DETERIORATION OF ECONOMIC CONDITIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000600010156-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 15, 2016
• Document Release Date: January 23, 2004
• Sequence Number: 156
• Publication Date: January 19, 1952
• Content Type: REPORT

Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
.:I .1001.107 a 017.1.. i::-. ll? .. ? 01,11 .. "I ? o1. n
or 70. 0.11.1 17.71., 11701o. 7xn1 ?1.^I..ar, 1.1 1, 1.1.,1111 713
... 714, .1 7.. ..1. 1111, ., t ........ 1 l 1?
?171.. 17 IT. C.1..... . .. .11111. .. ?. Y 1.111. 11101`1.
r UM 1.111. .? 1.1. 7.. .1...1..71.. 1I rNU111.Y I1 1 Ox111 110.
CENTRAL INTELLIGENCE AGENQ' EGRE
INFORMATION REPORr---
COUNTRY Czechoslovakia
SUBJECT Deterioration of Economic Conditions
25X1
5X1 I
CLASSIFICATION SECRET
DATE DISTR. iq
Jan 1952
NO, OF PAGES
7
NO. OF ENCLS.
(LISTED BELOW)
SUPPLEMENT TO
REPORT NO.
THIS IS UNEVALUATED INFORMATION
the
eeoncaie development in Czechoslovakia. I tollc-w~Zosely
the domestic market and talked to many persons and friends
working in various economic and political agencies0 The
economic situation during the first half of 19 1
could be characterized as a rapidly deteriorating one, AL
that time it was quite clear that we had to expect an
.. 1.-L..., .. the for p 1 i .r(-mn1cl ng i evels of Lite
Czechoslovak Comminis+ Party in a desperate attempt to save
the economic situation, or to face such c_oucpl.ete chaos as
exist?.d in the first bloody years of the Soviet domination
of the USSR.. The expected shakeup came and was followed by
the most complete, thorough reorganization of the Czech
economy since its nationalization- under -the Communist regime.
in my opinion, the impelling reasons for the above reorgan-
ization and its significance could be presented in the
following way:
(a)
During the past period of Comnsinist domination of
Czechoslovakia it was obvious that the Party, and by it
the whole country, was run by Lilo all-powerful trio of
the Central Committee: Rudolf Slansky, Bedrich Ceminder,
and Bruno Koehler. In daily work in state agencies,
and practically in all fields of national life, the definite
Party directive No 1 was strictly app(*-~d
"under all circumstances, in all opt,atior_s, political
considerations are to be given first priority", In
this respect there was only one matter of importrn(:e for
the vast Party machinery: to strengthen the security
of the existing regime, i e the Pasty domination, This
MET
FORK NP. 51-41)
JAN 1951
CLASSIFICATION SEC;PT
TRIBUTION
DIS
STATE ^`^'
T
T
AIR
Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
 Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
SECRET
$IcRET
'b)
ac the time the ;Hair cause of the rapid dete. -
ioration of the Czech economic si'.-uation within some-
thing more than one year. Practically, this meant-,
to put in all, even lesser positions, only politically
reliable individuals, or, putting it in the Party
language, the "faithful sons of the workers class"',
the thc:c:agJ-1y disciplined individuals who knew nothing
except what they r.ad been tcid and taught, This policy
resulted in catastrophic losses to the highly developed
Czech industry and economy. New "workers' cadres" were
hurriedly educated in numerous "central workers' schools"
and "workers! universities" in the basic economic alphabet.
It soon happeru d that governmental departments, factories,
distribution organizations, state and collect. re farms
(JZD's) were run by people who had no qualifications for
theme jobs whatsoever. These examples show the extremes
to which this went, Under the existing Party policy
practically all positions were considered "responsible"
and had to be occupied by "new cadres", An administrative
director of a hospital naturally wanted to prove how
responsible the clerical wart;- was in hospital adminis-
tration; high officials in the Ministry of Health wanted
to show the importance of such work also, They decided
therefor. to put in these positions new "reliable"
workers' cadres. This has resulted In a real hunt fcr
the workers " cadres in factories and plants in order get t?hezr
into workers, schools. Most capable and skilled workers
were 1.-bus taken off production and sent to schools,
causing great damages to production in all fields of the
national economy, After completing a brief education
consisting mainly of political indoctrination, It
happened, for example, that a ward from a hospital for
mental diseases became the actual boss of the famous
Mysli.vecek p.ychiatrJc: clinic; The new boss, in his
po4i tion of ,yecretary" cl c. .ded that all work
with "crazy" people was sheer nonsense and put an end to
research work conducted in this scientific institution,
UUnde the e a a ct r~. - 'i. In charge o'n
t, ...~
TT-1-:r i>1!.~~ ?i=11i1?~ p_j i. C,- y` ~~. i~~ v. Vie:..... ij - t,
the heating system in the Student Health Institute.,
became overnight a high offlciai in the Ministry of
Health, Cadre Department, and was put in charge of the
assignment of doctors. A garage maintenance man in
the Ministry of Foreign Trade became deputy section chief
of the Cadre Department and an actual head of all person-
nel of foreign trade companies, These are but a few
examples of the new policy trh cr! resulted in a ,ener_~.1
mismanagement in all fields of the Czechoslovak
economy and admi.nicstration.
111ll i,1.~~.'-1f d trio-, II U I .L a A sU 'll1 G.e:';inde~: and 1;-,ehler were
1. 4.llll. Ukyv -
the actual creators of the above poli.cy, b.z:; as Communist
ideologists, being practically separated from t'_-le daily
life of the country, they were not able to control. these
activities, it was general-1y believed that Slansky was
a Moscow man, placed by the 3ovv'letn in charge of the
entire country. In his blind drive for the sec?+,irlt~a of
the regime he destroyed the. econoryyy: So In 1~..!9 he
abolished the so--called N.ar ic,} c,ipo~ :rs;t 1,.or i e
(NW-Economic Corainittee of the :,ertra.l Secre?:,a.. ,
headed by Ludv1 k Fre,jk-a , -r. .nr_t Dr^ Jung.-,jawik
This committee' was the r'.tL~h hand of Gottwald, a..:. 1: eats
of the 'Pwc ar~d later the. Af
Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
 Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
&ECRLT
was dissolved Gottwaia took FreJk.a with him to the
President's Personal Office; Dr Go! nn was appiinted
Deputy Minister in State Planning O.f;. in change of
statistics, and Dr Jung-Jancik, who w+3a in :harge of all
economic cadres with the NHK was given P. r.n?r position
with the local Slovak Government in Brt r.1 z. A::va. Instead
of NMKawtth1n the s;crrzwair`?.at Party s x:r_x o:q&nizatfvia
vas czeated, the rso-called Prvmysl, P"'+=xn~ Obchod
(abbreviated PFO)-Department industry, Finance and Commerce,
with new people in charge. Many general di.rectcrs of
national corporations nut in by f?ne 1iHK ur,lwr rrAlVa
and Jancil- were dismissed, regardless of their
technical Qualifications, -na given some ?nf*~.rlor positions;
some even went to jail. New personnel were appointed Ltf
such positions through the new General are ;x fr::'?:r~.rt
headed by Bruno Koehler, a German Communist who did not
even speak fluent Czech. The Foreign Affairs Ministry
headed by Clementta, tryi R desperately for the sake of
foreign trade to "go slow" in this overall Communization,
was always more and more pressed by Gemirder, who was
entire nation was becoming more and more disgusted by
State propaganda methods. The national output decreased
steadily as a result of the mismanagement of new bosses,
deep apathy of the working masses, ever growing shortages
of raw materials and disorganization of the entire
economic and administrative life of the country, Since
propaganda dr=ives had not brought forwar' any positive
results, the ever-growing and quickening "turn-over" of
employees had only added to the rapidly spreading
general chaos in the country. And yet, ?xven if the
situation had resulted In compete bankruptcy, it would
be wrong to expect that the I)olit#.cal might and the
iron grip of the Communist. Party would be weakened to
such an extent as to permit a general uprising or some
kind of internal revolution. On the contrary: with
the weakcn:?ng economy the Communist terror grew in its
cruelty and scale. And then, in the last moment, when
the coal output and the agricultural production were
getting dangerously low and the general. chaos
in administration had reached a stage that nobody knew
any more what was going on In the country, came the blow,
the biggest shakeup in the Communist Party, ordered un-
doubtedly from Moscow. Rudolph Slanaky was removal
to an unimportant position, Oemindor and Knee
singly vanished. An "economically-minded group of individuals
heaQed by Klement Gottwa',d caste to power, It "meant
also the reintst:.tement of his Oxford-t : i t n~cx p^nnomic
advisors, Dr Goldmann and Ludvik. F'reika. The new .
Ministry or State Conl?'d1-'vas pit in the charge of Karol Baoilek
n Slovak Cornnuniet, known a' a faithfi.tl and blind
follower of Gott=grid.
The establin'rrent of new Czechoslovak economic, ministries
does not follow strictly the Sovi"t pattern; it has in
itself a specific significance. In ?^~oslovatta,
with practically full-,v natlr'nallzed Industry, the
activity of the Industry Mlnistrg grew on a tremendous
scale and it soon t;Aritme the actual adminirstratcr of
various industrial Thin led to necessary dF?-
centralization. Firm;, -a^ Jndopendent Ministries for
Heavy and Light ind-jbt.r?y .s? ~r created. ea per on, they
 Approved For Release 2004/02/10 : C
were divided into some more specialized ministries. This
reorganization does not necessarily result in a larger
bureaucratic machinery; we have to 'veep in mind that in
the mean time the collective workers" administration of
enterprises was abolished, and the plants and other
enterprises were put under the direct administration of
a corresponding industr'?tl ministry. It is to be
expected that after the removal of Koehller more attention viii
be paid to actual qualifications in appointment of
employees, and not only to political reliability as it
was before.
2. A part of the blind policy of the old trio, Slansky-Geminder-
Koehler,was also the unfortunate case of William Oatis. I
am afraid that today his release is a matter of prestige to
the Communist Government of Czechoslovakia. I am sure that
the Gottwald group would never have been no short-sighted as
to risk all the economic losses which have resulted from the
Oatis case to Czechoslovakia. The future will show whether
the Gottwald group will be able to save the situation. It is
possible that Moscow has set a time limit for this consolidating
policy. I have often heard that Dr Jaromir Dolaneky, the
Minister for State Planning and the best Communist economist
in the country, was always in strong opposition to SlanekyTs
methods and urged Gottwald to convince Moscow that no
positive results could be expected in following a strict
Communization policy with complete disregard for economic
problems. It could be assumed that, at least for a certain
time, Gottwald succeeded in convincing the Kremlin masters
of this. Some people said that if Gottwald did not succeed
in his task, Slaneky would be returned, with a reign of
terror, to squeeze the country and people as never before.
3. At the present time distribution of goods within Czechoslovakia
is completely separated from production and foreign trade and
internal retail trade has completely vanished. The distri-
bution of goods to the population is conducted through the
following national corporations established for this particular
purpose;Pramen (food), Masna (meat), Kovomat (hardware),
Elektra (radio, phone, electrical equipment) , Textilia-Tep
textiles), Jas (footwear and leather goods, Chemocroga
cosmetics, chemicals, d u s, except pharmaceuticals), Narpa
paper goods, office needs), Benzinol (automobile fuels,
filling stations), Medics pharmaceuticals), Mototechna
(auto spare parts, motorcycle and bicycle spare pp"ts,,
new and used earn, service stations and garages), Odpadove
3uroviny (collection of scrap), Novy Byt (furniture, musical
instruments). All these organizations are created on a
nationwide scale. In communities there are sew organizations
called "eoimaunal corporations", owned by . the_ re;pecti're community
or district (there are more of such corporations in every
community for various services like barbers, bakers, laundry,
ante-taxi, etc). In addition to all these organizations
there is one nationwide food chain store set on a cooperative
basis, called "Bratrstvi" (Brotherhood). In large cities there are
organized department stores selling all kinds of consumer
goods and owned by the national corporation called "Obchodny
Domy". All these national corporations are supervised by
the Ministry of Internal Trade. Practically all food and
many other commodities are rationed. Composition of rati-,ns
can be seen every month in the nfficiai newspaper 12,,r.ip r,-a.vo.
25X1
 Approved For Release 2004102/10 - r.1A-RnPRQ-QQRQqAQQQAQQQ1Q15A-4
SEC RET
-5- A Q ~ T-
The distribution ssynterl Is very bureaucratic. and wcrks rather
poorly, especially in the country. The former shox) owners are
made scapegoats for this failure and ;;n^, "csually blamed and
even accused of sabotage. Late in 197' r^any forr:er shop
owners, employed until that time in their nationalized shops,
1951 ~*ere
were transferred to other shops, and at thebeginning nofr
completely remcved from trade business and Eent'. to
manual laborers. It was of course much easier for the
regime to break the resistance of thevniddle cla-s thanlteie-
resietance from the peasant class encountered In the tivizatiort drive
4. The volume of goods din Yribution rose rather substantially
during the last year, but the rise was due solely to the
sharp increase in consumer prices Actually;, though, con-
sumption ha.5 dropped in most, items, 5i'atee t :?e population
cannot afford to buy the goods at the new,. high prices,
The increased consumption of basin ccnburr.er~ goods per capita
promised in 3.948 and 1949 was not realized. The reasons for
this failure were> the aciminir='c!r,-.tive mismanagement, shortages
-iel of raw xnar?erials, increased delivery demands of USSR, and i.hP.
growth of the Czec;h..oslovak rearmament program.. Outside of
the State Planning Bureau,the real statistical data of pro
duction and consumption are known only to the top Party
officials. On the average, the entire conm-irption. l - lower
per capita than a year ago.
5, The food shortage was sometimes attributed to the stockpiling
of canned food as war reserves . tut I think. that this shortage
originated actually moi-t `rrom iiP
import of raw materials for food product: iCn, an. :. poor
distribution system Be idles, there is urac ; ically no
canning industry in Czechoslovakia to absorb large quantities
of food, The average citizen feels Mc -, , '-!1" ~.f..,:1 1, .'.t,,.
In meat and fats. Several months at!.(:) the free market
completely vantsh=edt and now people can buy only what they
get on their ration. cards. The rations are often
impossible to get, Acute shortages also exist -'n eggs, milk
and Gvf ic@ S crta~es in agr_ ] r_'1) ~:rcd.u4LC arc .....used
mainly by lower, farm output, a result of c:c) ,ectivi-,ation.
For propaganda reasons the present food rations in Czechos-
lovakia are compared with those in England. This does not
give a true picture, however, for even if the British have
low food rations, they have unrationed meat meals in
restaurants and a variety of meats and caned meat or. the
free market. This doe's not exist in Czechoslovakia, and if
it did, very i ow people could al ford t?-, - ? g., ..
6. The Soviet domination in Czechcslcraki.& has not resulte`r in
any ? g pains for the n.arional economy, The_osse .a on the
w .. ?~.-.. .. L. ,. ..~.. y.,~Lifl an
V ze a.V c - a
oontrary, are great and far-?reachiag. LtA An
industralized and economically dell halar!_ed country. . The
entire industrial structure, so healthy in. the past, has
been completely changed, as a re,eult of the enormous output
of war materials, not only for the C?zoc Armed Forces , but
ma:.nly fo- the USSR and other i.ndustr ia'l).~ hackwara satell?.. e'
countries., Available manpower r`,; ,a.Y hive, l-aen
and labor is forced to won': hardier, longer and mores ";i.nde
re tilt i such
T` :e
constantly deteriorating conditions.
s e r+ 1 i.le , The cu r
ry a 1 i _ h e.
;j .i s t . y . -'=
always work do not;
m l?ISa P~7eds'n'~ pa...s a~1t c T ' iu r,.a.n::~
always lower, as at. Tesult of
of the majority of people, and :.~:?:r. .... ;."_. 1.U ,
SECRET
Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
 Approved For Release 2004/02/10 : CIA-RDP80-00809A000600010156-4
11. in order to trade with countries short of hard currency, tae
Merkuria Corporation was organized. It wa- created on the
suggestion of the former Deputy Minister of Foreign. Trade
Mr Evzen Loebl. This company should be exLlusive?.y in charge
of barter business. In its*?ransaetions the company first
showed soms positive results Many countries which did not
have proper trade and payment agreements with Czechoslovakia
and were short of dollars, were served by Merkuria on a barter
basis. In such cases Merkuria usually negotiated with such
other companies as Centrotex, cheiaapol, Kovo, etc, about the
various items or export and import. Eventually, though, this
barter business has Plowed down, for Merkuria encountered more
and more difficulty in negotiating with other companies,
trying to get suitable goods for barter. At that time the
foreign trade companies tried to keep high demand goods for
thtmselves, in order to export them abroad, and to give to
Merkuria the goods they could not get rid of otherwise.
12. Government propagar.,da concerning the rearmament of Western
Germany initially had a strong effect on the Czechoslcvek population
which feared~in the case of a new war,another German occupation.
However, the situation has changed considerably, with the
majority of Czechs believing that World War III is inevitable.
The vast majority desires war as the only means by which
Czechoslovakia might be liberated, despite the unbearable hard-
ships which the nation might suffer during the war. Under
such conditions,Czecboslovak,,s do not fear German rearmament
as much as previously. Cooperation with anyone, even with the
Germans, is apparently favored in order to get rid of the
Communist regime and to destroy Soviet influence in
Czechoslovakia.
25X
s.ur 25X1