FIRST OUTLINES OF A THEORY OF FOREIGN TRADE IN A COUNTRY WITH A PLANNED ECONOMY

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• Document Creation Date: December 22, 2016
• Document Release Date: November 16, 2011
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FIRS C'JTLINES OF A T?O?Y OF FCREIGN TRADE IN A COUNTRY WITH A
PLANNED ECO.;C'.y
(Case of trade exchanges in Poland)
I. How theory on fcrei^n trade in countries with planned economies
stand.
~tilGJPXe-^:
complex and homogr-,ne theory of foreign grade in the socialist
A
.;ount_ies (with planned economies) is almost 4 c:'iz :ce in the
theoretical works of the East. This blank in the economic theory of
socialism is not accidental; it is the result of manifold reasons.
1. Theoretical reasons - Karl f Ira:?x in writing apital made
two omissions which are heavy with meaning: he conscientiously
avoided. including in his theo~y of value the modifications which could
be brought to it by foreign trade andtheory of reproduction
modifications which could be brought to it by technical progress
of Davin Ricardo was a source of inspiration (theory of value) a:.
the same time being an object for criticism (theory of salary and
theory of - rent )~never took any position with regard to the
theory of foreign trade and especially the theory of comparative
costs) formulated by Ricardo. It is not considered that the remarks
a bent
made by Marxnthe dropping of tb rates of profit after supp .ng cheaper
raw materials rove in this direction. See Karl Marc, Theorien -,ber
den Mehrwert, and also Le Capital, Vol. III, ch. 6/1, or his remarks
Moreover, it is striking that Marx~for whom the economic t :gory
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on the foreign exchange rate in England. See Le Capital, Vol. III,
ch. 35; -'- the history of market capital, Le Capital, Vol. III,
ch. 20.
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However it was a question, as experience of the past century since
a` -',
the first edition of 1-51 Grp:;_ ~: has shown, of the most dynamic factors.
:~;oreover Marx certainly understood the possibilities but he was
treating technical retrospectively when he analyzed the
n
substitution of machines for manual labor; he was also treating foreign
trade when he considered the relationship of forces between the
main industrial countries of Europe in the 19th century without
resorting to an analysis of the mechanism of exchanges between them.
MarxTs theory, such as the Soviet revolutionaries inherited,in 1917,
included neither technical progress nor foreign trade. Nevertheless
to the extent that the newly created country was obliged to forge its
mar= ; .,:
own economic policy these two factors must have been gns.:.r, and
A
developed. Without analyzing it in depth, Lenin had to reintergrate
the technical progress factor in' practice in- -j economic
A A
theory; he emphasized its importance within the broad outline of plans
for electrafication, industrialization of the country and increase of
the productivity of labor1.
1 T.~ar L?L does not consider here that his work was exclusively on
A n
the monetary aspect of exchanges with abroad - e.g. his article on
gold - , this attention pertaining to the monetary aspect of exchanges
constitutes a direct extrapolation of Marx's thought which, being con-
cerned with the intrinsic interplay of economic facts in the domain of
foreign trade, remained on the surface of things, retaining onl-,- the;r
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monetary aspects, cam:: _ (~ e -t.;;ii n t s re.7m n3 on the role of banking i h
"Imperialism, the Crowning Stage of Capitalism',; and on the role of
gold in trade in "The Importance of Gold now and after the Victory of
Socialism".)
6 =
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The foreing trade factor was in its turn examined by Trotsky,
particularly when he put forth the broad outlines of his plans for
trade exchanges for the rest of the world. One need not refrain from
thinking that this perhaps determined the ultimate stagnation of
It"- L
countries of the COMECON. In 1958 participation trade with the
socialist countries, in relation to total trade, clearly fell in all
of the countries without exception. The most considerable drop off is
recorded in Poland's case. Its trade with socialist countries fell off
from 70 - 58.4 percent of the total. In the other countries
intersectorial specialization (raw materials exported by Rumania,
Bulgaria and the USSR for equipment goods exported by Czechoslovakia,
and East Germany and Hungary) nevertheless maintained indices above
70 percent.
bead table on page 727
In theory one can conclude that in the future there is a
possibility of exhausting the advantages rising from intra-sectorial
specialization on the inside of the COMECON zone. Flexibility of
foreign trade, h~ueue r , furnishes two other concepts of development
in specialization. The first concerns common exports of complex
industrial installations by a group of countries (inside the COMECON
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zone) to other countries (expecially the underdeveloped countries).
The second depends on common exports of complex industrial
installations by a group of countries (the socialist countries and the
capitalist countries combined) to other countries. The disparity ofd
a) labor - intensiveb) capital-intensive K C) material-
intensive coefficients in the industrialized countries cen make
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such a co: cination in specialization h.: yy effective and %: tuff-
table. In order to have this, the notion of specialization oust be
irate: ;crated with that of cooperation in an homogeneous economic
formula.
B. Exchanr-es with the capitalist countries
The theoritical fou1dations,-of Polish trade with the capitalist
i
countries are the same as those which exist between capitalist
countries. The function of et ---ants of foreign trade on internal
A Y,
economic factors remains the same, but the -world of different vared-
1ables stands out since the differences y~ the level of economic devA
e-
lopment between Poland-and the capitalist countries are greater. If
one cz?ncludes in the function:
N
a.) Natural wealth (for an arbitrary constant)
b.) The structure of production (for the coefficient of the technical
level compared to a corresponding level in the importing country
rat
considered as a determinat.~ variable;
c.) Demand on the foreign market (with the coefficient of free trading
of merchandise) considered as another variable:
- In the case of exchanges with member countries of the COMENCON
the coefficients/are not very si
gnificant since the l4wel of technique
is roughly the same and for the coeffic:*ent of free exchange the
coefficient of planned development of exchanges is substituted (one
can say that each coefficient c 1)
- In the case of exchanges with the capitalist countries these
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coefficients play a very large role. The difference in therm of
the technir,ue causes the first coefficient to be -C 1; the
institution' difficulties of exchanges long delays
in deliveries, obligation of satisfXing the current demand, customs
tarrifs, contingent political preferences of one side and the other,
ec .) make the second coefficient- < J t as it
n ? %YE SRme r.(2~ n ( i
would perhaps be preferable to fix the second coefficient as K-1
since the volume of institutionaii~>. r,. in trade between countries
revealing different political systems must always be measured in
o ~nial members). The large reduction [?] of coefficients snows SJ-~ws
A
down the full functioning of the variables b) and c) on the structure
of Polish foreign trade with capitalist countries. Thus it is fin ~rnoc j
especially under the influence of the arbitrary constant. Folish
natural wealth enters into Polish exports to capitalist countries in
the form of raw materials and semi finished products, especially
agricultural and mining products.
[Refer to page 76]
Raw materials constitute about 95.7% of Polish exportsjto -Ac
developed capitalist countries. The table is no longrtr the same for
exports to the underdeveloped capitalist countries. The coefficient
for the technical level is > 1 here (w~-iich multiplies the
impact on foreign trade with its trend toward lndustr9'.'iization
in the structure of Polish production). The coefficient of ind ;s trac'-..
~.hr -f A
zation is perhaps 1, and in the cases where they exhert7political
A
priorties even > 1. For that the structure of exports to these two
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groups of countries is different:
(Please refer to page 77)
The table on page 7c3 'proves that a large concentration of Polish
exports to the capitalist countries exist. Products whose individual
share in exporting surpasses 2%
~ A 5~+? 5~ of exports to the capitalist
A
countries and 40.9% of the total exports. The geographic concentration
is even stronger. The countries - taken one by one - to which Po:Land
a~~v'r 1
directs more than 3% of its exports .ob~ rb 73.x. of all
exports to the ca~italist countries. But it must be pointed out
here that the geographic concentration of exports/to capitalist countries
is less than the total geographic concentration (the trend reverses
for structural concentration by product). Since it can be roughly
said that the geographic concentration is ruled by the coefficient of
institutionalization and the structural concentration by product - by
the coefficient of the technical level-,it can be deduced that the
institutional differences are less (between Polish exports to the west
and to all countries) than the technical differences (between the
Western level compared to the Polish level and the average general
level compared to the Polish level).
[Please refer to page 781
The structure of Polish imports originating iI.-Icapitalist
countries is very different; machines and equipment share in it to the
rate of 25.1%. Nevertheless raw materials figure very 1~?in it.
As in the case for exports, the distinction between the structure of
imports coming from the developed countries and the underdeveloped
em
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[See table on page 791
Tha structure of Polish exports to the underdeveloped countries
approximately corresponds to the st_ucture of Polish imports frori
the advanced capitalist countries, while the structure of-Polish
import to the advanced capitalist co-untries corresponds that of
Polish imports from the underdeveloped countries.
Thus Poland is half way be seen the great economic transformations
which have occured throughout the world. in the'case of Polish
imports, the concentration is inverse to that existing for exports:
products whose individual share in tiie total is lower than 2% the
nn
majority and comprise' ?;0.5/, of the total.
[Cf. table on page 20]
The difference in degree of product , c , _-^entration between ex-
ports and imports is very noticeable and not advantageous for the
ance of the 'payment. In the case of flux ton of prices on the
n
world market for a certain number of them or a certain catagory of
products, the ~ :tip cus effects on exports (drops in export prices
n products) will not be for by equivelent drops
in the purchase prices of a number n of imported products (the proof
will be furnished in later chapters).
C Exchanges with underdeveloped countries
The problem has been partially treated in the frame/work of
exchanges between Poland and the capitalist countries in order to
demonstrate the bi,~ziz difF;rences which enist in exchanges between
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Poland and each one of these groups. More--/over
Oland makes
It
up a kind of exception in exchanges between the socialist countries
and the underdeveloped countries. it entered. rather late,the system
of specialization of exchanges and its exports of equipment goods are
only now beginning yo be admitted, actually vcJ;:~ ~Vh` on the market
of the underdeveloped countries. Fully industralized countries such
as. Czechoslova i, and East Germany already are sending a _i-. ,
three to four times greater percentage of their exports to the market
of the underdeveloped countries.
[Refer to page 81]
The exports of industrial products play a predominant role in the
exchanges with underdeveloped countries, and in this respect the
structure of exports of countries with a planned economy corresponds
almost exactly to that of the capitalist countries. A single
notable ,::ceptiont chemical products: imports by the underdeveloped
countries increased most in this area
( :.,:o of 50% in the years 1953-
A
1958). Their share in the general structure of imports by these
countries doubles that coming from the socialist countries. The fact
is not so astonishing if one considers the light development of the
chemical indust:-y in the countries of Pastern Europe (except in East
Germany).
[Refer to page 82]
Polish exports to th,.. underdeveloped countries have been very
irregular. This irregularity is due to the failure of these markets
to recognize P~)lish exports, to the structure of Polish e or =.;fir
em
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be' an to assul::e industrial characterist ;'to the
A
and . role of a commercial treaty. The
A i\
~alisrn of socialist exchanges was so strictly observed that
i~
W
often a sharp increase of exchanges - country or even with a
whole geographic or political zone depended on the signing of a
co'mmercaal treaty or resulted from one.
p?u-~-, -lons of Polish exports to the underdeveloped countries
thus can be subjected A to a politica,'L or institutional. analysis-:rat1ier
than an .economic analysis:
[See page 53]
The s -elation does not p avast itself in any other (way if one / j
,A thic
analyzes it by countries for geographic zones. Often country to
A A /
have a product the deliveries of which have been, for one reason or
hcL~ c'
another, stopped or diverted from their normal , arrive _.c
Pc-Land or other socialist countries sharply ?t`; ^ the volume of
exchanges (for example, the export of Polish sugar-to India in 195.).
Thus often the decision made in Poland (or in :::nct;aer socialist count;
a'z
to satisfy latent needs the actual demand of the population 4
tropical products such as peper, tea, oleagin~?ous substances-
fruits A also increas,.s the v_'lume of exchanges. 7hcJ ..
decisions are not made regularly (which gives ,he volume of exchanges
a fortuitous character) and often are not made simultaneously by the
two contracting parties ( the ub lance in exchanges). A strik-
ing example is furnished by the exchanges between Poland and India:
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[Refer to page cl+]
The same ma;?be observed in the case of exchanges
with Indonesia.
In trade with the African countries the balance of payments
regularly shows a deficit. These countries furnish Poland with raw
material such as cotton, iron ore, copper and manganese ore and otP:tJ-
substances. Polish exports to African countries cover only
two th__ds of their import.. This fact is explained, in our opinion,
by the low capacity to agree on long term credits and low interest
for instances) or to grant economic aid by virtue of an assistance
I
Pave CO' C f~ the
policy by Poland. The- economically stronger countries A -:" =^= :mot ^ A
facilitating these exports policy of payments, which
is not thy, case for Polan_d~ so that surplus balances c= the more
advanced countries with the underdeveloped countries
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are counterbalanced by deficit balances of the less advanced countries
(such as Poland) with the underdeveloped countries of Africa.
1Refer to page 857
It seems that Polish foreign trade is becomming oriented 5nstead
toward a concentration of exchanges. Such concentration can have
foundations which will be at the same time political and economic.
As regards Africa, the new aspects are the republics of Nigeria, Guinea
and Ghana; for Asia -- India and Indonesia; for Latin America
Brazil;' for the Near and Middle 2,ast -- the U.A.R. and Iraq.
Taking into consideration that:
s
a) Poland's balance/of payments with certain underdeveloped countries
on the deficit side,
b) Balance s~of payments of the advanced capitalist countries with most
of the underdeveloped countries are on the surplus side,
c) Polish exports include and will continue to include for a rather
long period "capital" or "material-intensive" goods (e.g., complete
industrial installations),
d) The exports of advanced capitalist countries include
"labor-intensive" goods (with a high degree of transformation),
e) The balances of payments of the advanced capitalist countries with
Poland are on the surplus side inside.
It1-1:11 be possible, with the aid of mathematical methods, to
A
construct a diagram of commercial relationships. This diagram is
based on the coefficie n of rentability (production costs -- sale
A
gls
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prices.; the coefficienc4 of effectiveness (comparative advantage
A
of utilization of capital, raw materials, manpower in terms of the
cost of capital, natural wealth, salaries, productivity in each
country); the coefficienc~ of availability (non-utilized productive
capacities,. stocks of raw materials, unemployment); t ct.~-a
based on trends in the balances of payments between various groups of
countries. It is possible that such a diagram would be economically
advantageous for all countries who participate in.it and would bring
social-advantages to the underdeveloped countries. while helping them
to leave behind them more quickly.
According to our thinking, all the conflicts which effect the
contemporary world can be divided into three groups: fights -- the
opponents mutually try to destroy each other; games -- they tend to
circumvent the adversary; debates- finally, at the end. of which the
advantage must be mutual. From the economic point of view alone,
this last kind of conflict is productive. In foreign trade fighting
takes the form of customs war, embargoes, quotas, etch i.e. the
n '
advantage resulting from,it is n; for each party. Games take shape
in various ways= effects/of domination (discovered and exposed by
y
M.F.Perroux), creation of commercial bonds and
deformation of the economy of a weaker country having a lesser power
of negotiation. The economic advantage here belongs especially to one
party. Debates, by definition, pose the possibility of a rational
decision leading to reciprocal economic advantage which can become the
gis
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moving force of action to follow if the principles of rationality
resulting from the debates are put into practice.
Each group of conflict can be translated in economic and
mathematical terms. For the "combat" group the mathematical principle
applied is the "reductio ad absurdum", and the function utilized is
not defined for X=O. For the "games" group, mathematical theory
sets up a basis with the idea of balance between the two opposing
parties and the result of the game is thus Xa = xb, Xa expresses
A A
the advantage of party A,X$b that of party B,ofand) representing the
coefficienc~
/ "'of c ~c; ~css, the power of negotiation, or simply the
A .
power of each party respectively. Since O'# Y, Xa # Xb, the apparent
balance does not imply balanced advantages.
For the debates group a very much more complex diagram is
necessary. We shall obstain from giving:here)the formula (the problem
will be partially solved in the following chapters) In any case the
t; I L?
coefficien., c d ) give place to the coefficient mentioned
above, which presumes that in place of trend Xa--
obvious that
for the "combats" group X'a + X'b = 0
for the "games" group X"a + X"b --~ X'a (ou X46)
for the "debates" group X01a + X?11b = max > X"a
01~~Z 4'
ap~c wonder if X910 X"a, if in this case party A were the
a
loser, passing from "games" to "debates". Nevertheless, even if
69
al) UY.J1.1-
tT".SL-ts 1 G~~{i~0.7C = Xb 7y?)c
It is
A
gls
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X"' X"
a < a (which is not proved at all) ) the phenomenan is of short
duration. By introducing the long series it is beyond doubt that
57
a ~ X"b
and party A must be the long term winner, thanks to action by the two
possible trends which must intervene in the "games" system.
- The increase of coefficient ") " to the de ir; v-^ e vt of
coefficient Z)
case party B begins to play the game
with several partners, after having found new importers of his products,
new creditors, new lenders, etc.).
The retreat of party B from the game (political or national "P 0'1"1
due to the maintenance of the case where X"a X11 b; X"a
+ X"b ~-- ? X"a
These two trends tend to diminish (in the first case) and cancel
(in the second case) the advantage X "a of party A in the "games"
G~s1
system practiced on a long term basis but t not appear in the
"debates" system.
Moreover, the "debates" system makes specialization in foreign
trade possible, specialization for which the equation of advantages
has been given in the preceeding chapter.
Polish
D.: Foreign Trade With the new Economic Communities in Europe
Polish trade with the two large economic communities in Europe
is ruled by different considerations in both cases.
gls
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LEE 7
As far as concerns the European Economic Community,\ trade carried
out between it and Poland has led essentially to a lowering of Polish,
coal exports which seriously threatens the volume of exchanges between
TEL-E7
tho two parting. For the European Association of "nee ExdhangeI the
danger for Polish exports ms's especially in a lowering of Polish
A
exports in food stuffs. The practical effect of the C.E.E. was
exerted on the market up to 1960 through.the decisions of the European
Steel and Coal Community; it was particularly considerable in Polish
deliveries of coal to the C.E.E. countries. The dropping off of coal
exports to countries in the European Economic Community was nevertheless
counterbalanced by the increase of deliveries to countries in the
European Association of Free Exchange.
L efer to top half of page 897
Inside the countries of the C.E.E. the indices for Polish exports
of coal show a tendency to drop off even more acutely for exchanges
with France and West Germany.
fefer to bottom half of page 827
5 'The A.E.L.E.Astill not effectively in practice, the principles
resulting from it cannot yet have any particular repercussions on trade
with Poland. Once customs tariffs are lowered inside the A.E.L.E.,
three groups of products "ed by Poland to A.F.L.E. countries
institutionally
will be dangerously exposed to' strengthened competition:
a) Exports of bacon and ham to Great Britain
b) Exports of coal to the Scardiravian countries
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c) Exports of timber to Great Britain.
a) The British demand for Bacon is satisfied by exports
r.j
from Poland (covering the demand the rate *of 14.3 %)
from Denmark (covering the demand td the rate of 65.8%)
The customs tariff on bacon and preserved pork imports from Denmark
was lowered in the new commercial treaty between Great Britain and
Denmark to 50% after 1 July 1960 and completely done away with after
1 July 1961. After variations in the origin of British imports brought
about by the change of customs tariffs, Poland tee' ~i f,c~
Between July 1960 and July 1961
on bacon: 1.5 million dollars
on ham: .5 million dollars
after 1 July 1961
on bacon: 3 million dollars
on ham: .7 million dollars
)a) As a result of lowering customs tariffs inside the A.E.L.E., the
Scandinavian countries and Denmark will agree to the preference of coal
imports from Great Britain and~Polish coal deliveries will be reduced.
c) Imports by Great Britain of wood coming from Poland will be replaced
by those from Finland. The deviations in Polish foreign trade which can
be produced after the creation of customs unions in Europe are important.
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50X1-HUM
They ey are Dal" jCularl, ~i ant for _ certain
products, a large Part
of Which, are of orted to
coan,ries such as wood
(31.9;, of the total)
1a"ri cultuxwl products
(35.(')',-,) of the total. ), coal and coke (0 3,0 13. %
.~ of the I
`ot ), c? In addition, it is to be noted that in the trade exchanges between Poland and the A countries, a phenomenon of double conce
Ition intervenes. The pr ntra-
oducts e.:ported by Poland to the AELE constitute
a great percent of the total er,~,,-^
~
R ~.s of these products, but also the Poll
-
ish deli ver es to the AELE are represented by some groups of products
heavily threatened by competition inside the AELE.
[Refer to page 92].
This double effect of concentration is likely to inflict grave losses
on Poli
h
s
foreign trade, and once variations in the demand for Polish
exports are stabilized, ^ will be all the more likely since it is a ques-
tion of l
arge export4 returns and apart of this revenue is paid for in
convertible fob _~s.- currency which
allows Poland to make its deficits
good in certain strictly bi-lateral exchanges t'=3 granting credit by the
contracting party is not n
possible
Polish trade with A.E.L.E. countries is proportioned as follows:
[Refer to p ge 92]
VI. Fore ; Trade and ?National Income
The problem of the relation between foreign trade and the national
revenue can be analyzed within the setting of the following considerations
St
atistical relations between foreign trade and national revenue
Problems of substitution between consumption and growth
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as reflected in trade abroad
In order to establish the statistical relations,the groups of coun-
tries presenting common characteristics (as regard:r/the rate of growth in
the years 19i.9 - 1956) will be examined
Grt th rate of the National Revenue
3.3
--
5.7
(Sweden, Yugoslavia, France., Italy)
Grovth rate for National Revenue
7.4
--
10.3
(Czechoslovakia, Poland, West Germany, East*Germany)
Since the two economic currents stimulate mainly the growth of +e
f~r~'J?- (industrial production and foreign trade)
and since xoe,tla of the national revenue during the following period,
depends on the division of this product, one will establish, these coun-
tries along with the national revenue.---foreign trade relation,A elation
between industrial production and components of foreign trade on which
the process of growth depends the most -- namely, raw materials and.
[Refer to page 91.]
The table of e gregate statistical relations shows that the
order of connections between the growth of national revenue and that
of foreign trade cannot be es :ablished mechanically, but only in terms
the
of/character of economic progress in the country. It can be seen that
the highest ratio is that of Sweden (weakest national revenue growth)
and East Germany (strongest national revenue growth). In most of the
countries the ratio between foreign trade growth and national revenue
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gro-ath surna :,ses 1.5, Poland presents the only exception, where it
reaches .5 only.
[See page 95]
Such an situation is explained i one divides the countries not ac-
cording to the. gro??rth rate of their ?rational revenue, but- according
to the motive role played by foreign trade in these countries.
The countries presenting a very high.ratio __ or E
A7 R
are those whose economic activity depends on foreign trade. Belonging
to this category are countries whose exchanges present a high degree of
specialization which is is linked to a coefficient c a very high tech-
A
nical level (in relation to the world average).
The case is even clearer if one analyzes the foreign trade of these
countries through industrial production. Here, too,. the relations of
j:oreign trade are translated by lower ratios than in the other countries.
with Poland's entering the s ecialization phase., its ratio
L R
is rising and reached .87 for the period 1956 - 1960 ( or a value
double that of 191.9 - 1956).
Hence one can deduce from the above that in a country where the
foreign trade rate of growth--national revenue rate of growth is lower
than 1, orein trade does not play an active role. In a country where
the ratio is between 1.0 - 1.5 t'='? role becomes important but not de-
cisive. above 1.5, it begins to be decisive and the country is becom-
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in- oriented to the outside, its domestic combination of circumstances
becomin- part of world circumstances.
Problem of Substitution Det Teen _lational Revenue and Forei CP Trade
Tiro an[; _es of approach to the problem are conceivable:
The first is with a view to strictly confined accumulation, the second
is from the ational revenue angle (which in addition to accumulation
also includes consumption and thus constitutes an approach from the point
of view of the economy of man).
If one considers the problem exclusively from the angle of Nation-
al revenue, two approaches are possible:
a) The machine furnishes an additional production with a value
of t%100. For this production) c2 combustibles or raw materials must
be used. The value of these combustibles is $110. The solution is
sirmle. One stops working the machine and the national revenue
rises *10. (input 110 - output 100.)
b) The worker puts out extra labor and his product is exported
abroad. F-_- the salary; :_.d he buys a washing machine for $110. The
A A
solution here is obviously simple; the worker is forbidden to do
extra work. The $100 owed for the product are not transferred
abroad and the national revenue diminishes $100. The effect of
these two apparently analogous decisions is totally different. Thus
it is necessary in order to analyze the effects made by exports
on the national revenue to distinouish between the mechanical fac-
_ for and the_ human factor. in its turn, the effect made by imports
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on the national. revenue is neither direct nor obvious. It is true, for
example, that a simple reduction of imports does not equal a correspond-
ins reduction in consumption. The reduction of imports is considered
a rectifyling coefficient (effect of transmission) that we shall call
C. y
b degree of complement of the product coming from imports
p its participation in the structure of consumption.
So it is clear that at the beginning of the industrialization
was
period, it 'a great deal easier than now to retire from Polish imports
products going to consumption.
N This leads us to take up the possibilities of substitution which
are offered by foreign trade.
The problem can be'analyzed on two different levels:
l _ Substitution Within Exchanges:
(1) imports of consumer goods to be substituted by exports of
consumer goods;
(2) imports of capital goods to substitute for the export of cap-
ital goods;
(3)
exports of capital goods to substitute for exports of con-
Sumer goods;
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goods;
(4) irT orts of capital -cods to substitute for inmorts of consumer
(5) =rrnorts of tal. goods to substitute for exports of con-
sumer goods;
(6) iir?orbs of consumer goods to substitute for exports of capital
goods;
2 - Substitutions in an Open System of Economy
(7) between the irmorts~ of capital goods and 'local reserves of
manpower (engaging local manpower)
(8) between the imports "6 raw materials and local manpower
( economy of imported raw materials thanks to a special extra effort).
In order to be able to effect rational choice, a certain number of
coefficients must be established. Except for coefficient c (effect of
transmission), it is necessary to establish the coefficients:
- e - Coefficient of relation between productive accusation (in-
vestments) and the participation of production in the national, revenue
R
where C Constuntion
R ational Revenue
A - Productive Accumulation
C
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The efficiency of productive, accumulation
r
where n -the productive effect of investments (number of units of
investment necessary to increase the national revenue 1 unit) and
m . A = d R
The relation between the level of consumption (C) and the growth of nat-
ional revenue (a R) is first translated by the equation
m , where e depends on the choice made between
c e
today's consumption and tomorrow's increase.
choice (1) therefore must be made in terms of the coefficient c,
choice (2), in terms of coefficient M. choices (3) (4) (5) (6), `''- 'Ll"? ?-'
of the coefficient e.
In the case of exporting consumer goods, the withdrawal from the
market of producti A necessitates its substitution by product B. The
introduction of B in its turn increases the purchase power of value B.1
where q is the multiplier of the returns. Coefficient q depends on
the pa_icipation of salaries (a), on the accumulation (b) and -"=z-
OI: I ntion (c) [amortissement) in the value of the products which are
found on the market, or
I
A is :
The value of the product on the market in substitution f A.
Bq= B 4B (q-1)
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~_.ere B : pure substitute (in place of A)
B (o - 1) : additional product (in terms of the net-r structure of
demand)
If, in order to introduce sunstitution product B on the market it is
necessary to pay i;-r SB in foreign exchange, the returns
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esultinm from exportin product A rust be compared not only to
expenses S,,, but to the volume of expenses in foreign currency:
S, r S,
'f
Another order comparison concerns the influence of imports on'fh'-'
A
national revenue.
The foliowinn symbols are submitted:
Q_ Imports
R_ National Revenue
Q= Participation in imports per unit in the national revenue
But on the other hand
R= C plus S = (1-s' S) R ?'s- -3 S h
Where C- consumption
S= accumulation (savings)
S_ coefficient of savings
Q= q R (1-3) R t' sR
n = (1-s) 4t; = S (
f
Z~ = coefficient of participation of
imports in consumption
pj ? coefficient of participation of imports in accumulation
(savinns)
r"?_=: the choices which can be carried out in open system of economy,
A A
choices (7) and (8), the following equations stand out:
d,S = Y.... (condition for stabilizing the balance of payment)
Y- ow...-.. (condition for balancing the financial program)
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Where :
Value of saved raw materials:
in the price of the domestic market*...********* W (zlotys)
in the price on the world market ................ Y (zoltys)
The total affect of saved raw materials (effect made on wages),
1 .....0 qW (zlotys )
increase of the cuantity of merchandise necessary for absorbing
the salarial effect .............. M (zlotys)
C. in foreign currency of the increase of quantity of merchandise
U.c);Slz.
by one zloty (input of foreign currency for one zloty''sof the mass
of new merchandise) ............... S ( dollars)
Total cost in foreign currency of the increase in the mass of
merchandise on the market ?...??...?...? MS (dollars)
It follows that the course of trading a::^rl materials ( )
A Y
can be represented by the equation W _ 1
Y a.s
where c = multiplier, reflects the total affects of saving raw
A
materi.:,ls on wages.
The increase in the mass of products placed on the market is
calculated in the retail price; can also be represented by the sum of
prices for raw materials used in amortization and accumulation.
The prices of raw materials in foreign currency (MS dollars)
can be recalculated in national monentary units (zlotys for Poland).
MS. . M
as q
In view of the fact that
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a. participation of s u es in the value of merchandise products
b partic~p:.tion in amortization
c participation in accumulation
t +b.M t c.t t4
a+b.+c+1 _ 1
q_ 1
1- ab b+c
This proves the necessity of introducing a multiplier in having
recourse to the substitution of exported products.
So it is clear that:
- the s?.t?i ig of raw materials (in substitution for
import materials) leads to t"c augmentation of personal income for
members of the population;
- this additional income pc=_haj)s the necessity of assuring
the satisf--,ction of the extra demand through) the increase of production;
- the increase of production induces the multiplier
elect in the populations income.
VII. Polish foreign trade and price structure
It has been mentioned in the introductory chapter, the system of
prices serves in an planned economy as a tool for state economic policy
ithout being considered from the point of the world market, and thus
from the demands of foreign trade.
This dispa5ty eliminated the usefulness of prices as far as
our Gil .l.
.easuring devices for the effectiveness of trading a;auaa*d., and all the
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more so since domestic market prices, while"f--' at?ng are .a nominal
n
costs of production, did not reflect .real production costs since they
could not tie in with the prices of imported raw materials.
The tables on the next pages reflect the structure of prices in
five Eur.)pean countries. Sometimes curious ei i=es in the structure
A
of prices exist in almost all of the products.
Such a situation poses certain number of question for use 3,.It
c--ciz-4-n that a given system of prices reflects the given state of the
A
economic situation, while the situation itself remains the function of
the balances and imbalances which are the synthesis of the economy.
A
IM
The following uibalances have been characterized for the economy of
socialist countries :
1. balance between general direction of the development of
Ct imih~
productive forces in the socialist countries (direction
A
toward the development of heavy industry) and the needs resulting from
accelerated raising of the standards of living (reflected by the almost
constant deficit of consumer goods).
2. L ibalance between the technical level (raised coefficients of
technical efficiency) and economic level (volume and ty of
Iproduction). of certain socialist countries capable of producing
comp .-gated machines and the low technical and economic level in the
other e:.::trr. This wzbifiance is then reproduced in a structure of
n
trade between developed and less developed countries inside the socialist
market.
[Refer to pages 104+ and 1051
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3. '~'_oalance between the goal of stepping up prod ctivity thank.
A
to mass production Lnd the limits cbsirbing products made this
way imposed by the markets.
4. t--,.,balance between the necessity of :accelerating tecrnical
and the unorganized scattering of efforts in this task.
_1.
5. U.ibalance between the needs for an accelerated development
1
of production in all countries and the sparse natural resources in
most of these countries.
As established by the governments, the price system did not offer
a sufficiently strong stimulus to raise all mortages [sic] at the sawLcc
it l~sces C r I c- _
.
However there arty three possibilities in this respect:
iVA
- let prices be based upon production costs (a/3. a more specific
mann.:r than now)
- base prices on world prices
Ins I de
- establish a 3y' prices forrthe d:== socialist
System of prices based on world prices
The exchat es of socialist countries are carried out on a basis of
world prices; the differential rents which fall to the countries who
take advant'e of states of imbalance are not done away with. The
introduction of the same structure ;+f crorld prices within national
is liable to bend the ecor,ori:.c structures in the desirable dir-
ection from the stand.-point of international trade, i.e. mainly the
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savin: of raw materials which are l~' n~ on the world market.
Economy in the e:-cpen2es of labor will be hammered by the system of
world prices which reflect :either the structure of production nor
the decree of technique suitable in this country.
In these countries fixing price structures based on production
costs is capable of -uidinS the economic structures toward economy
in labor e}menses (the economy of materials and raw materials will be
hindered by the irrc:-ality cf domestic prices which a not reflect
A
material balances of the wo:?ld market).
Hence one can crnclude that the ':w-al z:-gestic system of prices
include elements from '-h;, two possible systems instigating at
the same time the economy of raw materials and. tt.: economy of lay. ~r.
The differences between worl:3.prices and domestic prices must
be juE:':;_fied by the scarcity of raw materials by the difficulties
encountered in purchases aboard and by the difficulties in the
b lance of payments.
The main problem consists in being able to get out of a vicious
circle - for example in the case where prices are bound to the world
prices c --~ w materials.
Raw materials A B
World prices for raw materials P1 P2
Production costs Cl C 2
and the ccuncer
P1 ,' P2
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If one applies the principal of substitition based on rentability
and advanta e over the difference of prices, mere of products B
will be produced (for which the raw materiels -.re bou`h"- at a lesser
It; '-Z . -
cost P2) and labor will take place. The econo!:Lic affect
of such a struc'ruxe and such a decision c-"' substitution will be:
Econo;~r of currency Pl-P2
Labor waste Cl-C2
To these - uncertainties, which up to now remain the rule, are juxt-
apposed the basic distin.:tions one wants to introduce between the
prices of the means of production (prices on the domestic anc t,7.>anned
national circuit) and the prices for consumer goods (prices on the free
market).
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The possibility for the existance of four price circuits is suggested:
Planned circuit
Free market circuit
Foreign trade circ-,iit 1 i?"w d to the world market
Labor circuit linked to the state of technology
Each circuit corresponds to a different goal: the planned
circuit to the objective of industralizing the country, the free
market circuit to the goal of consumption, make up from the structure
of demand of the population, the foreign trade ei..rcuit
IE
with t b.e of economy =a raw materials and the labor circuit with
A
foal of technical progress (econo:ry of labor).
It is essential the. four circuits do not interfere (with
each other). The interception points are capable of creating a
conflict, of goals, all the :mor- so since it is perfectly permissable to
gauge the polarization of goals on the one hand (the objective of
ctie
industralization approaches the objects of technical progress; the
aim of consumption that of saving raw materials), and ,`=sr e~;trange-
ment on the other hand (the breach vlg between the pairs of goals).
[oMCC0N A
Prices within the CC -"'(',!T market
Prices fixed on products subject to exchanges between socialist
countries are in principale based on the world prices. The method of
fixing these pricesEia6 undergone two main changes.
- The first in 1950 at the time of the Korean boom. The prices w thd=
blocked and this state of affa::r.3 lasted until 1957? In 1957 in the
_ft~inth_ofvreet_~1Qlitical __and_ ~c'onnm~ ?p~c~ rrla~the__
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a planned econor in a"i_ their price system on the world prices.
Trade prices for .7 product- `subject to exchanges between these
countries thus are nor fixed for the duration of one year at least.
This practice is likely to undergo some new changes and with the delay
.A.
of the valadity of prices being extended, as likoyan said (Pravda.
12 March 1950)5world prices remain a basis cf fixation for the
prices fixed on the socialist rarket but they are fixed as constants
for long w;riods and the influences exerted by speculation and by the
accor
apavying, brutal fluxa~tions can be inferred from them. ~ This system
A
of formation for prices on the socialist markei. ij perfected
.and adopted to the goals of a planned economy in the socialist countr-
ies. Nevertheless it appears that the system of prices in the C01MC0N
were created, it would ureceeded by the creation of a common currency
A'
on the market or complete wertability. But this cannot be
:'.:'dished before the technical level of production is appreciably
the same for all the countries and before the liaisons resulting from
specialization become closer.
The o jualization of technical levels is at the bases of exchanges-9,-
speculative A
admitting of more reciprocity and prevents ' A movements between
the countries (speculation becomes easier and easier thanks to inter-
national ,.~
tourism in the bloc); it likewise checks through wast-
ing of labor (problem treated above). The liaisons rising out of
intra-sectorial specalization can be founded effectively only on a
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(the leveling of the technological _ is most easily accomplished
n
in the mechanical and chemical industries where a very efficient standard-
ization can be developed. For these reasons specialization is beginning
precisely in these two branches of the national economy). Such special-
ization bears a convertability of currency and, in the end, a universal
momentary unit for all of the countries. But coimnon currency can al-
most automatically create a system of prices detached from the world
r..arket within the countries' market.
- I:erabers of the COIECON. Another solution would involve action from
top to bottom (i.e. by political decisions de'-w?.-cited from economic real'-
which is always' susceptible to creating disturbances of an
economic nature. It is nevertheless possible for the moment to create
a system of technical coefficients (based on the size of the group to
"?LC cil
which belongs the product subject to exchanges andAon the comparative
costs of the exporter country) with the view to stimulating the importano
d
i..f this product from the country from which e specialization in
manufacturing the product is anticipated. m coefficients can modify
the base world prices and -:.ust be based on the prespective principle,
F1r;z.f~
i.e. must relate to t::.= specialization at the f -aa3. moment (at the
end of a long period) and not at the beginnings of specializations.
D Foreif-n Exchange Rates
There are three possibilities for establishing a :z rcial re-
A,
lation between foreign trade prices and domestic prices in countries
with a planned economy, mainly: by the average prices, by the index
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of returns and by the maximum price. Each one of these relations can
play its of-.-n economic role.
le Averarre ?rice
being the ratio. between the value of all exports the domestic market
The average price price of exports (K(c)) can be established as
diminishes as a function of the increase of exports and the maxim
according to the prices
The average price of exports rose in terms of the increase in
volume of exports. The vrazi~ni~k~oi~ of economic advantages developed
to the point where the value of exports at the price of the domestic
(0) _Z q ? p? (k) is lowest (average price K (e) lowest
markets
j ~
at that point).
For imports, the rule is inverted. The average price of imports
price and the value of the same exports calculated
on the world markets (in foreign currency)
K( q. p.
n s
gj pj
j=l
where pjarket price
qj=quantity exported
(k)= domestic market
(s)rorld market
- lion of advantages coming from importing occurs when F(h1=~Q1 ~j
A
where Ql =imported quantities (1=1,2. . . . n)
and when K (1), the average price reached its highest point. The condi-
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tions`.a advantageous development of foreign trade have come
n A r!'cam
together z.rhen r (i) ~ r (e) i.e. when the average of imports is higher
than the averae of exports : K (e)
If one applies the notions used rcviously for l total q a~a by,
A
it is possible to establish the total. ;inntage for all commercial trade
with other countries.
The total advantage is a function of two factors: the formation of
the average price of 'exports and of imports and the formation of the
volume of foreign trade.
V , (l) K (i) _ VCe'). (e). R= V (K (1)__ K (e)
.. e V(')" value of imports (at world prices)
V (e) value of exports (at world prices)
Setting this equation into dynamics, the formula for maxim=ization
~Z .-w / lL
of foreign trade in terms of its ' can be obtained:
j~ - 'fi = (K (1) -ii(e)) V + (K (1) - K (e)) L1 V
R ~ 0 when K (i.) K (e)
-.'hus the rentability of foreign increase when the marginal pz?ice of im-
a~,d
Iports is greater than the marginal price of exports 32 it reaches it.$
A
aximum: at the intersection point of the two prices.
LRefer to page 113]
'et -idea of returns in currency
The net in returns in foreign trade will be ruled by another order
of nderations, mainly it will put into calculations a clear distinction
between the components of value cr'.. the exchanged products; the raw
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materials and wages.
Such an index will take .the form K-Km =
D-Dm D h
where K=total production costs of the product
K.:1--cost of raw materials used in production which ,otherwise could
be subject to export.
Kt price of transportation of raw materials
D~1=value of raw materials, accessed at world market prices
Dm-revenue (net) of foreign currency
D=revenue (total) of foreign currency
Once the socialist country admits foreign trade is capable of
r" t /`
playing the role of stimula9 in the process of growth, the problem
raised is to know to what ex-tent it contributes to. the growth of funds
of "accumulation" (of saving, to speak Keynes' language) after which
the increased reproduction can be affected
(to speak I_ -?:--ist language).
The index for accuxcul.ation. thus is presented in the form of a ratio
between net returns of currency, lowered 'f cr' the value of the
-goods and services. consumed, by the population, . e :c sssd at prices of
the world market, and the total revenue of foreign currency. This index
then reflects the ratio between foreign currency returrns and expenses
made.. mainly for remunerating the labor employed: A= Dh . 100
D p~
P represents the ratio between the retail prices on the domestic market
(for products and services bought by the population) and the world
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In the conditions the ratio r`T P. c
~l D
n
expenses of the country ?.z-re less than the net returns; in the
inverse situation of order L they are larger.
Tin
The surplus of P in relation to expenses Kt" can then be
Dn
considered as accumulation andAreflecMthe initial share of foreign
trade in the process of the countr,~'s growth.
I
I:aximum urices.
The middle or average price gives an idea of the existance of
a rna.d-mwn price
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r-nvi ui JM
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I I F
(or limited price) beyond w=.1-ch commercial exchanges will not be desir-
able. The net index of returns in foreign currency furnishes -H e.
method by which it is possible to establish' precisely the ['orld:J
market price for each product taken separately. A method remains to be
found by which the limited price may be established. The range of pos-
sible operations n lie then between the net index of revenue in foreign
currency and the amount of the limited price.
Such a cn can take the form:
K = (1-a). 100
where a a ratio between the increase of salaries paid out for produc-
tion of consumer goods and the increase in volume of the consumer goods
derived due to these expenses.
S = raw materials (in dollars) contained in each unit of value (taken
for example as 100 zlotys) of the growth in volume of goods.
The coefficient "a" can thus be obtained in a simplified form by the
following calculation:
a = F = zrar~e funds in the branch Producing consumer goods
total value of merchandise on the market in zlotys
The coefficient "s" can be obtained in the following manner:
;S ct- in the total value of merchandise
s I1 total v-4lue of merchandise on the market in zlotys
To establish the exact amount of the limited price for Poland., it
suffices to find numerical data ,
05 _ CM [
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It 'ri11 be dole for the consecutive years of 1957 and 1958.
a L'15 . ba.llio z1ot rs
57 19-1.6 billion zlotys
a58 : 1~..1~ b;11io_i z1ot.x
2206.6 pillion zlotys
s - 1.93 bill1.o'. dollars
57 191.E billion zlotys
0.237
_ 0.237
. 100 - 1.01+ $ zlotys
100
srzp - -1.65 billion dollars-. 100 - 0.89
20b.6 billion zlotys
i zlotys
100
( in vieTvr of the fact that 20 of the raw material escape our calcula-
Lions, we are prompted to raise the coefficient "s by 20;0
ThLis, -.re hare: s - 1.30
57 - 100 zlotys
s 1.11
58 100 zlotys
The limited price for these years is
?! - (1 - 0.237 )1 . 100 - 59 zlotys
lim 57 - 1.30 1 dollar
K
lim58
(1 0.237 . 100 69 zlotys
1.11 /'/l dollar
The abrupt change of the limited prices between 1957 and 1958 is
easily explained by the lowering of raw material prices on the world
market and the raising of retail prices on the domestic market in
Pol and.
The limited price plays a double role in the calculations per-
taining to forei- trade:
- It "i:_es the price limits of raw,,- materials in the country in
relation to their prices on the world market;
96_-
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- It fixes the limits on the transformation costs in exported pro-
duction. in the case where the reruneration of labor spent for each
dollar of returns exceeds the -u?ouat of the limited price, carrying out
such eY.orts is contrary to the financial interests of the country
(the salaries at that time will exercise on imports a constraint, the
extent o which would exceed the amount of returns.)
s
An regard) transformation costs in Polish exported production
in 1959, an average is established for the large groups of products as
f of I oVTS :
28 zlotyr
Grotm I: Machines, equipment goods, means of transportation (l dollar
Group II: Combustibles, raw materials, industrial materials
23 zlot;,,;,--'
,,- dollar
Group III: Foodstuff.,/and agricultural products 64+ zlotys. '
/1:' dollar
Group IV: C,7nsumer products of industrial origin 69 zlotys-'
/ 1 dollar
Average of the groups:
35 zlotys !?
;'1 dollar
In the fourth group of products, exports are found just below the
ceiling established by the limited price.
VIII. . Marketability of--trade
The general problem here is to be able to justify the following
i--
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- the gro:.rth of production is accompanied by a reduction of production
costs;
- the increase of exports is accompanied by a lessening of their e?_-
tt __; r..,. ,
Taken as a separate effect., these conclusions seem Justified. The
growth of production acts mainly on the reduction of fixed costs (gen-
eral expenses etc.)'; (t c r:.;
Lc Lng to their division over a larger number of units; of produc-
tion, and in this way,, lowering the cost per unit, ttm increase of ex-
ports leads to exporting products with less and less marketability (it
is custorary to begin by exporting the most marketable goods and then
d.~
follow a line of ()creasing marketability).
A
Nevertheless there remains one question which is difficult to
answer.
- Will the costs be raised or lowered if one continues to increase
exports through increasing production? Are the economic effects going
to follow the diagonal of the parallelogram constructed on the two coun-
ter currents just explained?
In order to be able to study the second effect separately, the fol-
lowing diagram has been set up: [Please refer to page 118]
On the X axis: the value of exports or imports is measured ...
On the Y a:d.s for exports: costs of exported production in zlotys
spent one dollar in return for imports; quantity of zlotys obtained by
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for the sale of merchandise imported for one dollar;
Curve E: Function of the cost of one dollar (in exports), dependent on
the volume of exports;
Curve I: Function of returns for one dollar of imports, dependent on
the volume of imports.
Curve I can take different forms in terms of the situation on the
domestic market. For example, in the case of market saturation it will
take the form I1 in the case of a not completely satisfied mom:....:.:'. I
demand., it will take the form I2, and even if the state wanted to resort
to clearing the market by the policy of high prices for imported articles
it could take the form 13 -
what might be the consequences of each one of these three forms of
Curve I?
Suppose the value of exports is equal to the value of imports and
equals 4P. To these values correspond the marginal indices of exports
(K1) and imports (K2
With the rise in volume of exchanges, the index for exports is
going to increase (which is not equivalent to being "better") by moving
to the right on E. The simultaneous increase of imports will move the
import index the length of one of the I curves in terms of the domestic
situation of the country (it is going to lower by moving on II curve,
it is going to increase if following 13 curve and will remain unchanged
on I2 curve).
Tho intersection point of curve E with one of the variables of
99 - I
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curve I will fix OA _ the volume of exports and imports which will
produce an equalizing of the indices for exports and imports at the
level of rl The intersection point depends' nevertheless on the form
of curve I: with the curve descending, the point will be placed nearest
point o with the curve parallel to the "X's", more to the right with
the curve falling, it will be moved very close to the right. The in-
crease in volume of exchanges beyond the intersection point of curves
E and I (i.e., A point A ,A2 and A3 in terms of the form of
1
curve I) will produce disastrous effects for the national economy. Each
additicnal unit of return (in foreign currency) for exports will entail
higher costs (in national currency) than returns (in-national currency
=L-:- on the domestic market). coming from the sale of imported products
n
and paid for with the same unit of foreign currency.
The main difference introduced here in relation to the preceding
considerations is produced by State policy. The State in the planned
economy has full power to fix Curve I in terms of the situation on the
market but also in terms of its own goals,even if provisional. Thus, it
will be able., un to a certain point beyond which serious imbalances are
apt to be provoked (especially stocking of imported products, in the
case of choosing curve 3 f : the black market for imported products, in
the case of choosing curve 1), to decide on the marketability of for-
eign exchanges by a rational setting of prices for imported products on
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iX. Problems in the Balance of Payments
The problem of the balance of payments, for a country with a planned
economy is difficult to resolve theoretically and to bring statistic-
ally, in view of the fact that:
- If ;:..e theory of foreign trade for the country with a planned
economy is still non-existent, it is nevertheless practiced. Apparently
there is a e=tradiction in logic which is not without reminding of M.
A
Jourdain. a'heory of foreign trade is practiced. in the East since
the practice of foreign exchanges is a fact. The theory of the balance
of payments is not practiced in the East, since the practice of the bal-
ance of payments is unknown. The balance of payments is considered as
having an exclusively statistical but not economic, content. This atti-
tude goes back to the time when the independent and even driving role
which foreign trade could have played was denied. Inasmuch as the bal-
ance of payments was considered as accessory to foreign trade and for-
eign trade has a variable related strictly to the process of industrial-
ization and determined by it, the balance of payments concerned the
East only within the framework of bookkeeping considerations.
- The balance of payments is not published in the East, which is even
admitted officially in the Economic Dictionary (edited in Warsaw, Poland;
1957, see page ). This situation has been evolving slowly these
last years with the appearance of three new economic elements:
- The bilateral system of payments in foreign trade, practiced within the
framework of bilateral agreements
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and concluded by countries with a planned economy, begins to be over-
taken by the demands of modern economy;
- passage from the forced industrialization stage to that of spontaneous
industrialization has not been accompanied by qualitative changes in for-
eign trade, which has created a financial "hole" in payments. This "hole'
had to be filled in by the aid of funds coming from outside and not inte-
grated in the foreign exchanges (the funds previously granted were equal-
izing funds maintaining the balance in the.bilateralism of exchanges and
surrounded by these bilateral accord agreements);'
L)?
- such c,~ the agreement gained by Poland on payment for the transporta-
tion of merchandise which is carried out by transversal reputes (the mer-
chandise transported by railroad between USSR and East Germany and Czech'
oslovakia) and longitudinal routes ( the merchandise exported or import-
ed by Czechoslovakia r--.=-by the Polish port of Szczecin) across the
nation.~These elements are certainly capable of furnishing the balance
of payments with an economic content in the same way as the new stage
of economic development furnished economic content to foreign trade. A
first step has been made in the establishment of an efficient system of
international payments. A treaty of multiple clearing was concluded be-
tzreen the member countries of the COMECON on 22 June 1957. The system
established provides for a simple compensation of the settlements in
balances of payment between the member countries to be carried out in
the following manner:
[ Refer to page 122]
50X1-HUM
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The principal object of this treaty is to make the balances mutually
cct ensatory without resorting to heavy outflows of currency. Neverthe-
less, while remaining multilateral, the compensation is not automatic;
said othercrise, it can take place'only in the setting of an agreement
expressed by the two parties. This method of proceeding thus only par-
tially exhausts the problem of payments between the member countries of
the CO1C0T
but it does not solve any of either the problem concerning
more general multilateralism or the problem of payments between the two
monetary blocs (European Union of Payments - countries of the CONECON) or
the three geopolitical blocs ( advanced capitalist countries - under-
developed countries - countries with a planned economy).
The system of compensation of payments between the two monetary
blocs can be set up in the following fashion:
- First possibility: multiple compensation of settlements between all
countries belonging to the two blocs.
[Please see page 123]
The creation of such a system demands the setting up of precise
principles of periodic compensation of settlements which would result
in bilateral relations between countries with a certain limit as a start-
ing point: the surpluses or deficits are the subject of credits, above
that limit they must be paid for either in gold or in hard currency, etc.
Gt
Second possibility : The creation of t'-.r union which would be responsi-
ble for ~'~:p.J n} the balances which result from exchanges between West-
ern European countries and Eastern European countries, i.e., with the
103
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exclusion of bilateral settlements in each zone. [See top of p. 1247
In adopting a similar system, the cortries must have the possibility
of settling surpluses or deficits which come exclusively from trade with
countries of another monetary cr geopolitical zone. The surplus balances
originating from trade in each zone cannot be included in it due to their
reducing the elasticity of such a system of settlements.
3rd 'ossibility:
From the periodic settlement of the total balance of payments be-
tween the two zones a multilateral compensation must result arising from
trade with the ether zone and the rutual presentation of net balances to
be paid for.
[Refer to bottom of p. 124]
It is certain that the establishment of an effective system for
balancing payments has the potential to give back the active role it used
to possess in trade.
- Weaknesses in the Polish balance of payments
The balance of payments in Poland since 1956 has been found exposed
to the constant danger of very serious imbalances; the weak points in the
structure of the Polish balance of payments at the same time as the dan-
gers which threaten it can be arranged in 3 main groups:
- Weaknesses and structural dangers arising from an imbalance i the
A
group of food stuffs and agricultural products;
- Weakness and accompanying dangers arising from the prices of raw
terials on the World market:
- Weaknesses and dangers in orientation arising from an excessive con-
105
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? t
centration of exports in certain products dispatched in certain direc-
tions.
a. Effects of structural imbalances on the balance of payments
The most perceptible structural imbalances affect especially the
group of food stuffs and agricultural products. In principle, the ris-
ing demand for cereal imports in Poland (the causes have been treated
above already) must be balanced by the export of meat. But as
astonishing as it may seem, such a balance existed at the time of forced
industrialization:
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1950 - 1955
GrF in
Average imports per year:
665,50^ tons
Annual worth: 50,300,000
but ceased to exist in the next period:
Meat
Average exports per year:
77,200 tons
Annual worth: $54,000,000
1956 - 1958
Grain Meat
Average imoorts per year: Average exports per year:
1,390,000 tons 97,300 tons
A=nrual worth: 4x91,500,000 Annual worth: $70,000,000
The balance of the total balance in this group chcnged from a state of
high surpluses to a state of deficits: Total balance of exchanges in
food stuffs and agricultural products
1950 - 1955
','.?x560,000,000
Exports Balance
~~890,000,000 i' 330,000,000
1956 - 1958
Imports Exports
;500,000,000
.420,000,000 $80,000,000
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b. Effect of Imbalances Contingent on the Balance of Payments
World circrostances which effected a reduction in raw materials be-
ginning in 1957 had strong repercussions on Polish trade. It is useful
to recall, the extent of this drop-off. Of the 8 main export products in
materials, the price drop affected 5
coal (the price of American coal dropped 43.5% in 1957)
(the price of Danish bacon 4!rq~ea
Wjp,h'y,
laminated products (the price dropped 25%)
zinc (the price dropped 40%)
timber )
(the price did not drop)
3
coke )
sugar (dropped)
In short the summary index of prices for the 8 exported products
underwent the following variations:
1953 - 100
1956 - 152
1957 - 106
Stated otherwise, between 1956 and 1957, the index dropped 30,,
which implies a loss in export returns on the order of $230-235 million -
the loss of which through the reduction of coal prices was $200 million.
The price of coal has again dropped in 1958 eight dollars per ton as
VIII Q_
compared to 1957 and in spite of A increased export of 2,287,000 tons of
io8
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coal in 1958, the returns dropped in 1958 Y18.5 million as com-
pared to 1957, or $220,000,000 as compared to 1956.
The drop-off in imported products has not been as considerable and
could not balance the losses in exports.
For the twelve main import products of Polish raw materials,
the situation was as follows:
Cotton - prices rose 5%
Rice )
Cocoa beans ) - rise in prices
Tobacco )
Rubber - drop
( July 1957 - $701 per ton
December 1957 - $64+0 per ton
Nonferrous metal)
)
Trend toward price stability
Leather
Cam=
Wool
)
.y
Drop of 20%
Iron ore
Drop of a few points
The prices dropped slightly
Wheat
The prices dropped sLn ttt.~
J dd
The summary index of prices for the 12 imported products underwent the
following variations :
1953 - 100
1956 - 105
-109 -=.
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Stated otherwise, between 1956 and 1957, the index dropped 5.6%
which implies a profit of $ 25,- 35 million. To this, the larger profit
on the lowering of maritime freight costs on the order o:A~5 million
must be added. In short, in 1957 ( as compared to 1956) the prospective
loss rose to $220. million, the prospective profit to only $70 - 80 mil-
lion. The result of this potential imbalance showed a very consider-
able net loss of $150 million.
- c. Possible effects,, f the "directional" or "orientational" imbalances
on the balance of payments.
One can anticipate that the trade balance of Poland with the coun-
tries having a planned economy will certainly show a deficit in the years
1961 - 1965. Nevertheless, the deficit trade balance ought to be balanced
by transfers due mainly to railroad and maritime transit which is car-
ried out on Polish territory. The "directional imbalances could be
more dangerous in Polish commerce with the countries of Western Europe.
The very high concentration of certain export products exposes the bal-
ance of payments to very serious dangers in case of a dropping in the val-
ue of exchanges (or in "summary prices"). Thus, for example, t case
of a 5; price drop, the repercussion on coal ( which makes up 25% of the
exports to Western Europe) will bring about a 1.25% lowering of the to-
tal revenue; on bacon a drop of .32 %, etc.
[Refer, to page 1291 When exports and imports are balanced, a lowerind
of prices r _.,.:; not bring about groat difficulties in the balance of pay-
ments. Nevertheless in the case of a deficit balance, each lowering of
_enPde.~s a_ cor_s~?erable deter atibn Thus for example a 5% reductio
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of exnort revenue in the condition of a deficit balance (1058) equal to
55d
;'1 01 he value of exports brings about a 33.3% increase in the deficit.
The theme can be advanced but the balance of payments is in danger
w:-en concentration surpasses 2% of the exchanges (this is the case
about 55% of the exchanges with Western Europe) and for the
exchanges with the countries whose "directional" concentrations
surpasses 5% (about 40% of the exchanges with Western Europe).
The degree of concentration is presented in the graph below:
LRefer to graph on 1307
If one considers the disastrous effect of the price drop in exports
on the Polish balance of payments, one must also consider the effect
which can be exerted by the rise of prices for products imported by
Poland from countries outside of the COMECON zone.
The table which follows flee page 1327 is based on the same
principle as above.
The seven products in the table represent 34.6% of the import
total. So in this way when a 20% price rise is produced, the expenses
hastily. figured out rise 6.92% (the same volume) causing the deficit
in the balance of payments to increase.
Obviously one can reverse the analysis and study the effects of
price rises in exports and price drcps in imports on the Polish balance
of payments.
The trend is becoming oriented in another direction, nevertheless
(which is proved by the statement of profits and losses above and the
analysis of the dangers and "directional" weaknesses developed in the
gls
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line of price trends for exported and imported raw materials by Poland.
Polish
The table would be incomplete if the considerations or: foreign
trade and t_-o balance of payments covered only economically .desar-table
elements. A whole sphere of human relations which is beyond, our field
of analysis can be included and in it would be namely the
following problems:
- absence of a clear concept of the role of foreign trade in the
planned economy, precise
- absence of a'method of planning foreign trade and at the same
time a method based on the principle of economic rationality,
- absence of experienced leaders in exports and imports,
- weak penetration of ideas bearing on foreign trade beyond those
of a -- of technicians in foreign trade who stand out between
the sphere of international trade and that of the national economy.
Such a situation appreciably hinders the development of foreign
trade. There are two aspects of this particularly:
1 - the absence of concept and method contribute to widening the
gap between the reality of foreign trade and the economic necessity
which rationally stands out;
2 - the absence of experienced leaders and of the penetration of
ideas in men's mind contributes to widening the gap between the
reality of foreign trade and the no` sibilities which are offered on the
gls
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If the "human" factor played unfavorably in the process of Polish
foreign trade restructure, the "time" factor intervened in tt~'
of the structure. fin saying that time is a means invented
to prevent happenings occuring all at the same time has rarely been
truer than in'the case of Polish foreign trade which has at least
if
three major facts to be noted in its favor, facts which'they had
r
occuzed at another moment could certainly have played greatly to a
disadvantage:
1. That the price drop in raw materials exported by Poland occurred
at the moment when they had ceased to play the fundamental role they
held in the Polish balance of payments, i.e. in the beginning of the
intrasectorial specialization in the beginning of?the international
exchanges resulting from it.
2. That the acute imbalance in the Polish balance of payments occurred
at the moment:
a) of relaxation in world politics and of hope placed in the west for
liberal prospect-.z and for independence in Polish foreign and domestic
n
policy due to Gomulka's election to the post of First Secretary of the
Party (thus the granting of American aid).
b) at the time of the danger of disintegration of unity in the
Co.*-iunist Bloc threatened by the U.S.S.R. after Gomulka's arrival to
power in Poland and after the outbreak of the Hungarian revolution
(which caused the payment by the U.S.S.R. of transit expenses across ff
Poland due over a long period as well as the reimbursement of the moat
gls
I IL -
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differences in the price of coal exported by Poland to the U.S.S.R.
coming from the disparity between the world price of coal and the price
paid by the U.S.S.R.)
3. That the decisions of the CONN;ECON with regard to the introduction
of intense intrasectioral specialization between the member countries
were made after the basis of Polish industrialization had been
established. These decisions, if they had been made at an earlier
date, would have been likely to solidify the structure of Polish
foreign commerce during its stage of intersectioral specialization
-i'
limited one field (as is perhaps the case in Rumania, Bulgaria,
Albania).
This reasoning is developed not to enrich the economic history of
Polish foreign trade but for a completely different goal. The present
study show the cvo L-t,u ern, of foreign trade from its stc ag of light
development to its stage of advanced economic development and as such
it can serve as useful information for countries on the way to
beccmming developed. These countries must realize that the "time"
factor does not always work to their advantage as was the case for
foreseeing
Polish foreign trade; nevertheless means of and avoiding
unfavorable economic events exist. The lowering in prices of raw
materials, often inevitable, perhaps can be counterbalanced by the
development of the transformation industry; economic aid coming from
both sides is possible only in certain political situations which are
neither frequent nor long-lived, and finally adherence to economic
gls
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unions can sometimes be pre-nature.
Credits and Aid From Abroad.
The Polish balance of payments, as could be expected, has suffered
serious damage for a few yearsA The deficit in the trade balance was:
fSee middle of page 1347
In order to remedy such a situation it was judged absolutely
essential to call for foreign credits. The credits which have been
granted Poland can be differentiated as to their economic character
in the following manner:
`Economic aid" 'sort - these are mainly American credits; they
have been granted Poland for a period lasting 25 to 4+0 years in three
successive issues:
I. Issue - agreement on 7 June 1957 (supplemented on 14 August
1957) for the sum of $95 million.
II. Issue - agreement on 15 February 1958 for the sum of $98 million
III. Issue - agreement on 10 June 1959 (supplemented on 10 November
1959 and 11 February 1960) for the sum of $103 million.
Total $296.3 million
After receiving these credits Poland was able to buy from the
United States agricultural products and raw materials t..--,.he sum of
_3 million (wheat, cotton, oleaginous substances, grains) and for
the wept - machines for the extracting and sheet metal industries, skin
industries, etc.
gis
116
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- Credits of the economic "advancement of trade" kind.
Such are the credits granted Poland either by installments on
future Polish deliveries or simply by credited deliveries.
- Credits of the "participation in common investments" kind
They present themselves in the form of credits from the member
countries of the CO'.ECLN granted Poland participation in Polish
A
investment projects. Above all it is a question of credits granted
or to be granted by Czechoslovakia and by East Germany. Thus for
ex..^-,nple in May 1958 Czechoslovakia granted Poland a credit of $62.5
million
r part of its participation in the development of coal mining
production. Similar credit was to be alotted for the development of
the sulpher industry, etc. This combination of three kinds of credit
DI,
granted to Poland permitted it temporarily to fill in the gaps 6 its
n
balance of payments. Inside the country the effects of foreign credit
were such that the national revenue .the various groups taking part
(x)
surpassed the national revenue produced from the market.
(x)
Statistical treatment of foreign trade in the national accounting
stem
In all the countries with a planned economy, the activities of
people whose employment is connected with foreign trade -- just as all
those whose employment is connected with t:s domestic -- are totaled
gls
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in production. But the statistical treatment of the balance of
payments itself (imports and exports of merchandise and "productive"
services presents an intricate problem which depends mainly on the
special characteristics of price structures in these countries and
absence of a single rate of change effectively relating domestic prices
to foreign prices. ((In Czechoslovakia and Poland> at least, the
productive services are in principle included in the balance of
invisible transactions and it seems that, for reasons of a practical
nature, certain (