CZECHOSLOVAKIA: THE ECONOMIC MEANING OF ENFORCED SOVIET CONTROL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010057-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: October 1, 2009
• Sequence Number: 57
• Publication Date: August 1, 1968
• Content Type: IM

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Confidentiai
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Czechoslovakia: The Economic Meaning
of Enforced Soviet Control
Confidential
ER IM 68-107
AUGUST 1968
COPY NO. ~. C J
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
LXCLUIIXO -HOM AUTOMATIC
OONNORAVING ANO
DIECLANRIFICATION
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
26 August 1968
INTELLIGENCE MEMORANDUM
Czechoslovakia: The Economic Meaning
of Enforced Soviet Control
Summary
If the Soviet armed intervention is followed
by the reimposition of a hard line on economic
policy and the repudiation of the liberalization
planned by the Dubcek regime, then Czechoslovakia's
hopes for long-term economic change have been
dashed. The deposed government proposed to change
the economic structure, to free producers from
direct state control, and to make the economy
competitive on the Western market, as it was in
1948. For all this, the regime needed and was
seeking help from the West. Hard-line leaders,
handpicked by the Soviet Party, will be neither
willing nor able to undertake such changes.
Instead, Czechoslovakia is likely to continue to
have a substandard European economy, operated
under direct state control and dependent on the
USSR.
There will be some economic growth. For a
time the economy will follow much the same course
that necessity would have imposed on the Dubcek
regime. Growth could even be facilitated in the
short run by Soviet and Eastern European help that
Dubcek could not expect. The difference is that
hopes for a freer, more competitive economy and
society aided by Western loans and technology and
with close ties to the West must once again go
underground.
Note: This memorandum was produced 8oZeiy by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
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Post-Invasion Economic Policy
1. The Soviet occupation of Czechoslovakia,
assuming that it continues, puts an end to plans
for making a fresh start in Czech economic policy.
Under a Soviet-imposed regime, whoever heads it,
centralized control over the economy will neces-
sarily be tightened, and the influence of compe-
tent planners and managers will be much reduced --
some will lose their jobs -- as a result of
universal distrust and bitterness. Political
opportunists will doubtless acquire some top
economic posts for which they are poorly qualified.
Passive resistance by workers may become a serious
problem. All this can mean only that the con-
spicuous waste and inefficiency that have been
the object of so much critic.sm will continue and
grow.
2. Czechoslovakia's trade with the USSR,
East Germany, and Poland -- already more than one-
half of total trade -- will doubtless jump sharply.
Increased Soviet willingness to take machinery from
Czechoslovakia will maintain full employment in
the country's factories and increase its economic
dependence on the USSR. Additional consumer goods
may be made available in the short run to appease
the workers. Credits, "joint ventures," and co-
ordination of economic plans will be used to
tighten the tie that binds and to prepare the way
for an impressive Czech showing in the near future.
The USSR may well furnish some hard currency to
Czechoslovakia -- it gave $50 million to Hungary
in 1957 -- although not the large loan ($550 mil-
lion) requested by the Dubcek regime. There was
not much chance of getting such an amount from the
USSR in the first place, and a token hard currency
loan would do little to modernize Czech industry.
Economic Prospects
3. In terms of output, the short-run pros-
pects are not really very different from what
they would have been under the Dubcek regime, if
Dubcek had gained Soviet cooperation. The
regime had already planned on a growth of 5 to
6 percent per year in total output in 1969-70,
accepting the need to subsidize high-cost
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industries, th-e production of unsaleable goods,
and unprofitable exports. Some type of "economic
reform" is likely to be maintained, probably the
standard variety prevalent in Eastern Europe. But
the hope of real change will be gone. Economic
growth obtained under tight control and through
trade with the Communist world will be largely
illusory, like past Czech growth. As Professor
Ota Sik has been telling the people, most recently
on television, growth has been maintained mainly
through expanding the output of obsolete goods,
most of which were then used -- directly through
investment and indirectly through trade with the
Communist world -- to make possible the output of
more obsolete goods, of which the same uses must
be made. Czechoslovakia now remains caught in this
vicious circle.
Hopes Forgone
4. The Dubcek regime was preparing an escape
from this circle by making structural and organiza-
tional changes in the economy. The regime had
already cut back projected long-term rates of
increase in Leavy industry, and these changes were
reflected in the draft 1969 directives for the
economy, issued in early August. The largest
increases projected in output, aside from petroleum
refining and chemicals -- based on Soviet crude
oil -- were in consumer goods and building materials.
The main increases in investment apparently were
to be in the same industries and in agriculture,
transport and communications, and housing.
5. Over time, as structural changes improved
Czechoslovakia's competitive position, Dubcek's
economic advisers hoped to introduce an economic
system somewhat like that of Yugoslavia, in which
enterprises would make their own decisions, with
the advice and consent of workers' representatives
and subject to broad government regulation, some-
what like wartime controls in Western economies.
6. The hope of overcoming the handicaps of 20
years of Communist mismanagement of the Czech
economy was perhaps vain. But it formed part of
an overall policy under which Czechoslovakia had a
prospect of being a more livable place. The hope
and prospect must now be deferred indefinitely.
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Relations with the West
7. The Czechs must likewise forgo hopes of
achieving closer relations with the West, in
economic affairs as in politics and culture. The
Dubcek regime expected to enlist Western aid in
modernizing the economy. Russian and Eastern
European equipment -- in whatever amounts -- can-
not effectively substitute for Western equipment
in achieving this aira. The regime also hoped
ultimately -- in five to seven years -- to make
the Czech economy part of the European market,
with a "convertible" currency.
8. Instead, economic relations with the West
probably will be narrowed and surely will not be
expanded, although relations with less developed
countries may be expanded. The growth of trade
with the developed West* -- now about 19 percent
of total trade -- is likely to slow down, and terms
of trade will probably continue to deteriorate.
Tourism will lag. Large Western loans and tech-
nical assistance, from which the regime hoped to
gain so much, are now out of the question. And
Czechoslovakia cannot hope to follow Yugoslavia
and Rumania in obtaining the political benefits of
greater economic independence.
* Western Europe (except for Greece, Spain, and
Portugal) and the United States, Canada, Japan,
Australia, New Zealand, and South Africa.
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