SURVEY OF THE ECONOMIES OF THE SINO-SOVIET BLOC

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• Collection: General CIA Records
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• Document Page Count: 57
• Document Creation Date: December 27, 2016
• Document Release Date: August 28, 2013
• Sequence Number: 2
• Publication Date: September 13, 1957
• Content Type: REPORT

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SICREL N? 254
ECONOMIC INTELLIGENCE REPORT
SURVEY OF THE ECONOMIES
OF THE SINO-SOVIET BLOC
CIA/RR 101
13 September 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and '794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC INTELLIGENCE REPORT
SURVEY OF THE ECONOMIES OF ifit. SINO-SOVIET BLOC
CIA/RR 101
(ORR Project 10.1757)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
This report has been prepared to acquaint the reader with signi-
ficant facts and issues required for an analysis of the economies of
the Sino-Soviet Bloc. The results of the utilization by the Sino-
Soviet Bloc of their material and human resources can vitally affect
US foreign policy, whether the utilization be in foreign trade, in
military programs, or in domestic economic programs. In this context,
attention is paid to evidences of economic strengths and weaknesses 50X1
and to evidences of the aims and purposes of economic policy.
The content of this report conforms in general to the contributions
of ORB to the National Intelligence Estimates. In the event of con-
flict herein with a National Intelligence position, the latter controls,
for this report is not intended as a new substantive contribution.
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CONTENTS
Stuamary
Page
1
I.
USSR
5
A.
Introduction
5
B.
Geographic and Regional Characteristics
8
C.
Structure and Growth of the Economy
9
D.
Population and Manpower
11
E.
Agricultural Production
11
F.
Industrial Production
12
G.
Foreign Trade
15
II.
European Satellites
17
A.
Introduction
17
B.
Geographic and Regional Characteristics
19
C.
Structure and Growth of the Economies
21
D.
Population and Manpower
23
E.
Agricultural Production
24
F.
Industrial Production
25
G.
Foreign Trade
27
III,
Communist China and the Asiatic Satellites
29
A.
Introduction
29
B.
Geographic and Regional Characteristics
31
C.
Structure and Growth of the Economy
32
D.
Population and Manpower
33
E.
Agricultural Production
34
F.
Industrial Production
35
G.
Foreign Trade
37
IV.
East-West Comparison
38
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Tables
1. Production in the Sino-Soviet Bloc Relative
to Production in the US and the NATO Coun-
tries, 1956
Page
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2. Increases in Output in the European Satellites,
by Economic Sector, 1938, 1950, 1953, and
1956 22
3. Increases in Output in Communist China,
by Economic Sector, 1950, 1952, and 1955 33
4. Socialization of Industry in Communist China,
1952 and 1956 36
Illustrations
Following Page
Figure 1. The Sino-Soviet Bloc (Map) 2
Figure 2. USSR: Distribution of Industrial Fixed
Assets and Industrial Labor Force, by
Region, 1955 (Chart) 8
Figure 3. USSR: Gross National Product, by End
Use, 1956 (Chart) 10
Figure U. USSR: Trends in Industrial Output,
Industrial Labor Productivity, and
Industrial Fixed Capital, 1940 and
1945-56 (Chart) 14
Figure 5. USSR: Geographic Distribution of the
Volume of Foreign Commodity Trade,
1948 and 1950-56 (Chart)
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Following Page
Figure 6. USSR: Production of Selected Com-
modities, 1956 (Chart) 16
Figure 7. European Satellites: Production of
Selected Commodities, 1956 (Chart) . 20
Figure 8. European Satellites: Percentage Distri-
bution of Gross National Product, by
Country, 1938 and 1956 (Chart) . . . . 22
Figure 9. Communist China: Production of Selected
Commodities, 1956 (Chart) 30
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(ORR Project 10.1757)
SURVEY OF LEM ECONOMIES OF THE SINO-SOVIti BLOC*
Summary
The confidence in the economic strength and solidarity of the Sino-
Soviet Bloc** which was expressed so firmly at the Twentieth Party
Congress of the Communist Party of the USSR in early 1956 weakened by
the end of 1956. Strength is still there, but the solidarity has been
proved not so strong as had been thought, and the internal economic
problems of the various countries loom larger than expected. To the
critics of the Communist system, events have been encouraging; to the
Communists) sobering. Bloc countries are now in a period of transition
and of unstable relationships -- a period of reorganization, of re-
planning) of renegotiation, and of regrouping.
By early 1956 the Sino-Soviet Bloc had become an impressive ag-
gregation of economic power. Its population was 900 million. Its
total gross national product (GNP) was 38 percent that of the NATO
countries) almost 70 percent that of the US. Its rate of economic
growth was significantly more rapid than the present growth of the
NATO powers or of the US.
Despite the confidence expressed in early 1956, deep economic prob-
lems lurk under the surface today. In the USSR, pressure is increas-
ing against the developed resource base which would require expensive
investment, particularly in ferrous metallurgy, fuels, and energy, if
rapid growth is to continue. The rate of additions to the labor force
will begin to fall in 1958 or 1959, necessitating greater emphasis upon
the increase of labor productivity. New pressures for increases in con-
sumer satisfaction have been generated which will require increased
Investment in agriculture and housing and which will require an in-
creased output of consumer goods. In the European Satellites, there is
* The estimates and conclusions contained in this report represent
the best judgment of ORE as of 1 July 1957.
** The Sino-Soviet Bloc consists of the USSR, the European Satellites
(Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and
Rumania), Communist China, North Korea, and North Vietnam. (See the
map, Figure 1, following p. 2.)
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a modest reorientation of economic objectives away from the exclusive
concern with the Soviet-inspired rapid development of heavy industry
which characterized the 1950-53 period. The emphasis upon the ex-
pansion of metallurgy in spite of an inadequate resource and power
base and the diversion of resources into capital investment instead
of consumption has led to balance-of-payments difficulties, undesir-
able high production costs, a serious weakening of agriculture, and
unsatisfactory improvement in living standards. Economic reforms of
the last 3 years have only partially alleviated the situation.
Political factors created instability in intra-Bloc relationships
In 1956. The old order of interrelationships had been premised upon
the existence of undisputed Soviet authority. With Stalin's death
and the partial liquidation of his apparatus of terror, direct Soviet
dictation of Satellite economic policy became less feasible, and Soviet
control became more diffused. In addition, changes in the pattern of
central control within the USSR and a growing preoccupation with in-
ternal problems were not unmarked in the Satellites. When a series of
speeches intended for Western consumption stated that the Leninist
principle was one of "many roads to socialism" and that rigid adher-
ence to the Soviet model was not necessarily warranted, an opening
was created for the Satellites to press for greater autonomy in eco-
nomic policy than was contemplated in the then-current Soviet plans
for Bloc economic coordination.
By early 1956 the countries of the Soviet Bloc were completing
details of a set of coordinated economic plans by which the Satellites
would continue to industrialize, but on the basis of increased spe-
cialization of production. The period 1956 through 1960 was seen as
a period of transition preparatory to the operation of the Bloc econ-
omy under a more integrated master plan covering the period 1960
through 1975. Completion of the transition according to the original
plans would likely have meant reduction of the degree to which the
Satellite states could determine economic policy on an independent
basis.
All factors combined to lead significant Party and non-Party ele-
ments in Poland and Hungary to try to gain greater independence of
the USSR in late 1956. There was discontent created by economic poli-
cies imposed by the USSR, there was discontent created by national
pride, there was leadership for the political expression of the dis-
content, there was the weakening of Soviet authority implicit in the
de-Stalinization campaign, and there were the examples of Yugoslavia
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THE SINO-SOVIET
BLOC
Figure
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and the misinterpretation of the Moscow line of "many roads to social-
ism." Poland succeeded, at least for the moment; Hungary did not. The
USSR demonstrated that it would use armed force to prevent any further
apostasy, and the other Satellites remained "faithful."
Subsequently, the government of the USSR has taken action designed
to stabilize the situation, at least for the present. It has permitted
reduction of the Satellite 1960 Plan targets and a slowing down of in-
dustrialization. It has supplied immediate assistance designed to
maintain the Satellite economies and to alleviate discontent. It has
begun to exercise subtle pressure on Poland to convince that country
of the "wisdom" of maintaining its economic relations with the Bloc.
It has supplied relief to Hungary. It has disavowed Yugoslavia as a
proper economic model for the Satellites. Yet even granting the im-
mediate success of these measures, several facts confront the Soviet
officials. First, the Satellites have become more costly to the USSR
in an economic sense, although this does not necessarily imply that
they are in toto an economic liability. Second, Soviet authority in
the Satellites now rests more obviously upon Soviet military power.
Third, the spirit of nationalism lies smoldering. And, finally, the
present economic policies being undertaken by the Satellite govern-
ments do not offer great prospect of substantial long-term improvement
In living standards. To these factors must be added the obvious in-
stability of present political and economic relationships, wherein the
Hungarian economy is a liability that must be held and the present
Polish regime is tolerated as a necessary evil which prevents greater
evils. The USSR has lost a great deal of initiative in Eastern Europe
and can be profoundly affected by events which may be largely out of
Its control.
Under these circumstances the Council of Mutual Economic Assist-
ance (CEMA) plays a different role at present from that originally
foreseen. In late 1955, CEMA was to provide the coordinating mecha-
nism for a Bloc-wide economic buildup, in economic competition with
the West. After the revolt in Hungary the support of "coordination"
by the Soviet Army became more obvious than had been intended, and the
more important economic relationships were negotiated on a bilateral
basis between the individual Satellite and Moscow. CEMA operated in
a much less positive capacity, however, until quite recently when a
multilateral clearing system was organized in the Bloc. Multilateral
economic relations (including a multilateral clearing system) can be
made to seem necessary to Poland and are apparently being used as a
mechanism for reconsolidating Soviet power over Poland and the other
Satellites.
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Soviet economic relations with Communist China are also entering
a transitional phase. The growth of a powerful Chinese industrial
complex in Northeast China, adjacent to relatively underdeveloped
Soviet areas, has improved the bargaining power of Communist China.
Nevertheless, Communist China continues to be dependent upon shipments
of machinery and equipment controlled by the USSR. In the not-too-
distant future, Communist China hopes to be able to reduce its depend-
ence upon imports from the USSR and to satisfy more of its needs from
domestic materials and manufacturing.
In many respects it can be seen that the massive unity of the
Sino-Soviet Bloc is an exaggeration. There is, however, an impres-
sive aggregation of economic power which has supported the military
preparations of the USSR. Although the data appear to show an obvious
economic superiority for the NATO powers over the countries of the
Sino-Soviet Bloc, this superiority is less clear cut when military
power is considered. A substantial proportion of the resources of
the West is consumed in maintaining and increasing living standards.
The Sino-Soviet Bloc, on the other hand, devotes a much higher share
of its resources to military purposes and to expansion of the economy.
Table 1 shows production in the Sino-Soviet Bloc relative to produc-
tion in the US and the NATO countries.
Table 1
Production in the Sino-Soviet Bloc
Relative to Production in the US and the NATO Countries
1956
Product
Percent of NATO
Percent of US Countries
Hard coal
112
55
Electric power
43
26
Crude petroleum
27
25
Crude steel
65
37
In 1955 and in early 1956 the Soviet leaders apparently thought
they had time on their side. They were hopeful of maintaining growth
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of industrial production at rates significantly higher than in the
NATO countries, they were encouraged by signs of division among the
NATO powers, and they were confident of their ability to maintain a
reasonable unity of the Bloc for their most vital political and eco-
nomic aims. At the Twentieth Party Congress in Moscow in early 1956
a clear challenge was issued for long-term economic competition be-
tween the Communist world and the Free World.
Subsequent events in late 1956 caused extensive reexamination of
the aims and methods of policy, both economic and political. It is
Important to note that the performance of the domestic economy as
well as intra-Bloc relations has been of concern to the Soviet leader-
ship. By mid-1957, new programs had been formulated, or were in the
process of formulation, which combined some measures purely expedient
(such as economic assistance to the Satellites which was remedial but
not preventative of further afflictions) and some measures of poten-
tially far-reaching effect, such as a basic reorganization of Soviet
Industry and construction. In many important respects, such as the
long-term development of resources in Siberia, the USSR has not sacri-
ficed long-term economic expansion in favor of an immediate gain. The
USSR and its allies appear to have modified their program for long-
term economic competition with the Free World, but the program does
not appear to have been abandoned. The question remains, Are the
present programs consistent with the forces of change operating within
the various economies and societies of the countries of the Sino-Soviet
Bloc?
I. USSR.
A. Introduction.
Although the direction of Soviet economy is so organized as
to make it responsive to the policy decisions of the Communist Party,
the very size and complexity of the economy limit the flexibility of
response to policy changes imposed from the top. As a result, unless
grave mistakes are to be made, decisions in the economic sphere must
be based not on arbitrary direction but on knowledge and an under-
standing of the economy. This places a great premium on the management
and planning functions. The price of poor planning and management
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becomes excessive production cost, strain upon raw materials supplies,
nonfulfillment of production and investment plans, failure to meet
quality standards, and laggard introduction of new technology.
Under the new leadership (post-Stalin), problems of decision-
making and of incentives have been discussed with greater frankness
and less attention to Stalin-era dogma. Housing construction and
agriculture have both been given higher priority in resource alloca-
tion than ever during the Stalin era, and the regimentation of the
populace has been reduced. A drastic reorganization of the Soviet
economy is being effectuated (1957). A substantial program of develop-
ment is being begun in the Asian areas of the USSR in an effort to
broaden the resource base needed for future economic growth.
Economic reforms are not irreversible-and the economy could
conceivably be once again shackled in the old bonds, yet it would
be dangerous and costly to do so. Unless a wartime fervor could be
restored, the only path for the USSR in the present economic competi-
tion between East and West is to secure more cooperation from the
individual peasant and worker, whose increased productivity is essen-
tial to future Soviet growth.
The Soviet system is full of contradictions and dilemmas,
whose successful resolution cannot be predicted. Economic decision-
making at all levels is crucial to the successful development of the
economy, yet adequate criteria for sound decisions are lacking. The
economic system is directed from the top, yet depends on the efforts
of the lowest worker and peasant. He, in turn, is expected to put
out maximum effort, but not to demand too much in the way of material
gain. Prices of industrial goods must be related to costs, yet prices
which are low relative to demand result in shortages. Overfulfillment
of production plans is encouraged, yet overfulfillment on one activity
may result in underfulfillment elsewhere. Education must stimulate
creative thought in science and in fndustry, and yet not endanger the
stability of the regime. The USSR can derive economic gain from in-
creased foreign trade yet cannot risk overly great dependence on
foreign source of supply.
The presidium of the Communist Party is at the apex of the
economic administration of the USSR. Once the policy decisions are
made by the presidium, general directives are issued by the Council
of Ministers. Party control of the governmental mechanism is ensured
through key Party members who are also top officials of government.
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Until early 1957, the planning function was exercised by Gosplan
(long-term) and Gosekonkommisya (short-term) and the control function
by the Ministry of State Control, the Central Statistical Administra-
tion, and the State Bank (and the various specialized banks).
The implementation of economic policy has been the responsi-
bility of functional economic ministries (organized mostly along
Industrial lines) which have been subordinated to the Council of
Ministers. There are three types of such ministries: (1) the All-
Union ministries, which are those of overriding national significance,
such as the Ministry of Defense; (2) the union-republic ministries,
which are republic counterparts of a ministry at the union level and
occur commonly where there is an unusual concentration of a type of
activity in one or two republics, such as nonferrous metallurgy in
Kazakhstan and coal production in the Ukraine; and (3) the republic
ministries, such as the various ministries of local industry, which
are concerned with the local economic affairs of each republic and
for which there is no corresponding ministry at the union level.
During 1955 and 1956 a considerable share of Soviet industry
was transferred to republic control, generally in the form of union-
republic ministries. This was an attempt to move intermediate policy
decisions closer to the field, but it did not go far enough to redress
glaring management problems imposed by sheer distance. Each func-
tional ministry tended to operate in its own little vacuum without
considering the impact of its own shortfalls or nearsightedness on
other ministries. Particularly during the first phases of the present
program for Eastern development, it became apparent that there must
be more adequate provision for coordinated regional development.
Khrushchev in early 1957 recommended substantial abandonment of the
former organizational system and a reorganization of the economy
along regional lines, with the power previously centered in functional
economic ministries to be transferred to regional economic councils.
In May 1957 the Supreme Soviet approved the basic outline
of Xhrushdhev's proposals, and on 2 July 1957 a Pravda editorial
called upon the new regional economic councils to begin their tasks.
It is premature to predict at this time how well the 105 councils
will operate and What their success might be in solving the pressing
management problems of the national economy. It is noteworthy that
the Gosplans of the individual republics will assume a major role of
coordination and that a great attempt is being made to preserve the
central government as the source of basic determination of policy
and as the point of central control.
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B. Geographic and Regional Characteristics.
The immense land mass of the USSR makes available rich natural
resources to the economy; yet it is not a blessing unmixed with vexa-
tions. The resources needed for future expansion of the economy lie
deep in Asia, far distant from the main population center of the coun-
try. In future years the USSR will become more of an Asian power --
as industry, the labor force, and the consuming population move in-
exorably eastward.
The resources of the USSR have made possible substantial
realization of its dream of relative self-sufficiency. Neverthe-
less, the very distance between its population center and its future
sources of power and raw materials, a distance which must be covered
by expensive overland transport, may compel the USSR to give greater
emphasis in the future to foreign trade, at least as a temporary
measure until its Asian development is well under way.
The costs of transport imposed by distance have been a source
of concern to Soviet planners. Present policy is attempting to re-
duce possible transportation burdens by basing economic development
on local resources and by reducing regional interdependence in bulk
commodities. Despite such effort, the average length of haul per ton
of commodity carried by railroad has increased from 496 kilometers in
1913 to 727 in 1950 and to 791 in 1956.
The industrial strength of the USSR is presently concentrated
in the European areas of the USSR as shown in Figure 2.* In 1956,
approximately 40 percent of manufacturing activity, 50 percent of
agricultural activity, and 50 percent of services (including trans-
portation, communications, trade, and construction) were located in
the central industrial district (including Moscow) and the Ukraine.
The third major concentration of economic activity was in the Urals.
In the future the Asiatic regions of the USSR will gain in importance --
the "new lands" program has already shifted Soviet agriculture to the
east, and the Sixth Five Year Plan postulates a massive plan for eco-
nomic development in the east, with nearly half of Soviet capital in-
vestment to go into the area including the Urals and to the east.
The USSR includes vast areas of little or no productivity.
Much of its territory lies further north than the northern boundary
* Following p. 8.
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%.1.1?11%
Figure 2
DISTRIBUTION OF INDUSTRIAL FIXED ASSETS AND INDUSTRIAL LABOR FORCE, BY REGION, 1955
(Percent of Total)
Boundaries ore not necessarily those
recognized by the U.S. Government.
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of the US. Only 10 percent of the land is available for cultivation
(16 percent if meadows, grasslands, and pastures are included). West
of the Urals, 40 percent of the land is utilized for agriculture. In
the Ukraine, 60 percent of the land is under cultivation. In Soviet
Asia) only slightly more than 5 percent is farmed at all, permafrost
and short growing seasons restricting agriculture. During 1954 to
1957 the USSR has made great efforts to increase the area under
cultivation and has expanded grain culture into the "new lands" area of
Kazakhstan and Siberia. This is "opportunity" farming country, giv-
ing good harvests in those years when rainfall is good but subject to
drought. The expansion is partially based on the unlikelihood of
suffering simultaneous drought in the "new lands" and in the Ukraine.
Despite large areas of poor soils, of swamp, of desert, and
of severe cold, the USSR has the largest area of fertile chernozem
in the world -- 754,000 square miles. These soils, rich and deep,
have high humus and are only slightly leached, being located in
areas of moderate or light rainfall. In general, however, crop yields
are not as high as they are in the US) and in the area of dry-farming
they are appreciably lower. Timber resources, on the other hand, are
the largest in the world, covering an estimated 2.45 million square
miles. Mineral resources are abundant.
The USSR has encountered grave problems in the establishment
of its transportation system -- problems of space, of rivers that
flow north when the transport requirement is east-west, and of capital.
In the European areas, where the river locations are more favorable,
extensive use is made of water transport. The railroad system, al-
though only one-third the mileage of the US system, moves a great
bulk of traffic efficiently. Air transport is becoming increasingly
important, and the USSR is proud of its commercial jet airliners.
C. Structure and Growth of the Economy.
In 1956 the Soviet economy was about 40 percent the size of
the US economy, measured in terms of the total output of goods and
services (GNP). The end use breakdown of the Soviet GNP in 1956 is
shown in Figure 3.* Soviet defense outlays were approximately equal
to US defense expenditures, compared on the basis of appropriate ruble-
dollar conversion ratios. Administrative outlays were almost one-fifth
greater than in the US. Investment expenditures were about 57 percent
* Following p. 10.
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of those in the US. In contrast, Soviet consumption, for a population
20 percent larger than that of the US, was only about one-third as great
as US consumption.
During 1951-55, Soviet GNP grew at an average annual rate
almost double US experience during the same period. At the present
time, growth is at an average annual rate of 7 percent per year but
may fall appreciably by 1962. The comparable US figure was approxi-
mately 3.8 percent per year during 1951-55.
The maintenance of the highest possible growth rate in the
future is a basic aim of present Soviet economic policy but presents
great problems. Because of changes in political aims and increased
emphasis on worker motivations, for example, greater attention is now
placed on an increase in consumption levels, especially in housing,
but this draws on resources that could be used for industrial expan-
sion. (The point where the diversion of resources from industrial
Investment outweigh the productivity gains stemming from improved
motivation of the Soviet worker is not known.) Furthermore) both
military expenditures and foreign economic commitments such as aid
to Hungary draw on resources needed for growth.
The theoretical problems associated with economic growth have
stimulated extensive Soviet discussion of the process of decision-
making. What price structure acts as the best stimulant to growth
unimpeded by either gluts or shortages? What are the best criteria
for deciding among investment alternatives? What are the economic
gains from foreign trade? When should capital equipment be retired
and what weight should be given to obsolescence? How can innovation
and technological advance be stimulated? How can specialization and
subcontracting be encouraged? What should be the goals for an in-
crease in living, standards?
These and similar questions have long been discussed in Western
economic literature, but only since the death of Stalin have the ques-
tions been discussed in Soviet literature with such intensity. The
intensity bears witness both to the complexity of problems now en-
countered and to a new flexibility of response. Whether the answers
can be found through a mere adjustment of Marxist-Leninist ideology
remains to be seen.
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USSR
GROSS NATIONAL PRODUCT
BY END USE
1956
(1,052 Billion 19.55 Rubles)
ADMINISTRATION
21 2%
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D. Population and Manpower.
The population of the USSR was about 200 million in mid-1956.
It is growing at a rate of slightly more than 1.7 percent per year.
Of the total population, about 64 percent are in the age range of
15 to 59 years.
Starting about 1958, the USSR will experience a period of
relatively slow natural increase in the labor force which will last
for several years. This will be the result of wartime population
losses, when infant mortality was high and the birthrate was low,
and of a prolonged postwar period during which the birthrate continued
to be low. In contrast to the past, labor will become a resource to
be husbanded carefully. The reduction of the armed forces which oc-
curred in 1955, 1956, and 1957 made available manpower needed by the
economy. A host of measures designed to increase the productivity
of the individual worker reflects an awareness of this problem.
Before World War II, when the labor supply available to in-
dustry was inadequate, labor resources were Shifted from agriculture
to industry with relative ease, as agricultural labor productivity
was so low as to indicate underemployment of agricultural labor re-
sources. Now, virtuAlly the only way to transfer labor resources
from agriculture to industry without impairment of agricultural pro-
duction goals is to greatly increase labor productivity in agriculture
through mechanization, development of high-yield crops, and similar
measures.
The rapid growth of Soviet education is expected to continue
In accordance with the demands of the times for highly trained per-
sonnel. High school attendance, involving raising the total number
of school years to 10, is to be compulsory by 1960. Higher education,
especially in the sciences and technical subjects, continues to flourish.
E. Agricultural Production.
Soviet agriculture has been the problem sector in the Soviet
economy from the very beginning of the Communist regime. With a
rapidly growing population and with the soil and climatological con-
ditions prevailing in the USSR, it has been a constant battle to in-
crease food production to levels sufficient to maintain per capita
consumption levels. The emphasis upon heavy industrial investment.
and upon industrial production in general has been to the relative
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neglect of agriculture. Since 1953 the concern of Soviet leaders
over agriculture has produced specific programs designed to expand
agricultural production through greater investment and through ex-
pansion into marginal lands. Despite all efforts, however, agri-
culture continues to be a weak point in the Soviet economy.
Soviet agricultural growth is circumscribed by certain limit-
ing factors of climate, soil condition, and water resources which
limit the arable area of the country to some 10 percent, as compared
with 25 percent in the US. In addition, political and institutional
factors have produced inefficiency, passive resistance from the
peasants, and a great Waste of investment and labor resources. Since
1953, there have been bold assaults on virtunlly all factors limiting
agricultural output, culminating in an extremely successful harvest
in 1956, thanks to timely assistance from the weather. Many constraints
on output still exist, but new approaches and programs may be expected.
There is every indication that the USSR intends to improve agricultural
output, primarily by investing more capital, by improving the level of
technology, and by increasing incentives to the agricultural labor
force. 'These efforts are not likely to be as successful as planned
but nevertheless are likely to produce an improvement in the quality
of the Soviet diet by 1960.
F. Industrial Production.
The industrial economy of the USSR is second only to that of
the US. The subordination of the economy, within limits, to the re-
quirements of the Communist Party and of the Soviet state makes it a
more powerful instrument in support of the Soviet power position than
indicated by a direct comparison of the size of the Soviet economy in
comparison to the economy of the US. Generally speaking, a higher
proportion of the industrial production of the USSR could be mobilized
more rapidly in support of military or political programs than could
be done in the US. This is a consequence of the Soviet system, and it
is thus a benefit to the Soviet power position which is costly to the
Soviet people. Nevertheless, the might of the Soviet economy must be
respected even as the weaknesses are examined.
In 1955 the Soviet economy was stronger in the sinews of war
than the economy of the German Reich at its peak. Soviet coal pro-
duction in 1955 matched German coal production in 1939; extraction of
petroleum was almost 80 times as much as extracted in Germany in 1939
(excluding Austria); crude steel, two times as much; and electric power
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more than 2-1/2 times as much. But in 1955 the Soviet economy was
not as strong, measured in these terms, as the wartime economy of
the US in 1945. Its coal production was 62 percent of the US pro-
duction in 1945; petroleum extraction, 31 percent; crude steel, 63
percent; and electric power, 75 percent. Nevertheless, the present-
day Soviet economy is adequate to maintain a major war effort, and
Soviet military technology has achieved a high proficiency.
Soviet industry has been characterized by growth more rapid
than the present growth of US industry; thus the size of Soviet in-
dustry relative to US industry has been increasing throughout the
years. Whether the USSR achieves its announced long-term intention
of overtaking the US in the per capita production of the more basic
industrial commodities depends on many factors. The rate of growth
of Soviet industry has been slackening. The moderate but steady
growth of the US economy may make the goal difficult to achieve, but
interruptions to the growth of the US economy) such as prolonged re-
cessions, would simplify the task for the Soviet economy.
Comparisons of the size and rate of growth of Soviet industry
with the US economy are made difficult by the fact that the USSR uti-
lizes a different measure of industrial production and uses different
indexes of industrial growth. In addition, complex technical problems
are created in the comparison of ruble valuations of Soviet economic
activities with comparable activities in the US, measured in dollars.
A continuing effort is being waged by government analysts and by aca-
demic scholars to improve the quality of international economic com-
parisons.
It has been estimated that Soviet heavy industry, which has
been the court favorite of Soviet economic policy, was about one-third
the size of US heavy industry in 1955 and will increase its proportion
to some 40 percent by 1960. From 1951 through 1955, according to CIA
indexes, Soviet industry grew by 77 percent; heavy industry, by 84
percent; and light industry, by 54 percent. From 1956 through 1960,
according to the Soviet index, the planned growth of industry is 65
percent, which is significantly below the 85 percent claimed for
1951-55.
Soviet industry is now encountering significant constraints
to the rate of future growth. Some of these constraints are temporary,
others less so. During 1958-60 and throughout the Seventh Five Year
Plan (1960-65), additions to the labor force will be in smaller numbers
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as a consequence of the low birthrate of the war years and the immediate
postwar period, and of wartime infant mortality. At the present time,
the construction industry is handicapped by such factors as organiza-
tional problems, shortages of construction materials, and high turnover
rates among construction laborers. Problems of technology and of motiva-
tions tend to prevent realization of the long-term plans to increase
the productivity of labor.
The patterns of industrial development are displaying some sig-
nificant changes. The USSR plans to increase substantially the rate
of growth of chemicals output, in contrast to the surprisingly low
growth rate during 1951-55. The growth rates for energy, construction
materials, and forestry products are to continue more or less undi-
minished. It is planned, for instance, to increase by 1960 electric
power output 88 percent over 1955, which is an absolute expansion of
150 billion kilowatt-hours in comparison with a gain of 80 billion
kilowatt-hours during 1951-55. The rates of growth for metals, ma-
chinery, metal fabricating, and consumer goods will slacken during
the Sixth Five Year Plan. The machinery and metalworking branch
of heavy industry, however, will continue to grow at a rate substan-
tially higher than industry. Expansion of transport facilities and
communications continues at a rate commensurate with the requirements
of the Soviet economy although the investment effort in these fields
has not been remarkably large by US standards.
The slackening of the rate of growth of industrial output is
revealed in Figure 4.* The same figure also shows that from 1946
through 1950 more effective utilization of the labor force was a
powerful factor in maintaining growth of output. This is a pattern
to be expected during a period of recovery from a great war; the
number of people in need of employment is greater than the amount
of plant and equipment at hand. Since 1950 the expansion of plant
and equipment (fixed assets) has been more rapid than the increase
in labor productivity.
Since the end of World War II, Soviet defense expenditures
have been maintained at a high level. In terms of the dollar equiva-
lents, Soviet defense expenditures in 1955 were approximately equal
to US defense expenditures. In 1956 the planned explicit Soviet de-
fense expenditures were to be 8.6 percent lower than the allocation
of the preceding year (1955). As this comparison was not made in
comparable prices and was exaggerated by the effects of a price
* Following p. 14.
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Figure 4
USSR: TRENDS IN INDUSTRIAL OUTPUT,
INDUSTRIAL LABOR PRODUCTIVITY, AND INDUSTRIAL FIXED CAPITAL
1940, AND 1945-56
400
300
209
100
80
70
9:
1
1--
3
40
r:
T-
rt
144
El
1
I.
II
I.
FIXED t
II I III
1111 "
4".1-11.1
tli
41-
141
I II
II
II
II
II
1111
ft
i
ii
? ?
?
50
1940
26130 8-57
U -
II
Dy8
d I
UM
???
U?S
U.
U.
UI
flu
NIP
,
1
KM
II
IAL IA 08 PROM/GYM
1---
1114
llit
11,114 1: i- 1iiE E
rtt055 JUST. ;0111ILIOI
c I
[111-1
sl
4
tr,
41- I
-Aft
al Pr
114
ITTH
ttit
Th-
TIM
1945 1946 1947 1948 1949 1950 1951 1952 1953
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111#
it
itdit
1954 1955
1956
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reduction, it remained possible that, although there was some reduc-
tion of the size of the armed forces in 1956, expenditures on military
end items actually increased.
G. Foreign Trade.
The USSR, which is endowed with abundant resources, is vir-
tually a self-contained economy for which foreign trade is not as
vital to existence as is the case in the UK, or even Czechoslovakia.
After a crucial period which terminated in the early 1930's, during
which expansion of the Soviet economy was largely dependent upon im-
ports of foreign capital equipment, the Soviet authorities openly
pursued a course of basic self-sufficiency. The motives for this
course were as much political as economic.
In recent years, new political and economic factors have re-
sulted in a significant expansion of Soviet foreign trade which will
probably continue in future years. Following World War II, the USSR
acquired its European Satellites, and its economic relations with these
countries led to a great expansion of trade in 1948. Trade with the
European Satellites was almost double total Soviet trade in 1938, and
by 1956 trade with the Satellites and Communist China increased to
four times the 1948 level. Total foreign trade in 1956, as shown in
Figure 5,* was more than 27 billion rubles (1950 US $6.9 billion**)
compared with 10 billion rubles (1950 US $2.6 billion) in 1948
and 2 billion rubles (1950 US $0.5 billion) in 1938. Of the total
trade, more than 75 percent was with the countries of the Sino-Soviet
Bloc in 1956 compared with more than 50 percent in 1948. (In 1953,
82 percent of Soviet trade was with Bloc countries.)
Machinery and equipment playa leading role in Soviet foreign
trade. Trade in this category comprised 33 percent of Soviet imports
and 22 percent of Soviet exports in 1955. The USSR has been a net
Importer of machinery and equipment, although the volume of its ex-
ports of these items has been increasing. It imports machinery and
equipment from the industrialized nations of the Free World, and
from the industrialized Satellites. It exports to Communist China,
the underdeveloped European Satellites, and the underdeveloped Free
World countries. For East Germany and Czechoslovakia, exports of
* Following p. 16.
** All dollar values in this report are in US dollars, unless other-
wise indicated.
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machinery and equipment and metal-fabricated products amount to 75
percent of their total exports to the USSR. Conversely, machinery,
equipment, and metal-fabricated products comprise some 78 percent
of Soviet exports to China. Generally speaking, the USSR imports
specialized types of machinery and equipment and exports more basic
types of machine tools, transportation equipment, and industrial
installations. The imports are important to the improvement of the
technological level of Soviet industry; the exports are important
to the development of the Sino-Soviet Bloc economies and to the
expansion of Soviet trade into new market areas.
Although in the years before World War II the USSR was pri-
marily an exporter of agricultural products, the recent advance of
Soviet industry and the comparative retardation of Soviet agriculture
have led to basic shifts in the Soviet export pattern. Raw materials
and petroleum products are now the leading Soviet exports. There is
also a distinct trend, portentous for the future, for Soviet exports
of machinery and equipment to increase. This would appear a natural
development in view of the rapid expansion of production of machinery
and equipment which would probably shift the USSR into a position of
comparative advantage in exporting machinery and equipment, given
the development of satisfactory foreign markets. At present the
underdeveloped countries are being developed as a market, yet it is
possible that other markets may be required, both in terms of ability
to absorb Soviet goods and to supply goods desired by the USSR.
In general, the USSR exports foodstuffs, industrial raw ma-
terials, and some industrial equipment to the Satellites. In return
it receives machinery, transportation equipment, and raw materials
(including uranium ore). In response to the growing economic crisis
In the Satellites, the USSR in late 1956 and in 1957 increased its
export commitments to the Satellites in an effort to promote economic
stability there. These shipments, which consisted of coal, steel
products, iron ore, nonferrous metals, and grain, tended to aggravate
domestic Soviet economic difficulties connected with the relative
shortage of many of the same commodities. In addition, Polish exports
of coal to the USSR were reduced. In its trade relationship with the
European Satellites, the USSR possesses preponderant economic power,
as shown in Figure 6.*
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USSR: GEOGRAPHIC DISTRIBUTION
OF THE VOLUME OF FOREIGN COMMODITY TRADE, 1948 and 1950-56
(In billions of 1950 US dollars)
Sino-Soviet Bloc
Free World
1.2
3.2
Iry
?1948 '
7/-
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0.6
1950
1.1
5.2
A
10
6.2
5.8
411MIS
10
A
1.3
6.3
Are
.0!
1.4
r 6.9
A
1.7
Figure 5 50X1
1951 1952 1953 1954 1955 1956
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CRUDE OIL
88 million
metric tont
USSR
Figure 6
Production of Selected Commodities
1956
e4t
Each circle represents total
Sino-Soviet Bloc production.
The percentage shown is that
produced by the USSR.
Ilk ELECTRIC LOCOMOTIVES 44111 HARD COAL
216 units 5472* 302 million
metric tons
I z ' GENERATORS ilk BAUXITE
,80: iji At 6.6 million \63%s.6A million
wa
kilotts --- - metric tons
POTATOES
, /00 million
metric ton
WOOL NITRIC ACID 'It MACHINE TOOLS
GRAIN
255,000
7"7.7 @..) 1.7 million
no
',C 0 525,000 units 977 /i5 million
metric tons metric tons _
- metric tons
7411 CRUDE STEEL
*1,7
11111 ELECTRIC POWER 11111 REFINED LEAD
see% Ar 192 billion c) 235,000
kilowatt bolos metric tons
MEAT
as million
* metric tons
?
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Soviet trade with Communist China consists largely of Chinese
exports of agricultural products and nonferrous ores in exchange for
military and industrial equipment and technical assistance.
II. European Satellites.
A. Introduction.
The question of whether the European Satellites are a liability
to the USSR cannot be answered on the basis of economic considerations
alone but must reflect also the political and military considerations
which govern the foreign policy of the USSR. In an economic sense
the Satellites do present problems to the USSR. The industrialization
of the Satellites has outstripped their domestic resource base, and
the USSR presently supplies iron ore, ferrous and nonferrous metals,
petroleum products, and large quantities of agricultural products,
especially grains.
As the Soviet economy is somewhat strained by an inadequate
immediate supply of fuels and raw materials, it can be argued that
support of the sagging Satellite economies increases the strain upon
the domestic Soviet economy. On the other hand, the USSR imports
products manufactured from many of the materials it has supplied,
and in effect, avails itself of the productive capacity and skilled
labor of the industrialized Satellites. In the past, when the Satel-
lites were often exploited flagrantly, the Soviet economy gained sub-
stantially by this trade pattern. In recent years, and especially
in late 1956, the USSR has had to pay a higher price for its imports,
in terms of an increasing volume of exports. If the terms of trade
do not now prove as favorable to the USSR, the cost of its economic
relations with the Satellites may nevertheless prove a sound politi-
cal and military investment.
The various countries identified as the European Satellites --
Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Roland, and
Rumania -- were brought into the Soviet sphere of influence during
and following World War II by means now familiar. Since 1948 these
countries have been under Communist Party control politically, and
the economic resources of these countries have been utilized subject
to Party control. In many instances, however, the USSR has utilized
much more direct and blatant forms of economic control, such as
"joint ownership" of industrial property, reparations, and direct
supervision by Soviet experts and supervisors. Although the more
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direct and obvious forms of control have been disappearing from Soviet-
Satellite economic relationships, Satellite economic policy tends to
remain responsive to Soviet direction and to Soviet interest. At
the present time, Poland has achieved somewhat greater autonomy of
economic policy than the other Satellites.
The Council of Mutual Economic Assistance (CEMA) provides
the USSR with an important mechanism of coordination and control
over Satellite economic policy. CEMA was created in 1949, largely
as a Soviet expedient to counter the Marshall Plan, which had been
set up in Western Europe. It has a Council and a permanent inter-
national Secretariat in Moscow. Its stated purpose was to channel
Soviet aid to the peoples democracies of Eastern Europe and to pro-
mote cooperation among "equal partners" of the Soviet Bloc. CEMA
has acted in various fashions at various times) in response to
changing Soviet policies. At times it has been dorthant, at times
an instrument of Soviet control, at times a forum for discussion
and negotiation. In sum, CEMA has furthered the economic integra-
tion of the USSR and the European Satellites and is presently an
instrument for the coordination of economic plans among the USSR
and the European Satellites. Detailed joint planning is conducted
via an interlocking multitude of binational commissions and com-
mittees, such as the Soviet-Czedhoslayskian Commission for Scien-
tific-Terbnical Cooperation, to name but one commission in one
sphere of cooperation.
The Soviet policy goal with respect to the Satellites has
been to maintain the several regimes in effective control of their
economies, and, until 1953, to encourage the rapid growth and in-
dustrialization of the economies. After 1953, greater emphasis was
placed upon selective industrialization which concentrated on in-
dustries more particularly adapted to the resources of the individual
countries, and upon specialization of production among the various
Satellites. About the same time, Satellite trade with Communist
China began to increase significantly. In 1955 the Satellites par-
ticipated in trade moves that were part of a Bloc-wide plan to in-
tensify trade with the underdeveloped countries of the Free World.
Since World War II, each of the countries in Eastern Europe
has undergone drastic changes in its internal political and eco-
nomic structure. The immediate postwar years were years of political
revolution, internal change, and reconstruction of war-ravaged econo-
mies. It was not until 1952 that the output of goods and services
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achieved prewar levels. From 1950 to late 1953, primary emphasis
was placed on the rapid expansion of heavy industry. Late in 1953,
simultaneous with similar changes in the USSR, greater emphasis was
placed upon increasing agricultural output and output of consumer
goods.
The drafts of the new Five Year Plans to cover the period
1956-60, issued in early 1956, contemplated a notably lower rate
of economic growth in comparison with the breakneck speed of 1950-
53. Subsequent events in Poland and Hungary have caused further
reduction in the rate of growth, as reflected in the 1957 plans
and in revisions to the Five Year Plans. Economic conditions con-
tinue to be unsettled. Popular resentment smoulders over the slow
Increase in living standards and grossly inadeqnate housing con-
ditions. Several countries, notably Poland and Hungary, have
serious balance-of-payments difficulties. All the Satellites are
concerned with raw material Shortages, the declining rate of in-
crease in labor productivity, and inadequate agricultural output.
The situation is farther unsettled by uncertainty as to economic
policies of Poland in relation to the other Bloc countries, by
fear of further military action, and by the necessary costs of
somehow maintaining the Hungarian economy.
The relationship of the European Satellites to the rest of
the Sino-Soviet Bloc in terms of the production of important com-
modities is given in Figure 7.*
B. Geographic and Regional Characteristics.
The European Satellites form a strategic buffer zone between
Western Europe and the USSR. The seacoasts of Poland, Rumania, and
Bulgaria have important ports that are available to the USSR, and
command of these coasts has increased Soviet.control over the Baltic
and Black Seas. The USSR has attained at last warm-mater ports, al-
though the Satellite coastlines are on interior seas, but the USSR
continues to be without warm-water frontage on major oceans.
The lowlands of Southeastern Europe -- Poland, Hungary, and
Rumania -- are suitable to large-scale, mechanized agriculture.
In fact, the lowlands of Poland and Rumania are westward extensions
of the plains and steppes of Russia and provide easy access to and
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from the USSR. The central mountain belt of the Carpathians (the
Beskids, the Tatras, and the Sudetens) and the Balkans form a pro-
tective barrier for the USSR against easy invasion routes from the
West. At the same time, the mountainous terrain in the center and
south makes transportation difficult both within individual coun-
tries and between the USSR and the Satellites. For instance, Czecho-
slovakia and Hungary have only one direct rail line each to the USSR.
Numerous rivers and lakes provide adequate water supply in
general as well as a means of cheap transportation for goods between
the Satellites. The important systems of the European Satellites,
however, do not connect directly with the USSR, being oriented either
north-south or westward. Poland is an exception, having an east-
west canal system Which does connect with the USSR. Yugoslavia,
which is astride the Dantbe waterway, severs the direct water con-
nection between Rummita and Hungary.
Despite periodic droughts in the Rumanian and Hungarian plains,
in the European Satellites generally, precipitation and growing seasons
are favorable to temperate zone crops and livestock production. The
soil is relatively rich, particularly in the plains areas. Grains,
sugar, and tobacco are among the major crops. The state of technology
and mechanization is not high, despite efforts to improve productivity.
More intensive fertilization has improved output somewhat. Problems
of motivation and of organization are aggravated by attempts to provide
industry with manpower, to provide investment with resources, and to
remake the political complexion of the various countries.
Bauxite, uranium, lead, zinc, coal, oil, and chemical ores
are of special importance to individual economies of the European
Satellites. There are timber resources of some significance. The
region is relatively poor in ferrous metals and in some other
minerals basic to industrial economies. Furthermore, minerals and
fuels are not evenly distributed among the various countries. The
possibility of expanairg production of low-cost hydroelectric power
is relatively limited, with the notable exception of a Danube Basin
project which will probably require Yugoslav participation.
Some areas -- western Czechoslovakia, Hungary, parts of Poland,
and East Germany -- have a well-developed standard-gauge rail net.
The gauge, however, is not the same as that of the Soviet system,
which necessitates time-consuming interchange for through shipments.
The rail systems in Rumania, Bulgaria, Albania, and eastern Czecho-
slovakia are not fully developed.
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Figure 7
EUROPEAN SATELLITES
Production of Selected
Commodities -1956
160
8gowN COAL
203 otifion m?Iskten
\41.914
-- Each circle represents total Sino.Soriet
?y gy Bloc production. The percentage shown
- -2 is that produced by the European Satellites.
UV 42R 41, gig
RR PASSENGER CARS SYNTHETIC AMMONIA
2170 unitit 308 thousand meow tons
fl 14
ELECTRIC LOCOMOTIVES GENERATORS ELECTRIC POWER
$22 units 2.8 nuilion Idlowatts 79.7 billion kilowatt boon
HARD COAL , CRUDE STEEL
174 millkw? mat* tons
MEAT
IS million motile Zoog 2.9 million metric tom
WOOL CRUDE OIL
62.7 thousand metric ban 12.9 TAOS Met TIC eons
id, Ow
TRUCKS
45.6 thousand units
Beth%
EAST
GERMANY
Prague?
SA
BAUXITE
rnetric tons
MACHINE TOOLS
53.6 thousand units
BREAD GRAINS
10.8 million metric ion
GRAIN (toto)
33 million nitric tont
Warsaw
POLAND ?
CZECHOSLOVAKIA
Budepasto
HUNGARY
AN IA
RUMANIA
Bocluresto
,
BULGARIA
?Sat
a
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The countries of Eastern Europe have long been noted for mutual
antagonisms among the various ethnic, religious, and other socio-
economic groups. In modern times, there has been increasing recogni-
tion of the inability of the individual economies to survive as sepa-
rate entities, and plans of economic federation) especially for the
Balkan countries, have been widely considered. Under Soviet domina-
tion an increasing degree of trade and specialization in production
Is now being achieved for Soviet ends.
C. Structure and Growth of the Economies.
The countries which are now identified as the European Satel-
lites represent a sizable total of economic activity) relative to
the USSR, measured in terms of GNP. In 1938, Satellite GNP was al-
most three-fifths that of the USSR. In 1948, after extensive war
damage, followed by the payment of reparations and by postwar confis-
cation of property by the USSR, Satellite GNP was about two-fifths
that of the USSR. In 1956, Satellite GNP was equal to roughly $63
billion in 1955 US prices, and it was still equal to about two-fifths
of the Soviet GNP. Figure 8* shows the present position of the Satel-
lites in terms of GNP by country and over time.
In 1956 the economies of Poland, East Germany, and Czecho-
slovakia performed about 80 percent of the economic activity of the
European Satellites. Poland is now the largest economy of the group,
although before the war East Germany was the largest. East Germany
suffered the greatest relative economic loss during the war years;
Czechoslovakia, the least. In addition, reparations and Soviet con-
fiscation of property further weakened the East German economy. By
1950-511 most of the Satellites, with the notable exception of East
Germany, had reached the prewar standard of living and the economies
had generally recovered. Table 2** shows the increases in output in
the European Satellites, by economic sector, for 1938, 1950, 1953,
and 1956.
After 1950 the European Satellites made substantial progress
toward industrialization until in 1954 all) except Albania and Bul-
garia) had attained economic structures predominantly industrial. In
East Germany, Hungary, and Czechoslovakia, industrial production is
about one-half of the economic output, the remainder comprising activi-
ties of agriculture, service industries, and government.
* Following p. 22.
** Table 2 follows on p. 22.
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Table 2
Increases in Output in the European Satellites
by Economic Sector
1938, 1950) 1953) and 1956
1950
. 100
1938
1950
1953
1956
Gross national product
104
100
123
148
Industry
91
100
135
170
Agriculture and forestry
119
100
101
116
Construction
109
100
162
181
Transportation and communications
80
100
144
170
Trade and services
112
100
116
144
East Germany, Poland) and Czechoslovakia rank highest among
the Satellites in terms of the total value of industrial output,
the production of machinery and equipment) and per capita living
standards. Nevertheless, improvement in living conditions in Poland
was so slow in relation to the regime's promises that latent dis-
satisfaction contributed greatly to the establishment of the new
National Communist (Gomulka) regime. The revolt in Hungry was
partially a product of economic crisis; civil dissatisfaction, both
political and economic; and aggravated balance-of-payments difficul-
ties which further unsettled the domestic economy. These and other
examples illustrate that breakneck industrialization is not the sure
means of maintaining a Communist regime in power.
Economic and political conditions are still so unsettled in
the Satellites that it is difficult to forecast the future with any
certainty. All the Satellites revised their 1957 plans downward
and many of their 1960 targets as well, in reflection of internal
economic difficulties, of the consequences of events in Poland and
Hungary, and of other foreign events Which included the Suez crisis
and the shifting relationships with the USSR. Whether a slowdown
In the pace of industrialization in company with programs to imple-
ment some economic reforms and to increase output of agricultural
goods and consumer goods will stabilize the situation remains to be
seen. Many of the measures undertaken thus far appear to be halfway
measures which are expedient and alleviate conditions for the moment
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EUROPEAN SATELLITES
PERCENTAGE DISTRIBUTION
OF GROSS NATIONAL PRODUCT, BY COUNTRY
1938 AND 1956
BULGARIA
HUNGARY
RUMANIA
CZECHOSLOVAKIA
26133 8-57
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EAST
GERMANY
7- 1938
1956,
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but do not go far enough to alter the future course of events. For
example, the harsh, pro-Soviet political line now being taken in
East Germany will not endear that regime to the population, Which
can hardly be misled by so-called economic and social "reforms."
D. Population and Manpower.
In 1956 the population of the European Satellites was approxi-
mately 95 million, or same 48 percent of the population of the USSR.
In that year the population of the Satellites .was almost 8 percent
greater than in 1948. During the period 1948 to 1956, the greatest
Increases were Shown by Albania (21 percent) and Poland (almost 17
percent). The population of East Germany dropped nearly 6 percent
during the same period. In 1956, Poland had a population of 28
million, East Germany 18 million, Rumania 17-1/2 million, Czecho-
slovakia 13 million) Hungary almost 10 million) and Bulgaria 7-1/2
million.
During the period 1948 to 1956 the combined labor force
grew by 9 percent to 48 million. This growth, faster than popula-
tion growth) reflects both the unemployment prevalent in 1948 and,
In subsequent years, the pressures for women and Children to work
in order to achieve the desired family living standards. In future
years, the labor force will grow at a rate consonant with the in-
crease in population, about 1 percent per year. Both Poland and
Rumania have an unusually high proportion of the total population
in the labor force.
AS the European Satellites pushed industrialization rapidly,
the nonagricultural labor force increased correspondingly, and the
agricultural labor force decreased somewhat. During 1948 through
1956 the nonagricultural labor force increased 31 percent, and
during the same period the agricultural labor force decreased by
approximately 8 percent. The emphasis on agriculture which was a
major feature of the "new course" in 1953 halted the decline in
the agricultural labor force.
Subsequently, the nonagricultural labor force has continued
to rise, but at a lower rate. By 1955, there were more nonagricul-
tural workers than agricultural, in contrast to 1948, when 58 percent
were engaged in agricultural employment. The trend toward nonagri-
cultural employment is evident in each of the countries.
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E. Agricultural Production.
A serious consequence of the rapid industrialization of the
Satellite economies during 1948 through 1953 was to weaken the agri-
cultural economy. The area, which had historically been an area of
agricultural surplus, became a net importer of major agricultural
commodities including grains. In the fall of 1953, under the "new
course," a program was initiated to give agriculture a more favorable
allocation of manpower, capital goods, and other resources in an
effort to stimulate output. The ultimate end was to increase the
flow of agricultural goods reaching the consumer and to improve the
quality of the consumer diet. This program was at least partially
effective; although not successful in preventing the unrest of late
1956. In 1956 the priority accorded agriculture was no longer as
high as in 1954, but it was still notably better than that accorded
before 1953.
At the present time, the most compelling restraints to in-
creases in agricultural production are (1) land and (2) incentives
(or the lack of them) to the agricultural worker. Were productivity
not so low, the present levels of agricultural employment would be
more than adequate. More favorable allocations of investment capital
are providing agriculture with improved technology, with machinery,
and with fertilizers. Little can be done; however, to increase the
sown area in the European Satellites.
The events of late 1956 in Hungary and in Poland illustrated,
among other things, that satisfactory solutions had not been found
to the agricultural problems of the European Satellites. The new
emphasis on improving agricultural output that was so prominent a
part of the "new course" of 1953-54 followed by a good harvest in
1955, plus increased importation of grains from the Free World, all
resulted in some improvement in diets but did not fundamentally solve
the problems of improving incentives to agricultural workers and
peasants. Agricultural stagnation still threatened. The drought in
the eastern Banans in 1956 further worsened conditions.
Along with the projects to mechanize agriculture, to increase
crop yields, to increase the supply of fertilizers, and to maintain
adequate levels of agricultural employment, it was now obvious that
the institutional factors had to be reconsidered. Poland and Hungary
both decollectivized extensively in 1957; all the Satellites liberalized
the programs for compulsory delivery; increasing the prices paid for
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many commodities and reducing or eliminPting quota requirements for
many commodities. Machine tractor station (MTS) operations were re-
vamped as efforts were made to convert the MTS's to economic organi-
zation, as opposed to their previous primary political responsibilities
of control and domination. The USSR, with a good harvest in 1956,
provided substantial assistance, especially by large deliveries of
grain to the Satellites. These deliveries, primarily to state reserves,
made it possible for the Satellites to reform their grain procurement
programs while controlling price increases which could be generated
by speculation or increased rural market activities. In addition,
however, reforms in the distribution system are urgently required to
more properly channel the flow of foodstuffs to the urban areas.
In 1956, diet levels per capita generally had reached prewar
levels, except in East Germany and Rumania where diet levels were
below prewar. In Poland, although the diet level was above prewar
and better than in the other Satellites, maldistribution of the food
supply led to local shortages, such as a shortage of meat and pota-
toes in Warsaw in early 1956. In East Germany, rationing still applied
to meat, fats, sugar, and winter potatoes as well as to other items
in the event of local shortages. In Rumania, wheat and bread were
rationed, and prices were high on most food items, especially vege-
tables and potatoes. In other countries, such as Czechoslovakia and
Hungary, local shortages, long queues, and. high food prices added to
the irritation of the population.
F. Industrial Production.
The economic crisis which became evident throughout the Euro-
pean Satellites in 1956 necessitated a reduction in the industrial
targets for 1957 and 1960 below targets formulated earlier in 1956
for those years. Rapid expansion of industry had created problems
which were not readily soluble. The supply of domestic iron ore is
inadequate and has led to dependence upon imported ore, mostly from
the USSR. Shortages of coal and a comparative lack of hydropower
resources have retarded the expansion of power necessary for contin-
uation of the past rate of growth. Preferential allocation of re-
sources to industrial expansion has retarded the growth of agricul-
ture and has restricted improvement of living standards.
Under such circumstances of strain in the economy, new policies
are called for. More advanced technology must be employed in an effort
to reduce costs, improve quality, and reduce consumption of metals.
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New trade patterns must be developed, both in terms of foreign trade
with Free World countries Which have resources needed by the Satel-
lites and in terms of increased intra-Bloc specialization in produc-
tion. Efforts must be made to stimulate worker productivity, and
in this, anything which increases worker motivation may be important.
Efforts have been made in each regard, although with only limited
success to date. Technology continues to be a major concern. Labor
and management reforms were undertaken throughout 1956 but subse-
quently were largely mitigated by Soviet actions to reassert dominar-
tiOn following the Hungarian uprisings. The new trade patterns, in-
cluding increased trade with the underdeveloped nations of the Free
World, are increasing in importance to the Satellite economies.
After postwar reconstruction, the economies of the various
Satellites demonstrated most rapid growth in the following branches
of the industrial sector: energy, chemicals, machinery and equip-
ment, metals, and building materials. The growth in the output of
forest products, food processing, and light and textile products has
been smaller.
By 1953, many of the economic strains had begun to become
evident. From 1950 through 1953, annual industrial fixed capital
investment had grown at a rapid rate, and consumption expenditures
had grown at a low rate. The trend toward the importing of agri-
cultural commodities was another danger sign. In 1953 and 1954,
new policies were undertaken (the "new course") which modified the
structure of capital investment and provided a series of new measures
designed to increase agricultural production and the output of con-
sumer goods.
The "new course" corrected the strains partially, but not
sufficiently. During 1954 and subsequently the Satellites began
a rapid increase in exports to Communist China. It has not been
determined that these exports, whiCh largely consisted of machinery
and equipment, represented a strain to the Satellites, but it is
possible.
The production of military end items in the European Satellites
remains small compared with that of the USSR. Czechoslovakia, Poland,
and East Germany, in that order, are the chief countries producing
military end items. The aircraft effort is largely concentrated in
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Czechoslovakia and in Poland. Small naval vessels are produced in
East Germany. Tanks are produced in Czechoslovakia and Poland.
Open budget appropriations for defense, which do not represent the
entire defense expenditures, were about 10 percent of Satellite
budgets in 1955. In 1956, following the Soviet lead, the Satellites
announced reductions in the armed forces. In 1957 the Polish govern-
ment announced a further independent reduction in the size of its
armed forces. Despite the 1956 reductions, since 1955 there has been
a buildup of the actual striking power of the Satellite forces and an
increase in their coordination, as evidenced by joint maneuvers. The
Hungarian uprisings have caused some reassessment by Soviet authorities
of the use of Satellite forces; one consequence has been greater em-
ployment of Soviet forces throughout the Satellites, "under the Warsaw
Pact."
G. Foreign Trade.
The European Satellites are hignly dependant upon foreign
trade as a means of supplementing their meager resource base and as
a means of augmenting the markets for their manufactures. This is
in contrast to the situation of the USSR, for which foreign trade
Is a relatively marginal economic activity. In 1956 the foreign trade
turnover of the European Satellites was valued at 1950 US $9.5 billion,
and that of the USSR was only 1950 US $6.9 billion. As a comparison,
the output of the Satellite economies (in GNP terms) was only two-fifths
that of the Soviet economy in 1956.
Within the comparatively few years since the assumption of
Communist control over the economies of Eastern Europe, there has been
a virtual revolution in the direction of movement and the composition
of the foreign trade of the area. Before the war, more than 80 per-
cent of the trade of these countries was with countries presently out-
side of the Sino-Soviet Bloc. At that tithe the USSR accounted for less
than 3 percent of their total trade) and commerce with China was negli-
gible. On the other hand, there were extensive trade ties with prewar
Germany.
Immediately after the war) the USSR exploited the Satellite
economies and accumulated an import balance of considerable pro-
portions, when reparations are considered as part of the picture.
After 1949-50 the USSR began to support the reconstruction of the
Satellite economies by supplying raw materials and some investment ?
goods in return for machinery) equipment, and such resources as coal
and petroleum. This trade expanded under the further stimulus of
Western trade controls and a buildup of the Satellite armaments in-
dustries Which occurred during 1951-52. Subsequently, Satellite trade
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with Communist China expanded greatly. By 1955, at least two-thirds
of the foreign trade of each Satellite was with other countries of
the Sino-Soviet Bloc, and in every case trade with the USSR was
greater than trade with the entire Free World.
The commodity composition of European Satellite foreign trade
has been transformed as well. Trade in machinery and equipment has
increased, with exports of these items from Czechoslovakia, East
Germany, and Poland assuming great economic significance. Soviet
net imports from the Satellites totaled well over 1 billion trade
rubles (1950 US $250 million) in 1954. Currently, Satellite ship-
ments of machinery and equipment to Communist China nearly equal
the value of corresponding Soviet shipments to China -- $250 million.
Before the war, the Satellites as a group were net exporters of agri-
cultural products; now they are net importers of grain and perhaps
of foodstuffs in general. Fuel resources have been consumed in grow-
ing quantities, leading to new international flows of coal and petro-
leum. Finally, imports of commodities of vital importance to indus-
trialization -- particularly such basic materials as iron ore -- have
increased greatly. '
The transformations were equally great for individual coun-
tries. Before the war the area that is now East Germany had no sig-
nificant metallurgical base of its ovn; now it does, which increases
the significance of its imports of iron ore and fuels and of its
exports of manufactures. Czechoslovakia was noted before the war
for its light industries; the postwar emphasis upon heavy industry
has altered its production patterns and its trade patterns as well.
Prewar Bulgaria exported chiefly foodstuffs and raw materials and
imported manufactured goods; now grain has almost disappeared from
the export list; the share of tobacco, fruit, and vegetables has
Increased; and Imports of machinery and equipment have overwhelmingly
replaced consumer goods imports. Likewise, in Rumania, imports of
investment goods have largely superseded imports of consumer goods,
exports of industrial products have assumed some importance, and
the large prewar export of grains has become only occasional and of
little significance. Poland and Hungary, formerly exporters of grain,
now import grain, and heavy industrial products enter much more heavily
than previously into their imports and exports.
There recently has been some tendency for the European Satel-
lites to increase their foreign trade with countries outside of the
Sino-Soviet Bloc. The share of the total trade of Czechoslovakia and
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Rumania going to Free World countries increased in 1954. In the same
year the other Satellites increased the absolute value of trade with
the Free World but did not notably increase the share of trade going
to the Free World. In 1955 and more particularly in 1956, Satellite
participation in the Soviet-inspired drive to increase trade relations
with underdeveloped countries of the Free World led to an increase
In extra-Bloc trade. The Satellite commercial agreements with coun-
tries in the Near East, Asia, and Latin America can lead to new trade
patterns of great significance. For most of this trade an economic
basis as well as a political motivation exists.
Despite the potential importance of future shifts in the di-
rection of extra-Bloc trade, Western Europe continues to be the most
important extra-Bloc trading area to the European Satellites, as it
accounts for about three-fourths of their total extra-Bloc trade.
III. Communist China and the Asiatic Satellites.
A. Introduction.
The economic policy of the Chinese Communists is directed
toward the rapid development of industrial and military power. To
this end, Soviet experience is imitated where it is feasible, but
new practices are developed where required by conditions peculiarly
Chinese. In theory, the present economic institutions are transi-
tional in a program moving toward socialism. Cooperatives and pri-
vate enterprises continue to function, under the general direction
of the state, along with state-owned and joint state-private enter-
prises. During 1955 and 1956, state control over agricultural activi-
ties was expanded notably. State control over the economy is not
yet as all-pervasive as in the USSR or the European Satellites. Never-
theless, it has increased rapidly in the few years since 1949.
In 1949 the Chinese Communists seized political control over
the Chinese mainland. They acquired an economy which had been strained
by years of warfare and was actvslly comprised of three economies, not
one. In Manchuria the Japanese had unaertaken development of an in-
dustrial complex and had invested in heavy industry, transportation,
and electric power. This complex, now of such great importance to
China, had been oriented toward the Japanese economy and after the
war had been largely dismantled by the occupying Soviet forces. The
second economy was the coastal economy, based on light industry,
foreign capital, and cheap labor. chAnghei was the most important
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center. The third economy was that of the Chinese mainland -- a prim-
itive, agricultural economy. The fusion of these three economies in-
to a single whole is yet a major task of economic policy.
In the initial phases of reconstruction, the strained Chinese
Communist economy suffered from hyperinflation. By the end of 1950
the economy was subjected to the additional strains of the Korean
War and drastic reduction in trade with non-Communist countries.
Nevertheless, through strict regimentation of economic life, Soviet
assistance, and abundant use of poorly trained labor, the industrial
production of China by 1952 had recovered to prewar levels, which
indeed were not Impressively high.
The Chinese Communist economy is predominantly agricultural --
that is, most of its income is derived from agricultural production
and from processing and trading in agricultural products. In effect)
then, the resources required for the industrial buildup of China must
be wrung from the agricultural economy in such forms as manpower and
tax revenues. Not only is great sacrifice required to industrialize
the country but also there are other pressing requirements, such as
experience in technological development and in management. Communist
China, then, looked abroad for assistance. It found the USSR willing
to supply capital goods an credit and to supply technological docu-
mentation and managerial manpower. Statements by the Chinese and by
the Soviet officials tend to exaggerate the extent of this aid. Al-
though industrial credits worth $430 million were extended in 1950
and in 1954 by the USSR) the majority of the capital goods imported
from the Soviet Bloc countries are barter shipments repaid mostly by
Chinese Shipments of agricultural products and raw materials. The
recovery of the economy has been rapid, nevertheless, and during
1953-57 China has taken great strides toward accomplishment of the
First Five Year Plan. Grave economic problems yet remain to be solved,
especially in the field of agriculture. Figure 9* shows the relation-
ship between China and the rest of the Sino-Soviet Bloc in terms of
the production of selected products.
Like Communist China, in 1949, present-day North Korea pos-
sesses a nucleus of industry and a mar-shattered economy. North
Vietnam is more agricultural in its basic economy, and aside from
political considerations might be expected to orient increasingly
toward the Chinese economy.
* Following p. 30.
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COMMUNIST CHINA
Production of Selected Commodities ?1956
Figure 9
RICE TUNGSTEN
78 million 15 thousand
ra?tric tons TOM! tons
ANTIMONY (1955)
13 thousand
IIWIPC tons
GRAIN
(including rice)
152 stiller, thethc eons
COTTON FIBER
5.46 mathsn
entrac tons
ii,.., ft
POTATOES MACH.INnE4. TOOLS
MEAT HARD COAL
5.02 ms//son 27 thousand
nein' tons ,...?"..un: to.lbons t.0.80:tttliz
CRUDE STEEL
8-15 hake,
sent tons
ELECTRIC POWER
15.3 itilton
kaknoott haws
Each circle represents total
Sino-Soviet Bloc production.
The percentage shown Is that
produced by Communist China.
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B. Geographic and Regional Characteristics.
Historically, factors of geography, ethnic groupings, language,
and tradition have prevented fusion of the area that is now Communist
China into a politico-economic unity. Great distances, mountainous
terrain, arid climate, and ethnic groups passive or opposed to Chinese
Communist control create great difficulties in the economic develop-
ment of the western areas of China. In particular, Sinkiang is
peculiarly isolated and susceptible to Soviet cultural and economic
influences. Traditional differences of dialect and outlook separate
North and South China. Natural barriers and environmental charac-
teristics tend to divide China proper into distinctive northeastern
(Manchuria), northern, central, and southern geographic regions. To
the south and west the great mountain ridges form a traditional
barrier between China and India.
Problems of transportation have contributed to the historic
regionalism of Communist China. Interregional water routes are
scarce, and the railroad net, a modern foe of purely localized eco-
nomic development, is still in the process of formation. The major
rivers, which have a general east-vest alignment, are a major means
of transportation, but the railroads carried more than 80 percent
of the total ton-kilometers of freight moved in 1955. The economy
is served by a relatively small number of coastal ports, which are
not fully utilized. The Chinese Communists have a small fleet which
engages primarily in coastal operations, and they are dependent upon
foreign-registered vessels for longer international hauls. Seaborne
commerce in 1955 carried almost 10 percent of Sino-Soviet trade and
more than 95 percent of Sino-Satellite trade as well as nearly all
of the non-Bloc trade.
Chinese agriculture, like the population) is clustered in a
comparatively small portion of the great land mass of the country.
Conditions of rninfall, topography, and soil sharply limit the avail-
ability of land for agricultural use. Although China possesses ex-
tensive mineral resources, deposits are widely scattered and are not
easily accessible.
The northeast region (Manchuria) is the most advanced indus-
trial area in Communist China. More than half of China's existing
iron ore reserves are located in the vicinity of An-shan. About 40
percent of China's coal is extracted in the northeast region. Non-
ferrous ores and oil Shales add to the resource base. The railroad
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net is relatively highly developed. Finally, rich agricultural lands
and moderate population density result in grain surpluses which are
exported to other regions of China. The existence of this industrial
base on the border of the USSR leads to complex problems in Sino-Soviet
relationships. Recently the USSR has proposed joint development of
the Amur Basin, involving ambitious plans for electric power genera-
tion, possible diversion of the Amur River through Manchuria, and
general resource exploitation in the North Manchuria-Amur River areas.
Survey work is to be conducted during the Soviet Sixth Five Year Plan
(1956-60) with possible development work to be undertaken subsequently.
North Korea, like Manchuria, was developed extensively by the
Japanese. It is, nevertheless, primarily an agricultural economy, as
is the economy of North Vietnam.
C. Structure and Growth of the Economy.
Economic data for Communist China are not sufficiently accurate
to permit more than a rough measurement of the extent and trends of
economic activity. Such measurement, as reflected in intelligence
estimates, is necessary, however, to a better understanding of the
transformation of the economy.
The economy, which is underdeveloped, is growing rapidly.
In 1956 the GNP stood at a level 78 percent higher than in 1950.
In other words, it has been growing at a rate of 10 percent a year.
The future growth rate is expected to be somewhat less rapid -- 7 to
8 percent per year.
Capital investments have been expanding more rapidly than
consumption. In 1956, domestic investment was triple the 1950 level,
in comparable prices; during the same time, total consumption in-
creased only 60 percent. Such a relationship is one frequently en-
countered in a country undergoing rapid industrialization, largely
based on domestic resources, and anxious to prevent inflationary
pressures from getting out of hand. In addition, a rapid increase
in real purchasing power for the population would probably lead to
excessive demands for agricultural produce, the production of which
cannot keep pace with the increasing expansion of the economy.
As a rough guide for purposes of comparison it is estimated
that in 1955 the GNP of Communist China was almost 1952 US $58 billion.
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A comparison of the increases in output, by economic sector, and
the growth of GNP in China for 1950, 1952; and 1955 is given in
Table 3.
Table 3
Increases in Output in Communist China
by Economic Sector
1950, 1952, and 1955
1952
= 100
Economic Sector
1950
1952
1955
Agriculture, forestry and fishing
87
100
107
Industry
53
100
158
Modern transportation and com-
munications
69
100
172
Trade (intim-ling native trans-
portation)
63
100
141
Construction
49
100
157
Government
82
100
116
Miscellaneous services and rent
Rural
90
100
105
Urban
64
100
131
Gross national product
76
100
125
D.
Population and Manpower.
As a matter of sheer arithmetic, the population of Communist
China is impressive. In 1956 the population probably surpassed 600
million, and it is growing at the rate of about 10 million per year.
As a factor contributing to economic strength, the population sta-
tistics must be examined more carefully In the first place; only
a portion of the total population is in the labor force -- about
300 million, or 50 percent. Actaally, this ratio is relatively high
and partially reflects economic compulsions for women and children
to earn a living by labor. Of the labor force, more than 80 percent
Is employed in agriculture, and of these, a high proportion earn a
subsistence living, contributing little to the economy. Possibly
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6o million people are employed in nonagricultural occupations) but
complete statistics are available dnly for those workers employed
in state economic departments -- some 21 million in 1956.
The productivity of labor is generally low, both in industry
and in agriculture. In industry, agriculture, and construction)
manual labor plays a major role.
In 1953 the population was 13 percent urban, 87 percent rural.
As the pace of industrialization has increased, wages and prices have
both tended to favor the urban worker. In consequence, there has
been an extensive movement of peasants into the cities, which has
resulted in urban overcrowding and rural labor shortages. This migra-
tion pattern will present a serious problem if agricultural production
fails to keep pace with population increases. In addition, employment
must be found for the transplanted peasants and an effort made to
alleviate conditions of overcrowding in urban areas.
Despite relatively plentiful unskilled labor, serious Short-
ages exist for skilled, semiskilled, and technical workers. The
college enrollment targets for 1957 were revised upward to 510)000
students, and plans for secondary vocational training were increased.
The main emphasis in education is upon vocational training.
North Korea and North Vietnam both have predominantly rural
populations and are faced with a considerable shortage of technical,
managerial, skilled, and semiskilled labor. In both countries the
agricultural base appears inadequate to support the expanding popu-
lations.
E. Agricultural Production.
The intense efforts of the Chinese Communists to industrialize
rapidly led of necessity to a decline in the relative importance of
agriculture and make likely a continuation of an acute food problem
for many years to come. The allocation of manpower, machinery, and
construction efforts to the expansion of industry and transportation
precludes a rapid expansion of agricultural production. Neverthe-
less, significant efforts are being made to expand production through
a reorganization of agricultural life, the development of better
patterns of land utilization (such as amalgamation of small fields
into larger fields), efforts to control floods and to construct irri-
gation systems, the greater use of chemical fertilizer) the use of
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better seeds and pesticides, and the gradual extension of the use
of better tools and machinery. In 1955, collectivization of agri-
culture was accelerated until by November 1956 about 96 percent
of the agricultural households were in agricultural producer co-
operatives and collectives. These cooperatives are of two types,
one in Which a return on land ownership is included in income payments
to the individual peasants, although utilization is cooperative) and
the second) "higher)" type, in which the land ownership is vested in
the collective and all payments are based on labor contributed. By
the end of 1957 it is planned that 90 percent of the collectives
will be of the "higher" type. It remains to be seen what effect
these moves will have on peasant incentives. The availability of
fertilizers will be small in relation to the amount of cultivated
land for years to come, and mechanization can proceed only slowly.
Current plans indicate that 10 percent of the tilled land mill be
cultivated merbnnically by 1962.
Agricultural production has grown only gradually, and the
per capita supply of food in 1956, only slightly higher than in
1952, was under the average level for 1931-37. Floods in 1954
and typhoons and bad crop conditions in 1956 held back improvement
in agricultural production; 19551 however, was a good crop year.
At present, grain is rationed in the urban areas. Dietary levels
are generally low.
Growing industrialization leads to increased emphasis on
commercial crops, the production of which has been increased both
by an expansion of acreage and by increased yields per acre. Pro-
duction of commercial agricultural commodities (such as cotton,
tea, and tobacco) will continue to expand rather rapidly, without
necessarily impinging upon food crops. In 1956) typhoon winds and
rains did substantial ham in the cotton belt.
F. Industrial Production.
The efforts of Communist China to industrialize rapidly have
cost heavily but have had a degree of success. During the recovery
period from 1949 to 1952, industrial output increased by more than
30 percent per year. At the present time, the rate of increase is
somewhat more than 10 percent per year. Typical of the Communist
development pattern, Which is designed to maximize economic and mili-
tary power, preference in the allocation of resources has been given
to heavy industry -- to the manufacture of producer goods, to the
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extraction of mineral wealth, and to the development of energy re-
sources. Almost 60 percent of capital investment goes to industry)
and an additional 13 percent goes to railroads.
The armaments industry of Communist China has demonstrated
a parallel growth. Nevertheless, it is not yet capable of meeting
all the potential requirements of the armed forces. The regime has
concentrated upon the production of relatively amrill equipment such
as small arms, machineguns, and mortars as well as some light ar-
tillery. By 1960 it is believed that China will be capable of pro-
ducing, from its own resources, tanks and possibly antiaircraft ar-
tillery and military aircraft.
Heavy industry developed rapidly between 1952 and 1956.
Electric power production increased 110 percent to 15.3 billion
kilowatt-hours; coal increased 64 percent to 108 million metric
tons; finished steel increased 194 percent to 3.2 million metric
tons; crude oil) 180 percent to 1.2 million metric tons; and cement,
134 percent to 6.2 million metric tons. Production of nonferrous
metals increased sharply. In 1956, large increases in heavy indus-
trial production apparently strained the economy; smaller increases
are planned for 1957. The socialization of industry in Communist
China from 1952 to 1956 is shown in Table 4.
Table 4
Socialization of Industry in Communist China 21
1952 and 1956
Percent of Total Output
Ownership
1952
1956
State-operated
50
63.8
Cooperatives
3
4.7
Joint state-private
5
31.1
Private
42
0.4
Total 100 100.0
a. Classification of industrial output (exclud-
ing handicrafts) according to ownership of pro-
ducing enterprises.
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G. Foreign Trade.
The changing political and economic conditions of Communist
China have been accompanied by changing ioatterns of foreign trade.
Foreign trade, now at its highest level in history, is conducted
with a new set of partners, under different rules of the game.
Before World War II, less than 2 percent of the trade of mainland
China and Manchuria was conducted with the USSR and the countries
now its Satellites. In 1956, about 75 percent of the trade of Com-
munist China was with these countries.
In return for imports, primarily of producer goods (about
85 percent), Communist China exports agricultural goods and raw
materials. Imports include industrial equipment and installations,
transport equipment and machinery, agricultural implements and ma-
chinery, military equipment, metals, industrial raw materials,
fertilizers, and pharmaceuticals. In return, cereals, oilseeds,
vegetable,oils, textile fibers, animal products, coal, minerals,
and some metals are exported.
Even before the maintenance of effective trade controls against
Communist China by the Free World countries in late 1950, trade be-
tween Communist China and the Soviet Bloc countries demonstrated a
marked increase, being nearly 35 percent of Chinese trade in 1950.
Although the lifting of trade controls would likely lead to an in-
crease in the relative importance of trade between China and non-
Communist countries, trade with the other countries of the Sino-
Soviet Bloc would continue to be extensive. It is further likely,
however, that the lifting of controls would make the terms of trade
more favorable for China. With removal of controls, the volume of
trade between China and Japan would increase, especially as China
would seek Japanese markets for its goods, but it is unlikely that
China would ever again be the attractive market for Japanese goods
that it was when Manchuria was under effective Japanese control and
part of the yen area.
The USSR has assisted Communist China substantially in its
industrialization program. It has provided capital equipment, some
on credit; technical assistance; and the services of Soviet engineers
and planning personnel. To a significant degree, however, the Euro-
pean Satellites have shouldered much of the effort. The USSR is
shipping equipment annuaLly valued at some $250 million to $300 million;
the European Satellites are shipping annually about $250 million worth.
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Shipments of machinery and equipment into China have increased sig-
nificantly during past years but may tend to level out soon. It is
the intention of the government of Communist China to increase the
relative importance of domestic industry in supplying the goods for
future industrialization. As the various machine-building plants
now under construction begin production, this aim should be realized.
IV. East-West Comparison.
Neither the USSR nor the US stands alone in the world. It is
thus of importance to examine the relative strengths of the two
blocs -- the Sino-Soviet Bloc and the NATO powers. Nevertheless,
It is true that neither bloc is fully integrated, and that the
frictions and disunities which prevail in each bloc will be ulti-
mately of basic importance to the power position.
The GNP of the USSR in 1956 was 40 percent that of the US, in
terms of 1955 US dollars. In 1948, however, the ratio of Soviet
to US GNP was about 25 percent. In the future, Soviet GNP will
continue to increase as a proportion of that of the US, and the
disparity in absolute terms will begin to narrow sometime in the
19603, if present relative growth rates continue.
The economic disparity between the two major groups of powers
aligned with the US and the USSR -- the NATO powers and the Sino-
Soviet Bloc -- is practically the same as that between the USSR
and the US. The GNP of the Sino-Soviet Bloc is about 38 percent
that of the NATO countries, which include the US. From another
point of view the European Satellites, Communist China, and the
Far Eastern Satellites bear approximately the same relationship to
the USSR as do the other NATO countries to the US in terms of total
production. In the event of successful realization of the Soviet
aim -- successful promotion of disunity in the West and consolida-
tion of the Gino-Soviet Bloc -- the picture would be much different.
In 1956 the total GNP of the Sino-Soviet Bloc was nearly 70 percent
of that of the US. By 1960 it could be nearly 78 percent.
At present the economies of the NATO powers are maintaining
a clear lead over the economies of the Sino-Soviet Bloc in terms
of over-all economic strength. At the same time, it should be
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emphasized that the relationship is different if only that part of
GNP which is devoted to national security is considered. Much of
the wealth of the West is devoted to maintaining and increasing
living standards, whereas living standards in the Sino-Soviet Bloc
are much lower and a greater share of total resources is allocated
to national security and military readiness than in the West.
The comparison of GNP for the Sino-Soviet Bloc and the Western
alliances also suffers by virtue of the aggregative nature of GNP
and may be somewhat misleading if only war-supporting capabilities
are considered. The Soviet machine tool industry is comparable in
size, although not always in quality of output, to the US machine
tool industry. The additions to steel capacity in the USSR parallel
US additions even though Soviet steel output is about 42 percent that
of the US. The relatively small quantities of petroleum products
used by civilian transport in the USSR compared with the US makes it
possible for the USSR to allocate a higher share of petroleum prod-
ucts to the military and to industry.
When NATO production of various specific commodities is compared
with Sino-Soviet Bloc production, the advantage falls to the West
by varying margins. Energy consumption in the NATO countries is
more than three times that of the Sino-Soviet Bloc, and steel produc-
tion in NATO is about three times that of the Bloc. NATO wheat pro-
duction is, on the other hand, 3 percent smaller than that of the
Sino-Soviet Bloc countries. The per capita availability of wheat,
however, is much greater in the NATO countries.
The rates of economic growth achieved in the Soviet Bloc from
1946 to 1949 and in the Sino-Soviet Bloc from 1949 to 1956 have been
higher than those in Western Europe and in the US. It is probable
that the Sino-Soviet Bloc countries will continue to achieve rapid
rates of economic growth, although at a somewhat slackening rate, in
the foreseeable future. Industrial production will grow faster than
GNP and will probably more than double between 1956 and 1966. The
economic growth of the Satellites will be significantly less than that
of the USSR. The pace and pattern of economic expansion in the Satel-
lites is bound to be profoundly affected by recent events in the
Satellites and by an induced reexamination of Soviet goals and policies
concerning the Satellites.
Even if there are no severe business recessions, the NATO coun-
tries are not expected to develop their economies as rapidly as the
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Sino-Soviet Bloc countries. The lag will be greatest with respect
to industrial production, if present trends continue. It should
be noted that in the Western world growth tends to be not an end
but a means to an end, which is that of satisfaction of the indi-
vidual consumer within the context of his society and the common
interests. It is thus not certain that forced economic growth is
generally desired in the Western world, if it is at the expense of
the prevailing consumer orientation. The Free World has opportuni-
ties, however, to stimulate labor productivity and production in-
novation.
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