THE ECONOMIC POLICY OF THE GOMULKA REGIME IN POLAND: TRENDS AND PROSPECTS

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• Collection: General CIA Records
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• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 47
• Document Creation Date: December 23, 2016
• Document Release Date: July 2, 2013
• Sequence Number: 1
• Publication Date: December 1, 1962
• Content Type: REPORT

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Economic Intelligence Report
N? 3
THE ECONOMIC POLICY
OF THE GOMULKA REGIME IN POLAND:
TRENDS AND PROSPECTS
CIA/RR ER 62-44
December 1962
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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-el)NT'IDEtiTbkL,_
GROUP 1
Excluded from automatic
downgrading and
declassikotion
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CONFIDENTIAL
Economic Intelligence Report
THE ECONOMIC POLICY
OF THE GOMULKA REGIME IN POLAND:
TRENDS AND PROSPECTS
CIA/RR ER 62-44
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
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FOREWORD
The purpose of this report is to examine the economic and political
factors that have influenced the development of the economic policy of
the Gomulka regime in Poland in order to reach preliminary conclusions
on the probable direction of policy over the next few years. The effect
of economic factors on the development of policy is generously and
frankly reported on by Polish officials. The role of specific political
factors is more difficult to isolate, however, as are the complex re-
lationships between the various economic and political influences on 50X1
policy. These relationships generally are not revealed in the public
statements of officials,
Nevertheless, the major operative forces
usually can be discerned, even when the underlying motive of the regime
is not clear.
In tracing the evolution of economic policy, considerable attention
in this report is directed to analyzing the expectations of the Gomulka
regime as expressed in economic plans. For this reason, official Polish
definitions and statistical data are used whenever planned and actual
changes in economic aggregates (for example, national income, industrial
production) are discussed. Independent studies by this Office indicate
that most of Polish economic data published since 1956 measures fairly
acurately what is purported to be measured. Appendix A contains a brief
analysis of Polish definitions and data as used in this report.
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CONTENTS
Summary and Conclusions
I. Foundations of Gomulka's Economic Program for 1961-65 . .
Page
1
7
A. General 7
B. Economic Problems under the Six Year Flan (1950-55) 7
C. Early Gomulka Period, 1956-57 10
D. Basic Premises in Planning for the Post-1960 Period 12
Evolution of the Economic Program for 1961-65 15
A. General 15
B. Congress Program of March 1959 15
C. Early Opposition to the Congress Program 19
D. Revision of the Congress Program 22
1. Revision of June 1960 22
2. Economic Factors 23
a. Change in Agricultural Flans 23
b. Unexpected Economic Strains in 1959 24
c. Developments in 1960 26
3. Political Factors 27
4. External Influences 29
E. Final Plan for 1961-65
29
III. Prospects for Polish Economic Policy 35
A. General 35
B. Economic Developments During 1961-62 and the Outlook
Through 1965 36
C. Conclusions 39
Appendixes
Appendix A. Polish Definitions and Data Relating to Economic
Aggregates as Used in This Report
43
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THE ECONOMIC POLICY OF THE GOMULKA REGIME IN POLAND:
TRENDS AND PROSPECTS*
Summary and Conclusions
The distinctive characteristic of Polish economic policy since 1956
has been the consistent commitment of the Gomulka regime to moderate and
realistic programs for the development of the economy. The regime has
tolerated the predominance of private ownership in agriculture as well
as other, more minor deviations from the standards of the Soviet Bloc,
and Polish economic plans, in contrast to those of several of the other
European Satellites, have been based on reasonable estimates of the po-
tential of the economy, with very little political or exhortative con-
tent added. No change in the basic character of Polish policy is likely
to occur over the next few years. On the other hand, the Gomulka regime
faces the necessity of reducing many of its economic goals for 1963-65,
the final years of Poland's current Five Year Plan (1961-65). There
has been a definite trend in Polish economic plans since 1956 toward in-
creasing the share of national resources directed to the support of long-
term economic expansion at the expense of the share devoted to the im-
mediate improvement of living conditions, and, therefore, the prospects
are that goals for personal consumption will be trimmed somewhat more
heavily than those for capital investment.
Since its inception in October 1956 the Gomulka regime has relied
on relatively moderate and realistic programs to attain traditional Com-
munist economic goals. The basic objectives of Gomulka's economic
policy have been identical with those pursued by Communist regimes in
the European Satellites throughout the postwar period -- rapid economic
growth and consolidation of state control over the economy. In Poland
during the early 1950's, Stalinist policies of full-blast expansion of
heavy industry and coercion of workers and peasants had forced consider-
able progress toward these objectives but at high cost to the economy
and to the welfare of the population. By 1956 these policies had given
rise to serious obstacles to continued rapid economic expansion as well
as to an intense popular discontent that exploded in the Poznan riots
in June of that year. The Gomulka regime, in contrast, has placed
great emphasis on balanced and sustained economic growth and on gradual
accommodation of the population to Communist objectives. The keynote
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 December 1962.
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of Gomulka's policy was sounded by his chief economic advisor at a
plenary session of the Central Committee of the Polish Communist Party
(called the "United Workers Party"): progress toward basic goals "with-
out shocks and stumbles -- without Poznans."
On first taking office the primary attention of the Gomulka regime
was directed toward removing the immediate obstacles to political sta-
bility and economic growth posed by the intense discontent of the popu-
lation. Top priority, consequently, was given to improving living con-
ditions, and during 1956-57 personal consumption was permitted to expand
much more rapidly than national income, as state capital investment was
held in check and a large import surplus was obtained through foreign
credits.* Living conditions also were improved by reforming numerous
practices that previously had been sources of economic grievances,
principally the elimination of forced collectivization in agriculture,
and by permitting a large measure of personal, religious, and cultural
freedom.
By 1958-59, after living conditions had improved substantially and
popular discontent largely had lost its incendiary character, the
primary emphasis of economic policy was shifted to considerations of
the long-term growth of the economy. The new emphasis was underscored
in the program for economic development through 1965 adopted at the
Third Congress of the Polish Communist Party in March 1959, which called
for a sharp rise in capital investment and a marked slowing of the growth
of personal consumption. The Congress program, nevertheless, was dis-
tinctly more moderate and realistic than contemporary pronouncements of
economic policy by the other European Satellites. Plans for the growth
of national income and of investment in industry and other productive
sectors of the economy were set moderately by Bloc standards, and firm
commitments were made for providing a steady and cumulatively signifi-
cant growth of personal consumption and for launching a major invest-
ment drive in housing, a key remaining focus of economic dissatisfaction.
Apparently the Gomulka regime feared the possibility of a rekindling of
intense worker discontent. The Congress program, in addition, reaffirmed
the policy of voluntary collectivization in agriculture, thereby ac-
knowledging the continued predominance of private ownership, a glaring
institutional deviation from the standard of the Soviet Bloc.
During 1960, however, there was a further modification of Polish
economic policy, reflected in revisions of the Congress program. The
target for the growth of national income during 1961-65 was raised
slightly, and, at the same time, preliminary goals for the post-1965
* For an explanation of Polish definitions of "national income" and
other economic aggregates referred to in this report, see Appendix A.
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period were increased appreciably. To support these changes, the plan
for the expansion of productive investment* during 1961-65 was raised
considerably, while goals for investment in housing were cut back
sharply and those for the growth of personal consumption also were re-
duced. Moreover, the pledge to provide a steady growth of consumption
was abandoned. Per capita consumption was permitted to decline during
1960, and under the revised plans only minor increases were promised
for the opening years of the 1961-65 period. In effect, the extent to
which concern for consumer welfare was permitted to act as a restraint
on economic growth was reduced, and Polish plans for the distribution
of national income between investment and consumption were made quite
similar to current plans of most of the other Satellites.
The economic policy of the Gomulka regime, nevertheless, has largely
retained its distinctive character. First, the regime still permits
private ownership to predominate in agriculture and has retained a
variety of other deviations from the general practice elsewhere in the
Soviet Bloc, such as pursuit of extensive economic relations with Western
countries, including acceptance of long-term credits. Second, in spite
of recent changes, goals for the Polish economy under the final version
of the Second Five Year Plan (1961-65) (adopted in February 1961) still
are more realistic than those set forth in the multiyear plans of most
of the other Satellites. In Poland, moreover, the operative annual and
quarterly plans have remained predominantly the province of the pro-
fessional economist, with very little political or exhortative content
added. Annual plans for 1961-63 generally have set targets for economic
growth more conservative than the pace demanded by the Five Year Plan;
and in setting these targets, planners so far have proved to be highly
responsive to unexpected problems and changes in economic prospects.
The major factor in the continued reliance of the Gomulka regime on
moderate and realistic economic programs is the deeply rooted pragmatism
of the current leadership of the Polish Communist Party, which also is
evidenced in the policies of the regime on personal, cultural, and re-
ligious freedom. The Polish regime, like those of all countries of the
Soviet Bloc, pursues the traditional goals of Communist policy -- rapid
economic growth and extension of economic controls -- with a view to
enhancing the power and prestige of the state and ultimately of the
Party. Decisions on economic policy are made by the Politburo of the
Central Committee, which gives great weight to their effect on progress
toward Communist goals. Under the leadership of First Secretary Gomulka,
however, great weight also is given to the special conditions of Poland:
the complicated problems of a semi-industrialized economy that had been
mismanaged in the past, the independent spirit of the population and its
* For definitions of productive and other types of investment, see
Appendix A.
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almost universal rejection of orthodox Communist institutions and
practices, and the limited size and effectiveness of the Communist
Party, one of the smallest per capita in the Soviet Bloc. As a result,
the decisions of the Politburo usually reflect a willingness to sacri-
fice time and ideological conformity in Poland's progress toward
"Communism" in order to avoid economic "shocks and stumbles" as well as
"Poznans."
Within the framework of the underlying pragmatism of the Gomulka
regime, the changes in policy and plans following the Third Congress
primarily reflected changes in the estimates of the regime of economic
and political prospects for Poland. By mid-1959 a large increase in
the estimated investments needed to support plans for agricultural pro-
duction had necessitated important changes in over-all plans for 1961-65.
The disappointing performance of the economy during 1959 dissipated the
Politburo's support of the Congress program and the policies underlying
it. The fact that the performance of the economy during 1960 was better
than expected, on the other hand, lent support to those who advocated
more rapid economic expansion for political reasons.
The decision to alter the basic relationship between investment and
consumption of the Congress program, however, was essentially a political
one. The Politburo inevitably was interested in accelerating the planned
rate of economic growth, and political developments during the year
following the Third Congress generated a greater confidence among the
leaders of the regime in the willingness of the population to accommodate
itself to a less rewarding program of consumer benefits. In a sense the
Politburo concluded that the Congress program had been unduly influenced
by fears of a resurgence of popular dissatisfaction. The increased con-
fidence of the Politburo was in large measure the result of the surpris-
ingly mild reaction of the population to an emergency deflationary pro-
gram introduced late in October 1959 and, undoubtedly, also was related
to the return to political favor late in 1959 of a group of Party of-
ficials who previously had been critics of the Congress program and ad-
vocates of bolder economic planning.
The development of Polish economic policy following the Third
Congress was subject to external as well as internal political influ-
ences, although not nearly to the same extent as in the Stalinist period,
when direct Soviet intervention in Polish planning had been the rule.
The decision of the Politburo to accelerate the pace of long-term eco-
nomic growth in Poland was at least in part a reaction to criticism of
the Congress program by the more orthodox Satellites and possibly by
the USSR and the desire of the Gomulka regime, consequently, to reduce
the discrepancy between Polish plans and the bolder ones of other Bloc
countries.
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The Fourth Congress of the Polish Communist Party is scheduled to
convene in the spring of 1963. Following the precedent of the Third
Congress, the Politburo currently is preparing a program on the develop-
ment of the Polish economy through 1970 and possibly 1980 for presen-
tation to the Party Congress. Little has been revealed so far about
the content of the new program, which will constitute a restatement of
the economic policy of the Gomulka regime. It is believed, nevertheless,
that no change in the basic character of Polish economic policy will be
forthcoming. The forces that have promoted moderate and realistic pro-
grams in Poland since 1956 still are operative: the pragmatism of Party
leaders and their awareness of the special conditions of the Polish
economy, population, and Party apparatus. Moreover, the relatively
favorable performance of the Polish economy during 1961-62 compared with
the considerable difficulties encountered during the period by Czecho-
slovakia and East Germany, two of the more orthodox Satellites, has
greatly raised the prestige within the Soviet Bloc of Polish policies
of moderate and reasonable programs.
The new Congress program, on the other hand, probably will reveal
some modification of the Five Year Plan for 1961-65. Although the per-
formance of the economy since 1960 has been generally favorable, there
are numerous indications that reductions in production goals for 1965
probably will be necessary, and the compensatory revision of targets
for investment and consumption probably is the key issue facing the
drafters of the new program. Prospects are for a further, although
probably minor, redefinition of relative priorities in favor of long-
term growth and at the expense of short-term consumer well-being. A
decision to continue to plan only minor increases in personal con-
sumption through 1965 would reflect still a further erosion of the
regime's fear of a possible rekindling of intense popular discontent
because of economic grievances.
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I. Foundations of Gomulka's Economic Program for 1961-65
A. General
Poland currently is operating under its Second Five Year Plan
(1961-65), the final version of which was adopted in February 1961.
From the start the primary emphasis of the Gomulka regime in drafting
an economic program for the post-1960 period was on the promotion of
the long-term growth of the Polish economy through a rapid expansion of
capital investment. This emphasis on capital investment was a natural
outgrowth of economic developments during the 1950's. Stalinist poli-
cies during the early 1950's of unbridled expansion of investment in
heavy industry and gross neglect of the welfare of the population had
provided both the economic opportunity and the political imperative for
Gomulka's immediate program (1956-57) of stabilizing state investments
and expanding personal consumption as rapidly as possible. By 1958-59,
however, when planning for the post-1960 period became a major concern
for the leaders of the regime, popular discontent had become much less
incendiary. In addition, the opportunities for expanding production
by completing and putting into full operation projects initiated earlier
and by reforming practices that previously had depressed the productivity
of workers and peasants were beginning to diminish. During 1958-60,
therefore, it became both politically feasible and economically neces-
sary to reduce sharply the rate of growth of consumption and expand
rapidly capital investments. For the post-1960 period the need for a
substantial buildup of capital investment stemmed from the expected fur-
ther diminution of opportunities for expanding production in existing
plants and from past neglect of key sectors of the economy, problems
in foreign trade, and demographic trends.
B. Economic Problems under the Six Year Plan (1950-55)
A policy of rapid industrialization for Poland -- inevitable
under Communist rule -- was consistent with the considerable industrial
potential acquired in the postwar shift of Polish boundaries* and with
the major prewar problems of extensive agricultural overpopulation and
low levels of personal consumption. Under the Six Year Plan (1950-55),
however, the policy of industrialization was implemented in a way that
imposed a heavy toll on the Polish economy and on the living conditions
of the population. During the immediate postwar years, reconstruction
of the heavily damaged economy had been carried out fairly effectively,
* Poland obtained substantial increases in capacity in most industries
in the Western territories acquired from Germany and lost very little
industrially in the Eastern territories ceded to the USSR.
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with rapid recovery in agriculture and personal consumption as well as
in industry. The original Polish version of the Six Year Flan, more-
over, had established high but not unreasonable targets for industrial
expansion. Under direct dictation from the USSR, however, the Flan was
revised in 1950, and a program of full-blast expansion of heavy industry
was launched. According to the revised Flan, industrial output was to
increase by an average of 17 percent a year during 1950-55. Starting in
1951, moreover, annual production targets were raised still higher to
support an armaments program laid on by the USSR following the outbreak
of the Korean War. 1/*
In pursuit of unrealistically high production goals, capital in-
vestment in industry was expanded by about 230 percent from 1949 to 1953,
an average of 34 percent per year. The bulk of investment projects,
moreover, were concentrated in the priority sectors -- ferrous metallurgy
and machine building, including a substantial share for defense plants.
On the other hand, agriculture, food processing, and light industry,
which at the time employed nearly 70 percent of the labor force, received
well below 20 percent of total investment, and outlays for coal mining,
building materials, and basic chemicals also were small in relation to
the importance of these sectors to the economy. 2/ The distribution of
the short supply of technologically trained workers and of imported raw
materials reflected the same priorities as the distribution of investment
expenditures.
The pattern of breakneck expansion of metallurgy and machine
building and the neglect of nonpriority sectors produced a great strain
on Polish economic resources. This strain was aggravated by the de-
pressing effect on production of Stalinist policies of forced collectivi-
zation in agriculture, liquidation of private enterprise in handicrafts
and services, and general coercion and harassment of the population. In
time the strain was manifested in a series of economic difficulties that
both threatened to disrupt the rapid expansion of the economy and con-
tributed to the rise of an intense popular discontent. In turn, growing
popular discontent threatened the political stability of the Communist
regime.
The major problem in industry was the unbalanced structure of
expansion. In some sectors of metallurgy and machine building, con-
siderable excess capacity developed in new plants, primarily because of
delays in completing complementary plants. Manufacturing in general
suffered from frequent production stoppages because of shortages of
power, raw materials, and semifabricates. Although the rate of growth
of industrial output was rapid -- an estimated 11 percent a year during
1950-53 -- it was far below plans, and targets were missed for most key
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commodities, while output of consumer goods stagnated. Industrial employ-
ment, moreover, was expanded nearly as rapidly as output, as increased
use was made of old plant. The new workers were predominantly unskilled
peasants and women, and, as a result, costs of production rose in most
industrial sectors and the quality of products worsened.
The major problem in agriculture was a decline in output dur-
ing 1951-53, after the prewar level had been reached in 1950. The great
bulk of the limited supplies of fertilizer, machinery, and building ma-
terials made available for agriculture was channeled to the highly inef-
ficient state farms and collectives, which together controlled only
20 percent of arable land in 1953. Moreover, to promote collectiviza-
tion, private farmers were harassed by harsh price and tax policies that
discriminated sharply against the larger, more efficient producers. As
a result of these policies, peasant sales of produce declined more sharply
than output, especially for meat and other animal products that were
greatly in demand among the rapidly expanding urban population. 2/
Production difficulties in industry and agriculture soon intensi-
fied Poland's perennial shortage of foreign currency. The expansion of
heavy industry greatly increased domestic demand for imports and for tra-
ditional export items (particularly coal), without providing substitute
exports in sufficient quantities. Neglect of light industry and agri-
culture depressed foreign exchange earnings from traditional exports in
these areas. By 1953, inability to pay for needed quantities of imported
raw materials and machine parts had become a major factor in production
stoppages, which in turn impeded Poland's ability to expand exports. y
Finally, living conditions worsened from 1950 to 1953, sharply
so for the urban population. In addition to a decline in per capita
consumption of quality foods and products of light industry, housing
conditions, which were already poor by European standards, deteriorated
noticeably. The growth in urban population, stimulated by rural migra-
tions, greatly outpaced the increase in housing supply, and the quality
of housing worsened from excessive occupancy and inadequate repairs.
During this period of declining levels of personal consumption, moreover,
the energy and patience of the urban population were taxed more heavily
by longer hours of work, numerous compulsory meetings, prolonged queue-
ing at retail stores, and a variety of arbitrary and discriminatory
practices. //
Growing tensions throughout the economy forced some modification
of policy during the "new course" of 1954-55. Capital investment was
stabilized at the level of 1953, with some redistribution in favor of
lagging sectors. The growth of industrial output slackened, but produc-
tion of industrial consumer goods was expanded at the expense of in-
vestment and military goods. Agricultural output increased substantially,
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in response to favorable weather and higher state purchase prices, and
surpassed the level of 1950. Stockpiles of consumer goods accumulated
during the Korean War were released. As a result of these developments,
personal consumption increased noticeably. But the per capita level in
1955 was only slightly higher than in 1950. Moreover, most of the gain
was registered by the peasants, and urban discontent was not reduced
appreciably. Most importantly, "new course" policies did little to
alleviate the underlying causes of economic strain. In industry, aban-
donment of partly completed investment projects tended, at least over
the short run, to perpetuate structural imbalances. In agriculture,
peasant incentives were shaken anew by an intensified collectivization
drive initiated in mid-1954. And in foreign trade, increased imports
of grains and raw materials for light industry and decreased exports
of coal because of enlarged household consumption added to the strain
on the balance of payments. fi.,/
No decisive measures for promoting orderly economic expansion
were undertaken in 1956 prior to Gomulka's coming to power. The First
Five Year Plan (1956-60) was launched, but, in response to indications
of rising popular unrest, plans for renewed rapid expansion of indus-
trial investment were shelved, and large "emergency" increases in
money incomes of workers and peasants were permitted, especially after
the Poznan riots in June. Stockpiles were reduced further, but by the
final months of the year a considerable inflationary pressure had built
up in retail trade. 2/
C. Early Gomulka Period, 1956-57*
The foremost economic objective of the Gomulka regime on taking
office in October 1956 was to improve living conditions as rapidly as
possible in order to remove the threat to both political stability and
economic growth posed by intense popular discontent with existing con-
ditions. This discontent had sparked the Poznan riots of June 1956 and
contributed to the disturbances surrounding the October revolution and
was to incite a series of disturbances in urban centers during the early
months of 1957. Discontent also was partly responsible for depressed
levels of productivity by industrial workers and of food deliveries by
farmers. The disruptive effect on production of economic dissatisfaction
was underscored during the early months of 1957 by the widespread inci-
dence of unjustified absenteeism and of drunkenness and vandalism on the
job that followed the lifting of coercive forms of worker discipline.
For an analysis of Polish definitions of the economic aggregates dis-
cussed in this section and of the reliability of official statistical
data, see Appendix A.
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The Gomulka regime, in its early economic program, sought in
effect to provide the consumer goods to cover the large increases in
money income conceded to the population since the beginning of 1956.
The program was largely successful, and the level of per capita con-
sumption in 1957 rose nearly 20 percent above that of 1955. The two
most dramatic measures undertaken to increase the supply of consumer
goods were the liberalization of agricultural policy and heavy foreign
borrowing, including borrowing from Western countries.
Under Gomulka's agricultural policy, collectivization was made
voluntary, thereby prompting the dissolution of nearly all collective
farms. By the end of 1957, private farmers controlled 86 percent of
arable land in Poland. 11/ Increased production and deliveries by
private farmers were encouraged also by reductions in taxes and increases
in state purchase prices for farm produce as well as in supplies of
fertilizer, building materials, and farm machinery. Direct state in-
vestment in agriculture was increased, and a liberal credit policy
encouraged private investment. Largely as a result of the new agricul-
tural policy, but with assistance from continued good weather, gross
agricultural output in 1957 rose 12 percent above the level of 1955.
In the case of animal products, moreover, peasant deliveries for urban
distribution increased more rapidly than output.
Results in industry also were favorable. Output increased by
17 percent during 1956-57, accompanied by a further shift in structure
from investment and military goods to consumer items. Industrial effi-
ciency was stimulated both by a substantial expansion of inventories of
raw materials and semifabricates, partly imported through foreign credits,
and by reforms in mangement in the direction of more realistic planning,
less rigid central controls, and increased emphasis on monetary incentives.
The national income of Poland in 1957 was 15 percent higher than
in 1955. Domestic expenditures rose even more rapidly, by 22 percent,
largely because of a substantial import surplus financed through foreign
credits procured from both Bloc and Western countries. The import sur-
plus in 1957 totaled US $277 million L/ and accounted for one-fifth of
the increment in domestic expenditures between 1955 and 1957. State
capital investment, meanwhile, was held in check (private investment and
state inventories rose, however), and personal consumption increased by
23 percent from 1955 to 1957, providing a substantial improvement in all
areas with the exception of housing. The gains of urban workers, moreover,
were at least equal on a per capita basis to those of peasants. 1.V The
improvement in living conditions became particularly noticeable toward
the end of 1957, when earlier inflationary pressures subsided, retail
stocks expanded, and the variety and quality of goods improved. The lat-
ter developments were partly the result of the regime's encouragement
of private handicrafts and services.
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Increases in personal consumption during the early Gomulka period
were supplemented by improvements in living conditions arising from re-
forms of numerous practices that previously had been sources of economic
discontent. For peasants the key change was the elimination of forced
collectivization and of general harassment of private farmers. Urban
workers benefited from the elimination of coercion in everyday economic
life -- for example, compulsory meetings were discontinued -- and from
a sharp decline in discrimination for political reasons in the distri-
bution of better jobs, scarce consumer goods, and housing. In addition,
daily life for the entire population was made much more tolerable by the
introduction of a large measure of personal, cultural, and religious
freedom.
D. Basic Premises in Planning for the Post-1960 Period
In mid-1957, turning for the moment from the immediate problems
of political and economic stability, the Gomulka regime set forth a pro-
gram for economic development through 1960 in a revised version of the
First Five Year Plan (1956-60). Although improvement of living condi-
tions was made the paramount objective of the Plan, considerable emphasis
was given to maintaining a rapid rate of economic growth. National in-
come was expected to increase by 46 percent during 1956-60, including
increases of 49 percent for industrial output and 25 percent for agri-
cultural output. For the period as a whole, personal consumption and
capital investment were expected to increase at about the same rate as
national income. The growth of consumption, however, was to decline
from an annual rate of 11 percent expected for 1956-57 to one of 6 per-
cent during 1958-60, whereas the growth of investment was to be stepped
up from an annual pace of 4 to 5 percent during 1956-57 to one of 11 per-
cent during the final 3 years of the Plan. The planned structure of
capital investment during 1956-60 underlined the concern of the Gomulka
regime for balanced economic expansion. Increased shares of total in-
vestment were assigned to the previously neglected areas of agriculture,
housing, and social-cultural facilities and, within industry, to fuels
and power, building materials, basic chemicals, light industry, and
food processing. 121/
Planning for the post-1960 period also was initiated in 1957,
soon after the redrafting of the Five Year Plan. In effect, the ex-
pected results for the 1956-60 period were used as a base for formulat-
ing premises on the development of the economy during 1961-65, the
period scheduled for a second 5-year plan. The major assumptions of
preliminary planning for the post-1960 period were that the substantial
buildup in capital investment scheduled for 1958-60 would have to be
sustained through 1965 and that the growth of personal consumption dur-
ing 1961-65 would have to be substantially slower than during 1956-60
as a whole.
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It was believed by planners that economic growth after 1960 would
be much more dependent on large-scale capital investment than during the
early Gomulka period. Prospects for economic expansion in 1956-60 were
favored both by the investments undertaken during the Six Year Plan
(1950-55) and by the errors in policy made in that period. In industry,
and especially in metallurgy and machine building, there were in 1956
a large number of partially constructed projects, the completion of which,
at relatively low costs, would eliminate bottlenecks and permit much ful-
ler utilization of capacity in other plants. At the same time, in both
industry and agriculture, large gains in economic efficiency were expected
from the reform of practices that previously had depressed incentives and
from simple improvements in planning, management, and organization.
The 1961-65 period, in contrast, was viewed as one in which large
investment expenditures would be required for initiation of projects that
would not reach full production until subsequent periods. Also, improve-
ments in efficiency were expected to be obtained less easily during
1961-65 than during the preceding period, thereby placing a larger bur-
den on investment for sustaining growth in production. Advances in
efficiency in industry would be more closely related to improvements in
technology and therefore to investment outlays, and the more obvious
corrective measures in economic institutions and management (such as
decollectivization in agriculture) would already have been undertaken
and would be bringing smaller returns.
Another factor supporting the need for a high level of capital
investment in setting up preliminary plans for 1961-65 was the consider-
able increase in the annual level of new recruits to the labor force
expected toward the end of the period. Increases in new workers were
expected to remain fairly small through 1962, reflecting relatively low
birth rates during World War II. Starting in 1963-64, however, and con-
tinuing through the early 1970's, increases were expected to be unusually
large as a result of high birth rates during the first postwar decade.
For example, the number of new entrants to the labor force was expected
to climb from about 50,000 in 1960 to about 250,000 in 1965. Thus large
investments would be needed, especially in underdeveloped regions of the
country, to implement a policy of relatively full employment.
Finally, anticipated developments in foreign trade were expected
to set limits on the growth of personal consumption as well as to rein-
force the priority of capital investment. During 1956-60, imports were
expected to grow much more rapidly than exports, with the trade deficit
covered for the most part by foreign credits. During 1961-65, in con-
trast, exports were to be increased more rapidly than imports to provide
the trade surplus needed for partial repayment of previous credits. As
a result, domestic expenditures as a whole were expected to grow less
rapidly than national income, the opposite trend of 1956-60. The demands
of targets in foreign trade would require large investments to stimulate
export production and to reduce dependence on imports in certain lines. 12/
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II. Evolution of the Economic Program for 1961-65
A. General
Although a substantial increase in capital investment and a
decline in the rate of growth of personal consumption were generally
accepted in Poland as the major premises of an economic program for the
post-1960 period, specific relationships had to be worked out for the
distribution of national income that would satisfy both the economic
criteria of planners and the political criteria of Party leaders.
Basic decisions had to be made concerning the maximum growth of pro-
ductive investment consistent with an efficient use of economic re-
sources and the minimum growth of personal consumption consistent with
the continued subsidence of popular discontent as a political and eco-
nomic problem.
The first widely publicized program for 1961-65 was approved
by the Politburo late in 1958 and adopted by the Third Congress of the
Polish Communist Party in March 1959. The Congress program, drafted
while Polish economists and Party leaders still were very close psycho-
logically to the Poznan riots and the "shocks and stumbles" of the Six
Year Plan, was unusually moderate and realistic by the standards of the
multiyear plans of the other European Satellites in its projection of
the growth of national income and of its distribution between personal
consumption and productive investment. A final version of the Five
Year Plan for 1961-65 was approved by the Politburo late in 1960 and
ratified by the Sejm (the Polish parliament) in February 1961. The
final program, more distant from Poznan and the Six Year Plan, was much
closer in basic outline to the current multiyear plans of the other
Satellites. The evolution of the post-1960 program for the Polish
economy reveals both the political and the economic setting in which
the Congress program was drafted and the influences on the development
of the economic policy of the Gomulka regime during the past few years.
B. Congress Program of March 1959
Preliminary economic planning for the post-1960 period was con-
ducted by a special staff within the Planning Commission under the
direction of Michal Kalecki, an internationally known economist. By
mid-1958 the Kalecki staff had completed a detailed draft of a 5-year
plan for 1961-65 within the framework of a 15-year plan running through
1975. 16/ In September 1958, Stefan Jedrychowski, Chairman of the
Planning Commission and chief economic advisor to Gomulka on the Polit-
buro, prepared a resolution on the development of the Polish economy
during 1959-65 that incorporated the goals set forth in Kalecki's draft
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plan. The resolution won the approval of the Politburo and was sub-
mitted in October to a plenary session of the Central Committee for
examination before its presentation to the Third Congress of the Party.
The Central Committee adopted the resolution apparently without amend-
ment but touched off a vigorous debate on economic plans for the post-
1960 period that persisted until the Congress met in March 1959.
Finally, the Congress adopted the resolution as presented by Jedry-
chowski, who had incorporated numerous changes, without altering, how-
ever, the basic character of his original program.*
The Congress program, which set down minor revisions of tar-
gets for the final years of the First Five Year Plan as well as pre-
liminary goals for the Second Five Year Plan, placed major emphasis,
as expected, on the need for a rapid expansion of capital investment.
Firm pledges were given, however, to provide a steady and cumulatively
significant growth of personal consumption and to initiate a major
drive to alleviate the oppressive housing shortage. By the standards
of the Soviet Bloc, therefore, a relatively small share of national
income was allocated to productive investment. Underlying the Congress
program, moreover, were conservative estimates of the probable gains
from improvements in economic efficiency during 1961-65. As a result,
a decline in the rate of economic growth was projected for the post-
1960 period. The special character of the Congress program also was
revealed by its reaffirmation of Gomulka's policy of voluntary col-
lectivization, an acknowledgement of the continued predominance of
private agriculture in Poland at a time when the other European Satel-
lites were intensifying their efforts toward socialization.
Under the Congress program an increase in national income of
just below 40 percent was planned for 1961-65 compared with the in-
crease of 46 percent then anticipated for 1956-60. The Kalecki draft
of mid-1958 had indicated only an increase of 38 percent for 1961-65, 12/
but this had been raised prior to the October plenum of the Central
Committee, either at the initiative of Jedrychowski or at the insist-
ence of the Politburo. According to the Congress program, industrial
output was to rise by 50 percent during 1961-65, slightly below the
revised projection for 1956-60 of a growth of 52 percent.** Growth in
all other sectors of the economy was expected to decline more sharply,
however, including a decline for agriculture from 25 percent during
1956-60 to 21 percent during 1961-65.
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Total capital investment was scheduled to rise by 49 percent
(1961-65 above 1956-60). Investment in productive sectors was to in-
crease by only 44 percent, however, and investment in industry by only
41 percent. Investment in housing, on the other hand, was to increase
by 68 percent, and the share of outlays for housing, social-cultural
facilities, and municipal improvements was to rise from 31 percent of
total outlays during 1956-60 to 34 percent during 1961-65. Personal
consumption was to increase by 33 to 35 percent during 1961-65, thereby
insuring approximately the same absolute growth of consumption as the
increase of 46 percent then anticipated for 1956-60. The growth of
consumption, moreover, was to be spaced fairly evenly over the 1961-65
period and not concentrated in the final years of the period.
The support given by Gomulka and other Party leaders to the
moderate character of the Congress program reflected the political and
economic currents of the period. The major political consideration
that limited plans for productive investment and economic growth was
the concern of Party leaders about popular discontent. The Poznan
riots and subsequent manifestations of workers' unrest had gravely
disturbed Gomulka, who, with the Hungarian example in mind, probably
feared that Soviet military intervention would follow if the Polish
Communist Party lost control of the domestic situation. By late 1958
and early 1959, Party leaders probably recognized that popular dis-
content, although still very widespread, had largely lost its incendiary
character. But apparently they were convinced that it still was essen-
tial to provide for systematic and appreciable improvements in consumer
welfare both to prevent a rekindling of the Poznan spirit and to en-
courage popular support of regime programs. In an address to the
Central Committee, Jedrychowski defended the provisions of his program
relating to consumption as follows 21/:
... If we want to maintain the link between
the Party and state authority and the working
masses, we must combine the need for a rapid ...
development of our socialist economy with the
need for a steady and systematic raising of the
standard of living of the working masses, the
real earnings of workers and white-collar em-
ployees, as well as the income of the working
peasants not only in general, over periods of
several years, but regularly, constantly, year
after year, at least several percent annually.
The special emphasis on housing in the Congress program was based on
the belief that depressed housing conditions -- called by one member
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of the Politburo "the most painful and grievous problem in the daily
lives of the population" EE/ -- were the major remaining focus of
economic discontent and that a dramatic improvement in housing would
strongly enhance the prestige of the Communist regime.
The restraint placed on the level of productive investment
and the rate of economic expansion by the fears of political leaders
of a possible resurgence of popular discontent was reinforced by the
conservative economic views of those who drafted the plan for 1961-65.
Kalecki developed and Jedrychowski supported the thesis that various
bottlenecks in the Polish economy would limit sharply the increase in
output from any attempt to expand productive investment more rapidly
than proposed under the Congress program. The most important of these
bottlenecks were the short supply of basic materials, the long con-
struction period needed to complete new capacity to relieve the short-
age, and the expected strain in the balance of payments (because of
the need to repay former credits) that would limit Poland's ability
to relieve the shortage through imports. Under these conditions, it
was argued, any attempt to accelerate investment would tend to raise
the cost and delay the completion of projects. Underlying the thesis
were fairly conservative estimates on the probable improvements in
labor and managerial efficiency in industry and construction that could
be expected by 1965. El/
The willingness of Gomulka and his political lieutenants to
rely on the judgment of a conservative professional economist in set-
ting up the Congress program was symptomatic of the grave impression
left by the economic disturbances of the Six Year Plan, which were
attributed to unrealistic estimates by Party leaders of the potential
of the economy and to unbalanced commitment of resources to heavy
industry. Gomulka, defending the Jedrychowski program at the Third
Congress, reminded the delegates that Poland's past experience em-
phasized the importance of adopting an economic program that ensured
"the most proportional development possible," for disproportions not
only upset the general development of the economy "but, in the final
analysis, check the advance of Socialist transformation of society."E).1/
The concern of the regime for proportional development of the
economy underlies the resolution on agriculture adopted at the Congress.*
Primary emphasis was placed on increasing agricultural production, and
efforts toward socialization were to be restricted to encouraging simple
forms of cooperation among peasants. Coercion in agriculture was re-
jected because the experience of the early 1950's had shown that the
* The major report on agricultural policy at the Congress was delivered
by Politburo member Edward Ochab, at the time Minister of Agriculture. EV
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depression of peasant incentives retards the growth of output. In
turn, agricultural stagnation disrupts plans for the growth of the
economy in general and for personal consumption in particular.
C. Early Opposition to the Congress Program
In spite of full support by the Politburo, Jedrychowski's draft
program had been vigorously criticized at the plenum of the Central
Committee in October 1958 by members then associated with the Natolin
(Stalinist) faction of the Party. The program was attacked for its
general lack of dynamism, its failure to promote sufficiently the build-
ing of socialism in Poland, and its inadequate contribution to the
strength of the Communist Bloc at a crucial moment in the struggle with
imperialist powers. Gomulka's political supremacy had been estab-
lished conclusively prior to the plenum, and the Natolin group, which
had suffered considerable reverses since 1956, apparently was attempt-
ing through its criticism only to extend its influence over Gomulka
and weaken that of Jedrychowski and other moderates.
The attack on the Congress program and the moderate policies
underlying it was led by Eugeniusz Szyr, Jedrychowski's predecessor
as Chairman of the Planning Commission.* Szyr insisted that the Polish
economy could and should be expanded more rapidly than had been pro-
posed. He claimed that Poland had great "reserves" for continued
rapid growth, citing as evidence the numerous examples given by Gomulka
in his address opening the plenum of the considerable lags between
Polish levels of labor productivity, material costs of production,
and periods of construction and those of more advanced industrial
nations. The unreasonable cautiousness of Jedrychowski and his col-
leagues in the face of such "reserves" was attributed to a one-sided
interpretation of the Six Year Plan, which emphasized its shortcomings
while overlooking the rapid growth attained. Szyr described the bold
programs then being undertaken by other Bloc countries, whose planners
were not deterred by exaggerated fears of possible disproportions from
rapid expansion. He emphasized in particular the progress of Com-
munist China, then engaged in the early, seemingly successful phase of
its "leap forward." Poland also could expand simultaneously produc-
tive investment and personal consumption at rapid rates, Szyr concluded,
if the Party pursued "farsighted and energetic" policies for mobilizing
existing reserves -- primarily the establishment of more effective state
controls over the economy, including more rapid socialization of agri-
culture.
The supporters of Gomulka's policies as expressed in the
Jedrychowski program -- the vast majority of the Central Committee --
replied in kind to the charges of the Natolin critics. The proposed
* EL6j. See also the speeches by S. Lapot and B. Ruminski.
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program was defended as one that encompassed an ambitious rate of growth
considering Polish conditions. It was conceded that large "reserves"
did indeed exist in the Polish economy and that a more rapid rate of
growth might be possible. In Poland, however, there was characteristi-
cally "a very long distance between the possible and the real," and
expectations on exploiting "reserves" had to be based on the existing
capabilities of the Party and the state apparatus. To combine once
again overambitious planning with policies of coercion in agriculture
and elsewhere would lead only to a repetition of the special problems
of the Six Year Plan. Jedrychowski personally replied to the charge
that under his program Poland would not be meeting its obligation to
the Soviet Bloc, and in so doing he underlined the basic pragmatic
character of the economic policy of the Gomulka regime:
No one demands from us [that is, the Polish
Communist Party] or imposes upon us any kind of
pace for industrial development ... . We should
define our pace of economic development our-
selves, on the basis of our own most conscien-
tious appraisal of our conditions, needs, and
possibilities; and undoubtedly, the best con-
tribution to the joint effort toward develop-
ing ... the socialist bloc ... will be such a
rate of economic development which will enable
us at the same time to develop steadily our
economy, raise the prosperity of our working
masses without shocks and stumbles -- without
Poznans -- as well as conscientiously to ful-
fill the obligations toward other socialist
countries which we have taken upon ourselves.*
Gomulka, in his address closing the plenum, attempted to mini-
mize the disagreement on basic policy that had been expressed, and
Jedrychowski's resolution was adopted unanimously. 28/ Nevertheless,
in the widespread discussion of the details of the program encouraged
by the regime in preparation for the Third Congress, criticism of its
underlying principles persisted. Lively debates on economic policy
were conducted before the Economic Council, an advisory body to the
Council of Ministers. Once again the Natolin criticism and the
Jedrychowski, or "centrist," defense of the program were set forth.
In addition, the thesis, unrepresented at the plenum, was set forth
that targets for 1961-65 had not been set conservatively enough.
This view was generally associated with the "liberal" economists on
* 22/. See also the speeches by I. Loga-Sowinski and K. Zemajtis.
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the Council, including Chairman Oskar Lange, who supported a program
of greater decentralization of the economy and who believed that such
a program would operate most efficiently under plans with very moderate
production targets. The "liberal" economists had almost no direct
political influence, however, and their program for further decen-
tralization had already been shelved by early 1959. 22/
The Third Congress in March 1959 produced no real debate on
economic issues. The Natolin criticism had been discredited, and
members of the group suffered further losses in Party influence at
the Congress. The representations for greater caution on the part of
the "liberal" economists, meanwhile, had been undermined by the fact
that the performance of the economy had been better than expected dur-
ing the final months of 1958 and the opening months of 1959. In fact,
Jedrychowski, largely reflecting increased optimism on economic pros-
pects,* introduced a large number of minor upward revisions in targets
for production and investment for both 1960 and 1965. Rates of growth
for the most part were not altered, and the basic proportions of the
program for 1961-65 were unaffected.
The proceedings at the Congress, however, did reveal still
another pressure against a restrained investment program -- the "pork
barrel" tactics familiar to US politics. The final program had raised
investments planned for 1961-65 by 4 percent above the original goal
without changing the share for productive investment. During the pre-
Congress discussions, provincial and local governing councils, Central
Ministries and their subdivisions, and individual enterprises had
called for new projects that would have added 65 billion additional
zlotys,** or 13 percent, to the level of the final program. However,
although some projects suggested in the pre-Congress discussions had
been adopted and some previously approved projects had been deleted,
any further substantial increase in the investment program was rejected
on the grounds that it would undermine the plan for the growth of con-
sumption and overtax the capabiliiies of the economy. 31/
In their speeches at the Congress, both Gomulka and Jedry-
chowski called for continued scrutiny of the plan for 1961-65 in antici-
pation of the need for further changes in detail based on the experience
of the economy during 1959-60. As the Congress adjourned, however,
there seemingly was widespread and unconditional support among the
leaders of the Polish Communist Party for the basic proportions of the
Congress program and for the underlying policies of moderate and
realistic planning.
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** Approximately US $2 billion at the conversion rate used by the Poles
for international comparisons of investments.
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D. Revision of the Congress Program
1. Revision of June 1960
In spite of the general support given to the Congress pro-
gram at the time of its adoption, within a year the Politburo was pre-
paring fundamental revisions that were presented to the Central Committee
for approval in June 1960. According to the resolution adopted by the
Central Committee, 32/ the level of productive investment planned for
1961-65 was increased by 12 percent. The over-all level of capital in-
vestment was raised by 6 percent, and the level of investment expendi-
tures on housing was cut by 14 percent (the goal for construction of
dwelling rooms was reduced by 450,000, or 16 percent). As a result of
these changes, the share of expenditures planned for investment in
housing, social-cultural facilities, and municipal improvements was
reduced from 34 percent of the total to 30 percent, about the same
share as in 1956-60.
Plans for the growth of personal consumption also were
downgraded. In place of the increase of 33 to 35 percent for 1961-65
promised under the Congress program, an increase within the range of
30 to 33 percent now was projected. More importantly, the pledge for
an evenly paced growth in consumption was abandoned in order to per-
mit a rapid takeoff in the expansion of productive investment. Per
capita consumption was permitted to decline during 1960, and continued
austerity was predicted for the early years of the 1961-65 period.
Along the same line the bulk of the growth in investment in housing
and other nonproductive sectors was to be delayed until the final years
of the period.
In spite of the sizable increase in the planned level of
productive investment under the resolution of the Central Committee,
the planned rate of growth for national income during 1961-65 was
raised by only 1 percent, from slightly below to slightly above 40
percent. Such a rate, however, represented a much bolder undertaking
than had seemed to be the case at the Third Congress, for by mid-1960
it had become clear that the increase in national product during
1956-60 would fall far short of the projected 46 percent (the final
official claim was for an increase of 39 percent). The proposed rate
of expansion for industry during 1961-65 was raised from 50 to 52 per-
cent, with a decided shift in planned structure from consumption-
oriented to investment-oriented output. The planned rate for agri-
cultural expansion was raised from 21 to 23 percent. The absolute
level projected for 1965 was reduced compared with the Congress pro-
gram, however, in recognition that the level of output in 1960 would
fall well below previous expectations.
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Production plans for the post-1965 period, on the other
hand, were raised appreciably at the time of the revision of the Con-
gress program in June 1960, and much of the additional investment
under the revised program was directed toward projects that would have
little effect on production until after 1965. 11/ Under Kalecki's
draft plan for 1961-75 the annual rate of growth for industrial pro-
duction had been expected to decline from an average of 8.5 percent
during 1961-65 to 7.7 percent during 1966-75. Under the revised ver-
sion of the 15-year plan, in contrast, the annual rate was to be main-
tained at an average of 8.7 percent throughout the 1961-75 period.
The revision of the Congress program in June 1960 repre-
sented a modification of the economic policy of the Gomulka regime:
the extent to which concern for consumer welfare was to be permitted
to restrict the rate of economic expansion had been reduced appre-
ciably. The decision to alter the relative priorities for productive
investment and personal consumption was closely related to the course
of economic developments in Poland during the 15 months following the
adjournment of the Third Congress. First, in June 1959, on the advice
of economic planners, the level of investment in agriculture planned
for 1961-65 was raised substantially, and although no other changes
were announced at the time, a general review of the post-1960 invest-
ment program became inevitable. Second, unexpected economic strains
during 1959 apparently dissipated the support of the Politburo for the
Congress program and set the mood for a revision of the economic poli-
cies on which the program was based. And, third, the successful im-
plementation of restrictive economic policies during the first half of
1960 strengthened the position of the advocates of more rapid expansion
of productive investment. In the final analysis, however, the change
in policy was primarily the result of a reappraisal of political pros-
pects on the part of the Politburo that led to increased confidence
on the issue of popular acceptance of Communist rule in Poland.
Developments in intra-Bloc political relations, meanwhile, tended to
reinforce the Politburo's inevitable desire to accelerate Polish plans
for long-term economic growth.
2. Economic Factors
a. Change in Agricultural Plans
At the time of the Third Congress the goal for the
growth of agricultural production generally had been considered the
most strained part of the 1961-65 plan as well as of plans for the
post-1965 period. 22/ Consequently, a review of investment require-
ments for agriculture was undertaken, and a significant increase above
the level proposed in the Congress program was recommended. The
Politburo, in a resolution approved by the Central Committee in June
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1959, 36/ linked an increase in planned investment with a program for
transforming agricultural circles -- informal and relatively inde-
pendent types of peasant cooperatives -- into instruments for advancing
the socialization of the countryside. A large part of the investment
in agriculture scheduled for 1960-65 was to be channeled through special
funds held by the circles, with emphasis on purchase of machinery for
joint use. At the same time, a campaign was to be launched for expanding
the membership of circles and for extending Party controls over them.
In the form adopted the program for increasing agricultural investment
in large part was directed toward adding badly needed "socialist con-
tent" to the regime's agricultural policy. This objective was indi-
cated by the emphasis on mechanization that, given the fragmentation
of farm ownership in Poland and the low level of technical competence
of the farmers, would not contribute as immediately to expanding out-
put as would investment in land improvement or in facilities for in-
creasing production of chemical fertilizers and pesticides. Targets
for all forms of agricultural investment were raised, however, and the
stress on mechanization was economically supportable with reference to
the long-term development of agriculture.
In the revision of the Congress program in June 1960
the new emphasis on agricultural investment was written into the Five
Year Plan for 1961-65, and nearly one-half of the increase in the
planned level of productive investment was assigned to agriculture and
to sectors of industry that directly support agriculture (agricultural
machinery and chemical fertilizers). In June 1959, however, no other
adjustments of the Five Year Plan were announced, although from the
size of the increase in planned agricultural investment (nearly 20 bil-
lion zlotys,* or 4 percent of the level of over-all investment for
1961-65 under the Congress program) such adjustments were inevitable.
Possibly the Politburo had intended to await the development of the
economy during 1959-60 before deciding how to account for the cost of
the new agricultural program. Apparently, there was some hope, re-
flecting the optimistic mood of planners and policymakers early in
1959, that part of the cost could be absorbed by a faster-than-planned
expansion of the economy during 1961-65.
b. Unexpected Economic Strains in 1959
The prevailing mood among Party leaders and economic
planners alike at the time of the Third Congress had been one of con-
siderable confidence and optimism as to economic prospects largely
because of the very favorable performance of the economy during 1958.
Strengthened by the reforms in policy introduced under Gomulka and
* Approximately US $650 million at the conversion rate used by the
Poles for international comparisons of investment.
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the large inventories of imported materials built up in 1957, the econ-
omy had operated more smoothly in 1958 than it had in years. Expansion
continued at a rapid pace: 6-1/2 percent for national income, more
than 8 percent for industrial output, and 3 or 4 percent for agricul-
tural output. The increase in industry, moreover, was almost entirely
the result of gains in labor productivity. Of key importance, capital
investment was expanded by nearly 11 percent -- the first large increase
since 1953 -- without signs of major strain. Personal consumption grew
by only 3 percent, well below the plan for the year, but the continued
strengthening of market stability (a trend started late in 1957) per-
mitted a consolidation of the considerable gains in consumption since
1956, as evidenced in particular by a marked decline in queueing for
everyday purchases. Also in 1958, there had been a considerable suc-
cess in reducing the foreign trade deficit (by 40 percent) in spite of
a sharp decline in world prices for Polish coal. E./
The annual plan for 1959, reflecting the confidence of
the Congress period, was the most ambitious of the Gomulka period. .1Y
It called for a simultaneous rapid expansion of capital investment
(12 percent) and personal consumption (7 percent), to be supported by
a slight acceleration of the growth of national income; a small rise
in the foreign trade deficit; and a sharp cutback in the growth of
inventories, which had considerably exceeded plans in 1958. As the
year progressed, however, a decline in agricultural production com-
bined with a growth of domestic expenditures considerably in excess
of plans produced a marked strain on resources, which abruptly termi-
nated the mood of economic confidence.
During the early months of 1959, industrial and espe-
cially investment activity expanded very rapidly because of unusually
mild weather and unexpectedly large expenditures by enterprises under
a program of decentralized investment introduced late in the previous
year. Under the pressure of the expanded activity the generally loose
controls over enterprises that had been instituted since 1956 permitted
increases in employment and average wages considerably above the rates
scheduled for the year. The inflationary pressure of the sharp rise in
personal income that resulted was exacerbated by a decline in meat sup-
plies, caused by drought and by planning errors. By midyear, pro-
longed queueing for quality foods had become general again. The ex-
pansion of capital investment, meanwhile, continued at about twice the
planned rate, reinforcing the pressures on the retail market and plac-
ing a great strain on inventories of building materials. _3_21
The regime delayed resolute action until October, pos-
sibly reflecting differences of opinion within the Politburo on remedial
measures. Finally, an emergency plenum of the Central Committee was
assembled, at which a sharply deflationary program was proposed and
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adopted. Real wages were reduced by means of an increase of 25 per-
cent in retail prices of meat and animal fats, which largely relieved
the imbalance between supply and demand for quality foods, and by cut-
backs in employment in construction and industry. The slowdown in
construction, in turn, eased the strain on building materials. The
deflationary program was accompanied by a restrengthening of central
controls over enterprise activities, including more stringent bank
controls of expenditures and closer supervision of plan fulfillment
by the Planning Commission. 40/
By the time of the October plenum and during the final
months of the year, when the annual plan for 1960 was drafted, the
mood of the leaders of the regime had become one of disappointment and
growing concern over economic prospects. Although industrial output
rose by 8 percent during 1959, somewhat faster than planned, agricul-
tural output declined by 1 to 2 percent, and the growth of national
income lagged behind plans. Domestic expenditures, on the other hand,
considerably exceeded planned levels in spite of the retrenchment dur-
ing the final quarter. Consequently, the foreign trade deficit swelled
considerably higher than intended, reaching the peak level of 1957 and
necessitating emergency foreign credits. Moreover, the growth of
domestic expenditures deviated seriously from the planned direction and
pace. Although capital investment rose 17 percent, centrally controlled
projects ran behind schedule, in large measure because of the competi-
tion of decentralized projects for labor and materials. Personal con-
sumption increased by 6 percent for the year as a whole, nearly twice
the rate of 1958, but the forced cutback toward the end of the year was
particularly annoying to the regime, which had just pledged steady
improvement of living conditions. Finally, inventories in 1959 again
exceeded planned levels by a considerable margin, indicating continued
difficulties in adjusting the structure and quality of industrial pro-
duction to the demand of intermediate and final consumers. 1+1/
c. Developments in 1960
The major emphasis of the annual plan for 1960 was on
restricting the growth of domestic expenditures in order to reduce the
foreign trade deficit and permit a full recovery from the inflationary
strains of 1959 in preparation for the renewal of rapid expansion dur-
ing 1961-65. The continued rapid growth of industrial production was
projected, as was a moderate increase in agricultural output, the latter
without conviction because unfavorable weather had persisted during
fall planting in 1959. The growth of capital investment was set at the
moderate pace (6 percent) needed to attain the level for 1960 indicated
in the Congress program, but no increase was promised for personal con-
sumption, partly because of the uncertainty of agricultural prospects.IlL/
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During the first half of 1960, as the Politburo was
drafting its revision of the Congress program, the new controls over
domestic expenditures were applied more "effectively" than had been
anticipated. Because of restrictions on employment in construction
and because of cautious bank review of applications for new projects,
capital investment declined slightly compared with the first half of
1959. Personal consumption also fell below the level of early 1959,
reflecting reductions in employment and the imposition of higher work
norms as well as the higher level of retail prices. Industrial out-
put, nevertheless, continued to expand more rapidly than planned, in-
cluding output of such basic materials as electric power, coal, and
crude steel. LI/
The reaction of urban workers to the deflationary pro-
gram was a relatively mild one. The program, especially the boosting
of work norms that took place early in 1960, did lead to a series of
disturbances in factories, but these probably were fewer in number
and more minor in nature than the regime had anticipated when the un-
popular measures were adopted. In spite of the decline in real wages,
moreover, labor productivity in industry increased by more than 9 per-
cent during the first half of 1960, more rapidly than during the com-
parable period of 1959, when average wages had risen appreciably.
3. Political Factors
In spite of the various economic influences for revising
the 1961-65 plan, the Politburo's decision to increase the priority
for long-term economic growth and reduce that for consumer welfare
appears to have been based primarily on political considerations. The
Party leadership inevitably was interested in obtaining the most rapid
economic growth possible, and by mid-1960 the political and economic
restraints on productive investment that had seemed so imposing at
the time of the Third Congress were no longer operative.
A change in the outlook of the regime on the problem of
popular discontent is believed to have been the key factor permitting
the reduction in the Congress program for consumer welfare and there-
by lifting the political restraint on the level of productive invest-
ment. The Politburo, in its deliberations on policy during the spring
of 1960, presumably recognized that economic discontent still was
nearly universal in Poland, particularly among the urban workers, who
had just suffered a cutback in real wages. But the leaders of the
Party apparently were much more confident than they had been a year
earlier that the population had largely accommodated itself to Com-
munist rule and that disappointments and temporary setbacks in the
area of living conditions would not set off active resistance to poli-
cies of the regime. The relatively mild reaction of urban workers to
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the deflationary program of October 1959 probably was of central impor-
tance to this new confidence. In March 1960, in a speech before a
Warsaw Party conference, Gomulka asserted that the vast majority of
the working class had accepted the necessity of the deflationary pro-
gram with "deep understanding." 101/ Although this assertion may have
been an overstatement of the new confidence of Party leaders, the
Politburo clearly did conclude by June 1960 that significant increases
in consumption could be postponed for several years and that the time-
table for improving housing conditions could be delayed somewhat with-
out incurring any substantial political or economic risk.
The key factor in the lifting of the former economic re-
straint on the level of productive investment was a growth in confi-
dence on the part of the Politburo concerning the ability of the
Party and the state apparatus to administer effectively a more demand-
ing investment program. In part the new confidence reflected the
better-than-expected performance of heavy industry during 1959-60
and the apparent effectiveness with which new controls over investment
had been instituted after October 1959. It also represented a more
optimistic outlook on the extent to which improvements in economic
efficiency could be expected to contribute to economic growth during
1961-65. The Kalecki-Jedrychowski thesis that shortages of basic
materials would restrict the rate at which productive investment could
be expanded in real terms was downgraded. The regime apparently had
become convinced that improved central controls could speed up substan-
tially the pace originally planned for completion of new capacity in
basic materials and could promote a more rapid increase than planned
in production of machinery and equipment for export, with which im-
ports of needed materials could be enlarged. 1.[.2j
The new political confidence of the Politburo was reflected
in, and in turn influenced by, shifts in the influence of individuals
and factions within the Party. Little is known about the issues and
seriousness of any debate over the decision to modify the Congress pro-
gram that may have taken place on the Politburo or within the Central
Committee. It is likely, however, that Jedrychowski, at least at
first, opposed the increase in investment and production targets as
unrealistic in light of the economic difficulties experienced during
1959. However, to the extent that these difficulties had been aggra-
vated by planning errors, Jedrychowski and his close associates on
the Planning Commission probably had suffered a decline in political
influence, and any such call for restraint was vetoed by the Politburo.
Major support for the revision of the Congress program, on the other
hand, probably came from members of the Party who had opposed the Con-
gress program in 1958. Several of these men were returned to positions
of increased influence in October 1959 in order to administer the pro-
gram of tighter economic controls -- most notably Eugeniusz Szyr, who
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was appointed to a vice premiership. 11.Y With the increased prestige
that they enjoyed as a result of their success in tightening controls,
Szyr and his associates doubtless advocated bolder economic planning.
And, in effect, the Politburo by June 1960 had come to agree with
Szyrts old charge that Jedrychowski and other sponsors of the Congress
program had been unduly influenced by the reversals of the Six Year Plan
period.
4. External Influences
The 1960 revision of the Polish Five Year Plan for 1961-65
was subject to external as well as internal political influences but
not nearly to the extent of the 1950 revision of the Six Year Plan
that had been dictated directly by the USSR. The Politburo's interest
in accelerating the planned rate of Polish long-term growth certainly
was heightened by its sensitivity to criticism of the Congress program
on the part of the more orthodox Satellites. One of the purposes of
the program of June 1959 for transforming agricultural circles into
instruments for advancing the socialization of Polish agriculture was
to counter the criticism of Polish agricultural policies by the Satel-
lites then engaged in intensifying their own efforts toward collec-
tivization. A desire to accommodate other Bloc countries also may have
been a factor in deciding to reduce the discrepancy between the planned
rate of long-term growth for the Polish economy and that of the other
Satellites. During 1958-59, at the urging of the USSR, most of the
Satellites had adopted programs for accelerating the development of
basic industries as a means of maintaining rapid expansion over the
long run. In the Congress program the Poles had largely resisted
Soviet pressure in this direction, thereby incurring the criticism
of complying Satellites such as Czechoslovakia. In the 1960 revision
of the 1961-65 plan, however, most of the additional investment not
assigned to the support of agriculture was earmarked for metallurgy
and other basic industries.
E. Final Plan for 1961-65
A final version of the Five Year Plan for 1961-65 was completed
by the Planning Commission early in 1961 and presented in February to
the Sejm for ratification. The final plan reveals no essential change
from the guidelines set down in the resolution by the Central Committee
of June 1960, although numerous adjustments were made to account for
economic results for the full year 1960, which generally proved to be
more favorable than had been anticipated at midyear. National income
expanded more rapidly than domestic expenditure in 1960, permitting,
as planned, a considerable reduction in the foreign trade deficit from
the high level of 1959. Industrial output increased by more than 8
percent, with almost no expansion of employment. Agricultural output,
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thanks both to a dramatic improvement in weather and to the cumulative
effect of Gomulka's liberal policies, increased by 4 to 5 percent,
matching the optimistic estimate hopefully set forth in the annual plan.
Investment activity picked up sharply in the final quarter because of
unusually mild weather and some loosening of controls, and expenditures
for the year were essentially at the planned level. Employment and
wages as well as farm income also increased considerably in the final
months, but for the year as a whole per capita consumption trailed
behind the level of 1959. Once again, inventories increased more
rapidly than desired, in part because of the lag in consumption. L4.1/
The text of the final plan for 1961-65 48/ was preceded by an
evaluation of the results of the just-completed 1950-60 plan, which
indicated general satisfaction on the part of the Gomulka regime, in
spite of considerable deviations from some of the targets set forth
in 1957.* Industrial production increased by about 50 percent during
1956-60, essentially as planned, and although goals for many key com-
modities were not reached, the shortfall generally was small. Gains
in labor productivity, moreover, accounted for most of the increase
in output, as industrial employment increased by only 11 percent from
1955 to 1960. Agricultural output increased by about 20 percent,
falling far short of the planned growth of 25 percent. Nevertheless,
results in agriculture compare very favorably with both the near
stagnation of Polish production during 1951-55 and the experience of
the other Satellites during 1956-60. National product increased by
nearly 39 percent compared with a planned rise of 46 percent. This
large shortfall reflected, in addition to the underfulfillment of the
agricultural plan, a failure to reduce the costs of production as much
as planned in most sectors of the economy.
Domestic expenditures, partly supported by foreign credits,
increased by slightly more than 39 percent from 1955 to 1960. Capital
investment increased by 46 percent (1956-60 above 1951-55). The level
of expenditures was slightly in excess of plans, but because of un-
anticipated rises in costs, many projects scheduled under the Plan were
not completed. The record for completing scheduled projects was never-
theless much better than under the Six Year Plan. Personal consumption
rose by 36 percent from 1955 to 1960, well behind the planned rate.
Once again, however, the achievement in this sector was very impressive
by the standards of Polish performance during 1951-55 or by that of the
other Satellites during 1956-60. Per capita gains for the urban popula-
tion, moreover, exceeded those of the farm population, reversing, as
planned, the trend of the pre-Gomulka period.
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A comparison of indicators of economic growth under the final
Plan for 1961-65 with those of the Congress program of March 1959 is
shown in the following tabulation:
Percentage Increase During Period
Congress Program Final Plan
1956-60 1961-65 1956-60 1961-65
1E12411_ (Plan) (Actual) (Flan)
National income
46
40
39
41
Industrial output*
52
50
48
52
Agricultural output
25
21
20
22
There is little essential difference between the two plans in their
projections of the capabilities of the Polish economy during 1961-65.
The Congress program, however, when related to the overly optimistic
assumptions of what the economy could do during 1956-60, indicated the
need for a slowdown in economic growth after 1960, whereas the final
Plan, when related to the actual achievements during 1956-60 called
for a speedup in economic growth.
The final Plan for domestic expenditure, on the other hand,
called for a lower rate of growth for 1961-65 than that achieved dur-
ing 1956-60 as shown in the following tabulation:
Percentage Increase
During Period
1956-60
(Actual)
1961-65
(Plan)
Domestic expenditures
39.3
33.5
Personal consumption
35.5
32.1
Government purchases
50.1
15.2
Net capital investment
54.6
48.2
Increase in inventories
and reserves
35.3
1.0
* Plan figures are from Polish data on gross industrial production;
the figure for actual production is from Polish data on net production
(see Appendix A).
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The discrepancy between the rates of expansion planned for national
income and for domestic expenditures during 1961-65 is accounted for
in part by the plan to effect a large export surplus by 1965 in order
to meet payments due on foreign credits drawn earlier. There appears
to be, in addition, a sizable unallocated reserve equal to at least 3
percent of the level of national income in 1960.* This reserve prob-
ably is intended as a contingency both against nonfulfillment of pro-
duction plans, particularly in agriculture, and against overfulfill-
ment of planned domestic expenditures in some areas. Uncertainty about
the level of defense expenditures, which normally are reflected in
government purchases and under changes in inventories and reserves,
might account in part for the caution in allocation. Also, the rate
of growth of stocks, considering previous Polish experience in this
area, appears to have been set deliberately too law, possibly for
exhortative purposes.
The planned growth for personal consumption in the final Plan
was set close to the top of the range indicated at the plenum of June
1960, probably reflecting improved prospects for agriculture for the
early years of the 1961-65 period and higher levels of retail stocks
of industrial consumer goods at the end of 1960 than previously had
been anticipated. The final Plan for capital investment encompassed
a small upward revision of the over-all target for 1961-65, with a
further redistribution in favor of productive sectors. The final level
of productive investment was nearly 14 percent higher than that set
forth in the Congress program, whereas the final level of outlays for
housing was 18 percent lower.
The final plan for 1961-65, although somewhat bolder in de-
sign and much less replete with reserves than the Congress program,
still appears to represent fairly accurate assessment of the potential
of the Polish economy, even if of the upper reaches of that potential.
It may be conjectured that had Kalecki been responsible for the drafting
of the final Plan for 1961-65, he might have reduced, rather than
raised, targets for economic growth because of the shortfall in pro-
duction in the 1956-60 Plan. The final plans for production, espe-
cially for agriculture, probably have been set several percentage
points beyond reach, but there is some reserve in the Plan for domestic
expenditures. In addition, the near-certainty of obtaining new foreign
credits during 1961-65 was not accounted for in the Plan and serves as
a reserve.
There is additional evidence that the Gomulka regime continues
to place a high premium on realistic planning. If the Five Year Plan
shows some evidence of "growthsmanship" or political planning, the
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operative annual and quarterly plans still are largely the province of
the professional economists, and so far, in final plans for 1961 and
1962 and preliminary plans for 1963, the targets for growth have been
more conservative than the pace demanded by the Five Year Plan.
Finally, a high priority has been attached to the careful study of cur-
rent indicators of economic activity as a means of uncovering unex-
pected problems and developments. Oskar Lange, world-renowned economist
and generally associated in Poland with conservative planning, was given
the task by the regime of defending the final Plan, both before the
deputies of the Sejm and, in a journal article, before the community of
economists at large. 21i The Plan, he asserted, aimed for both har-
monious and rapid economic growth. Nevertheless, disturbances might
occur in the course of the 1961-65 period. The task of policymakers
and economic planners was to bring such disturbances to light in time
and counteract them or take them into account within the framework of
the annual plans. Lange concluded with the judgment that although the
basic proportions of the Plan should not be subjected to change, a
flexible economic policy as to detail should be maintained.
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III. Prospects for Polish Economic Policy
A. General
The Fourth Congress of the Polish Communist Party is scheduled
tentatively for the spring of 1963. Following the precedent of the
Third Congress, the Politburo currently is preparing for the Congress
a program on the development of the Polish economy through 1970 (or
possibly 1980) for presentation first to a plenary session of the
Central Committee and then to the Party Congress. The program for the
Fourth Congress, which will encompass revised goals for the Five Year
Plan of 1961-65 as well as preliminary targets for the post-1965 period,
will constitute a restatement of the economic policy of the Gomulka
regime.
Very little has been revealed thus far about the probable con-
tent of the new program, and there are indications that the Politburo
has not yet resolved disputes between contending factions in the Party
on certain issues. It is believed, nevertheless, that no change in
the basic character of Polish economic policy will be forthcoming.
The forces that have promoted moderate and realistic economic programs
in Poland since October 1956 are still operative: the deep-rooted
pragmatism of Party leaders and their recognition of the complexity of
the problems facing the economy, of the intense contempt of the popu-
lation for orthodox Communist tactics, and of the limited strength of
the Party apparatus. Moreover, the relatively favorable performance
of the Polish economy during 1961-62 compared with the considerable
difficulties encountered during the period by Czechoslovakia and East
Germany, two of the more orthodox Satellites, has raised the prestige
within the Bloc of Polish policies of moderate and realistic planning.
The new Congress program, on the other hand, may reveal a modi-
fication of the economic priorities set forth for the 1960's in the
final version of the Five Year Plan. Although the performance of the
Polish economy during 1963-65 should continue to be generally satis-
factory, some reduction of production goals appears to be certain. The
compensatory adjustments of targets for investment and consumption
probably are key issues under debate among factions of the Party.
Prospects are for still another, although probably minor, redefinition
of relative priorities in favor of supporting long-term economic growth
and at the expense of providing for short-term improvements in living
conditions.
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B. Economic Developments During 1961-62 and the Outlook Through
1965
At the start of the Five Year Plan of 1961-65, the outlook of
Party leaders as to the prospects for the Polish economy was one of
restrained confidence, reflecting the unexpected strains that had ac-
companied the rapid expansion of capital investment during 1959 as well
as the better-than-anticipated performance of the economy in 1960. The
confidence of Party leaders probably expanded during 1961, a year of
unusual economic success. The exceptionally good performance of agri-
culture in 1961, however, covered up a number of basic economic problems
that are likely to retard the growth of production and consumption.
These problems -- especially the sluggishness of technological change
and the continued difficulty experienced in producing the types of goods
most in demand by domestic and foreign customers -- became more pressing
and also more evident to the regime in 1962, when agricultural production
declined sharply. At the end of 1962, as the midpoint of the Five Year
Plan approaches and as the Politburo is engaged in preparing a program
of economic development for the forthcoming Party Congress, Party leaders
probably are still confident that the performance of the economy will
continue to be generally satisfactory during 1963-65, but they recognize
that many of the demanding targets for economic growth under the Second
Five Year Plan are now beyond reach.
In 1961 the growth of industrial output exceeded 10 percent, the
most rapid expansion in recent years.* For 1962 a growth of about 8 per-
cent is likely, making a combined growth over the 1961-62 period of about
20 percent, someWhat faster than the pace set for the period under the
Five Year Plan. Labor productivity has increased by 5 to 6 percent per
year, essentially as planned, and the above-plan gains in production
have been the result of increases in employment in excess of plans. In
1961, imports of raw materials also exceeded the planned level and con-
tributed to the smooth performance of industry during that year and
during the first half of 1962.
The Poles have claimed an increase in agricultural production
during 1961 of more than 11 percent and, in their preliminary estimates,
are predicting a decline in output during 1962 of nearly 8 percent. Al-
though official figures are believed to exaggerate the extent of the
fluctuation, there is no doubt that 1961 was a banner year for agri-
culture and that 1962 is only an average year. Exceptionally favorable
weather conditions in 1961 and poorer-than-average weather in 1962 ac-
count for the fluctuation. The growth of 3 to 4 percent in agricultural
output from 1960 to 1962 indicated by official figures is only about
one-half of the growth scheduled for the period under the Five Year Plan.
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The growth of national income as a whole during 1961-62 is
likely to average about 5 percent per year, somewhat slower than
the original expectations for the period Under the Second Five Year
Plan and the rate achieved during 1958-60. Moreover, qualitative im-
provements during 1961-62 have not kept pace with the fairly impressive
quantitative achievements of the Polish economy. Although progress has
been made, the program for organizational and technological reform, on
which improvements in efficiency heavily depend, has lagged. The Poles
continue to experience considerable difficulty in producing goods of
the type and quality most in demand by customers, whether for investment,
export, or consumption, and the effective use of output is hindered
further by irregular deliveries and by inefficient management on con-
struction sites. As a result, during 1961-62 the planned growth of
capital investment and personal consumption has not been achieved, and
the growth of inventories once again has been considerably in excess of
plans. Part of the unscheduled growth of inventories was the result of
an above-plan increase in defense expenditures,* which followed from
the worsening of the Berlin situation in 1961.
Expenditures for capital investment increased by 8 percent
during 1961, and a growth of similar magnitude is likely during 1962.
Although rapid, this growth lags behind the rate of 9-1/2 percent per
year as set in the annual plans. Much of the shortfall has been in the
nonproductive sectors. The growth of agricultural investment, however,
has lagged behind the very rapid pace called for in the plans, and per-
formance in key industrial projects, although improved, still is charac-
terized by delays in completion and by excess costs.
Personal consumption increased by 6 percent during 1961, more
rapidly than scheduled. The large increase in agricultural output
boosted peasant incomes considerably and also enabled the regime to ex-
pand rapidly industrial employment and wages without fear of causing
strain in the retail market. The annual plan for 1962 called for a
growth of 4 percent in consumption, but, as a result of difficulties in
agriculture, such an increase now appears to be unlikely. Peasant in-
comes should decline from the level of 1961. The money wages of in-
dustrial workers have increased about as scheduled, but, with the decline
in the harvest, increases in food prices have eroded much of the gain.
The Second Five Year Plan calls for an acceleration of economic
growth during 1963-65, but a number of factors appear to make the con-
ditions for economic growth during the final years of the plan period
less favorable than during the opening years. In particular, the rate
of growth of industrial output should decline over the next few years.
* The category "changes in inventories and reserves" in the Polish
national income accounts is believed to include the bulk of expendi-
tures on the procurement of military hardware.
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One major factor in the less favorable prospects for industrial
production is the decline in agricultural output during 1962 and the
likelihood that the banner increase of 1961 will not soon be repeated.
Agricultural developments will be reflected directly in a slowdown in
the growth of food processing, a major sector of Polish industry that
rose very rapidly during 1961-62. In addition, by restricting the rate
of growth of food supplies available for urban distribution, a decline
in agricultural output followed by a moderate rate of growth may force
the regime to pursue a more cautious employment policy than in 1961-62.
In turn, if urban employment is not increased more than planned, con-
tinued lags in completion of new plant and in the introduction of new
technology are likely to prevent the achievement of goals for industrial
output under the Five Year Plan.
Developments in foreign trade, directly related to agricultural
prospects, are likely to be another factor limiting the rate of expansion
of industry over the next few years. Polish imports from Western
countries of materials and machinery increased much faster than scheduled
during 1961. These imports were supported for the most part by above-
plan exports of agricultural products to the West and by foreign credits,
including a new US credit not accounted for in the Five Year Plan.
Prospects are for a much slower growth of imports from the West over the
next few years, however, because of an aggravation of the perennial
Polish shortage of foreign currency, a trend already apparent late in
1962. Polish exports to the West of agricultural products probably will
be hampered considerably by the leveling off of domestic production and
possibly also by the policies of the Common Market. Moreover, there is
likely to be a reduction in the level of US credits to Poland over the
next few years compared with 1961. Polish efforts to increase exports
to the West of machinery and other manufactured goods so far have been
hindered by the delays in the program for improving the quality of pro-
duction. Finally, because of agricultural difficulties in Poland, at
least for 1963, a larger share of imports from the West will consist of
grains and a smaller share of raw materials for industry.
Probably the most important factor tending to reduce the rate
of growth in Poland over the next few years will be the continued dimi-
nution of easily exploitable opportunities for improving economic ef-
ficiency, an area in which performance has already fallen behind plans
during 1961-62. For the most part, the organizational changes that
could have been put into effect most easily and cheaply were undertaken
first, and future improvements in efficiency are likely to prove in-
creasingly difficult and to be accompanied by larger investment outlays.
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C. Conclusions
The performance of the Polish economy over the new few years
should continue to be generally satisfactory, with rates of expansion
that compare quite favorably with those achieved in the other European
Satellites. Average annual rates of growth in Poland during 1963-65
probably will fall between 5 and 6 percent for national product and
between 7 and 8 percent for industrial output.
Nevertheless, production targets for the final years of the
Five Year Plan will not be met. At the same time, a growth of inven-
tories in excess of plans, because of continued inefficiencies in pro-
duction and above-plan expenditures for defense, probably will more
than absorb the entire reserve of unallocated national income written
into the Plan. Additionally, because the foreign trade deficit ex-
ceeded plans during 1961-62, in the absence of sizable new credits
a larger-than-planned expansion of exports at the expense of domestic
expenditures may be necessary during 1963-65. As a result of these
developments, some adjustment of targets for capital investment and
personal consumption during 1963-65 appears to be inevitable. These
adjustments are likely to be written into the Politburo's program for
the Fourth Party Congress, for meaningful goals for 1965 will become
of increasing importance as the end of the Plan period approaches and
as increased attention is devoted to detailed planning for the post-
1965 period.
A revision of the investment program for the remainder of the
Five Year Plan has already been completed. A systematic review of
investment requirements for industry has been underway since mid-1960,
as a result of which numerous projects will be eliminated or reduced
in size as unessential, impractical, or outdated, and other projects,
now considered to be of greater importance, will be added or enlarged.
The investment revision, for example, will take into account projects
added recently as part of the campaign to expand the capacity and up-
date the technology of plants engaged in export of machinery and other
manufactured products. There also will be changes in structure reflect-
ing the reexamination of production objectives for the post-1965 period,
including changes in response to the movement within the Bloc for
greater specialization of production, under which, for example, Poland
probably will increase its planned investment for shipbuilding.
The revised investment program for 1963-65 calls for a small
increase in outlays above the original plan for the period. However,
because of the lag in investment during 1961-62 and the higher-than-
anticipated costs of investment projects, the volume of investment
originally planned for 1961-65 probably has been reduced. The new pro-
gram also contains some shifts in relative priorities compared with the
original draft of the Five Year Plan. In general, investment in the
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productive sectors will be increased at the expense of investment in
the nonproductive sectors, with the exception of housing and school
construction. Within the productive sector, heavy industry and those
branches of industry producing for agriculture are to receive larger
investments than originally planned, with a concomitant reduction in
the number of investment projects in consumer-oriented branches --
light industry and food processing. 2a/
Goals for personal consumption also will be trimmed in line with
the revised prospects for national income. According to the Five Year Plan,
personal consumption was to increase fairly rapidly during 1963-65 --
by 5-1/2 to 6-1/2 percent per year. The chances are that revised plans
will call for average rates of growth of 4, possibly 5, percent per year.
As a result of revisions in the plan for domestic expenditures,
the share for productive investment probably will be raised and that for
personal consumption reduced, although the new distribution is not likely
to vary greatly from that of the final version of the Five Year Plan.
This further reduction in the priority for consumer well-being relative
to that for long-term economic growth would be an indication that the
regime has gained additional confidence since 1960 that political qui-
escence and economic cooperation on the part of the population would not
be jeopardized by a stretching out of the schedule of promised im-
provements in living conditions.
The new Congress program also will publicize plans and inten-
tions for the post-1965 period, which, it is believed, will reveal no
change in the basic character of the economic policy of the Gomulka
regime. Goals for production probably will be reduced relative to those
publicized in mid-1960, and no essential change is likely in the Gomulka
policy of gradual and voluntary socialization of agriculture.
There is a possibility that a faction within the Polish Commu-
nist Party, recently labeled the "Partisans," has been advocating more
aggressive economic policies as to both the rate of economic growth and
the speed of socialization of agriculture. Such an advocacy, similar
to the Natolin attack on the Congress program of 1958-59, may be in-
tended to increase the political prestige of the dissident group at
the expense of Gomulka's more moderate advisors. Such a dissent, if it
exists, is not likely to gain much support within the Central Committee
primarily because of the broad consensus in support of moderate and
realistic policies. In contrast to 1958-59, moreover, little support
for more vigorous policies can be gained at this time from the example
of the plans of other members of the Bloc. Communist China, Czecho-
slovakia, and East Germany, previous advocates of bold planning, all
have suffered serious economic difficulties in recent years and have
revised their multiyear plans in line with more conservative estimates
of their capabilities.
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Partly because of the recent favorable performance of the
Polish economy relative to that of other Bloc countries and partly
because of the increased personal prestige of Gomulka among leaders of
the Communist Party of the USSR, the prestige within the Soviet Bloc
of Poland's distinctive economic policies has risen considerably since
1960. Late in 1961, at the time of the 22d Congress of the Communist
Party of the USSR, the USSR gave a specific endorsement to the gradual-
istic tactics of the Poles in the field of socialization of agri-
culture. 2L/ More recently, at the meeting in June 1962 of Party
leaders of the Soviet Bloc, an implicit endorsement was given to real-
istic, even conservative, planning as a step toward increasing the
future effectiveness of economic coordination in the Bloc and as a
means for improving the efficiency of the internal economies of Bloc
countries. 22/
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APPENDIX A
POLISH DEFINITIONS AND DATA RELATING TO ECONOMIC AGGREGATES
AS USED IN THIS REPORT
1. National Income
National income by Marxist definition is the sum of income origi-
nating in sectors defined as "productive" (industry and handicrafts,
agriculture, forestry, construction, trade, goods transportation, and
communications), calculated as the sum of the differences between the
gross value of production in each sector and the costs of materials,
including depreciation. Income originating in "nonproductive" sectors
(government services such as education, personal services such as hair
cutting, passenger transportation, and housing) is not included.
National income equals approximately net national product (by US defi-
nition) exclusive of income originating in "nonproductive" sectors.
Official Polish data on national income (labeled "national income
created domestically" in Polish sources) are used in this report and
are believed to provide an only slightly inflated indicator of the
rate of economic growth. The inflation results from the fact that the
excluded "nonproductive" sectors, for the most part, have not been ex-
panding as rapidly as "productive" sectors and that industry, the
fastest growing sector in most years, is given a larger weight than is
justified by relative factor costs.
2. Industrial Production
Official Polish data on plans for gross industrial production are
used in this report. These plans are constituted on the basis of pro-
jections of output for a broad sample of commodities weighted by factory
prices (that is, established prices exclusive of turnover taxes). For
reporting plan fulfillment, however, official data on net industrial
production are used. The Poles derive the official index of net pro-
duction by converting to constant prices both the value of production
at sales prices (factory prices plus taxes) and the cost of materials
purchased and then subtracting the cost of materials from the value of
production.
Official Polish reports on fulfillment of industrial plans generally
are in terms of gross output and are based on the growth of the value
of production at base-year factory prices. This index is believed to
exaggerate the actual growth of output by 1 to 2 percent per year, the
exaggeration being due mainly to inflated pricing of new products and
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improper valuation of changing product assortments by enterprises in
seeking to fulfill the gross production plan. Polish planners are
aware of this exaggeration and frequently rely on the index for net
production in their own analyses of economic developments. The growth
of output since 1956 as reported in the official net index has been
very close on a year-to-year basis to the growth indicated by an index
prepared by this Office from a large sample of commodities.
3. Agricultural Production
Official Polish data on gross agricultural production are used in
reporting both planned and actual output. Both indexes represent
series of physical outputs weighted by base-year prices.
The official index on the growth of agricultural production is be-
lieved to indicate fairly accurately the actual growth of production,
although in certain years some of the physical outputs from which the
index is calculated probably are inflated. An index calculated by this
Office on the basis of gross output minus feed, seed, and waste shows
a growth of 17 percent from 1955 to 1960, whereas the official index
for the period shows a growth of 20 percent.
4. Domestic Expenditures
Domestic expenditures ("national income for distribution" in Polish
terms) refers to the sum of expenditures on personal consumption (ex-
cluding "nonproductive" services), government purchases of goods, net
capital investment, and the increase in inventories and reserves. Do-
mestic expenditures plus net foreign investment (or minus net foreign
disinvestment) -- that is, the internal value of the foreign balance
on goods and services -- is the counterpart of national income.
Throughout the 1956-62 period, imports have exceeded exports, and,
therefore, the value of domestic expenditures has exceeded that of
national income. In 1958 and again in 1960, however, the size of the
foreign trade deficit declined, and the rate of growth of domestic ex-
penditures was smaller than that of national income.
5. Personal Consumption
The official Polish measure of personal consumption covers the
consumption of goods but only part of the consumption of services. The
main components of this measure are personal expenditures on consumer
goods and handicraft services (for example, shoe repairing, laundering,
and appliance repairs), the value at retail prices of goods obtained as
payment in kind by the urban population, farm income in kind valued at
contract (noncompulsory) delivery prices, and the value of state and
private expenditures for capital repairs of housing.
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The official index of personal consumption is believed to measure
fairly reliably the growth of consumption of goods, but it overstates
the growth of total personal consumption (according to the US definition)
by an estimated one-half to 1 percent per year. The main reason for this
overstatement is that net rent for housing, the slowest growing component
of consumption in Poland, is not counted in the official index.
6. Government Purchases
Government purchases (referred to as "other consumption" in Polish
sources) measures the value of goods and contracted services used by
state organizations (administrative, social-cultural, and military) and
by other "nonproductive" sectors (passenger transport and various other
types of services), as well as purchases by state organizations for
distribution to individuals (for example, foods and medicines consumed
in hospitals and military subsistence). The wages of government
employees and of persons employed in other "nonproductive" sectors are
not included in government purchases.
7. Capital Investment
Official data on plans and fulfillment for gross capital investment
(expenditures on producers' plant and evipment, housing, and other
types of fixed capital) are used in this report. Official series in
constant prices probably overstate somewhat the actual growth in the
volume of capital investment because of inadequate adjustments for in-
creases in investment costs, but no alternative series are available.
To arrive at net capital investment, a component of domestic expendi-
tures, the Poles add capital repairs to gross capital investment and
deduct depreciation. Because of incomplete data on annual plans,
indexes of net capital investment are not used in this report.
In this report the term productive investment refers to outlays for
industry, agriculture, forestry, construction, trade, transportation,
and communications. The term nonproductive investment refers to outlays
for housing, social-cultural facilities, municipal improvements, and
administration (justice, local government, and militia).
8. Increases in Inventories and Reserves
Official data on increases in inventories and reserves cover all
levels of inventories and state reserves and are believed to include
also the bulk of expenditures on military equipment.
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