DEVELOPMENT AND PRESENT STATUS OF CZECHOSLOVAK ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83-00415R010200120004-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 15, 2016
• Document Release Date: May 9, 2001
• Sequence Number: 4
• Publication Date: January 12, 1952
• Content Type: REPORT

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--CENTRAEITST-E7IGR Y REPORT NO.
INFORMATION REPORT
SUBJECT Development and Present Status
of Czechoslovak EconorW
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PLACE
ACQUIRED
SUPPLEMENT TO
REPORT NO.
2. Your `eva .uailon..jf, this report would be appreciated. Please return by
jr
'23 February 1952.,'
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;SECUi!J3 INfun
The highly developed Czechoslovak industry represents the c ie source of strength in the Soviet economie-political plan, and it ranks first among the
other countries within the Soviet orbit. Th,Is Soviet plan IN comprises
all the countries who are members of the CEMA (Council of Economie Mutual
Assistance). Within it, Czechoslovak industry has a manifold significance
as it supplements the Soviet industrial production in the fundamentals of
heavy and war industry; special machines and parts for Soviet domestic pro-
t! t F..tck
duction; component parts for war production; tal items in heavy as well as
light industry. In the latter category are shoes, confections, textiles,
leather products and products of canning factories.
The Czechoslovak industry is assisting materially in the mechanization
of the other countries belonging to CEMA; their armament program; and light
industry which in the other countries has besnAdeveloped or was existent to-
a minimal degree.
Czechoslovakia is also marrying a heavy industrial program of her own,
and is extending even further the existing industrial plants and undertaking
full industrialization of Slovakia. This entire program is implZented from
her own resources.
Unfortunately this load does not mean any economic progress or advantage
for the country itself; It is actually injurious and causing serious disruptions
in the economic as well as financial setup.
The davelopgent of t (Izechoslovak industry can be divided into three
principal periods. The first stage represents the period of actual expansion
in which production was aimed Tsar the best interests and prosperity of the
country. The second stage is represented by a partial restriction of fliis
expansion due to the increasing demands of the USSR, not only for itself
but for the other countries within its orbit. At this time by introducing
new methods and reorganization, it was still possible to!meet these demands
and maintain economic stability. The third stage] which represents the present
time, in characterized by a complete destruction and disruption of the native
economy and a one-sided orientation of the total industry for the benefit
of the Soviets) which has resulted in the present chaotic situation and lowered
living standards. S ET
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These periods can be described as follows:
1. 1945-1948 - Two-Year Plan period which represented a healthy expansion,
Knd though geared to USSR needs, domestic consumption as well
as world markets were taken into consideration.
2. 1949F1950 First two years of the Five-Year Plan which represented full
use of the increased productivity and e2perience gained dlaring the Two-Year
Plan. During this time some consideration to domestic economic welfare
was given, even though new and increasing demands by the USSR and its sate-
llites were straining some sectors of the economy.
3. 1950 - 1951 Constantly increasing demands of the Soviets, partly resulting
from the change in the Soviet basic plan, and partly due to the unreasonable
stepping-up of the entire program, .h /caused complete cessation in some
branches of industry, such as *ft light industry, and a strictly one-sided
trade sc far as Czechoslovakia is concerned. This has naturally brought about
a chaotic disruption of the domestic economy.
The foregoing is an unhappy picture of the dituation from the Czechoslovak
viewpoint.
From the viewpoint of the USSR , the Czechoslovak industrial potential has
been raised to a maximum, and has been instrumental in fulfilling the total
plan of the USSR and CEMA. As a matter of record Czechoslovak industrial
productivity has now surpassed in volume by many percent the highest prewar
level and reached a point where the country ranks among same of the largest
industrial European states. In spite of this straining of its economy to the
utmost, it U-114 W has not added to the country's wellbeing, 64
quite the opposite.
So that a true evaluation be made of the Czechoslovak nation's position
and contribution to the total USS,and CEMA program, a synopsis of the periods
listed above is necessary.
In the first period (Two-Year Plan) a sound foundation was laid for today's
high productivity and maximum exploitation of Czechoslovakia. However, at this
time living standards were higher than ever, and a favorable public opinion
towards the new regime (KSC) was created. Non-communists, though not actually
in favor of the regime, were lulled into inactivity by the initial successes of
the program; hence actual opposition was parglyzed as w as the passive resis-
tance of the wevaring middle groups, who were neither bommunists norAnti-Communists.
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The main object of the Two-Year Plan was to achieve within two years
or less a full reconversion to peacetime production and to increase the
prewar industrial productivity by at least ten percent. This was done,
and economic stability with a firm Loundation for future development
followed as a matter of course.
It seems that the Two-Year Plan and its immediate results were super-
ficially regarded by the western critics, and its full import and significance
were underestimated. This erroneous concept is carried over and gives
basis to many unrealistic viewq of the present day situation
In Czechoslovakia; also to serious underestimates of the present value of
its considerable contribution to the USSR economy and the war potential of
the entire Soviet bloc (CEMA group),
It should be clearly understood that without the successful Two-Year Plan
the truly enormous industrial productivity of-he country could not have been
accomplished. There is no question here of economic stability within the
country itself; it has been grossly exploited by the USSR; its industry
overexpanded only to meet the ever increasing demands of the Soviet and CEMA
program. The Five-Year Plan was based on th4~ Initial success and was a natural Geu -
sequence'l .'e
At this time some basic conditions and prime causes should be considered.
The advantages of planned economy over a capitalist*6 one consist of a
total lack of competition;lno anger of surpluses since production is set in
accordance with previously, established consumption weds. Then too, enormous
investments and are made possible.
The original Five-Year Plan was intended to iupim
the years 1949 - 1953
,Twvt The first year passed calmly and accomplishment was in the, main satisfactory.
It was noted that in some sectors the goals were set too high, not enough time
being allotted to the purely preparatory phase of certain activities. (In these
provisions must be taken into consideration the problem of man-power, since the
Plan depended on more people being available ft for work in heavy industry,
xxzk= mining, metallurgical plants, etc.
Basic,,Z?mported raw materials were more difficult to obtain and this ii/Gurn
wen} causrg various stoppages in actual productivity. !!
Then 0 considerably greater difficulties were caused
olitical
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peopleresponsible;in the overall organization,- exchangelle cadres,,
especially in management and most responsible positions. Political ap-
pointees without the necessary technical skills man* replaced experienced
people, who in turn were placed in subordinate positions, or worse yet
into other branches.
This policy alone, caused great losses; lengrthening of time processes
required to complete manufacture; in poor or lesser quality of articles
1
manufactured; A increased production costs and lowering of working morale.
These obstructions were not irremovable and did not represent a serious
menace to the ultimate success of the Plan if,/its further progress had been
conducted according to t he original idea, and if /eventually the original 11/4-1
could have been amended to meet the new and increasing demands.
The Five-Year Plan was formulated under the new political conditions,
i. e. since February 1948. Therefore these radical changes were reflected
in both the structure and the content of this new, future, economic, long-
term plan.
It called for the completion of the "ocialization of Czechoslovakia and
discontinuance of private enterprise. A small insignificant portion of
private enterprise wns left dndisturbed, as long as it did not influence the
economic political state administration, nor have any effect on cooperation
with USSR and the orientation of the Czechoslovak program into the total
Soviet plan. Even within the original framework of the Plan, foremost
consideration was given to the needs of the USSR and the other countries
within the Soviet orbit.
Though the USSR requirements were quite large, their total extent at
this time could etill?1 incorporated into the economic plan without sub-
stantially disrupting the national economic situation. However as a natural
sequence shipments to the West were greatly reduced. Compensation for this
loss of trade and imports was to be furnished by the USSR in the form of
increased shipments and financial aid, principally for purchases made abroad )
I~r said purchases would also So et gold.
The above agreement was reached at the beginning of 1949 at Moscow, when
a special governmental delegation from Czechoslovakia) headed by Zapotockyy
was there. This delegation consisted of Ministers Gregor, Clementis, Dolansky,
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Kliment, and Kabes and were ledd by And?n
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Stalin and Gottwald in Moscow in September 1948, at which time all economic
Preliminary discussions of this agreement were made directly between
Minister' icidentally this was his only journey,during his term of office
and political questions were settled between them. Gottwald then extended
his trip and spent some time in the Crimea. The purpose tat this time was
to assure the USSR of aeertain basic requirements pending the development
of vi 7n ustry.
Heavier imxoacts with more serious consequences to the Czechoslovak
economy were caused by the establishment of CEMA and the increased demands
put into effect which werejin accordance with the Soviet-promulgated plan.
The chief requirement of the plan was to furnish the other members of
the CEMA with basic necessities for building tt},;their own, new, industrial
economy, and further, supplying them with the products needed for current
consumption. These latter products of Czechoslovakia had been directed
toward the West and were thus the principal source of foreign exchange
for Czechoslovakia.
In return ?IgilgOlp for the basic products Czechoslovakia was to
furnish members of the CEMA, it was to receive from the other members a supply
of those raw materials, of a secondary nature, which heretofore hej been pur-
chased more advantageously from the West. It was planned originally that
the differences in exchange would be covered and guaranteed by the USSR.
The difference was to be made up by the USSR in gold.
This change (direction of products to east from the west), however,
required modifications in the original Five Year Plan, none of which im-
proved the nation's internal economy. It wo1.ld have been possible to find a
practical solution to this enigma, provided, that the USSR would have carried
out its part of the bargain and furnished both the gold and raw materials as
per its guarantee. Great gaps in this, however, brought along a train of dif-
ficulties, which added to the ones mentioned earlier, seriously hampered
and endangered the orderly processes of industry so that chaos resulted.
More changes and reorganizations became necessary. To the public these
changes were made manifest at the sessions of the Central. Committee of KSC
in February 1950, when acenouncements were made about certain changes in the
basic plan being inevitable, due to closer cooperation with the basic Soviet
line, and also as a result of national developments in buil ing up a Socialist
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Even this pronouncement mentioned the urgency for fulfillment of the 25X1A
Five-Year Plan and the necessity for widening its basic requirements and
the need for especially speedy accomplishments in the fields of heavy
industry and heavy machine building. Thus, officially, it was made very
clear that the principal reason fore reorientation of the Plan, as the
urgent necessity bf further aid in building up the economies of the
Soviet bloc for the defense of`(peace.
These very first changes, which boded ill for the internal Ssecho lovak
economy because the entire productivity_of`the country was geared to the
-to ?wC .~-tOtt (.(.1Ohkcam.
USSR womld-ruling ambitions brought a t disputes and disagreements in
political circles, not only within the State apparatus but in the central
party apparatus as well.
These disputes led to direct conflict with Moscow; thus in the fall of
l94 Minister of Foreign Trade, E. Loebl, was arrested and charged with anti-
state activities; later the removal and arrest of J. Planer, director of
foreign section of the Central Secretariat,1removal and arrest of J. Reiman,
chairman of the Office of the Prime Minister, and others `was directly aAW
the result of Moscow orders. At about this time there was some publicity
given to new evidences of nationalist-anti-soviet and T.toist elements
found in Czechoslovakia.
In spite of all the difficulties and dissensions enumerated above,
due to the soundmeds of the Two-Year Plan, the fact that there was a backlog
of supplies within the country, the people remained optimistic that these
obstacles insofar as internal shortages were concerned, were of a tempo-
4 ..-
rary nature, and that the external difficulties, such as lawk-rf USSR
up to its guarantees) would also be erased with time.
Somas the general feeling up to the beginning of this year, when a
sudden reversal of the general Soviet line set up a different line of
thought. Its change of pdtlicy must have been formulated last year, but
in line with the usual Soviet strategy, no one, not even those principally
concerned with carrying out itd policies, seemed to have !,had warning that
it was coming. Therefore, no one was able to formulate any opposition or
make any preparations to meet this new aspect of-he Soviet line. (6)
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The entire Soviet program at the present time is based on th
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possibility of war, Naturally the program does not stop with to USSR
I but includes all the other countries comprising the CEM& group.
It is impossible to set one &Unite date when this radical
change took place, inasmuch as all of the provisions of the F1?vS-Year Plan
(such as building of new industries, increasing of industrial productivity,
the stress on heavy industry heavy machine building, industrializing of
backward areas, etc.) were just as useful for the furtherance of military
aims, as they were towards achieving the peaceful goals, as originally
promulgated.
It seems that the USSR considers only one country eaow1y becoming
almostS partner, and that is the People's Republic of
China.
At the present time, the Soviet line has abruptly stopped any further
development of industries, or building ew ones, but is stepping up demands
A
for continually increased production of the existent plants.
(7)
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These were the reasons for the new-d.b7andsmade on Czechoslovakia, and for
the gre-.:t changes in the Czechoslovak Five-year Plan which were made at the ex-
pense of the Czech slovak economy. The ''zechoslovak economic plan had to be
completely adapted to the changed general line mfi Soviet economic and political
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strategy. The purpose of this is now to bear the main burden of the new over--
all Soviet plan throughout the entire Soviet sphere, without regard for the
a?
traumatic effect of this on the Czechoslovak economy.
It is not perhaps pointless to note here the main political motivation
of this change in the general line, a chin e which may not be discounted as a
piece of Coimnuni.st propaganda. This motivation is the fact that the degree
of war preparedness, and the constantly increasing productivity of the Soviet
sphere, together with the fact that this sphere is approaching the capacity of
the West, are the most effect'reason why the West will not risk starting a way.
And it is in line with the calcul_wtions of the 'oviet plan and with the real
capacity both of Soviet industry and of the industry of all the areas which are
today under direct control of Moscow, that within five years the USSR will reach
the level of industrial production of the USA.
This, then,. is the third and last stage in the ::'eve opment of the Czechoslovak
economy.
In order to understand this stage more closely it is necessary to point out
that Czechoslovakia is capable, providing certain necessary and sometimes drastic
and unpopular measures are taken, of fulfilling the enormous new demands placed
upon it. One of the fundamental measures of this type is the new reorganization
of th.. Five-Year Plan, which has already been carried out. This consists in the
change of emphasis to basic and supplementary war and heavy industry, although
this does not appear at first sight, since the principal emphasis of the first
draft of the rive-.Year elan was already on. this type of production. The differ-
ence is that in the first draft of the rive-Year Plan this heavy industrial pro-
duction was to serve the development of Czechoslovak industry and, secondarily,
that of the other countries of the Soviet sphere, whereas under the new plan
further industrial development will be used without consideration for the effect
on the Czecho sl ovak economy. As a matter of fact, the long-range effect of this
on the Czechoslovak economy will be only negative, since the onesidedness of
industrial production will impoverish the country.
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The changes and the new, increased demands were not presented to uzechoslo
vakia all at once, but rather gradually. Only the final large section was pre-
sented suddenly, that section which includes almost the entire industrial pro-
duction of Czechoslovakia. Originally Czechoslovakia received only demands for
increased production and deliveries to the USSR, and these were on a small scale.
Even these demands, however, meant a change in the original econcnic and production
plan, and met with a large number of cases of misunderstanding and disagreement
which were even overt. at times.
In this connection it drould be understood that in many cases those fune-
tionaries who expressed themselves against specific measures, and criticized the
general line of the Party leadership were not guilty of andi-Soviet or anti*Gom-
munist sympathies, but rather did not understand the reasons for these changes,
and saw in them only a threat to the economic interests of Cz ohoslovakia. The
party leadership, insofar as it was informed of the real reasons for these chan-
ges - and it must be supposed that at least the leading party functionaries were
informed and instructed from Moscow - was not always able to explain in detail
the reasons for the changes of policy. For this reason the Party leadership
has to suppQ ess the opposition, and to accuse them of insufficient political
maturity, etc. In many cases the Party leadership welcomed the opportunity to
rid the Party of mnconveniently active and independent functionaries) in the pro-
cess of suppressing Party democracy. This is true both of the purge which Slan-
sky initiated and of the final removal of Slansky/kimself. This was discussed
in detail in the report oA Slan sky
The USSR had an excellent chance to evaluate the potential of Czechoslovak
industry and to determine the final potential of that industry after a period of
development; this was particularly true after 1949, when special Soviet missions
began to come to Czechoslovakia. (A separate report has been made on these mis-
sions.) sions.) Over a period of time these missions could determine the ability of the
Czechoslovak economy to fulfill maximum demaids, providing certain measures were
taken. On the basis of their reports Moscow prepared a plan for Czechoslovak
industry within the framework of the new Soviet economic and political strategy;
this plan was presented to Czechoslovakia when completed. It may be said that
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this is the final draft of the plan, because it involves the actual i xi um
possibidd produ-tion from Czechoslovakia, and no further increase can be made
in the near future without a further expansion of the bases of production and
modernizing existing ones.
This final demand, which requires fundamental changes in the original t''ive-
in detail
Year Plan, was present~ed,t-o the public at the February, 1951, meeting of the Cen-
tral Committee of the KSC by Dolansky, and was explained politically by Pros-
ident uottwald. The plan was presented very cleverly, so that by merely reading
it over and analyzing it according to existing plans, it was impossible to see
that the overall plan would have to be changed, ^nd that th.e effect on the Czecho-
slovak e cnnomy would. be enormous, without also knowing the background of the new
demand. The purpose of this report is not to analyze Dolansky's polemic speech.
But in spite of this it is necessary to point to several basic facts which may
help in understanding these developments. In the very introduction of his ex-
tensive report Dolansky says that the changes in the Plan, which he calls only
an increased and accelerated Five-Year Plan, are in the interest of securing
the strength of the countries of the "peace camp: i)olansky had to begin in this
manner because the analysis of the changes in the rest of the speech -cannot be
easily understood to be in the interests of Czechoslovak prooperity and stability.
n important point in f-is report is the statement that "industrial production
in Czechoslovakia is 50 percent higher than under capitalism, and heavy Machine
~o h ighe s t
building, precision machine building, and paferi in 1950 reached double theme u put
achieved in Czechoslovakia under capitalism." This is presented not only to con-
firm the above explanation of the causes of these changes, but also to give a
concrete example for the real evaluation of the capacities of Czechoslovak indus-
try as opposed to improper evaluations; and to give a correct overall picture
as opposed to tendentious and incorrect information.
In other parts of his report, which is divided according to individual
branches of industry, Dolansky shows clearly the extent to which the -USSR is
taking Czechoslovak industrial production, n the industries in which this is
occurring, and the effect of Czech%slovak activity on the other countries of the
Soviet sphe re. This will be discussed in detai 1 in another report dealing wit h
t the significance of Czeeoho slovak industry for the USSR.
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Another proof of the above is in Dolan sky' s report on Czechoslovak foreign
trade, in which he said that in 1950 dikeehosl ovak trade with the People's Lemo-
cracies and the USSR reached 54 percent of total trade, while the exports of
heavy end precisionxm jc machine building and metallurgy from Czechoslovak to these
countries reached 73 percent of total production. At the same time imports of
basic raw materials from these countries have increased by only 10 percent.
This is directly connected with the necessity to develop new domestic sources
of the basic raw materials, even though it is not financially profitable; in-
a-COL
eluded here * also the increased collections of scrap iron, other metals, and
A
other raw material s
mother important point in Dolansky's report is the question of the produc-
tion and distribution of electric power within 0zechoslovakia end for export.
This will be discussed independently in a further report.
loolansky's report gives the imp ression of an overall expansion of the
Five-Year Pan arr3 a general increase in the output of Czechoslovak industry
and e conomyr In fact this overall increase is only apparent, and in reality
will occur oily in ceetain sectors, where a sharp rise in output will take place.
In a number of successful sectors, which are important to Czechoslovakia's ec-
onomy, there will be a significant drop, -which is the necessary result of the
uneven distribution of manpower and the reorientation of tho economy. There are
two possibilities in -this case. The first is that the new ~'ive-Year Plan is in
no way fundamentally different from the original plan, since some sectors of the
original plan have not been touched, and in others the report does not go into
detail. The other possibility is that in the so-called useful industrial sectors,
which includes such things as civilianconstructicn, it is calculated that the plan
will not be fulfilled, and that inorder to cover this up measures will be taken
later against the "responsible functionaries". This corresponds completely not
only to the mentality but also to the requirements of the planning system, in
which for political reasons it is impossible to backtrack under difficulties
in sectors where 100 percent plan fulfillment is politically required. This is
ha s been and
particularly true in the case of the civilian sector, v;hie wi 11 be subject to
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There e_ists, however, a real possibility of further increasing the pro-
ductivity and capacity of those sectors of Czechoslovak industry on which the
principal emphasis is being placed, without the necessity of expanding; parallel
production. The technique of this productivity increasel, the so-called simple,
or "dry" method, was worked out first by Soviet technical missions and adapted
to the working methods of the Soviet system. The system consists principally
in further utilizing the existing means pf production by introducing second and
third shifts ; this disturbs the continuity of pro dkctiin the least and will
make possible a considerable increase in overall production. Another of the
principal methods by wh].ch the Soviet system has been adapted is to increase
c
specialization in production, excluding less important products from l,nned pro-
duction, and toansferring to serial productinn. These are the two main factore
which my really help to the new tasks and fulfill the new demands.
'~ldrixtai~nm~tn~a3~~imxt~~!x3n
x ambx-ayp1iB dx Steps have already
been taken to apply these new methocBs, both in the introduction of second and
third shifts and in the rejection from production of less imr obtant products.
The p