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increasingly quality-conscious. The state has acknowledged that such items as shoes, yard goods, and ready-made clothing have failed to meet quality standards, and it has admitted that shortages exist in fruits and vegetables, furniture, chinaware, leather shoes, and hosiery. The current 5-year plan acknowledges the problems of quality, shortages, and creeping inflation, but solutions have been elusive.

C. Policy and development (C)

1. Policy

The accelerated pace of technological change has been the main consideration in East German economic policy since the mid-1960's. Earlier policy, oriented toward catching up with West Germany, had encouraged the application of new technology, but it had mainly emphasized increasing output by tapping "hidden reserves." By the early 1960's this policy had clearly failed, and the regime was soon converted to a more systematic approach to introducing new technology, or, in East German terminology, "mastering the scientific-technical revolution."

The possibility and necessity of accelerating technological change grew out of a large increase in the availability of Soviet crude oil and a concurrent weakening of Soviet willingness and ability to increase deliveries of other essential raw materials, including goal, ferrous metals, textile fibers, and wood and cellulose. The rise in Soviet crude oil deliveries from less than 2 million tons in 1960 to over 11 million tons in 1972 led to large investments not only in oil refining but also in the petrochemical industries, in trucking. In dieselization of the railroads, and in developing plastic and synthetic products. At the same time, demand on the CEMA market for more up-to-date manufactures became more insistent, also stimulating technological change, especially in machine-building industries.

Trade with the industrial West also played an important part in technological change. Increased imports were needed not only of investment goods but also of intermediate products rarely available through CEMA trade, and even of raw materials in short supply. To plan and manage the complex changes in economic structure required higher technical competence at all levels and more reliance on decisionmaking at lower levels. The first response of the regime, worked out by a former engineer and industrial minister, Erich Apel, was the reform program called the "New Economic System of Planning and Management," announced in June 1963. This program gave increased responsibility to the State Planning Commission and to the industrial associations (VVB's), but in 2 years' trial in 1964-65, decentralization did not produce the higher growth rates promised by Apel. More seriously, the encroachment of planners and managers into policy matters sharpened opposition within the party apparatus and the leadership.

The initial reform movement ended with the suicide of Erich Apel in December 1965, apparently in despair over basic disagreements over plans for 1966-70. In January 1966, industrial ministries were again established, and the powers of the State Planning Commission and the VVB's were sharply reduced. Walter Ulbricht, who thereupon resumed full, direct control of economic policy, discontinued efforts at formal decentralization. The main changes after 1966 came in 1969, with the establishment of procedures for consolidating group enterprises into combines (Kombinats), and the general use of foreign trade multipliers as a basis of internal proicing of exports and imports. Otherwise, he relied on giving increased discretionary authority to managers and on efforts to stimulate managerial incentives.

Ulbricht by no means abandoned, but rather speeded up, the efforts to stimulate and to adapt the technological change. Beginning in 1966, he radically revised investment priorities to push the development of agriculture, transport, and construction, and to expand output of electronics, plastics, synthetics, and industrial consumer goods. The effort was converted into a crash program at the Seventh Party Congress in 1967, and it gathered speed in 1968-69.

Ulbricht persisted in this program in 1970 in spite of increasing supply difficulties, aggravated by the exceptionally hard winters of 1968-69 and 1969-70 and mediocre crops in 1969 and 1970. The warning signs included growing backlots of unfinished investment projects; mounting trade deficits; and spreading shortages of fuel and power, of many intermediate products for the engineering industries, and of foodstuffs and consumer goods.

Finally, in September 1970 the Politburo decided, over Ulbricht's objections, to adopt revised national economic priorities and publicized them at the 20th meeting of the Central Committee that followed in December. Total investment was to be cut slightly in 1971 and was to grow slowly thereafter through 1975, with sharp increases in the shares allocated to the fuels and power and chemical industries and corresponding reductions in the shares of the electronics industry, consumer goods, agriculture, and services. A major effort was to be made to expand supplies of machinery components and spare parts, and supplies of foodstuffs

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APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200110021-0