THE STALLED SOVIET ECONOMY BOGGED DOWN BY PLANNING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83B00140R000100040016-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 20, 2016
• Document Release Date: March 8, 2007
• Sequence Number: 16
• Publication Date: October 19, 1981
• Content Type: OPEN SOURCE

1
s
MEMORANDUM FOR:
This is a good review of the Soviet economy,
very much along-the lines of our own. What is
interesting is that Business Week has chosen to
make it a cover story.
Date 15 Oct 81
FORM
5-75 T O i EUSE D TI ONS PREVIOUS
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THE STALLED SOVIET ECONOMY
Bogged down by planning
Like a sputtering 1950s-model engine,
the Soviet economy is slowing to a crawl,
braked by the inefficiency and rigidity of
its outmoded central planning system.
Deep trouble is brewing in Soviet agri-
culture: On Oct. 1, U. S. officials re-
vealed that the Kremlin plans to buy up
to 23 million tons of grain from the U. S.
in the coming year, part of an estimated
40 million tons worth $6 billion that the
Soviets will need to cover a now-chronic
shortfall in harvests from Soviet state
and collective farms (chart, page 73).
For several years, Russians have been
standing in lengthening queues to buy
scarce and rationed food, which accounts
for 50% to 70% of the average Soviet
family budget. The shortages underline
the inability of the Soviet leadership, for
the first time since World War II, to
claim that it is raising Soviet living
standards.
The economic shortcomings are closely
linked to a deepening sense of alienation
among many in the Soviet Union's
heterogeneous population of 260 million.
The alienation is reflected in widespread
corruption and malingering by farm and
factory workers, part of a malaise that
U. S. Secretary of State Alexander M.
Haig Jr. calls "spiritual exhaustion."
One index of eroding morale is an epi-
demic of alcoholism so severe that it is
shortening Soviet life spans. Says a
young Muscovite: "Loafing and drinking
are the only acceptable forms of pro-
test."
There is scant chance that such dis-
content will crystalize into active opposi-
tion to the Communist Party's tight
political control or into any challenge to
the power and status of the 17 million
party members who enjoy the perqui-
sites-from cars and dachas to trips
abroad-of a privileged elite. But in the
Soviets' global rivalry with the U. S., the
poor economic performance raises an
ominous threat for the Kremlin's lead-
ers: Eventually, it could undermine the
Soviet Union's capacity to sustain the
military machine and the global commit-
ments that underpin its role as a super-
power. Up to now, although the Soviet
economy is less than two-thirds as large
as that of the U. S. (chart), the Kremlin
has matched or even outspent the U. S.
militarily by pouring 12% to 14% of its
gross national product into arms, com-
pared with 5% for the U. S. in recent
years. But the economic slowdown will
intensify the Kremlin's guns-vs.-butter
dilemma: The military buildup competes
for scarce resources against urgent con-
sumers' demands and against capital in-
vestment that is crucial to economic
growth.
Risks to the U. S.
Paradoxically, the economic slippage
and other Soviet troubles, ranging from
China's hostility to "ideological steril-
ity," could also render the Soviet Union
more dangerous to the U. S., Haig ar-
gues. Kremlin leaders could be tempted
to lash out-to grab control of Persian
Gulf oil, for example-in an attempt to
tilt the global strategic balance in their
favor before they fall hopelessly behind
the U. S. But in the jockeying to succeed
the 74-year-old Leonid Brezhnev and
other aging Soviet hierarchs, the Krem-
lin's policy debate will also focus on
internal economic reform. "There will be
leaders who will fight for power in the
coming succession under the slogan,
`Let's get' the country moving again,"'
predicts Seweryn Bialer, director of Co-
lumbia University's Research Institute
on International Change, "and there will
be leaders who will try to engage in for-
eign adventures."
Right now, the Kremlin is weighing
the heavy risks and costs-in bloodshed,
resources, and heightened global ten-
sions-of intervening in Poland to prop
up the floundering Polish Communist
leadership. If it does not intervene, Mos-
cow faces the costs of providing aid to
the collapsing Polish economy. Other
burdens for the leader of a major politi-
cal and ideological bloc include billions
of dollars annually that the Soviets
spend to maintain influence over a net-
work of satellites and aid recipients,
mainly through price concessions on
trade in oil and sugar with East Europe
and Cuba.
Such huge demands will severely
strain Soviet resources if the economy
continues to decelerate, and the Kremlin
is clearly worried. Recently, insider
briefings for the Soviet intelligentsia
and party members have warned of hard
times that could last 15 years or more.
And top officials, led by Party Secretary
Brezhnev, are displaying their anxiety
publicly with repeated denunciations of
mismanagement and production short-
falls. "The Soviet leaders' consciousness
of economic inadequacy is higher today
72 BUSINESS WEEK: October 19, 1981 FOREIG14
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says Bialer.
Part of that con-
sciousness is the aware-
ness of having crossed
an important psycho-
logical, as well as eco-
nomic, watershed. Dur-
ing most of the post-
World War II period,
the Soviet was gaining
economically on the
U. S., a performance
that prompted former
Party Secretary Nikita
Khrushchev to boast, in
than it ever was in their
post-Stalin history,"
?
1959, that the Soviets would "bury" the
U. S. In the late 1960s, Soviet GNP ex-
panded an average 5.7% annually
against 3.3% for the U. S. But over the
past six years, Soviet growth averaged
only 2.9% compared with 3.5% for the
U. S. (chart, page 72), and it may fall as
low as 2% this year.
The economy's fundamental problem,
the central planning system itself, will
not be altered, though. The Communist
Party's political control would be under-
mined by steps that would diffuse eco-
nomic decision-making more widely and
unleash powerful market forces. The
system, based on "commands" from
central planners who are not responsive
to market forces but to goals decided by
party leaders, worked best when the
Soviet economy was in an early industri-
al stage. But the system is increasingly
unable to cope with the complexities of a
modern economy because it lacks the
market price and profit criteria that are
needed to allocate resources efficiently
grain imports fill a
widening food gap...
1919
Date: Wharton Econometric Forecasting Associates inc.. Vt. AgricuNure fleaL. J. Aron & Co. SW ewe
'Gold valued at London price at yearend 1971-79 and on Sept. 18. 1981
T,OUee-NYN$
and maximize returns on investment.
Productivity is lowered further by the
virtual taboo in the Soviet Union, as in
most Communist countries, against fir-
ing or laying off workers. "Today in the
Soviet Union no one is working hard
because they are neither ideologically
motivated as they were at times, certain-
ly during the early industrial era, nor
are they terrorized into working hard as
they were under Stalin," says Zbigniew
Brzezinski, foreign policy adviser to
former President Carter. "In our system
there are both incentives and penalties-
if you don't work hard, you get fired
after a while. In the Soviet system, there
aren't. The Soviet worker probably feels
more secure than the average American
worker, but also far more indifferent."
Since Joseph Stalin's time, the Krem-
lin has tinkered with reforms to make
the system work better. But unlike the
Hungarians, who have moved toward
market pricing and more decentralized
management, the Soviets still shrink
.and paste trade with
4 Me West into deft it.
1971 73 75 1.77 79 11 3871 1178 1975
? Millions of metric tons 46t A 1111111m of ftftrs
125
250
Gra
in
con
sumption
Grain
production
225
200
-
,,
150
iY
1991
:sta.
from changes that
would erode the concept
of detailed central. plan-
ning. The leaders who
follow Brezhnev will
probably share that re-
luctance. "The new gen-
eration is not going to
be a young generation,"
Brzezinski predicts.
"The successors to
Brezhnev and company
are likely to be people in
their mid-sixties, them-
selves the products of
prolonged Communist
bureaucratic training."
One reform experiment, launched by
former Premier Aleksei Kosygin in 1967,
aimed at trimming bloated payrolls and
raising productivity in the Shchekino
chemical complex. It did this by estab-
lishing wage funds that the enterprise
could keep at the same level even if it
reduced its total work force, using the
money saved to?raise the pay of manag-
ers and workers. Bureaucrats stifled the
experiment, though, and it has not been
widely adopted. Initially, Shchekino
trimmed 1,000 workers from its payroll
and doubled production, but the Minis-
try of the Chemical Industry quickly
curbed managers' flexibility. "We seem
to distrust our managers," complains
economist Abel B. Aganbegyan, editor of
a leading management journal. "They
are not trusted to make even the most
trivial decisions."
Another reform, in the early 1970s, set
up "production associations" that
dumped related enterprises under the
same management and included re-
BUSINESS WEEK: October 19, 1981 73
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search institutes, in some cases, in hopes
of speeding innovation. "The associa-
tions achieve some management effi-
ciency," says Daniel Bond, an economist
at Wharton Econometric Forecasting
Associates Inc. "But they don't give Rus-
sians any more incentive to put their
productive energies to work, and that is
the basic problem in the system." The
reluctance of cautious managers and bu-
reaucrats to take risks with new prod-
ucts and processes has also dropped the
Soviet Union permanently behind the
West in most civilian technology. The
Ministry of Machine Building, for exam-
ple, is constructing two factories to make
robots, and industry experts predict that
the Soviet Union will eventually have a
viable robot industry-but with a lag
time of about 10 years.
The system's most critical failure,
however, is in agriculture, where output
gains have averaged only 1.8% annually
for a decade. Although the Kremlin set
out in the early 1970s to boost meat pro-
duction in order to upgrade the Soviet
diet, output has hovered around 15 mil-
lion tons for the past three years. "They
never will be self-sufficient in meat,"
predicts former U. S. Agriculture Secre-
tary Bob Bergland, who visited the So-
viet Union recently.
As in industry, the biggest problem is
the lack of rewards for individual effort
on either the large state farms or the
collectives. By contrast, peasants lavish
their labor on private plots of 11/2 acres
or less, where they are allowed to raise
crops and livestock for their own use or
for sale in collective farm markets at
higher prices than in government-run
stores. To spur more output from the
plots, which already produce 30% of the
country's meat, milk, and vegetables, the
Kremlin recently offered incentives such
as added fertilizer supplies and free use
of collective farm machinery. But any
increase in production is likely to be
short-lived because the elderly peasants
who farm most of the plots are disap-
pearing. "The youngsters would rather
loaf on the collective farm and draw
their day's pay," says a Soviet observer.
Because of Soviet agriculture's ineffi-
ciency, a far higher proportion of the
population remains tied down in agricul-
ture than in any Western industrial
country: 23%, compared with 3% in the
U. S. This acts as a powerful brake on
the economy, because the total Soviet
work force will grow by only 0.4%
Bottlenecks: Inefficient farms keep
workers tied down in unproductive
activities, and the high cost of
developing such projects as pipelines
in remote regions slows growth.
 Approved For .R.eIe.ase.2007103108 CIA-RDP83B00. 140RAOG10004001&-4-
?
annually in the decade ahead. "In the
1980s ... we will have to depend entire-
ly on raising productivity and not on
mobilizing additional labor force,"
Brezhnev warns. But the necessity of
keeping so much manpower in agricul-
ture will deprive the Soviets of the big
gains in productivity that the U. S.,
Western Europe, and Japan have
achieved by shifting workers from farms
to factories.
The Soviet manpower dilemma is
heightened by critical demographic
shifts that threaten to create political, as
well as economic, strains among the
Soviet Union's 15 national republics and
numerous ethnic groups. What growth
there is in the work force will be in
Soviet Central Asia, populated mostly by
Moslems, and in Transcaucasia-made
up of Moslem Azerbaijan and the repub-
lics of Armenia and Georgia-where
ethnic nationalism runs strong (chart,
page 78). The Kremlin will have to try to
attract workers from those areas to Eu-
ropean Russia, the Ukraine, and the Bal-
tic states, or more likely, locate more
new industry and the costly infrastruc-
ture to support it in Central Asia.
Losing control
Such shifts will exacerbate political
tensions as Russians become a shrinking
minority of the total Soviet population.
Just as in Czarist days, the Soviet Union
is a polyglot empire under a Russian-
dominated party, government, and
armed forces. The Russian Soviet Re-
public now accounts for 52% of the pop-
ulation, but that share will drop to 48%
by the year 2000 (chart, page 78). The
"Slavic core," including Byelorussians
and Ukrainians, who traditionally hold
important posts in the Soviet establish-
ment, will still account for 69% of the
total. But nationalist resentment of Rus-
sians persists in the Ukraine.
A longer-range threat to Russian
dominance of the U.S.S.R. may lie in
Central Asia, vulnerable to Islamic na-
tionalism. By the year 2000, some 27%
of the 16-year-old additions to the Soviet
Union's pool of potential army recruits
and young entrants into jobs and univer-
sities will come from Central Asia and
Kazakhstan, compared with 44% from
the Russian Republic. Tapping that la-
bor pool by moving industry to Central
Asia, thus shifting the Soviet Union's
industrial center of gravity, will make it
increasingly difficult for Russians to
keep tight control over their empire.
Soviet planners are also being forced
to divert scarce investment funds into
costly development of oil, gas, minerals,
and hydroelectric power in remote and
hostile environments in the Arctic and
Siberia as natural resources close to
industrial centers are depleted. "East of
the Urals, capital investments are high-
er and wages are higher," says Nikolai I.
Ryzhkov, deputy chairman of Gosplan,
the central planning agency. "That can't
help but affect the growth rate of the
plan." To move industry closer to the
resources, construction has started on 15
"territorial industrial complexes"-huge
petrochemical and metallurgical centers
built around gas deposits or hydroelec-
tric projects-aimed at shifting 10% of
the country's output east of the Ural
Mountains by 1990.
Carrying out the Siberian strategy
will be difficult, though. Workers are
reluctant to move to the boondocks de-
spite wages of $1,300 a month for truck
driving compared with about $400 for
comparable work in European Russia.
?
that Soviet oil output will drop to be-
tween 10 million and 11 million bbl. per
day in 1985, down from 12 million bbl. at
present, and Wharton Econometric pro-
jects a further decline to 8 million bbl. by
1990. Such a decline could crimp oil
exports to the West that currently fi-
nance 40% of the Soviet Union's hard-
currency imports, totaling about $38 bil-
lion this year (chart, page 73). Without
that income, the Kremlin would be
forced to sell more bullion from its $33
billion gold hoard.
In contrast to such problems, the one
sector of the Soviet economy that is
booming is military production. The
U. S. Defense Dept., in a 99-page report
that it released on Sept. 30 to back the
Administration's warnings of a Soviet
The demographic threat: The fast-growing Moslem population of Soviet Central Asia
could become a breeding ground for Islamic nationalism and for political tension.
To man West Siberian oilfields, "expedi-
tion workers," including Bulgarians, are
flown in to work 18-hour shifts for two
weeks, and then flown home for two
weeks of rest.
Such crash programs are raising natu-
ral gas output fast enough to offset fall-
ing oil production and stagnating coal
output. That is why the Soviets are
negotiating to expand gas sales to West-
ern Europe through a 3,500-mi. pipeline
from Siberia's Yamburg field that a
group headed by Germany's Mannes-
mann, as well as suppliers and custom-
ers in France and Italy, plan to equip
and finance with $10 billion in credits.
Gas exports through the line could earn
$2 billion to $3 billion annually and help
pay for Soviet imports of Western food
and technology. By contrast, the U. S.
Central Intelligence Agency predicts
military buildup, cites major expansions
at Soviet weapons complexes such as the
Severodvinsk submarine-building yard,
a huge tank plant, and a major aircraft
factory at Ulanovsk. Unlike Soviet civil-
ian industry, the arms plants are able to
turn out high-quality products and meet
production schedules because they have
first call on supplies of material and
equipment as well as on top engineers
and skilled workers. But by lavishing
critical resources on the military-indus-
trial complex, the Kremlin is putting an
added brake on the Soviet Union's eco-
nomic performance. "The very tech-
niques that contribute to the success of
the military production sector also im-
pose costs on the rest of the economy,"
the Defense Dept. says.
Thus, the Kremlin's leaders face a no-
win dilemma in allocating increasingly
FOREIGN BUSINESS WEEK: October 19, 1981 75
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scarce resources as the economy slows.
They almost certainly will not cut mili-
tary spending. And they need to main-
tain their high rate of capital invest-
ment-about 30% of GNP annually, com-
pared with 16% in the U. S. Such mas-
sive investment is what keeps the Soviet
economy growing at all, despite its inef-
ficiency. But the.-Kremlin will run the
risk of both economic and political trou-
ble if it fails to increase the supply of
goods to consumers, the third claimant
on Soviet output. Workers and managers
will have even less reason to work hard
if there is little to buy with their earn-
ings. And the turmoil in Poland, which
started as protests against scarcities, is
a warning of potential problems ahead.
Politicized planning
Dec. 3 and will be enacted into law, prob-
ably next month, by the rubber-stamp
Supreme Soviet. But bureaucrats have
been putting pressures on the shaping of
the plan for at least five years. After
completing the previous plan, Gosplan
started consultations with production
ministries to set production targets and
to determine industries' needs for the
current plan. "Everyone gets on the
phone trying to get a fairly easy target
and as much input as they can," says
University of Houston economist Paul R.
Gregory. And ever since Gosplan sub-
mitted the draft to the government's
Council of Ministers last fall, it has been
fair game for officials and party leaders
who have their own interests and constit-
uencies to promote. Central Asian party
bosses, for example, have been lobbying
loudly for water projects, and they are
The Soviet planning system is incapa- likely to be heard; three of them sit on
ble of solving this dilemma, partly be- the party's Politburo.
cause it is nothing like the rational com- Moreover, says an economist in Mos-
mand mechanism it is supposed to be.I cow, "the completed plan has been obso-
Rather, it is an exercise in logrolling and
pork-barreling that would evoke envy on
Capitol Hill-a "wild democracy," one
Soviet minister confided to a Western-
er.
Gosplan, the central planning agency
headed by 70-year-old Nikolai K. Baiba-
kov, drafted the current five-year blue-
print at its gray headquarters at 12
Prospekt Marx, just across from the
Kremlin. The plan was published last
lete from the day it was published"
because it is continually being revised.
Enterprise managers regularly call their
ministries to arrange for downward tar-
get adjustments because of bottlenecks
or late delivery of material. Because of
the continual revisions, according to
University of Pennsylvania economist
Herbert S. Levine, "what the Soviets
have isn't just centralized planning, it is
centralized management."
Whether planning or management, a
crucial weakness of the system is the
lack of market prices to tell the true cost
of resources and determine whether sup-
ply and demand are balanced. Setting
"shadow" prices that would balance sup-
ply and demand if there were markets is
difficult. "So they fall back on technical
and mechanical allocation procedures
that don't take prices into account," says
Chase Manhattan Bank economist Don-
ald W. Green. "There is no demand
curve thinking."
Furthermore, incentives for manag-
ers, based on targets such as output,
profit, sales, and quality, offer little
reward for innovation because it. is so
difficult to quantify. "Careerwise, [man-
agers] do a lot better overfulfilling their
plan by 1% every year than trying some-
thing new," says Charles H. Movit, econ-
omist at Wharton Econometric. That
lesson was impressed on managers at
the Omsk petrochemical complex, which
hiked productivity by 48% in the 1971-
75 five-year plan by adopting the Shche-
kino system. But the Ministry of Petro-
leum Refining forced the plant to aban-
don the method, and annual productivity
growth is back at 2%. "Now the minis-
try is happy," says management editor
Aganbegyan, "because the indices are
going up each year."
Paradoxically, the computer-the
dream of socialist planners for dec-
ades-may stifle moves toward reform
Now ethnic Russians are becoming a minority
Non-Russian populations
expand fast...
250
200
150
100
50
1970 1980 1990
?Millions
Increases In able-bodied
population of working age
- 2 1970-80 1980-90 1990-2000
78 BUSINESS WEEK: October 19, 1981
...and Moslem areas supply
most of the added work force
Russian (~ Ukraine It. Federated Republic 1J Byelorussia
,attic republics Transcaucasia Soviet Central
8 Moldavia Asia & Kazakhstan
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such as decentralized management.
Computers have improved resource allo-
cation in individual ministries, according
to British economist Martin Cave, but
"the computer encourages Party and
planning officials to believe there is a
central solution." Thus, he adds: "In the
Soviet context, the computer is a con-
servative force."
But a new breed of economists, trained
in mathematical techniques such as lin-
ear programming and optimization, is
gaining influence, according to Levine.
"Many are talking the same language as
Western economists," he says, and pre-
dicts they will be giving different advice
to Soviet leaders in the 1980s. "The labor
theory of value told their predecessors a
lot about the sweat and blood involved in
production," Levine adds, "but it didn't
tell them anything about marginal
costs."
The moonlight economy
Right now, some of the products and
services that the official economy cannot
supply are being provided by a growing
"second" economy. Partly, it traffics in
goods diverted from state enterprises
and in bartered services ranging from
medical treatment to auto repairs. But
some of its activities are highly produc-
tive. Groups of moonlighting men and
women, for example, hire themselves out
to managers of high-priority construc-
tion projects as shabashnya rabote (lit-
erally, sabbath labor). For wages of up
to $1,600 per month, they work 18 hours
a day, seven days a week to help meet
critical deadlines.
If the Soviet economy continues to
slacken, the Kremlin may react initially
by cracking down on this "second" econ-
omy and imposing tougher penalties on
loafers and managers who fail to meet
targets. Such orthodox efforts to make
the central planning system work better
are likely to appeal to candidates to suc-
ceed Brezhnev and other leaders. But
eventually, a deteriorating economy may
force more basic reforms. The Kremlin
will be loath to adopt market prices and
more decentralized decision-making, as
Hungary has done. Instead, some Soviet-
watchers believe, the Kremlin may try to
create a more efficient and flexible sys-
tem by allowing an expanded second
economy to provide more unplanned
goods and services, while keeping the
basic economy under central control.
Such reforms, as a solution to the
Kremlin's dilemma, will be more likely
in an era of lowered global tensions,
Brzezinski says. "If the international
context is tense," he says, "the Soviet
system-which is, after all, a mobiliza-
tion system-will be able to regiment
the people and keep these dilemmas
under control." ^
United takes on the upstarts
The nation's big airlines have been con-
centrating on building short-haul ser-
vices to feed their major hubs since air-
line deregulation began in October, 1978.
They often encounter brutal competition
in their busiest markets from new non-
union airlines that offer no-frills service
at sharply discounted prices. The estab-
lished airlines are matching the new
entrants on price and also mounting
media blitzes to clip the wings of such
upstarts as Midway, New York Air, and
People Express.
Now United Airlines Inc. is turning to
more than just price promotion to recap-
ture the short-haul, point-to-point traf-
fic and critical feed for its longer routes
that it lost by stretching the spokes in its
route system too far. The new thrust is a
marked departure from United's earlier
strategy, which had led the nation's
largest carrier to drop most of its short-
er routes and even put its short-haul air-
craft up for sale.
Now United has set up its own low-
fare service - Friendship Express-to
compete against the upstarts. Thanks to
having the right equipment and looser
work rules than its trunk carrier com-
petitors, United stands a good chance of
being the only established airline to
make a profit flying short-haul routes at
the rock-bottom fares being forced on
the industry by the new entrants. "It's
good defensive tactics against the likes
of us," says one upstart airline executive.
"The strategy minimizes their losses and
lets them control more traffic on the
United system."
Friendship Express already accounts
for one-sixth of United's flights, and ful-
ly half of its short-haul operations. "If
United can pull it off, it'll be the biggest
thing in aviation since deregulation,"
says Roy Pulsifer, an associate director s
by the new entrants, and the contract
United signed with its pilots last August
(BW-Aug. 17). That agreement in-
creases the number of hours pilots will
fly each month, loosens many costly
work rules, and reduces to two from
three the crew size in the 737 cockpit.
Smaller airlines all fly twin jets with
two-person crews.
United claims that it anticipated the
impact of new competition well before
New York Air's 56% fare cuts last April
increased traffic in the New York-Cleve-
land market, which United had domi-
nated. United matched the fare and
in the Bureau of Domestic Aviation at An array of bare-bones services
the Civil Aeronautics Board. "For the
mature carriers, price is going to drive
down costs. At the new entrants, it's the
other way around."
Seeking concessions. All the "dino-
saurs," as major airlines are frequently
called, are pressing for productivity con-
cessions from their workers, and often
wage cuts as well. But United has had
the most success. "If we are going to
compete against low-cost, low-price com-
petition," says John R. Zeeman, United's
vice-president for passenger marketing,
"we have got to do it on a cost basis" as
well as on price.
Two factors have helped United: the
decision to hold on to its 49 Boeing 737s,
the same type of twin-jet airliner used
watched its average passenger load on
that run soar to 79% from 54% the two
previous months, even with New York
Air's 10 flights a day taking off 75
filled. But United was not making money
on the service.
Heading west. To do so, United figured it
would have to duplicate the entire up-
start operation, not just its price, and on
June 12 launched Friendship Express.
Even the name plays on the image of a
bare bones, cut-rate carrier, fostered by
the market identity already established
by similarly named upstarts.
Friendship Express is based in Cleve-
land, where United still had a strong
BUSINESS WEEK: October 19, 1961 83
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