BULGARIA EXPERIMENTS WITH YUGOSLAV FORM OF ECONOMIC ADMINISTRATION

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• Collection: General CIA Records
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• Document Page Count: 19
• Document Creation Date: November 16, 2016
• Document Release Date: April 6, 2000
• Sequence Number: 1
• Publication Date: December 1, 1964
• Content Type: BRIEF

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BULGARIA EXPERIMENTS WITH YUGOSLAV FORM
OF ECONOMIC ADMINISTRATION
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BULGARIA EXPERIMENTS WITH YUGOSLAV FORM
OF ECONOMIC ADMINISTRATION
Usually a passive follower of Soviet policy, Bulgaria has emerged
in 1964 as the boldest Soviet Bloc country in experimenting with eco-
nomic administration of the Yugoslav type. Since mid-year, 52 Bul-
garian enterprises -- mostly small plants producing consumer goods --
have been operating with little detailed direction by the state, being
encouraged instead to seek maximum profits. Profits remaining after
payment of the usual operating expenses, a capital-use charge of 6 per-
cent, and income taxes are divided between employees and the enter-
prise itself. According to reports in the Bulgarian press, the experiment
is proving successful. Although the kinship is not acknowledged publicly,
Bulgaria's experimental system resembles the Yugoslav system. Both
systems emphasize profitability, dispense with centrally determined
production plans, allow free formation of some prices, and enlarge the
role of workers in management but leave foreign trade and major new
investments under central state control.
The new Bulgarian system is being applied more widely than similar
experiments in the USSR and Czechoslovakia, and Premier and Party
Secretary Todor Zhivkov stated in June that the Party is considering
extending it throughout the economy during 1965-66. Unlike Czechoslo-
vakia, however, Bulgaria has not published an explicit program for
future reform. Because of the economic and political dependence of the
Zhivkov regime on the USSR, Bulgaria's experiment presumably had the
approval of Khrushchev. The nature and timing of further steps in this
direction probably will be influenced by the signals received from the
new leaders in Moscow as well as by the regime's assessment of the
experiment.
1. Background
Bulgarian leaders have been concerned for some time about the
numbing effect on incentives of detailed central planning and control of
the economy. Until 1963 they attacked the problem in an orthodox way,
calling for ever greater efforts to perfect the existing system. A fresh
approach was revealed at the Party Plenum in May 1963, when Zhivkov
stated: "We have instructed the chairman of the State Planning Com-
mittee to curtail 50 percent of all office supplies ... with a view to
reducing paper work and red tape. Of course, this is not enough. "
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The leadership now has undertaken the bolder experiment of largely
freeing a group of enterprises from detailed central administration
and letting the pursuit of profit be their guide.
The regime set the stage for experimental reform of Bulgaria's
economic system during the last 8 months of 1963, when it permitted
a wide-ranging, although decorous, debate in the Communist Party's
theoretical journal, Novo vreme. 1/ In its May issue the journal pre-
sented and asked for readers' comments on an article by Evgeni
Mateev, a Minister without Portfolio. This article and some that fol-
lowed took a conservative position on reform. Other writers, however,
suggested changes similar to those proposed in the USSR by Professor
Ye. G. Liberman the previous year.
In November and December, Novo vreme broadened the range of
discussion considerably by publishing articles of a "revisionist" nature.
In spite of its customary orthodoxy in doctrine and its continued cool
relations with Belgrade, the Bulgarian regime allowed the authors of
these articles to suggest reforms that would go a long way toward adop-
tion of the Yugoslav system. 2/ The article in the December issue was
written by Petko Kunin, who was purged and imprisoned in 1949 as a
Kostovite (in essence, a Yugoslav sympathizer) but who has since been
rehabilitated, becoming a member of the Party's Central Committee
in 1962. His proposals concerning economic decentralization and
emphasis on profits, profit sharing, and workers' participation in
management were echoed in an article in the May 1964 issue of the
Bulgarian economic monthly, Ikonomicheska misul. 3/
2. Growing Scope of the Experiment
The new system apparently was introduced in the latter part of
1963 in a single enterprise, the Liliana Dimitrova Textile Factory in
Sofia. In January 1964 the regime announced its decision to try out a
new system of management beginning in a number of enterprises on
1 April -- later reported to comprise 27 manufacturing plants, 10 trade
enterprises, and 4 construction enterprises. 4/ One month later,
Czechoslovakia began a similar experiment stressing profitability and
minimal central control in a knitwear cooperative and possibly in
several other plants. 5/ On 1 July, when the USSR introduced into
two clothing enterprises an experiment resembling the Bulgarian re-
form, 6/ additional enterprises were included in the Bulgarian experi-
ment, raising the total to 52. 7/ Several textile plants, a cement.
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works, a glassworks, a construction firm, and a construction design
enterprise have been mentioned specifically as participants.
The scope of the experiment soon may be enlarged. On 30 May
1964, Zhivkov said: "The organization and structure of management
in a number of national economic branches are no longer adequate to
the new requirements and tasks; they are exerting an unfavorable effect
upon our economy and its further development ... . On these questions
the Party Central Committee has already worked out a number of meas-
ures which are now being experimentally applied with a view to intro-
ducing them next year and in 1966 in all fields of our economy. " 8/ In
August 1964 the Minister of Construction announced that beginning on
1 January 1965 the new system will be applied to all industrial construc-
tion and construction material enterprises and to all district construction
organizations. 9/
For enterprises in Bulgaria's experiment the criterion of
profitability has largely replaced detailed central planning and control
as a guide to economic activity. Subject to certain constraints, the
enterprises are encouraged to conduct their business so as to maximize
profits, which are shared by the employees, the enterprise itself, and
the state. The enterprise draws up its own plan regarding the value
and assortment of production, and it contracts freely for purchases of
inputs (where it can find them) and for sales of its goods to trade
organizations. State planning offices reportedly are informed of the
production plans, however, and retain the right to change them.
Under this system, profit is defined as total revenues minus
current operating expenses, turnover taxes, and a newly introduced
tax of 6 percent on the value of fixed and working capital held by the
enterprise. 10/ Aside from purchases of materials and semifinished
goods on current account and charges for depreciation, current operat-
ing expenses include payments of "guaranteed" wages to employees,
which are independent of the amount of profit. For blue-collar workers
they approximate the basic wages paid previously for fulfillment of
work norms, and for white-collar workers they amount to 70 to 75
percent of the basic salary paid previously. 11/ Wages paid to em-
ployees beyond these amounts are called "variable" wages and depend
on the amount of profit earned.
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b. Distribution of Profits
Profits remaining after payment of an income tax (which is
levied at progressive rates) are distributed (1) to a fund for "individual
distribution, " which is used to pay "variable" wages; (2) to a reserve
fund for "individual distribution, " which is supposed to insure payment
of "guaranteed" wages even if the enterprise temporarily has financial
difficulties; (3) to a fund for expansion and technical improvement of
the enterprise; and (4) to a fund for social-cultural expenditures to benefit
employees. According to a Bulgarian calculation, 50 to 70 percent of total
profits remain at the disposal of the enterprise management, and the
greater part of this sum is to be used to pay "variable" wages to each
worker. Such an arrangement would contrast sharply with the previous
system of incentive pay, under which only 3 to 5 percent of profits (as
then calculated) were used for bonuses. 12/
Along with greater freedom of action, the experimental enter-
prises have been given greater financial responsibility, especially in the
financing of investment. How much the enterprises have to say about
their investment activities is not yet clear. Bit. it has been reported that
they no longer will receive grants of investment funds from the state,
being required instead to rely on their accumulated funds and on such
funds as they can borrow from banks. The state not only requires that
part of profits be allocated to investment but also requires the enter-
prises to deposit 70 percent of their depreciation charges in a special
bank account as a reserve for expansion and modernization. The re-
maining 30 percent of their depreciation charges must be remitted to
the state, 13/ which presumably redistributes the funds to investment
projects of high priority under the national economic plan.
Given an incentive to maximize profits, an enterprise director's
thoughts turn sooner or later to price increases if the market permits
them. To prevent abuses in this sphere, prices are supposed to be
determined by agreement between the enterprise and its customers, with
the state intervening as necessary to resolve disputes and protect the
buying public. In practice it appears that the enterprises have had some
leeway in negotiating the prices of certain goods but that the state con-
tinues to fix the prices of the more important articles.
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d. Enterprise Management
Bulgarian sources assert that under the new system employees
genuinely participate in the management of enterprises through their
production committees, which -- on paper, at least -- resemble the
Yugoslav workers' councils. Although the production committees
allegedly have a say in all questions of management, they seem to have
special responsibilities in raising labor productivity and profits and
considerable authority in deciding on the distribution of "variable"
wages.
Like the Yugoslav workers' council, the Bulgarian production
committee is elected by the total work force of the enterprise and can
be established in individual departments as well as in the enterprise
as a whole. There must be at least as many production workers as
white-collar workers on the production committee. The enterprise
director, the foremen, the secretary of the Party unit, and the presi-
dent of the trade union council are members ex officio, 14/ The in-
fluence of the Party in the selection of these individuals undoubtedly
is strong, assuring the regime that the enterprise will give due atten-
tion to national policy and the general welfare in making its decisions.
Although the more revisionist proposals in Novo vreme suggested that
workers should have some say in the selection of the enterprise director,
there is no evidence that this is yet the case in the experimental enter-
prises.
4. Results of the Experiment
The Party leadership has said little about the progress of the experi-
ment, but the Deputy Minister of Construction reported in August that the
new system has yielded good results in construction, 15/ and several
individuals in the experimental enterprises have published enthusiastic
reports. The most concrete discussion comes from the chief accountant
of the Sofia branch of the Proletariy Consolidated Textile Enterprise,
who wrote in a provincial Party journal in September that "the initial
results of the new system . . . are extremely encouraging" and that "the
system has essentially proved itself. " According to this observer,
workers are taking a new interest in the quality and efficiency of work,
and "things are getting tough for the misappropriators and sloppy work-
men." 16/
One effect of the experiment, the accountant stated, was a shift to
production of higher quality goods. This caused a decline in labor
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productivity initially as well as above-plan expenditures for fabrics.
But significant advances soon were made in expanding the volume of
production and profits. To hold down the tax on capital, unneeded
equipment was disposed of, and the employees of the enterprise asked
that a second shift be started so that facilities could be used more
efficiently.
The accountant also revealed that the enterprise is dissatisfied
with the system of price formation. The state continues to fix prices
for "first-quality" products; the enterprise may negotiate with buyers
on the prices of less desirable goods only. "Serious changes in prices
have not yet occurred, " and the state has been slow to determine prices
for new products even though "fashions cannot wait. " Some new prices,
the accountant claimed, do not allow a reasonable profit margin or --
in some instances -- any profit margin at all, "creating no incentive to
produce such articles. " 17/
In a recent interview with a Yugoslav journalist, the deputy chair-
man of the State Planning Committee played down the extent and signifi-
cance of the reform, as might be expected, and said that either the
journalist or the workers in the plant that he had visited "had understood
the rights and independence granted to the enterprises ... in a much too
broad way. " This official stressed the right and willingness of the state
to intervene in the affairs of the experimental plants to protect important
interests and gave the impression that some aspects of the new system
have not yet been introduced fully into all of the experimental enter-
prises. 18/
Bulgaria's experiment in any case cannot be considered a blueprint
for broad reform, because it involves mostly small enterprises produc-
ing consumer goods for an established market. The regime thus has not
yet had to face the perplexing issues that would arise if the reform were
extended to numerous large enterprises producing industrial materials
and capital equipment. Paramount among these issues would be the
future roles of central planning, Party direction, and indirect controls
in economic management; the permissible limits of freedom for enter-
prises in price formation and foreign trade; and the balance between and
administration of centralized and decentralized expenditures for invest-
ment.
5. Bulgaria in the Vanguard of Economic Reform
Although discussion of economic reform is widespread in the Soviet
Bloc, Bulgaria has permitted expression of a broader range of opinion
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and has revealed more ambitious plans for reform than any other country
except Czechoslovakia. 19/ This fact raises the question: Why Bulgaria?
Among the European Communist countries, Bulgaria has long been re-
garded as one of those least likely to take initiatives, and even now its
motives for doing so are unclear. On most domestic and foreign policy
issues, the Zhivkov regime continues to take a hard line. Economic
progress, although not on a par with that in Rumania and Yugoslavia,
has been rapid in recent years and provides no pressing reason for
Bulgarian innovations. In this respect, Bulgaria differs sharply from
Czechoslovakia, where the disappearance of easy ways of achieving
economic growth has forced the regime to consider drastic reform of
the system.
Furthermore, Bulgaria ordinarily follows the Soviet lead docilely
and has good reason to do so. Zhivkov relies strongly on Moscow for
political support, and the Bulgarian economy depends on the USSR for
much of its trade, economic aid, and technical assistance. These con-
siderations suggest that the Bulgarian experiment has had Soviet blessing
and that Bulgaria may even have been regarded in Moscow as a testing
ground for a profit-oriented system.
Bulgarian actions that go beyond Soviet policy, howe ver, cannot
be ruled out. The rate of economic growth has slowed in recent years,
causing some restiveness in the leadership. Zhivkov remarked in May
1964 that "this rate of speed ... no longer satisfies us and we cannot
put up with it. Our country must develop- at even higher rates ... so
that we may catch up [with the most advanced Communist countries]
within a short time. " 20/ Moreover, Bulgaria's record in following
Soviet policy has been tarnished since 1.959, when the leadership under-
took the Chinese-style "leap forward" and showed an unseemly interest
in the Chinese communes.
The ideological disarray in the Bloc and the weakening of Soviet
authority also may be having an effect in Bulgaria. Zhivkov himself --
while paying tribute to "the rich experience" of the USSR, which "has
always been and will remain for our party a precious source of ...
guidance" -- also made the following point at the Party Plenum in
May 196 3:
You are aware that in the past we had to pay a
[price] because of stereotyped ... application of
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this experience. What would happen if we mech-
anically applied the entire management structure
of the Soviet economy? Obviously, this would not
be appropriate, since the scales, conditions, and
concrete situation in the Soviet Union are dif-
ferent. Therefore, the distinctive mark of the
proposed reorganization in our country i. a
creative approach and a search for different
forms and means which best correspond to our
circumstances ... . 21/
Zhivkov's speeches at this Plenum did not reveal any intention of
introducing management reforms of the sort now being tested. Instead
they focused on improvement of planning through the use of computers
and improvement of central management through adoption of the "branch
principle" -- that is, the amalgamation of enterprises into large combines
covering entire branches of industry, Nevertheless, Zhivkov's argument
concerning the relevance of Soviet experience obviously can be used to
justify reforms that go further than changes in the USSR.
In 1964, Zhivkov appears to have defended his experiment not so
much against possible Soviet criticism as against predictable condemna-
tion by the Chinese Communist "dogmatists. " In May he stressed the
"socialist" character of the new system, arguing that until the "mature
phase of communist society" is reached, "we would commit a great
mistake if we neglected the material incentive to any extent whatsoever o . .
[and] if we did not fully utilize profits, self-support, prices, and so
forth. " 22/
Whatever understanding Zhivkov might have had with Khrushchev
concerning the Bulgarian experiment, the change of leadership in the
USSR adds a new element of uncertainty to Bulgarian plans for further
experimentation. A blast of disapproval from Moscow might at least
lead to delay, curtailment, or a watering down of plans to extend the
experiment. But the Bulgarian regime betrays no such fears. On
7 December, Zhivkov stated that the new method has produced very
good results and reaffirmed that it will be applied in entire branches
of the economy next year. 23/
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1. State, Sofia. Airgram A-207, 11 Dec 63. U.
Radio Free Europe. Economic Revisionism in Bulgaria,
26 Aug 64. U.
2. State, Sofia. Airgram A-239, 2 Jan 64. OFF USE.
Radio Free Europe. Bulgarian Press Survey, no 501,
9 Jan 64, p. 2-6. U.
JPRS. 23, 065, 4 Feb 64, p. 1-20. U.
3. JPRS. 25, 926, 14 Aug 64, p. 23-40. U.
4. Radio Free Europe. Bulgarian Press Survey, no 549,
31 Oct 64, p. 3. U.
5. FBIS. Daily Report (USSR and East Europe), 30 Apr 64,
p. gg 1. OFF USE.
Ibid. , 19 Nov 64, p. gg 4 - gg 7. OFF USE.
6. CIA. CIA/RR CB 64-70, Discussion of Profits Revived in
the USSR, Nov 64, p. 3. C.
7. State, Sofia. Airgram A-104, 3 Sep 64. OFF USE.
New York Times, 17 Nov 64, p. 8. U.
8. FBIS. Daily Report (USSR and East Europe), 22 Jun 64,
p. kk 8 - kk 9. OFF USE.
9. Radio Free Europe. Situation Report (telex), 20 Aug 64. U.
10. JPRS. 27, 162, 30 Oct 64, p. 28. U.
Radio Free Europe. Bulgarian Press Survey, no 549,
31 Oct 64, p. 4. U.
11. Radio Free Europe. Bulgarian Press Survey, no 549,
31 Oct 64, p. 3. U.
12. JPRS. 27, 162, 30 Oct 64, p. 25, 28, 29, U.
13. Radio Free Europe. Bulgarian Press Survey, no 549,
31 Oct 64, p. 5. U.
14. Ibid. , p. 4. U.
15. CIA, FDD. East Europe Daily Press Report, 24 Sep 64,
p. 9. OFF USE.
16. JPRS. 27, 162, 30 Oct 64, p. 29-31. U.
17. Ibid, p. 30. U.
18. Radio Free Europe. Bulgarian Press Survey (Special),
no 552, 21 Nov 64, p7-9-12. U.
19. CIA. CIA/RR CB 64-58, Czechoslovakia Debates Market
Socialism, Sep 64. C.
20. FBIS. Daily Report (USSR and East Europe), 22 Jun 64,
p. kk 6. OFF USE.
21. Ibid. , supplement no 16, 12 Jun 63, p. 140. OFF USE.
22. Ibid. , 22 Jun 64, p. kk 14. OFF USE.
23. Ibid. , 9 Dec 64, p. kk 1. OFF USE.
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SUBJECT Dittribution of Current Support Brief Nr 4r -,
De+ + mD&s
Ad a r~ ern ~* -
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Experiments th Yu oslav Form of Economic Administration --- December
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16. 5204 CIA/RR CB 64-78
?x? Bulgaria Experiments with Yugoslav Form of Economic Administration
CONFIDENTIAL)
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