also the dispossessed enterprise owners?all the Ger- mans and many Czechs, too--some because of their collaboration with the Nazi regime, some because such charges were fabricated against them by administrators hopeful of obtaining their confiscated property. Eventu- ally, those charged with "anti-social" be- haviour during the war years also had to go; among them were many foremen, shop super- visors and other personnel whose function it was to enforce work discipline in the plants. Thus, in 1948, when the party planners launched their gigantic program aimed at ! transforming Czechoslovakia's economy in line with the country's new political orienta- tion, they had to dispense with the advice not only of economists and trained administrators ?whom they distrusted anyway?but with the assistance of experienced technicians as well. The transformation of Czechoslovakia's highly semre required i rtehde I tic needs of ofartheuslaotve omiectcbolnocwoic o n would ighaa far more surgical skill than was reqtutedlor ? the same purpose in thc primitive agricultural economies of southeastern Europe. The party planners were not aware of this with Marx' gospel and Moscow's master...21m in hand they crashed into the finely balanced struc- FURTHER DRAWBACKS Such statistical records, of course, say little about the benefits that the people received from their government's policy. How did it help Lung couple to know that the_piltart. 9LbtAiirmsr.literials had increased if they could not find an apartment and had to be: satisfislIpsAlle ear_k_years of their married - life with one room in an apartment where; tlig shared kitchen and_plumbiu facilities, with another family? How could a house- ' wife enjoy the news about improvements in I the domestic food supply when she was often forced to "support" the balance of the market by buying one pound of liver when she. wanted a pound of steak or one pound of: onions for every pound of carrots that she ? asked for? How was a potential car buyer ? 2 Any objective evaluation of losses that Czecho- slovakia suffered by this experiment must also in- cluck, in addition to the billions invested in never- to-be profitable production facilities and forfeited earnings of the neglected production lines, the ben- I efits lost when Czechoslovakia was denied access to the modern productive technology of the West. With annual injections of Marshall Plan dollars amounting to 10 per cent of its national income (the amount West Germany received between 1948 and 1953), Czechoslovakia could have modernized the equipment of its mines and farms, public utili-; tics, and manufacturing plants and could thereby have joined in the 1950's the new affluent society of Europe. s These quantitative summary statements are based on tables published by the Czechoslovak Sta- tistical Yearbook 1965 (Statisticka Rocenka CSSR), Prague. The comparisons with West European countries that follow were made by using compara- ble data from the tables published In the Statistical Handbook of the North-Atlantic Area (New York: ture of Czeos ova la s economy like a bull, The Twenbe' th Century Fund, 1966). Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 impresiscirbivedtSticalletiAtsee24051.011/44` : CIA-11SPc18.0.10filliAB004004100014 ?4: addi- output had trebled, when he knew that he would have to wait from 6 to 30 months for his car, depending on his priority ranking and , on the amount of cash (minimum 40 per cent) that he could deposit when placing the order?' When some liberalization of traveling ' came, how could a responsible citizen fully 1 , enjoy his trip when he was denied the right to ; pay for it with his own money and needed to l I depend, while abroad, on the charity of his i ,riadequate housing. foreign friends or relatives? Finally, how i I could he find any satisfaction in international Icomparisons of national income _per capita , which showed him that at the end of the 11950's he was still slightly better off than i people in other countries of the Soviet bloc when from the same table he could also learn that he was from 30 to 50per cent below his neighbors in Western Euro whose standard of living was once alio his? It has recently been suggested that the best rule-of-thumb measure dividing nations intof 3 Had they been able to examine objectively, three groups of development is the popularity they would have found (a) that there was nothing of the bathtub (which separates the lowest,, merPe as no more reason for Marx' prediction to erwative" in the political COUP of 1948 because - most numerous group of humanity from the materialize in Czechoslovakia than in other indus- trialized countries of the world (all of which dis- middle group) and the passenger car (which i , proved Marx' theory in this respect) - (b) that the separates the latter group from the upper! :1st was not a revolution, as the partyi historians speak of . because neithF objective .nor group). In neither respect is the position of lak jective prerequisites existed for it th .e socialisti ' today's Czechoslovakia satisfactory. At the , parties, held the majority control of the nation legislave bodies anyway) ;.and (c) that the coup end of 1966, there were only 32 cars on the , , was a plot of a well organized group of Moscow- ' road per 1000 inhabitants, which compared ? with 130 for Switzerland, 146 for West Ger- I siveness and the fading resistance of a sick p s' , dent, Eduard Benes, and of confused democrractil- ' many, and 180 for France. From all dwell- I ; politicians, none of whom had the stature of at ings in use in Czechoslovakia, only 35 per cent f , I potential national leader. , had water piped into the apartment (against; ; ? The following statements are abstracts from 11 i studies written in particular by OtaOldrich' ' 98 per cent in Switzerland, 96 per cent in It Ccrnik, Josef Toman Zderiek Kodet, J. Goldman,' : per ccnt in Italy). The decline of Czechoi ' West Germany, 58 per cent in France and 35 t' ...jhuiagrag,s tion, the recollection of all the housing space losses of Germany during the war and all the housing space gains of Czechoslovakia re- suiting from the confiscation of Sudeten Ger- . man property offer a clearer picture of the bankruptcy of the Communist Party's housing policy in Czechoslovakia. It is a very serious indictment of the regime that, 20 years after , ? it took control, it had not yet provided such . ; basic prerequisites of happiness as privacy and ' ALARMING SYMPTOMS After its first setback of 1952-1953 (which was blamed upon saboteurs) and after some organizational changes, Czechoslovakia's economy improved its performance quantita- tively in the following years. However, new signs of distress appeared at the end of the 1950's, and the downward trend of the gross. national product index per capita became alarming in the early 1960's. Based on 100 It 1 trainedIliTsutofpaartITim- 111 11a3.1t:nsCueccbees between snatrileitrecaidgent:l. K. ,I4LISuk, J. Kanturek, S. clucky, V. tigal, M. Toms, M. slovakia's housing standards was confirmed by intejrcestea in giving g Ththeesegosvteurreiretwit is obviously ide publicity' 1 and publishes many of them in English trarulation i the party's official daily, Rude Provo, when i lin two special series under the names Czechoslovak : on August 13, 1966, in its description of an i ! Economic Papers and New Trends in Czechoslovak i 1"average citizen" (i.e., he spends over 501 - ?Economics From analytical stu1Si6es plutshed on the subject ! ;per cent of his income for food, drink, and i by scholars in Western countries the following are ; tobacco, one-sixth for housing, one-seventh of special interest: Michael Garmarnikov, a series' ! of four articles published in the January, May, , 1for clothing) it said that "he occupies about July, and August, 1966, issues of the monthly East I, i Europe (New York) ; Jan Michal, "The New Eco- ' iten square meters (90 square feet) of housing nemic Model," Survey April, 1966 (London); ! space, which is to say one room for every Ivo Moravcik, "The Background ckground of the Czecho- slovak Economic Reform"; Vaclav HolesOvsky, I 1.5 persons." This last figure compares with ! l'a'lktfteartations of Soviet-type Economic Models." (The : .7 for Switierland, .9 for West Germany, 1.0 ' for France; 1.1 for Italy. The daily Obrana two to be published in the collection of papers presented at the Third Congress of Czecho- slovak Society of Arts and Sciences in America held 4 Lidu of October 29, 1966 at the Columbia University, New York, in Septem. announced that 161,393 persons were on the offics be'', 1966.)' Harry G. Shaffer, "The Enterprise waiting list for a car. Reporting this figure, the Director and the New Economic Medd in Czech*. paper added that more people are now in Czecho- slovaltia," The Journal ej Industrial Economies, slovakia engaged in this "battle for a car" than November, 1966 (Oxford, England). were engaged in the "Three Emperors' Battle" at AuctZvaiikslaoctra Umout ba tie. /audit AS srKeieasetzt.mbim/i : CIA-RDP78-03061A000400030011-4 3 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 for the preceding year, this is what it showed: 1960 1961 1962 1963 1964 107.4 105.8 100.8 977 100.1 This proved the validity of warnings printed earlier in academic periodicals and formu- lated by several young economists who, like Professor Yevsei G. Liberman and his group in Russia, opened a learned debate about the , causes of the operational troubles of their i respective systems. Czechoslovak economists were outspoken in their analytical studies even if, for obvious * reasons, they could not go to the root of the pir-obiem. They had to accept the facts that the coup of 1948 was necessary because it was said to reflect exactly Marx' prediction and that the reorientation of the country's economy was an equally imperative conse- quence of that predetermined historical event. ' Being economists and not historians, the I young critics had good reason to avoid the 'discussion of this party axiom.' They under- - , took only the task of examining whether the e highly centralized system of planning and management introduced in 1948 had outlived its usefulness. They made it clear that they were speaking for the whole community of intellectuals when they defended their right . to dissent. These were found to be the causes ofille,1 troubles from which Czechoslovakia's econ?J omy was suffering:4 (I) Imbalance between consumption and! investments. This is evident from the trends 1 of the following index figures (based on : 1948- 100) : groups agreed that the reduced Investments were one of the main causes of the decline in the growth rate of the economy. (2) Imbalance between available resources and investment needs. This was found to be another cause of reduced industrial invest- ments. The gravity of this aspect of the problem was indicated by Professor Ota Slit, director of the Economic Institute of the Czechoslovak Academy of Sciences, and ; Czechoslovakia's foremost economist, in his, address to the 13th party congress in Prague ? ?et June, 1966, when he said: Without increased imports we are able to insure. in our country neither a further growth of pro- duction nor of consumption. Today we are maintaining the needed imports at the price of exporting such products, where we often do not , get back not only the expended work but some- tr:. times not even the cost of all the raw materials 4` used. (3) The wasteful use of available resources. Because capital was treated as free goods and no interest was charged on borrowed funds, ' factory managers used to hoard raw mate- rials to protect themselves against possible supply breakdowns; they also often accumu- lated large stocks of undemanded finished products since their quantitative output fig- ures were more important "success" indica- tors than cost considerations. The same waste was also found in the use of human resources. Managers often kept on their payrolls labor which they did not need, in case of some un- expected production order. The same disre- gard for the costs of capital was responsible t for the excessive construction time of many investment projects. (4) Outdated technology. Managers' re- sistance to technical innovation was found in many cases to be the cause of outdated tech-1 nology. The reasons were summarized by; one of the economists as follows: The explanation is, first of all, that the introduc- tion of new technology involves certain risks and requires a considerable expenditure of time; sec- ondly, after new technology has been introduced, more difficult plan targets are set and conse- quently there is less opportunity for over-fulfill- ing them and receiving bonuses. Components of gross national product: 1960 1961 1962 1963 1964 Non-productive eenzumption 210.0 219.2 225.2 229.4 237.2 Accumulation 640.9 806.7 747.0 539.9 515.5 These figures show, first, to what extent the public was deprived of a fair share of social benefits for its productive effort in the decade of the 1950's and, second, they show that the ,! modest improvements of consumption in the ,1960's were offset by a much sharper decline [ of investments. This prompted some critics to claim that the nation was starting to live beyond its means and to call for a tightening of belts. Others, however, blamed the de- cline of investments on inefficiency and waste in the use of investment reso Both UrCA:S. 7 The following comparative figures of annual population increases per 1000 inhabitants are given by the World Handbook of Political and Social Indicators (New Haven: Yale University Press, 1964), p. 46. The tested period included years 1958-1961: Hungary, 5; Czechoslovakia, 7; Ru- mania, 9; France, 10; Yugoslavia,11,? West Ger- many. 12; Poland, 14; United Sttes, 17; Switzer. land. 19; and so on. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 (5) #111P WO Nig/ wearav749,503DI 7 and 1963, industrial labor requirements were assured by the withdrawal of men from agri- culture and by the increased help of women, , whose share in the total labor force grew from i 37.8 to 44.6 per cent; in the sectors of agri- culture, trade, and health and social services i I it reached 52, 71, and 77 per cent, respec- tively. These hidden reserves of labor began i to dwindle in the late 1950's. The regime's i attempts to get additional manpower from other countries of the Soviet bloc where such I bidden reserves still existed were rejected by their governments. Thus it was stated that in the future Czechoslovakia's economy could count on only the natural increase of labor supply of about 1 per cent per year. This percentage might even decline further due to Czechoslovakia's low annual population in- creases.' Considering the fact that these newcomers will be needed primarily for the development of non-production activities? science, technical services, and so on?it was predicted that any further increase of out- put in industry would have to be achieved by an increase of labor productivity. (6) Wage structure and labor productivity. The equalitarian tendencies in the remunera- tion of people for their work were attacked by I all who participated in the debate and were; Igiven as the main reason for the low quality of output and low labor productivity. A re- i muneration index based on the average in- come of a locksmith (.. 100) shows the follow-I i lug remuneration averages for the selected l' 1 1 categories of employment: a construction 1 worker, 114; a technical employee, 91; an unskilled worker, 70; an elementary school I teacher, 64. University education did not f bring people out of this narrow remuneration range. The average income of a graduate I engineer stood at 100, that of a high school ' teacher, at 95, that of a lawyer, at 90, and '.4 that of a professional economist, at 78 (all i based on the locksmith's income ... 100). The , I poor preparation of people for their jobs was! ! also blamed for their low productivity. Only 130 per cent of industrial workers reported isome vocational training, and only one half 1 of the latter received training for the type of i work they were doing. (7) Qualification of enterprise managers. It was pointed out that in 1965 only 12 per; cent of all enterprise managers were university' graduates, while 56 per cent were high school ' graduates, and 32 per cent had not gone be- Approved For Release 2005/08/17: CIWIR8itagrilt?90041180304111i91 their formal education. This was regarded as the main explanation for' their resistance to as- suming more responsibility. They repeatedly showed their preference for executing quanti- tative orders chanelled from central planning agencies. THE NEM CURE In _!'L i' politleaLleastess followed suchlearned debates with varying degrees of reluctance or embarrassmeri. :Oc- casionally, they counterattacked or even si- lenced more aggressive debaters denouncing' ?, them as revisionists or Western-style liberals. Later, however, when the economy continued to stagnate and no symptoms of improvement appeared, the economists' views attracted more and more interest. While distrusted 12.y.4 the old party guard, they were asked even- tually by younger party members to prepare proposals on how to rejuvenate the country's failing economy. Their blueprint was ready in September, 1964; after four months of ? heated discussions in the main party organs, , it was endorsed in January, 1965, by the , party's central committee as the. basis of Czechoslovakia's New Economic Model (NEM). It marked a radical departure froml the principles along which the Czech economy had been organized since 1948. Originally, it was planned to issue detailed : guidelines for the reform by June, 1965, and to iron out all transitional problems by the end of that year in order to switch the whole . economy to the NEM plan in 1966. This I timetable proved to be unrealistic. Ideologi- cal opponents within the party, potential job losers, with their delaying tactics, and numer- ous practical problems forced the government to slow the tempo at which the reform could be put into effect. All changes introduced during 1966-1967 aim to prepare for the re- ; - I form, which will go fully into effect only with the publication of new wholesale price ilists, now scheduled for the beginning of 1968. Ota Sik, one of the chief architects of IMJL also its main promoter in Czecho- slovakia's press. According to him, the 'See in particular the following studies and " speeches of Ota Sik on the subject: "Czechoslo- vakia's New System of Economic Planning and Management," Eastern European Economics, Fall, . 1965, Vol. IV; "Problems of the New System of :Planned Management," Czechoslovak Economic !Papers, Vol. 5, 1965; A series of three articles on the problems of transition from the old into the new system of management published in Rude Novo of February 18, 22, and 23, 1966; "Prispevek k analyze naseho hosirdarskeho vyvojet" (Conte- WV EVAtitigiVAIONIAtilkr41. No. 1, develop- 1966; "On the Eve of a New Stage of Development of the Socialist Economy," address at the 13th Con- gress of the Party. reprinted In New TrAltdi i. Approved For Release 2005/08/17 salient features of the new system include the following: The central planning authorities will continue to prepare and supervise the execution of the usual five year plans, but they will be shorn of many of their former prerogatives. Individual enterprises will be cut loose from detailed instructions from ! central planning bodies and their managers will have to make most of the tactical de- cisions themselves. The enterprises will be grouped horizontally (and some vertically) into "manufacturing economic organizations" ?a kind of trust?of which there will be 8 ; in the fuel and power sector, 4 in mining and I metallurgy, 19 in engineering, 14 in building land building materials, 5 in chemicals and ; paper, and 40 in food and consumer goods. 1For each group, these will handle matters of common strategy without interfering with the I operational problems of each of their mem- lbers. Profit will become the main indicator i of the performance of individual enterprises. While the wholesale prices of their material inputs will be set so to be internationally j competitive, the managers will have to pro- , ' duce the correct product mix (i.e., adjusted to thc demand) at the lowest possible cost. Investment and operational capital will no longer be available free of charge. Since the interest which the enterprises will have to pay will affect their profits, they will be induced , to keep the borrowed funds at a minimum. For the same reason, they will also attempt to shorten the period of construction of their new developments. The retail price struc- ture will be revamped to correspond more closely to real costs. Computers are expected to indicate the initial price for every corn- modity. Later, these will be allowed to fluc- tuate in response to supply and demand, but , in the beginning most of them will be subject , to price control. Only about one-third of them . ? will be either free or subject to fluctuations within certain limits set by the central au-! ? thoritics. In other statements, Sik indicated a few; more aspects of NEM's intended policy: The unhealthy equalitarian policies in the re- muneration, a product of petty-bourgeois equal- ri tarian spirit, must be abandoned. On another occasion, he blamed former party planners for their extensive expansion efforts, which assured the quantitative fulfillment of the production targets but which also caused substantial increases in material and man- CIA-RDP78-03061A000400030011-4 Enterprises will be put under heavy econor,lic pressure which will force them to operate .. highest profitability ... those which continue to lag behind ... after a certain time will be closed down. He stressed repeatedly the importance of. foreign trade which "must be expanded at a faster rate than national income." Trade, with capitalistic countries must first of all aid in the badly needed overhauling of the coun- try's productive equipment. Oldrich Cernik, deputy premier and chair-, man of the state planning commission,' assumed the task of rehabilitating the market in the eyes of his comrades when he addressed them at the 13th party congress in June, 1966: When Marx anticipated the circulation of goods without a market, he had in mind a Communist society. .. with a surplus of products. ... The socialization of the means of production was a , revolutionary jump.. . but can we say that we already have an incomparably higher working productivity than advanced capitalist countries? ... We have the power to subordinate the effect of market relations so that they might serve our society. The market should be used for objec- tivizing value relations.. . for checking the use- fulness of products, and for the regulation of tnicroeconomic processes. Such a function of the market is not only compatible with a planned economy but also necessary and advantageous for socialistic society. power inputs and resulted in a permanent deterioikii@fictiefilf eff&PiResli diu9?41A07 C don. To convince the delegates that they would not commit any heresy if they accepted the reform's innovations, Silc reminded them that "the most fundamental precept of Marxism- , Leninism is the precept about the permanent ' development and change of all things and phenomena in the world." The revisionist 1 also ceased to be the villain in other official i pronouncements at the congress and, instead, "the scholastic clinging of dogmatists to the letter of Marxism-Leninism" was frequently blamed for the troubles of the system. CAN NEM SUCCEED? Antonin Novotny, Czechoslovakia's inde-1 structible president, usually walks a tightrope when he speaks of the reform. In one ad- dress, he may endorse it emphatically but 1 when he speaks, for example, to a group of r workers worriedabout their earnings or to a , group of some alarmed party hacks, he promises to protect their specific interests? ' promises in dbect contradiction to the very. - rind les on which the reform is based. avmg politically survived the gait; his tting Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 ready to survive the reform. It would be just short of a miracle if he succeeds. One could hardly expect that there will be enough evidence on hand to allow one to , reach valid conclusions about the success or t failure of Czechoslovakia's bold experiment Ixfore the end of 1968. Some formidable otritacles lie in the way of its success. How I I, will the regime find competent managers willing and able to accept the increased re- sponsibilities which the NEM plan assigns to them? The alarmingly low educational stan- dard of the present enterprise managers points to the need to restaff most of such posi- tions. How will one overcome the threaten- ing labor shortage, especially of skilled work- ers, when the hidden reserves are exhausted, those of other European countries are not available, and the government is committed to the gradual reduction of the prevailing 46 hour week? How will the enormous capital requirements be secured for many of Czecho- slovakia's piled-up high-priority programs, the long overdue modernization of its old , dollar earning industries (such as glass and 'chinaware), for the mechanization of agricul- ture, and for the introduction of new cost- saving technology into many manufacturing 'processes? Will Czechoslovakia succeed in concluding licensing agreements that would give it access to the world's latest inventions in productive technology? Will its political leaders eventually grasp what their econo- mists try to explain to them?that principles of economic rationality are not incompatible with les alismWIFat to gain , access to international and to Western credits (rocs not require repadiation of the latter but 1only 7Eceptance of the former?* A gradual transition to the new system is a concession Ito the political leaders, a concession which in the authors of the reform opposed on the grounds that it might discredit the whole idea of the plan. They warned, in vain, that such , "gradualism" would produce the same results; ; as if a country considering a change in her driving rules from left to right applied it first on a trial basis to only 10 per cent of the vehicles on the roads. How will the con-L Yugoslavia with her $2.5 billion collected, since 1950, in credits and grants from the United States and other substantial credits received from such international agencies as the World Bank, the In- ternational Finance Corporation, and the Inter- national Development Association is the best 11010, ample at the validity at this statravot. -- Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 J 4 fusion that attends gradualism be overcome? Resource and technical obstacles apart, there is one more hurdle of crucial importance , for the success or failure of the reform. This " is the political decision the party will have to make when it sees the demonstration effect of the decentralization of the economy on other institutions of the system. Its. leaders will find that it will be difficult to keep apart the political and the economic effects of the proposed reform measures. The official party organ, Zivot Strany (The Party's Life), keeps denouncing in every issue the "disquieting trends" which k finds in unconventional views printed on the pages of various cultural periodicals and in their editorial support of depolitization, decentralization, and demo- cratization of public life. When the party marshals see that the monopoly ofe is kprig out orrthar- hands, will they not '6 attempt to call off the reform and launch a last-ditch battle for the preservation of their commanding positions? Will the young in- -tal-Cauals by then have enough popular sup- port for all their "tic-" campaigns so that they can silence the old party guard's opposi- tion? And will they have enough competent , professional and responsible group leaders on their side to help them to carry the reform to ; a successful conclusion? Should this happen, it might mean that the commemoration of1 Czechoslovakia's fiftieth birthday in 1968 will bring to its people not only promising signs of rejuvenation of their economy but of their political scenery as well. Vac.lav E. Mares, native of Czechoslovakian, came to the United States on a diplomatic mission for his home country following World War II. In 1948, he resigned from govern- mental service and joined the faculty of the t. Pennsylvania State University where he has t been teaching ever since in the area of inter- national economics. In past years, on his frequent research and lecture trips to Europe, Mr. Mares has studied regional development problems and policies in various European. countries. He has written for this and other American journah. CPYRGHT Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Excerpts from THE REPORTER CPYRGHT B., a.... c,,t.ld bc no qucation of 1 June 196T revising only economic policy, and that only a little bit. For once the ? ' The Rickety Czech New Model breach was made, the intellectuals pushed through it. The press, I opened to debate at last, became !more bluntly critical than any in the : r omy that had very littlewrong with other socialist states. Movie studios, ! PRAGUE i lit in ili-e- first prace. Czech osloGlai the theatre, publishing houses, and . N 1964, by the time President I (had come out of the war almost the universities became hotbeds of; Antonin Novotny of Czechoslova- intact when they took over. Its in- heresy. Writers and poets restored kia finally got around to the prob. dustries were technically abreast of the banished Kafka to his former loin of the country's galloping the best in Western Europe, its for- shrine and embraced existentialism.! economic &generation, two-thirds eign trade was soundly in balance, Students demanded a voice of their of Czechoslovakia's industrial plant its workers were reliable, highly own in the National Assembly. ; ? was worn out or obsolete. Workers' skilled, decently dressed, comforta- Political scientists, pointing out that I productivity had dropped consider- bly housed, and well fed. a "confrontation of interests" was [ ably behind Western European But left nothing alone, the "motive force of political prog- levels and was forty per cent lower The most successful light and medi- ress," suggested a multiparty sys- than that of the United States. A na- urn Czech industries were neglected tern. Infected by the popular fever, lion of only fourteen million people or abandoned in favor of heavy in- the Academy of Sciences' Economic was producing 1.5 million different. dustrial development, at the killing Institute analyzed the regime's pas I items of manufactured goods and aL pace that Marxist theory and the , practices with brutal candor. When ivast range of heavy engineering Soviet Union demanded. The pro- , the Institute's director, Professor equipment, generally well above; portion of manufactured consumer? Ota Sik, finally produced a master average world costs and well below., goods to export items declined from plan of reform late in 1964, it was i world standards. Rejects of i deLcectve . fifty per cent to twenty per cent. a good deal more than Novotny had industrial products were running to The country's biggest prewar trad- bargained for. S200 million a year, export losses ing partners, Germany and the By now, the New Economic 1 ' ' were still higher because of faulty , United States, dropped out of sight Model is accordingly a good deal less packaging, and two-thirds of the ' as Prague tried to satisfy the needs than Professor Sik meant it to be merchandise in retail stores was, by of Europe's less developed new so- ? originally. In fact, it is no longer 1 official estimate, unfit to be on the cialist states and the voracious So- nearly as daring as Hungary's New 1 market. "Comrade Janitor has just viet appetite for industrial equip- , Economic Mechanism, supposedly: I bought nine classroom thermom- ment. Raw materials were bought patterned after it. Even so, the NemJ i eters," someone protested to a daily from Russia at prices above the ?.. Model continues to inspire dark : paper. "One registered seventeen world market level and finished', suspicion in party circles here. In i degrees Celsius, one eighteen, two products were sold below the market. ri the opinion of the Communists' 1 nineteen, two twenty, one twenty- Workers who had taken pride in1 chief ideologue, Jiri Hendrych, it is ' ' four, and two didn't register at all." the quality of the things they made r bound to "create conflict and anti ?Novotny did not de-Stalinize un- were reduced to dull indifference by socialist trends," and to stimulate til a full seven years after the impossible production norms and LL:"tendencies toward individualism process had begun nearly every- an egalitarian wage policy guaran-1 and greed, wrong attitudes toward , !where else. Doubtless he would have teeing seventy per cent of them ex- , socialist property, and other faults 'held out longer if he could have. actly the same income, regardless of ' which for centuries have penetrated But Khruslichey would not stand skill, responsibility, or output. The the human subconscious." In some for further delay, and the economy educated middle class was sent out ways, he is dead right. , might not have survived it. By fol- to sweep streets or clerk in shops The reform is deliberately de- ' lowin every rule in the Stalinist while managerial jobs were entrust signed to stimulate individualism . book, Novotny and his colleagues ed to workers with no professional ': and greed. The "petty-bourgeois ; had Iteirlhe country straight into a qualifications, a' third of them with , egalitarian spirit," Professor Sik told :situation which, according to the 'only a primary-school diploma. the party's Thirteenth Congress last I Ek, could never arise under so- t May, has done untold damage to the '-iiiillsin: a full-scale depression. Since Sliding Reform economy over the past twenty years. '1962, economic growth had not onWith nearly all workers drawing the, At this stage the most stiff-neckec stopped b,production and national Stalinists had to concede that what same pay check, "those who would income were actually declining was :; was good for Bolshevik Russia ir like to work better are looked upon The crisis had en building up 1917 1917 was not necessarily _good for as eager beavers and self-seekers. for years, mostly because of the Corn- : Czeaioslovakia half a century later, Foremen's funds for work bonuses munists' insistence on administerin& Obliged to revise his policies, No, .; are often divided equally among the 'i whole factory labor force ... and a ' an overdosLoAffisiikaiy4pansesutto5tietitchttpmattgletsttitel? Azwilimagelat , s . , f prings up to CLAIRE STERLING STERLING CPYRGHT .Approvea Kelease vent the kind ot pertormance that 'Would be in the public interest." Without a sensibly graduated wage scale, he concluded, the reform could never get off the ground. Indeed, the New Economic Model is theoretically based on profit in. centives all along the line. The state self, says Professor Sik, is to shake ioff its classic Marxist habit of "main- !mining needed imports at the price of exporting where we often fail to get hack not only the work ex- pended but sometimes even the cost of raw materials 'used." Industries, subsidized by the state up to now, will be on their own. The state will help by providing mere production guidelines instead of obligatory tar- gets, allowing them to choose their suppliers, change materials, alter technological processes, and amend ? Excerpts from FORTUNE 1 June 1968 4UVOlUiSI 1 I : I iS-UJUb 1 AU IdWIRUndhlitailit4Dict ,1 ey their production programs at win. here as a They will then have to earn enough phenomenon "completcly and for- profit to cover taxes and capital ever liquidated under socialism." The dictionary will evidently have to be revised. Sweeping as the reform may seem at first glance, it is nothing like the revolutionary return to free market principles that Professor Sik had en- , visioned earlier. His "the consumer is sovereign" theory could hardly appeal to Communist leaders who have spent a lifetime establishing the party's sovereignty. While some , more flexible Communists support , him, Premier Josef Lenart among them, President Novotny and State ; Planning Director Oldrich Cernyk i charges, amortize credits, finance tlieir own modernization and expan- sion, and pay higher wages and pre- miums where merited. Those which can make a go of it will be eligible for six per cent de- velopment loans from the banks. Those which can't will be out of business. Of the ten thousand pro- duction units that can "justifiably he closed for inefficiency," according to Radio Prague, 1,300 have already been shut down and another 1,4001 will be shut by 1970. The fact that 400,000 redundant workers (nearly1 seven per cent of the labor force) ' have put up a stiff fight. 'I he may eventually, if only temporarily, 1controversy is still raging, and the lose their jobs is a disagreeable New Model is showing signs of medicine that must be swallowed. i wear .. ]Unemployment . is described in the CPYRGHT Report from Praguq, by Waller Gazzardi 1The source of frustration To decide whether the initial impulse, that started Czechoslovakia on its present . course was political or economic is to choose i between the chicken and the egg. Certain- ly since the early 1960's the performance of the Czechoslovak economy has been a great source of national frustration. The in- -_ dicators do not really indicate very much, J I and they conceal the familiar distortions, i disorientations, and imbalances found in ; an insulated, highly centralized, command- run economy. In a country that in freedom's , j day ran efficiently and lived well, the eco- nomies of centralism made inefficiencies .. land a low standard of living the norm. 1 Trade relationships with the Soviet Union have locked Czechoslovakia in a vise: the country has become dependent on the , U.S.S.R. for the iron ore, metals, and oth- er semi-processed materials needed for the: machinery it exports?principally to the Soviet Union. The Czechoslovaks have I built up a large, unconvertible credit sur- plus with the Russians, while they run a , deficit with Western Europe, and they find themselves desperately short of the hardi currency needed to buy Western machinery! . . and technology. In sum, it would be hard to find a -na- tional econompwitlamil wilepstiaoitio,,os /17 : C CPYRGHT "Our economy has been really a subjective concept, created by and existing only in the heads of the planners," says Professor Jar. oslov Nykryn of the Prague School of Eco- nomics. "Life was left out." The long-standing corrective for the eco- nomics of fantasy is the well-known reform program of Ota Sik, the architect of the ' country's "new economic mode1.7..,: ,1 By now, Sik, forty-eight, is as well known in Prague as Marx ever was. His program ? was given a few tentative trials as long ago as 1958. But it never got going, and the. economy stayed on its dreary path, while the Czechoslovak people found their con-, dition static. It then began to dawn on! Prague's intellectuals, a literate and bit- ingly ironic bunch, that the economics of fantasy and the bureaucratic characters : central to that form of fiction offered some ; irresistible material for satire; then came `. the great outpouring of novels, plays, films, i =1 and marvelously inventive jokes that i Czechsrepeated over their Pilsener and their 1 terrible coffee. And it all culminated in an outburst of public protests last year. The lampooning of the country's eco- nomic predicament, along with widespread ' discontent, provided pressure that finally moved the old regime of Party Secretary Antonin Novotrik to action. In January, 1967, the regime made a big show of en- dorsing Sik's reforms and introducing them nationwide as government policy. Even ViliqOPPIAI3Ciel94/0g0410,01j601PW4alista were moved to praise. Approved For Release 2005/08/17: CIA-RDP78-03061A000400030011-4 It was not widely understood though that Sik's reforms threatened the whole power base of the Novotnk government. The reforms menaced that great socialist ' boon, job security, and so immediately aroused the enmity of many workers and ; trade-union leaders. Plant managers, who , bad needed only to trump up evidence of , quantitative improvement to get their an- nual bonuses, saw that they would be con- fronted by the unpleasant, down-to-earth Idifficulty of making a profit. Up toward the , !top of the hierarchy, the ranking bureau- crats, such as the party provincial bosses, i ; the ministers of the industrial branches, I and the planners?the people that one !Czechoslovak economist, in a phrase that struck me as falling strangely from Corn- i { munist lips, called "the vested interests"-- suddenly had something to lose. At the sum- mit, Novotnk, canny and on the defensive, ' approved the shadow of reform, but nev- er its substance. ' In those circumstances, reform was eas- ily sabotaged. Sik's program, for example, called for an end to the practice of fixing I wholesale and retail prices without any re- lationship to each other. But in fact whole- sale prices rose inordinately, while most re- 'tail prices remained unchanged, with , chaotic results. .Sik wanted to force the en- terprises to go to the state bank for their 1 linvestment needs rather than receive sub- sidy capital from the government. The bank . i would make loans at interest on a commer- cial basis, thus forcing a certain investment i discipline. But when wholesale prices i soared, the enterprises, protected by their i 1 monopoly position, rapidly became so liq- uid that they never had to make any loan 1 applications at all. So, after all the promises, the Czechoslo- vak found himself still caught in that de- , pressingly familiar trap. Everyone put his mind to beating the system. "If you are not t.., corrupt, you are cheating your family," the slogan went. But the true lesson of 1967 i was summed up recently by a leading ' Czechoslovak political writer, who said: "We learned that economic reform could never work unless we made some political space for it to work in." . A call for change Therefore, the political space was made. Resentment against Novotni boiled over at a meeting in December of the Central Committee of the party. Economist gik sharply criticized NovotnS, according to some reports. Then on television on New Year's Day, Novotni, in a last effort to save , his political skin, espoused prompt renova- tion of the national economy. Four days later he was replaced as party secretary by Alexander DubCek, a supporter of sub- t, stantive economic change. In its action program, the new govern- I ment specified that the old closed political L. atmosphere was largely responsible for the defeat of the efforts to ach:eve economic lib- I eralization. It asserted that "A major rea- son for the fact that outdated methods of managing the economy were maintained was the deformation of the political sys- tem." Driving home the point, gik said on television that "unnecessary compromises and general inconsistency" rather than the new economics were responsible for the "definitely disappointing" results of 1967. In the new political environment, Sik's recommended reforms began to be put into effect. Some enterprises that produce for ex- port now will be permitted to sell their r, products directly to the foreign customer, instead of to a state trading company. Thus r the survival of the producing companies de- , pends on their selling abilities. This is the trade program Sik has been recommending for years. While there is still a lot of confusion, most , of the new objectives generally adhere to - the gospel according to Aik. Jan Nil, dep- uty managing director of the state bank in Prague, says that "discussions are now go- ing on" about foreign investment. "The ma- jority," says Pull, "feels that there is no obstacle to foreign investment if the right kind of deal can be worked out." A source i close to gik suggests that "the country is ready to invite in foreign capital as long as, the investment is no bigger than our own." , And Zdenek Mogisek, general manager of Chemapol, the chemical and pharmaceuti- cal trade organization, sounds for all the world like an old-style entrepreneur in hint- ing broadly that such a deal with an Ameri- can company would not be prima facie dis- missed as impossible. The Czechoslovaks are aware, too, as banker Ptill says, that "the veins of our economy run toward Moscow.. ,We are not going to tut them." tr--' Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 CPYRGHT CPYRGHT CPYRGHT 'BUSINESS WENOproved For Release 2005/08/17 : CIA-RDP78-03061A00040003NI 1-4 211 15 June 1968 In the only management school in Eastern Europe, Czechoslovakia is trying to get its industrial chiefs to relearn decision making. They have to work in a freer economy Economic reforms accompanying thel political liberalization of Czechoslo? vakia arc lending increased respecta bility to the country's small bu growing group of professional mana? gers, and placing new demands or them as well. "Now the manager will have tc stand in front of the market, not it front of the state as before," says, Antonin Mynar, a lecturer in the - Czech Institute of Management ir Prague. "Our managers were bor. and now they will have to be men, he adds. The three-year-old institute : is counted on to supply a new breed ; of managers?men capable of makinE 1their own decisions. 1 The institute is sending selected ' middle and top managers back -tc school, much as businessmen in cap? italist countries attend advanced management courses. It is housed ir ancient Kolodeje Castle near Prague whose crystal chandeliers and stat. nary contrast sharply with Czech?. ? slovakia's austere living standards Long tradition. Management edu- cation is a rediscovery for Czecho? slovakia. In the 1920s, Americans of Czech descent donated one million Czech crowns to found the Masaryk 'Academy of Labor, Which co-spon- sored a management conference in Prague in 1924, sparking an interest in management education through- out Europe. In the years between the tivo world wars, Czechoslovakia became one of the world's major industrial powers. Large industrial concerns, such as the Bata Shoe Works, pio- neered in management techniques. As a . result, the Czechs had dec- ades of experience operating a high- technology and capitalistic economy. World War II with its emphasis on production, and postwar commu- ? nism with its emphasis on rigid cen- tral planning, virtually wiped out management education in ?Czecho- slovakia. It was only in 1965 that the institute was founded. The same year saw the reestablishment of the Com- mittee for Scientific Management, defunct. since 1949. The committee is a member of CLOS _(COmite In- ternational pour. l'OrRnisation Scientifique), AppKOM*41111/143#14 'Dent body that Czech and U.S. management education advocates . 11. I I ? I CEA a Eyes on Prague. The Czechs arc anxious to regain their former lea, in management sciences and predicl that existing programs in manage. ment education sill expand. The de. velopment is being watched closely in Poland and Russia. For Easterr Europe, the Czech programs are al. ready fairly elaborate. There is, besides the Institute of Management and the Committee fox Scientific Management, a manage. ment faculty at the Prague School of Economics. The committee has re. gional groups around Czechoslovakir_ studying management techniques and it exchanges speakers with simi? Jar groups in Western Europe. Thc "Prague School of Economics awards management degrees and spreads th6 management gospel in adult educa. tion courses. One member of the school's staff, Professor Eduard Vo. picka, is considered one of Europe's outstanding management experts. The Institute of Management con. ducts two types of courses. One from September to May, is for 5C trainees from middle management who have gone to college and have several years of experience. The other, a five-week crash course dur- ing the summer, is for 20 top man- agers in industry and government. The institute has a staff of about 120, of whom 25% arc full-time. The others are borrowed from other in- stitutions and industry. Although the institute is subsidized by the govern. ment, the money it derives by serv- ing as a consultant to some of the country's largest concerns has made it virtually self-sustaining. Opening new doors. The consult- ing role still is limited to areas com- mon to both planned and capitalist economies, such as production plan- ning. But this is likely to change. Says Jaroslav Jirasek; 42, the insti- tute's director: "There should be consulting in marketing, financing, and pricing." Jirasek, who went to the institute from the state planning commission, alludes to the con- ditions that prevailed before the re- cent wave of reforms when he asks: "If you sell everything you produce, why do any marketing? If your prices are set by the government, why do WW2801148/10YoelkattiP74358813p the state, why do any financing?" The institute now has eight eon- suiting clients, including Skoda, the big automobile and machinery maker. "We meet with them once a month and they put their manage- ment problems on the table and ask for advice on solving them," prasek: says. "We then try to find proper solutions." Talent search. Middle manage- ment trainees are drawn both from the government and industry. Can- didates must be between 35 and 45 and have at least a knowledge of two other European languages. Says jirasek: "They have to convince us they have a talent to develop. We run them through some stiff tests." The screening process has re- vealed a disturbing picture of the typical Czech middle ? manager, Jirasek says. "All our students are dynamic personalities who look older than they are.... Eighty percent are too fat?obese. Fifteen percent are seriously ill and can't perform their tasks without actual danger to their health." The testing is less stringent for the 20 top managers who are ad- mitted to the shorter summer course. The course material for these men, each responsible for an average of about 30,000 employees, is aimed at bringing them up to date on the latest management techniques. Jirasek recently summarized the ground that would be covered dur- ing the top management course then getting under way: "This week we are explaining the big sociological changes which we call the scientific- technological revolution, with its impact on society and the indi- vidual. You might say this is an in- troductory week in which we may change their minds and their ap- proach. We also bring in macro- economics. Next week we go into micro-economics. After that we do formal techniques such as mathe- matical and statistical methods, with some systems management. Human relations in management comes in the fourth week, and in the fifth we systematize everything." Harmony. The way Jirasek ex- plains it, 'systematizing" demon- strates the interrelationship between the various management tools. "For us," confides one Czech, "the management gap is now the gap between the managers we have and the managers we would like to have." And to bridge that gap, the Czechs are attacking the problemn with the same zeal that has earned 1110004311031300S114lie most formida- ble political innovators in Eastern Europe today. End TIME Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 November 11, 1966 Last week Czech economists were EASTERN EUROPE , putting the finishing touches on an eco- Sik allows. "The central plan will make nomic reform program designed to rec- only a rough estimate. The previous sys- Toward Market Economics tify that disastrous situation. It shatters tem was nonsensical precisely because For all its egalitarian vision and the rigidity of central planning, estab- it tried to determine future trends with- brutal controls, Communism is still bas- fishes realistic prices and eliminates sub- out knowing what the technological ically an economic philosophy. Because sidies, forces each Czech factory to pay trends would be." Now central planners of that fact, Eastern Europe today is its own way or close down. In its sweep: will only advise the banks about the cli- caught up in a brutal but visionary eco- and good sense, it transcends any other mate of investment to guide them in nomic revolution. From the Baltic to reform plan in Eastern Europe. their credit policies. Instead of handing the Black Sea, reforms?in various de- Its architect is Professor Ota Sik, 47, out fat subsidies as in the past, the grecs and diverging directions?are rip- a wavy-haired, affable Pilsener who has Czech central bank will charge 6% in- piing through all East European coun- proved the most outspoken, articulate wrest on capital loans?a price that tries. If the reforms succeed, they will and inventive "icebreaker" in Eastern should make plant managers all the not only break the glacial grip of Stalin- Europe. "There was no other way but to more concerned to develop in the right ist "command economics" but reshape start using the market again," says Sik direction. Already the Czechs have cs- the societies and political structures of (pronounced Schick) in explaining hi tablished Western-style business-admin- the Continent's entire Communist world, reform plan. "If we take free enterprise istration schools to teach the new eco- Red Realism. The need for drastic to mean free price competition in the nomic skills to managers who in the past economic change became painfully evi- market, then even socialism cannot do were totally unaware of even the world without this enterprise." dent in the mid-1950s, when Stalinist- market prices of goods they were pro- tailored war economies?with their Sik himself might once have consid. (hieing. "If they don't adapt," says Sik stress on heavy industry to the exclusion ered such thought pure heresy. An old. ominously, "they will be replaced." ? of consumer desires?began to cause line Communist apparatchik (he sur. ; Because the failure of the old order, " widespread discontent. Yugoslavia was vived the Nazi death camp at Maut- i was more spectacular in Czechoslovakia the first to move, after its break with the hausen, along with Czech President than in any other East European ccono- Kremlin in 1948, introducing a system Antonin Novot0), Sik learned his Red my and because the scope of the new. of decentralized planning and establish-, economics after the war as a party man, order is so sweeping, Sik's reform could ing "workers' councils" as co-managers not as an academic. Independently of well light a beacon that would illuminate of its factories. In 1956, Poland's "bread Russia's Liberman, he had become by the economics of all Communism. A. and freedom" riots in Poznan triggered 1957 acutely aware of the "economic failure could as easily bring the glacier reforms that?on paper, at least?far antagonisms" generated by the lack of of centralism crashing down again. In outdistanced Yugoslavia's. market relationships in Red economies, any event, Communism as an economic Soon even Moscow?in the voice of His criticisms (ordered up by NovotO philosophy has already been altered be- Evsei Liberman?was talking of "in- himself) were shrugged off by the Sta. yond Marxian recognition. All that will =fives" and the "profit motive," a; linists, but Sik persisted in working to-. be left of the Communist system is state green light to the East bloc that soon ward reform. In December 1963, his ownership of property. The problems set Hungary, Bulgaria and even the 20-man investigative committee de- and the motives of the entire economy Stalinist states of East Germany and manded a thorough shakeup of the will be enterprising and free. ???????? Czechoslovakia to thinking about re- economy, and last year it was approved form. Out of earshot of the West, ccon- by NovotO and the Central Committee. t LATIN AMERICA i omists began discussing things that the Key to the whole Sik reform is prices. I The Great Arms Race i West would understand: bonuses and "If the system is to work as a market,"I 1 The cry for disarmament that has so reinvestment, free prices and the need says Sik:, "it needs real market prices." 'long echoed through the world's major for incentives, even the accumulation Only a few staples?mainly foodstuffs ;cor .nd ,r was sudor ' ors of power being of wealth--once a heretical thought and fuel?will have centrally fixed , taken up last week in, of all places, Latin Alla under "egalitarian" Communism. Quite prices. All others will be allowed to America?where there has been only independently of one another, the move freely in response to supply and one major war in the past 50 years. prophets of profit began coming to the same conclusion: rigid Stalinist-style demand. Sik feels there is competition- Ironically, it came from Chile's Presi- central planning must cease. cnough among domestic producers to. dent Eduardo Frei less than Iwo weeks Planned Antagonisms. No East Eu- keep prices healthy, though he does not after his government signed a new $20 ropean economy had suffered so pain- rule out the need for price-fixing at the.: million deal for 21 British Hawker fully under th stagnation of Stalinism tap, if need be, to control inflation. On , Hunter fighters. Still, Frei had a point? ase Czechoslovakia's. As the "machine the foreign-trade level, he hopes that ' if one not universally shared by Latin shop" of the East bloc, Czechoslovakia competition in the realistic world of American generals. had been forced by Moscow to concen- market prices will force specialization, Last year Argentina bought 25 sub- trate its energies?without significant en Czech industry. "At present," he ex_ , sonic Douglas A-4B fighters from the Soviet reinvestment?on building the Plains. "we produce 78% of the total.. U.S. Chile promptly dashed out for , machine tools (and weapons) that the world spectrum of types of machinery.: more planes and was soon negotiating for the Hawker Hunters. Not to he out- This is impossible for a small country.: Soviets needed. Stalinist-minded/Czech Thus we hope our measures will hasten 'done, Peru last week was discussing pur- central planners (called "oxen" by many specialization." Already some 1,300 "re- chase of 16 Mach-2.1 English Electric Czechs) blithely pumped billions' of kro- dundanr Czech factories have been Lightnings and a flock of advanced- net in subsidies into moribund enter- prises in order to make their master closed, and another 1,400 of them ;model Hawker Hunters. Meantime, Vela- may shut down before the reform wave 'czucla was suddenly losing its love for its plans come true on paper. By 1963, Czech economic growth, which had been F-86 Sabre jets, which it bought from booming at 8% in 1949, had skidded crests. Substitute for Subsidies. Impact on the U.S. five years ago. So it, too, was to nothing?indeed, it actually was in the managers is bound to be brutal. "It dickering?with Sweden for 20 Saab k much harder [under the new system) Draken fighters, a Mach-2.2 all-weather decline, an unlikAKO-of event in ja roved r- or Re easestRtit06481r070411140134P18344706111406044003001,1-4 planned economy. I' 2 CPYRGHT Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 take their escalati ),,,; elsewhere. "If the U.S. is not willing to sell us the planes we need," shrugged Peru's President Fernando Bala6nde Terry, "we will buy them from any other country willing to sell to us." And .possibly cheaper, since Europe is hungry for the business. The Swedes are offering the Saab Draken fighter for some $700,000, compared with $900,000 for Northrop's slower (Mach-1.3) F-5 Freedom Fighter (sec U.S. BusINEss). Brazil claims that five- year terms are the best it can get in the U.S.; the British are offering ten years. As a result, the Brazilians ordered ten Avro7748s from Britain last month, and took an option for more. Ultimate Deterrent. The fancy new war machines, however, are often more trouble than they are worth?and that, in the end, may bp the ultimate deter- rent. Argentina is desperately short of parts for its now-obsolete Douglas A-4Bs: so the planes are flown only 15 hours a month, which is not even enough Shoot Now, Pay Later. Actually, Latin American nations spend only $1.7 bil- lion a year, or about 12% of their total government budgets on arms, compared with 55% for the U.S. and 25.6% for the European NATO countries. But in an area of the world where the necessity for social reform so far outweighs mil- itary needs, even that small percentage appears excessive. And because of that, Washington, which supplies $1.2 billion a year in Latin American aid, is discour- aging unnecessary arms purchases among its southern neighbors. As Presi- dent Johnson warned in a recent Alli- ance for Progress address, such pur- chases "take clothes off the backs and food away from the stomachs and edu- cation away from the minds of our children." Hauling out its own heavy artillery last summer, Congress under- scored Washington's concern by cutting U.S. military aid to Latin America 9% in the current fiscal year, to S85 million. Undaunted, Latin Americans simply time for pilots to maintain proficiency. :Then there is poor Brazil. It no sooner laid out $35 million for a reconditioned aircraft carrier in 1956 than the navy and air force went to war over which service should get the use of the carrier. In time, the battle triggered major crises for four Brazilian Presidents, the resig- nations of ten admirals and navy and air force ministers, and several actual shooting scrapes between, the navy and air force: not until last year did the two .sides finally reach a compromise, agree- ing that the navy should man the carrier, and the air force the planes. , In the end, Frei's call for disarma- ment last week seemed destined for the :same sad fate that always seems to 'greet causes that tamper with national :egos. As'onc Peruvian general summed :it up: "If Chile buys arms, we must buy ;arms too. But we Peruvians are not militaristic. i.,41t our neighbors agree to sto-,,) buying armament, and we will join 'them," Though maybe a little later, AVIATION WEEK & SPACE TECHNOLOG6pyRGHT 29 May 1967 CPYRGHT Czechs Use Western Sales Techniques in Export Push By Donald E. Fink Prague?Czechoslovakia is emerging as a leading aircraft producer and exporter ir Eastern Europe, and is preparing to make a bid for markets traditionally domi? nated by Western manufacturers. The Czechs are expected to begin using Western marketing and sales technique! to spearhead the East European drive and compete outside the protective confine! of the Soviet bloc. This includes purchase of engines from Western manufacturer: for use in export versions of their aircraft. The Czech aircraft industry, which is developing a specialized line of aircraft for this export push, will continue to depend primarily upon sales within the Eastern European Community to sup- port the research and development costs. Moves by both the Western allies and the Soviet Union to reduce tensions be- tween the two sides of divided Europe have created an atmosphere which makes the Czech effort to deal in both Eastern and Western markets feasible for the first time since World War 2. The Czech industry has no intention of engaging major U. S. and Western European firms in direct competition, according to officials at OMNIPOL, the foreign trade group which handles inter- national sales of all aircraft. Instead, it intends to concentrate on selling a fam- ricultural aircraft in specialized markets where there is a minimum of direct competition. "Our intent is to exploit the small air- craft field, ranging from the sport air- craft to the light transports," one offi- cial said. "We know there are areas within these categories where we can be competitive." In preparation for this move into Western markets, the Czech industrial base has been?strengthened by consoli- dating individual manufacturing facili- ties into a single consortium called the Czechoslovakian Aeronautical Enter- prises (AERO). An early part of this consolidation included the cancelling of two marginal aircraft development pro- grams?the 40-passenger L-I52 trans- port and the five-passenger HC-3 heli- copter. By of light tra seven major Czech aircraft factory groups, which employ over 29,000 per- sons. OMNIPOL, the government's ex- clusive agent for, international aircraft ' sales, presently operates independently of the industrial group. As a further step toward improving the export potential of the Czech air- craft industry, however, OMNIPOL will be converted into a share company. The AERO group will be allowed to pur- chase a large portion of the stack, al- though it has not yet been decided whether the government or industry will hoJd the controlling interest in the company. Czechoslovakia, which has about 25 foreign trade organizations representing all portions of its industry, is seeking to streamline all the groups in the same way, according to trade officials. In addition to aircraft, OMNIPOL is the export representative for the industrial groups which produce avionics and aircraft support equipment. While the markets developing in the Middle East and emerging African nations?two areas Western manu- facturers have so far dominated?offer the best export opportunities, there Is a marlol hi thu 1.1,61 and havdriil Miro. peen countries for a limited number of Czech aircraft, according to OMNIPOL officials. This is especially true for Czech acrobatic aircraft, which have the reputation of being among the best in the world, they said 'X',33?0011E'cllfirYtiacgii3c 2Eyt/61A9 :915Nivoriptinifm4?9k000400030011-4 3 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 A.- ? In another move aimed at reaching markets previously dominated by West- ern manufacturers, the Czechs are con- sidering use of both French and U.S. engines, to take advantage of their repu- tations for better reliability and after- sales service support... ' Domestic Market The domestic Czech market is too small to support the extensive research efforts or long production runs needed to develop new aircraft for this move into new markets, according to one offi- cial. For this reason, the Czechs must get the backing of the Soviet Union and other Eastern European countries be- fore they can start any new. programs. This Eastern European market is largely responsible for the success the Czechs have had with their L-29 DeItin jet trainer. The L-29 was selected by the Soviet Union . and other Warsaw Pact nations as their standard basic and pri- mary jet trainer, and over 1,500 of the two-seat aircraft have been ordered. L-29s also have been sold to Syria and Indonesia, and an advanced version now under development is expected to open new markets. Armament and re- connaissance packs also are available for the L-29, but industry officials said there are no plans to produce a counter- insurgency version at present. The domestic and Eastern bloc mar- ket potential also was used as the basis for starting the L-410 program, al- though .the ultimate aim is to sell the aircraft in the Middle East and Africa, where a growing requirement now is developing for air taxi and utility trans- port aircraft. Low Wing The Z-40 series will be based on a low-wing design similar to that of the Z-526. The fuselage will be all metal and fabric covered control surfaces will be used, but other design details have not been worked out yet. ? In the agricultural aircraft category, the Z-37 is being used extensively in Czechoslovakia, the Soviet Union and other Eastern European countries, where the large collective farms make aerial spraying economical, they said. The test program with the Continen- tal engines is a preliminary step toward expanding Z-37 sales into Egypt, Sudan, ? India and perhaps New Zealand, offi- cials said. No attempt will be made to obtain FAA certification for the air- craft, however, since the British certifi- cate is sufficient for the markets now under consideration. . ? ? ? ? Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 14 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 NO. IV RUDE PRAVO, Prague 10 April 1968 (EXCERPTS) (underlining added) COMMUNIST PARTY ACTION PROGRAM The National Economy And the Living Standards The 13th congress has approved conclusions which state that the recovery of our economy and the transition to an intense development of the economy cannot be brought about by the traditional approach or by a partial improve- ment of the directive management and planning system, but by a fundamental reform of the mechanism of the socialist economy. The idea of economic reform has been victorious; it is a change from an instrument for asserting material proportions which have been fixed in a subjectivist manner into a program for economic policy which insures the effective advancement of the economy and the growth of the living standards.... Certain features of economic development in the past two years, a better exploitation of the production factors, a decrease in the share of material expenditures in the social product, the growing exactitude of the consumers with respect to the technical standards and quality of the products, and so forth have fully confirmed the correctness of the resolutions adopted at the 13th congress. But so far these positive features have not yet manifested themselves in a better satisfaction of the needs of society or in a reduction of the tension on the domestic market. The actual reasons for this are that the previous trends are still making themselves strongly felt, the old system of production and foreign trade has still survived, and the production adjusts only slowly to the changes and to the growing exactitude of demand. This is connected with several inconsistencies and loopholes in the realization of the economic reform program. Instead of systematic efforts to objectively determine market criteria ... there still exist ... efforts to deform these criteria, to adjust them to the given conditions, and thus to create a convenient situation in which the back- wardness and deformations remain hidden, can survive, and continue to act like parasites at the expense of all of us. The system of protecting economic backwardness combined with a policy of prices, subsidies, and donations and chiefl with a s stem of surcharges in for- An immense network of pro- ec lonism creates conditions under which enterprises can exist and in several cases even receive preference which are inefficient, are incompetently managed, and backward. It is impossible to paralyze forever an economic policy by taking things away from those who work efficiently and by giving them to those who manage poorly. inues revail economic Therefore it is necessary to View objectively the relative values so that the differences in the state of receipts of enterprises express real differences in the standards of their management. Nor is it politically correct for the consumer to pay for inefficiency through prices and taxes or indirectly through the various forma which are draining the means of efficient enterprises. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 The enterprises which are confronted 'with a demanding market must be granted the freedom to decide on all the problems concerning the immediate management of the enterprise and its operation and they must be enabled in a creative manner to react to the demands of the market. Thus a demanding market, combined with an economic policy, will exert pressure to make pro- duction more economical and to achieve sound structural changes. Economic competition, particularly with mature foreign competitors, must provide a basic stimulus for perfecting production and.reducing expenditures'. This competition cannot be replaced by subjective adjustmentsof.economic conditions or by directives from superior organs. Socialism Cannot Do Without the Spirit of Enterprise The democratization program in the economy links the economic reform more closely with the processes facing us in the field of politics and throughout the management of society. It bids us to stipulate and apply new elements designed to develop further the economic reform. The democratization program for the economy particularly involves the granting of independence to the en- terprises and enterprise groups and their relative independence from state organs, the full and effective implementation of the consumer's right to de- termine his consumption and his way of life, the right of free choice of working activity, and the right of the real opportunity for various groups of the working people and various social groups to formulate and defend their economic interests in the creation of economic policy. Therefore, the party considers it to be imperative that the entire work collective which bears the consecum_aces should also be able to ert_fithit- ence on the operation of the enterprise. It will be necessary to establish democratic organs in the enterprises, organs having a defined authority toward the enterprise management. These organs must be a direct component part of the managing mechanism of the enterprises and not a social organization -- therefore they cannot be identified with the trade unions. These organs should be created by electing representatives of the work collection on the one hand and, on the other, by representatives of certain sectors outside the enterprises which insure the effective influence of all-social interests and an expert and qualified level of decisionmaking, the representation of these sectors outside the enterprise which insure the effective influence of all-social interests and an expert and qualified level of decisionmaking; the representation of these sectors must also be submitted to democratic forms control. At the same time we must arrange the responsibility of these organs for the results in the management of socialist property. In the spirit of these princi- ples we will have to settle an entire series of concrete questions; concurrently, we will have to propose a statute for these organs and to utilize certain tradi- tions of our factory councils of 1945-48 and experience from modern business. This does not change anything. regarding the indivisible authority and power of the executives in the management skill, authority and powers are the basic conditions for successful business operation.... We must put an end to the previous simplified stereotyped approach used in creating tot p p'fige8lizAtilWasitiNONSPI PFM0146071693WAikealfdatc-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 The structure of the enterprises must be variegated just as demands on our market are vareigated. Therefore, we must also anticipate the development of small- and medium-sized socialist enterprises. They will be significant primarily with a view to supplementing the range of production with a view to a rapid enrichment of the market by producing novelties and a view to flexible response to the diverse demands of the customers. In developing the organiza- tional structure of production and distribution we must open up room for eco- nomic competition between enterprises of all kinds and forms of business, in the first place in the sphere of production and the sale of consumer goods and food products. Farming production is making a significant contribution to the consolida- tion of our national economy. The recent period and, in particular, the fu- ture requirements of the economy clearly enhance this positive consolidating role of agriculture. Its structure should develop so that it gradually in- sures a reasonable variety of food supplies to the people. Therefore, the party considers it necessary to increase and concentrate the assistance of the state and all sectors, particularly the chemical and engineering Indus- law tries, on safeguarding an increase in plant and animal production. This is and continues to be a primary task of our economic policy.... Particularly in the sphere of services it is justified that the individual shops should be made independent and that redundant administrative management links should be eliminated. Small personal business enterprise also has its justification in the sphere of services. In this respect we must work out legal prescriptions on small-scale enterprises designed to fill the presently existing gap in our market.... The State's Role in the Economy Augmentation of social riches is the concern of our entire society. The main tasks and responsibility belong both to the enterprises and to the manage- ment organs, and primarily to the government.... It is emphatically necessary to adjust the entire organism of implementing the economic policy of the state. Here the state and the economic organs must solve appropriate organizational questions. At the same time the party considers it desirable that the final state of organization correspond to the following principles: The making of decisions on the plan and on the economic policy of the state must be on the one hand a process of mutual confrontation and harmonization of various interests -- the interests of business, consumers, employees, various social groups of the pouplation, nations, and so forth -- and on the other hand, a process of a suitable combination of views on the long-term development of the econdl(ty and its immediate prosperity. It is necessary to regard adopting ef- fective measures which would safeguard the consumer against the abuse of the monopolist position and the economic power of production and trade enterprises as the necessary part of the economic activity of the state. The creation of the national economic plan and the national economic policy must be subordinated to the democratic control of the National Assembly and the expert control of scientific institutions. The supreme organ for carrying out the AApproved For Release 2005/08/17 : 3CI -RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 state's economic policy is the government. This presupposes an institutional orgal=17617170?RaTarEgo,FEent which would make it possible to express and to unite special interests and views, in the process of making decisions and to harmonize the operations of individual economic instruments and measures of the state in the realization of economic policy. At the same time the institutional organization of economic management organs must make it impossible for depart- mental or monopolist interests as being the interests of consumers who are the sovereign determiners of economic impulse. In all central economic organs it is emphatically necessary to insure high expert standards and the rationaliza tion and modernization of management work and to subordinate to this the neces- sary cadre changes.... A well-thought-out technical policy, based on an analysis of technical progress throughout the world and its own concept of economic development, must become an important part of economic Management, Its aim will be to direct the technical standards of the production base and to establish economic conditions /which will stimulate a strong interest in the search for and implementation of the most modern technology. In this connection it would be expedient for the appropriate state organs to analyze all kinds of public expenditures and for the government to work out the program of economic, state, and public measures. The state budget must be- come an instrument for the revival of balance and not an instrument that weakens. The Central Committee considers it necessary and possible to uncover and to utilize sensibly all special inside and outside resources for a rapid renewal of the economic balance. We .are placing great hopes in the renewal of the positive functions of the market as a necessary mechanism in the functioning of socialist economy and as a check on whether the work in the enterprises had been socially expedient. How- ever, what we have in mind is not a capitalist, but a socialist market, and not an arbitrarybut 212:201219.11itilization of this market. The plan and the all- state economic policy must operate as a positive force aimed at'normalizing the market, aimed against the trends of an economic lack of balance, and against monopolism in ruling the market.... The economic structure of Czechoslovakia, its technical standards, concen- tration, and specialization must be developed so that they will be capable of reacting more speedily to economic changes at home and in the world.... A More Effective Incorporation in the International Division of Labor The experience of competition on the world market shows quite unambigu- ously that exceptional conditions are thereby created for the activities of the economic units, the result of which particularly are a relative lag in the pace of technical progress and in the structural changes in the economy condi- tioned by it, the loss of the ability of our products to compete on the world market, and the creation of a disproportionate tension in external trade and payment relations. In view of the limited raw material base of our econonly and the limited scope of our domestic marketallitiplIsELIAtimotIlLe_shalyoUll the material production base which accompany the scientific-technical revolution is unthinkable without a broad inco ?oration o e o..114, in he developing iiitrnIt.,241:waria Mae ilka(05/08/17 : CIA-RDP78-03061A000400030011-4 4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 The, collaboration with the Soviet Union and, the other socialist states, particularly with the states associated in CEMA in the future will also be tbu. basis for the development of international economic relations. It must be re- aliret1T-h-C46-Ifekrtaaf-Iii-ihe-flaiiiie the success of this collaboration will to &ff-eVer increagiEraTeRT7aF5enr6h theal2ai ? . ? ueet compe- tition.... Opening our economy to the pressure of the world market requires that the foreign ra e monopo y ?e ra ca y an consistently freed from the administra- tive concept and methodsql d that the directive control over foreign trade trans- actions be eliminated. The Central Committee deems it necessary in this field to pursue an effective state trade and foreign currency policy, one based partic- ularly on economic rules and instruments of indirect control.... The long-term isolation of our economy from the world market has separated the relationship between domestic prices and world market prices. In this situ- ation we regard it as essential to romote a line toward a adual a.oroximation of the prices on the domes ic an world markets. This means in practice to proceed more energetically in eleminating all the various surcharges and sub- sidies to [permit meeting] foreign market prices. The enterprises must realize that the foregoing is only temporary protection which the state accords them and on which they cannot count forever, and therefore they must draft a program of production changes which in the next few years will enable them to manage with- out subsidies and surcharges. A more generous approach to those branches and enterprises in the national economy which are able, from the viewpoint of the national economy, to sell their products effectively on foreign markets must be another aspect of this policy of abolishing price surcharges .and donations. The party regards it as a purposeful aim to accelerate the required changes in the present system of price relations and to gradually regulate them through both the pressure of the market forces and a purposeful state economic policy, and to establish a proper, rational price system. This policy must be accomplished by energetic measures to to safeguard the domestic stability of the currency. This requires the develop- ment of the manufacture of effective stocks of salable and quality goods which can be sold on the world markets and the achievement of an equilibrium of commodi- ties, money, and work on the domestic market for an effective restrictive invest- ment policy, and insuring an equilibrium in the balance of payments as well as the creation of the required foreign currency reserves. The Problems of the Standard of Living -- An Urgent Task of Economic Policy In developing economic policy, the party sees the continuous growth of the standard of living as its basic goal. In the past, however, the development of the economy was onesidely oriented toward the g_row_t_b_ar heavy id tus_jzz with a delayed return of the invested means, a development which took place to a consid- erable extent at the expense of the development of agriculture and the consumer goods industry, the production of. building materials, trade, services, and non- productive basic funds, particularly in housing construction. This onesideness of the past development of the econoil cannot be uickl eliminated. However, i we u i ize the great reserves existing in the organization of production and work and if we take into consideration the possibilities of a reasonable utilization Approved For Release 2005/08/17 :1A-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 of the new system of managment, we can considerably accelerate the creation of resources and on this basis increase the growth of basic wages and the living standard as a whole. Concerning the growth of the living stnadard, we must assign greater im- portance to the growth of wages and salaries. However, the accelerated growth of average.wages and salaries does not mean that in the future wages will be increased in the enterprises irrespective of the actual results of business activity. It will be necessary to ap ly consistently the principle of the de- velopment of wag22_15=Ege actually re4tAtcl_production which is sociallx utilized. It is in this direction that it will be necessary to work out the methods for streamlining the development of wages. At the same time one must insure that, according to the growth of wages in production, wages in education, health service, and other branches of the nonproductive sphere are also increased. Rational price relations cannot be established and declared by the state authority; one must liberalize the influence of the market forces in their for- mation. This, true enough, involves a certain risk that the changes in price relations will be accompanied by a certain rise in the general price level. This risk stems from the fact that we have inherited from the directive s stem of management a situation in whichemater=g7ceicceed-s??"s"u?e.1 . Therefore, organso managemen wie iera ing the necessary internal price movement, must regulate general, economic relations to prevent an unprofitable rise of the price level and also to insure a growth in real wages of at least 2.5 to 3 percent per year. In the near future it will be impossible substantially to increase demands for distributions from social funds because this could not be achieved without consirFaly reducing remuneration for work. It is possible, however, in the sense of the decision of the December 1967 plenum of the Czechoslovak Communist Party Central Committee, to solve the most urgent problems of social policy, such as increasing low incomes, extending paid maternity leave, and raising allowances for families with children. Further, it is possible to set forth a principle of relating the growth of social incomes to the growth of the cost of living. The Central Committee demands that the state organs remove the obstacles which weaken the interest of the citizens in permanently continu- ing their working activity to fulfill the terms of their old-age pensions.... Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 6 RandomAup9698d4r6FIRWERPAY2bDOZIK170.talkaIDIRTBe6-3.Q61A0094(1003601 tiat Economic Situation in Czechoslovakia June-July 1968: "Series of Facts" In the first installment concerning investment policy, Academician Sik said that "Czechoslovakia officially already embarked on the road of the so-called new system of management 2 years ago. But in reality the ideas of the new system have been applied quite inadequately; too many compromises were made, no that there are more elements of the old system than of the new one." "The past political leadership for long years painted over reality. This was caused' by the efforts of different leading officials and politicians to evade responsibility," Academician Ota Sik said on the. program. _ "The new system of management must implement changes in the investment policy, which will not be easy. It must introduce other ways of planning, changes in financing and crediting investments, remove subsidies, introduce other price relations, and gradually achieve changes in the structure of investments and increase their effective- Previously, the successes of our industry were mostly talked about very one-sidedly and with a good deal of oversimplification. We used to. emphasize the fact that we hold fifth place in Europe in coal production per capita, and the like. We used to say, on the strength of the fact that because of its industry Czechoslovakia is one of the foremost places, that it belongs among the six to eight most advanced countries of the world. This was, indeed, an oversimplified interpretation, which was, alas, rendered necessary by the then political conditions." It must be said that the measure of a country's development level cannot be expressed in terms of the output of a few selected basic products; this is typically Hoversimplified view, which was also evoked by simplified planning methods. As ,you know, in our planning, what has always been determined by directives was only the production of a limited quantity of selected products and, otherwise, only the total velum?. However, despite the high output of some selected products per capita our industry has been and still is incapable of satisfying a groat lmultitude of other needs, whether they are needs of people as consumers, or needs of enterprises. OWe are of opinion that the measure of the development level of a certain country's economy must be expressed in terms of its ability to satisfy with its industry all the constantly changing and expanding needs, or its ability to insure quickly and flexibly so-called structural changes in its industry. Furthermore, in comparisons between the countries of the world, it is necessary to watch the development of production costs of the country concerned, of the quality of products, so that this production may be genuinely competitive on a world scale. 1/ "We have missed the development of cyberr.oties; automation of prodiction is in its infancy in our country; the chemical industry is inadequate, hence we produce an insufficient quantity of new raw materials for the engineering and consumer' Industries, such as plastics and manmade fibers; a shortage of fertilizers for agriculture exists; development is slight in electronics, and so is the production of modern building materials, but even in metallurgy, what has been insufficiently developed is the production pf high-grade steels, thin sheet, and the like. ri check of dozens of enterprises has shown thIt unsalable goods are piling up because, on the one hand, the finishing industry does not meet the strueture of domestic demand in 27.2 percent of the enterprises checked. On the other hand, 25.6 percent of the enterprises checked fail to meet'the require- , ments of foreign customers. And finally, the industry fails to meet the demand for higher quality in 9.3 percent of the enterprises. All this means an immense. squandering of labor and material resources. ti Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Wet only is our industrial production of a very low standard, but our agricultural production is even lower. In agriculture, we have been registering for a number of years, needless to say, a great drifting away of manpower from that sphere. Froma labor force of 2.31 million in 1936, this number fell by 1964 to 1.26 million. This in itself is nothing bad; all over the world, the number of people employed:in.-- agriculture is falling very rapidly. A grave problem is however the fact that what we are witnessing in this country is the departure above all of young people, and that as early as 1960, in agriculture two-thirds of people were over 47 yeamef Even more momemtnus is the fact that this outflow of manpower was. not compensatedfor by a proportionate efficient technology and cheminalization. In the year 1964; in Czechoalovakia there was one tractor for every 43.5 hectares of agricultural land."V "Matters are analogous in regard to chemicalization. In Czechoslovakia in the years 1964 and 1965, for every hectare of agricultural arable land, there was a net 147 kilograms of industrial fertilizer. A number of European countries consumed one-third more7onithese industrial fertilizers; Went Germany had even twice our consumption; Belgium and Holland. more than three times our consumption. ? ? ;; 1: n? ri Needless to say, all this iS refTected in labor productivity in agriculture.'' For, Instance, the American farmer on an average needs for the production of one liter of milk, 2 minutes' .work; in Czechoslovakia, 6 to 7 minutes. "For one kilogram ot pork, the American farmer needs 3.8 minutes; the Czech, 11 to .14 minutes. In the growing and harvesting of sugar beets, one metric quintal takes 24 minutes to produce in America. and 120 minutes in Czechoslovakia. For one metric1 quintal of grain, they need 40 minutes in America, and 234 minutes Czechoslovakia.' OIt was total power planning L The decisive thing was the dictate and not the real result. A formal report about the implementation of the plan was sufficient, but the real state of the enterprise, the real results, interested nobody. Everybody ' was interested in the percentage of the implemented plan. And the personnel policy was in full accord with this. It was not important what people knew, whether they were capable, or had the proper schooling and capabilities to manage. The decisive thing was as a rule dedication and reliability, but to those in power." Olt was so widespread that it became part of the nation's subconscious. It was a characteristic of the selection of the managing staff." 4 But that does not mean that every manager is a bad one. Many a good manager had to learn to live with the system. They had to adjust to the. system. Therefore, today,: it would be neither right to condemn or to change them en toto all management staff. But it will be necessary to examine their work by means of a thorough analysis and ' to examine their managerial qualifications. I know personally many good managers' who will be able, to manage well in the new conditions in spite of having been selected under the old system. If We have today in the capitalist countries a purposeful education and preparation of managers, and it must be said that to manage Is a difficult and responsible profession. It demands.not only ipecific knowledge and experience, but also the power to make decisions, the ability to take risks, to be able to deal with people, to be able to pick people to_work with, and so forth. h I do not want to unilaterally overvalue the importance of education, but it is an - - important factor. It is interesting to look at the qualifications of our managers. 1963 out of 11,941 plant and .factory managers and their deputies, only 2,822 had university education, roughly one in five; and 2,265 of these managers had only alimen- tary education. Out of 176,546 engineers and technicians, only 19,546 had a university, education, not even one in. nilia;,37,77; had only elementary education. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 2 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 If we want a really modern and advanced management in our enterprises, as is the ease with the foremost Western firms shown by their productivity and work efficiency, it is not enough to make a general appeal and propaganda., but it As necessary to safeguard this selection institutionally. *I would like to say that everywhere where it is possible it is neces- sary to gradually change this bureaucratic decisionnlaking about the activity of other peoples into the decisionmaking of people who will themselves feel the consequences of their decisions, and feel it in their own pockets. Peoples should have the widest possible opportunities to make decisions, to share in the making of decisions, but also concerning their own lives, their own being, their future, their interests. And not _ only there where their life work goes on, in factories and places of work, but As far as possible also where decisions are made about the development Of life, production, consumption, communications, and so on in the wider social sense, in regions, nations, and state organs. Working people's councils are to exist, above the enterprises, as basic and relatively independent enterprise units. Whether, then, the enterprise is a big, highly concentrated, entirely independen". con- cern, or a lesser enterprise which voluntarily enters with other enterprises an associa- tion that is advantageous and strictly defined economically, there should always exist above the enterprise a democratically elected working people's council. It is to have the right to recall and appoint a manager of the enterprise, decide on extraordinary remunerations for him, on changes in the integration of the enterprise, and give its views on fundamental long-term development questions of enterprise, 'without at the sane time limiting the responsibility of the manager for the :final deoisionmaking. .11 . However, I would not conceal from you that we shall not get by without various struggles between interests, and hence without various considerable difficulties. Whenever 'changes in or the abolition of certain superfluous institutions, certain cadre changes, and the like are involved, what comes into play is not so much reason as people's interest and emotions. And in this, to see through the most sensible, moat rational solution is not always easy. I believe, however, that also in hard cases of clashes .between interests, the majority of our nation will standon the side of a reasonable,' , progressive solution, and for this, I thank you in advanoe.,or Approved For Release 2005/08/t7 : CIA-RDP78-03061A000400030011-4 25X1C1OB Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Next 1 Page(s) In Document Exempt Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 25X1A2G Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 November 1968 SOUTH VIETNAM'S GROWING SELF-RELIANCE Despite criticism from both friend and foe that Uncle Sam is almost single-handedly fighting the war in Vietnam, is trying to substitute for a Vietnamese Government which is almost non-existent, and is attempting to impose democracy on a people who neither understand nor want it, there are hard facts which belie such criticism and which permit a more accurate view of the growing ability of the South Vietnamese people and government to shoulder the burden of the war. The Armed Forces The most readily observable and dramatic evidence of South Vietnam's growing self-reliance lies in the military sphere. Although the officer corps had been weak in the past and the non-commissioned officer corps possibly even weaker, President Thieu's administration is placing such strong emphasis on professionalism that in the past year more than half of the divisional and regimental commands have been changed, largely to move out strictly political officers who are being reassigned outside the main command structure. Regular Army forces are being freed for more ag- gressive action by new efforts to upgrade the 290,000 Regional and Popular Forces (fulltime soldiers assigned close to home), who are now taking over the responsibility of local security and home guard chores. The re- sult has been that battalion-sized actions initiated by the Regular Army are now running at twice the rate of previous years. Since 1 January 1967, South Vietnamese battle deaths have been one-third more than those of the U.S. The South Vietnamese have more than doubled their Armed Forces in four years and by the end of 1968 their strength will exceed 800,000 with an additional 200,000 in auxiliary and paramilitary units, And since the Tet offensive, 600,000 South Vietnamese civilians have voluntarily enrolled in the Self-Defense units, It is considered probable that this increased enrollment is due in large measure to the cumulative effect of 10 years of Viet Cong atrocities against South Vietnamese civilians which reached a particularly revolting climax during the Tet offensive. During the past summer, four of the 61 Special Forces camps in South Vietnam were turned over by the Americans to Vietnamese administration; it is planned to turn over seven more in the near future. American field commanders for the Special Forces (and other U.S, elements as well) are expressing the view with increasing regularity that training and discipline are beginning to pay off and that the South Vietnamese are now showing almost daily improve- ment in their ability to carry more of the military burden. With the training and discipline is also developing a sense of esprit de corps hitherto unknown in the South Vietnamese Army. Building a Government and a Nation The South Vietnamese Government's monumental problems, resulting from the full scale war being fought on her awn ground added to the difficulties Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 of trying to build a stable government, would be overwhelming for most long-established governments. Nevertheless, the South Vietnamese managed to elect a Constitutional Assembly, to write a Constitution, and to carry out elections in which 83% of the voters participated ... all under war- time conditions and in the face of Viet Cong violence and intimidation against the civilian population. The government, in some cases with the help of its allies, sometimes on its own, has developed a number of programs centered about pacification, which have the primary aim of making South Vietnam's rural areas secure from the Viet Cong and ultimately of helping South Vietnamese communities to establish a framework of self-government which can effectively tackle the problems of economic, social and political improvement. These programs include the Phung Hoang (a combined police and military campaign to iden- tify and capture Viet Cong-directed terror and extortion campaigns), Rev- olutionary Development (rural self-help projects such as schools, roads, bridges, etc.), Chieu Hoi ("open arms," to encourage Viet Cong to rally to the Government -- which over 83,000 have done since 1963), and refugee and social welfare programs which have cared for and resettled thousands. Other government efforts have included programs to teach farmers more ad- vanced agricultural methods, to arrange tractor and equipment "pools," to arrange for farmers' credit unions, to redistribute land and to join with U.S. military engineers in rebuilding and improving roads and bridges in rural areas. GVN Part in Industry, Agriculture, Education, Social Services Other government initiated actions whose effects will be felt beyond the immediate war period and which give hope for an increasingly viable economy and society in the post-war era, include: - Taxes: new legislation is expected to increase revenues next year by 30%; - Shipping: the number of U.S. advisors on port operations in Saigon has dropped from 150 to about 20; - Housing: a majority of the houses destroyed during Tet and May offensives have been rebuilt; - Agriculture: rice production is up one-half million tons in 1967-68 over preceding years; new high-yield rice seed has been planted on approximately 50,000 acres; fertilizer distribu- tion has been increased to twice that of last year; loans from the Agricultural Development Bank are up four times from 1967; - Industry: industrial output is up 15% since January 1966; - Education: since 1955-56, school enrollment is up more than 400% at elementary level and 900% at secondary level; normal Approved For Release 2005/08/17 CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 schools are turning out 1,500 teachers in 1968 as compared with 1,100 in 1966; since 1964, more than 11,500 elementary teachers have been trained in accelerated 90-day courses; - Health and Medicine: 9 million immunizations were given against smallpox, cholera and plague in the first four months of 1968; there has been a substantial increase in numbers of graduate nurses and medical facilities. New Leadership from the Top The increasing effectiveness of the government bears the unmistake- able stamp of President Thieu, who is developing into a remarkably compe- tent executive, as well as a nimble-footed politician. In the year since his election he has managed, with very little fanfare, to create anti- corruption committees at all levels and to remove dozens of corrup pro- vincial and district officials, he has also replaced the incompetent Premier Loc with the greatly respected civilian Tran Van Huong and removed the notoriously corrupt Police Chief Loan from office, and has brought more civilians into a government traditionally dominated by the military. Mieu's Cabinet or 27 is broadly representative and includes only two military officers while the two Houses of the National Assembly (total membership is 197) include less than three dozen military men, He has made an intense effort to establish direct contact with the people and as a result is constantly traveling throughout the country -- visiting battle areas, dedicating new bridges, medical facilities or refugee centers, or addressing land distribution ceremonies. He is also bridge-building for greater present and future participation by the Government of Vietnam on the international level -- more embassies, trade missions and information centers, more tours abroad by members of the National Assembly and gov- ernmental officials, greater attention to achieving membership in inter- national organizations, And the People - The growing inclination of the ordinary citizen of South Vietnam to participate in the defense of his country as well as its future can be seen in the high rate of Army re-enlistments, the very large turnout of voters for all elections in South Vietnam since September 1966, the par- ticipation of hundreds of thousands of volunteers in Self-Defense program and the increasing number of citizens who dare to report Viet Cong activ- ities despite the terrible threats of retribution, These signs are not dramatic, but in a nation with a history as turbulent as that of Vietnam, and a people so recently grown aware of self-determination, these signs are positive ones and by any thoughtfully applied standards the direction and forward movement of the South Vietnamese Government and people towards self-reliance is encouraging. Approved For Release 2005/08/17 : CVk-RDP78-03061A000400030011-4 Apprpy,ed For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 U.S. News & World Report Statistics compiled by U.S76,4tOr rtirgralry",7? I-- military headquarters, Saigon Ai; To _RtgiuM and Pop,:lat forteS. CPYRGHT CPYRGHT SOUTH VIETNAMESE UNDER ARMS-UP DESERTIONS EACH MONTH-DOWN 689498 719,238 18.1 , 622,300 - 13.0 10.5 t, men per !thousand 967 KILLED EACH MONTH-UP 1,113 926 951 EVENING NEWS 2 August 1968 . t4 telnarri ' In ... ? Military Take. Lit 1,11L1.11i1 Mt ?Li (pet cent Of population liiing in secure areas) CPYRGHT MANILA ? A high. ly respected Asian di- p.ornat who watched the "little" and the "big" wars in Vi&nam says the ambatUed nation has reached a "military take- )11" stage. Luis Moreno Salccdo, ?hilippine ambassador to Saigon from January, 1965 to July 1968, one of ;he most decisive periods n Vietnam, sounded ? an )ptimistic note amidst the ?ncreasingly louder cooing )f the doves in the US 7)olitical campaign and Around the world. 'The Vietnamese people ? hemselvcs are now, per kaps more than at any (ther time, aWflAeopkeleti tact that this is ir war, that this is their right and that therefore the main responsibility to win this war is their own, They are taking and assuming daily a greater and. great- er role In this task of win- ning the war," Moreno said. "This' js actually their sort of takeoff stage nit' litarily, In their assump? tion of a fall greater role in the task of preserving their republic,". he told UPI In an exciusive inter view, Moreno had high praise for the Vietnamese army, and criticism for those skeptical of its role in representative Of the people. But I would like to say this: You cannot arm 600,000 men if they are against you because if you do that, they will turn against you. The fact that these soldiers have been armed. And that they have not turn. ed against the govern- ment shows that they are for the government and that they are indeed ag- ainst the ? enemy," he 'said. Moreno's crede ntlaii on Vietnam speak for themselves. ed a succession of mili- tary leaders In the Viet- namese government, the escalation of American' involvement from an ad'; .visory to a combat status and the start of preli' Mino.ry talks on the war in Paris. He has also tasted fire at close range. The Viet Cong . blasted his residence in Saigon at the start of the Tet offensive but he and his wife and a maid escaped unhurt. laervaelease 2005/08/17 : CUMRARARMOMAM400030011-4 "It has been said that seven months in that this army is not really country, he has witness', CPYRGHT SAIGON DAILY NEWS 2)4 August 1968 . Appro 41 ORelealle 20 /08/17 ; CI t -03061A000400030011-4 ts er ur on st-War econoi :y SAIGON (Vi)) In my opinion, there is a bright prospect )f our post-war 7 -economic development with the ?exploitation of the ;lentiful'resourtes" of our country, said Minister of State Vu Quoc rhuc, Tlitthadiy'afiernoon while-reporting on the post-war economic ?Liu ,iiervrc the LIJW GI: HVIstbG? He contended that millions P ? , rafted ? by hese; a three-year recoruitruc.. development programs Tar Eeenc. of children in the age of 14 tion phase and a seven-year the Mekong Valley a d eV!!1 eismort i pham They plan was c experts of the Post- rnio Study Group of which Mr. Vu-Quoc Thuo is Chairman, kl,vir:.yu Quo? Thuc said "the plan his three basic vale which are to reserve manpower, to trai41 n e coming generations an tar build a coil-help (too. , no y., and 18 weuld fall lute the Communists hands-if we do not take care of them. Therefore, he added, we mut have at least a three-year pia, to give a minimum education and care 2 million children. for these . Concerning the main project to develop the post-war eco- nomy, he put forth the essen- tial activities including the 'modernization and mechani- zation of Augricultiire, the de- velopment of the industrial complexes, the exploitation of Seferring to the training of phase plan' natural resources and impr o- the coming generation, Minister vement of the foreign trade. of State Thuo said that the post To reach the above-meritioned war 'economic plan not only goals, Minister of State Thlic Along with the above activi- aims at the present generation disclosed, thepost war econCinic ties, the post war economic but also pay a special attentionyjan is divided into three pha.. plan will also carry out the focal te. 4ha enmhig (itineration, REM ray month trartaitioned ;LOS ANGELES TIMES 28 August 1968 'Green Berets Camps !Given to Vietnamese Local Commanders Begin to Take Over Sone Bases in Effort to Build initiative BY WILLIAM TUOHY uch d tho Gentrai rugnianas proje ts. The implementation 'of all these projects, according to the estimation of the Post War Economic Study Group, needs VN$350 billion. Present at the report session on post war economic plan at the orrice of the Lower Hoirse Economy Committee, were Rep. Nguyen Huu Duo, the Commit- tee's Chairman and 20 other 'Representatives. CRYRGHT NHA.' TRANG-;--Eyery: body talks about de-Amer., icanizipg 'the mar in Viet- nam, but the U.S: Special Forces; are doing' some thing rout it. - In r cent weeks, four of the Fp. Special Forces camps! in South Vietnam have been turned over to V i e triamese administra. thin. . . In the II Corps mountain area ivhere most of the camp 4 are located, the field force commander, Lt.' Gen. W. It. Peers, hopes to give seven more camps:to the Vietnamese. No Problems Col, Harold Aaron, coin. mender of the Fifth Spe- cial Forces Group, whose headquarters are her said the camps turned: . ?Times Weft Writer In the past; many Green we need to make sure the B e.r e t officers h a d ex-. Vietnamese ? still . have. the ? ? pressed doubt, that the initiative., South Vietnamese ' wthi' "These.camps -have been capable of running' the operating just, a.slAtIl.with camps?mostly located iti the Vietnamese running the highlands ? which them as .. when we had serve primarily as bases 'them.. We still' supply; the for Montagnard troops,- . , Rinds for the camps, and Traditionally, .., S 0 u t h U.S. Special Forces . still Vietnamese' ha ye b e in operate the next higher lowlanders who referred headquarters level. to the mountain tribes as' ! "We need to, have a "moi". or s a y a g e s. ,For sympathetic Vietnamese their' part;' the Montag commander for the trans- nards .have treated the fer camps." . yietnarnese with similar', One factor that has led tq ., contempt. ' Cot Aaron's- confidence is, . . "We thought it was the proficiency of the' Viet- about time the Vietnamese riamese.SPecia,l Forces. - --. began taking over, said Attitudes Change Col. Aaron, a 47-year-old'1 A'aron's confidence-is far graduate of the National different from the atti- War College who holds a tudes toward the Vietna-i Ph.D. in international. re- 'mese Special Forces dur- over. to , the Vietnamese lations. Z?ibe rt .1=i"r 0.1...e.s?_ in have been-well-run and Approved"Fer Relexiseaob5te8/14,1.evaii3wHistilmbaff problems have arisen.. . . been around so long that . _ . . was overthrown and killed iin 1963. At that"time, they were the despised private political army of Diem's brother, Ngo Dinh.Nhti: ? Outlying Special Forces camps are manned by "A Teams"-12 or 13 U.S. Special Forces men, an equal number of South Vietnamese and 000 or 700 Montagnard tribesmen "Strike troops." The Camps serve the dual purpose of organizing t h e Montagnards i n lighting defense units and 'patrolling routes of enemy infiltration, "Our approach is that we are here as advisers, and as the Vietnamese show, they can handle the job on, their own, we can turn the camps over to them.", , "I think we are on the downhill curve in training cul4ockv1sis.'11 Forces,". Col. Aaron continued. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 ; WASHINGTON POST 10 September 1968 714Zew Officers- Warned t 4 Viet Premier Pushes War on Corruption By Lee Lescaze ? Washington Post Foreign Service SAIGON, Sept. 9?Premier 'Van Van Huong warned today that "the war will be lost if we do not eliminate con. ,ruption." ? Huong spoke at the opening ceremony for the second class iof military officers attending the government's special course in civil administration. Officers now hold almost ali top administrative ? jobs int Vietnam's 44 provinces and 252 districts.' The special course is designed to produce- 'more efficient and honest ad- ministrators. The Premier has consist- ently spoken out against cor- ruption since he was named to, form a new Cabinet last May 18. Since Feb. 1, 21 province chiefs and 49 district chiefs have been removed for corrup-I lion or incompetence. More 'are slated to go. ? 9 Huong, according to reliable, (reports, has been somewhat.. 'dissatisfied with the pace of the government's anticorrup- tion campaign and has urged 'President Thieu to move more ,swiftly. Three Saigon newspa- pers were ordered suspended last week for printing an Asso- ciated Peen stork that men- tioned friction between the President and Premier over anticorruption efforts. (All three ? resumed publication Monday.) Yet, American provincial 4and district advisers have .been generally encouraged by ,recent government changesof personnel. Several of the worst officers have lost their jobs, like the district chief in Quangtri Province, who was sacked for- misappropriating the pay' of a Popular Forces platoon while the .men were in the surrounded Marine base at Khesanh last spring. LI "He apparently didril ,ex? pect that they would return," one U.S. source said, explain- ing the district chief's action. Another district chief whose actions led Americans. to say his motto was "let us prey," was fired in July. In a Delta province an American observed that parent honesty has replaced' obvious corruption" after the province chief was replaced. . In addition to Saigon-Initi. ated removal of officials, there' ihave been a few recent cases In which a province chief cracked down on his subordi- nates. One of the most dramatic occurred in Quangngai Prov- 'ince, where local officials were detected stealing war-re- lief funds from Montagnard villages. The province chief gave eight implicated officials ' the choice of returning the money and facing a jail sent- ence or being executed. In less than a month, $1800 of the about $2000 stolen had been returned. The balance, was being taken from the sal- aries of the eight suspects, who are awaiting trial. In his speech today, Huong urged the 200 members of the new class to resist "tempta- tions of power, ambition and ,pleasure.' . He made it clear that a pri- mary goal of the class is to im- press on future officials that corruption is not going to be tolerated by the government. Huong has remarked several times that wiping out corrup- tion will be ,a long process. In the months since the enemy's Tet offensive in February, however, the government has made real steps toward elimi- nating corruption instead of simply talking about elirninat. ing it: ? Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 3 CPYRGHT Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 uAILY NE1S*' Aug Crl 'Towle SAIGON (SDN) President guyen Van Thieu Sunday challenged communist leaders in North Vietnam to build democracy and to improve the well-being of their people to the level now enjoyed by people in the .South4_ me president reale me challenga at the' ceremony of presentation of the capital's civil defense organizations. Prime Minister ?Tran Van, Huong was represented at the ceremony by Interior, Minister Tran Thien nes. rnieu saia mat unless,. Ind until Hanoi's leaders accept' his challenge and accept to :ome to the conference table to,; ,alk peace with the South ?wel Asti], not believe that they havel' \ahown their good will for peaceel According to the president.", the civil defense program waif not launched by the govern,. ment to support an individual or to consolidate his position 4 but camelinto being in response to popular demand. ' The program, President*, Thieu added, will directly affeoti the people as it will contribute' to increase the standard . living, and to improve medal, ' ectivitieL He gave the assurance that,, although the communists are planning a third wave attack'. against the capital, they will . not be able to put their plans into operation as allied troops . have made it impossible for them to concentrate in order to, launch a large-scale offensive.. President Thieu at the cere- mony handed over to nine representatives of the nine precincts of Saigon nine carbins as a symbolic gesture of ithe government's plan to, arm eL. u reeP derease-evits TIALTII\IORE SITU 31,. October ?196t1: QPYRGHT CPYRGHT l'Washington Says Viet Army( Is Beginning To Shalt Gains By RALPH ii. KFSNAN , ism, a marked change from the! (Was)iington Bureau of The Suul Washington, Oct. 13?South Vietnam's fledgling Army is far from ready to begin replacing American battle units in action, but it is working toward that goal and with some prospects of success, accordiog to a military assessment here, It still lacks artillery punch, rapid mobility and the kind of, logistics system it needs to wage; a war without front lines, but American efforts ta improve South Vietnam's 'ability to de- fend itself are beginning to take tradition following the French vithdrawal in which Vietnamese efficers tended to have more political connections than mili- ary experience. Another tradition?that a unit commander who takes heavy easualties is in trouble, regard- less of the combat situation? /9 also on its way out, and efforts are being made to raise tandards all along the line. Militia Better Armed Within the past six months, south Vietnam's Army has been getting better hardware. All first-line battalions now have shape, according to' the Wash- tie automatic M-16 rifle, replac- Ingion appraisal. hg the World War II-vintage While the officer corps is thin and the non-commissioned of- ficer corps is even thinner, the Administration APprbrileideWa Nguyen Van Thieu is placing well. and there are plans to pro. strong emphasis on Prolossional4ide other militia OM with thit emi-automatic M-1. '2 Regional and Popular Force unitignA igou KO:ti+Vti" 6. iis lkind of weapon. Regular Army units are also ,getting the American M-60 ma- !chine gun, along With America& grenade launchers, armored personnel carriers and mortars. Improved radio equipment is being Introduced to the South Vietnamese army, and there has been a noticeable boost in mot.- ale as a result of the better hardware. Commanders Replaced Military experts here note that the South Vietnamese first- line battalions now can work ,with American units as part- ;ners, as long as the Americans !provide the artillery and air support. A year stge the corps com- manders were political and mil- 1,-- their areas like fiefdoms. But in the. past year, corps commanders have been rc- placed and more than half th! divisional and regimental con- mands have been changed American military people ii South Vietnam rate the noe commanders at least as "ac eptable" profeKionals. Strictly political generals noe have been generally reassigned outside the main command structure, and a new effort it under way to upgrade Regiona: and Popular Force militia units to a point where they can as. sume an increasing share of l cal security and home guard) CAWs!illus freeing some Regu lar Army battalions for more aggressive operations. itig18-03661FAMOXIOC4 jurisdictions, and some division commandets tended to rule Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 CPYRGHT i Perhaps two score of Regu- t ler haltalions are still fairly 'well tied down on home-guard duty, protecting pacification arcs against enemy assaults. But as the militiamen gain skill and improved leadership, these Regular battalions would be freed, according to plans. The mobilization program en- 'undated yast year peer MP- er draft laws are calculated to expand the South Vietnamese 'Army to more than 800,000 by the end of this year. An increaseDraftees from about 600,000 two years 'ego. - Vietnamese are now being drafted into the Army for the duration and volunteers are td- so ler the-duration of Pan vjght- eiaM war. Draftees tormerlY served four years and were then released. Enlistment Choice are-sent to a nation- al training center and go from .. there to units as needed. But each division trains its own vol. unteers, who are given their choice on enlistment of SerVing with a unit Itasca closer to their homes. This is Intended to cut into the desertion rate, because Viet. namese are 'traditionally more home and family-bound than: soldiers elsewhere , , The Viet Cong also have 'a. ,desertion problem, officials' Inoted? ' .22 September 1968 Vietnam Recruits Neiir Mirittit `OPYM.R17:: Cwthan Volunteers 0 ? ? Washington Foal Foreign Service ant. o h. By Lee Lescaze CANTII E3eunam4 Sept. 21--:The narrow'foot? Cans , paths between houses in can: tho's second ward are booby trapped--against the Vietcong, An intruder after the 8 p.m curfew will walk into a string of fishline stretched across the path and bring down a pile of tin cans or touch off a home- made rattle powered by rub iscr bands.. ? Shouts of "Who goes there?" ,and the click of a rifle bolt come from the darkness ahead. Then there are laugh- ter and mutual greetings as the chief ose Ward Two's self- defense forces escorts his visi- tors toward one of the guard posts where his men watch each night for less friendly intruders. Reluctant Volunteers The people's self-defensd program, declared a top nal tional priority by President Thieu last July, is more fully developed in Cantho than In nay other' South Vietnamese city. ? I Cantho, the largest city in; the Mekong Delta, began to' organize its self-defense in mid-May and now has 7592 male members between 16 and, 50 years old. t' Self-defense force members: are called volunteers, but not, all of them joined Completely' voluntarily. When province chief Nguyen Van Khuong and other officials saw that not enough men were signing up; they made it clear that joiningi bad certain advantages. The province chief printed ai letter which urged men to Joi n Self-defensegrAetneameelelpolei. rather openly "thief 'thel"?olia get in trouble If they, did not. th Vietnam: tel 4 Local self-defense leadersi let it be known in some areal that a man who didn't volute jeer might find himself vOlu teered for the army. Entirely Vietnamese 1.i Volunteers or not, the self/ . defense program there has been one of the most quickly organized and widely sup-1 ported of the myriad pros grams tried during the war. n' , It is an entirely Vietnamese 'effort, unlike many pacifica- tion plans which have been ;drafted by Amerians and then Sold, often not very successi pity, to the Vietnamese. , The success there haft pleased both Vietnamese arid ,American officials. One Ansel% lean adviser believes "that it ;Would be impossible for the Vietcong to infiltrate Canthi now." f Others believe that the selil defenders have made infiltrie lion at night extremely dif ficult by their surveillance o alleys and canals. But thesd Americans argue that the Viets eong can still enter the cit) relatively easily during th daytime when etreets , a4 Crowded with, traffic. I Intelligence estimates at .plat more then 500 Vietcong cre In Cantho. Most of these are members of the guerril- ts' shadow government- eapons Shortage 1 ti i Despite Cantho's early start on self-defense and Saigonlf ?Itrrent emphasis on the Pro; Cantho has not receivi enough weapons for ite 2005/08/17 f ,CIA-RaY78 Saigon promised to give antho, 2700 rifles in August ,-, ,cpyRgHT CPYRGHT De Help (which Thieu declared "self- defense month") But the weap- , ons have not been delivered Only 257 rifles have been dis- tributed to the defenders and enly 180 men have been train id to shoot. There is not enough ammunition for mord extensive firing practice, provinee official explained. At most of the 197 sentry Posts scattered in Cantho's 29 wards, only one man is armed; The sentries have had sev- eral successes. In their single tfirefight with Vietcong, e group used hand grenades and rifles to kill two of the enemd The leader of the group W decorated for his valor, .,Through intelligence from the people and by their night ivatches, t he self-defender* have picked up 31 Vietcong - three South Vietnamese dei Serters, three draft dodgers And six thieves. ? v 4 They have found 99 -ere. ha des, 1000 rounds of small arms ammunition, five B-40 lockets, two rocket launchers,; two rifles and threepistols oh , hidden in various caches, the city. Each night, as they take up, heir positions, the ?defender stribute a slip of paper to every family in their ward. esi family may return the slip plank, or may write the name f a suspected Vietcong. A4 families must return the slip in the morning, thus.. those ivho choose to provide the self- defense force with information nnot' be identified simply; by returning the paper. t Not all of Cantho's ward , ire is well-organized , as till! condi with its booby-trap/4 ie L 1514/u01tPctUt v w r iion ng tinita - ? . id,Ward re resembles &tau CPYRGHT Apprrea rte try hamlet mar t an part f a city of $15,000 people. It has packed-earth paths and is not connected to Cantho's power plant?a plant that lights only, the older part of the city. -" Model Plan . Each family,. however has hung a small kerosene light in front of iL door, and key WASHINGTON STAR 20 September 1968 ease WiWilaahlTC:IA-R11P7R-MoR1 Annnannnfinni I -Lt )oints are patrolled by groups )f self-defenders. Cantho's self-defense plan s being used as a model throughout the Mekong Del.. a In most other areas, howe ver, the program Is just be. inning. The less-secure di s trict inwns of Phongdirth province, I which Cantho is the. pro. Ince capital, do not have ef- fective programs and have al- most no weapons available. It will take a major govern- ment effort to create a force AS effective as Cantho's throughout the Delta?partic- ularly in areas where atanding watch at night will expose a mum to frequent attack. Thieu Predicts U.S. Cutback in 1969 ? CPYRGHT By DONALD KIRK MIR Corretpondent of The Star BA TPLI, South Vimlittuit? President Nguyen Van Thieu to- day reaffirmed his belief that American troops can begin with- drawing from South Vietnam by the end of next year. Thieu told a press conference at this dusty commercial center 60 miles southwest of Saigon that he based his opinion on the conviction that "next year Viet- namese armed forces? will be able to take more responsibility for mobile operations." Thieu said he already saw signs of increased Vietnamese ,activities in I Corps, the five northernmost provinces below the demilitarized zone between North and South Vietnam, and in HI Corps, which includes the provinces around Saigon. "In the last few months, sev- eral regular units of the armed forces have taken to mobile op- erations," said Thieu. "The Itroop commanders of these two [areas have plans and projects for building up enough reserve 'forces to use for operational purl poses." Thieu did not specify which forces he had in mind, but some, 'officials with him on his visit tol this town and surrounding vil- lages pointed out what they re-i. garded RS the excellent perform-I ,ances of South Vietnamese ma-i fines, airborne and ranger, troops. These forces often moved out ;on short notice against the ene-, ;my in a recent series of flre,: fights around Tay Ninh, previa cial capital northwest of Saigon' near the Cambodian border. f Thieu made clear he did not 'mean Vietnamese forces could . ;possibly assume "the whole re-I sponsibility for the war" in the, .; 'next year or two. He and American officials, no tably Army Chief of Staff Gen. William C. Westmoreland, who! left Vietnam in June after near- ly four years as commander of forces here, have often spo- ken of the possibility of develop. :ing long-range timetable for :American withdrawal. Thieu said he had issued "in- structions" to the commanders of all four corps areas that Viet- namese forces would have to i participate much more in mobile :operations. In the past American troops have conducted most of the major operations while Viet- namese troops have tended to guard cities, towns and civilian and military compounds. - The question of American' withdrawal from Vietnam has turned into one of the most po- tent political issues here as well as in the U.S. American officials have constantly had to assure Vietnamese leaders they will not "sell out" Vietnam due to political pressure in the U.S. The tone of Thieu's remarks, vindicated he And hit miniqterg have probably worked out a ten- tative timetable. Behind Thieu as he spoke w U.S. Ambassador Ellsworth G Bunker, one of half a dozen am bassadors as well as cabine ministers and Vietnamese gen erals who accompanied Thieu o his visit here. The plans for turning Sout Vietnamese troops into an army' strong enough to defeat thel Communists on their own repre- sents perhaps the most critical' step of the war. American officials have pri- vately made clear the Umted States will continue to supply the Vietnamese forces, but have warned that an American with- drawal in the next few years Is Inevitable. One key to Thieu's program is to broaden the base of his politi- cal support without compromis- ing with the Communists by con- sidering suggestions for coalition government or a neutralist poli- cy. It was largely to increase his own popularity ? and possibly, to strengthen the morale of some elements of the armed forces ? that Thieu has decided to invite Gen. Duong Van Minh to work as a special adviser, ' Minh, commonly known as "Big Minh," participated in the ?overthrow of the Diem regime five4,:irs ago, ruled the country and then a year later itvent to eat+ in Thailand., Approved For Release 2005/08117: CIA-RDP78-03061A000400030011-4 3 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 SAIGON DAILY NEWS*' 25 Sept 68 Alt].)er ear Below are remarks by Ambassador R.W.. KOMER (Deputy to coxatimicv for civil operations an(1, RGHT evolutto Autry Dtvelo Rosa Support) atliiitiebriottfltteittliO f - ..b _antral), .tort Septclber. a3, ar9aa., As growing hVINIAF and Free i,r000ginz/9 that pacification ?,, For example., let us analyq World.military strength plus, 'only one dimension 01 the' .In pierspective'what is to dafe? 'conflict M Vietnam. the dominant pole ico!militart enemy losses rignel an increa. singly favorable turn in the seller -do even informed obser.' event of 1968 Vietnam? edsig battalione war more into. e ' ' vers leek. enough at, trende. Hanoi's Tat Mau Than . -offensive, Tine very fact Seldom do 1 see comparisons :rest is again" being ehown in ehe Vietnamese', Government's of the situation. today with that lee enemy launched this:Woe- e , 'efforts- --to bring :greater of 1063 or 1965 or 1967. ir' this e'en) seems to M one of the no best indications that the eine:nye Wit -deems 'endless' and security to the countryside eef and win the allegiance weer over is ? this is Often be. realizad Viet Cong fort-t g: ?of its people. This is what we 'cause we leek only at today Neeie-Vanin Thla''C'ariclus:en call pacification, Though called not at Yesterday arid tomorrows " 'led him to violatee.Mae."'`44 a -a- corrimite :by many names and including And,. lastly, We in Saigon see Tung's dictuni tht n'151;4 'many programs, it is essentially, our side's problems far 'mote; the effort to provide greater, !vividly than those of the other the rural areas only Wheri ise i protection and a better life to elide, The fog of war?and rigid the are consolidatsdc the the farmers of Vietnam thue- ;totalitarian discipline?obscure serve as the apringieoard feepriving the " Viet Cong. ofi,the difficultiea of the enemy, the lanai stage of general up'e:e i. . - their .waning popular base and whereas ours are plain for all sing. 13tit'Hanet, Well aware tliat strengthening that Government to see. As a result we tend to the- GM/Allied_ military caie'', The larger context focus on what we know,' whereas doen To understand pacification' what we only suspect may be forcea, decided on ..we. rn ar ', however it must be viewed in 'far more significant. Vieteere"-;a4iolssev erg a4..r.:r, gatr...e..1.3 ? atekeeeee lee.eiet L the perspective of the entire et me attempt to cut through Tat h8 a:me:teed a 71.g a?-,p., :this foeof-wEif and give you situation in Sonde Vietnam. Too Cd surprise, But, das;nle -few people -- Vietnamese or one man's opinion of the cur- "n- ga American--take time to sit back rent situation and how pacifica. ninga foothold i 2e) eines atid caug- . - - e and look at this tragic conflio eon fits in. But I warn. you in sin great destruetion was thrown out of :them wrthin hG advance that I am known as an ,in of its dimension, The a few days -except for Hue. _optimist. To ? some this is an war in Vietnam has so aroused True,Hanoi'a Tet offensive had, 'epithet which ' means that r ac- paEsione on all irides American a .iniajoi 'psychological iinpa0t.., 'centuate the positive and ignore at well as that it Much' his, been -levritters - -about the negative. What I hope you " tends all too' often to be seen in black and white terms lit will Make it " to mean " is that ite ''effect on the. US -audience.' . Therefore, ter, me speculate matching the ,plusses against attics tend to see only wee' instead on yet another aspect, the minuses, 'I believe on is going wrong. Its propenen'A tend to cite only what is going Bow 'do the Viet Gong leader- right.balance. that things are ehip'tind? theitImastere 'lima going better rather than Neither give a balance? the -restate ;eit the, Tet view. All too often hearts rule worse. It is also rather unfas. view and mini?Tet'offeturfves in South VN heads. hionable to be an optimist, Too many of us also fail to because pn Vietnam both the itself 't.' After "'so many years .tot see the mull facetad nature of 'American and Vietnamese crei. protracted struggle, what is the i. this struggle. Many military cal faculty seems to be far more situation they bonfront todayej men tend to look primarily at highly developed than the What have they 'gained that' is woi th' the staggering 'manpower analytical. -,Moreover,' 'the the o'cig battalion? war." Others lesser whit% their Ter ;and Mint" mistakes tend. to be 'highly vial- look at it too exclusively in - -e.; -political or ideological terms. ble, whereas . the gains ere Tetoffansivee cost '.them? Hop , Even' we peiSiefe1P001104 tor Re I eadeoettesioefiVaiztOkfjfirK8-030619110044601A00 I/164 oellapsat gIblm Lii, FtPol-OPfterms.,titYilitOam, ,1544 no:ny, theApperee4-iltAeor Qlease coip;i. In tact. an only 3009it rigii S?aii.):1 retail prices. sinea tile end of 1964 canna- res most favorably ta the 2430%. retail tic4" inCrease' the three fears of the Korean war. Other counai tries hav3 eeperiencel greater p3acetirne than S3111:1 Fue- 1 pirt:Y by US'aid, there' has; been a risetin ONF ad eine.; Oally indeAritii produdtion4 despite, the ravage of war. No can Hanoi take comfort in the way in which its gra- duel lake-ever' of 'elle eoutitry- side it being reversed.' While accurate measurement is diffiJ oult, 'tea/ Would "Contend ? that ,the OVN controls lees of the countryside today than it did in Mid 1965, Ineead there has been an encouraging trend toward', spetty. but nonetheless signifi- "bent eXpiretion of ' governmeni toontrol, opening of more roads: and water-ways, and revival of the rural economy.; For the firs!, hirne' efriee 1965 rice prOdUc4 tion rose this last crop year. ? . One more development that can hardly bring comfort to Hanoi is the increasing - need; for North Vietnariaese man*ower. to replace Viet` Cong lesses it the military struggle is to be. contineed. Neither. Vietnamese, Sior US ribieulat censciotisness poems yet to have fully focussed: on the fact that at least 75:94 of the enemy's organized units'. are now believed to be compo- /red of North Vietnamese regular troops?even' though' mahy Of 'them.fill so-balled Viet Cong Units; Why "has Hanoi been' 'comp:3114d to send more and Mare troOps south ? it is because of the' decline-of the Vier'Cohg, a eCline in 'their organized strength, a donne in'their able lily to ' recruit and tax despite;: 'at app3d- up terror; a decline iflA 'Thoir guerriIl fprceee they' ey 'steadily increasing its own tnili- 'tary presence his thethe regime' in Hanoi been able to prolong; the War. 'Inched some thought-' ful Vietnamese observers' nova euggest that unless the enemy! :Can quickly 'achieve greeter Military sucdass; he , may havil. to shift his Strate?y enceeagai ? All in all,ARIVCIPtia561rr eleaSe 29,Q6A0Bini4a IAIRS1P7441P 0 6 1 AO 0 0409 0,3001 1,-4, , "te p:tssitnist rather than an Toaay stronger and. 6ptimig. I:Indeed the enemy, is expe,;.; :riencieg ? greater and 'greater *Millitary If he is 'enduring' heavier losses' in 1.958 than 'ever Ore- itiously in a ' cite-mode effort to: achieve victory, then at- some oirirhe must sit " back end; assess whether another charge in letrategY is 'not. eissential.'-114, be atilt controls 'e sigbifiant 'portion' of the countryside:i, Hi teal has his political "-ttp-;;. iearatus and some' guerrilla 'etrength't6 back up his 'harried `main forces. Here is where vificatiOn comes in. The role of :pacification ? , inforined observers res-1 use thaisthis is mote than Nit al military war; It is not 'onfy a eter', of 'apposing- military forees but: war for the allegiance "of the people of South Vietnam. Hello? it is not enough, to def3at the enemy's forces every time the; !attack- a town,"" e Military -basei rot a 'bridge, or a hamlet. It also essential in this, kind war to 'provide proteetiorl itO the people Of the count ryside help meet th r aspiratione or a b.:Ult.' life, This ? is who tpacificationais all - about. 'Aa hie! US advisor to the pacificatitin of fort; I lam impressed " with , the !growing '''e6targy " and' deter., tieiriatfon -which the: OV Is approaching this tas .Th'ere hive been may pacificae eon:Oft:els initie Oast.; but none, `on 'the scale?with the Sesour4 cei-a-and Viihth teaderahip being ' ? 'demonstrated' todaye And- it is alrriost entirely effor eeen though- th US pravidee'rnuCrt''': logiati and financial support, In the' so-called ? big 'battalion * warl the Free World tierces' Make ai* imlistantiat -"Irdon contribtition,i -bel all -the various: paciffeationi, programs are 'tem by-the, ?00e! iaerhifient of Vietnam; ; . What lire -therseepacificatiord projrarris which 'aro -reieei,iirso ?`riey instead ? prOvided with a challenge it rose to meet?1 2O 5 more stable than in years, while the Viet Cong are kept propped 'up only - by ; massive infusien of 'regular :NVA troops. -Or look 'at the Impact *of Pet on' Vieti, nnamese morale. Hoping to' gen - *rate a general. uprising of' thei people. ,Hanoi ;instead -created [greater hatred by their terror' tactics.. Hoping to strangle the, ,cities its Tet and mini-Tet of- fensives,Hanoi triggerod instead ?,41 massive recovery ? effort :which has already taken tare .of over 700,000 Tel evacuees.' Hoping to force a collapse of ;the Vietnamese armed forces: uHanci precipitated- instead igenar irmaleililation which today has reached over a million man; uncler arms .' Were:1 Wien:env the', ,rseene -"from the -ea ntage poi tie :of Hatil -rether -Saigon. would The quitel'Tce. ncerne& -level.' the "grewing strength and: improving performance of 'the: Vietnamese armed forces. For- , a country of this size to haxieat' full millioneneri Amster arm in the RVNAF" and 'pate-military', forces is impressive indeed. Let us go back even farthef; than Tet Mail-Than-71nd attempt! to see through Eanoit's eyes the' longer term, trends Whiah have" emerieed since the high vether: mark - of VC:H-116i' success; around four years age. 1 im no expert on VN--North or South ?hut even the untrained eye' can see some remarkably visible! differenbes between the sitUak tiOn'now - and then, Of course, the mostIvisible has been the' arrival of substantial ' US and Allied forces- 'which bellied mightily to turn the tide, But this hould not be allowed to obscue -re other important trends., The period of coups after th3 fall .01 Ngo Dinh Die:n was succee-. ,sed by a trend' toward political 'stability since early 1965, Slime then the most significant insti- tutional changes have taken place as a results of the &cote.: rat process rather than by force of -arms.' To the surprise of Many, the generals did come .to share power peacefully with' the civiliand. A military regime encouraged rather than tree 4151161A0004)001162194164 drafting of a $ "Conittituttort;"114 sharing of ticei ? Approved For wet with a legislature. Tind the election of a -constitutionally based executive?all this :n the middle of a war. This has hardly given comfort to the New Republic's enemies, wever much it is igno_redtby its ? f r lends. Another frustrating trend, as viewed 'from *Hanoi, must be the 'unueual, resiliency of the South Vietnamese economy While war- bred; 'hilTalion has 'been"' a painful: burden.- tided - by 'deliberate. vc *Wort? to strangle the 000- new support :andimpetus from; the GVN? - The first prereqielsite ? arid that with eiite,'Which little- else f-oan be done territorial, 'security the austain4d pro- tetion _ of "' the ' strati $Ocelat ion againal enemy terror and attack. fhirg the growth In strength, 7quipment, and of fee tiveness cf the Regipnal.Aind 'Popular VerceS IsaUtlly having significant impaCti Next is the: GVN's .PHUNG HOANG program l to neutralize the, 3n9rny's clandestine political structure, which under thi'lea4 de rAlip of the Lae Dong Peoples' Revolutionary Party (in- 'turn directed from Hanoi), gives Political 'direction to the 'one- MO effort in the Sotith. A come bined police and military 'mai- l:lei:3' n is underway' to identify and capture the VC hard core Cadre who direct the terror vainpaign, extort taxes (rein the 'armors, end recruit or fete:Ably impress his, sons. Third is the rejuvenated Peo- ple's Self Defense pdsgrarn which already numbers, about 600,000 members,. 'of whom' " an increasing proportion are being trained armed to help defend 'their homes. Fourth is the Revolutionary Development or Rural Construc- tion Program, spearheaded by over 700 fifty - nine man teams in the black pajamas of the farmer. They are , sia,th Release 2005/08/17 : CIA-RDP78-03061A0004000300114 r Thus pacification is not onel, but many programs?all of thorn' designed to enhance the secul rity and wellbeing of the cbuntl tryside and strengthen its com7":, mitmant to the GVN. We Arne'; xicans are proud to support thee 'se programs to reinvigorate atil *Wore the ,econornic, social; and ipolitical viability Pf South Vietnam. A great deal remains to be do 'however. Though the overall 'trend in pacifibation?as in z.the' ispects of the? VN struggle is encouraging, 'we US advisOrif Under no illusions aa' tafiev; many problems must still be Overcome. Nor in the pfeserk GVNleadership. It is even:mot-J. acutely aware than we who muck atiflis needed to energize these programs to improve their! effectiveness end responeivee noes- to populer eepirations, td the allegiance of its people* he stated. COWS is vier! aware of the progress of thee efforts through its Hamlet Eva; luation System-as monthly re port by US district, advi4 sore on the state of security and development in the 8,700 odd hamlets.., which are under at least some degree ,oi Government control or intim.: CO, 1) 1 The war's "many facets must be regarded in balanced terms and not in black and white terms, he stressed. Too many' people are inclined to exagerra-4 to trends and get emotional n bout the war. This blinds them to the reality. porter by a I far-. reachiri0 series of projecta? Schools, bridges, r. ads, market places, dispensaries?in the 'ru- ral hamlets 'of Vietnam. How many peopinrealibe, for exam. ple, -that almosr-10,003 hamlet' tchool -classroolhs' have been, built since 1963 and more than 14,000 teicile're trained,' mostly Women? pith Is a massive' effort; '-310)y ARVN'aiidUS military; 'engineers, to rebuild 'arid grade the roads and 'bridgei 414' Vietnatn_ These serve not only' 1E1.9 military LOCS bile open up ithe countryside for paciffication :and adrve as economic lifelitiea "to the growing cities. ? , Sixth, the "'Chieu Hol Pro. igram serveit is-bridge over Which Wet Gong can rally and .help the governmbrd rebUild eountry inst" ad? ' of destroying It. Some 10,000 Hoi Chanh have already' rallied?en 198,3, and afar '85,001 since, tho _program began it 1983, ' 7 tit, the OVN's increasing- ly effective Refugee and Social Welfare prOgrains whiah earn Tor and resettle the hundreds of thousands who still flee from:VG control and' the terrors of the battlefield. ' " Eighth are the increased GVN effortS to' reAve and impriwn 'effective. responsive and hontist focal administration from Proli Vince down td hamlet level, Many US advisors have remar- ked upon the changes for: the better which are now appearing. Last but by no means least are the GVN meastires to revive 'the rural economy, imprnav 'farm' incomes, and redistribute land.' At-Omen' Revolution is taking place in South Vietnani as well as elsewhere, t as improved strains of '111-8 rites are widely disseminated. Some 4000 hectares' of TN-9 were ;planted in 'the ,recent rOwing toason and 'at least :p..000 hec.0 tares more are scheduled for' J. The most visible long-term trend sine* 1960 is the arri.. vii of massive Free World Forces, But we shouldno_ t be blinded to other impor-- tent trends?increaae in eolith.' eal stability, the resilienci of, the Vietnamese economy, the reversal of Hanoi's attempt to gradually take over th? eotintryside, and the increasing seed for North Vietnamese men- power to replace VC limes. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 6 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 AL-ITTIHAD AL-LUBNANI, Beirut 26 July 1968 Water Installation at Dong Nai The World Health Organization maintains that nothing is more beneficial to any given human society than an adequate supply of microbe-free drinking water. In spite of the war's demands, the Republic of Saigon, with American assistance, has been building a huge and modern installation for the supply of potable water to Saigon and its suburbs with a total population of 3 million. Potable water is brought to Saigon from the Dong Nai river some 23 kms. away. The reason for this is that the waters of the Saigon river are polluted whereas the Dong Nai waters are fresh. Besides the latter river boasts a delta stretching across an area of 23,000 square kilometers and capable of pro- viding, even in critical periods and the most difficult seasons, a flow of 200 cubic meters of microbe-free, odorless and clear water per second. The water installation at Dong Nai, which has been in operation since January 1966, has been instrumental in eradicating the cholera and dysentery epidemics as well as the other epidemics spread through polluted water. Prior to its release, the water from this installation is treated and analyzed first at Tho Doq and, later, re-analyzed and purified in Saigon's water centers. These precautions have been dictated by the fear that the water passing through the aging pipes might became contaminated. These fears will, however, pass once the new distribution apparatus becomes operable, when water will flow through 375 kilometers of new pipes being laid in the region. This project is being financed by the International Development Organiza- tion - American aid - through a development loan of 171/2 million dollars at an annual interest rate of 31/2% repayable in 1990. Additional loan funds may, however, be required because the project's estimated costs have risen to $40 million. The following facts and'figures relating to this project are noteworthy: 1. The pumping station is capable of handling a daily volume of half a million cubic meters, or, twice the amount of present requirements, which vary between 230,000 and 250,000 cubic meters, and more than the estimated daily consumption of 480,000 cubic meters in the year 1980. 2. The Dong Na! water is treated - at a kilometer's distance from its course across Bien Hoa - with chloride in a station on the western bank. From this point the water is sent-through 72" pipes over a distance of 11 kilometers to Tho Doq for analysis, purification and treatment. 3. From Tho Dog the purified water is pumped to Saigon's distribution station through 78" pipes over a distance of 12.4 kilometers. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 4. Pressure is assured through elevated stations each capable of handling 12,000 cubic meters. Eight new stations, with an individual capacity of 150,000 cubic meters will soon be ready. 5. Water flows throughout each 24 hours at the rate of 50,000 cubic meters per hour through 2.5" and 20" pipes over a distance of 248 kilometers and, through 31/4" pipes, over an additional distance of 127 kilometers, for distribution among 550 public water sources. Over and above all this, Saigon's regional water office supervises the laying of 3.2 kilometers of new pipes each month and installs individual house connections at the rate of a thousand per month. 6. Surplus water is stored at Tho Doq in two huge reservoirs each of which has a capacity for 40,000 cubic meters. By 1970 Saigon will be equipped with four underground reservoirs which would increase the total volume of stored surplus water by 160,000 cubic meters. 7. Prior to the completion of recent facilities, Saigon's water supply had come from 12 wells which, together, were not sufficient to meet the city's daily requirements of 15,900 cubic meters. Then too, this well-water with its iron deposits had tended to block the pipes which resulted in a weakened pres- sure even during winter. Thus Saigon had constantly complained of a water shortage and Saigons' women used to have to buy their daily requirements at the city's public water centers at the rate of 10 to 25 Vietnamese piastres per 20 liter tin. Nowadays, however, with water in abundant supply at all these public water centers, water is obtained free of charge and, whereas in the past only 11,000 obtained their water from these centers, today this total has risen to 50,000. The station at Nu Kong Dai and Tho Doq is headed by an engineer and the deputy director of the water office. It has a total staff of 133 employees, including technicians and laborers, all of whom are Vietnamese nationals. Most of these employees have received their training at Tho Doq, Dong Nai and in New York. In the last mentioned city they, were trained at the hands of promi- nent American water specialists. Engineer Lai, who studied at the University of Florida, says that the methods applied at Tho Doq rank with the most up-to- date methods so far discovered and that the Saigon installation, already boasting the most modern mechanical and electrical equipment, will all the same be improved upon in the future. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 8 CPYRGH1 AL. ITT I HAD Approved Fosdea005/08/17 : CIA-RDP78-03061A000400030011-4 ? 411.1111?18111~, ? J11.0,6 416 AA 4:0 Z.?". Y.A1 144.?"YI 4:4?It .1k9 4.)441A4..rtr !S 1,041 4:414c1A-ii LIiI aril 40.01 4.41'w it.t(=.451. cd)f-tx4).34?11.2.11 a4...1.41 ? .141 ? ettira al?jr sift-NI j---:41-4-4?6.e. 7 16;111 /a441 4:11i I j0. &apt! NAY* 0441 41.i O&M jr% .11?4? ? ? 4...i1W1 Vjle:1 V jiLa CA.:of:W.11 &Le t.tri 4:ezygo.i 40.141, 101.. 1:!.41 Jai teliAij:11 4t.4g/14.? t.,ACA ? .1410?1? ,?Js.){ ,ata ? 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J.143 _/Js jJii j$2 1??' ? 4712"kalli bus4}?01 LiPi 4:0 ?-? etipVii jet 4.6214 411 k-0.# 4:?19.1;L: VA .1 114 11%4 CdtimadJuLius e:4 11???? jr hf?Ar... Quo.. ,J;Los. ? ? . J e.4141,1 ...Y1 Ja.i - ? 0??? ? 'JAw 4L ??? ?16A1 j.4 4rs .1;4 .44- 1" Citj 140.?> 41 V? ??.,1 V LJI Z3La v., ? 0:?;1 1044Y1 .411 4..e .04' ,Abyjyi ?.7s.e. to? r 41!..t.t6 ?Ajli J4.4.! Jit:11 4.3z 3; 0-i, Z,t-oig.d, " ? 4:0, Jr olg 0.4.41 je;....1 ? 6..A.C. Approved For Release 2005/08/17 : CIA-RDP78r03061A000400030011-4 25X1C1OB Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 Next 2 Page(s) In Document Exempt Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 25X1A2G Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4 November 1968 A NEW, "WESTERN" COMMUNISM...? The invasion and occupation of Czechoslovakia by the Soviet Union and four of her allies in the Warsaw Pact provoked an outburst of criticism from many leading western Communists. Beyond the criticism lay a despair and disenchantment with Communism as practiced in the Soviet Union which may eventually result in major changes in the course of Communism outside the Soviet Bloc. The despair and disenchantment stems from the long succession of So- viet actions, such as the denunciation of Stalin's crimes, the crushing of the Hungarian Revolution, the primitive antics of Khrushchev, and the renascent Stalinism of the present regime, which have kept western Commu- nists on the defensive for years. Many of them have now decided that the Soviet "model" of Communism has now revealed itself to be unsuitable for other countries of the world, particularly not for modern, pluralistic, technological societies with humanistic traditions such as those of West- ern Europe. On the other hand, these same Communists perceived in the now aborted Czechoslovak program a new course in the evolution of Commu- nism which would have adapted it to the conditions of modern society. While their reactions are still relatively inchoate, the views of these western Communists merit careful study. A collection of press articles about, and quotations from, the more important pronouncements is attached. Approved For Release 2005/08/17 : CIA-RDP78-03061A000400030011-4