POLAND: GOMULKA'S ECONOMY IN GIEREK'S HANDS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030069-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 10
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 69
• Publication Date: April 1, 1972
• Content Type: IM

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Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Poland: Gomulka's Economy in Gierek's Hands
DOCUMENT ~RVICES BRRNcu
FILE COPY
DO Of DESTROY
Confidential
ER IM 72-69
April 1972
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
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Its transmission or revelation of its contents to or rc-
ceipt by an unauthorized person is prohibited by law.
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1972
INTELLIGENCE MEMORANDUM
POLAND:
GOMULKA'S ECONOMY IN GIEREK'S HANDS
Summ ar
1. In the year and a quarter since the Polish riots, Edward Gierek
has patched the damage done by meat shortages and Gomulka's attempts
to reform prices and the wage system. Favorable economic trends in 1971 -
particularly in exports and consumption - together with measures that dealt
a carrot to nearly every economic interest group, have put Gierek's new
style of economic po'cy well on the road to public acceptance.
2. Gierek reacted swiftly to the crisis in December 1970, scrapping
the reforms, importing emergency meat supplies, and going directly to the
workers to get their support - and their patience. He also rewrote the plan
for 1971-75, trying to squeeze out extra benefits for the consumer as well
as more progress in raising economic efficiency. As Gierek knows, and as
he has been telling the people, dramatic gains in either of these respects
cannot be achieved by 1975, or 1980. Even slow progress, however,
combined with Gierek's careful but candid approach to policy should be
enough to earn the confidence of both the public and politicians.
Discussion
Fifteen Years Under Gomulka
3. During Gomulka's rule, much of the growing frustration and
cynicism of the Polish people was focused on economic issues - in
particular, lax safety regulations, incompetent and indifferent managers and
upervisors, uncertain rural land tenure, long lines for food and other
consumer goods, and cramped, rundown housing. In most of these respects,
the urban population perceived little improvement over the 15 years, and
Note: This memorandum was prepared. by the Office of Economic Research.
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CONFIDENTIAL
the urban standard of living increased very slowly. The peasants who stayed
on the farm had the fewest complaints, and had the largest increase in
real incomes. But the peasants also were uneasy - chiefly about the
government's future farm policies.
4. To the old grievances, Gomulka added new ones in the last years,
and moments, of his regime. He tried to clamp down on the growth of
employment and wages, to impose a new incentive plan on workers, and
to restrain consumer demand for meat and other food products by raising
prices. Gomulka, who came into power on the heels of the Poznan bread
riots in 1936, went out in the wake of the worker-housewives riots in
December 1970.
S. The economy under Gomulka was rapidly industrializing but
steadily falling behind in technological change and managerial skills, even
by East European standards. During 1956-70 the growth of industrial output
(over 8% a year according to official figures) was well above the rates for
the other northern East European countries - East Germany,
Czechoslovakia; and Hungary. In the 1960s, however, the growth of
productivity slowed down to the lowest rate in Eastern Europe. There were
two main reasons for the developing problems. Less had been done than
in the other countries to stimulate technical progress and to rejuvenate
management, and Gomulka's conservative trade policies kept Poland from
participating fully in the boom of imports from the West, particularly of
machinery.
6. Poland's trade with the West has grown rapidly, but the structure
of Poland's exports to the West has reflected a relatively backward economy;
the structure of imports, a limited interest in technological change. The
West, for example, accounts for more than one-third of Poland's total trade
but only for about one-fifth of Poland's total imports of machinery, most
of which comes from the USSR. The mainstay of Poland's exports to the
West is foodstuffs and raw materials, and, although there is a lively trade
both ways in chemicals and semifinished metal products, machinery cnd
other finished goods make up only a small share of Polish exports to the
developed West. Trade with the United States is focused even more heavily
on agricultural and raw materials - Polish canned hams in fact account
for 30% of all US imports from Eastern Europe.
7. Gomulka's trade policies, however, left Gierek with a relatively
low debt to the West. At the end of 1970, total indebtedness to the
developed West was estimated at US $1 billion, of which $450 million was
owed to the United States. Excluding some $350 million in very long-term,
interest-free PL 480 debts left from US credits through 1964, Poland's debt
amounts to about two-thirds of its annual exports to the West. This ratio
is one of the lowest in Eastern Europe. The Poles have run a cumulative
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$249 million trade surplus with the United States during the last seven
years, and it has thus been easy for them to manage the small annual debt
payments on US account.
8. Gomulka did very little to modernize the management of the
economy. His important early reforms were all in agriculture: he abandoned
forced collectivization, raised agricultural procurement prices, reduced the
volume of compulsory deliveries of foodstuffs, and increased the availability
of machinery and fertilizer to private as well as state farmers. However,
early proposals for decentralizing decision-making in industry were swept
away by a wave of recentralization in response to inflation in 1959. As
a result, the Polish system remained basically a command economy through
the 1960s. The government handed down production goals, dominated
investment and foreign trade, and regulated the distribution of enterprise
earnings.
9. In the winter of 1969-70, Gomulka finally gave in to Party
pressure for renewed reform. A key part of the program consisted of
tightening control of employment and introducing incentive wages and
bonuses into industry. This part of the reform was hard for the workers
to swallow; implementation led to drastic reductions in 1970 in overtime
work and to a slcwdown in the rise of employment and real wages. At
this time, the regime unveiled its new incentives system, a complicated
formula for tying bonuses to profitability, among other things. A special
twist was devised for shipbuilding - linking bonuses in part to the sales
price received for ships. About 80% of ship output through 1975 was
targeted for sales abroad, and the workers understandably resented having
their bonuses depend on factors outside their control - foreign market
conditions and the ability of Polish designers, engineers, and salesmen.
10. All of these measures were capped by the retail price changes
announced in December 1970. Prices of foods and other consumer items,
representing about one-third of sales in retail trade, were raised sharply in particular an 18% increase for meat and meat products. The price
reductions for some home appliances, synthetic textiles, clothing, and a
P-w other products which occurred at the same time seemed less important
to consumers. Planners and economists had long sought to revamp the
structure of prices in an effort to channel excess demand to consumer
manufactures and away from heavily subsidized food products. By the end
of 1970, impending shortages of meat and other agricultural products
seemed to make action necessary.
1 i . The increase in prices was sufficient provocation for the workers
in shipyards of Gdansk and Szczecin, who were already chafing under the
proposed incentive plan, and for the housewives, who were trying to lay
in extra food for the Christmas season. Gomulka was preoccupied with
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international matters and uncharacteristically placed a fatal degree of faith
in his economic advisers. Some $40 million worth of imported meat could
have deferred the price increases until after the new year, a small cost for
a continued career.
Fifteen Months Under Gierek
12. Gierek's immediate response to the riots was to announce a freeze
on food price increases, to arrange for substantial meat imports, to scrap
the incentives system (except for experiments earlier under way in selected
enterprises), and to disburse some 7 billion zlotys to raise minimum wages,
family allowances, and pensions. Then in March 1972 he rescinded the 1970
food price increases, keeping the price changes that had been prescribed
for consumer manufactures.
13. Gierek's early policy had something for everyone. Peasants were
given a health insurance plan, higher procurement prices, and clear title
to their land. Expectant working mothers were given extended leave. Former
church lands in Western Poland were restored. And, in a broad appal to
nationalism, Gierek promised to rebuild the prewar national palace and
restored the Polish eagle as the national symbol instead of replacing
Gomulka's picture with his own. Perhaps most effective, Gierek moved to
talk with the workers - first in the strike ports of Gdansk and Szczecin
and later throughout the country. He listened to worker complaints, putting
into motion a series of local steps to improve working conditions and
promising to put greater stress on the output of consumer goods. In return,
the workers listened as Gierek described Poland's economic problems --
esperially the lack of resources to engineer any significant overnight
improvement in the general standard of living.
14. Gierek's appeal for patience and understanding was helped by
favorable economic trends in his first year. Personal consumption rose
strongly in 1971, stimulated by some 150,000 metric tons of imported
meat - which was made possible by a Soviet loan of $100 million in hard
currency - and by a 17% rise in imports of consumer goods. Consumer
spending also was encouraged by a decline in prices of domestic consumer
manufactures. Thanks to the added imports, meat consumption per capita
rose from 53 kilograms in 1970 to 57 kilograms in 1971 - the first increase
since 1967.
15. Growth goals for 1971 generally were met or exceeded throughout
the economy. Investment grew by 9% and industrial output by 8%, as shown
in Table 1. There were no major shifts within industry. The largest gains
in output came in machine building, nonferrous metals, and electronics -
the only above average increase within light industry was in the clothing
industry. There was a healthy growth in agricultural production, sparked
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Poland: Economic Indicators
Industrial production
Agricultural production
Employment
Real wages
Retail prices
Exports
Communist
West
Imports
Communist
West
Percentage Increase
over Corresponding Period
in Previous Year
Jan-Feb
1970
1971
1972
9
8
. 14
2
4
N.A.
2
2
.
1
5
N
A.
1
0.5
N.A.
13
9
42
10
8
48
19
12
32
12
12
28
17
10
17
3
16
50
by a rebound in livestock production, which had declined in 1970. Trade
trends were also favorable. A surplus - $123 million - was achieved in
trade with the West.
16. Trends so far in 1972 have been mixed. In January-February,
industrial output was increasing at an annual rate of 14% - partly reflecting
a relatively bad first two months of 1971 but still well above plan. On
the other hand, the outlook for Polish agriculture this year is uncertain --
the Poles were spared the worst of the drought that affected most of Eastern
Europe over the last six months, but ample rainfall is still needed through
the spring to avoid significant crop losses. The livestock sector reportedly
is developing well; only eggs have been reported to be in short supply so
far this year.
17. Although early results may be misleading, Poland's trade was
booming in the first months of 1972, particularly with the West. In spite
of a rapid rise in imports, Poland still is running a small trade surplus with
the West.
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The Plan for 1975
18. Gierek's longer run economic policy is aimed at raising both the
rate of economic growth and the share of growth devoted to consumer
welfare. Gierek's goals for 1971-75, as announced in March 1972, are in
some cases higher than in last year's draft plan and are generally higher
than in Gomulka's first draft of 1969. The plan is fairly ambitious in that
it projects a more rapid rise than achieved in 1966-70 for national income
and real wages, but with a slower growth for investment and employment.
Market supplies of meat and processed food are scheduled to rise 33% in
the period, twice the gain in 1966-70. Projected increases in 1971-75 and
actual results in 1966-70 are compared in Table 2.
Poland: Five-Year Plan 1971-75
and Results 1966-70
Average Annual Percentage Increase
1971-75
Plan
1966-70
Actual
National income
7.0
6.0
Personal consumption
6.9
5.5
Investment
7.7
8.0
Industrial production
8.5
8.3
Heavy industry
8.6
9.5
Consumer goods
8.2
6.3
Agricultural production
3.6-3.9
1.8
Employment
2.1
2.6
Real wages
3.4
1.8
Labor productivity
5.4
4.6
Housing construction
4.7
4.6
Exports
9.2
9.2
Imports
9.7
8.3
19. On the other hand, Gierek has resigned himself to a worsening
of the housing shortage through the mid-1970s, even though housing is
generally considered Poland's "number one welfare problem." The rate of
growth planned in housing construction (4.7% per year) is barely above
the actual rate in 1966-70. More to the point, the 1.1 million dwellings
to be built by 1975 are, by Polish estimates, 600,000 fewer than needed
simply to house the expected additional population, given the replacement
of "uninhabitable" dwellings and projected moves to the city and changes.
ir? family structure.
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20. In foreign trade, Gierek plans for a continued growth of exports
at the rate of the 1960s in order to speed up the growth of imports,
especially imports from the West. This export plan is probably too
optimistic. If the machinery industries meet production goals, exports to
the Communist world may run close to plan; in any case, Poland's major
raw material supplies are guaranteed by the USSR. But prospects for sales
to the West remain in doubt because of the shortage of manufactures that
can readily be sold in the West and the poor prospects for sales of important
raw materials and meat and dairy products. Yet in any case, Gierek intends
to double purchases from the West of machinery and equipment, and can
easily do so because of Poland's relatively low hard currenc., debt. West
Germany probably figures as the major supplier, but the Poles would also
hope - if suitable credit can be arranged - to buy some $350 million worth
of US equipment, particularly for the petroleum, copper, electronic, and
light and food industries. The regime would also like to promote US
investment in joint ventures in Polish mining and manufacturing.
Public Relations Versus Economic Change
21. By 1975 - even by 1980 - Gierek is apt to have chan ;ed the
,style of policy much more than actual economic results. As he has
repeatedly pointed out, substantial progress in raising the standard of living
as well as improving the structure, quality, and efficiency of production
will be a long-run affair. As an efficient administrator, Gierek may be able
to get firms and ministries to run more smoothly. And his style, geared
toward maximizing public confidence, should go a long way toward
improving the atmosphere.
22. Gierek will move cautiously with major changes in economic
policy. Unlike the reticent Gomulka, he will continue to go to the people
in an effort to explain and gain support for his policies. And he will certainly
try to avoid the sudden policy shifts that brought Gomulka down. He will,
however, be quick to enact emergency measures to maintain essential
consumer supplies - through additional imports, better allocation, and, if
need be, rationing. This style - even with barely perceptible improvements
in the lot of the consumer - should be enough to solidify the Gierek regime.
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