UNDERGROUND ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00046R000500330005-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 27, 2016
• Document Release Date: June 25, 2013
• Sequence Number: 5
• Publication Date: November 4, 1955
• Content Type: REPORT

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INFORMATION REPORT INFORMATION REPORT
CENTRAL INTELLIGENCE AGENCY
This material contains information affecting the National Defense of the United States within the meaning of the Espionage Laws, Title
18, U.S.C. Secs. 793 and 794, the transmission or revelation of which In any manner to an unauthorized person is prohibited by law.
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COUNTRY Poland REPORT NO.
SUBJECT t n derground Economy DATE DISTR.
4 November :IC:AC
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NO. OF PAGES
11
DATE OF INFO.
REQUIREMENT NO.
PLACE ACQUIRED
REFERENCES
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DATE ACQUIRED
SOURCE EVALUATIONS ARE DEFINITIVE. APPRAISAL OF CONTENT IS TENTATIVE.
Attached is
as received
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STATE
ARMY
NAVY
AIR I# ja. FBI AEC { a EvL
(Nolo: Washington distribution indkatad by "X": Field distribution by "#".)
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INFORMATION REPORT INFORMA TION REPORT
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COUNTRY Poland
CONFIDENTIAL
SUBJECT Underground Economy
DATE OF INFORMATION
PLACE ACQUIRED
THIS IS UNEVALUATED INFORMATION
REPORT
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DATE DISTR. 28 Sept 1955
NO. OF PAGES 10
REFERENCES:
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Genera
anybody who studies the Polish economy and the
standard of living of the Polish people should not overlook the
existence of what he called the underground economy. By underground
economy4 all those deliberate activities, procedures,
dealings, and manipulations, including thefts,which were practiced
by individuals or groups of citizens in all walks of life and were
aimed at the increase of their private income through the evasion
of the existing laws, rules, and restrictions imposed by the
Communist regime in Poland. the underground ?
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economy was very successful in fighting against the control system
of the Communist regime, and since it was a mass
phenomenon, it would probably continue for several years to come.
It involved almost every phase of the Polish economy, but its main
activities were based on two main channels:
a. The illegal, private sales of agricultural products to the
town inhabitants after a certain amount of illegal selling
between the farmers.
b. The illegal supply of consumer goods and materials for the
rural population by the urban population outside the official
governmental home trade system, although a good deal of illegal
selling was done between urbanite and urbanite as well.
In general, the undergound economy slowed down the pace of the
development of the state economy by interfering with the turnover
of goods and the cost of production planned by the regime and in-
creased the income and purchasing power of the citizens.
2. During World War II, it was known in Poland that the German
admin stration of occupied Poland estimated that the legal earnings
of the average Polish citizen during the years 1943 and 1944
covered only circa 15% of his total expenses. The illegal turn-
over of consumer goods for the Polish population during this
period was several times higher than the turnover of supplies
planned by the German administration. In spite of the fact that
the controls imposed by the Communist administration were tighter
than they were during the German occupation of Poland,
the activi-
ties of the underground economy resulted in own large diversions
from the official economic plans that they almost doubled the
regime-planned purchasing power of the population. However, it
was obvious that most of the activities of the underground economy
were not properly organized. They were carried out mainly for
individual profits and did not contribute toward raising the
general "Jtandard of living of the entire population, 'since some
of th6 pOpulation did not participate. A great percentage of
these activities was nothing more than thefts committed by one
part of the community and damaging the other part of it.
Azricu;ture
3. The private farmer in Poland was confronted with the problem of
taxation and obligatory deliveries of agricultural products and
livestock. It was planned by the regime that after the fulfill-
ment of his duties to the state, that is, the grain and livestock
deliveries, the private farmer was not to be left with a large
amount of money nor any great quantity of surpluses. The farmer
was to have just enough to survive until the next harvest after
buying the bare necessities. Meanwhile
the situation in the villages was quite oqntrary itothis
respect. The average, medium, private farmer was, to some
extent, better off than he had been in the prewar days. He and
the rich farmer as well, sometimes had more money than they could
spend because of the shortage of consumer goods and materials
necessary for the upkeep of their farms. This was so because all
the farmers generally deceived their regime directed administra-
tion in the following ways:
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a. Somehow obtaining a low classification of their arable land.
b. Reporting a lower acreage of cultivated land.
c. Reporting a lower number of crops collected per hectare than
was really collected.
d. Reporting false losses of crops and livestock due to eattle
and pig plague, hail storms', etc.
e. Reporting false and higher deliveries of grain and cattle
than were really delivered.
All those manipulations and false statements were made possible
only with the full cooperation of the village administration,
members of the Village National Council, employees of the sales
and purchasing offices and warehouses who received their deliveries,
and the employees of the veterinarian services. These methods
were practiced almost everywhere.
The Communist regimA was aware of these activities but was almost
powerless and did not have much success in trying to 'prosecute
the offenders, one typical case which was
brought to the court of justice in Lowioz County in 1954, wherein
the employees of a purchasing office (urzad skupu) were accused
of issuing receipts for deliveries of grain which were never or
partly delivered and for which they were paid bribes. The employees
were sentenced to prison but the farmers from several villages who
appeared as witnesses and who were in possession of the false re-
ceipts were not even accused in spite of the fact that it was
evident that they had paid bribes for those receipts and did not
deliver the stated amount of bread grain.
another court case in 1953 where employees of the Establishment
for the Disposal of Dead Animals in Piotrkow (Zaklad Vtylizaeji)
were convicted of issuing false certificates for the deliveries
of dead cattle and pigs. Not one of the farmers who was in
possession of these certificates was ever prosecuted.
Similar illegal manipulations were carried out by the State Farms
(Panstwowe Oospodarstwa Rolne - POR). In one way or another the
administration and employees of State Parma managed to collect
all the difference between the real and declared amount of crops
and livestock for themselves. This .was .not done in an organized
fashion but rather through individual or small group operations
which were winked at up and down the line. The State Farms also
made additional profits by falsely reporting higher moots for
cultivation, maintenance and repair of buildings and machinery,
and from illegal sales of construction materials, as well as re-
porting fictitious payments for work which was never done.
Industry
it could be assumed that as a result of these
activities of the underground economy, the statistical data con-
cerning crops and livestock collected by the government from the
farmers was falsely reported from 10 to 20%; the surpluses of
agricultural products obtained by false reports, deliveries, and
unlawful manipulations increased the home food consumption; and
the money obtained by private farmers and the personnel of rural
government administrations and sales offices formed the basis of
their standard of living. According to the rough calculations
of source, the government lost over 20 billion zlotys yearly in
these illegal agricultural deals.
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the following illegal activities were commonly 50X1
preictieed in factories and production cooperatives:
a. Thefts of raw materials and products by the workers.
b. Artificial and false increases of production, repair and
maintenance costs.
a. The secret manufacture of goods which was not officially
planned.
The thefts were committed by the workers on a large scale, mostly
by individuals. The underground economy came into action after the
stolen raw materials and products were taken over by the organized
illegal trade. The illegal production which took place in large
state factories, as well as in small cooperative workshops, was made
possible only through careful and efficient organization and the
participation of large groups of employees and workers. The raw
materials issued for the main planned production were used for the
mafiufaoture of the secretly produced goods and the cost of the
labor was partly, in some oases entirely, included in the cost of
the normal main production. At the same time, the records of
efficiency for the main production were lowered and the use of raw
materials falsified.
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mentioned that the small private industrial enterprises and shops
which still existed in Poland, as well as the small production
cooperatives, often concealed their true turnover and falsified
their costs of production. [ it was very difficult 50X1
to estimate the quantity and value of these illegal activities in
industry without the necessary statistical data, but he was con-
vinced that they provided an additional and very large amount of
income for almost all employees and workers in almost all industries.
9. The state construction enterprises, unions and cooperatives probably
had the best oppoftunities for illegal earnings. The following were
the most common irregularities:
a. Illegal selling of building materials on the private market.
b. Submitting false reports on the amount of work necessary and
the amount of work done in completing a particular project
and, consequently, false higher payments and labor costs.
c. Using labor and materials for private constructions. All
these illegal dealings increased the real costs of con-
struction and at the same time decreased their value and
durability.
10.
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It was known that the con-
struction engineers lengthened the time planned for the construct- 50:00
ion of a building by submitting false reports stating that the
soil was difficult to work with or that extra work was necessary,
such as protecting walls, stronger foundations against underground
water, additional excavation and transportation of earth, etc.
These manipulations increased the earnings of employees and at
the same time permitted the use of labor and materials for private
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buildings. The organization of this racket was very efficient and
embraced almost all the technical personnel, a number of admini-
strative employees, and the employees of the building inspection
service. As a result of this/ the manual workers of the building
trade earned from 1,500 to 2,000 zlotys monthly as normal wages
and received additional payments for private constructions and a
percentage of the illegal sales of raw materials.
The individual wagon owners and small transportation cooperatives
who transported the building mate-rials and hauled earth were usually
involved in this racket and earned from 25,000 to 30,000 zlotys
monthly after they divided up to 50% of the earned amount with the
management. In this way, the construction engineers also earned
about 30,000 zlotys monthly above and beyond their regular salaries.
Source estimated, from all he had heard and read in the daily press,
which very often contained articles about the rackets, that the
sums of money earned illegally amounted to several billion zlotys
yearly.
Home Trade
11. The state conducted domestic trade carried on through the wholesale
and retail shops and cooperatives was also involved in illegal
dealings, manipulations and thefts. Domestic trade was always very
much oritioired by the press; the Party did
this on purpose in order to appease public opinion. The maii"deals
consisted of:
12.
a. Illegal sales of goods of private or unknown production.
b. Selling privately owned goods in the shops and keeping or
sharing in the profits.
a. Reporting fictitious losses and unexplained defioienoes, e.g.,
falsified reports of damages caused during the transport of
the goods, and falsified inventories.
d. Lowering the classification and prices of goods when accepting
them from factories and selling them later according to their
true value or as a higher quality product and keeping the
difference In price.
The scope of those illegal manipulationswas verv large.
the nontrol commissions
checked on different shops found unexplained losses, deficits
goods, and commodity wares of private production which were not
entered in the books in about 80% of the shops. The number of
people involved, such as managers and sales attendants, was so
large that in-1954, the authorities just ordered that the
deficiencies and damages be paid for, and the employees were. not
released from their jobs and were not prosecuted. In most case!.
it Was impossible to find the person responsible for the dadages
and lOsses which. were recorded in the balance sheets.
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tne central Agricultural Equipment Supply Office (CM) in the
years 1951-l953,F7could vouch for the fact that large sums
amounting to about1Asix million zlotys yearly were recorded as
losses incurred during the transport of goods or as unexplained
losses, most of these losses were thefts
organized by the management and employees of the subordinated
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regional agencies of the CZR.1 In the state establishments which
supplied the state enterprises only, this was the man source of
income of all involved. The goods which were supposed to be supplied
to the state enterprises were sold for a much higher price on the
free market. The production price was paid into the bank by the
enterprise that was involved in the manipulationS, and there was no
trace of the transaction; the extra money went into the pockets of
the warehouse employees.
13. The State Motor Transport (Fanstwowy Transport Samochodowy) was
another offender in misusing state property. Truck drivers often
transported goods for private individuals and kept the fees collect-
ed. This was done mainly with the knowledge of the management who
allowed the scheduling of fictitious "empty runs," (Called puste
przebiegi), and shared in the profits made from transporting private
goods on these runs.
Administration
14. An administrative higher official, as well as the lower category
office employee, who had no opportunity to deal directly with
customers and-had nothing to do with any goods or materials had.
only limited possibilities for illegal earnings. However, they
took advantage of whatever opportunities they had which included
the following:
a. Reporting fictitious special jobs and accepting extra pay for
them.
b. Falsifying the norms of work.
c. Submitting false vouchers for expenses incurred during official
travels.
d. Accepting bribes for assessments, opinions and decisions on
official matters in their field of responsibility.
15, it was very easy to create artificial or pre-
meditated arrears in bookkeeping and office work. The employees
purposely created some confusion and disorder in the office books
and documents in order to justify the necessity for special over-
time work. in 1952, the Central Office of the
OZR paid about 250,000 zlotys to the employees of the Spare Parts
for Agricultural Machines Section for working out card indexes
which should have and could have been done by those employees
during their normal duty hours. Quite a lot of office work which
could have been done during regular working hours was done as
overtime with the consent of the management and was accordingly
paid for out of special funds.
16. The designing engineers and employees in the construction and
designing offices earned quite a lot of money by working out false
estimates which stated that a longer time was needed for a project
than was really necessary. The difference between the true ex-
penses and the false estimates submitted was divided between the
engineer who worked out the estimate and the management of the
construction enterprise entrusted with constructing the building.
17. The falsification of vouchers for official travel expenses was a
common practice. This was done by submitting fictitious expense
accounts. For example, some officials were entitled to travel
second class on the railroads, but they went third class and kept
the difference for themselves. In this way, the managers, in-
spectors, and employees who Were entitled to official travel were
making about 2,000 zlotys monthly.
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18. Employees of sales offices and supply and purchasing agencies had
the biggest opportunities for earning additional illegal earnings.
These people were even bribed by the customers for decisions and
approvals which were correct and according to regulations.
Health and Veterinarian Service
19. In addition to their main jobs in hospitals and clinics, about 80
of the medical doctors worked in a number of dispensaries and con-
sulting stations. They very often did this during their normal
duty hours and in this way were paid for two jobs at the same time.
For instance, they received patients in the factory dispensaries
only twice weekly according to their agreement with the management
but would submit false reports stating that they had worked the
full week instead of just two days. The auxiliary medical personnel,
such as nurses, ward attendants, etc., were usually paid regular sums
by the families of the patients for so-called special attention.
20. The veterinarians and auxiliary personnel of the veterinarian ser-
vice were privileged people. As a rule, they reported more working
hours than they worked and earned additional income by issuing false
certificates and reports in connection with the veterinarian super-
vision of the medical control of slaughtering housds and animals,
and the control of dead animals.
21.
Summation
a.
rough calculations
of the turnover involved in the underground economy: 50X1
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The total approximate number of people
1954 was as follows:
Agriculture
Industry and Handicraft
Construction Industry and
Building Trade
Communication It Transportation
Home Trade
Education and Culture
Administration and Public
Security
TOTAL
employed in Poland in
^ c. 7,100,000 people
^ c. 2,900,000 "
600,000
560,000
560,000
460,000
300,000 "
12,500,000 people
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b. Assuming that the average individual wages and salaries or
income amounted to circa 10,000 zlotys yearly for all employees,
including farmers, this would represent a yearly income of
125 billion zlotys which represents the purchasing power of
the entire population. The following rough analysis of the
agriculture and building industries alone will show that the
volume and value of goods and services operated by the under-
ground economy amounted to several billion zlotys yearly and
helped very much to raise the standard of living of the people
in Poland in spite of the restrictions and efforts of the
regime.
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-22. The situation of the farmers and the rural Population was indicative.
They represented the most absorbent market and .also the greatest
opportunities for deception in their own production and sales. They
sold a oonsiderahle Part of their. farm ProduotS illegally and, in
addition, participated. in illegal Operations for their own Profit,
like the manufacture of handwOTOP Weriala and the operation of
tanneries'. They were also. forced to Purchase illegally all kinds
of consumer goods and materials. tor repair and construction which
were not supplied to them by the regime ., It was known that the
general output of agricultural production did not reach the prewar
level by 1954 and that since 1949 When .the compulsory deliveries of
grain and cattle were introduced ,:'there was an official drop in
crops and in stock breeding cattle. This decrease Was officially
recorded; in fact, it was caused by false reports and the hiding of
surpluses of agricultural products which were later sold privately.
Assuming that about 20% of the crops and other agricultural products
were hidden, this would represent the following value:-
Commodity Value in Millions of Zlotys
23.
a. Bread Grain
(comprised'50% of cultivated
land) - This represents 20%
of the average yearly pro-
duction of (3. 12,000,000 tons,
or 2,400,000 tons at e. 2,400
zlotys per ton.
b. Other props
This represents the hidden
surpluses of crops on the
remaining 50% of cultivated
land.
c. Milk
This represents the hidden
20% of approximately
10,000,000,000 liters of
milk produced yearly or
2,000,000,000 liters 4 two
zlotys per liter.
d. Meat
This represents 20% of the
yearly production of
1,000,000 tons or 200,000
tons 0 25,000 zlotys per ton.
5,760
5,760 at least)
4,000
5,000
TOTAL 20,520 Million Zlotys
the sum of 20,520 million zlotys is actually
low because in the above estimate, an average low price for rye
was used and not the prices of wheat, barley and flour which were
higher, and the price of Milk was used without reference to such
products as butter, cheese, eggs and poultry. Apiculture and ,
various vegetables were not counted at all.
the town inhabitants had no difficulties in finding
the necessary goods needed by the farmers by indulging in illegal
dealings and thefts from industry and the building trades3an4,by
doing this, they earned the money necessary for the purchases of
agricultural products supplied illegally by the farmers.
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24. Similar .n. Of: -6 struption and the building
trade. he total yearly value of .
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yearly wages and salaries of c. 600A00 employees would be about
6 billiOn zlotys, that is, about 12% of the total investment.
The remaining 44 billion zlotys was Spent for Materials and trans-
portation. If we assume that only 20% of the 44 "billion was going
through illegal Underground channels, this would represent about
8,800 million zloty! Yearly however-, this
50X1 sum should be tripled bec414e. the prices of Materials on the under-
ground illegal market were at least three tiintS? higher than that
officially paid by governmentagenClee..
.Conolusions
.25. The underground economy embraced almost the entire economy of
50X1 Poland, and its syStem was organically
connected with the ComMunistic economic systSm which was regarded
as immoral and was not accepted by the cittiena. Al]. the activities
of the 'underground economy stemmed'fromthis attitude of the Polish
people. They felt that Communism was a foreign system brought into
Polish industry and trade from the USSR, mainly by Poles who were
deported to Soviet Russia in 1939 and 1941..
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the under-
grouna economy system was applied in the USSR even on a larger
scale than in Poland, and they expressed the opinion that this
system would continue for along time in spite of the regime's
effort to eliminate it. The people were practicing techniques
and old routines which they had adopted during World War II, by
order of the Polish Underground Government, during the German
occupation of Poland.
26. Unfortunately the Polish people were getting
50)0 gradually accustomed to this system of thefts, manipulations,
and tricks against the state; this might cause a
50X1 very serious moral problem in the future. The existence of the
underground economy and the system of thefts, described above,
was generally known in Poland and could be qualified as one of the
forms of resistance against the Communist regime. It was tolerated
as a necessary evil and did not result in discrimination against
or social ostracism of those who participated in it. The Polish
community, as a whole, did not feel morally bound to obey most of
the laws and orders issued by the Communist regime. Such actions
as nationalization of trade and industry, collectivization of
farms, land reform without'indemnity, i.e., taking over the .
factories and shops without paYing, the former owners, restrictions
on foreign currencies, and forced deliveries of grain and cattle
for a lower price were.regaided by most ,of the peasants as measures
of injustice. Some looked on the underground economy as an oppor-
tunity to be recompensated for their individual losses; others
.considered it as a way to improve their itandard of living.
27. This system was also practiced by members of the Communist Party
who, by occupying higher executive positions, very often had many
more possibilities for graft and embezzlement than non-Party mem-
bers. The Party members counted on indulgences and were able to
carry out such manipulations quite easily through their Party
contacts. It was known that some people joined the PZPR Party for
opportunistic reasons, i.e., mainly to get the opportunities for
illegal manipulations and thefts and take advantage of them to
improve their own standard of living. It should be stated that
the people who were assessed by the regime as politically un-
reliable seldom participated in the underground economy dealings)
but if they did, they did it with great care bedaUse if they were
caught, they were usually more severely punished and very often
their offenses were classified as sabotage.
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28. The regime was aware of the economic underground and formally prose-
cuted those involved but it was, to some extent, powerless because
the system was so common and so Very widely spread. Inemany cases
the regime just "closed its eyes" for economic reasons, because it
was impossible to send the majority Of the people to prisons or
labor camps. All criticism from the Party and from the daily press
pretended, however, not to know about the underground economy and
criticized the management and the administrative employees of
Industry, trade, and agriculture for their "spiritless attitude,
wastefulness, and mal-administration." the
criticisms of deficiencies expressed by the Secretary of the PZPR, 50X1
Boleslaw Bierut, at the III Plenum of the PZPR Central Committee on
26 January 1955; the announcement of new measures, new economic
tasks, and a planned increase of industrial and agricultural pro-
duction; the reduction of construction costs by Shorteningthe
building cycle; and the over-all reductions of-costs which should
amount to about 7i billion zlotys in 1955 meant-nOthing more than
endeavors and hopes to repress the illegal underground economy.
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761.111 55M
761.113 55M
761.118 55M
761.114 55M
761.116 55M
103.91 55M
781.41 55M
2.21J.L1
781.5 5?M
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