POSTWAR ECONOMIC GROWTH IN EASTERN EUROPE- A COMPARISON WITH WESTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01049A003200110001-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 99
• Document Creation Date: December 9, 2016
• Document Release Date: March 21, 2001
• Sequence Number: 1
• Content Type: REPORT

.. ~v,,,
Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
i
~7~G G - ~s
i ~, ~~os~
POSTWAR ECONOMIC GROWTH IN EASTERN EUROPE-
A Comparison with Western Europe
STATINTL
by
Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Postwar Economic Growth in Eastern E4.irope
I. Characteristics of the Eastern European Economies
II. Statistics and Methods
III. Growth of Production
~+
8
12
A. Gross National product
12
B. Pattern of Economic growth
17
1. Industrial production
17
2. Agricultural production
20
3. Services
21
IV. Trends in Consumption and Consumer Welfare
21
V. Cost of Economic Growth
32
A. Volume and distribution of investment
32
B. Productivity of investment
35
C. Factors in investment costs
38
1. Labor inputs
38
2. Sectoral and branch distribution of investment
42
3.Replacement and maintenance of fixed assets
~-3
~+. Other factors affecting investment costs
45
VI. External factors
52
A. Statistical evidence
52
1. Trends in the volume of imports
52
2. Foreign aid and impositions
56
3. Net terms of trade
60
B. Evaluation
63
VII. Internal and External Policies and Reforms
68
A. Economic reform ~
69
B. International cooperation and foreign assistance
73
1. Intra-bloc economic cooperation ~
73
2. Soviet-East European economic relations
7~+
3. Economic relations with the West
76
Appendix A International Comparisons of Economic Levels
Appendix B Measurement of Economic Growth
Appendix C Foreign 'T`rade Statistics -
80
84
91
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
POSTWAR ECONOMIC GROWTH IN EASTERN EUROPE-
A Comparison with Western Europe
~.is paper uses comparisons with Western Europe to evaluate postwar
economic gro~-th in Eastern Europe. Three main aspects of comparative
economic growth are examined: the growth of production; the increase in
personal consumption; and the efficiency in the use of inputs. In addition,
the relative influence of external factors on economic growth in the two
areas is considered. The method of analysis is statistical-- a. comparison
of various measures of economic growth and of the measurable factors which
may have influenced this growth. Its purpose, however, is to provide
evidence on a very intangible question -- the relative performance of the
market=type economic system of Western Europe and of the Soviet-type
"command-economy" of Eastern Europe.
An evaluation of economic .performance founded on international
comparisons can be highly artificial since governments or populations may
set for themselves standards for growth or efficiency that differ greatly
from those of other countries. In the case of Eastern and Western Europe,
however, both history and geography give inter-country comparisons
considerable importance for national governments and stimulate people to
. look across the border for standards of consumption. Moreover, even
in the absence of direct comparisons and influence, technological and
sociological trends on both sides of the border tend to be .similar enougk~
to make international comparisons meaningL'u1.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
The comparison in this study is limited to 6 Eastern European countries --
Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Rumania --
and 9 Western European countries -- Austria, Belgium, Denmark, West Germany,
France, Greece, Italy, Netherlands, and Norway. The selection was based
partly on the availability of appropriate statistics -- which. excluded
such countries as Albania and Spaino A second criterion was a reasonable
.degree of similarity in economic system among the two groups, which
excluded Yugoslavia because its system is a blend of state planning,
decentralized state administration, and the market mechanism. A third
criterion was to include only countries which met either defeat or
occupation during World War II and thus suffered some economic retardation.
For many reasons - some evident, some subtle, and some that are not yet
clear -- victors, such as the United Kingdom and neutrals, such as Sweden,
have had a very different pattern of growth than the defeated or occupied
countries. They emerged from the war with increased production-and have
since tended to grow more slowly.
Im.e main statistical findings of this study are the following:
(1~ Over the postwar period as a whole, the growth of production has been
rapid in Eastern Europe, but no more so than in Western Europe. In recent
years it has been slower in Eastern Europe than in Western Europe.
Approved For Release 2001/04/12: CIA-RD~79T01049A003200110001-3
 ? Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
(2) The improvement in per capita consumption and probably also in general
consumer_~ welfare has been much smaller in Eastern Europe than in Western
Europe. ?
(3) By all statistical indications, economic growth has been less efficient
in Eastern than in Western Europe -- it has taken larger investment
expenditures to obtain similar rates of growth. Lower efficiency, indeed,
is a major cause of the relatively slow rise in consumption in Eastern
Europe.
(~+) Soviet exploitation of Eastern Europe, in contrast to large U.S. aid
to Western Europe probably was responsible for the slower recovery of the
Eastern European economies after World War II, but neither this factor, nor
the trends in the volume and terms of trade can explain the lower postwar
? efficiency of the Eastern European economies.
The conclusion from this statistical evidence is that the operation of
the Soviet-type economic system in Eastern Europe -- that is, the interrelated
set of economic policies and institutions patterned after those of the USSR --
is mainly to blame for this relatively poor performance. These policies
and institutions embrace among other things the methods and principles of
detailed state planning, the method of economic administration through a
vast state bureaucracy, the relegation of the market mechanism to a minor
role, and the collectivization of agriculture. The internal and external
effects of this "system" are inseparable.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
I. Characteristics of the Eastern European Economies
Excluding East Germany and the Bohomia-Moravia section of Czechoslovakia,
which historically have been part of .Central Europe, Eastern Europe has
always been a relatively undeveloped region. Before World War II
agriculture was the predominant economic activity, although there were
islands of urban and industrial development. Peasants, by and large, were
poor, eating mainly self-produced crops and buying little besides the most
essential items. 'I`he industrial workers were much better off than the
peasants, but there were few industrial jobs. In Poland, Rumania and
Bulgaria, more people were employed in handicraft shops than in factories.
Outside East Germany and Czechoslovakia, the main industries were textiles,
leather and food processing (throughout the area), coal mining (Poland),
. mining
oil extraction (mainly in Rumania), bauxite~(Hungary), and nuclei of the
met~.llurgical, metal-working and chemical industries. East Germany and
Czechoslovakia were highly industrialized, but lacked a strong heavy
industrial base, having concentrated on the manufacture of finished
products.
Although postwar industrialization has raised considerably per capita
GNP's in Eastern Europe,~these remain considerably lower than those in
most of Western Europe. In 1863, per capita GNP in Czechoslovakia and
East Germany was less than three quarters of that in West Germany and about
half way between the West German and Italian levels. Hungary_and Poland
were in an_intermediate position, with per capita GNP's less than half
a
Approved For Release 2001/04/12: CIA-RD~9T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
of the West German level and falling between Italy and Greece. Bulgaria
and Rumania were in the rear, at about the level of Greece. The combined
GNP of these 6 Eastern European countries was about 10 percent smaller than
that of West Germany and came to roughly one third of the combined GNP's of
the EEC countries or the USSR. The 6 countries range in size from Poland -
the largest - whose GNP is about half that of Italy, to Bulgaria - the
smallest - whose GNP is about four fifths of Norway>> .
Two alternative sets of figures for GNP and per capita GNP in Eastern
and Western European countries are shown in table 1, and the methods of
calculation are described in Appendix A. The GNP's of the Eastern European
countries were estimated through direct comparisons with West Germany by
means of calculated exchange rates and quantity indexes. The relatives so
obtained were applied .to two estimates of the dollar value of GNP in West
Germany -- one with the official exchange rate, the other with a calculated
exchange rate obtained from a study for the OEEC. The results are shown in
table 1.
The ranking of the Eastern European countries as to industrial
production per capita is similar to that for GNP per capita, although, as
might be expected, the differences among countries are greater. Estimates
of the relative levels of industrial production, total and per capita; are
shown'in table 2. My estimates, which are described in Appendix A,
apparently are nearly identical to those made by the Council for Mutual
Economic Assistance (CEMA).
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
* See Appendix A for methodology.
Approved For Release 2001/04/12 :CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Comparison~~ of Industrial Production, 1961
Total Eastern Europe 100_
My Estimates
CEMA Estimate ~
Total
Per Capita
Total
East Germany
28
165
28
Poland
26
90
27
Czechoslovakia
23
165
23
Rumania
11
80
12
Hungary
8
60
7
Bulgaria
~+
50
3
Total Eastern Europe
100
100
100
West Germany
123
220
USSR
262
~ See Appendix A
~ See Planowane Hospodarstvi noo 4, April 1, 1964
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
The differences among Eastern European countries and between them and
are more pronounced for _
Western Europe ~ per capita GNP and industrial production than for the
-sectoral distribution of GNP at
factor cost, which is shown in table 3. The contribution of agriculture
to GNP is considerably larger in most of the Eastern European countries than
in nearly all the Western European countries -- which was to be expected --
and the contribution of services (all sectors other than industry.,
--__ --
' ana - --construction, and agriculture; and
forestry) is smaller.
The contribution of industry to GNP on the average is only slightly smaller
in Eastern Europe than in most of Western Europe, in spite of the fact that
the relative volume of industrial output is much smaller. This may be due
to high relative costs of industrial production iri Eastern Europe,
particularly in such countries as Bulgaria and Poland, although differences
in the method of calculating factor costs may also have strong. effects on
the sector shares.
II. Statistics and Methods
Comparisons of economic growth and performance require comparable
statistics and until recently, such. statistics did not exist for Eastern
Europe. In recent years, however, a great deal of work. has been done to
recalculate economic aggregates and indexes for Eastern Europe using
Western-type methods. Much of this work has been a product or an outgrowth
of the Project on National Income in East-Central Europe at Columbia
University, under the direction of Thad Alton, who has published 3 monographs
Approved For Release 2001/04/12: CIA-R~P79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 3
Percentage Distribution of GNP
at Factor Cost, 1960
Percent of GNP Originating in
Industry
...and.......
Construction
Agriculture
and. ~
Forestry
Other. Sectors
(Services)
Bulgaria
39
29
32
Czechoslovakia
52
15
33
East Germany
54
9
37
Hungary
40
24
36
Poland
41
31
28
Austria
55
13
32
Belgium.
45
8
47
Denmark
42
18
40
France
49
10
41
West Germany
55
7
38
Greece
28 ~
28
44
Italy
48
19
33
Netherlands ~
44
12
44
Norway
39
11
50
For sources and methods, see Appendix Bo
_ e
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
and a number of occasional papers (See appendices). The statistical
analysis of this paper for Eastern Europe is based predominantly on these
recalculated series.
The official series (on national income, industrial production, and
so forth) differ considerably in concept and method from the recalculated
series and tend to show considerably higher rates of economic growth.
Although very sound analysis of trands in the individual countries can be
based on judicious use of official statistics (as for. example in the ECE's
Economic Survey of Europe and Economic Bulletin for Europe), the same is not
true of international comparisons. Moreover, the differences in methodology
between Eastern and Western countries are such that rule-of-thumb
adjustments (for example, to achieve greater comparability of coverage)
rarely suffice -- complete recalculations are usually necessary: The
differences in methodology can indeed be crucial to an evaluation of
comparative economic performance. For example, the United Nations' Economic
Commission for Europe in an otherwise very thorough and competent study
drew what I believe are wholly incorrect conclusions as to the relative
.productivity of investment in Eastern and Western Europe by relying on
official series, with adjustments, for both sets of countries. According to
the ECE, returns to investment during the 1950's were probably not greater
economies
in market than in planned economies. Zhe use of recalculated series for
fact considerably greater in market than in planned economies.
~4pFoel~~e ,~OD~~/42 :$961~~F~~9~?~D49~QI32bb110~1e3Factors in
ECO?70?!1C GrnvTt~'1 7 Tl FE~77'C~~P (j177'l Tlf2 "rY1P l Q~iCI t c . ~~=c~r~ri ~7l zr (`h ~rtoY? TT T. '~nl
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Official Eastern European measures of the growth of national income
are not comparable to Western-type measures for 3 main reasons. First,
the Marxist concept of national income excludes so-called "non-productive
services" (that is, direct governmental and private services and often
also passenger transportation). In postwar Europe the output of direct
services generally has grown more slowly than the output of goods so that
their exclusion has tended to raise the rate of growth of national income.
Second, market prices -- the basis of valuation for national income in
Eastern Europe -- differ drastically frorn factor costs in these countries.
This is because of the absence of explicit charges for the use of capital
Approved Ford Release 2001/04/12: CIA-F~1d79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
and land and the collection of the resulting savings in accounting costs
by the government in the form of the turnover tax. The turnover tax is
levied mainly on industry, whose weight in national income is thereby
increased, at the expense mainly of that of agriculture. Since industry
income
usually is the most dynamic sector the rate of growth of nationa7.~is raised.
Third, the method of calculating the growth of individual sectors of the
national income differs from that used in the West. Although some of the
Eastern European indexes of income originating in industry and other
sectors give reasonable results, others do not, and little is known about
them.
Official indexes of gross industrial production in Eastern Europe in
my opinion overstate considerably the rate of growth. The main reason is
that industrial production indexes in Communist countries are not just
measures of the results of industrial activity, but also are devices for
the direction of industry and the establishment of producers' incentives.
. Industrial managers, whose success often depended on fulfilling a plan
'for gross industrial production, had every incentive to produce an
assortment of goods and to negotiate prices that would show the best
results for the smallest effort. Altho
h there were a multiplicity of
controls designed to specify assortment and fix prices, these controls
rarely prevented an inflation of the gross production index.
~ These points are developed further in Maurice Ernst, 'Overstatement of
Industrial Growth in Poland", Quarterly Journal Of Economics, Noveiriaer 1965.
Approved Fpr Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
III. Growth of Production
A. Gross National Product
Postwar economic growth has been rapid in both Eastern and Western
E~rope~ (See table ~-~. In Western Europe total GNP in 1964 was about double
the 1950 level and two and a half times the prewar level; in Eastern Europe,
total GNP in 1964 was double both the 1950 and the prewar level. Economic
recovery from the effects of World War II was more rapid in Western Europe
than in Eastern Europe. By 1950, the Western economies were well beyond
in the case
prewar levels, except~_~_ .of Greece, where the effects of the civil war
were felt for yeaxs. By contrast, GNP fell short of prewar levels in East
Germany by 15 percent and in Hungary by 5 percent, just reached this level in
Rumania, and showed a significant rise in Poland only because the change in
boundaries greatly increased that countryes economic potential -- in postwar
boundaries Polish GNP in 1950 was at least 10-15 percent lower than in 1937
' After 1950, the Western European economies combined',grew somewhat
' faster than the Eastern European economies; combined, mainly because of the
large weight and unusually rapid growth of West Germany. If we compare
average growth rates with each country having equal weight, the rates in the
East are about the same as those in the West.
The growth rates in Eastern Europe vary inversely with per capita GNP,
East Germany being an exception because of its delayed recovery -- after 1955,
East German growth is the slowest in the area. Tn Western Europe, growth
~ that is, the Eastern E~zropean countries and the 9 Western European
countries listed earlier. '
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
12 _
 Approved For Release 2001/04/12: CIA-RQP79T01049A003200110001-3 ,
s?
Table 4
Growth of GNP, Prewar to 1964
Indexes 195 =10.0
Annual Percenta a Increases
Prewar
1950
1955
19 0
19
1951-55
7-95 - 0
19 1-
1951-
Bulgaria ~
68
75
loo
142
168
5.9
7.3
4.3
5.9
Czechoslovakia
79
84
100
137
145
3.6
6.6
1.3
4.0
East Germany
84
71
100
127
141
7.2
4.g
2.7
5.1
Hungary
80
76
loo
123 ~
147
5.5
4.2
4.6
4.8
Poland
72
79
100
127
155
4.8
5.0
5.0
4.9
Rumania -
66
66
100
119
144
8.6
3.5
4.9
5.7
Total Eastern Etizrope
76
76
100
128
48
5.7
5.2
3.6
4.9
Unweighted average
5.9
5.2
3.8
5.1
Austria
62
74
100
129
151
6.1
5.2
4.2
5.2
Belgium
67
84
l00
112
.133
3.6
2.3
~
4.3
3.3
Denmark ~
68
91
100
127
157
2.0
4.9
5.5
4.0
Prance ~
66`
80
100
126
155
4.4
4.8
5.3
4.8
West Germanys
51
65
100
135
163
9.1
6.2
4.8
6.8
Greece ~
93
71
100
131
183
7.0
5.6
8.7
7.0
Italy
71
75
100
133
165
6.0
5.9.
5.5
5.8
Netherlands
58
76
100
122
146
5.6
4.1
4.5
4.7
Norway
62
84
100
117
143
3.6
3.2
5.1
3.9
Total Western E~irope
62
75
loo
129
157
5.9
5.2.
5.1
?5.4
Unweighted average
5.3 ~
4.7
5.2
5.0
~ Calculated from unrounded data.
~-~ Excluding the sear.
For sources and methods, see Appendix B
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001.-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
rates range widely, from around 7 percent (Greece and West Germany) to 3.3
percent (Belgium.), with, no clear pattern.
There have been marked changes in growth rates over the years. On the
average, growth in both Eastern and Western Europe was only a little slower
in the second half than in the first half of the 1950ts. An acceleration of
growth in Czechoslovakia and Bulgaria was more than offset by a deceleration
in East Germany, where postwar recovery finally had ended, in Hungary, as a
result of the 1956 revolt, and in Rumania, mainly because of poor results
in agriculture. Since 1960, however, growth in Eastern Europe has slowed
considerably, while there has been little change in the'Western rates. The
sharp slowdown in Eastern Europe is due almost entirely to the severe economic
recession in Czechoslovakia and a cut of nearly one half in the East German
growth rate in comparison with 1956-60. Czechoslovakia sustained one of the
highest growth rates in Europe during the late 1950is and in 1960. Growth
slowed a little in 1961 and considerably in 1962. Then GNP fell nearly 3
percent in 1963 and did not rise in 196+; no other industrial country has had
a more severe economic recession since World War II. The East German slowdown
came at least a year earlier, under the strain of the Berlin crises and the
sudden collectivization of agriculture, but it was not as severe as that in
Czechoslovakia, annual growth having been fairly steady since 1962. Among
the other Eastern countries, the sharp decline in Bulgarian growth reflects
mainly the economic consolidaticn zollowing an extremely rapid expansion
during the "great leap" of 1959-60 and the increased rate of growth in Rumania
Approved For Release 2001/04/12: CIA-R~79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
is influenced by the fact that 1960 was a bad agricultural year. Growth
accelerated slightly in Hungary and decelerated slightly in Poland. Polish
growth has been remarkably stable since 1950? In Western Europe growth rates
increased during 1961-6~+ in 6 countries out of 9 and decreased substantially
only in West Germany, which fell from first to sixth place among the 9
countries.
Some of the ranking of growth rates, although not the broad relationships
between the Eastern and Western countries, are changed if we compare the
growth of per capita GNP's (table 5)o The largest difference is for Poland,
where boundary changes, war losses and migration after the war caused a large
decline in population. By 1950, Polish GNP per capita was about 50 percent
above prewar levels ( in the old boundaries although total GNP had risen
only 10 percent. In Czechoslovakia also, where the expulsion of the Sudeten
Germans reduced the population, per capita GNP had .increased almost one
third from 1937 to 195o with a 7 percent growth in total GNP. During the early
postwar .years East Germany gained some population, although much less than
West Germany, as a result of the expulsion of Germans from the areas acquired
by Poland. Between 1950 and 1962, however, the East German population declined
steadily because of its unfavorable age structure and the flight to West
Germany, while the West German population grew rapidly. In consequence, the
groS,rth of East German GNP per capita is about the same__as ~J'that of West
Germany for the postwar period (it is much smaller in comparison with prewar
in spite of a lag of one third in the growth of total GNP. On a per capita basis,
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 5
Growth of GNP and GNP per Capita
Percentage Increases
Prewar to i964
1950 to 1964
GNP
__._ ..
Population
.GNP
per Capita
GNP
Population
GNP
per Capita
Bulgaria
148
21
105
123
12
99
Czechoslovakia
84
- 3
90
73 -
13
53
East Germany
6g
6
59
100
- 6
113
Hungary
83
10
66
93
8
78
Poland
116
-10
140
g6
25
56
Rumania
117
21
79
117
16
~ 87
Total above
94
3
88
g4
13
72
Austria
146
6
132
103
4
95
Belgium
97
12
76.
58
g
45
Denmark
129
24
84
73
10
57
France
136
15
105
93
16
66
West Germany
219
39
129
151
17
114
Greece
g7
20
64
157
12
129
Italy
132
17
g8
121
9
103
Netherlands
150
3g
80
g2
20
60
Norway
128
27
80
70
13
50
Total above
155
23
107
110
15
83
Sources for Population: U.So Bureau of Census and OECD Statistics.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 a
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
countries
Hungarian growth is about average among -European ~ while Polish growth is one
of the slowest.
B. Pattern of Economic Growth
Industrialization has been the dominant form of economic growth in
Eastern Europe. As shown in table 6, industry and construction account for
about 70 percent of the postwar increase in GNP in East Germany and
Czechoslovakia and for nearly 60 percent even in so undeveloped a country as
Bulgaria (twice as high a share as in Greece . The role of agriculture in
total growth ranged from small (10 percent of so) to negative and the role of
services ranged from a quarter to a third. The contribution of industry and
construction to total economic growth was smaller in 6 out of g of the listed
Western European countries than in any of the Eastern countries in spite of
a generally higher initial level of industrialc~velopment, while the contribution
of services was generally much larger.
1. Industrial Production
Industrial production has increased more rapidly in Eastern
Europe than in Western E~irope over the entire postwar period, and at about the
same rate as in Western Europe since 1960, as shown in table 7. All of the
Eastern countries, except East Germany, had easily surpassed prewar levels by
195o and since then annual rates of growth have averaged around 8 percent in
Eastern Europe compared with 6 or 7 percent in Western Europe. As in the
case of GNP, however, industrial growth in the Eastern countries has slowed
~ Industrial production is here defined to include construction and all
handicraft production,
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 6
Composition of the Growth of GNP at Factor Cost
1951-1964
Percent of Increment in GNP
Industry
Agriculture
Services
(incl. Construction)
(incl. Forestry)
Bulgaria ~
59
9
32
Czechoslovakia
68
- 2
34
East Germany ~
72
0
28
Hungary
59
9
32
Poland
66
11
23
Austria
62
7
31
Belgium ~
53
3
44
Denmark
48
8
44
Fiance
55
5
40
West Germany
63
3
34
Greece ~
30
22
48
Italy
~ 65
11
24
Netherlands
51
3
~+6
Norway
40 ~
- 1
61
aJ 1951-~3
1951-62
cf 1956-64
1~.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 7
Growth of Industrial Production, Prewar to 196+
Indexes .1955=100.
Annual Percenta a Increases?
Prewar
1950
1955
19 0
19
19515
195 - 0
19 1- 1
951-
Bulgaria
~+0
67
l00
183
250
8.~
12.7
8.2
9.9
Czechoslovakia
6g
80
100
155
167
~+.6
g.l
1.9
5?~+
East Germany
80
59
100
l~+l
166
11.2
7.2
~+.1
7.7
Hungary
57
65
loo
131
179
9.0
5.5
8.2
7.5
Poland
53
63
loo
1~+8
196
9.6
8.1
7.3
8 . ~+
Rumania
~+9
69
100
157
21+x+
7.6
9 . ~+
11.7
9 . ~-
Tota1 above
61+
67
100
11+8
185
8.5
8.1
5.8
7.6
Unweighted average
8.1+
8.6
6.9
8.0
Austria ~
1+7 ?~
69
100
131+
159
7.8
6.0
1+.3
6.2
Belgium
63
80
100
110
139
1+.5
1.8
6.1
~-.0
Denmark
59 ~
90
100 .
130
168
2.0
5.5
6.5
1+.5
France
65
79
100 J
131
166
1+.9
5.6
6.1
5.5
West Germany
51
56
100.
138
170
12.1
6.6
5.5
8.2
Greece
60
67
100
150
200
8.2
8.5
7.~-
8.1
Italy
~-8
60
loo
150
199
to . 6
8 . ~+ e
7.3
8.9
Netherlands
52
75
100
130 .
158
5.9
5.5
1+.9
5.5
Norway
50
82
100
111+
11+1
~-.1
2.7
5.5
1+.0
Total above
55
67
100
135
170
8.3
6.2
5.9
6.8
Unweighted average
6.7
5.6
5.8
6.1
Includes construction for post war years, except Rumania and East Germany.
Excludes construction for prewar years.
See Appendix B.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
down since 1960, largely because of the recession in Czechoslovakia,--- where
industrial production in 1964 was below the 1962 level,-- and a fall of nearly
one half in the rate of growth in East Germany.
Rates of industrial growth in both Eastern and Western Europe have been
inversely related to the level of economic development and there is little
difference in rates of growth among countries at similar levels of economic
development. For example, the 3 least developed countries, Bulgaria, Rumania
and Greece have been at or near the top in industrial growth rates, with Greece
lagging somewhat behind the other 2 because of its more balanced economic
development; in the next group, Poland and Hungary have lagged slightly
behind Italy; and in the more advanced group, growth in Czechoslovakia has
been about the same as that in France and the Netherlands. Eastern and Western
Germany have been exceptions, both being industrialized countries with high
growth rates until recent years, and West Germany has had the edge.
2. Agricultural production
In contrast to industrial production, which grew quickly in all
the Eastern European countries, agricultural production in the area has
barely surpassed the prewar level, while it is more than 50 percent above this
level in Western Europe. A substantial lag in Eastern European agriculture
in comparison with Western E~,irope developed in the early postwar years and the
lag increased during the postwar period. Only in Poland, Rumania, and Bulgaria
did production in the early 1960ts exceed the average for 193+-38, and most
~ Agricultural production refers to the contribution of agriculture, forestry
and fishing to the GNP in constant prices.
Approved For Release 2001/04/12: CIA-RD~T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
of the Polish gain is due to boundary changes. The more developed countries
did much worse. Production in East Germany was 20 percent, and in Czechoslovakia
nearly 10 percent, below the prewar level, and in neither of these countries
has there been an upward trend since the early 1950's. (see table 8).
3. Services
This residual category of GNP is a composite of transportation,
trade, and direct services, such as housing, personal services, and government
services. Rates of growth vary a great deal among these components and, for
individual components, among countries. By and large, the output of
transportation, communications, and trade, approximately kept up with the
during the postwar period. direct
total output of goods In the case of~services, government services increased
much faster than direct private services and housing in the Eastern European
countries -- indeed, the output of many personal services declined. In the
Western countries the differences are in the same direction but less marked,
.These differences in both areas are offsetting, and production of services
rose at about the same rate as GNP in almost all of the countries covered. (see table g).
IV. Trends in Consumption and Consumer Welfare
The Eastern European consumer has not benefited in proportion to the growth
of production. In the Western European countries, the growth of personal
consumption since World War II and since prewar years has almost kept up with
the growth of GNP, In the Eastern European countries, for which reliable
consumption statistics are available (they are not for Bulgaria and Rumania),
the growth in personal consumption was much slower than that of GNP (table 10).
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 ~~
1' ~
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Z`rends in Agricultural Production
Indexes: 1950-53 average=100
Prewar
1960-63
Average
Bulgaria
g6 ~
107
Czechoslovakia
114
105
East Germany
122
g8
Hungary
120
118
Poland
95
.126
Rumania
112
144
Austria
106
129
Belgium
75
131
Denmark
77
117
France
89
134
West Germany
88
119
Italy
85
125
Netherlands
77
123
Norway
85
g6
Notes: Western Europe
1950-53 to 1960-63: GNP originating in .agriculture and forestry
in constant prices.
Prewar to 1950-53~ Agricultural output, excluding forestry (total
agricultural production less the use of self-produced materials).
See Appendix B.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Z`rends in the Output of Services
1951-196+
Annual Percentage Ratio of Rate of
Increases Growth of Services
_ _ to Rate of Growth
of GNP_ .~ in-percent
Bulgaria
5.9 ~
98
Czechoslovakia
~.2
105
East Germany
3.8 ~
69
Hungary
~- . ~-
g2
Poland
3.9 ~
80
Unweighted average
~+.~+
Austria
~+.8
g2
Belgium ~
3.0 ~
100
Denmark
~+ . ~+
110
Fiance
~+. 7
98
West Germany
5.9
87
Greece ~
5.5 ~
81
Italy
4.6
79
Netherlands
~+.~+ ~
g8
Norway
5.0 bf
135
Unweighted average
~+.7
a All sectors of GNP except industry, construction, agriculture, and
forestry.
1951-63
1 1951-62
1 1956-63
Approved For Release 2001/04/12: CIA-Rg~P79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Growth of Personal Consumption in
Relation to that of GNP
Ratios of Growth Rates (in percent)
.
1951-55
1956-60
1961-64
1951-64
Prewar-196+
Czechoslovakia
31
55
136
55
1+3
East Germany
160
90
22
11~+
79
Hungary
36
100
$9
71
52
Poland
85
84
76
84
76
Austria
100
100
112
10~+
94
Denmark
75
76
102
85
81
France
111
83
11~+
102
78
West Germany
88
105
106
97
100
Itas-y
75
76
133
91
loo
Netherlands
62
98
1~2_
9~
__
Norway
67
94
80
79
--
See Appendix B.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
The most extreme difference is in Czechoslovakia, where personal consumption
grew about half as fast as GNP, the discrepancy being most marked during the
early postwar years. In East Germany on the other hand, consumption grew
much faster than GNP in the early 1950ts and almost as fast as GNP in the late
1950rs. The reason was the open border with West Germany, which forced the
East German regime to keep living conditions as close to those ~.n West Germany
as possible. The closing of the border in 1961 made this competition
unnecessary at a time when the slowdown in overall economic growth made it
more impractical. Consequently, there was almost no increase in East German
consuumption between 1961 and 1964. The postwar pattern of growth of consumption
in Hungary clearly shows some causes and effects of the 1956 revolt. During
the early 1950's the growth of consumption was less than 40 percent of that of
GNP; since 1955 consumption and GNP have grown at about the same rates. In
Poland, the stability of the ratios in table 10 hides some considerable
fluctuations in consumption policy within the periods shown -- consumption
was sacrificed during 1951-53~ favored during the "new course" of 1954,
the disorders of 1956 and the period of consolidation of Gomulka's power in
1957; and again given a low priority after 1957?
The effects of Communist policies and priorities on comparative changes in
per capita consumption are shown in table l1. The increases in per capita
consumption are much smaller in Eastern Europe than in Western Europe whether
we consider the period since prewar years, since the early postwar years, or
since 1960. Unusual circumstances explain the two exceptions -- the changes in
25
e
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 11
Growth of Personal Consumption per Capita.
Percentage Increases
Prewar to 1964
1950 to '1964
1960 to 1964
Czechoslovakia
35
20
5
East Germany
43
134
3
Hungary
24
47
16
Poland
97
39
10
Austria
119
100
17
Denmark
58
43
19
France
76
67 _
18
West Germany
127
110
16
Italy
100
88
29
Netherlands
--
52
20
Norway
--
36
14
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
boundaries and the decline in population explain the large improvement in Poland
since prewar days; and the late recovery and open border until 1961 explain
the rapid postwar increase in East Germany. The only substantial increase
in recent years among the Eastern countries, although a_~___~moderate one by
Western standards, was in Hungary, a fact that has been noted by many travellers.
Lags of this sort in the growth of consumption inevitably had dramatic
effects on relative consumption levels. Table 12 compares per capita
consumption levels in East Germany, Czechoslovakia, Hungary and Poland with
those in West Germany and Austria -- of all the countri es considered, those
which have the closest historical, social, and cultural ties, and so far which
comparisons are most relevant to the governments and populations involved.
,Before World War II East Germany was roughly at parity with West Germany, with
Czechoslovakia not far behind. Since the war personal consumption in East
Germany and Czechoslovakia have fallen to around 60 percent of the West German
revel. These two countries. also lost a clear lead over Austria, which they
now trail by a wide margin; and Hungary, which before the war probably was
at about the Austrian level ~ ------ ~'
___ _____f was some ~+0 percent below the Austrian level in 196+ and not much
above that of Poland. These contrasts have been evident to travellers for
some time but until recently the necessary statistics were not available.
~? If prewar consumption were known for the same year -- for example, 193$ --
in all the countri es, consumption in both parts of Germany would be higher
than in table 12 relative to that in Czechoslovakia and Hungary.
27
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 12
......Comparative level s, of.
Personal Consumption Per Capita
Prewar 1950 1955 1960 1964
West Germany 100 100 100 100 100
Austria 81 82 79 78 79
Czechoslovakia 95 loo 71 ~ 63 57
East German~r 95 54 68 68 60
Hungary 87 69 52 49 48
Poland 45 60 48 42 40
-~ 193 for West Germany and East Germany;
1937 for Poland and Czechoslovakia
1938 for the other countries
Methods: Appendix A. For Austria linked with West Germany in
1955 using official exchange rate.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved ~8~~e~l~~s~e?t00 e/04~~2 :~IAtRDP a9Td0~~49~00~e001 ~OOop an countries in
the growth of personal consumption is certainly large enough to warrant some
definite .'jud gments on?relative changes in consumer welfare in spite of
probable inaccuracies in the calculations and the fact that many other things
besides the average volume of personal consumption affect welfare. Among the
influences on consumer welfare that the personal consumption statistics do not
reflect, some probably favor Western Europe,r~thers Eastern Europe. For
example, the range of choice among products and models has been considerably
narrower in Eastern Europe than in Western Europe. Recurring shortages of
many products and the consequent need to queue up for hours, possibly to go
home empty-handed, also has been a negative feature of the Eastern European
scene. On the positive side has been the large increase in the supply of
free, or nearly free, social services, such as .educational and health
services and recreation, which, in contrast to personal consumption, probably
was at least as rapid in Eastern as in Western Europe (although to make
certain of this would take additional research .
Most difficult of all to evaluate are the changes in the distribution
of income among various socio-economic groups. his is still largely an
unexplored subject on which available information is very scarce. My general
impressions. on Eastern Europe, based mainly on Polish data, are the following.
Among the various socio-economic groups the peasants since prewar days have
had the largest increase in per capita consumption.?~ The main
reason has been a shortage of agricultural products, caused originally by
the disruptions of World War II, and later
29
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
sustained by the inadequate growth of agricultural production. Zhe Communist
governments tried at various times to depress the farmersT terms of trade, but
were never successful for long because of the high demand for food. Semi-
skilled and unskilled blue-collar workers also saw a considerable improvement
in their standard of living, particularly those who formerly had been peasants.
These groups of workers gained from what appears to have been a general
reduction in wage-differentials due both to egalitarian socialist ideology and
the easy overfulfillment of work norms. They also were the main beneficiaries
of the low prices of necessities, such as bread, and the rationing of housing
at nominal rent levels. On the other hand, the skilled blue collar workers
often suffered from these changes and the white collar workers lost the favored
economic and social status that they had had before the war. The prewar middle
class, of course, fared worst of all, and the relative and absolute position of
managerial and professional people generally declined, although with some
exceptions. According to a Polish estimate', which places the overall increase
in per capita consumption from 1937 (old boundaries) to 1960 at 100-115 percent,
the increase in per capita consumption of farm families was more than double
that of non-farm families -- 125-150 percent compared with 60 percent -- (the
increase resulting from the shift of population from farm to city also is
substantial). The increase in non-farm consumption was due only in part to a
rise in real monthly wages (30 percent). Other factors were the near elimination
of unemployment, an increase in the number of bread-winners per family and a
Leszek Zienkowski, Dochod Narodowy Polski 1937-1960 (Warsaw, 1963, PP?199-201).
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
large increase in moonlighting. Considering that the work-week lengthened and
that the above Polish estimates probably have some upward bias,(the Polish
figure for the percentage increase in total consumption is 25-~+0 percent above
the estimate used in the present study)it is quite likely that the choice of
weights largely determines whether average real wages increased or declined.
In any case, real wages, and probably also per capita consumption, of some
social groups certainly are still lower than before World Was II, and in
1956 -- the time of the Poznan riot and the near-revolution in Warsaw -- most
groups of older workers had ample reason to believe that they were worse off
than before the war.
Although the other Eastern European countries probably experienced less
dramatic changes in income distribution than Poland, they also had much smaller
increases in average per capita consumption. The net effect on the real
incomes of the less privile()ged groups, consequently, was probably similar
to that in Poland.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
V. The Cost of Economic Growth
A low productivity of investment has been the major cause of the lag
in the growth of consumption in Eastern Europe. Eastern European countries
used a considerably larger proportion of their GNP for investment than
Western European countries to achieve similar rates of growth in output.
The productivity of investment was lower in Eastern Europe in spite of
several favorable factors, including a more rapid increase in industrial
employment, a distribution of investments that favored industry at the
expense of'the more capital-intensive service sectors, and relatively
smaller needs for the replacement of fixed assets. A strong case can be
made, therefore, for attributing the low productivity of investments in the
Eastern countries to the economic policies and institutions -.tYiat. have
characterized communism of the Soviet type.
A. Volume and Distribution of Investment
In both Eastern and Western Europe thekey factor in postwar
economic growth has been the large and rapidly rising level of investments.
The share of gross fixed investment~in GNP at factor cost increased
steadily in nearly all Eastern and Western European countries during the
entire postwar period, as shown in table 13. Typically the Western
European shares rose from 20 percent or less in the early 1950's to near
25 percent in the early 1960`s, while those in Eastern Europe (excluding
East Germany) went from the low 20's to near 30 percent. In East Germany
The method of derivation is described .in Appendix B.
Approved For Release 2001/04/12: CIA-RD1~9T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 13
Size and Distribution of Gross Fixed Investment
As a Percent of GNP a/
As a. Percent of Total Investment b~
?
_
Total
Investment
Investment
in Industry ~
Investment
in Agriculture ~
Investment
in Services
Investment
in Industry
Investment
in Agriculture
Investment
in Services
Eastern Etiirope
Bulgaria:
1950-54
23.7
10.6
4.1
~
9.0
45
17
38'
1955-59
27.7
12.1
7.6
8.0
~+~+
27
29
1960-63
41.5
19.3
11.2. ~
11.0
47
27
26
Czechoslovakia: 1950-54 23.5
10.6
2.3
10.6
45
10
45
1955-59
27.3
11.4
4.3
11.6
42
16
42
1960-63
27.7
12.9
~+. ~+
to . ~+
46
l6
38
East Germanys
1950-54
14.5
5.8
1.8
6.9
40
12
48
1955-59
19.4
8.3
2.2
8.9
43
11
46
1960-63
23.6
11.x-
2.9
9.3
48
l3
39
Hungary:
.1950-54
25.9
12.2
3.6
10.1
47
14
39
1955-59
24.2
ll.0
3.9.
9.3
46
16
38
1960-63
27.2
12.0
5.3
9.9
44
19
37
Poland:
1950-54
21.1
9.9
2.0
g.2
47
l0
43
1955-59
25.1
11.0
3.2
10.9
~+~+
13
43
1960-63
28.1
12.5
3.~+
12.2
45
12
43
Western Europe
Austria:
1950-54
20.1
7.2
2.5
10.4
36
12
52
1955-59
23.1
7.8
3.2
12.1
34
14
52
6
6
4
0-
3
19
2
.1
--
--
--
--
--
--
Belgium:
1955-59
17.1
5.5
0.8
10.8
32
5
63
1960-63
19.1
6.7
0.6
11.8
35
3
62
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RQP79T01049A003200110001-3
Table 13 (Continued)
As a Percent of GNP a/
As a Percent of Total Investment bf
Total
Investment
Investment
in Industry ~
Investment
in Agriculture ~
Investment
in Services
Investment
in Industry
Investment
in Agriculture
Investment
in Services
Western Europe
Denmark: ~
?
1950-54
17.2
3.1 ~
2.6
11.5
18 ~
15
67
1955-59
18.6
3.2 of
1.9
13.5
17 of
10
73
1960-63
22.5
4.6 ~
2.2
15.7
21 .1
10
6g
F
4
8
ranee:
1950-5
.1
1
--
--
--
~
--
--
--
1955-59
20.3
7:4 ~
~f
1.6
~
~f
11.3
~
~f
36 ~~f
8 ~
~
56 ~~f
1960-63
21.7
8.5 1
1.3
~
11.9
~
39 ~
6
55 ~
West Germany:
1950-54
21.1
7.9
1.3
ll.g
38
6
56
1955-59
24.3
g.2
0.9
14.2
38
~+
58
1960-63
26.4
10.3
1.5
14.6
39
6
55
Greece:
1950-54
15.g
4.3
1.6
lo.0
27
lo'
63
1955-59
19.2
3.5
2.0
13.7
19
l0
71
1960-63
28.g
--
--
--
--
Italy:
1950-54
19.7
6.8
2.6
~
10.3
35
13
52
1955-59
22.4
6.7
2.7
13.0
30
12
58
lg6o-63
25.6
8.5
2.6
14.5
33
to
57
Netherlands:
1950-54
21.5
6.g
1.2
13.4
32
5
63
1955-59
24.4
7.5
l.0
15.9
31
4
65
1960-63
.24.7
7..9..
l.o
.
15.8
32
4
64
a. Percent at estimated factor cost in constant prices. See Appendix B.
Distribution at constant market prices.
Includes construction.
Includes forestry.
Excludes construction and handicrafts.
Calculated from the distribution in current prices.
1956-59.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A~~~o~i~~if ~r~~~ ~~~~~i0~a2s~aC~ingDPo9s O,~p49on00~20A110th0e I
g 95o's and the
heavy reparations payments to the USSR until about 1957 (see section VI
below), greatly limited investment, which was low even by Western European
standards. Since the ending of reparations, and especially since the
raising of the Berlin wall, investments have increased rapidly, becoming
a respectable share of GNP.
Much more striking are the differences in the distribution of
investment. Investment in industry (including construction) and agriculture
(including forestry) took a much larger share of total investment in
Eastern Europe than in Western Europe; investment in services, a
correspondingly much lower share. The Eastern European countries put a
remarkably uniform 45 percent of investments into industry and construction,
while few of the Western shares, even in the most industrialized countries,
approached ~+0 percent and one (Greece) was as low as 20 percent, less than
half that of Bulgaria. The share of agriculture in total investment is
much greater in Eastern than in Western Europe not only in absolute terms
but also in comparing countries where the relative importance of. agriculture
in the economy is similar (for example, Bulgaria and Greece; East and
West Germany; Czechoslovakia and France). Moreover, in the East the share
the contribution of agriculture to
of agriculture in investment has been rising while ~ ___ ,,GNP has
been falling. In one Eastern European country, Poland, agricultural
considering the large size of the agricultural sector;
investments have not been high by Western standardsf but as will be seen
later, the exception proves the rule -- Poland is the only Eastern
country which has not collectivized agriculture.
Approved For Release 2001/04/12: CIA-R~79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
As a result of the higher share both of total investment in GNP and
of industry and agriculture in total investment, investment in these sectors
took a much larger share of GNP in the East than in the West, as shown
also in table 13. .~
The counterpart of the high investment in industry and agriculture in
Eastern countries is the low investment in services, - transportation,
trade, housing, and so forth. Typically, the share of services in total
investment has been around ~+0 percent in the East, compared with 60 percent
in the West, although with wide variation among individual Western countries.
An adequate breakdown of investment in services is lacking, but it
appears that the East invested relatively less than the West both in
"tertia~)ry" sectors like transportation and trade and in social overhead
like housing.
B. Productivity of Investment
The estimates of the growth of output and of gross fixed
investment provide measures of the productivity of investment. In
accordance with usual practice, the reciprocal of the productivity of
investment -- the ratio of gross fixed investment to the incremente_,~
in output -- was used-.
~ For the economy as a whole, these were obtained as the ratios of the
percentages of gross fixed investment in GNP at factor cost to the
average annual percentage inorease in GNP. For the 3 main sectors of
GNP (Industry and construction, agriculture and forestry, and services),
the ratios are the average shares in GNP of the sector's investment
to the rate of growth in the sector's output, the latter being weighted
by the average share of the sector's contribution to GNP. For all
periods, the increase in output is lagged one year behind gross fixed
investment -- for example, average annual investment in 1950-54 is related
to the average rate of growth in output during 1951-55.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
We will call .this ratio the investment cost ratio (or just investment
costs) instead of the more usual, but cumbersome term, incremental capital-
output ratio.
The investment cost calculations, the results of which are summarized
in table 14, reveal some important differences between the Eastern and
Western European countries. Investment costs in Eastern Europe were
higher than in Western Europe -- on the average by some 25 percent for
the total economy, by ~+0 percent for industry, and by a great deal in
agriculture. Only for services were the ratios similar in the 2 areas.
Very few Western investment ratios exceed those in any of the Eastern
countries and the differences between the most comparable countries of the
2 groups are very large. For example, the Bulgarian ratios exceed those
in Greece by 75 percent for the total economy and by more than 100 percent
for industry; Czechoslovak investment costs are two thirds more than those
of France for the total economy and more than double the French in
industry; Hungarian and Polish overall .ratios respectively are only 25
percent above those of Austria and Italy, but in industry the difference
is 100 percent and two thirds. Investment costs in agriculture were
. astronomical in Bulgaria, Czechoslovakia, and East Germany (in the latter
country, net agricultural output declined), and were higher in Hungary than
in any of the listed countries of Western Europe. However, Poland with
its predominantly private agriculture, had a low ratio, even by Western
European standards.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 14
Comparative Investment Costs, 1951-6~+
Gross Fixed Investment per unit
of Increase in Output a)
GNP
Industry
Agriculture
Services
Bulgaria
5.1
3.8
33.6
~+.7
Czechoslovakia
6.7
1+. ~-
x+0.0
7.8
East Germany b)
6.1
3.5
c)
7.2
Hungary
5.3
4.0
g.6
6.1
Poland
5.0
3.4
3.6
9.5
ifnweighted average
5.6
3.8
7.1
Austria
~+.3
2.1
7.6
7.1
Belgziun b)
5 . g
1+.7
3.6
7.7
Denmark ~
1+.9
l.g
5.5
8.0
France ~
4.1
2.8
4.5
5.7
West Germany b)
~+.6
2.g
8.3
8.6
Greece
3.0
1.8
n.a.
5.5
Italy ?
3.g
2.0
5.3
7.8
Netherlands
5.0
3.2
~+.4
6.5
Unweighted average
~+.5
2.7
5.6
7.1
a) Increase in output lagged one year behind gross fixed
investment
b) 1956-64
c) Decline in output
Note: Norway is excluded because its investment statistics have
a broader coverage than those of other countries (they
include all kinds of repair expenditures).
Approved For Release 2001/04/12: CIA-RD~7 9T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Investment costs have tended to be higher in Eastern Europe than in
Western Europe during the entire postwar period, but the difference has
been growing in recent years, as shown in table 15. The astronomical cost
ratios for Czechoslovakia during 1961-64 reflect the near stagnation of
output in the face of a high level of investment, and the ratio in East
Germany has become the second highest among the listed European countries
after having been the lowest during the early 1950 `s, when a considerable
amount of unused productive capacity still remained because of the delayed
recovery from the effects of the war.
C. Factors in Investment Costs
The wide differences in investment costs are the key to a
comparative analysis of the determinants of economic growth in Eastern and
Western Europe. The remainder of this section will deal with some.of the
factors that may have caused these differences in investment costs -- the
growth and distribution of labor inputs; the sectoral and branch distribution
of investment; the options and policies'regarding replacement of fixed
assets; and a number of pertinent institutional factors and policies in
industry and agriculture.
1. Labor Inputs
The overall rate and pattern of growth of employment
was similar in the two parts of Europe, as shown in table 16:x. In both
~ Comparable employment statistics are more scarce than comparable
production statistics. Those shown in table 16~cover the 1951-62 period
for most countries, but shorter periods for a few countries.
38
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 . Approved For Release 2001/Q4/12 : CIA-RDP79T01049A003200110001-3
Table 15
Changes in Investment Costs
.
Gross Fixed Investment per Unit of Increase in Output
Total Econo Industr
y
1951-55
195 - o
~-9 1- 1951-55 195
0
1
,
-
9 1-
Bulgaria
C
~+?0
3.8
7.7
4.3
2.6
5
5
zechoslovakia
6.5
~-.l
25.2
5.1
2.6
.
12
2
East Germany
2.0
~-.0
8.7
1.1
2.3
.
5
p
Hun ar
g Y
~+?7
5.8
6.0
3.8
5?2
.
3
6
Poland
~+. ~+
5.0
5.8
3.2
3.6
.
3.~+
Austria
3?3
~?~
?
1
8
2
~+
Belgium
--
7 ~
?
~
~
_
?
6.7
--
2
8
Denmark
8.6
3.8
~+ ? 1+
3.8
l . ~+
.
l
7
France
~+.1
~
1+.2
~+?2
--
2.7
.
2
8
West Germany
2.3
3.9
5.5
1.3
2.5
.
3
li
Greece
2.3
3.~+
3.3
2.2
1
5
,
.
Italy
3.3
3.8 ~
~+. 6
1 ? 7
.
1.8
2
~+
Netherlands
3.8
5.9
5.7
2.8
3.2
.
3.6
~ .Increase in output lagged one year behind gross fixed investment?
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 . Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 16
Growth of Employment and Output per ,Ilnployee,1951 - 1962
Annual Percentage Increases
Employment b~
_
Output per~Ilnployee c~ .
Total. , .. .
Labor Force ~
Industry
Agriculture
Total
Industry
Agriculture
Bulgaria
0.5
5.2
- 1.3
5.6
~+.7
2.0
Czechoslovakia
1.0
3.1
- 3.2
4.2
3.2
3.7
East Germany
0.0
- 0.1
- 3.0
5.5
8.~+
2.8
Hungary
1.2
~+.6
- 2.1
3.~+
2.8
3.8
Poland
1.1
3.5
- 0.8
3.6
5.1
3.1
Rumania
1.0
3.6
- 0.2
4.7
5.2
3.9
Unweighted average
1.0
3.3
- 1.8
~-.5
~+?9
3.2
Belgium ~
0.3
0.1+
- 3.5
2.8
3.1
6.2
Denmark
1.3
2.0
- 1.6
2.5
2.1
3.2
France ~
0.2
1.1 ~
- 3.5
~-.8
~+.6
6.5
West Germany
1.?5
3.1
- 3.0
5.6
5.0
1+.8
Italy ~
0.7
~+.5
- 3.0
~-.8
/+.1
5.3
Netherlands
1.1
1.3
- 1.8
3.~+
~-.l
3.9
Unweighted average
O..g
2.1
..
- 2.7
~-.0
3.8
5.0
Industry includes construction except in East Germany and Rumania); agriculture includes forestry.
1951-62 unless otherwise specified.
For Total and for Industry, 1951-62 unless otherwise specified; for agriculture, calculated from
increases in output from the 1950-53 average to the 1960-63 average.
Includes the unemployed and the military.
of 1956-62.
Sources: Eastern Europe, U.S. Bureau of Census; except for employment in construction.
Employment in construction from various statistical yearbooks of individual countries.
Western Europe: OECD Manpower Statistics, 1950-1962.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Eastern and Western Europe, the growth of the total labor force was less
than one quarter as fast as the growth of output per person, and it is
possible that there was no increase at all in the total number of hours
worked in several countries. In industry both employment and output per
worker increased faster in the Eastern than in the Western countries, but
on the average the difference was greater for employment (two thirds) than
for output per worker (one third). Agricultural employment declined in all
the countries of both areas but on the average the decline was more rapid
in the West, and consequently the advantage of the West was greater for
output per worker in agriculture than for agricultural output. These
averages disguise some wide differences among countries -- particularly
the contrast between East German growth, which resulted entirely from
increased labor productivity, and West German growth, which was supported
by the fastest increase in employment among the countries listed.
Nevertheless it appears that somewhat less substituting of capital for
labor was necessary in most of the Eastern countries than in the Western
countries to achieve a given rate of growth in output. A definite judgement
on the relative role of labor inputs in Eastern and Western Europe must
await a much more thorough study of the use of labor and also of education,
training, and other influences on the quality of the labor force. But it
is probable that the effect of labor inputs on relative investment costs
was as worst neutral, and most probably tended to keep costs in the East
lower than those in the West.
~+l
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
2. Sector~al and Branch Distribution of Investment
The relatively high investment costs in Eastern Europe
clearly are not due to the sectoral distribution of investments. Indeed,
the opposite is true -- the sectoral distribution of investment in the
'keep
East was intended to~ and should have. kept, overall investment costs
lower than in the West. The reason is evident from table 14 -- investment
costs are higher in services, into which the Eastern countries put a
relatively small share of investments, than in the economy as a whole,
and much higher than in industry (almost double in the Eastern countries
and two and a half times in the Trlestern countries).
The Eastern countries followed the strategy of maximizing exnenc3~_+tire_s~
~:n the construction of new factories (or major expansion of old factories)
by minimizing ____ _~ expenditures on the modernization of railroads,
the construction of a modern road network, the expansion of warehouse space,
and the satisfaction of consumer demand for housing. This strategy could
be sustained for some years because to a point the use of capacity in
these servicesr ~__ _~is quite elastic. It was hoped that the extra
boost given to industrial production by concentrating investments in
industry would be sufficient to allow the backlog of investment demands
in services to be made up eventually without strain on the economy. These
hopes were disappointed, however. We have seen that agriculture took a
large part of investment with little yield (for reasons to be described
later), and the expected advantage in industrial production did not
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
materialize because of the relatively low yield of industrial investments.
Moreover, the possibilities for squeezing more output from existing
capacity in _ sP,Rr~_c?s J__ ._ _; have been running out and in recent
years industrial growth has been hindered with increasing frequency by a
lack of freight cars (notably in Czechoslovakia , while great waste of
agricultural products has resulted from the lack of storage facilities and
adequate farm-to-market roads. In the future, the need to make up for
the deficiencies caused by the short-sighted policies of the past probably
will raise overall investment costs and hence limit the possible rate of
economic growtho
It is unlikely that these conclusions on the effect of the distribution
of investment on investment costs would be greatly changed if more detailed
comparative data on investment allocations were available. Within industry,
the Eastern countries probably put a greater emphasis than the Western
.countries on some capital-intensive branches, like steel and cement, and
less emphasis on some labor-intensive branches, like textiles. On the other
hand, chemicals and petroleum refining, which are both highly capital-
intensive, probably were developed more intensively in the West.
Replacement and Maintenance of Fixed Assets
Eastern Europe had another advantage over Western Europe
that should have tended to hold down its investment costs -- the fact that
replacement needs took a smaller part of its gross investment. There are
no comparable data on capital stock for Eastern and Western European
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
countries, but it is probable that Eastern countries, being in general
less developed, had lower average capital-output ratios than-the Western
countries both before World War II and in the early postwar years. It is
also likely that the average age of capital was somewhat less in the East
than in the West because the-.industrial revolution had started later. For
both these reasons a smaller share of GNP is likely to have been needed in
the East than in the West to cover replacement needs for capital. Moreover,
since investment was a higher share of GNP in the East than in the West,
the share of replacement needs in investment would have been smaller even
if their share in GNP was the same. Thus it is probably safe to assume that
net investment correctly measured -- that is, gross investment, less the
expenditures required to maintain the productive capacity and efficiency of
the existing capital stock -- was a considerably larger share of gross
investment in Eastern Europe than in Western Europe. This means, of course,
that investment costs in the East were relatively even higher measured with
net investments than with gross investments.
In practice, the Eastern European countries appear to~have tried to
maximize the increase in productive capacity by minimizing retirements,
relying on repairs to maintain the .productivity of existing assets. Again
the intention was to hold down investment costs. The few available data on
actual retirements of fixed assets indicate that retirement rates in Eastern
countries, were extremely low. For example, they were less than one percent
of productive fixed assets per year in Czechoslovakia during most of the
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
1950's.~ Actually, this policy probably had the opposite effect from
that which was intended -- in the end, it probably increased investment
costs. Expenditures on repairs, both capital repairs, which are included
in the present investment statistics, and current repairs, which are not
included, were high; but insufficient, leading to frequent breakdowns of
equipment (the tractor standing idle for lack of spare parts is as common
a scene in Eastern Europe as in the USSR), which in turn created unused
capacity and caused a loss in efficiency. Moreover, the strong bias
against retiring existing assets, long after they had become obsolete,
caused some of the most productive investment opportunities to be unused.
~+. Other Factors Affecting Investment Costs
We have seen that the growth of employment, the broad
sectoral distribution of investment, and the maintenance and replacement
needs for fixed assets all should have helped the Eastern European countries
to keep investment costs below those in Western countries. The influence
of external factors is discussed in the next section. Here we will
consider from an internal point of view the effect of such factors as
the introduction and use of nest technology, and the planning and management
of production.
In general, the relative backwardness of the Eastern European
countries should have given them opportunities for a more rapid technological
. * K. Novotny, "Vyoi=zakladnich fondu v letech 19+8-1957", Statisticky
Obzor, noo 1, 1959, page 15
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Ac~~t~dr~~e~~r~0~1/Q~,~1~~1~9(T~'~~0@,,~~~,~0~~; often been
. attributed to the USSR relative to the US). In addition, the relatively
larger gross investments and probably much larger net investments in
Eastern Europe; provided relatively greater means to take advantage of
these opportunities. Among Western countries; high shares of investment
in GNP usua]1y have been accompanied not only by a rapid growth of GNP
but also by low investment costs. Large investment not only can mean a
large injection of new technology, but also opportunities for introducing
economies of scale in new and old plants. However, the relatively small
size of the Eastern European economies tends to limit the possible economies
of scale..__There could_be~offsetting opportunities in foreign trade, but
these opportunities
,.''probably were less favorable in Eastern than in Western Europe.
There is no way of measuring the actual development of technology in
Eastern 'and; Western Europe. One gains the impression that new technology
in Eastern Europe was inferior to that in Western Europe, partly for lack
'of effort, partly because of bad planning and management, and partly because
of lack of access to the best Western and Soviet technology.,-.___
___ J(technology in the Communist bloc was generally inferior to
that in the West). Any technological disadvantage for Eastern Europe was
bound to have the most serious effects on the industrialized countries,
East Germany and Czechoslovakia. But techno~.ogical lags are by no means
the only explanation for the high investment costs in Eastern countries.
~ See, for example, Angus Maddison, Economic Groi~rth in the West (New
York, Twentieth Century Fund, 196+), page 77 and United Nations, Economic
Com~r~ission for Europe, Economic Survey of Europe in 1961, part 2, Some
Factors in Economic Growth in Europe durir_g the 1950's, Chapter II, page 20.
. ~6
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Baal planning and management were. also important, and indeed, contributed
.to the technological lags.
An important source of inefficiency was the insistence on investing
at. rates which strained the capacity of the construction and machinery
industries. The result was unduly high costs and long periods of
construction for new plants and an accumulation of unfinished projects
well beyond what is probably usual in the Westo 'I~.e value of unfinished
investments in Czechoslovakia, East Germany and. Hungary has amounted to
about one year's gross fixed investment.
In industry, the bulk of investments went for new plants, often in
previously undeveloped sites, leaving insufficient investments for an
efficient modernization of existing plants. (We have already discussed a
similar bias in regard to replacement). =_ __
_ __ _________ The main recipients of investments in new plants were
of course the least developed industrial branches and those where there
was the least flexibility in the utilization of existing capacity. Most
basic industrial branches =- at first, metallurgy, and later electric power,
fuels, chemicals and construction materials -- had a great deal of new
plant construction because they were initially relatively less developed
than the branches producing finished goods and there was continuously an
~ See, for example, Andr2zj Karpinski, Zagadnienia socjalistyczr_ej
_ industrializacji~ls'_~i ' (Warsaw, 1958), P~eS~9-92? ?
~' United Nations, Economic Commission for Europe, Economic Survey of
Europe, 1962, Part 1, pages I - 20-23.
47
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A~~~ ~~F~ors~el~~se 20A1I0~/1?t? GIAl-RD~79TQ11049A003200110001-3
r ge oz In usria ma eria s. Many new branches of the
machinery industry also were built. Existing machinery plants and nearly
all of light industry, however, received very little investment; their
management was always under strong pressure to squeeze more output from
existing equipment and what improvements there were entailed the installation
of a few new machines, leaving production processes unchanged.
Moreover, new plants in the East often were run at well below full
capacity and produced at high unit cost for a long time after they had
been commissioned. This was probably due partly to inexperience, at
least in the less industrialized Eastern countries, but the principal cause
was certainly poor planning of the plants and poor coordination of the
construction of complementary facilities and of supplies and components.
There are-also plenty of indications that bad management led both to
unused capacity -- for example, the well-known "storing" of foundry capacity
by machinery plants to protect themselves against possible shortages of
parts -- and to unnecessarily high costs of production, which in turn held
down the possibilities for increasing output. The institutional roots of
such problems are well known; they will be taken up briefly in the
concluding section.
. nearly
?~ According to Karpinski, op. cit. pages 206-216 in _1955_ a_~-~_- the _m_ajor
industrial plants built during 19+9-55 in Poland x~roc~.v.cec~. for .some time at
higher unit costs than the old plants, in spite of considerably greater
capitalization and an advantage in technology.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
The principal cause of the extremely high investment costs in
agriculture already has been mentioned. The collectivization of agriculture,
and before that the threat of collectivization and the discrimination
against private farmers increased the demand for investment while they
held down the growth of agricultural output. Collectivization increased
the demand for investment in several ways: by creating a need for common
livestock shelters and other "overhead" expenditures which do not necessarily
raise production; by hastening the flight of labor from agriculture and
hence the need for machinery to replace the labor; by tending to reduce the
effective input of the remaining farm workers, at least those who work on
collective land and livestock, and so again increasing the need for
mechanization. At the same time collectivization tended to depress output
? because of reduced incentives for farmers to work hard, carefully, and
skillftiilly _ -,~u Complaints are often heard from Eastern Europe that
mechanization and other farm investments were inadequate. This inadequacy,
however, is _
;largely a reflection of the inefficiency
of agricultural institutions.in using available capital.
Inefficiency in the system of economic planning and management in
Eastern Europe has been prevalent during the entire postwar period and
was probably worse. during the early 1950's than today. Recently, however,
it has been more apparent because it has become more of an obstacle to
economic growth. Until around 1960, although plans for the cost of
investment projects, the growth of labor productivity, and the reduction
~+9
Approved"For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
of unit costs of production were rarely fulfilled, production goals
nevertheless were often achieved by mobilizing so-called "hidden reserves".
There were many such reserves; mobilizing labor from the farm and the
kitchen for use in industry; keeping obsolete equipment in production;
making increased use of existing productive capacity in railroads, warehouses,
and plants in low priority industries; and taking advantage of easy
opportunities for the rationalization of production after industry had
been nationalized. The government's ability to pass on the burden of
inefficiency to the consumer, was another kind of "hidden reserve" for
investment could be raised rapidly enough to generate high rates of growth
Among the burdens passed to the consumer were the poor
quality, assortment, and design of consumer goods.
in output in spite of high investment costs. When increased consumer
resistance and increased strain in the supply of raw materials were
manifested during the mid 1950's, most of the governments had to temporarily
lower or stabilize the share of investment in GNP, raise consumption and
concentrate on straightening out the "disproportions" which had developed
in the economy. New intensive investment drives were launched during the
late 1950's, however, causing "reserves" once again to be used up at a
rapid rate, and these drives were to continue during the early 1960's.
Collectivization of agriculture, which accelerated between 1958 and 1961,
made matters worse. By aboutE 1960 the reserves had nearly run out in the
more industrialized colzntries, East Germany and Czechoslovakia. Agriculture
had run short of labor, most housewives were already working, the strain
on the railroad system had become excessive, and in many branches of the
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A roved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
chinery and light industries equipment and processes were too obsolete
to produce in accordance with modern technical specifications. At the
same time, both domestic and foreign customers were becoming increasingly
discriminating and large inventories of unsaleable goods accumulated, With
the lack of production reserves and the greatly reduced possibilities for
dumping low-quality products on domestic or foreign consumers, the
inefficiency of the system of planning and management was bound to force
a sharp slowdown in economic growth.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Ap~r~ved~FoLf2e~ease 2001/04/12: CIA-RDP79T01049A003200110001-3
VI. x ernal Fac ors
The foregoing analysis indicates that economic performance in Eastern
Europe was decidedly inferior to that in Western Europe. Production grew
no more rapidly in the East than in the West; consumption increased much more
slowly; and by all indications, economic growth was achieved less efficiently.
It remains to be seen to what extent the Eastts inferiority in performance
can be attributed to external disadvantages, for example, to Soviet
impositions in contrast to U.S. aid, less favorable price terms, -br more
limited access to foreign goods and technology. We will deal first with
quantifiable aspects of external economic relations -- comparative trends in
the volume~of imports; foreign aid and impositions; and the terms of trade --
and then evaluate the effects of these factors on economic performance
and consider also non-quantifiable factors, such as the broad foreign
economic environment.
A, Statistical Evidence
1. Trends in the Volume of Imports
Except in East Germany, trends in the volume of imports were at
least as favorable to economic growth in Eastern Europe as in Western Europe.
Imports grew very rapidly in both areas, as shown in table 17. Until the early
1960ts annual rates of growth in the volume of imports (that is, the value of
imports in constant prices) were in excess of 10 percent in nearly all the
Eastern European countries, and for the most part were below 10 percent
in Western Europe. I?uring the early 1960ts, the growth of imports has slowed
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 17
Growth o= Imports in Constant Prices
Indexes:
1955=100
Prewar ~
1950
1955
1960
1964
Bulgaria
58
73
100
262
447
Czechoslovakia
58
64
100
189
258
East Germany
37~- ~
37 ~
100
194
233
Hungary
47
58
100
187
291
Rumania ~ ~
~8
72
54
100
100
164
148
233
272
Total above
137
59
100
185
262
(excl. East Germany)
4g
65
100
Austria
60
61
100
167
233
Belgium ~
66
75
100
141
207
Denmark
n.a.
80
100
155
222
France
73
73
100
143
229
West Germany
78 ~.
47
100
146
214
Italy
46
64
100
199
297
Netherlands
59
72
100
146
211
Norway
65
71
loo
143
194
Total above
n.a.
64
100-
152
224
East Germany and West Germany,-193 ; Poland and Czechoslovakia, 1937;
Bulgaria, 1939; all other countries, 1938.
Includes inter-regional trade between East Germany and West Germany.
Includes Luxembourg.
Sources: See Appendix C. All prewar data in prewar boundaries.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 in~apternd~oroRpeleaas~ a00e10era~edClA ~P~9r01~49op0320~e00ost31950 expansion
began from levels which were already above those of the late 1930fs in all
the countries covered, except East and West Germany. The exception for the
two Germanies is due to the inclusion of estimates of interzonal trade in the
prewar statistics. Interzonal trade had been far more important to East Germany
than to West Germany, a factor which largely explains why the volume of imports
in 1950 was only about 10 percent of that of 1936 in East Germany, while it
was 60 percent in West Germany.
In nearly all of Europe imports grew much more rapidly than GNP, as shown
in table 18. Traditionally, dependence on imports had been greater in Western
Europe than in Eastern Europe, largel~r because most of the Western countries
were :mor.e industrialized. The prewar shares of imports in GNP had been surpassed
by 1950 in all of Eastern Europe, except East Germany, but had not been in
Western Europe, except in Italy and West Germany. Since 1950 the share of
imports in GNP has risen steadily in every country and the difference between
Western Europe and Eastern Europe has narrowed further. By 1964 the smaller
Eastern Elzropean countries (Bulgaria and Hungary) had achieved higher import
shares than the larger Western European countries and much higher shares than
before World War II. The Bulgarian experience is especially noteworthy, the
import share having increased from g to 24 percent in less than a decade.
The Polish and Rumanian shares, however, continue to be much lower than those
in Western Europe -- a reflection of the relatively rich resources of these
countries in relation to their degree of industrialization. The contrast
54
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 18
Relation of Imports to Production
...
"
Imports. as. a. Percent. of. GNP .
Import Index as a Percent of
Industrial Production Index
(from values in constant 1963 dollars)
1955=100
Prewar
1950
1955
19 0
19 ~
Prewar
1950
19 0
19
Bulgaria
8
9
9
17
24
146
109
143.
178
Czechoslovakia
6
6
8
12
15
84
80
122
155
East Germany
37~
4
8
13
14
~;?64~
63
137
141.
Hungary
5
6
8
13
17
82
90
143
163
Poland
3
6
6
8
10
72
114
111
119
Rumania
4
5
6
8
12
98
78
96
112
Austria
15
12
15
20
23
127
89
125
147
Belgium
25
23
25
32
40
106
94
129
149
Denmark~~
n.a.
19
21
26
30
n.a.
88
119
132
France
9
7
8
9
12
113
93
109
138
West Germany
18~-
8
~ 12
12
15
153
83
106
125
Italy
5
7
8
12
15
96
l05
133
149
Netherlands
31
26
30
~
36
44
115
97?
112
133
Norway
25
20
24
29
33
130
87
125
137.
~ Includes inter-regional trade between East and West Germany.
~~ Includes Luxembourg in imports.
Note: Prewar imports are in prewar boundaries while prewar GNP and industrial production are in postwar boundaries
for Bulgaria, Czechoslovakia and Rumania. In comparable boundaries the prewar ratios of imports to GNP and
industrial production should be somewhat higher than in the table in Bulgaria, slightly lower in Czechoslovakia,
and considerably lower in Rumania.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
between East and West Germany remains striking -- the ratio of imports to
GNP is only one quarter of the prewar ratio in East Germany while it has
almost-recovered to the prewar level in West Germany.
Imports grew not only in relation to GNP, but also in relation to
industrial production in all the listed countries, except the 2 Germanies, as also
shown in table 18. Industrial production recovered from the war faster than
did imports in most countries of both areas, but then lagged behind imports
during the post-1950 expansion. Surprisingly, imports in the Eastern Countries,
except Poland, rose faster than industrial production even between 1950 and
1955; a period when all of the countries were trying to become more self-
sufficient. Apparently, rapid and broad industrialization created a derived
demand for imports so large that it swamped the effects of import substitution.
' 2. Foreign Aid and Impositions
.Unquestionably the postwar balance on economic aid and impositions
has been highly unfavorable to Eastern Europe and highly favorable to Western
Europe. The Eastern European countries had to make large net payments to the
USSR for reparations and other reasons and these net payments were concentrated
in the early postwar years, when they were most burdensome. By contrast
Western Europe was a large net recipient of U.S. aid and most of this aid
was obtained early, when it was most needed. The following discussion of
foreign aid and impositions and of international capital movements will treat
these complex subjects only in very general terms, for a detailed treatment
would require a number of specialized studies.
56
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Appproved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
No reliable estimate exists of Soviet takings from Eastern Europe, but
an order of magniture of $15 to ~20 billion in postwar prices probably is
reasonable to cover dismantlings, reparations, and occupation costs. The bulk
? of this amount (probably some ~10 to $15 billion) was taken from East Germany
between World War II and the mid 1950 ~ s/_. __ __ a'
~(10 to 15 percent of East German GNP). .Another half billion dollars at least
is accounted for by deliveries of coal by Poland to the USSR at nominal
prices. Soviet removals of fixed assets and current production on reparations
account from Hungary and Rumania also were substantial, although much smaller
than those from East Germany. There were also Soviet takings from the jointly-
owned but Soviet-controlled companies in Hungary, Rumania, and Bulgaria. The
great bulk of all these Soviet impositions came between World War II and 1953,
and the burden on the Eastern European economies probably declined steadily
over this period. In comparison with Soviet impositions, Soviet economic aid
to Eastern Europe (which was entirely in the form of credits, although repayment
obligations for some of these were waived), was small -- in the order of ~+
billion, not much over one billion of which was extended before 1956. For its
__ _~part, Eastern Europe extended some $2 billion in credit to
non-communist
developing countries, all after 1955, and about one billion dollars to other
Communist countries.
The large unrequited Eastern European exports to the USSR make a striking
contrast with the even larger net receipt of U.S. aid by Western Europe.
Total U.S. economic aid to the g Western European countries treated in this
paper came to nearly $19 billion for 19+6-64 (excluding U'iQRRA aid), $16 billion
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
of which had been disbursed by the end of 1962. (the U.S. also extended a
half a billion dollars of aid to Eastern Europe, consisting mainly of PL-480
credits to Poland after 1956). For the 1946-52 period, U.S. economic aid
on the average amounted .to some 2 percent annually of the combined GNP's of
the g Western European countries (about the average proportion for France,
West Germany and Italy; a considerably large. proportion for Greece and
Austria; and smaller proportions for the other countries). These figures
exclude some $13 billion of U.S. military aid, which was disbursed mainly
after 1952? They also exclude private long-term U.S. investments in Western
Europe, which have exceeded the flow of official and private aid from the
Western European countries to the developing countries. Both U.S. private
investments in Western Europe and Western European aid to developing countries
have become important only since the mid 1950's.
To conclude, the balance of aid, impositions and credits was highly
unfavorable to Eastern Europe for the postwar period as a whole, but the
disadvantage for Eastern Europe (and the advantage for Western Europe) was
concentrated in the early postwar years. Since the mid 1950's, both Eastern
and Western Europe appear to have been net importers of long-term capital.
3. The Net Terms of Trade
Rough estimates of trends in the "net terms of trade" (the
ratio of the export price index to the import price index) are shown in table
19 for Bulgaria, Czechoslovakia, Poland, these 3 countries combined, and, by
way of comparison, the EEC countries. The movement of the "net terms of trade"
58
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
is nearly the some for the 2 groups of countries, except that the changes
were more favorable to the Eastern group between 1950 and 1955 and more
favorable to the Western group between 1955 and 1960. But there were
wide differences in trends among Eastern countries. Czechoslovakia suffered
a marked worsening in its net terms of trade in the early 1950's, which
it has riot yet made up, while Poland's terms of trade improved substantially
from prewar years to 1950 and again from 1950 to 1955? These opposite
trends between 1950 and 1955 may have been due to the stabilization of
prices in intra-bloc trade at levels which favored primary producers, like
Poland, but hurt importers of foods and industrial materials, like
Czechoslovakia. In addition, there was a strong European market for
coal, Poland's principal export of the early 1950's. The drastic
fluctuations of Bulgaria's terms of trade appear to be due mainly to
price fluctuations for tobacco, until recently Bulgaria's predominant
export. There is no information on the terms of trade of the other
Eastern Etiiropean countries -- the combined price indexes for Bulgaria,
Czechoslovakia and Poland were used to calculate price and quantum indexes
in Hungary and Rumania. But although the information is very spotty, it
appears to indicate that trends in the terms of trade in the East were not
greatly different from those in the West.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Table 19
Net Terms of Trade
-
Indexes:
1964=100
Prewar
1950
1955
1960
1964
Bulgaria
168
--
111
99
loo
Czechoslovakia
102
109
95
98
100
Poland
70
78
97
95
loo
Above countries together
95
87
98
97
100
EEC Countries
g6
87
89
96
100
~ Ratio of export price index to import price index.
See Appendix C.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
These findings on trends in the net terms of trade appear to be
consistent with evidence on the pricing of Eastern European trade with the
USSR and the West, which can be summarized as follows:
(1) Soviet foreign trade statistics show that the USSR
charges Eastern Europe higher prices and pays Eastern Europe lower prices
than it charges and pays for the same commodities in its trade with
Western Europe. 7~e evidence is convincing for Soviet exports, which
consist mainly of materials and foods with fairly definite prices, but
much less so for Soviet imports because most of these consist of
manufactures, for which meaningful price data are lacking.
~ Horst Mendershausen, "Terms of Trade Between the Soviet Union and
Smaller Communist Countries, 1955-19571`, Th.e Review of Economics and
Statistics, No. 2, May 1959?
"The .Terms of Soviet-Satellite 'T`rade: A
Broadened Analysis , Ibid., May 1960.
61
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
(2) Eastern E~.iropean trade statistics show that the Eastern
European countries obtain higher prices from the USSR (and each ,other) than
from the West for their exports of the same commodities. Comparisons of import
prices are inconclusive. Corroborating evidence comes from Western trade
statistics, which seems to indicate that Western countries pay the Eastern
opean countries less ~ j for the same goods
than in their trade with other Western countries. It would appear, then, that
(1) the USSR has better terms of trade with Eastern Europe than with the West; and
(2) that Eastern European countries also have better terms of trade with the
USSR (and each other) than with the West.
- _ ____________ ___ ;- In other words, Eastern Europe appears
to be discriminated against, on the one hand by the USSR, and on the other
by Western Europe. There is nothing inherently inconsistent about this.
A plausible explanation is that pricing in infra-bloc trade actually was based,
as Soviet and Eastern European sources often state, on world market prices --
that is the actual prices used in world commodity markets or in contracts
between large Western firms. The prices obtained in the West by the Eastern
European countries were usually much less favorable to these countries than the
~ F`ranklyn Holzman, "Soviet Foreign Trade Pricing and the Qti.estion of
Discrimination", Review of Economics and Statistics, May 1962.
"More on Soviet Bloc Trade Discrimination", Soviet Studies,
August 19 3.
Frederic Pryor, The Communist Foreign Trade System (Cambridge, Mass., 1963),
Chapter V.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
"world market prices". 'This is especially true of Eastern European manufactured
goods, which suffer in world markets from tariff barriers, lack of publicity,
reliable trade contacts and adequate- servicing facilities, and from inflexibility
in the planning and management of foreign trade. ?Exports of raw materials
and foods fare better, but even these tend to receive lower prices than average
because they are often sold in small lots and at the wrong time. The basing
of prices in infra-bloc trade on actual world market prices (with many modifications,
including a tendency to stabilize the prices of raw materials for a number of
years) would tend to create similar trends in the terms of trade as in
Western Europe. This, as we have seen, is what the statistics appear to show.
B. Evaluation
What conclusions can be drawn from the statistical analysis as to
the relative influence of external factors on the economic development of
Eastern and Western Europe? It seems certain that Soviet impositions in the
early postwar years and the unwillingness or inability of the Soviet Union
to make up for the loss of inter-zonal trade had a great deal to do with the
severe lag of the East German economy behind that of West Germany. ~.e
enormous structural adjustments forced upon an economy whose imports in
195o were only about 10 percent of the prewar level can be imagined. East
Germany had to develop a substantial steel industry, production of nearly all
types of heavy machinery, and transportation equipment, and many other
industrial branches. Some of this forced structural change was bound to
involve a loss of efficiency in the allocation of resources -- certainly
63 0
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
initially, and probably also in the long-run. In addition the lack of imported
materials for many years held down the utilization of exiting plant capacity
and the growth of labor productivity. This massive readjustment had to take
place simultaneously with an outflow of uncompensated exports to the USSR that
cut deeply into investment possibilities. Economic recovery from the effects
of the war had hardly begun in 1950 and during the early 1950ts, with the
USSR taking 10-15 percent of GNP and with heavy pressure to improve living
conditions rapidly, East Germany could not undertake a large investment program.
As was shown. earlier, investments reached a respectable share of GNP in East
Germany only in the late 1950's, after reparations had ceased. By contrast,
West Germany adjusted very easily to its separation from East Germany because
interzonal trade had been a much smaller part of West German than of East
German trade, the West German economy was much larger and more balanced, and
there were broader trade opportunities abroad and large receipts of U.S. aid.
The evidence that measurable external factors were seriously disadvantageous
is far less clear for the other Eastern European countries than for East
Germanyo The quantitative growth of imports was certainly more than adequate
to. sustain a rapid growth of output. Changes in the net terms of trade appear
to have been generally similar in Eastern and Western Europe. In the early
postwar years Hungary. and Rumania paid substantial reparations, and the other
Eastern European countries, unlike the Western European countries, were not net
recipients of aid, but since 1955 the Eastern Etiaropean disadvantage in this
regard probably has been small.
0
Approved For Release 2001/04/12: CIA-RD~9T01049A003200110001-3
 Apo?VCpb~i~~c~cel~ ~~Qa.~~r4~,~~e ~aC~DP7procab~A0032oUn~0~a11y for the
severe lag in East German growth until the mid 1950ts. It is reasonable to
suppose also that they were largely responsible also for the lags of most
other Eastern European countries behind Western Europe during the early
postwar years of economic recovery and growtho Hungary and Rumania, the 2
after East Germany,
countries which were probably most affected by Soviet impositions, were the
latest to regain prewar levels? ___ _ J Except in
East Germany, where Soviet impositions affected mainly investment, the main
impact of these impositions (or the lack of aid) probably was on consumption.
But these external factors do not explain the decline in rates of growth in
recent years nor the high investment costs in all the Eastern European countries
during the _, ___.postwar period.
The preceding analysis, since it deals only with measurable external
factors, leaves out a highly important difference between Eastern and Western
Europe -- the general foreign economic environment. This difference, however,
is both external and internal, and it is most appropriately treated as an
aspect of the broad institutional and policy framework of the two areas.
Membership iri the Soviet Bloc entailed among other things the adoption of
Soviet-type economic policies and institutions and it is pointless to speculate
about the extent to which Soviet pressure or the willing emulation of things
Soviet by local communist parties were responsible.
The application of Soviet-type policies and institutions in Eastern
Europe had interrelated effects or. the domestic use of resources and on
65
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 f or~p
o~tgdc~~i~Z`~}.Q~~Q4/1~~,~4?~~7-~Q11Q,OQ;'61(~'~3extent limited
by Western controls, but Soviet and Eastern European policies were much more
important limitations.
For the individual Eastern European country, materials, foods, and
machinery were almost always in short supply -- they could rarely be imported
in the desired quantities and qualities. Consequently it was necessary to
develop high-cost mineral resources, raise expenditures in agriculture to the
point of small return, and overdiversify manufacturing production. Shortages
of industrial materials were especially severe in the early and mid 1950's.
In recent years availability of foodstuffs and technology have been increasing
problems. Inability to import the most advanced or appropriate technology
kept labor costs and often also investment costs higher than they might have
This
been : __~ a` disadvantage '_ _i'was especially burdensome for the more developed
countries, East Germany and Czechoslovakia, which depended on advanced
technology to maintain their lead in productivityo Moreover, the cost of
doing without first rate technology has increased in recent years as East
Germany and Czechoslovakia have exhausted the opportunities for tapping
"reserves" of unused productive capacity and labor and as all of the Eastern
European countries have faced more exacting customers abroad.
Some of the overdiversification and development of high-cost production
during the early 1950ts can be traced to a form of Soviet exploitation --
the levying of requirements on Eastern Europe for a wide variety of machines
and other goods, without regard for prior experience, factor endowments, or
66
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 ecor~o~niese o fFos R~le ase~001/04 /gin CIA~a DP e9 hos04o9A00a200~~000a-3 --..most from
such Soviet policies. Since the mid 1950's, however, the USSR has greatly
increased its support for Eastern European economic development. The Soviet
share of Eastern Europets total imports-has remained at about ~+0 percent since
1950, but since 1955 the USSR has supplied a growing share of Eastern European
imports of industrial materials, some of which it produced at high marginal
cost, and provided considerable amounts of grain in spite of domestic shortages.
Moreover, the USSR has tried, althougk~ with little success, to bring about
a more rational allocation of resources in Eastern Europe through intra-Bloc
coordination of economic plans and specialization in production, thereby
reversing previous policies.
At least since the mid 1950ts, the external difficulties of the Eastern
European countries appear to be largely symptoms of ailments which have
affected all Communist countries. Shortages of materials were caused by
excessively rapid increases in production of finished goods, by lack of
coordination of national investment programs, and by inefficiency in the
use of materials. Shortages of foods were due mainly to collectivization and
to other policies depressing farmers' incentives. Lagging technology was the
result of a system of economic incentives which rewarded increased production
at any cost and penalized innovation and careful consideration of customerst
interests. Uncertainty in deliveries of imported goods and components and
the lack of flexibility in adapting import schedules to changing domestic
needs reflected the general rigidity of management in foreign trade as well as
the domestic economy.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 ~~~rov~$~~~~ ~fig~~P4~~~p?QT~.~d~9~i .1 ` 110001-3
One after the other, the Eastern European regimes have become aware
of the poor performance of their economies, and have been groping for
more effective economic policies and more efficient forms of planning and
management. The revolution in Hungary and the`near revolt in Poland in
1956 brought home the necessity for change to the regimes of these countries
earlier than to those of the other Eastern European countries. Although
the consumer-oriented priorities adopted at that time in both countries
and the partial decentralization of management in Poland were short-lived,
economic policies have been much more moderate and flexible since 1956 than
before, and this early adjustment to realities is one of the reasons why
the rate of growth of the Polish and Hungarian economies has not declined.
The Czechoslovak and East German regime, however, in spite of rapidly
declining economic "reserves", tried to maintain or accelerate economic
growth, relying heavily on Communist Party activists to create the necessary
stimulus, and in 1959-60 the Bulgarian regime went so far as to try a
"great leap" somewhat on the Chinese model. It was the sharp slowdown
of economic growth in East Germany in 1961, in Czechoslovakia in 1962,
and in Bulgaria in the aftermath of the "great leap" of 1959-60, that
brought home the need for economic reform in these countries, and, this
example has created new pressure for reform in Poland and Hungary. Only
Rumania, which has achieved increased rates of industrial growth since
1958, has been generally satisfied with the old system of economic
planning and management.
68
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Improvements in economic performance have been sought both through
internal economic reform and through external assistance and international
economic cooperation. The remainder of this paper will deal with the main
outlines of these internal and external measures.
A. Economic Reform
Little by little, Eastern European economists and government
officials have tome to recognize two basic deficiencies in-what we have
been.callirig'the "Soviet-type economic system". Planning was not based
sufficiently on rational economic considerations; management was not
flexible enough to adapt to changing needs. Lack of rationality in
economic plans was due sometimes to inexperience, but mainly to the
primacy and overdiversification of political objectives. The province of
economic analysis was Limited not only by politically-inspired institutional
changes, such as the collectivization of agriculture, but also by the
requirements imposed by politically-determined growth objectives. Until
the past few years, moreover, economic analysis had to be performed with
a very limited set of tools (such as the "material balances"~, the use of
more efficient and appropriate tools, such as linear programming, having
been barred for ideological reasons. The basic form of ownership and
restrictive
management aside, the most`, ` _ feature of the system for economic
planners was the politically-determined rate of industrial growth. If,
as was usually the case, this rate was set beyond the economics
capabilities, extreme tautness in economic plans was inevitable and this
entailed a forced "balancing" of the plans by such means as unrealistic
Approved For Release 2001/04/12: CIA-RD~~9T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A0032D0110001-3
adjustments of coefficients for the use of materials, unrealistic estimates
o investment costs, and.the-taking of resources from _-1ow-priority
such as housing.
sectors Moreover, the severe constraints caused by taut planning were
felt by all levels of management which were forced to raise production by
any means and could ill afford to risk cost reductions, product changes,
or technological improvements that might reduce, even temporarily, the rate
taut _ _ _ __
of growth of output. The same conditions created `__a _ ~ ~ . _='sellers' market
for almost all goods and gave all but the highest priority customers little
chance to b~ heard; instead unsuitable goods were accepted, processed,
and passed on, until they finally were bought by private consumers, who
or or
had few alternatives, used at high cost in investment projects,exported
to relatively undemanding foreign countries,,. - ~______~ or simply
left in inventories. Taut, overoptimistic planning for the overall rate of
industrial growth also had serious implications for the structure of investment
and the pattern of economic development. Unable to obtain enough raw
materials from the other Communist countries, which ,_ _ ;also had taut
plans, each country had to invest heavily in slow-maturing projects in
basic industries.
_ ~ __ ~. If we add
to this the politically-determined priorities among economic branches, lack
of access to first ra-~e technology, and plain incompetence on the part
planners, a good bit of inefficiency can be easily
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approve ~SyS~ema opf' 200ono4/i ~ manageDPrit9T~0SO49A00 X2 b0 e1 b00 a se it was
a
operated as~ huge bureaucracy, where each echelon made economic decisions on
but with
the basis of directives from above ~ insuffi~nt knowledge of the
situation below. Constrained by what were often unrealistic a_nd mutually
inconsistent directives, the ministries, and their subordinate units had to
a
work out all the details of~ production and distribution program`leaving
the er~treprises little choice on how to put this program into effect.
What choice there was consisted mainly in ignoring lower-priority goals in
favor of higher-priority goals, and managers' efforts tended to be directed
to pleasing the government (or Party boss rather than the customer.
Moreover, a system of premia and other incentives which rewarded mainly
fulfillment of gross production goals and an artificial price system which
reflected neither marginal social costs nor consumer preferences created
a poor basis for guiding unplanned decisions in line with national interests.
The reforms introduced in Eastern Europe during the past two or three
years are aimed at these deficiencies,
~~either Eastern Europeans,
nor indeed Westerners, can ___ ,be certain how deeply the reforms will have
to cut into the Soviet-type "command economy" to bring a marked improvement
in economic performance. The best publicized, and possibly the most
thorough reforms are being introduced in Czechoslovakia, ~ere.the number
of obligatory production and input goals for enterprises has been greatly
reduced, ifarious measures of profits are to be _a_ basis for bonuses and
premiums. Part of investment decisions and most contracts with customers
`~-
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 ~3'~i-o~c~Fo1~~d~~~~00~/04Yi'~2 e~l~T~h4~~~0U1100~~~gucer prices
are to contain charges for the use of fixed capital (as is already being
done in Hungary) and are to be influenced by market conditions at home and
abroad. Similar changes are being introduced in East Germany and Bulgaria,
and some at least are likely to be introduced in Poland and Hungary. In
all the Eastern European countries there is great emphasis on "scientific
planning", which involves not just balancing of needs and requirements but
"optimization" of programs, based on centrally or locally determined
criteria, with the help of electronic computers. The desire to develop the
branches of production for which the economy will be best suited in the
long-term, to use modern technology, and to compete on world markets has
at least partly replaced the early drive to increase the quantity of
production at all cost. While trying to make plans more rational and
management more flexible, however, the regimes have tried to avoid any
real loss of control over the economy. ~e meeting place of the new
system of planning and management with the power structure of the state and
Party appears to be at the newly-formed intermediate administrative units,
called Associations or Trusts, which control either an entire industrial
branch (for example, machine tools), or a vertically integrated set of
enterprises. In East Germany and Czechoslovakia at least the directors of
these Associations on paper have very wide powers, similar in some respects
to those of Western corporation managers. They could in theory run their
subordinate enterprises largely according to market criteria, or they
72
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A~~e~~'F~F~a~/~4~-'F~ ?~Q~~--I~I~~D-'f~4~l~A~~(~A~~000 much pressure
will be put on these raa.nagers by the political authorities and how the
managers will react to pressure remains to be seen.
B. International Cooperation and Foreign Assistance
1. antra-Bloc Economic Cooperation
The search for increased efficiency through internal economic
reform had a counterpart in the effort to promote economic cooperation
among the Eastern European countries, but nationalism and the nature of the
Soviet-type economic system have greatly hindered progress. The drive for
increased cooperation, which began in earnest during the late 1950`s,
was intended to invigorate a largely inactive organization, the Council for
Mutual Economic Assistance, usually called CEMA or COMECON. It was hoped
to achieve a more rational distribution of capacity in basic industries and
savings in investments and materials through coordination of investment
plans; greater economies of scale and better concentration of technological
effort through specialization in the production of manufactures; and a more
effective use of scarce hard currency through cooperation in trade with
non-communist countries. In spite of high level political pressure and
and
innumerable meetings proposals, however, there was very little progress
~- trade
in intra-bloc economic cooperation. Intra-Bloc continued to increase
rapidly, but largely in the framework of bilateral agreements and as a
consequence of separately established national plans. Specialization
agreements have been limited to a tiny percentage of industrial output,
73
e
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
and apart from the construction of the'~'riendship`oil pipeline, cooperation
. in investments has been minimal. ~e reasons for this failure are rooted
in the very nature of the "command economy".~' packing any sort of automatic
regulator and arbiter for economic decisions and conflicts, such an economy
needs an ultimate authority to make or enforce any decision. But there has
been no such authority internationally, and so no"way to force agreement
on specialization, prices, investments, and so forth, or to apply sanctions
in cases where agreements are not fulfilled. KY~ushchev's proposal in 1862
for the creation of a CEMA planning staff with some supranational authority
no doubt was intended as at least a first step toward a Bloc-wide "command
economy", but the proposal failed to be adopted because of nationalistic
opposition, _notably_from_Rumania. -
~___,~ Failing a supranational authority, all of the internal weaknesses
of the Soviet-type system of planning and management are magnified
internationally, and its principal virtue, the ability to mobilize resources
quickly for high-priority purposes, is inoperative.
2. Soviet-East European Economic Relations
The most obvious source of assistance for the Eastern
European countries to improve their economic performance has, been the USSR,
the more so because of the lack of significant progress in intra-East
European economic cooperation. As we have seen, the USSR has tried to
help -- by providing some credits (since 1960, only to East Germany and
See, for example, NLichael Kaser, COMECON - Integration Problems of the
Planned Economies (Oxford University Press, 19 5
7~+
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A~~a~,for}~~~se~1~~~'I~yC~~~~~S719i,1g0'~0 o9A(~030~,0'111Q00~ 3, a1 materials.
In 1863, the USSR covered nearly 100 percent of the area's net imports of
materials and fuels, compared with two thirds in 1860 and only ~-0 percent
in 1955, thereby enabling the Eastern European countries to use a large share
of their scarce earnings of Western currencies to buy specialized machinery.
increasing its
It is unlikely, however, that the USSR will be willing to continue~support_-of
Eastern European economic growth to this extent. Although the USSR gains
some price advantage in its trade with Eastern Europe (as was indicated
earlier , it is questionable whether this compensates for the disadvantages
in the composition of trade. Soviet exports consist mainly of industrial
materials and foods. Some of these, coal; for example, are produced at
are produced
high average cost, and many, including coal,-iron ore, and grain;~at rapidly
rising marginal cost. The exchange of such goods for machinery and
equipment, the largest part of Soviet imports,. is certainly profitable
when the machinery and equipment embodies advanced technology that the
USSR can produce only with 'difficulty__if at all. Such is the case for
Soviet trade with the West. But this exchange may not be profitable when
the imports consist of ordinary machinery and equipment, which embody the
same general level of technology as is available from Soviet production.
Most Soviet machinery imports from Eastern Europe probably are of this type.
By all indications, both the average and marginal costs of most machinery
-and equipment production in the USSR are considerably below those for
raw materials and foods, and the gap is probably increasing.- Probably the
75
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Ap roved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
rfi~in advantage to the USSR in importing machinery from Eastern Europe
rather than producing it at home. is as a source of flexibility. ~e
Soviets have been able to import machines on special-order or in small
batches, so that they could better concentrate on series production. In
.recent years, the Soviets have added their influence to other pressures
for raising the quality and technological level of Eastern European
manufactures, and have increased rapidly their imports of consumer
manufactures from that area. To the extent that quality and technology are
improved, however, opportunities for Eastern European trade with the West
are increased as well.
3. Economic Relations with the West
Growing economic difficulties and the inability to solve
.these difficulties within the Soviet Bloc have increased the demand in
Eastern Europe for Western goods, capital, technology, and knowhow, and
increased the receptiveness to Western ideas. The binds of Marxist economic
dogma have been loosening since at least 1955?_ __'L'he thaw went quite
far in Poland as early as 1956, but only recently has
___ _~ "market socialism"
!become ideologically respectable
in Eastern Europe. This intellectual revolution obviously has had a great
impact on the economic reforms that are being undertaken.~~----``"~____~_
,however,
The trend has__beer~ less clear~in the more tangible aspects of economic
relations. Western goods and technology have long been in high demand,
but, except in Rumania, there was until recently little inclination to
Approved For Release 2001/04/12: CIA-R~~79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
treat trade with the West as more than a supplementary source of goods and
.technology.
The basic obstacle to increased trade with the West has been the
inability of the Eastern European countries to market their exports of
manufactured goods in the West, and their unwillingness to make the adjustments
required for an expansion of such exports in the long-run. The temporary
increase in the share of the West in Poland's foreign trade from 36 percent
in 1955 to ~+2 percent in 1958 was due to U.S. credits under P.L. x+80 and a
temporary shift in Polish exports of coal from Eastern Europe to Western
Europe. With the ending of U.So credits and the weakening of the Western
European coal market, the share of the Trlest in Poland`s trade has returned
to about what it was before Gomulka`s accession to power. Difficulties in
exporting to the West have caused the share of the West in total trade to
decline also in East Germany, Czechoslovakia, and Hungary since the late
1950's. In the early 1960's the West's share. in these countries and
in Bulgaria has been between 25 to 30 percent. Rumanian trade followed the
opposite pattern -- the share of the West increased from 20 percent in
1958_to 32 percent since 1861. This shift was undertaken as an aspect of
Rumania`s policy of enhancing national independence and accelerating
industrial development. What made it possible was that Rumania's 3 major
types of exports, corn, petroleum products, and wood were readily
saleable in the West and that in addition Western firms were willing to
extend large export credits to Rumania.
77
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
In the past two or three years there have been signs that the more
industrialized Eastern European countries were beginning to lay a sounder
basis for the expansion of their trade with the West. In 1864, for the
first time since the mid 1950's, there was a fairly general rise in the
share of Eastern European trade taking place with the West. Although it
is much too early to see a trend from these statistics, there are other
favorable signs. One is the increased flexibility in production which should
result from the internal economic reforms. Because production, and hence
the use of productive capacity, will no longer be planned in so much ,detail,
it will be~easier for producers to adapt output mix to changing foreign
demand. Although this increased flexibility will facilitate all foreign
trade, it is especially important in the case of trade with the West. A
second favorable development is the increased willingness of the Eastern
European regimes to undertake production of manufacturing lines specifically
for the Western market. East Germany is making a real effort to develop
clothing production for sale in Western Europe. Joint production and
marketing arrangements between Eastern and Western European firms (for example,
the arrangements between Poland and the German firms Krupp and Grundig for
the joint manufacture and sale of tape recorders)
have been multiplying in the-past 2 years,may considerably enhance the
and
ability of the Eastern European countries to sell manufactures in Western
Europe. These arrangements, like many Eastern European purchases of Western
European equipment, sometimes include credit terms and technical help.
But the original features of some of them are to provide Western technical
and quality control over Eastern European production and in addition the
78
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
name and connections of the Western firm to sell in Western countries.
This knowhow and "goodwill" may be as important as the basic production
technology and their possession may save the Eastern European countries a
great deal of time and effort. At the same time, the Eastern European
countries have been seeking better terms for their exports to the West by
negotiating with GATT, looking for Most Favored Nation treatment in the
U.S., trying to make better arrangements with the EEC and its member
countries, and so forth. Lower tariffs and higher quotas in the West would
help Eastern Europe's exports. In the long-term, however, the prospects
for trade with the West depend mainly on the Eastern European countries
themselves -- on the way they allocate their resources, and especially on
how much they are willing to change the economic system to which so many
of their economic problems can be attributed.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 ? Appendix A
Approved For Rel~~g'1~8?~l'I12 ~~~I~QSPd~T(b'I~O~~g~(~0~~~(~(~~-3
In all cases estimates of comparative economic levels (for GNP, industrial
production, personal consumption) were made for a single postwar year.
Comparative levels for other years were obtained by moving the base year
comparisons by means of indexes for the individual countries.
Western European Countries
GNP in the Western European countries was obtained in terms of a common
denominator (U.S. dollars in 1963 prices) in two alternative ways: (1) by
applying official exchange rates to the values of UNP in domestic currencies
in 1963 and (2) by using the geometric means of the two sets of dollar values
in purchasing power equivalents for 1955 as estimated for the OEEC (Milton
Gilbert and Associates, Comparative National Products and Price Levels,
Paxis, OEEC, 1958), and converting these to`1963 prices by means of the U.S.
official GNP deflator. For Austria and Greece, the only countries discussed
for which Gilbert did not estimate purchasing power rates, it was assumed that
the dollar value of GNP at purchasing power rates exceeded that at the official
rate in 1963 by the same percentage as in West Germany and Italy respectively.
The relative magnitudes of industrial production in Western Europe were
obtained from the weights used by the OECD to calculate the combined industrial
index for the member countries.
Eastern European Countries
The dollar value of GNP and personal consumption in Eastern Europe and
the comparison of industrial production in these countries with Western Europe
were obtained via direct comparisons between Eastern European countries and
80 ?
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
West Germany. The estimates for the Eastern European countries relative to
West Germany were then linked into the comparisons between West Germany and
other western countries. Consequently, two alternative sets of dollar
figures for GNP were obtained for Eastern Europe, corresponding to the two
alternative dollar estimates for West Germany. The year for the comparison
with West Germany is 1955? West German data for that year exclude the Saar.
In the comparison with West Germany, two sets of estimates were made
which, in some cases, complement each other, and, in other cases, serve as
checks against each other.
_ (1) GNP at current domestic prices in Czechoslovakia, Hungary, and
Poland (from sources listed later) ____`_ _'was converted to Deutschmarks by
means of estimated purchasing power ratios for individual components of GNP.
This calculation yielded estimates for the major end uses of GNP, as well as
for total GNP. The calculations for personal consumption are more reliable
than those for the other end uses. The Deutschmark values so obtained were
then related to the actual values for West Germany in 1955?
(2) Quantity indexes were calculated relating personal consumption,
net industrial production, and net agricultural production in each Eastern
European country to those in West Germany. The indexes were calculated from
commodity samples in physical units, weighted by West German prices (except
for the metal-working component of industrial production which was obtained
by converting domestic values of production into Deutschmarks at calculated
exchange rates). Group indexes for industry and consumption were aggregated by
81
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
means of West German .value weights (~,raiue of purchases for personal consumption;
value added for industrial production). .For agricultural production, estimates
of purchased inputs were deducted from estimates of agricultural output
(net of own production used for feed or seed, or wasted). This set of
calculations yielded values of personal consumption, industrial production, and
agricultural production as relatives of West Germany,_~ _. ___ _ _
the first involving conversion by means of price indexes with Eastern European
quantity weights, and the second involving quantity indexes with West German
price weights. Both sets of calculations give results for Eastern EUSOpe`n
West German Marks. Because of the tendency for relative quantities to be
inversely correlated with relative prices, conversion of West German magnitudes
into Eastern European currencies (the reverse of the above) probably would
give less favorable results for Eastern Elzrope. Consequently, the original
estimates for Eastern Europe were lowered by various percentages by analogy
with estimates for other countries and on the basis of other information.
mere were discrepancies for other reasons also, - }between the results
of the comparison by means of price indexes and those of the comparison by
means of quantum indexes. In the case of personal consumption, the price
indexes were obtained using commodity samples which, although often rather.
small, at least could be defined quite specifically in regard to type and
quality of product. The quantity comparisonsJhowever, necessarily used broad,
undifferentiated series, such as cotton fabrics in meters or tons, to represent
82
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
a very wide variety of products. The final estimates of personal consumption
were based mainly on the price conversion for Czechoslovakia, Poland, and
Hungary, The final estimate for GNP was a compromise between the results
of the price conversions and those of a weighted average of the quantum
comparisons for industrial production and agricultural production.
83
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Appendix B
Measurement of Economic Growth
Western European Countries
All of the postwar calculations of the growth of GNP and its components
by origin and use-are taken from OECD statistics. Series in constant 195+
prices were used for 1950-60. These series were linked in the year 1960 with
the new series in constant 1958 prices. The linking was done independently
for GNP, for industrial production (including construction) and for
agricultural production (including forestry). The growth of services in
constant prices was calculated as a residual-- a method which may give
different results for the years after 1960 than the direct calculation of
trends in services because the change from 195+ to 1958 weights had some
effect on the measurement of growth of GNP. The alternative, which would
have been to recalculate the growth of GNP in 195+ prices after 1860,
was rejected. A similar method was used to calculate the distribution of
and trends in gross fixed investment.
The prewar estimates for Western European countries are mainly from
OECD and FAO sources. Indexes of industrial production excluding construction
were used to link prewar years with the postwar series of GNP originating
in industry and construction, beginning in 1950. The agricultural indexes
for prewar years are for agricultural output (net of feed, seed and waste
from own production but not of inputs from outside agriculture) and exclude
forestry. They were linked in 1850-53 (average) with postwar series for
Approved For Release 2001/04/12: CIA-R[~79T01049A003200110001-3
 -oved For F~elease 2001/04/12: CIA-RDP79T01049A003200110001-3
originating in agriculture and forestry.
~e share of gross fixed investment in GNP at factor cost in the
Western European countries was estimated by means of a rough rule of thumb.
It was assumed that the correct relation would fall between two sets of
estimates: (1) the ratios of gross fixed investment at market prices to
GNP at market prices (which implies a burden of indirect taxes -- net of
r__. __ ,
subsidies --_ __ proportionately as large on investment as on the GNP as a
whole); (2) the ratios, of gross fixed investment at market prices to GNP
at factor cost (which implies that there is no burden of indirect taxes on
investment). The rule of thumb used in this estimate was to take the mid-
point of the range of ratios obtained with methods (1) and (2). For some
countries this method may give rise to significant errors, but in general it
< seems reasonable to assume that the midpoint of the range is closer to the
true figure than either of the extremes. It was assumed in addition, that
the sectoral distribution of gross fixed .investment at market prices could
be used to represent the distribution at factor cost.
Eastern European Countries
For Czechoslovakia, Poland, Hungary, and Bulgaria, the estimates of
economic growth are mainly from the work of the Research Project on National
Income in East Central Europe at Columbia University under the direction of
Thad Alton. This project has published monographs on the structure of the
Czechoslovak, Polish, and Hungarian economies and a large number.o~TATINTL
Occasional Papers of the project have either beer_ published
$5
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 The principal publications of the project, as well as some
STATINTL of~the main supplementary sources used in this paper are listed at the end.
STATINTL
For East Germany, extensive use was made of the work of Wolfgang
Stolper (The Structure of the East German Economy, Cambridge, 1960) and of
estimates by Edwin Snell.
For Rumania, use was made mainly of official Rumanian series and of
__________ . calculated
_an _ _ ,`index of industrial productior~/by the Alton project.
1. Sectoral Weights and Share of Investment in GNP
The percentage distribution of GNP at factor cost provided the weights
for the principal sectors of origin with which sectoral indexes could be
combined to calculate indexes for total GNP. For Czechoslovakia, Poland
and Bulgaria in 1956 and for Hungary in 1955, the distribution of GNP at
factor cost was obtained from the Alton studies with one adjustment. To
estimate the contribution of each sector to the GnTP at factor cost, the :~
Alton studies first determine the labor cost attributable to each sector.
~ejrthen impute the cost of non-labor factors by redistributing to each
sector the part of total GNP in established prices which is not accounted
for by labor costs in proportion to the sectoral distribution of fixed and
working capital. This procedure implies a constant rate of return to all
types of capital. Although this assumption has some theoretical merit,
rates of return actually vary considerably in market economies among the
usually
sectors, the return,/being much lower on housing than on other assets.
.Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 A~~ro~~d For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
r is reason, and to avoid making housing services an unreasonably large
share of GNP, the Alton estimates were adjusted to give housing a rate of
return one-half as high as that of the economy as a whole. In the absence
of any detailed national accounts on Rumania, it was assumed that the
sectoral distribution of Rumanian GNP at factor cost in 1956 was the same
as that of Bulgaria. This analogy was suggested by the roughly comparable
level of industrialization of these countries in 1956 (as ~e.flected in
similar per capita GNP's) .
For East Germany, estimates by Snell of the distribution of GNP in
1936 German Marks were used. Stolper's work shows that it makes little
difference in the sectoral distribution whether 1936 Reichsinarks_ or 1950
Deutschmarks are used. Unfortunately, detailed postwar estimates in East
. German marks are not available, but what information does exist on the
East German national accounts and price structure appears to indicate that
prewar German prices do not greatly distort the picture.
The estimates of gross fixed investment as a share of GNP at factor
cost in Czechoslovakia, Poland, Hungary, and Bulgaria are from Alton,
except for an adjustment for housing corresponding to that on the sector of
origin side of the accounts. For East Germany they are from Snell. As for
Western Europe, it was assumed that the sectoral distribution of gross fixed
investment at market prices could be used to represent the aistribution at
factor cost.
87
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
2. Sectoral and End Use Indexes
The Sectoral indexes and those for personal consumption and gross fixed
investment cover the postwar years from 1950 through 1864 and a prewar year
(1939 for Bulgaria, 1937 for Czechoslovakia and Poland, 1936 for East
Germany, and 1938 for Rumania}. Prewar estimates are intended to represent
production in the postwar territory, except in Poland, where they represent
the prewar territory.
All indexes for Czechoslovakia and Poland, (through 1962) and for
Hungary (through 1960), the Sectoral indexes for Bulgaria (through 1960,
and the industrial production index for Rumania (through 1964}, are from
Alton. The methods of calculating these indexes are approximations of those
used in Western countries. Industrial production indexes were obtained
mainly by aggregating commodity series in physical units by means of
weights made up of wage bills or other substitutes for value added,
supplemented by prices. Construction indexes were obtained from data on
inputs of materials into construction. Agricultural indexes were calculated
from estimates of agricultural output (final product) of all major
agricultural commodities, from which estimates of industrial inputs were
deducted. Indexes for services are a composite of such indicators as
ton-kilometers carried in various modes of transport, 'retail trade turnover
in constant prices, the growth of the housing stock, and employment in
various types of private and government services. Personal consumption
indexes reflect the weighting of series on consumption of goods and
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
services, mainly in terms of physical units, by retail prices and value of
purchases. ~e indexes for fixed investment combine estimates of construction
expenditures (usually the same as those for GNP originating in construction)
with estimates of apparent consumption of machinery and equipment. The Alton
estimates were extended for the years after 1862 mainly by adjusting
official Eastern European series. Official series for national income
originating in industry,. construction, agriculture, and other "productive"
sectors were used for Czechoslovakia, Poland and Hungary. Comparisons show
that the differences between most of these official series and the calculated
series have tended to decline over the years and in some cases (for example,
industrial production in Poland that the differences had disappeared.
,Consequently, the use of these official series probably does not give bad
results, especially for only a few years. Two adjustments had to be made,
however. First, some (rather arbitrary) allowance was made for the growth
on "non-productive" services, which are not included in official Eastern
European national income statistics. Second, the sectors were reweighted in
line with the estimates for earlier years.' For both of these reasons,
the calculated growth of GNP in these years differs considerably from the
official growth of national income. For Rumania in the entire period;
official indexes were used for value added in agriculture. For Bulgaria,
official series for gross fixed investment, including investment by collective
forms, were used.
$9
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
The indexes for industrial production and agricultural production,
in East Germany are from Stolper through 1957, and are simplified updatings
of Stolper's series for later years. For personal consumption, Snell
provided estimates through 1955 and a new quantity index, obtained mainly
by weighting East German series on the consumption of individual commodities
with West German retail price weights was used after 1955? The series on
gross fixed investment were obtained from official East German data on
investment in machinery and inconstruction and on investment in industry
and agriculture in current prices, and from various estimates of price
changes for machinery and construction.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Appendix C
Foreign grade Statistics
The foreign trade analysis required mutually consistent series on:
(1) the value of imports and exports in current dollars; (2) the value of
imports and exports in constant (1963) dollars; (3) the average unit value
of imports and exports in relation to the 1963 price level.
For Western European countries these series are available from the
United Nationts Yearbook of International Trade Statistics, except the most
recent years, which were covered by OECD statistics. For Eastern European
countries, the series in current prices are from the UN source mentioned
above and the statistical yearbooks of the various countries. Poland and
Czechoslovakia for the postwar years and Bulgaria for both postwar years and
1939 also provide quantum indexes of imports and exports in their statistical
yearbooks. A quantum index for Czechoslovakia, relating 1937 to 19-8, was
obtained from Statisticky Zpravodaj No. 7-8, 19-9, p.251. This index was
linked to the postwar index, which begins in 19+8. For Poland quantum indexes
relating prewar to 1950 were taken from Josef Krynicki, Problemy handlu
zagranicznega polski (Warsaw, 1958). This index was linked to the .official
postwar quantum index in 1950. Unit value indexes for Bulgaria, Czechoslovakia
and Poland were derived from the series in current dollars and the quantum
series. It was assumed that average unit values for imports and exports in
Rumania and Hungary changed in tn.e same way as the weighted average for
Bulgaria, Czechoslovakia, and Poland.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
For East Germany, the postwar export series beginning in 1957 and the
import series for the entire postwar period are from official East German
statistical yearbooks. Official East German export data exclude reparations.
Reparations were added by means of estimates by Snell which are based mainly
on the publications of the West German Social Democratic Party (in particular,
SPD Information Service, Die reparationen in der Sovietzone von 1945-1952,
Denkschriften no. 51). Estimates of East and West German trade, including
inter-regional trade, in 1936 are from UN~ECE, Econornic Bulletin for Europe,
1949, no. 3, p.26. 7~is source gives a breakdown of trade in the Soviet zone
of occupation, West Germany and Berlin in 1936, with each other and with the
outside wo~l:d. To obtain a correspondance with the postwar division of Germany,
the trade of Berlin was further subdivided between East and West Berlin. The
estimates of prewar East and West German trade in 1936 prices were linked
to estimates of postwar trade in the same prices.
Western E~zropean trade statistics are given f.o.b. for exports, c.i.f.
for imports. Eastern European trade statistics were given this same way
before World War II, but since 1950 imports have been given f.o.b., except in
Hungary. To achieve greater comparability with Western statistics and
prewar Eastern statistics, the postwar import series for the Eastern European
countries; except Hungary, were increased by 11.1 percent (on the assumption
that the f.o.b. value of imports was g0 percent of the c.i.f. value). Other
possible causes of differences -- for example, in the treatment of re-exports
and in the method of recording trade (by country of origin or destination or
by country of payment) -- were not adjusted for.
Approved For Release 2001/04/12: CIA-RD~9T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
Principal Sources of Statistical Data
I. Publications of the Research Project on National Income in East-Central
Europe at Columbia University Alton Project
Monographs:
Czechoslovak National Income and Product in 1j47-48 and 1955-56 (Columbia
University Press, 19 2
? Hungarian National Income and Product in 1955 (Columbia University Press,
lg 3
Polish National Income and Product in 1954 1955 and 1956 (Columbia
University Press, 19 5
Occasional Papers (Multilithed):
Published to date:
1. Growth of Czechoslovak Trade, Banking, and Insurance, 1937-1862.
2. Trends in Czechoslovak Housing, Government, and Other Services,
1936-1862.
3. Czechoslovak Index of Investment, 1937-1862: Machinery and Equipment.
4. Czechoslovak Index of Construction, 1937-1862.
5? Indexes of Polish Industrial Production, 1937-1960.
6. Output of Czechoslovak Forestry, Fishing, and Hunting, Trapping
and Game at Constant 1848 Prices, 1936 and 1946-1962.
7. Czechoslovak Agricultural Output, Expenses, Gross and Net Product
and Productivity, 1934-1938 and 1946-1862.
8. Hungary, Index of Transportation and Communication Services, 1938-1862.
9?
Output and Value Added in Czechoslovak Transportation and
Communications, 1937 and 1846-1962..
Awaiting Reproduction:
Personal Consumption in Poland, 1938 and 1846-1962.
Czechoslovak Industrial Production Index, 1937-1962.
Personal Consumption in Hungary, 1938 and 1947-1962.,
Czechoslovak Gross National Product by Sectors of Origin and by End Uses,
1937 and 1948-1862.
Index of Hungarian Domestic and Foreign Trade, 1938 and 1947-1962.
Trends in Hungarian Construction, 1938 and 1847-1962.
National Income and Product of Bulgaria in 1956.
Trends in the Service Sectors of the Hungarian Economy, 1938-1962.
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
 Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3
II. Other Statistical Sources on Eastern Europe
Official Statistical Yearbooks (various years):
Bulgaria: Statisticheski Godishnik ??
Czechoslovakia: Statisticka Rocenka ?
East Germany: Statistisches Jahrbuch Der Deutschen Demokratischen Republik
Hungary: Statisztikai Evkonyv
Poland: Rocznik Statyst3-czny
Rumania: Anuarul Statistic
Other Sources:
Wolfgang Stolper, The Structure of the East German Economy (Harvard
University Press, lg 0
Greger Lazarcik, The Performance of Socialist Agriculture: A Case Stud of
Production and Productivit in Czechoslovakia 193 -3 and lg - 1
]L.W. International Financial Research Inc., lg 3 .
Vaclav Holesovsky, Personal Consumption in Czechoslovakia, 1937, 1g~+8-1860
(University Microfilms Publications - PHD Dissertation, Columbia University .
U.S. Bureau of Census, Foreign Demographic Analysis Division, Estimates
and Projections of the Population and Labor Force of the European
Communist Countries, 1950, 1955- 5 Mimeographed, March, 19 5
III. United Nations and OECD Sources
OECD, Statistics of National Accounts, 1950-1861
OECD, General Statistics, January, 1g65
OECD, Manpower Statistics, 1950-1g62
OECD, Main Economic Indicators (Various Issues)
United Nations, Yearbook of International Trade Statistics, 1860 and 1863
Approved For Release 2001/04/12: CIA-RDP79T01049A003200110001-3