DCI COUNTRY BRIEFING, 14 MARCH 1966: ECONOMIC GROWTH IN EASTERN AND WESTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70T00666R000200110021-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 15, 2016
• Document Release Date: August 23, 2002
• Sequence Number: 21
• Publication Date: March 15, 1966
• Content Type: MFR

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15 March 1966
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I NN* 1966
SUBJECT: DCI Country Briefing, 14 March 1966: Economic Growth
in Eastern and Western Europe
1. On 14 March, I briefed the Director and his staff on postwar
economic growth in Eastern and Western Europe. The main purpose
of the briefing was to evaluate, by means of comparisons with
Western Europe, the performance of the Soviet-type economic system
as it has been applied to Eastern Europe. The conclusion was drawn
from the statistical data on postwar growth that economic performance
in Eastern Europe has been decidedly inferior to that in Western
Europe.
2. The Director asked several questions in the course of the
briefing, mainly to obtain elaboration on some of the points
mentioned. He appeared satisfied with the answers.
3. An approximate transcript of the briefing is appended.
A map of Europe and 4 charts, which were used in the briefing, are
available The charts concern: (1) Indexes of
GNP, Industrial o uc ron, and Agricultural Production in Eastern
and Western Europe, prewar and 1950-64. (2) Comparison of average
annual, increases in GNP for 1951-64 and 1961-64 in Western Europe
as a group and in Eastern Europe, as a group and by country.
(3) Comparison of percentage increases in personal consumption per
capita, prewar to 1964, in selected Western and Eastern European
countries. (4) Comparison of the percentage of investment expenditures
in GNP in typical Eastern and Western European countries and of the
percentage distribution of investment expenditures among industry,
agriculture, and services. 1b
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Comparative Economic Growth in Eastern and Western Europe
Postwar economic growth in Europe gives us a basis for comparing
the performance of two different economic systems -- the market economy
of Western Europe and the Soviet-type planned economy of Eastern Europe.
By the term "Eastern Europe", I am referring to 6 countries: East Germany
and Czechoslovakia are the most economically developed of the area, with
a per capita GNP around three quarters of the West German level; Hungary
and Poland form an intermediate group, with per capita GNP slightly
below half of the West German level; Rumania and Bulgaria form the least
advanced group, with per capita GNP less than one third of West Germany's
and roughly on a level with Greece. Together these 6 countries form an
economic unit, as measured by GNP, slightly smaller than West Germany,
and more than one third of the USSR.
I would like to approach the comparison of economic growth from
points of view: (1) Production -- The growth of production was rapid
in Eastern Europe, but no more so, and in recent years, less so than in
Western Europe. (2) Consumption -- The increase in per capita consumption
was far smaller in Eastern Europe than in Western Europe. (3) Efficiency --
Economic growth was less efficient, that is, more costly, in Eastern
Europe than in Western Europe.
The growth of production during the postwar period and in comparison
with prewar levels is shown in the first chart. There is little difference
between Eastern and Western Europe in the growth of GNP. However, the
pattern of growth was different. Industrial growth was more rapid in the
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Eastern than in the Western countries. On the other hand the growth of
agricultural production was much greater in the West -- in recent years
it was about 50% above prewar levels in Western countries, but barely
above prewar in Eastern countries.
The next chart contrasts the growth of GNP over the entire postwar
period (1951-64) with that in recent years (1961-64) and also gives some
data for individual Eastern European countries. Since 1960 there has
been a sharp decline in the rate of growth in Eastern Europe, but virtually
no decline in Western Europe. Now let us look at individual Eastern
European countries. Over the entire 1951-64 period, the less advanced
countries on the whole had the fastest growth -- Rumania and Bulgaria
are on top, Czechoslovakia at the bottom, Hungary and Poland in the
middle. East Germany is an exception, but rapid East German growth was
due to a delayed recovery from the effects of World war II. In recent
years, East Germany falls into line, with the slowest growth after
Czechoslovakia. You will note that by far the largest declines in growth
rates are in Czechoslovakia and East Germany. In fact, Czechoslovakia
had a drop in production in 1963 and no increase in 1964 -- amounting to
an economic recession that is probably the most severe that any industrial
country has experienced since World War II.
The very poor performance of Eastern Europe in raising the economic
welfare of the population is clearly seen in the next chart. This chart
shows percentage increases in personal consumption per capita from
prewar years to 1964 in selected countries of Eastern and Western Europe.
The increases are much smaller in Eastern Europe with only one exception,
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Poland. But the improvement in Poland is due largely to a large
reduction in population since prewar days and an increase in productive
capacity as a result of boundary changes. The severe lags in the growth
of consumption in such countries as East Germany and Czechoslovakia has
reduced their consumption levels to less than 60 percent of the West
German, while before World War II they were about at parity with West
Germany. The current discrepancies are evident to every traveler.
One of the main causes of this lag in consumption is illustrated in
the last chart. To achieve a similar growth of GNP, the Eastern European
countries had to use more of their GNP for investment than the Western
European countries -- typically about a quarter instead of a fifth.
Moreover, investment costs were higher in Eastern Europe than in Western
Europe in spite of a distribution of investment that should have kept
investment costs lower. Eastern Europe put a much larger share of
investments into industry and agriculture than Western Europe -- for
these sectors together, 60 percent compared with 11.0 percent. The strategy
was to build as many new factories as possible while postponning the
construction of such things as houses, roads, warehouses, and modern
railroad facilities as long as possible and using existing facilities
more intensively'. But the strategy did not work. The large investments
in industry were not used efficiently. And in recent years, the lack of
adequate transportation, warehouse space, and so forth has become an
obstacle to economic growth. Moreover, the large investments in agriculture
,proved extremely unproductive. This is mainly because of the collectivization
of agriculture in all of the Eastern countries, except Poland, which
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caused a flight of labor from the farm and a great weakening of farmers'
incentives.
What do we conclude from these statistics? -- that the economic
performance of the Western European countries has been clearly superior
to that of the Eastern European countries. The Eastern European countries
make a poorer showing, for the entire postwar period, on at least 2 of
the 3 criteria that we have examined; and in recent years, on all three.
East Germany and Czechoslovakia, the more industrialized Eastern countries,
show up especially poorly. The communist regimes of these countries
apparently have arrived at the same conclusions. For the past 'Iwo or three
years they have been groping for economic policies that will work better
and for changes in the Soviet-type system of economic planning and
management that will increase efficiency. They, have had little help or
inspiration from the USSR, and consequently have been more interested
than in the past in Western goods and technology, and more open to
Western ideas. The outcome cannot be predicted, but surely there is a
potential for political instability and there will be many opportunities
for increasing Western influence in Eastern Europe.
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