ECONOMIC - PLANNING, FINANCE, ORGANIZATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000600140191-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: June 13, 2011
• Sequence Number: 191
• Publication Date: November 2, 1951
• Content Type: REPORT

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anvwW~..vp~.ry~r~nv l, t^~?~,/.'`J1i1yr11~YJi/I
CENTRAL INTELLIC,ENCE WENC
Czechoslovakia
gconomic - Planning, finance, organization
DATE OF
INFORMATION 1951
DATE DIST. Z 4vl95l
SUPPLEMENT TO
REPORT NO.
OP YN9 WwtAYA IIea7U rN~aLNw 1ws IY S k* NNi """Aft A,7 w
.. _ . _...... sr.w.. ?LUfil SIP Of 'N tww PflIM*NaN
AMYSId OF TIM ]9~d~BTGBT OF THE cMWS oVAK sTATZ
First, there is the economic plan of activities which is at, the top of the
pyramid. The base is formed by the plans of the individual enterprises, and
naturally the plans of the enterprises also-resemble smaller pyramids. These
small pyramids are formed by the integration of the shop and factory plans of
the ebterprise.
The integratipn of the plans of the individual enterprises is on industry
level; for example, the plan of the machine-building, glass, and textile indus-
tries, or that of highway transport, etc. These industry plans are then inte-
grated later with the plans of that entire industry, for distribution, for trans-
port, etc. The economic plan of all these activities forms the complete arch of
which the budget is the keystone.
The state economic plan is very complicated. It is conceived as an integra-
tion of many individual plans which are arranged hierarchically. This integra-
tion of the different plans proceeds simultaneously on two independent and paral-
lel routes.
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C;visucvi%Nim OFFICIALS G MX
CLASSIFICATION s-M-+C_-B-T
The state budget for the current year was presented to the parliament in
February 1951. After a very brief discussion, the budget was passed in March
1951. -
The Minister of Finance states that this will become the normal operating
procedure. in cne t zecnua.LVYNU. cc:vuvmAi yiou ,.... ~+~.- - -u- -~ - _
However, the compilation of the economic plan is a long and tedious task, which
normally cannot be completed until almost the and of the year. For this reason
the work on the final budget can be begun only in January.
stra NAY! sass
wan ]XIMI -
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To get the idea of the other method used to establish the state economic
plan, it is first necessary to understand clearly that each economic plan of an
industrial enterprise is broken down into a series of operational plans: plan
for supplying raw materials, plan of maintaining stocks of raw materials, plan
of developing manufacturing operations, manufacturing plan, plan of stocks of
manufactured goods, plan of flow of products, manpower plan, financial plan, in-
vestment plan, maintenance plan, etc.
It is prescribed that the operational plans be divided into plans for set
periods of time, with no period greater than one month. Some enterprises, like
the former "Bata," establish this operational plans on a weekly basis.
For certain operations which are important to the entire economy of the na-
tion over-all plans are established for some special activities. These plans
are integrated in the formation of the state economic plan. On the basis of the
operational plans, the state has established plans for the production and distri-
bution of coal, steel, fuel, and nonferrous metals, the state investment plan,
the state financial plan, the wage plan, labor plan, etc.
The state economic plan is organized on four levels: (1) the state economic
y, ing Offs (2) L'p?l??^?ane of the economic sectors
the State rlau,m'7,~s~ N.a i .. i.+"..; (2)
hea b
b
li
y
l
s
plan esta
established by the various ministries; (3) the industry plans established by the
central directorate of the respective sectors; and (4) the economic plans of the
individual enterprises. This organization was simplified in September 1951 by a
governmental decree which abolished the third level. All the central directorates
were dissolved, and the Ministry of Heavy Industry was subdivided into new minis-
tries to which the individual enterprises will be attached directly from now on.
Part of the personnel of the central directorates will be taken into the new min-
istries; however, Doctor Dolansky, Chairman of the State Planning Office, stated
that 39 percent will be sent to the factories as manual workers.
The basic idea of the present Communist government in Czechoslovakia in
establishing the budget is to enter in the state budget all the economic activi-
ties of Czechoslovakia, provided that they are expressed only in money. So, in
the future, there will be only one budget, encompassing all activities, expressed
in Czechoslovak crowns, and a single state plan, representing these same activ-
ities in non-monetary terms.
The concept of one budget and one economic plan, based on the example of
the USSR, is the goal of the Czechoslovak government, but this goal will probably
not be reached for some time. Nevertheless, even today, there are two sectors
where the b:.dget and the state plan touch and where the budget Is established in
accordance with the state plan. These two sectors are investments and financing.
One part of the investments is contributed directly by the state, the other part
by the enterprises; so, there must be coordination in the investments plan. In
the field of financing, the state has become the exclusive financier of the econ-
omy because private banking has almost disappeared.
We shall present a brief summary of the trends which appear in the approved
1951 budget and compare it with the i949 and 1950 budget. It is necessary tc
give some general characteristics on the present structure of the Czechoslovak
budget, which is in a state of transition toward the Soviet budget system. The
whole Czechoslovak economy appears as a single budget.
The state budget has four parts: (1) the state budget proper; (2) servic-
ing the national debt; (3) social security, and, (4) financing the national econ-
omy.
As a result of the second banking reform in 1950,,. there are only twb;benks
in operation: the State Bank and the Investment Bank. The first performs the
functions of a normal bank, organizes and grants short- and medium-term credit
to the national economy, and is the controlling organ of the plan for financing
SECIE`
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the economy. (This control is called "control by the crown," corresponding to
the Soviet control called "control by the ruble.") In the fiscal organization
the State Bank as the Treasury was listedeinsthelbupaymes dgets fory19 the state. 9 and 1950, For this
reason, the Treasury, which
not appear in the 1.951 budget.
on the other hand, the Investment Bank is the organ for granting long-term
credit. This bank receives regular deposits made up of the amortization on the
balance sheets of the national enterprises and also from their profits. It also
receives from the funds fo7r financing the national economy the allocations which
the state makes to the fund of the national economy.
Between 1949 and 1951, the credits granted to private enterprises fell from
4.5 percent to 2 percent of the total credits granted; all credit transactions
within
were controlled by the state. With the exception of wages all payme s
the state are to be made by bank clerks.
Another characteristic of the planned economy in Czechoslovakia 1s that the
amount of working capital available to the enterprises is being constantly de-
creased. It is prohibited to create reserves other than those legally prescribed.
As has already been said, the enterprises are forced to deposit every month in
the Investment Bank their amortization quotas. The taxes must also be paid to
the state each month. The profits of the national enterprises, after the deduc-
tion of the legal withholdings, have to be paid to the Fund of the National Econ-
omy.
The enterprises may not request credit in excess of what has been provided
and approved in the plans of the enterprises. It is interesting, in this connec-
tion, to point out that in March 1951 the government authorized emore
efse9ere meas-
ures for liquidating credits in ordsr to pay wages.
amounts reserved for wages ir, the plans of the enterprises were "frozen." This
new measure means that the 3tatt 1_el'- m:;st check the sums paid ttastwawages by
the enterprises and limit the credits tc be used for this purpose
established in the plans.
The control of the application of the financial plans in the entire Czecho-
___ _ne*o .-i+h t.hp state Bank. The control of long-term credits is
the duty of the Investment Bank. The "control by the crown- is mace poaniuic uy
the interdiction of cash payments, and thus almost all payments must pass th:cugh
the State Bank and the Investment Bank in the form of checks c!j the respective
accounts.
These examples of the close interdependence between the fiscal syster.snd
the financial organization or toe national budget show how difficult it is to
analyza the actual w es to which the various appropriations in the budget are
put. For political reasons, the actual astirnal defense budget has been increased
annuall,' by only one billion crowns for the past 3 years. In contrast to this,
the budgets of the Ministry of the Interior and the Ministr; of National Security
have olmost tripled during the same period. Large sums have been allocated annis-
ally to the Fund for National Industry. According to published official figures,
pre-
thesecrowns
the allocations were 951billion rnment has9annana 44 ouncedbillion
sums are used
liminary budget for 19, Go e
to increase the production potential of heavy industry.
the Ministry of Sa. a welfare an d the Ministry o ea
have listed the expomses for building and equipping 11 military hospitals- Ac-
cording to the source, these hospitaaa were to have been kept in reserve until
needed but the contracts had already been awarded. It Is-certain that t mosts of
the items in the budget are used to cover the costs of -reattah84 of
a political -nature, or of the needs of the Communist Partj. 'The Party organizes
pyblic demonstrations, propaganda, training of political cadres, etc.
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Thud, one must say that the state economic plan of Czechoslovakia, con-
trolled by an interdependent "fiscal finance" system, and based on systematic
propaganda and surveillance by the police system of the Ministry of Rational
Security, is an instrument in the hands of the leaders of the Communist Party
which they use to pursue their interests without being constrained by public
opinion. But it should be pointed out that complete suppression of free dis-
cussion on the details of Communist policies, and the direct control of public
opinion, bring about in the people a slow but profound accumulation of feel-
ings of discontent and revolt. In the present world political situation this
in a factor-of the greatest importance, and one which is worth noting, since
at any given moment it may become decisive for the West. It is also probably
the factor which would make possible the solution of the present political
difficulties while avoiding a world war.
That these observations awhenn correct to change Comunist leaders
structure
themselves in September 1951, 1 , they were
of the government and to form a special Ministry of State Control. It appears
that the administrative structure of the state plan, which is already very
complex itself, is henceforth to be duplicated, from top to bottom, by an
autonomous control organization having queei-dictstosiai powers. The effec-
tive control of the new ministry will apparently be based primarily on the
over-all operational plans for production and distribution of basic raw ma-
terials and on the plans for heavy industry. This control has until now been
in the hands of the administrators of the plan. Another control, and a very
strict one, was carried out by the Ministry of Rational Security; the agents
of this control are in the organs of local administration and,tinstherfon of
factory police, in individual establishments. App a Y all are from now on to be under the new Ministry of State Control.
These latest decisions show that propaganda, police control, and plan or-
ganization have proved insufficient. The discipline of the mass of workers,
their productivity and the loyalty of the employees and the managers of the
national enterprises, are beginning to deteriorate.
To avoid this, the Communist leaders feel obliged to centralize more
thoroughly and to organize a stricter cor.!r = of the economy. At the same
time they no longer have
time they are trying to riu
confidence by transferring functionaries and white-collar workers to the fac-
tories.
This transfer of intellectuals to the factories, however, should be con-
sidered rather as a sign of the weakness of the regime. Among those shifted
are many malcontents and critics of the regime. Further, this program is be-
ginning to affect even Communist Party members. But these elements will
merely increase the discontent among the factory workers.
We have attempted to sbo+ the environment in which the Communist experi-
ment is developing in Czechoslovakia, a very highly industrialized country and
one with a long democratic tradition. We have also tried to analyze more
closely the difficulties with which this experiment is faced. Now we shall
examine the fiscal evolution in Czechoslovakia during the last 3 years) ,
during the first 3 years of the present Communist regime.
The following table shows the principal categories of the state budget
for the years 1949 through 1951, in mi,'.lions of crowns.
Revenues Expenditures
-- 1950 1951 2 12 i4
President of the 0,6
Republic 72.2 82.9 69.4 11 14.9
Rational Assembly 85.3 80 83.3 o.6 0.4 1.2
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Slovak National
Council
E,cpenditures
Mj: ig c 19
r8lovsk Board
of Comisaionera? 162.7 31.3
Revenues
l9 - 1 0
Presidium of
Council L 315.9
Presidium of
Slovak Council
Central Planning
office
506.0 651.3
9,565 l0,5o6
io,668 11,614,9
National scar 5,064
ity 616 2,041
Justice 1,294 1,
Unification of
Laws 12.8 11.4
Education 8,568 10,266 12,183
Information 536 797 1,905
Agriculture 2,214 4,757 4,823.4
Food 382 578 638.2
Heavy Industry 730 1,641 2,692
Light Industry -- -- 717
Internal Trade 164.6 306 473
Foreign Trade 142 140 173
sDa 18.531 13.437.5
;... -871 831.6
Transportation 915 31.6
Posts 46.9 31
Social welfare,
Labor 8,183 14,263 18,730
Health 5,635 6,625 8,310
Finance 2,367 2,207 566.5
Supreme Court 15.2 15.7 15.9
Physical Culture -- 369 539.4
Pensions 2,957 6,732 1,190
Office of Control 43 43 42
Foreign Affairs 409.0
National Defense 8,359
Interior 6,758
General funds 31,292
Total 89,278
Office of Religious
Affairs
5.6 15.0 12.5
2S3 292 103
411 549 104.5
104
9
318
2
73
7
255
129
65
228
7
625
43
64
-3
13
294
110
149
918
69.5
579
22
2.8
12.6
135
166,520
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u-R-C-R-E-T
The over-all 1951 budget is broken down as follows:
Millions
Receipts
166,520
Budgetary expenses
114,451
Servicing national debts
4,707
Deficit from social security
3,609
Deposits in the Fund of the
Nationalized Economy
43,400
Total expenses
166,267
Budget surplus
253
This table requires some explanation.
1. The Central Planning office was made autonomous in 1950. It con-
sists of the General Secretariat of the Economic Council, the Planning Office,
the Supreme Price Office, and the State Statistical Office.
2? The Ministry of Industry was divided in 1950 into the Ministry of
Light Industry and the Ministry of Heavy Industry. This happened to coincide
with the decision, based on an order from Moscow, to accelerate the realiza-
tion of the production and investment plans of the heavy ndust the production
The
Five-Year Plan of this sector is to be realized in 3 years, of the prewar
capacity of heavy industry is to equal, in 1953, 300 percent
level. At the same time the central directorate of the Czechoslovak Metalwork-
ing and Machine Factories was reorganized; this was a national enterprise com-
prising about 73 enterprises and some 300,000 workers. This directorate was
broken down into four central directorates, for the heavy metalworking indus-
try, precision mechanics industry, electrotechnical industry, and metal con-
...,me 1ruvatrv_ respectively.
However, by government decree of 7 September 1951, the Ministry of Heavy
Industry was broken down into five new ministries: the Ministry of Fuels and
Power, the Ministry of Ore Mines and the Metallurgical Industry, the Ministry
of the Chemical Industry, the Ministry of Heavy Machine Building, and the Min-
ictry oi' General Machine Building. At the same time all the central directo-
rates were liquidated.
3. For reasons of political security the secret policy, along with the
national security forces, were detached from the Ministry of the Interior in
1950 and jade into a new ministry. But the budget of the Ministry of the In-
terior for 1951 covers the expenses of the regional administration of the Na-
tional Co ittees as well as of the ordinary police.
It shoul& also be mentioned that- in 1951 the secret police, national
security organs, and the frontier guards received the legal status of .he army
as well, as army materiel.
4. The pension service for public functionaries was liquidated in 1951
and taken over by the social insurance service. It should be pointed. out also
that in the, new law on the uationalizat.ion of industry a new method has been
introduced for compensating the former owners of nationalized property. They
are now to be included in the social insurance setup. Actually the pension
for former employers, to be used when they get too old to work, is the only
form of compensation that exists. Of course, this does not concern the young
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people who, like everyone, have to accept the work offered them by the labor of-
fices. The former owners generally work in a special establishment in which the
police keeps a strict control.
Until 1948 the state budgets in Czechoslovakia were deficit budgets, and in
1946 the deficit rose to about 10 billion crowns. By introducing a general sales less
tax the Communists succeeded in turning this deficit into a surplus in 1949.
new tax resembles the former tax
the newntathe xesvoare enormous and can be changed former a tax
was from one t to 3 percent,
decree of the Ministry of Finance. According to the declaration of the
Minister before the parliament in February 1951, the regular distribution of con-
sumers' goods yields the major part of this revenue, while the free market takes
only second place.
This tax is the means by which the Communist regime controls prices and the
li:dug stte dskrd, and by which it masks the exploitation of which the vast masses
of the population are victims.
During 951 there have
then titvo me of the grain supply crisis, and this summer,
In the meat and ary, at
during ing the supply crisis. In both cases the crisis was caused by enormous,
consumption and wastage. Although analyses show that the harvests an well as
the stocks of plant products were sufficient, in February, bread and flour ration-
ing were reintroduced. It is true that the reintroduction of rationing for bread
and other materials, side by side with the free market, permits the government
to control the supply situation of the country. But with the conditions in pro-
duction which obtained at that time it appeared that these measures were primarily in- in the nature of economic mobilization. Further, there have beeenve one can see
stances of price increases on the free market since February, e tha
that the Communists in Czechoslovakia have in the sales tax country
ment for controlling the living standard and for supplying the t
of war.
One must not lose sight of the fact, however, that the saiea %;mx ;.m iu
a form of consumption tax from which the revenue is enormous!
In 1949, this tax wan estimated in the budget at 46 billion crowns, while
the effective return was 70 billion. In 1950, the budget estimate was 70 billion,
and the return probably exceed! 80 billion. Finally in 1951, the budget in-
cluded 106 billion crowns from the sales tax.
It can be seen that the fiscal policy of Czechoslovakia is following the
Soviet example. By controlling salaries and prices the government is trying to
obtain maximum production, partic"laxly in those sectors in which it is politi-
cally interested. Production fails Into two categories! production which is
ai ofrt for ime Taki, athe which corresponds to the
calculations,tif the
aims ms of the regime. Taking
value of these two groups of products is C (consumers- goods) and A (arms), and
supposing that the national enterprises realize profits P and pay taxes T to
the state, it follows that the sum of salaries distributed for the national
in a ate of
. But in order to maintain the
T
the prices of consumers, goods must be raised so economy thetsales
prices of these products to the consumer will equal the salaries paid out, i.e.,
C +A - P - T /iis . This is to say that the proge an of prod=tiot of goods
which serve the poli.ti~al purposes of the regime is.realized without disturbing
the economic equilibria since the capital neeer my for financing production
in the heavy industrial sector and for investments is extracted from the economy
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,rk ,n dsbvi' ` R w-'',', e, ?9 ; F? &'?.,'~?.,,P &,s ', .d , d ,v o~:qm ~.''? ~ weo ,. h1.7& Tv E
in the form of the sales tax. Of course, the system leads to a worse and
worse slavery to the extent that production of goods for political purposes
increases.
To show where this policy of exploitation -- which may be characterized
--
as diabolical, and, for the people who have to carry the burden, as tragic
can lead, we should like to add some data on the tempo of this policy over a
period of time. .
Ta foilowina table gives the 1937, 1949, 1950, and 1951 figures on the
In Billions of Present-Day Crowns (in prewar crowns for 1937)
l0
1951
National income
60
240
260
280
Budgetary expenditures
10
89
131
166
As % of national income
16%
37%
50%
60%
Receipts from sales tax
2.8
70
Over
80
106
As % of national income
4.64
29%
30%
380
Thus, before the war the Czechoslovak state required 16 percent of the
dead purchasing power, that is, consumer taxes which the worker is obliged
to pay on products for his daily consumption -- and not only when he buys
them on the free market, but even when he buys on the controlled market!
Considering the increasing tempo in the receipts from this sales tax, it is
very probable that the worker's dead purchasing power has already exceeded
40 crowns for each 100 crowns which he nominally earns!
been able to realize large surpluses during the last 3 years. According to the
closing of the accounts for the fiscal year 1949, presepted to the parliament
in February 1951, this surplus amounted to 35 billion crown for the first year
of the Coununist regime, 24 billion of which represented advances on the sales
tax receipts'and 11 billion represented planned investment projects which had
not 'been completed during the year. It is significant that these 11 billion,
representinj projects which had not been completed, were no. carried over to the
following year with a view to completing the projects during that year, but were
simply placed in the Fund of the Nationalized Bconosq* along with the 24-billion
surplus from the sales tax receipts. What happened was that, in the meantime,
orders had come from Moscow to accelerate construction and to increase produc-
tion in the sphere of heavy industry -- and so all the projects started during
1949 were left unfinished. For example, the children's hospital in 8rso, con-
struction of which was started in 1949; has for 2 years been completely aban-
doned'.
To accelerate the realization of the plans for heavy industry, the Fund of
the National 19conomy was organised in 1950, with a gum of 20 billion crowns pro-
vided for it in that year's budget. The 1951 budget provided 43.4 billion croons
for this fund, in addition to the 35 billion budgetary surplus from 1949.
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Under the Five-Year Plan (1949 - 1953) it was planned that investments in
industry should reach a total value of 132 billion crowns. A considerable
portion of these investments was to be financed from the enterprises' own funds,
and also the profits realized by the nationalized economy. The total value of
difficult to make any estimate on the profits. But no serious error in calcula-
are exerting pressure on Prague to obtain what they want from the Czechoslovak
economy. we need only consider the following data: credits planned under the
crowns; credits actually made available to heavy Industry withiss 3 years, 21
ductivity by introducing two and three shifts everywhere, Contending that there
ployment, so as to be able in this way to free masculine workers for heavy in-
dustry; if one considers the Czechoslovak government's recent decision to send
77,000 white-collar workers from the government administration and from the na-
tional enterprises, and 39 percent of the personnel from the central directo-
rates which are now being liquidated, into the workshops to work at manual
labor; then one may realize that this is not a question of activities designed
to improve the lot of the population but a terrible exploitation of the Czecho-
slovak economy, organized in conformance with political directives from Moscow
by the Communist leaders in Prague, who are in the grip of panic, fear, and
mutual hate, but are unable to lift their voices.
This Communist hysteria in Prague certainly constitutes one of the aspects
of the danger which the West must pay close attention to. But the reactions
which this political, economic, and social exploitation arouses in large groups
of the Czechoslovak population may perhaps be even more important. If it should
be possible to succeed in sustaining the morale of the Czechoslovak people dur-
ing this present period of oppression, their value, at the proper moment, for
the defense of Atlantic civilization may be immeasurable
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