PRESENT STATUS OF THE EUROPEAN SATELLITE ECONOMIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP91T01172R000300040009-7
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: July 17, 2012
• Sequence Number: 9
• Publication Date: November 23, 1954
• Content Type: MEMO

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Copy No.
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
23 November 1954
S~ _RS^~~ts~ ~'OR ~-~^r,~sszrzi;.~rIO~r ~~r'Hi
T?: Deputy Director (Intelligence)
SUBJECT: Present Status of the European Satellite Economies
Summary
The Eastern European Satellites have generally failed so
far to fulfill the goals of their new economic course which
began in mid-1953. This program, which called for sharp in-
creases in the output of agricultural and. consumer goods, was
designed to correct the imbalances in Satellite economies
caused by their rapid industrialization program in the post-
war period.
Unfavorable weather during late 1953 and most of 1954
together with a continued shortage of agricultural equipment
and fertilizers, held agricultural production down. In addi-
tion, the Satellites, with the exception of Poland., have gen-
erally failed to reach their industrial targets, although the
new course has called for much smaller increases in industrial
production than had been achieved previously. While all of
the Satellites have claimed substantial progress in expanding
the output of manufactured consumer goods, these increases
were not sufficient to offset the failures of heavy industry,
particularly the critical fuel and power sectors.
The Satellites are planning to continue the policies of
the new course for several years, and should be able to make
better progress in the future than they have during the past
year, for the period of transition will be over and the in-
creased supplies of consumer goods should result in increased
labor productivity.
Background
The new economic policies announced by the Eastern Euro-
pears Satellite governments beginning in mid-1953 have gen-
erally failed so far in their attempt to correct the imbal-
ances in their economies. While the Satellites-made great
strides in expanding industrial production during the post-
war period., these gains were made by neglecting agricultural
and consumer goods production, which resulted in such serious
disproportions in their economies that the Satellites found
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25X1
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f'
it necessary to shift the focus of their plans in mid-1953.
A brief review of the economic developments in Eastern Europe
during the last few years provides perspective for considering
some of their present difficulties and. speculating on probable
future developments.
During the years 194? to 1949 all of the Satellites
began operating their economies under annual plans, and ,
the general aim of these plans was to raise production
levels and standards of living to approximately prewar levels.
Most countries easily met their plan goals, with production
of industrial equipment rising much more rapidly than production
of consumers' goods or agricultural products.
Between 1949 and 1951 all of the Satellites adopted. ex-
tremely ambitious long-term plans which called for large --
investments in industry--chiefly heavy industry--in order
to increase industrial production by amounts ranging from
over one half in Czechoslovakia to nearly one and one-half
times in Rumania. The regimes intended to achieve these goals
by directing the surplus rural population to the cities to
work in industry, and, through concentrating investments in
agricultural equipment and fertilizers on the collective farms
which were to be organized, agricultural production was to
increase moderately in spite of the loss of manpower to the
cities.
During the first year or two of the long-term plans the
Satellites generally met their targets with impressive gains
in industrial growth. Industrial production in the Satelutes,
excluding Albania, was estimated to be nearly double the pre-
war level during 1950, and to have increased by an additional
18 percent in 1951. Because of these achievements, the re-
gimes by early 1952 had. revised. their industrial production
goals upwards, and heavy industry was to receive even greater
emphasis than previously.
Shortly after these upward revisions, the Satellites
began to encounter serious difficulties. Peasant opposition
to collectivization and high delivery norms and worker re-
sentment over the lack of consumers' goods, coupled with lag-
ging investment programs in industry and agriculture, limited
production gains. At the same time, trade restrictions ap-,
plied by Western countries, as well as ~`hc gr.owing volume of
industrial equipment being exported to:Ghina, added burdens
that were unforeseen when the long-term plans were formulated.
The final blow was the drought during the 1952 growing season,
which hit the Balkans and Hungary particularly hand., and
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resulted in severe food shortages in a number of Satellites.
These shortages, together with the previously mentioned
difficulties, resulted in widespread worker and peasant dis-
affection and in sharp declines in the rates of industrial
growth beginning early in 1953.
Development of the New Course
Just at this time Stalin died, and. the men who took
control in the Soviet Union decided. to deal with the dis-
affection in the Satellites and the apathy in the USSR by a
new approach, which has become known as the new economic
course. Basically this policy called for the Satellites to
shift the emphasis from the rapid expansion of heavy industry
to a more moderate and balanced development of their whole
economies, with increased emphasis on agriculture and con-
sumers' goods production. Within heavy industry, the fuel,
power, and extractive sectors were to be favored., since in-
dustrial development was outrunning its power and raw
material base. Satellite leaders, recognizing that the shift
in resources would. have little immediate effect on agricultural
and. consumers' goods production, tried to stimulate the work-
ers and peasants to increase their efforts by shifting from
a policy of coercion to a greater reliance on incentives.
They hoped, that cutting prices and. raising wages would re-
sult in a-jump in production which would enable the people
to buy more goods with their increased incomes, and. thus
make it possible to meet the initial goals of the new pro-
gram.
The decrees issued during the summer spelling out the
new course in detail were applied. to agriculture first,
partly because it had been so badly neglected, but also
because the harvesting and crop collection seasons were
approaching, and it was essential that food. supplies show
some improvement over the inadequate 1952 levels. Renewed
pledges were made that collectivization was purely voluntary,
and that peasants could leave at the end of the harvest season.
Past debts were cancelled in many cases, delivery quotas were
reduced., and far more credits were promised to enable peasants
to expand production. However, this new program failed to
have any immediately beneficial effect on agriculture, for
the 1953 crops were only slightly above 1952 levels and
thus inadequate to meet Satellite requirements. Peasants in
Hungary, and to a lesser extent in Czechoslovakia, left the
collectives in the midst of the harvest season, and near-
chaos resulted. for a time. In addition, the concessions
granted the peasants resulted chiefly in expectations of
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future concessions, rather than increased production. and.
delivery eff arts.
During late 1953 and the early winter of 1954 the
concessions began to be directed to the entire populations,
with consumers' goods price cuts decreed in all the countries
but Rumania, and. with selective tax cuts and greater emphasis
on urban housing appearing in several Satellites. Not until
the 1953 annual plan fulfillment reports were published
early this year, however, was it possible to form even a
preliminary judgment of progress under the new course. East
Germany and Poland claimed they fulfilled, their 1953 in-
dt~strial plans, but Czechoslovakia admitted. a small underful-
fillment. Hungary and Rumania were able to claim fulfillment
only because of downward revisions in their targets late in
1953. Most of the plan reports also claimed that same pro-
gress was made late in 1953 in increasing the retail trade
turnover, although sketchy evidence suggests that the accom-
plishments were small.
When the 1954 plans and budgets were outlined early
this year, they gave us a better idea of the magnitude of
the effort that would be made to shift resources to the fuel
and power, agricultural, and. consumers' goods sectors. In
order to make available the necessary resources, further
declines in the rates of industrial growth were scheduled.,
as shown on the chart, at the end. of the text, and. military
appropriations, after steady, substantial increases for
several years, generally were scheduled to level off or de-
cline during 1954.
Agriculture
While it was not expected that much progress would be
made in implementing the new course late in 1953, the re-
sults thus far in 1954 indicate a general failure through-
out the area, with the possible exception of Poland. Ag-
ricultural output during 1954 was probably below the un-
satisfactory level of 1953, due to a combination of poor
weather and poor organization. Fall sowing plans in 1953
were underfulfilled in all of the Satellites, with Albania,
which achieved less than 95 percent of its goal, having the
best record. A drought throughout the area during last
fall's plowing and sowing season, followed by long periods
of low temperatures, retarded the growth of grains, and.
lack of adequate snow cover during December exposed the
grain to killing frosts. .Cold and rain delayed the plant-
ing of spring grains, thus delaying the planting of potataes,
sugar beets, and vegetables.
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in addition, poor organization and a lack of agricul-
tural machinery and fertilizers--deficiencies which the new
course has so far done little to correct--increased peasant
apathy. The continued lack of consumers' goods in spite of
the promises of the regimes further irritated the peasants,
and. thus an inadequate labor force was obliged to increase
its efforts to reseed fields in the spring and at the same
time meet the expanded spring targets within a shortened
plowing and sawing season. When the time arrived to harvest
their grain crops, they were. hampered by rains and floods.
The result was that 1954 crops were probably below those.
of 1953, thus inadequate for Satellite needs.
In addition to their agricultural failures, the Satel-
lites have generally failed to fulfill their industrial pro-
duction plans. Albania admitted underfulfillment of its
plan for the first nine months of 1954, and Bulgaria, having
failed to fulfill its plan during the first six months, cut
its goals during the third, quarter. Rumania claimed that
it met its targets during the first six months, but made no
announcement of the percentage increase in industrial pro-
duction over 1953. This omission, combined. with an absolute
decline in production late in 1953, makes it unlikely that
Rumanian industrial production is above the level reached
in mid-1953. Czechoslovakia, Hungary, and East Germany all
have failed. to reach their original 1954 targets, and have
therefore reduced further their goals for 1954. Poland,
which reported Ia2.8 percent fulfillment--with a growth
rate of about 14 percent--during the first half of the year,
appeared to be progressing satisfactorily, but the omission
of a third quarter plan report and unusually sharp criti-
cisms of several ministries indicates that even Poland may
be in some difficulty. In addition, the Satellite drive to
increase trade with non-Orbit countries has made little
progress, with trade during 1954 only slightly above the
1953 level.
Despite these shortcomings, all the Satellites have
announced that substantial progress has been made in ex-
panding production and distribution of consumers' goods,
with gains ranging from 15 to 2Q percent over 1953 levels.
These gains were not sufficient, however, to offset the
shortfalls of heavy industry. Most of the Satellites failed
to reach coal or electric-power production goals, and
several Satellites failed to reach .either goal.
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Causes of Satellites Failures
The chief causes of these industrial failures appear.
to be the failure of the regimes to establish well-laid
plans before beginning their programs, and the lack of
success in eliminating worker .apathy, Concerning the
latter, government leaders continually complain about the
poor quality of workmanship, chronic absenteeism, and.
failure to reduce production costs as scheduled, The new
incentives program has sa far been unable to correct these
weaknesses, for the people are wary of Communist promises,
and are waiting to see the promised flood of consumers'
goods before exerting themselves. The leaders themselves
are to blame for their failure to formulate detailed plans
before proclaiming new goals publicly,. however, and they
vastly overestimated their ability to shift the focus of
their economies in so short a time, They also failed. to
prepare the Communist parties for the ideological shifts
that the new course represented,-and thus many party offi-
cials, as well as officials in the formerly favored. heavy
industrial ministries, dragged their feet in carrying out
their tasks under the new program. As a result events were
continually overtaking the regimes, forcing them to alter
their plans as they went along, placing an almost intol-
erable burden on their planning staffs.
Country by Country Survey
Perhaps, after this generalizing about the area as a
whole, it would be useful to look at the situation in each
of the European Satellites.
-East Germany, although no longer obliged to
PaY ~~fT~ff nearly lU percent of its in-
dustrial output as reparations, has been
forced to cut its industrial goals in the
middle of the year. Even after these cuts,
coal production and. the installation of new
electric power stations are lagging, and the
railroad system has continued to deteriorate.
-Poland seemed to be making steady progress,
~u~Fie lack of a third-quarter plan report
is suspicious, and the failure of Polish coal
production to meet its targets has upset the
foreign trade plan, since coal is a major
Polish export.
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-Czechoslovakia has been forced to reduce its
in us r a goals again in mid-year, and. industry
is now virtually stagnating, with critical fuel
and power shortages continuing.
-Hungary is in the worst situation of any Satel-
I~i~e, wwith industry stagnating and light in-
dustrial production rising only at the cost of
about a 6-percent decline in the output of heavy
industry. Even after plan goals were reduced,
coal and steel production were lagging, and un-
employment, theoretically impossible in a
socialist society, has reached 20?,U00 because
the regime failed to prepare an adequate plan
to absorb the white collar workers dismissed
from the ministries and. industry. An official
spokesman has admitted that productivity is
down, production costs are up, wages have been
increased, and prices reduced and that there is
a real danger of inflation, which has been averted
thus far only by living off inventories, an
admittedly temporary expedient.
-Rumania has apparently made little if any pro-
gress, and that fact that it has experienced an
absolute decline in industrial production has
already been mentioned. However, less information
is available on P~umania than on the other countries.
-Bulgaria and Albania have made some progress in
increasing a avai~Tability of consumers' goods,
but since their standards of living are already
so low it will be many years before they can
hope to satisfy their people.
The solutions the Satellites have come up with to solve
these problems are not particularly spectacular, although
this may be a virtue after the failure of some of their
grandiose plans. They consist chiefly of extending the
duration of the new course for several more years, and
attempting to promote greater integration of t?x'bit eco-
nomies, although this. latter policy is obviously guided by
the USSR. Concerning integration, they have recently ut-
ilized a multilateral clearing arrangement, to provide great-
er f iexibility than is possible under their normal bilateral
clearing procedure. Whereas under a bilateral clearing system
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each country must balance its trade with every other
country, under a multilateral system a country need only
balance its trade with all the other countries taken as
a unit. In the past the Orbit countries have relied on
woxld market prices but they apparently now have formulated
a documented price list for use in Orbit trade, and although
the extent of the application of this list is unknown, it
will enable them to begin to make their economic plans
without being affected by price fluctuations beyond their
control. They are planning to co-ordinate branches of cer-
tain industries during the 1956-60 five-year-plan period to
avoid duplication of effort, and are also attempting to
a,raupt common technical standards in an effort to increase
the interchangeability of their equipment and particularly
of their -spare parts.
Present Satellite plans also call for extending the
duration of the new course beyond 1955, and in some cases
through the entire 1955-60 five.-year-plan period.. East
Germany and Hungary have both stated that during these
years their most important goals will be to increase ag-
gicultural and consumers'-goods production, and. overcome
fuel and power shortages. Czechoslovakia has announced an
agricultural plan which will require that practically all
of the increase in the Czech labor force between now and
1957 be directed to the farms. While the other Satellites
have not yet announced. their long-term plans, it seems likely
that when they do the plans will resemble those of East
Germany and Hungary.
Du t look
As to the future, the Satellites will experience con-
tinued industrial growth, although it will hardly compare
with their past performances during their initial stages
of industrialization. It is doubtful that they will
eliminate worker-and peasant apathy to any significant ex-
tent,a,lthough they should achieve steady but far from spec-
tacular increases in the availability and. eventually in
the quality of consumers' goods. Their difficulties in
agriculture will continue, and it seems doubtful that ag?-
ricultural production will rise as fast as their populations
are growing--about 2 percent a year, so they will continue
to be net food importers rather than net food ea~porters as
they were in the past.
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The situation is not hopeless, however, for the people
are not faced with starvation or, in mast cases, with ex-
treme privation. They have established enough of an
industrial base in the area so that they can now afford to
devote more effort to producing consumers' goods and. agricul-
tural equipment, and although this should eventually have an
effect their performance thus far under the new course
indicates that the~.r advances will come slow and hard.
HUNTINGTON D. SHELDON
Assistant Director
Current Intelligence
NOTE: This memorandum has been coordinated. with ORR,
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ANNOUNCED RATES OF SATELLITE INDUSTRIAL GROWTH
PERCENT OF INCREASE OVER PREVIOUS YEAR
EAST GERMANY
40
POLAND
01950 51 52 53 ' 54 * 50 51 52 53 54
* 1954 Plan ** Revised 1954 Plan
CZECHOSLOVAKIA HUNGARY
RUMANIA
50 51 52 53 54 * 50 51 52 53 54 * 50 51 52 53 54
41119
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