SOVIET SUBSIDIES TO EASTERN ECONOMIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R001103940160-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 20, 2016
• Document Release Date: November 27, 2007
• Sequence Number: 160
• Publication Date: January 15, 1982
• Content Type: OPEN SOURCE

Approved For Release 2007/11/28: CIA-RDP88B00443RO01103940160-0
? ?
THE WALL STREET JOURNAL, FRIDAY, JANUARY IS, 1982 .
Soviet Subsidies to Eastern Economies
By 3Ax VArrous and MiciiAei. MAxREsr. Union primarily exports fuels and non-food West. It is the Soviet Union that subsidizes
It is now being argued that the Soviet raw materials to Eastern Europe and im- "the Polish economy.
Union has been economically exploiting its ports manufactured goods, the intra-Come- - Moreover during the past two years Po-
trade partners in the Council for Mutual con price formation formula has not land has received other Soviet economic
trade Economic Assistance (Comecon), particu- worked in its favor,' In other words, 'assistance. In addition to the $6.5 billion in
larly Poland, by using the "transferable thoughout the decade, the Soviet Union trade subsidies we estimate Poland re-
" to obtain hfavorable rle would have been better off economically if . ceived from the Soviet Union in 1950-81, It
ruble" to
exchange highly igh In this way. it - it had been able to divert its exports of en- also got $0.8 billion in direct Soviet hard-
ble/dollar rates. In able to buy Is. ergy and raw materials from Eastern Eu? currency loans,- $0.5 billion in Comecon
argued, goods from is s bast Euro- rope to the West and purchase the manu- - bank loans backed by the Soviet Union and
manufactured the rSoviet factures it needs from the West rather than $2.7 billion worth of ruble credits (equiva-
mean partners goodply while Eastern Eo from Eastern Europe. lent to about $2.3 billion at a realistic ex-
rope must. supposedly borrow heavily in To illustrate how Soviet Union subsi- change rate of 1.18 rubles per dollar). To
the West to buy the machinery and mate- dizes its trade with Eastern Europe, we'll tal Soviet economic assistance to Poland,
rial used to produce these manufactured use some examples, from Polish-Soviet including repayable credits, amounted to
goods. And this Soviet exploitation of-East
European workers and Western credit
markets is said to have been used to allow Soviet Union ` rential trade .
the Soviets to build and maintain a vast The engages in afe_.
military establishment. to .Sustain the allegiance of and maintain dominance
The problem-with the theory is that its
key premise-that that. the Soviet Union ex- over Eastern 'Europe's Communist parties.
ploits Eastern Europe through the imposi-
tion of ? discriminatory terms of trade-is
not supported by the facts. A recent study trade. Three key Polish import commodi- an equivalent of $10.1 billion. It is hardly
prepared by the authors, soon to be pub- ties, which represent 31% of Polish imports surprising Soviet political leaders have
lished by the University of California Press from the Soviet Union, are crude oil, natu- been demanding some political return on
at Berkeley, concluded that in recent years ral gas and cotton. Three key Polish export their "investment" in Poland.
the Soviet Union has granted Eastern Eu- commodities, which account for 13% of This brings us to the question of why
rope large trade subsidies, averaging $5.8 Polish exports to the Soviet Union, are the Soviet Union is willing to subsidize
billion during 1974-78, rising to $10.4 billion
11980.
Similarly, in a report before the Joint
(in million current dollars) =
8, n,aj. Gen. ...a.. and -.. ........... --r__, i
1914
o. ,._.
1081
r-..Ao.~.,,~M
..-..
P st Ctn, ' '
----
Hyagnryl
rector of the Defense 'Intelligence Agency,
1975
919
1097
1665
598
and Edward M. Collins, vice director for .
1976
877
1195
1786 ?
671
foreign intelligence, said that "Soviet aid
1977
1015
1226
1896
645
of all kinds to other Communist regimes .
'1978
1087
- 1086 ,
?'1914
661
rose from nearly $2 billion in 1971 to nearly..., 1
'19790*
2000
' 2000' -
'
3400 .
1200
$24 billion in 1980." In view of the erhpirt-
"
.1980? '
4100 '
4100
7200
2600
descrip-
cal failure of the "exploitationist
.P,r,i,,,,,,r, es,mtm
- ~tarw~en CMSA SL'-
'
potzrd"
1027 19 5325
1021 45.. 5595 .
1106 50 5938
897 109' `? ? 5754
100 10t00
00
17
' 3500 200 21700
of Eastern Europe, we are forced to look , ' -.
for other explanations.' hard coal, railroad cars. and fishing Craw- Eastern Europe. If, as some view it, East
The most likely motivation for a Soviet lers. . ern Europe - is -a part of the Soviet
policy of economic subsidization of Eastern. Using data from the official Polish for- "empire." would it not be reasonable to ex-
eign trade statistical yearbook for 1980, we pect that the Soviet Union maintains this
Europe is to obtain military, political, and ; .
ideological benefits. from the. Communist compare prices of Polish exports to the So? empire to exploit it? We, argue to the con-- ,
parties of East European. countries..-__.. .. i~ret Union and to the West, and prices of trary. With respect to trade with Eastern
Polish imports from the Soviet Union and - Europe. the Soviet leaders seek, in addition
Distribution Estimate from the West for each of the above com- to the conventional gains from trade, cer.
Our estimate of the distribution of So- modities. tarn non-economic benefits that are mtli-
viet trade subsidies among individual East At the ruble/dollar exchange rate of 0.65 tary, political and ideological. -
European countries is presented in the ac- ruble per dollar, we found that the Polish . The Soviet political leadership main-
companying table: r - -: . -, - import price for Soviet crude oil was 52% tarns national security from a combination
What gives rise to 'these subsidies? below the average import price from the of Soviet troops and military hardware In
Their primary source Is the price forma- . West, 26% below the Soviet export price to the Soviet Union, Soviet troops and mili-
tion formula used by the Comecon coun- the West for natural gas and 18% below tary hardware stationed in Eastern Europe
tries for intra-bloc trade. Since 1975, intra- the average import price from the West for and the allegiance of. the- Communist par-
Comecon prices have been set on the basis.. cotton.' The Polish export price for hard ties of East European countries. This alle-
of a lagged five-year moving average of coal was 25% above the average export giance can substitute for the, direct use of
dollar world market prices converted to ru- price to the West, for railroad cars 12% Soviet manpower and hardware to provide -
bles. For example, the Soviet export price above and 149% above for fishing trawlers. security services to the Soviet Union. The
for oi1 in 1980 was based on. the average of Hence, unless one argues that the official Soviet Union Is the dominant power within
world market prices during 1975-79. ' Polish trade statistics are intentionally dis- Comecon, and it engages in preferential
Over the last decade, 'world' market .. torted by the authorities, for which we trade treatment of Eastern Europe relative
prices of energy and primary goods have have no evidence, we have to conclude that to the West to sustain the allegiance of and -
been growing much faster than prices of Poland trades with the Soviet Union at maintain dominance over the Communist
.manufactured goods. Since the Soviet. 'terms far superior to these available in the parties of Eastern Europe.
Approved For Release 2007/11/28: CIA-RDP88B00443R001103940160-0
Soviet Trade Subsidies to East European Countries -- - - . _. .
 Approved For Release 2007/11/28: CIA-RDP88B00443R001103940160-0 -
r
In return, the Soviet Union obtains im-
'portant military and strategic benefits:
creation and maintenance of the Warsaw
Pact military alliance, a buffer of several
hundred miles between itself and Western
Europe, forward military bases in Eastern
Europe and proxy intervention (particu
larly in the case of East Germany) in
Third World countries on behalf of the Sow..
viet Union.
The Soviet Union also obtains political..
benefits: voting along alliance lines in In--
ternational forums, informal Eastern Eu,'
ropean government and media support,
and, to some extent, even the support and:
friendship of certain segments of the East
European population. Ideological benefits!
F`.4 have occurred primarily through accep.;;.
tance of the Soviet brand of communist po-.,
liticat ideology and its propagation to other i
countries.
Finally there are also some special eco'-
nomic, benefits available to the . Soviet .
Union in return for its trade subsidies: in-
creased economic stability in Comecon, re-
duced risk of disrupted flow of strategic
goods (technologically superior machinery,
from East Germany and Czechoslovakia]
and reduced risk of refusal to purchase So-?
viet exports for reasons other than their
price competitiveness.
Are They Better Off?
The next question is whether Eastern.;
Europe is better off for being associated so
closely with the Soviet Union. If the Soviet
trade subsidies are viewed as "payment":
for the loss of East European sovereignty.-:.
the answer is probably no. An independent
Eastern Europe, free to restructure its in-':
ternal and external economic relationships, r
would probably be far more productive. It'
is unlikely that the Soviet: subsidy makes,
up for the low productivity of the current;
system. Moreover, under the conditions of
Soviet "hegemony" in Eastern Europe.
there is no reason for the Soviet Union to
fully compensate East European countries
' for the loss of sovereignty because of the
expected high'cost of a popular rebellion in
terms of human lives and property. .
It is essential that Western policy mak? i
ers have an accurate understanding of the-.
nature of the economic. relationship be'
tween -Eastern ' Europe and the Soviet'
Union In general, and Poland and the So~-
viet Union in particular. Failure to. recog
nize' the extent of Soviet subsidization will
only hamper Western efforts to support the
Polish people's struggle to overcome their,'
current economic problems and to reduce'
the degree of Soviet domination over Poa'1
land.
Mr. Vanous is senior economist with
Wharton Econometric Forecasting Asso-
: ? ciates of Washington,' D.G. and Mr.
Marrese is assistant professor of econom-
ics at Northieestern University.
Approved For Release 2007/11/28: CIA-RDP88B00443R001103940160-0