RECENT DEVELOPMENTS IN THE POLISH ECONOMY: PERFORMANCE AND PLANS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001300170001-8
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• Sequence Number: 1
• Publication Date: October 12, 1962
• Content Type: BRIEF

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Current Support Brief
CIA/RR CB 62-62 No. Pages 8
12 October 1962
Copy No.
RECENT DEVELOPMENTS IN THE POLISH ECONOMY:
PERFORMANCE AND PLANS
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
GROUP 1
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RECENT DEVELOPMENTS IN THE POLISH ECONOMY:
PERFORMANCE AND PLANS
Polish economic development in the first 18 months of the Second
Five Year Plan (1961-65) was rapid and generally smooth, but strains
in some areas may make rapid growth in the future more difficult. The
growth of industrial production during 1961-6Z was faster than planned,
and although some slowdown is planned for next year, output at the end
of 1963 should be at about the level originally projected in the Second
Five Year Plan. Polish agricultural production this year stands at
nearly the planned level, and consumption has increased about as
planned. Foreign trade has increased at an above-plan rate since
1960, but Poland faces future difficulty in continuing to increase trade
with the industrial West. Capital investment has lagged somewhat be-
hind the pace set forth in the Second Five Year Plan, and some aspects
of the investment program for 1963-65 are to be revised this year.
However, unlike recent plan changes in East Germany and Czechoslo-
vakia, which were the result of serious economic difficulties, Polish
plan revisions are likely to be limited in scope and probably will not
constitute an abandonment of either the basic proportions or the general
rate of economic development set down in the Second Five Year Plan.
Industrial production in Poland in the first half of 1962 continued
to increase more rapidly than planned and reportedly was 9. 7 percent
higher than in the first half of 1961. Although above-plan growth was
achieved mainly by enlarging the industrial labor force, labor produc-
tivity in the first half of 1962, as in 1961, also increased somewhat
more than planned. Favorable results have been shown in all major
sectors of industry, including ferrous metals, machinery, and chemi-
cals, and there has been no evidence of unusual shortages of key
materials such as electric power, coal, steel, and cement. The
Poles, however, continue to have difficulty in producing goods of the
12 October 1962 CIA/RR CB 62-62
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type and quality that are most in demand at home and abroad. Conse-
quently, a greater -than -planned portion of industrial output went into
stocks during 1961-62.
In agriculture, although Poland may be falling somewhat behind
the very ambitious pace set in the Second Five Year Plan, production
continued to increase much more rapidly than in any other European
Satellite. In spite of unfavorable weather this year, the Poles are
expecting only a small decline in the total agricultural output from the
record level of 1961. The effect of poor weather on crop yields this
year has been partly mitigated by the rapid increase in the last 18
months of inputs of artificial fertilizers, pesticides, and quality seed,
as well as by the hard work of Poland's private farmers.
Investments in the socialized economy increased by about 8 per-
cent in 1961. Growth was somewhat slower in the first half of 1962
because of poor weather that held up construction activity. Construc-
tion picked up considerably in June and July, however, and if good
weather prevails for the rest of the year, investment outlays this year
probably will increase at about the same rate as in 1961. Even with
this fairly rapid rate of increase, Polish investments have been falling
somewhat short of the pace set forth in the Second Five Year Plan both
in terms of money outlay and in terms of projects completed. The in-
vestment program for 1961-62 has put heavy demands on the technical
competence of Polish planners and engineers and on the capacity of
the construction industry, and the Poles have encountered some diffi-
culty in meeting planned deadlines for completion of projects and in
holding investment costs to planned amounts. This difficulty has been
particularly noticeable in branches of industry, such as chemicals, in
which the Poles are relatively inexperienced.
The per capita consumption of the Polish population has risen by
about 6 percent in real terms since 1960. Nearly all of this increase,
however, was registered in 1961, when the rapid growth of industry
and agriculture was accompanied by a large increase in the incomes
of both workers and peasants. The low rate of employment of con-
struction workers, who on the average probably spent a higher portion
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of their income than industrial workers, and the increases in the prices
of some foods were reflected in a below-plan increase in the volume of
retail trade in the first few months of this year. Although retail sales
had picked up considerably by midyear, a smaller increase in consump-
tion can be expected in 1962 than in 1961. The regime is unlikely to
allow urban incomes to grow as much as last year, and rural incomes
probably will rise little if at all above the level of 1961.
Polish foreign trade continued to grow very rapidly in the first 18
months of the Second Five Year Plan. Total exports have increased
considerably faster than planned, in large measure because of the rapid
growth of agricultural and food exports in 1961. The sizable growth of
exports as well as the heavy drawings on credits were used to pay for
the above-plan volume of imports needed to support the large increase
of industrial production in 1961-62. These credits, most of which had
not been accounted for in the plan, allowed. Poland to run large deficits
on current account in 1961 and the first half of 1962.
Polish trade with the Sino-Soviet Bloc increased very rapidly in
the first half of 1962, and there was little evidence of the difficulty in
exporting machinery and equipment to other Bloc countries that the
Poles had experienced in 1961. On the other hand, the Poles antici-
pate future difficulty in increasing their trade with hard currency
areas. Poland faces the prospect of continued decline in the prices
of many of its traditional exports to the industrial West. Moreover,
further expansion of agricultural exports to Western countries is
likely to be difficult both because of the expected slower growth of
Polish agricultural production compared with that in 1961 and because
of the commercial policies of the Common Market. In addition, the
Poles face uncertainty as to the size of future credits from the US.
For these reasons, Poland is giving higher priority to the development
of new lines of exports to the West, is adding new urgency to its cam-
paign to improve quality and delivery standards for export production,
and may be looking for alternative sources of required imports within
the Bloc.
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In spite of the generally favorable results shown by the Polish
e,c,onoxny., during 1961 and the first half of 1962, preliminary plans for
1963 call for a reduced rate of growth of industrial production -- 6. 4
percent compared with 7. 6 percent and 8. 4 percent, respectively,
planned for 1961 and 1962. The slower growth scheduled for next
year -- a rate that the Poles probably expect to exceed by 1 or 2 per-
centage points -- would put industrial production at the end of 1963
at about the level projected in the Second Five Year Plan. The slow-
down undoubtedly reflects the realization by Polish planners that some
of the conditions which contributed to the very rapid increase of indus-
trial output in 1961-62 are likely to be less favorable in the later years
of the plan period.
Probably the most important of these conditions is the decline in
agricultural production during this year and the likelihood that the
sharp increase in such production in 1961 will not soon be repeated.
A decline in agricultural production will be reflected directly in the
output of Poland's food processing industry, which rose very rapidly
in 1961-62 and which accounts for more than one-fourth of the gross
value of industrial production in Poland. As previously indicated,
the decline in agricultural production along with the ant'iciipated slower
rate of future growth also is likely to limit Poland's foreign currency
earnings and thereby its ability to increase imports of industrial
materials to the extent of such increases in 1961-62. Finally, the
leveling off of agricultural production may lead to a more restrictive
employment policy. The large stocks of foodstuffs available in 1961
and the first part of 1962 gave the regime leeway to expand industrial
employment above the planned level without causing any strain on the
consumer market. In 1963, however, the food supply in urban areas
is unlikely to increase significantly, and consequently the regime may
be unable to raise industrial employment at recent rates without caus-
ing food shortages or further raising food prices.
Another factor tending to reduce the rate of industrial growth is
a reduction in the number of easily exploited opportunities to raise
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]labor productivity. Increases in labor productivity depend to a large ex-
te?nt, on in pr.owerne:tits=itn technology and in the organization of production.
For the most part those improvements that could be made most easily
and cheaply have already been put into effect, and further improvements
are likely to be more difficult and to require larger investments.
The plan for 1963 probably reflects not only a less favorable out-
look for Polish industry but also increased concern on the part of the
regime for the quality and variety of production, especially that directed
toward exports. Polish planners apparently feel that increased effi-
ciency in industry and an improvement in the assortment and quality of
industrial goods can be promoted best by setting production goals that
are not difficult to achieve. Plant managers receive premiums on the
basis of profits, conditional on the fulfillment of production plans.
When the production plan is very demanding, managers are likely to
neglect plans for technical and organizational improvements which do
not immediately reduce costs or which may even cause a temporary
disruption of production, and they often do not deliver the planned
quality and assortment of goods. The regime probably expects that
more rapid progress in these areas will stimulate output in the later
years of the plan, if not in 1963.
As often occurs about midway in a plan period, the Polish regime
now is engaged in a reappraisal of the capabilities of the economy and
in this connection reportedly is revising the 5-year investment program.
Because of the generally favorable development of the economy since
the beginning of the plan, it is probable that the revisions will be limited
in scope and will not constitute an abandonment of either the basic pro-
portions or the general rate of economic development set down in the
1961-65 plan. These revisions, therefore, would appear to have little
in common with those in East Germany and Czechoslovakia, where the
long-term plans in fact were abandoned as a result of serious economic
difficulties.
The substance of the reported revision of the 1963-65 investment
program has not yet been announced but is likely to include some reduc-
tion in the number of projects to be undertaken during this period. The
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Polish regime probably believes that the current Five Year Plan for
investments cannot be fulfilled in all its aspects and prefers to cancel
or postpone a few projects that would have only a marginal effect on
output in the 1963-65 period rather than to spread its resources too
thinly and risk noncompletion of key investment projects. Along this
line the Poles have expressed the intention of limiting the number of
new projects to be included in the annual plan for 1963, a measure
that will affect particularly projects of provincial and local govern-
ments and decentralized investment by individual enterprises.
The underfulfillment of investment plans in 1961-62 probably is
only one of a number of factors that will enter into a revision of the
Polish investment program. The entire economic program is cur-
rently in the process of review in preparation for a Plenum of the
Central Committee that is to take place in the fall and for the Party
Congress scheduled for next spring. Besides being a natural focus
for discussion of long-term policies and plans -- through 1970 and
perhaps beyond -- these meetings provide an excellent opportunity
to exclude from the current Five Year Plan certain projects that have
been found to be impractical because of incomplete project plans or
the inability to import the required machinery or technology or be-
cause of other reasons. Moreover, since mid-1960 the Poles have
been conducting an intensive review of investment plans for many
sectors of industry. Substantial economies have been made by elimi-
nating unnecessary outlays and by finding less costly ways of carrying
out various projects, In addition, means have been sought, particu-
larly in recent months, to increase the capacity for export production
in some branches of industry with fairly small investments. The re-
sults of these efforts are very likely to be written into the revised
program.
Poland undoubtedly would like to reduce the cost of its investment
program by getting other Bloc countries to share the cost of large
projects in basic industries. It is likely that this desire is one of the
major reasons for Polish interest in the CEMA meeting in June 1962.
If the Poles were successful in presenting their case, additional in-
vestrr)ent credits from East Germany and Czechoslovakia, which are
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already committed to assisting in the development of Polish brown coal,
copper, and sulphur deposits, may be included in the revised investment
program. Along the same line, decisions on further specialization in
industry reached at the CEMA meeting may be reflected in increased
investment in such Polish industries as shipbuilding.
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Analyst:
State/Gt Brit, Warsaw. Polish News Bulletin, annex, 6 Feb 62. U.
Poland. Dziennik ustaw, no 11, 2 Mar 62. U.
Poland. Trybuna ludu, no 208, 29 Jul 62, pp. 4-5. U.
Ibid. , no 312, 2 Aug 62, p. 3. U.
Poland. Zycie gospodarcze, no 22, 12 Aug 62, p. 2. U.
Poland. Biuletyn statystyczny, no 6, 1962. U.
12 October 1962 CIA/RR CB 62-62
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