Page:NATIONAL INTELLIGENCE SURVEY 18; CZECHOSLOVAKIA; THE ECONOMY CIA-RDP01-00707R000200110014-8.pdf/8

APPROVED FOR RELEASE: 2009/06/16: _CIA-RDP01-00707R000200110014-8 Nevertheless, the Husak regime has made consumer goods more available, and by Eastern European standards the Czechoslovaks live well. Most amenities and luxuries remain searce and expensive, however.

2. Economic growth and reform

Communist control has been more costly to Czechoslovakia than to other, less-developed economies in Eastern Europe. Since 1950, GNP has increased at an average annual rate of less than 4%, the lowest in Eastern Europe. Throughout the 1950’s the regime found it easy to force the development of heavy industry as the chief objective of economic policy, and the results were in a way impressive. From 1950 to 1960, industrial employment increased by 40% and catput rose by 92%. The ease of increasing exports to the U.S.S.R., the availability of surplus agricultural labor, and the popular acceptance of a very slow improvement in living conditions made it easy for the regime to expand output. As a result, the leaders were hardly aware of the lag in efficiency-output per unit of input grew by only 11% per year.

In the late 1950’s the overconfidence of the Novotny regime led to overambitious planning for the 1960’s. What was worse, overconfidence persisted after the danger signals began to appear in 1962—balance of payments deficits, shortages of materials, and a growing volume of unfinished construction. By the time the regime began cutting back investment and pushing exports, it was too late to avoid a serious recession. In 1963, for one of the few time in the Communist world, the national product declined.

The lag in growth reflected both the one-sided stress on heavy industry and the shift of foreign trade away from the world market and toward the U.S.S.R. and Eastern European Communist countries. These changes, which followed fast on the Communist takeover, led to mismanagement and neglect of the highly specialized firms—especially in light industry for which Czechoslovakia was famous—and the forced development of a new steel industry and broadly diversified engineering industries. The development of these new industries on the basis of Soviet equipment and designs, operating with Soviet materials and for the Soviet market, resulted in the production of high-cost goods generally not competitive on world markets. Moreover, Soviet demand for these products began to wane. At the same time, the failure to expand and modernize the traditional light industries weakened the Czechoslovak position on the world market, although light industry exports—including shoes and glassware—are more competitive than most of Czechoslovakia’s machinery and equipment exports. It was against this Hackground that the movement toward economic reform was launched.

The economic reform program adopted in 1965 called for the eventual shift of most decisions about production, employment, investment, and trade from the central authorities to enterprise management. Initially, however, the program left most responsibilities in the hands of the central authorities who continued to set quotas for essential production, investment, and exports, and retained control over prices. Industrial trusts, moreover, were given increased authority over entire branches of industry, and officials afraid of change remained in charge of the party and state apparatus. Accordingly, the reform program ha little effect on the running of the economy.

As the rate of economic growth picked up in 1966–67, the leadership began to regain confidence in its ability to resume business as usual, and ambitious plans for growth were adopt. d for 1966–70. There were those, however, who were highly disillusioned with the old economic and political policies—even within the party. In January 1968 a coalition of Slovaks desiring a fairer distribution of national resources, and liberal economists attempting to reform the system, played a major role in the purge of Novotny. Alexander Dubcek, a Slovak, was elected Party First Secretary.

A principal defect of the economic reform measures was that the financial resources of enterprises increased too rapidly, well above plan. By early 1967 it was clear that the average increase in wholesale prices in industry was much higher than planned—29% instead of 19%. In addition, confused application of the concept of gross revenue (whereby unfinished production and unsold inished products were mistakenly included) was equally to blame for the distortion of financial resources. Beyond these financial defects, however, was a general lack of discipline in the entire market. Normal market functions failed to materialize as administrative controls on the economy were removed and the Dubcek regime in tura was extremely reluctant to fill the void with centralized ecommic controls. In 1969 the reins were turned over to Gustav Husak who at first was reluctant to take firm action against economic instability. Excessive industrial earnings found their way into wage increases and new investment projects. Buoyant domestic demand coupled with slow industrial growth led to large increases in imports and to strains on export capacity. The result was a significant inflationary trend in the domestic economy. Husak finally moved to end the instability in late 1969 and early 1970 by reinstituting centralized controls. He restricted new investment APPROVED FOR RELEASE: 2009/06/16: _CIA-RDP01-00707R000200110014-8