SOVIET ECONOMIC POLICY IN EASTERN EUROPE: THE IMPACT OF THE SATELLITE REVOLTS

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• Publication Date: August 12, 1958
• Content Type: REPORT

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"I'EtIZET_
ECONOMIC INTELLIGENCE REPORT
N? 7850X1
SOVIET ECONOMIC POLICY IN. EASTERN EUROPE:
THE IMPACT OF THE SATELLITE REVOLTS
CIA/RR 140
12 August 1958
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC INTELLIGENCE REPORT
SOVIET ECONOMIC POLICY IN EASTERN EUROPE:
THE IMPACT OF THE SAMLLITE REVOLTS
CIA/RR 140
(ORB Project 42.1948)
CENTRAL DUELLIGENCE AGENCY
Office of Research and Reports
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Summary and Conclusions
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CONTENTS
I. Introduction: the Declaration of 30 October 1956
and the New Look in Soviet-Satellite Relations . .
II. The Principles of National Sovereignty and Nonin-
terference: the Socialist Commonwealth
Page
2
4
III.
A. Satellite Economic Development and the Separate
Roads to Socialism
B. The Satellite Dilemma: Closer Ties with the
Free World or Dependence on the USSR . . .
The Principles of Equality of Socialist States and
Mutual Gain in Economic Relations
5
9
15
A.
Agreements on Uranium
15
B.
Other Financial Settlements
17
C.
Trade Prices
20
D.
The New Equality: Fact or Fiction?
21
IV.,
The Principles of Cooperation and Mutual Aid
22
A.
Trade and Aid
22
1. Aid
22
a. Credits and Loans
24
b. Debt Cancellations
26
c. Antirecession Measures . .
d. Prospects of Continuing Soviet Economic
27
Aid
28
2. Trade
28
B.
Integration
32
?
V. The Fruits of October: New Status of the Satel-
lites 35
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Appendixes
Appendix A. Partial Text of the Soviet Declaration
of 30 October 1956 on Collaboration Be-
tween the USSR and the European Satel-
lites
37
Tables
1. Division of Soviet and European Satellite Trade Be-
tween the Soviet Bloc and the Free World, by
Country, 1947-57
2. European Satellite Trade with Underdeveloped
Countries of the Free World as a Proportion of
Total European Satellite Trade with the Free World,
1954-56
3. New and Old Exchange Rates of Selected Soviet Bloc
Currencies for Noncommercial Transactions . . .
4. Credits and Loans Extended by the USSR to the Euro-
pean Satellites, 1945-55 and 1956-57
5. Trade of the European Satellites with the USSR,
1950 and 1955-57
6. Share of the USSR. in Trade of the European Satel-
lites, 1953 and 1955-57
7. Share of the European Satellites in Trade of the
USSR, 1955-57
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10
11
? 23
29
30
30
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CIA/RR 140
(ORR Project )4.2.1948)
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SOVIET ECONOMIC POLICY IN EASTERN EUROPE:
THE IMPACT OF THE SATELLITE REVOLTS*
Summary and Conclusions
The revolts of some of the European Satellites in 1953 and 1956
signified essentially a reemergence of nationalism in Eastern Europe.
Long suppressed under Soviet domination, nationalist pressures quickly
emerged during the period of indecision and relaxation of Soviet policy
in the months following Stalin's death in 1953. These pressures caused
a major retreat from the Stalinist policy of sovietization of Eastern
Europe. A new Soviet policy, evolving over the years since Stalin's
death, crystallized after the Polish and Hungarian revolts of 1956.
The objectives of the new economic policy are three. First, popular
uprisings within the European Satellites are to be prevented by increas-
ing the economic wellbeing of each country. Second, and a corollary of
the first, increasing coordination and integration' of Soviet Bloc eco-
nomic activity is being facilitated in order that the Bloc's resources
may be used more effectively in the future. Third, although granting
the Satellites a larger degree of economic independence, the USSR must
maintain its economic leadership of the Bloc.
In contrast to the rigid economic pattern of the Stalinist period,
the new policy is, first of all, flexible and diversified. Taking into
account the different economic and political circumstances in each Soviet
Bloc country, the new attitude acknowledges separate paths of socialist
economic development and accepts the principle of voluntary economic co-
operation.
So that it will be in the self-interest of the European Satellites
to maintain their Soviet Bloc membership, each Satellite has been given
a greater economic stake in the Bloc than it had previously. All of the
Satellites have obtained important economic concessions from the USSR.
The degree of economic independence and material advantage gained, how-
ever, varies widely, depending mainly on political and strategic factors
but also on the relative economic strength of a given Satellite. Eco-
nomic as well as other relationships with the USSR in many cases have
been defined by law and made public -- a different situation from the
secret, extralegal arrangements enforced during the Stalinist era.
* The estimates and conclusions contained in this report represent the
best judgment of ORR as of 15 June 1958.
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The new basis for intra-Soviet Bloc relations which the USSR has
been forced to accept is aptly described by Soviet leaders as a socialist
commonwealth. It is, however, a commonwealth in which some members are
economically stronger and more independent while others remain weak
appendages of the strongest state. Furthermore, all members acknowledge
the USSR as the political and economic leader of the commonwealth, and
all are committed, to a greater or lesser degree, to furthering the
economic interests of the Bloc as a whole.
The new Soviet policy has been so loudly proclaimed and so. clearly
defined that any attempt by the USSR to revert to its previous economic
domination and exploitation would undoubtedly meet stiff resistance in
the European Satellite's. It is unlikely, therefore, that anything less
than an actual or anticipated series of Satellite uprisings -- that is,
a failure of the new policy -- would bring about a return to Stalinist
tactics in the economic sphere.. The recent execution of Tmre Nagy and
the intensified attacks against Yugoslav revisionism by officials in
other Bloc countries show clearly that the USSR will tolerate .no threat
to the political unity of the Bloc, but these events have so far con-
tained no economic implications. The new policy may well lead to more
stable intra-Soviet Bloc relationships and to a more rational economic
development of the Bloc as a whole. If there are no revolts to disturb
the present course of Soviet-Satellite relations, the Satellites are
likely to gain increasing control over their own economic destinies
within the limits imposed by the national Communist leadership of each.
I. Introduction: the Declaration of 30 October 1956 and the New Look
in Soviet-Satellite Relations.
A major development affecting the world balance of power following
World War II was the creation and development by the USSR of a closed
economic area embracing all the member countries of the Sino-Soviet
Bloc. A Progressive consolidation of the Bloc economic area took place
under Soviet direction and according to Soviet blueprints. Facilitated
by a network of bilateral trade and clearing ,agreements, intra-Bloc
trade showed a large and rapid increase. The mechanism for 4 Bloc-wide
program of mutual economic aid and coordination of economic activity
was established in 1949 when the Council for Mutual Economic Assistance
(CEMA)* was organized.
*. The membership of CEM A includes the USSR and the following European
Satellites: Albania, Bulgaria, Czechoslovakia, East Germany, Hungary,
Poland, and Rumania. The term Satellite as used in this report denotes
one of the European Satellites.
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As consolidation progressed, however, signs of increasing disaffec-
tion with the new economic structure appeared in the Satellites. The
main target of criticism was the USSR and its economic policies toward
the Satellites. Resentment was directed specifically against Soviet
exploitation of Satellite resources and Soviet interference in Satel-
lite economic affairs. Beginning in 1953, the year of the East German
riots and of Stalin's death, the new Soviet leadership was forced to
make certain concessions to Satellite economic discontent. By .1954-55
the cruder and more obvious forms of Soviet exploitation and interference
had been removed.
In February 1956 the Twentieth Party Congress of the USSR repudiated
Stalinism and reaffirmed the equality and independence of all Bloc
countries. In the Satellites, these declarations signaled the release
of pressures for an end to Soviet domination. To stem the political
unrest and growing economic difficulties in Eastern Europe, the USSR in
1956 extended its first major series of loans and credits to the Satel-
lites since 1950, excluding one large credit to East Germany in 1953.
The concessions and assistance granted between 1953 and 1956 failed,
however, to quell Satellite unrest, which culminated in the Polish and
Hungarian revolts of late 1956. These revolts forced the USSR to make
extensive and fundamental changes in its policy toward the Satellites.
As a result, Soviet-Satellite relationships had assumed a new and dif-
ferent character by the end of 1956. The new pattern of .relationships
bears directly on the economic potential of the Soviet Bloc and on the
stability of the Bloc economic structure. This report offers an analysis
of the major changes in Soviet-Satellite relationships since 1956 and an
interpretation of the significance of these changes.
On 30 October 1956, at the height of the Hungarian revolt, the Soviet
government issued a "Declaration on the Principles for Developing and
Further Strengthening the Friendship and Collaboration Between the USSR
and Other Socialist States."* 1/** In this declaration the Soviet leader-
ship for the first time admitted publicly that it had been guilty of.
"outright mistakes; including transgressions and mistakes which dispar-
aged the principle of equal rights," in Soviet relations with other Bloc
countries. The Soviet government further declared its readiness "to
consider, together with other socialist states, measures for further
developing and strengthening economic ties among socialist countries, so
as to remove such opportunities .as may have existed for violating the
principles of national sovereignty, mutual gain, and equal rights in
economic relations."
* See Appendix A.
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The importance of this declaration is threefold. First., the USSR
ostensibly renounced its former privileged status in its economic rela-
tions with the Satellites. Second, Soviet and other Bloc officials have
repeatedly cited the Declaration of 30 October as the new set of princi-
ples under which intra-Bloc economic relations have since been conducted.
Third, the implementation of the principles of 30 October began almost
immediately with bilateral negotiations between the USSR and each Satel-
lite. These negotiations were extraordinary both in the, variety of mat-
ters discussed and in the scope of concessions made to Satellite demands.
The economic and other agreements resulting from these discussions go
far toward formally establishing a new basis for Soviet relations with
Eastern Europe. A wide range of economic agreements discloses the un-
equal and exploitative aspects of past Soviet-Satellite relationships
and provides mechanisms for eliminating these inequities in the future.
In order to determine the extent to which Soviet economic policy
toward the Satellites has actually changed, the measures taken to carry
out each of:the principles of 30 October will be discussed separately,
and comparisons will be made between the current and the past status
of Soviet-Satellite economic relations.
II. The Principles of National Sovereignty and Noninterference: :the
Socialist Commonwealth.
The term commonwealth has been adopted recently by Soviet spokesmen
to describe the changed basis of intra-Bloc relationships since 1956.
To avoid missing the implications of freedom and independence suggested
by this concept, the socialist commonwealth is defined as a group of
independent, self-reliant sovereign states with equal rights. 21 It
is further explained that the interests of developing Bloc economic
forces will be served "for along time" through the framework of national
socialist states rather than through a common socialist world economic
system. While thus reassuring the Satellite peoples of their right
to a free and sovereign national economy, Soviet spokesmen have at the
same time acknowledged mistakes and distortions in earlier Soviet policies
toward the Soviet Bloc. Khrushchev and other Bloc leaders blame past
mistakes on "the period of the cult of personality" -- that is, Stalin.
Accordingly, since the Twentieth Party Congress in 1956 repudiated Stalin-
ism, it follows that intra-Bloc relations have entered into a new era,
the era of the socialist commonwealth.
More is required to create a commonwealth, however, than doctrinal'
assertions by Khrushchev or declarations such as that by the First Sec-
retary of the Polish Communist Party, Gomulka, that "all abnormalities
which existed in past Soviet-Polish relations have been liquidated." 2/
The extent to which a country can direct its own internal economic
development and conduct its own economic relations with foreign countries
is the best test of its economic freedom and sovereignty.
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A. Satellite EconOmiC Development and the Separate Roads to
Socialism.
Soviet policy objectives in Eastern Europe influenced the course
of Satellite economic development as early as 1947-48 in two ways. First,
in order to increase the military potential of the Soviet Bloc and to
reduce its dependence on Soviet industry, each Satellite was to become
economically self-sufficient according to the Soviet definition. .Thus
each was to develop a heavy industrial base in the shortest possible
time, and each was to achieve a balance among the major sectors of its
economy similar to that existing in the USSR. Second, the USSR strove
to secure the production and flow from the Satellites of those goods
needed by the Soviet economy.
In order to achieve the first Soviet objective of economic self-
sufficiency, all the Satellites launched ambitious programs of industrial
investment during 1949-51. The planned share of investment in national
income ranged from 20 to 27 percent in all the Satellites. Of total -
investments, 40 to 50 percent in each country went to industry (mining,
manufacturing, and construction)-. The share of agriculture, by compari-
son, was 8 to 12 percent of the total. Of the total allocation to in-
dustry, 80 to 90 percent was marked for heavy industry. 6/ As summa-
rized by a Soviet source, in accordance with the socialist concept of in-
dustrialization, heavy industry (the foundation for the growth of the
entire economy) was to be developed at the most rapid rate. The.econo-
mies of all the Satellites were to be stamped from the same mold, even
to the extent of transplanting identical economic institutions of the
Soviet type in each country. 7/
Although plans for expanding heavy industry were largely suc-
cessful, the forced industrialization of the Satellites along Soviet
lines had generally disastrous results.- As heavy industry was expanded
faster than its slim raw materials base, the Satellites became increas-
ingly dependent on imports of raw materials. Moreover, heavy invest-
ment in industry at the expense of agriculture reduced or eliminated the
traditional Eastern European agricultural surpluses for export. Each
country attempted to build up all types of heavy industrial production
regardless of whether it had sufficient raw materials, personnel, pro-
duction experience, and other economic prerequisites. The results were
a parallel rather than complementary economic development among the
Satellites, a lack of coordination in planning, difficulties in the
organization of mass production and in the sale of manufactured goods,
and excessively high rates of capital investment. 8/
Beginning in 1953, the severe economic dislocations in Eastern
Europe brought sharp criticism of past policies and a demand for more
rational programs of economic development. "Schematism," or slavish
imitation of the USSR, became a term of great opprobrium. A former
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Hungarian cabinet member, declaring that Hungary's Five Year Plan lacked
a realistic basis, said, "We built large blast furnaces, one after an-
other, whereas we had neither enough domestic iron ore nor enough coking
coal for the scheduled production." 2/ Referring to the earlier poli-
cies of Communist leaders, another Satellite official stated in 1956
that it was erroneous "to regard the percentage share of engineering in
total production as a measure of a country's economic self-sufficiency." 12/
Soviet spokesmen joined in criticizing the exaggerated rates of indus-
trialization which, though proper for ,the USSR, had been imposed on the
Satellites by stereotype without the necessary economic foundations. 11/
The degree of Soviet responsibility for the early course of
Satellite economic development is difficult to determine. There is
abundant evidence that the USSR before 1953 deliberately encouraged the
industrialization of Eastern Europe along Soviet lines. Gomulka,
speaking to a meeting of his Party Central Committee in 1*%y 1957, said
that the imitation of the Soviet road to socialism had been encouraged
by the unequal relations with the USSR during the Stalinist period --
that is, before 1953. ly In 1950 a former Polish premier praised the
broad influence of Soviet advisers in drawing up Poland's long-term
plans and in increasing the rates of industrial development. 11/ In
1953 a top Yugoslav leader accused Soviet advisers of wanting "to trans-
plant everything just as it was in the USSR," making no allowance for
conditions in Yugoslavia.1-11 A Soviet economist implied that this was
a Soviet policy when he summed up a discussion of "successful" Satellite'
industrialization by saying that "in-its content and direction, it is
identical with that in the USSR." 12/
The USSR also exerted its influence to achieve its second policy
objective in Eastern Europe of securing a flow of needed supplies from
the Satellites. At first this objective was accomplished through the
Soviet-Satellite joint companies and other Soviet-controlled enterprises
in the Satellites. Control over these enterprises provided the USSR with
a tool for directly influencing development in mining, metallurgy, and
transportation in East Germany, Hungary, Rumania, and Bulgaria. 1Y
Later the long-term Soviet orders for Satellite machinery and equipment
and the Soviet influence in CEMA served the same purpose. In a Soviet
book on the Hungarian economy, for example, it was pointed out that the
economic development of the country was determined to a significant
degree by the fulfillment of long-term Soviet orders. 12/
Probably a somewhat lesser influence on Satellite development
was exerted by the types, of economic aid which the USSR agreed to extend.
According to both Soviet and Satellite sources, Soviet assistance was
directed almost exclusively into heavy industry. 1?./ Available infor-
mation on Soviet economic aid* supports these assertions.
* See IV, A, 1, p. 22, below.
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There is, on the other hand, evidence that Satellite leaders
themselves were largely responsible for the over sovietization of their
economies, particularly after 1953. Khrushchev has denied that Soviet
advice was responsible for the misguided Satellite attempts to gain
economic self-sufficiency. 12/ Tmre Nagy, at one time Premier of Com-
munist Hungary, went even further in absolving the USSR. In a secret
report to his Party Central Committee, Nagy quoted Mikoyan and Kaga-:
novich as censuring the Hungarian leaders in 1953 and 1954 for excesses
in industrialization and as advising readjustments in favor of light
industry. 22/
It appears that before 1953 the USSR encouraged the Satellites
to adopt the Soviet model of economic development. These pressures were
exerted at every level of Soviet-Satellite, relations, from the highest
inter-Party contacts to relations between Soviet and Satellite industrial
technicians, and through every means available -- CEMA conferences,
joint Soviet-Satellite enterprises, economic assistance, long-term
Soviet orders for machinery, and the like. It appears also that the
Soviet leadership realized, earlier than its Satellite counterparts,
the need for a reappraisal of Soviet Bloc economic problems. As early
as 1952, Soviet officials were calling for increased intra-Bloc special-
ization of production. 21/ This idea, which had clear implications for
-separate paths of Satellite economic development, became a full-blown
Soviet'policy at the Twentieth Party Congress of the USSR in February
1956. At this time, Soviet leaders also recalled Lenin's statements
that the road to socialism would assume different forms and tempos in
various .countries. Since the Satellite revolts this concept of separate
roads to socialism has been progressively modified and made somewhat ?
more explicit. In November 1956, Khrushchev denied any desire to impose
Soviet experience and methods on other Soviet Bloc countries and ac-
knowledged that each country must take account of its own "national and
social characteristics" while building a new society. 22/ In July 1957
a Pravda editorial stated that Marxism provides only general guiding
principles, which must be applied differently under the conditions
existing in each country. 23../
Although events in the Satellites forced the Soviet leadership
to adopt a new concept of intra-Soviet Bloc relationships, the implemen-
tation of the "separate roads" concept is certainly too recent to be
fully evaluated. There is little doubt that the area within which the
Satellites can exercise economic independence is a restricted one. Eco-
nomic activity must be directed by the Party. Bloc economies must not
become overly dependent on the Free World but must remain Bloc-oriented.
The economic unity of the Bloc must be maintained. Even the most in-
dependent of Satellite leaders has to recognize that any serious trans-
gression of these general rules would bring a heavy-handed Soviet in-
tervention. Within these implicit bounds the Satellites have already
shown evidence of independent policies.
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First, the European Satellites appear to be following a more,
independent course in CEMA deliberations. Whereas formerly Soviet sug-
gestions in CEMA meetings were in fact Soviet directives, since 1956
the Soviet attitude reportedly has been understanding and conciliatory. 2V
Thus- Poland, in a CEMA conference in June 1957, was able to refuse to
agree to Soviet Bloc-wide allocations of Polish coal but rather insisted
on its right to determine its coal exports through bilateral negotiation.
Poland, moreover,: reduced its coal exports to Bloc countries in 1957,
against CEMA wishes. g2/ Hungary has failed to carry out CEMA assign-
ments. It has also been reported 21/ that Czechoslovakia balked at
certain CEMA suggestions for specialization of industrial production and
demanded the right to produce what it wished. Market rivalry among the
Satellites has been reported to be still widespread.
Second, it appears that the composition and terms of. Soviet eco-
nomic-aid are no longer a simple matter of take-it-or-leave-it for the
Satellites. The confidential report of a Rumanian official that as of
December 1956 Rumania had a greater influence than formerly over the
nature of Soviet assistance 2L3./ seems to be borne out by the aid recently
extended. For example, Rumania in December 1956 obtained Soviet indus-
trial development and commodity credits on more favorable terms than in
the past.* Poland, too, won from the USSR more advantageous terms of
credit than in earlier agreements of a similar type. Even more indica-
tive of a "softer" Soviet attitude is the amount of Soviet aid which
the Satellites were able to obtain in the form of gold and Convertible
currencies to be used for purchases in the Free World. Although in the
10 years preceding 1956 the USSR made available only US $100 million**
in this form, more than $250 million were extended in the 2-year period
1956-57.
Third, in several of the Satellites new economic institutions,
radically different from Soviet forms, have appeared since 1956. In
Poland, workers' councils in industrial plants transferred to the
workers some of the managerial power previously held by the plant direc-
tors. Somewhat emasculated versions of the same institution were or-
ganized in Hungary and East Germany. 22/ In Poland and Hungary, private
farming has been encouraged, and the small proportion of farmland still
collectivized is subject to only nominal government control. 0
* See IV, A, 1, p. 22, below.
** Dollar values are given in terms of current US dollars throughout
this report.
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B. The Satellite Dilemma: Closer Ties with the Free World or
Dependence on the USSR.
An important manifestation of the new independence of the Euro-
pean Satellites is the increased trade and credit relations of these
countries with the industrial Free World. In contrast to Stalin's
assertion in 1952 that East-West trade was no longer an essential re-
quirement for socialist countries, LI both Soviet and Satellite leaders
in recent years have directed ever larger portions of their trade to
the Free World, as shown in Table 1.* Although part of this increase
is accounted for by the underdeveloped countries of the Free World, by
far the larger part reflects increased trade between the Satellites and
the industrial nations of the Free World, as indicated in Table 2.**
For the Satellite area as a whole, trade with the underdeveloped coun-
tries increased in importance in 1955 and then declined in 1956, when
it took up little more than 26 percent of total Satellite - Free World
trade. Except for Czechoslovakia, none of the Satellites conducted as
much as one-third of its Free World trade with the underdeveloped coun-
tries in any one of the 3 years. In 1956, four of the Satellites showed
a definite drop in the share of their trade conducted with these coun-
tries.
A growing effort to increase trade with the capitalist world
has been shown by individual Satellites. In 1956, Poland, for example,
reduced its coke exports to other Satellites while increasing those to
the Free World to four times the level of 1955. 2/ Its commodity trade
with the Free World continued to rise in 1956, both relatively and ab-
solutely. Hungary has attempted by various means to overcome the foreign
exchange shortage which is preventing a more rapid rise in its trade
with capitalist countries. It has negotiated for the foreign construc-
tion of an automobile assembly plant in Hungary, with payment for im-
ported parts to be made through the export of assembled autos. In
1957, Hungary offered to reexport UK goods to Egypt, a market closed
to direct UK exports. _32?/ Rumania and Bulgaria are endeavoring to in-
crease the salability of their products on the capitalist market.
In credit relations, too, there has been an increasing inclina-
tion on the part of the Satellites to approach the Free World. In mid-
1956 the Czechoslovak Chamber of Commerce advocated seeking technical
assistance from Free World industrial countries. L/ Between 1955 and
early 1958, Poland negotiated long-term credits totaling almost $300
million with West Germany, Canada, France, and the US. These are
the first long-term credits Poland has obtained in the Free World since
1947. Hungary continued its efforts to obtain Free World goods on
* Table 1 follows on p. 10.
** Table 2 follows on p. 11.
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Table 1
? Division of Soviet and European Satellite Trade
Between the Soviet Bloc and the Free World, by Country
1947-57
Percent
Albania 2/
Bulgaria 12/
Czechoslovakia 2/
East Germany 4/
Hungary 2/
Poland f/
Rumania J./
USSR 12/
Year
Bloc
Free World
Bloc
Free World
Bloc
Free World
Bloc
Free World
Bloc
Free World
Bloc
Free World
Bloc Free World
Bloc
Free World
1947
N.A.
N.A.
86
14
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
37
63
N.A.
N.A.
N.A.
N.A.
1948
38
62
79
21
32
68
N.A.
N.A.
35
65
41
59
73
27
51
49
1949
loo
o
N.A.
N.A.
46
54
N.A.
N.A.
49
51
43
57
83
17
N.A.
N.A.
1950
100
0
N.A.
N.A.
55
45
72
28
61
39
59
41
83
17
83
17
1951
loo
o
N.A.
N.A.
61
39
76
24
67
33
58
42
80
20
76
24
1952
100
0
90-
10
71
29 ?75
25
71
29
66
34
84
16
80
20
1953
loo
o
87
13
78
22
78
22
76
24
70
30
84
16
83
17
1954
? 98
2
90
lo
75
25
76
24
71
29
70
30
81
19 -
78
22
1955
96
4
87
13
70
30
72
28
61
39
63
37
8o
20
77
23
1956
96
4
85
15
67
33
73
27
63
37
6o
40
78
22
76
24
1957 (Plan)
N.A.
N.A.
83
17
N.A.
N.A.
73
'27
N.A.
N.A.
54
46
76
24
74
26
a.
37/
b.
2/
c.
39/
d.
e.
111/
f?
Lai
g.
113/
h.
L4/
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Table 2
European Satellite Trade
with Underdeveloped Countries of the Free World a/
as a Proportion of Total European Satellite Trade
with the Free World 12/
1954-56
Percent
Country
1954
1955
1956
Albania
18.4
21.0
13.2
Bulgaria
21.9
27.0
27.7
Czechoslovakia
40.9
46.6
43.9
East Germany
6.0
9.7
12.6
Hungary
27.6
28.4
29.7
Poland
23.7
28.3
19.3
Rumania
29.4
30.9
30.3
Total Satellites
23.8
28.7
26.4
a. Including Yugoslavia.
short-term credit, and Hungarian officials have advocated seeking long-
term currency and commodity credits in capitalist countries. There is
evidence that Rumania, too, wishes to conclude special triangular trade
and other business deals with capitalist countries in order to prevent
its being completely tied to the Soviet economy. li2/
This recent trend of the Satellites toward solving economic
problems at least partly through a modest reorientation of their trade
away from the Soviet Bloc has apparently met with no serious Soviet
opposition. The USSR has even tried to facilitate the widening of
Satellite trade channels with the Free World. In 1956-57, East Germany,
Hungary, and Pbland were extended Soviet loans of gold or foreign ex-
change to pay for purchases in the Free World. In January 1958 the
USSR. was reported to be planning the establishment of a trade bank in
Vienna to extend commercial credit and otherwise to facilitate expanded
trade between the Bloc and the Free .World. )16_/
The present attitude of the USSR toward Satellite economic re-
lations with the capitalist world is a departure from Soviet policy
during the cold war years, 1947-52. In July 1947, Czechoslovakia sud-
denly reversed a previous decision to attend the Marshall Plan confer-
ence in Paris, declaring officially that its participation "could be
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interpreted as an act directed against its friendship with the USSR." Li/
Czechoslovak officials indicated, both privately and publicly, that
direct pressure had been applied by Stalin. Two days later, as if to
emphasize the new eastward orientation of Czechoslovakia, the first
long-term Soviet-Czechoslovak trade agreement was'signed.1-!-/ One of
the chief Cotinform charges against Yugoslavia during the bitter intra-
Bloc struggle in 1948-49 was the complaint that Tito had made economic
concessions to imperialist states, threatening the economic independence
of Yugoslavia. L..20,/ Yugoslavia was charged, falsely, with planning to
participate in the Marshall Plan. Yugoslav negotiations for loans from
the Export-Import Bank and the International Bank for Reconstruction
and Development were cited by Polish and Soviet officials as further
evidence of its bowing to imperialism. 22/
The reasons for the new Soviet attitude toward an expansion of
Satellite economic relations with the capitalist world follow. First,
because the .Soviet leadership has agreed to allow the Satellites a
larger degree of autonomy in charting their own courses of development,
any Soviet attempts to thwart. Satellite overtures to the Free World
would be correctly interpreted as a return to Stalinist tactics. Sec-
ond, the current Soviet theme of competitive coexistence includes East-
West trade as an important element. Soviet leaders assert that the
expansion of trade between the socialist and Capitalist worlds will
reduce international tensions. Third, it is apparently recognized by
Soviet planners that Free World trade and credits could help alleviate
the Satellite economic difficulties. To the extent that dealings with
the industrial Free World provide economic stability to the Satellites,
the UBSR will be relieved of additional obligations to extend them
assistance. Recent Soviet aid commitments to the Satellites are not
of sufficient size to cause any serious problems to Soviet domestic
plans. There have been indications, however, that Soviet leaders are
concerned over the possible need to continue for some time a sizable
crc=am of economic aid to the Satellites.
the USSR approved stronger Satellite economic ties with the
Free World so that Eastern Europe would be "less of a burden" to the
USSR. 21/
- The clearest statement of the new Soviet attitude appeared in
a Soviet political journal in 1957. 522 It was pointed out that the
friendly socialist world market can now supply the "basic material re-
quirements" of all Soviet Bloc countries. Therefore, according to Soviet
spokesmen, it is now advantageous for the Bloc to conduct trade with
the capitalist world because capitalist countries can no longer dictate
one-sided conditions to the members of the now powerful socialist camp.
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It appears likely that Soviet leaders still harbor misgivings
about the expansion of Satellite economic ties with the industrial Free
World. Their fears seem groundless, however, as the chance of a major
reorientation of Satellite trade away from the Soviet Bloc appears re-
mote. Even without strong strategic and political pressures on the
Satellites to remain oriented toward Moscow in their economic activity,
the economic dependence of Eastern Europe on the USSR is, in itself,
. sufficient reason for doing so. Although recognizing that a consider-
able reorientation of trade toward the industrial Free World Might be
desirable as a long-run solution to their economic problems, Satellite
leaders must also face the fact that their econ=ies are now geared
closely to that of the USSR (see Table 6*).
An increasing cycle of Satellite dependence on the USSR has been
developing since 1911-5. Having built up industry based largely on Soviet
requirements, the Satellites now have considerable industrial capacity
which finds its chief market in the USSR. Soviet Bloc spokesmen have
pointed to the economic stability afforded by long-term Soviet orders
as opposed to the uncertainty of Free World markets -- undoubtedly an
important consideration in the planned economies of Eastern Europe.
Moreover, the new industries created in the Satellites are generally
not competitive, in terms of price or quality, with those of Free World
industry. Thus a Bulgarian leader said that imports from the USSR in
1957 would.bepaid for chiefly (65 percent) with manufactures, but, were
Bulgaria to make its purchases on the Free World market, it would have
to export "wheat, oilseeds, meat, and other things that we need at
home." 2.3./ Based to an important degree on imported raw materials, the
high-cost industry of the Satellites naturally looks to its best export
market, the USSR. In .1956, for example, the USSR absorbed 20 percent
of the entire machinery output of Hungary, which made up 60 percent of
the total exports of Hungary to the USSR. Li Hungarian officials
acknowledge that Hungary could not exchange its machinery products for
needed raw materials on other markets.
The extent of Satellite dependence on the USSR for deliveries
of industrial raw materials is indicated by the data below, all of which
are from official Satellite sources. In 1955, Hungary received the
following materials from the USSR (expressed as a percentage of total
Hungarian industrial consumption of each coMmodity) 22/:
* P. 30, below.
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Commodity
Percent
Asbestos
90
Phosphates
81
Sulfur
81
Pig iron
80*
Caustic soda
77*
Iron ore
71
According to the foreign trade plan of Bulgaria for 1957, it was to re-
ceive the following industrial raw materials from the USSR (expressed
as a percentage of total Bulgarian imports of each) 2.Y:
Commodity
Percent
Rubber
83
Cellulose
80
Oil products
72
Ferrous metals
.72
Coke
67
In 1956, 80 percent of total imports of industrial raw materials by
Czechoslovakia came from the USSR. 2// In 1954 the following materials
were imported from the USSR (expressed as a percentage of total Czecho-
slovak imports of each) 2J:
Commodity
Percent
Aluminum
94
Cotton
80
Iron ore
74
Copper
72
Crude oil
60
A rising schedule of Soviet deliveries of essential raw materials to
the Satellites during 1957-60 is revealed in a recent CEMA document. 59/
This document, in which proposed shipments of major commodities from
the USSR to Bulgaria, Hungary, and Czechoslovakia are set forth, shows
that significant increases are planned in the volume of Soviet exports
of iron ore, petroleum products, apatite, fertilizers, cotton, and
chemicals.
* These estimates are considerably higher than those currently carried
in CIA,
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There are, moreover, certain self-perpetuating aspects of this
dependence on commodities. In some cases, large investments were made
to modify production or transportation facilities so as to accommodate
Soviet materials of a particular type or from a particular place. . For
example, because Soviet iron ores from Krivoy Rog are extremely powdery,
Poland has built large sintering units at its blast furnace sites. .62/
A changeover to new sources of supply would be costly in such cases.
This essential dilemma of the Satellites was best expressed by
the Polish Party leader, Gomulka, in a speech to a meeting of his Party
Central Committee in May 1957. 61/ Pointing out the importance of follow-
ing a distinctly Polish road to socialism, Gomulka ended by saying that
the economic future of Poland is closely tied with that of the USSR and
that "whoever thinks in terms of economics cannot underestimate the
significance of the economic development of the USSR for the economic
development of our country."
III. The Principles of Equality of Socialist States and Mutual Gain in
Economic Relations.
A. Agreements on Uranium.
Between October 1956 and March 1957, separate agreements were
signed by the USSR with each of the Satellite producers of uranium --
Czechoslovakia, East Germany, Rumania, Bulgaria, and Hungary -- con-
cerning the extraction and sale of uranium ore. The USSR is believed
to have been in direct control of the uranium mining enterprises in
each of these countries* before it signed this series of agreements.
Satellite uranium deliveries are vital to the Soviet nuclear energy
program. The new agreements are therefore significant in showing the
extent to which the USSR has been willing, in accord with its Decla-
ration of 30 October,** to make concessions in an area of great stra-
tegic ihportance.
In the Soviet-Bulgarian economic agreement of February 1957 the
statement on uranium declared only that "Bulgaria will continue to sup-
ply the USSR with uranium ore,_at just, mutually advantageous prices,
permitting the further successful exploitation of this raw material."
No further details of this agreement are available, although it has
since been reported that Bulgarian negotiators failed in their efforts
to obtain a better price for uranium exports. 6
* Excluding Hungary, where uranium mining has only recently been
started.
** See Appendix A.
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Rumania regained full ownership of its uranium mining enterprise,
Kvartsit, in an agreement signed with the USSR on 22 October 1956. Li
This enterprise had previously been a so-called "joint" company dominated
by the USSR. In December 1956 the Rumanian premier, Stoica, revealed
that the Soviet-Rumanian economic agreements signed on 3 December in-
cluded an accord on uranium. Stoica said the USSR would provide Rumania
with metallic uranium obtained from the processing of Rumanian ore.
Uranium exports are, he stated, made "within the framework of Soviet-
Rumanian trade exchanges" and at prices "more favorable than world mar-
ket prices." .?2/
In an apparent move to retain Soviet control of uranium deposits
in Hungary and Czechoslovakia while at the same time maintaining the
appearance of "mutual advantage" and "equality" in Soviet-Satellite re-
lations, the USSR made significant concessions in its uranium agreements
with these two countries. The agreement with Czechoslovakia of 29 Jan-
uary 1957 provided for continued Czechoslovak shipments of uranium ore
to the USSR at fair and mutually advantageous prices. L6./ In return the
USSR offered Czechoslovakia long-term, interest-free credits for the
development of uranium mining and agreed to cover fully all expenses
connected with uranium prospecting in Czechoslovak territory.* L/ In
addition, the USSR agreed to supply Czechoslovakia with the necessary
equipment and technical assistance for constructing a nuclear physics
institute, an atomic power station, and factories to produce heavy
water and metallic uranium. The President of Czechoslovakia, Zapotocky,
described this agreement as "the best example of the new socialist
relations existing between Czechoslovakia and the USSR." Lq/
In .a similar accord with Hungary, on 28 March 1957, the USSR
agreed to aid in building and equipping atomic power stations and to
continue to render technical assistance for uranium prospecting. It
was further agreed that, once uranium'mining is established, ore mined
in excess of the domestic needs of Hungary will be sold to the USSR at
just and mutually advantageous prices. The Foreign Minister of
Hungary, Horvath, revealed some time later that 75 percent of the in-
vestments in uranium mining are being furnished by the USSR in the
form of an interest-free 10-year credit. /2/
Important concessions were won from the USSR by East Germany,
the largest producer of uranium in the Soviet Bloc, in two agreements
signed in January and March 1957. In the comprehensive protocol on
Soviet - East German economic and political relations signed on
* The joint Soviet-Czechoslovak declaration mentioned Soviet technical
aid in uranium production but did not note the granting of long-term,
interest-free credit. These details were revealed later by Czechoslovak
leaders.
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8 January 1957, Article 4 dealt With uranium. /1/* It was noted that
both parties made suggestions regarding the method of pricing uranium
exports for 1957 to the USSR. Delegates of both sides were ordered to
solve this and other financial questions which the German negotiators
had raised in relation to SAG Wismut (the joint Soviet-German enterprise
in charge of uranium mining). A subsequent agreement signed in March 1957
provided that uraniumdeliveries to the USSR be made at prices covering
production costs plus a planned profit and that payment be effected by
Soviet commodity shipments to East Germany. /2/ Although the price paid
by the USSR appears to be in line with world prices for uranium, recent
reports have claimed that the price does not cover the high East German
production costs. The agreement further specified that "in all finan-
cial and economic actiiiities ... SAG Wismut will conform to the, appro-
priate laws of the German Democratic Republic." It has also been re-
ported that German nationals have replaced Soviet personnel in some of
the leading positions in SAG Wismut, although the key post of general
manager continues to be filled by a Soviet citizen, 12/ These agree-
ments indicate that the administration, mining, and export of uranium
have been placed on a formal legal basis. The East German leaders have
thus been successful in limiting the range' of activities which can be
directed by unilateral Soviet decisions. Although the USSR has granted
significant concessions, it has retained its half ownership and probably
the major share of control' in the mining of East German uranium.
From the agreements concluded in 1956-57, it appears that the
USSR continues to exercise a high degree of control over the uranium
deposits of the Satellites. Only in Rumania and, to a lesser extent,
in East Germany has the USSR reduced its direction of uranium mining
activities. This control has, however, become less direct and more
costly to the USSR since the Satellite revolts in 1956.
B. Other Financial Settlements.
As a result of the renegotiation in 1956-57 of earlier agree-
ments, several of the Satellites won major concessions from the USSR. -
In addition, new "noncommercial" exchange rates,** generally less favor-
able to the USSR, were established with certain Satellite countries.
* The annex to this document contained the complete text of the Soviet-
East German agreements, The official communique on these agreements did
not mention uranium.
**. The noncommercial rate is a rate which is applicable to inter-
national paymentsother than those involving commodity trade and trans-
portation.
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During the Polish-Soviet discussions in November 1956, Poland
asked for an ex post facto revision of a 1945 war reparations agreement
under which about 60 million tons of Polish coal had by 1953 been de-
livered to the USSR at a token price of $1.25 -- later $2.00 -- per
metric ton.* Had this coal been sold at world market prices, which
were $12 to $16 per ton during these years, it would have earned for
Poland $550 million in addition. The rationale behind the 1945 agree-
ment is indicative of the one-sided character of Soviet-Satellite re-
lations in the early postwar years. The Silesian coal mines which had
belonged to Germany before 1939 were ceded by the USSR to Poland as
German war reparations. The USSR, however, claimed some rights in these
mines because only a rapid Soviet military offensive had prevented their
destruction. A leading Polish Communist official disclosed in 1956 that
Stalin, using this argument, had in 1945 proposed the creation of a
joint Soviet-Polish company to operate thq Lower Silesian mines. Polish
rejection led to another Soviet proposal, which Poland was obliged to
accept, that a certain part of the coal mined be shipped annually to the
USSR at a token price. Poland was to receive in return 15 percent of
all war reparations obtained by the USSR from Germany. /L/ Although
Poland provided the USSR with coal as stipulated, it receiVed only a
fraction of the reparations promised by the USSR. Therefore, in Novem-
ber 1956,, Polish negotiators demanded and obtained a revision of the
1945 agreement. Recognizing the Polish claim to compensation of $550
million for coal delivered, the USSR agreed to write off $550 million
which Poland owed for Soviet credits extended since 1947. /2/ This
concession, which met the "chief demand" of the Polish negotiators, /W
represeftted to Poland an important break with the previous unequal re-
lations with the USSR. The USSR at the same time acceded to another
Polish claim for reimbursement of $15 million involving the revaluation
of communications services which the USSR previously had received. 77/
A retroactive Polish claim regarding transit charges was dis-
cussed during the November meetings, although final settlement was
delayed almost a year. The claim involved the use of Polish railroads
during 1946-54 for which the USSR had paid a special low rate,. In June
1957, there were reports that Khrushchev had rejected the Polish de-
mands. yffil Although.negotiations were never officially announced to be
completed, it was reliably reported that the USSR finally agreed in
September 1957 to reimburse Poland about $45 million in settlement. /2/
In describing these agreements, the Polish Deputy Minister of Finance
stated that "on the highest level, problems were settled rapidly, with
great good will and understanding for our demands." 80./
Hungary obtained a similar settlement during the Soviet-Hungarian
meetings in March 1957. Through a recalculation of earlier travel and
* Tonnages are given in metric tons throughout this report.
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transport costs, Hungary was credited with about $20 million, although
this settlement was not mentioned in the official joint communique fol-
lowing the March discussions. glj
Between 1 May 1957 and 1 January 1958, new noncommercial exchange
rates were established by the USSR with Poland, Hungary, Rumania, East
Germany, Bulgaria, and Czechoslovakia. Except in the case of Poland,
the Satellite currencies were appreciated in terms of the ruble, as.
shown in Table 3.
Table 3
New and Old Exchange Rates of Selected Soviet Bloc Currencies
for Noncommercial Transactions 21
Units per Current Ruble
Country
Unit of
Currency
New Rate
(Per Ruble
Old Rate
(Per Ruble)
Date of Chani.2.1
Bulgaria
Lev
0.89
1.7
15 July 1957
Czechoslovakia
Crown
1.16
1.79
1 July 1957
East Germany
Mark
0.39
0.55
1 January 1958
Hungary
Forint
1.4
2.96
21 May 1957
Poland
Zloty
1.5
1.0
1 May 1957
.Rumania
Leu
0.97
1.5
1 June 1957
a. L32/
Among the candid discussions of past Soviet-Hungarian relations
which appeared in the Hungarian press following the 1956 revolt, several
articles dealt with the previously existing noncommercial exchange rate.
It was stated that this rate undoubtedly was unjust because it aver-
valued the purchasing power of the ruble in comparison with that of the
forint. 83/ this was generally true of pre-
1956 noncommercial exchange rates between the USSR and other Satel-
lites.
In hailing these new settlements with the USSR, Satellite leaders
disclosed the exploitative agreements which had existed previously. The
former arrangements regarding Polish coal deliveries, Hungarian and
Polish transport services, and noncommercial exchange rates offer docu-
mentary proof of economic plundering by the USSR. Conversely, the new
settlements which were agreed to suggest that the USSR has been forced
to stop bleeding the Satellite economies or at least to give up its most
blatant methods of doing so.
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C. Trade Prices.
There is little doubt that the USSR has been in a position to
engage in price discrimination against the Satellites. Because the
Satellites have become increasingly dependent on the USSR both to absorb
their exports and to provide their raw materials imports, the USSR has
been in a strong bargaining position. Furthermore, political hegemony
over Eastern Europe gave the USSR an even greater weapon for exploiting
the Satellite economies. It is therefore not surprising that charges
of price discrimination have often been leveled at the USSR in its
dealings with the Satellites.
During the 1056 revolts, several instances of past Soviet price
exploitation were brought to light. The reparations agreement with
Poland and the transit agreements with Hungary and Poland described in
the preceding section are the best documented examples thus fax avail-
able. These agreements all related to nontrade transactions. In regard
to trade prices the. evidence is inconclusive. For example, it was dis-
closed that Polish coal exported to the, USSR on comthercial account be-
tween 1953 and 1956 was priced several dollars a ton below world market
prices. ?52 According to Polish officials, however, the differential
was compensated for by a corresponding price reduction in certain Soviet
export items. 161
The official explanation of the basis for determining intra-Bloc
trade prices has appeared, with little variation, in Soviet and Satel-
lite writings over the past several years. According to this informa-
tion, three general rules govern trade pricing within the Bloc. First,
prices are fixed, to the greatest extent possible, on the basis of
average annual world market prices. Li Second, prices remain fixed
for at least a year, often for several years. L3/ Third, generally a
single intra-Bloc trade price is established for each commodity, devia-
tions from this price normally reflecting only differences in trans-
portation costs. 8
There is little information available onthe extent to which
these rules have been applied. There are indications that a world mar-
ket price, or something similar,* is at least a point of reference in
trade negotiations. al-
though Soviet export prices in 1949 were "considerably" above Free World
prices, Rumanian negotiators were able in subsequent years to get re-
ductions by documenting their charges of overpricing. 22/ Former Hun-
garian trade officials have likewise asserted that prices are largely
* Czechoslovak officials state the basis of trade prices with the USSR
to be the average annual price in the nearest (Free World) producing area,
citing Danish butter prices as an example. 29./
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a matter of bargaining and that the hardest bargainers are most success-
ful. World market prices are, it is said, used'as "a basis for nego-
tiation." 22/ There are, on the other hand, numerous public statements
by Satellite officials claiming that trade with the USSR is based on
world market prices. L./ Another indication that this is the case is
the absence of any Polish or Hungarian claims against the USSR for past
discrimination in trade prices, although many other claims were brought
up for renegotiation after the 1956 revolts.
It appears, however, that Soviet exploitation of the Satellites
was carried out largely through means other than discrimination in trade
pricing. In the earlier postwar years, when Satellite economies were
prostrate, the USSR must have appeared as a powerful and menacing trade
partner to whom deference must be given. Mikoyan is quoted by a Yugo-
slav official as telling a Yugoslav trade negotiation team, "Trade is
trade; I am not engaged in making gifts, but in carrying on trade.,"211/
To whatever extent there was actual trade price discrimination, it prob-
ably was brought about, as a Polish official said, by "the rather com-
plicated system of prices and calculations applied in this exchange." 22/
In other words, although the standard trade agreements may have been
based on world market prices, there was a great variety of special com-
modity, transit, and other agreements which incorporated special prices
of advantage to the USSR.
Because of the criticism of past Soviet pricing practices, many
of the post-1956 Soviet-Satellite agreements have dealt with the problem
of prices. It the terms .of the Soviet - East German long-term trade.
agreement for 1958-60, it is specified that trade will be valued at
world market prices. The Polish Minister of Foreign Trade announced
that the Polish trade agreement with the USSR in 1957 provided for trade
accounts based "on new principles, on the basis of world market prices."
In November 1956 the Premier of Hungary, Kadar, declared that the terms
of all future trade agreements with the USSR would be made public. 8
In regard to special noncommercial agreements, Bulgaria, Czechoslovakia,
Hungary, And Rumania signed uranium accords with the USSR, all of which
declared that the USSR would pay world market prices or better for de-
liveries of uranium. Thus, regardless of past pricing practices, the
USSR is now formally committed to adhering to world market prices in its
dealings with most of the European Satellites. -
D. The New Equality: Fact or Fiction?
. When Gomulka returned to Poland from Moscow in November 1956
with a list of Soviet concessions he told his people, "We talked with
our Soviet comrades as equals," 22/ Other East European leaders,
particularly in Hungary and East Germany, described their new rela-
tions with the USSR in similar vein. It is too soon to judge whether
the important concessions gained in 1956-57 and discussed above are of
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sufficient depth and permanence to warrant such optimism on the part of
Satellite leaders. It is clear that the USSR has found it necessary to
repudiate previous one-)sided economic arrangements of advantage to itself.
This is particularly true, as indicated in the foregoing section, of the
Satellites in which armed uprisings had occurred -- Poland, Hungary, and
East Germany. These three countries were able to extract from the USSR
admissions of previous exploitation in the form of resettlement to their
advantage of earlier one-sided agreements. It is also clear that, in
order to retain a large measure of its former control over such vital
Satellite activities as uranium mining, the new Soviet leadership has
been forced to make concessions.
EV. The Principles of Cooperation and Mutual Aid.
A. Trade and Aid.
.1. Aid.*
Soviet economic aid extended to the Satellites since World
War II .has been used to help achieve Soviet policy objectives in Eastern
Europe. Soviet emergency credits and loans have alleviated economic
crises and to some extent have abated popular discontent with Communist
regimes. Before 1953, Soviet industrial development credits influenced
the patterns of Satellite growth. Soviet aid helped develop heavy in-
dustries, making the Satellites less dependent on Soviet manufactured
goods. Eastern Europe simUltaneously became more dependent on the USSR
to supply Satellite industry with spare parts and raw materials.
At the same time, the USSR, beginning in 1945 and possibly
as late as 1953, was enjoying the fruits of unilateral transfers from
the Satellites. Through war booty and reparations, privileges held by
joint-stock and other Soviet-controlled enterprises in Eastern Europe,
and special agreements which formalized Soviet economic exploitation,
the USSR obtained a vast quantity of unrequited imports. In short, the
USSR was receiving greater value than it gave.
Beginning in 1953 and particularly after the 1956 revolts
the main Soviet objective in Eastern Europe was to prevent further dis-
affection. The USSR has sought to achieve this in part by restoring eco-
nomic stability within the Satellites. In thus underwriting the economic
stability of Eastern Europe, the USSR in 1"'"-57 expanded and modified
its aid program in accordance with the prin.( iZies of close mutual aid
and cooperation enunciated in its Declaration of October 1956.. Forced
to renounce its former privileged status in - tern Europe and to under-
take a much greater program of economic aid the Satellites, the USSR
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now appears to be a net exporter of goods and services to the Soviet
Bloc.
In 1956-57, Soviet commodity and currency credits extended
to the European Satellites amounted to about $1.2 billion, which almost
equaled the amount ($1.3 billion) extended over the preceding 11 years.
The value of Soviet credits extended in 1956-57 compared with those
in 1945-55, by country, is shown in Table 4.
Table 4
Credits and Loans
Extended by :the USSR to the European Satellites 2/
1945-55 and 1956-57
Country
1945-55
1956-57
Amount (Million
Current US $)
Percent
of Total
Amount (Million
Current US $)
Percent
of Total
Albania
105.5
8.3
47.8
4.1
Bulgaria
70.0
5.5
147.5
1216
Czechoslovakia
48.o
3.8
o
0
East Germany
363.1
28.5
280.0
23.9
?
Hungary
39.8
3.1
293.8
25.1
Poland
614.0
48.2
300.0
25.6
Rumania
.32,5
26
,102.5
8.7
Total
1,272.9
100.0
1,171.6
100.0
a. 101/
,This sharp rise in Soviet credits to the Satellites since 1956 contrasts
sharply.with the early postwar period. During 1945-49 the Satellites
received less than $800 million in total economic aid. This modest
volume of assistance, more than half of which reflected a 1948 credit
to Poland, represented the Soviet contribution to the early postwar
,economic recovery of the Satellites.
In addition to credits and lOans, the USSR in .1956-57
granted a great many other types of economic aid, most of\which had no
counterparts before 1956. This other assistance, which totaled more
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than $3 billion, consisted of two general categories. First, the USSR
wrote off various debts incurred by the Satellites for Soviet credits
extended before 1956 and for the repurchase of Soviet shares in the
defunct joint Soviet-Satellite companies. Such debt cancellations
amounted to about $1 billion. Second, the USSR agreed_to renegotiate,
to the advantage of the Satellites, previous agreements concerning
prices for commercial and noncommercial services,* costs of Soviet troop
maintenance, and certain transfers of Soviet property. Such concessions
together totaled more than $2 billion. Thus total Soviet economic aid
to the Satellites in 1956-57, including credits, debt cancellations, and
various concessions, amounted to about $4.4 billion,** as shown in the
following tabulation:
Billion US $
and loans
1.17
,Credits
Debt cancellations
1.00
Other concessions
2.26
Total
4.43
The types and conditions as well as the volume of economic
aid extended since 1956 differ from those of earlier Soviet assistance.
This change applies equally to the recent credits and loans as well as
to the newer additional aid categories -- debt cancellations, supple-
mental ord6rs, and Soviet hiring of Satellite labor.
a. Credits and Loans.
Although details' are lacking on some of the earlier
Soviet credits and loans to the European Satellites, information is
adequate for making rough comparisons with the recent series. Credits
and loans in both the earlier and the later periods were extended gen-
erally for one of three purposes: machinery and equipment for economic
development, gold and foreign exchange to cover Free World purchases,
or emergency commodity credits. A notable feature of the 1956-57 series
is the volume of gold and foreign exchange credits ($253 million), which
is more than twice the amount extended before 1956 ($102 million). This
* The most important of these concessions
III, p. 15, above,
** This amount should not be added to total
1946-55 to obtain total Soviet economic ass:'
some of the debts canceled in 1956-57 refle,
1946-:55.
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re discussed in detail in,
? sistance extended in
qonce during 1946-57, because-
', credits extended during
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volume implies not only Soviet acceptance of the increased trade of the
Satellites with the industrial Free World ,but also a Soviet agreement
to assist the Satellites in this trade.
Before 1956, Soviet credits for economic development
were directed almost entirely to the more highly industrialized Satel-
lites, Poland and East Germany.* Beginning in 1956, industrial and agri-
cultural development credits were extended exclusively to the less highly
developed Satellites -- Albania, Bulgaria, Rumania, and Hungary. Recent
credits of this type amounted to roughly $325 million. Commodity credits,
which made up approximately one-fourth the total value of pre-1956
1. credits, amounted to something over half the value of credits extended
since 1956. Of the $600 million in commodity credits, $550 million went
to Hungary, Poland, and East Germany. It is noteworthy that, after more
; than 10 years of rapid economic growth in Eastern Europe, 4 of the Satel-
lites (Albania, Bulgaria, Poland, and Rumania) still required emergency
grain credits, totaling nearly $150 million, from the USSR in 1956-57.
The new series of Soviet credits was extended on more
favorable terms-than those in the period before 1956. An industrial
development credit of $67.5 million received by Rumania in late 1956
for chemical plant construction is of an entirely. new type in Soviet-
Satellite dealings. Rumania is to repay the credit with future output
from the plants over a 10-year period. beginning when the plants start
producing.. 102/ Although it remains to be seen how this arrangement
will be implemented, the terms of repayment appear to compare most favor-
ably with those imposed by earlier Soviet credits.** The drawbacks to
Soviet credits in the past were summarized by Poland's Party leader,
Gomulka, as follows 103/:
We contracted important investment
credits for the expansion of industry, and
when the time came for the payment of the
first installment, we found ourselves in
the position of an insolvent bankrupt.
We had to ask ... for a moratorium
A considerable part of these credits in
the shape of machines and installations
has so far found no application in
* The exception is Albania, which is estimated to have received $87
million in the pre-1956 period.
** Comparison is made only in terms of the direct burden which the
credit imposed on the recipient country and not in terms of such Jong-
range factors as binding the economy of Rumania more firmly to that of
the USSR.
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, production and will not find any ...
for years to come ...
Gomulka's statement is borne out by a review of the terms of the Soviet
credits. Almost all of the earlier credits required repayment to begin
within 2 years. Of the 1956-57 credits, on the other hand, about half
called for repayment to begin from 3 to 5 years after their receipt.
Moreover, the new series of credits generally permits payments to be .
extended over a longer time and at a low standard interest rate. Four
of the recent economic development credits provide a 10-year repayment
period -- longer than any of the pre-1956 credits, of which all except
one* called for repayment within 4 years. Although. most Soviet credits
before 1956 carried a 2-percent interest rate, in at least 5 cases the
interest rate varied from 3 to 5 percent. After 1956 the USSR applied
a uniform interest rate of. 2 percent in all credits to the Satellites.
b. Debt Cancellations.
The Soviet government in 1956-57 wrote off debts totaling
more than $1 billion which were owed the USSR by Albania, Hungary, and
Rumania. Almost this entire amount concerned the repurchase by Hungary
and Rumania of the Soviet shares in the former joint Soviet-Satellite
enterprises in those two countries. The USSR in most cases had no legal
right to claim part ownership of these so-called "former German" enter-
prises in the first place: therefore, in one sense, the USSR was giving
back something which rightfully belonged to Hungary and Rumania to begin
with. Because the USSR did, however, claim part ownership, it agreed
to return these enterprises to Hungary and Rumania only against payment.
When the, fact became evident after 1956 that repayment imposed an in-
tolerable burden on the standard of living of these countries, the USSR
wrote off the balance due.** This had been done for East Germany in
1953, when the USSR agreed to cancel $194 million owed for repurchase
of joint Soviet - East German companies..
Cancellation of the Albanian debt covered all the credits
previously granted the country by the USSR.. As with Hungary and Rumania,
it was clear thatthe Albanian economy could not support the burden of
repayment, amounting to $105 million, In April 1957 the debt was written
off by the USSR.
* The exception is a 1948 credit to Poland which provided for repay-
ment over a period of 9 years-
** Rumania was still obliged to repay the value of Soviet equipment
installed in Rumanian enterprises during the period of joint ownership.
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The cancellation of Satellite debts is significant for
two reasons. First, it eased the balance of payments burdens of Hungary,
Rumania, and Albania, thus helping to stabilize the three economies.
Second, to the USSR it Meant relinquishing the claim to $1 billion in
Satellite goods.
c. Antirecession Measures.
After 1956 the USSR agreed to help several of the Satel-
lites with new forms of economic aid which were designed to alleviate
Satellite unemployment. The chief means of assistance was in the form
of supplemental orders placed with Bulgarian and East German industry.
The Soviet - East German protocol of 7 January 1957 stipulated that
appropriate organs of the USSR and East Germany were to prepare recom-
mendations for "utilizing free capacities in East German machine build-
ing for the production of machines and equipment essential to the Soviet
economy." l0)-/ Subsequent agreements assured the long-term sale to the
USSR of the products of East German machine tool, transport equipment,
shipbuilding, and other industries. The USSR also agreed to provide
the additional coke, rolled steel, and other industrial materials needed
to raise the East German output of machinery. 105/
In the Bulgarian economic plan for 1957 it was admitted
that the economy faced severe unemployment. The USSR ansWered the Bul-
garian appeal for aid by agreeing to supply additional quantities of
cotton cloth, rubber, leather, and other materials to be processed in
Bulgarian factories for export to the USSR. This arrangement would,
it was claimed, return 25,000 workers to their jobs. 106/ A similar
long-term agreement for the Bulgarian shipbuilding industry was signed
in May 1957.
In 1957, both Rumania and Bulgaria were reportedly 107/
sending unemployed workers for varying terms of "voluntary" employment
with mines, construction sites, and state farms in the USSR. The
largest number, about 10,000, arrived from Bulgaria, which also sent
several thousand of its unemployed to work in other Soviet Bloc coun-
tries. Language barriers as well as the fact that all Bloc countries
are mainly short of skilled labor probably will keep the Bloc migrant
labor program on an insignificant scale, at least in the foreseeable
future.
The supplemental order program, on the other hand, is
a significant new development. First, it is a "cheap" form of aid for
the USSR, in that Soviet outlays in the form of industrial raw materials
are soon returned in the form of finished products. The returns are
thus more immediate than in the case of credits. Second, as executives
in the East German machine building industry quickly recognized, 108/
Ahe. USSR will be able to exercise continuous control over an important
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segment of East German and Bulgarian industrial production. Both this
and the migrant labor program represent the Soviet response to a recent
Satellite phenomenon, large-scale unemployment.
d. Prospects of Continuing Soviet Economic Aid.
Because of continuing economic difficulties in the Satel-
lites, it appears likely that the Soviet commitment to underwrite their
economic stability may mean continued Soviet economic aid. There are,
however, certain factors which should reduce the burden of Soviet aid
in the future. First, the Satellites are now pursuing more rational
economic policies, so that their economic life should suffer fewer
serious crises than in the past. Second, the large portion of aid in
the form of credits will bring a return flow of capital to the USSR as
Satellite obligations fall due. Third, the major task of building an
industrial base in each Satellite is almost finished, so that no more
large-scale crash programs of economic development need be undertaken.
Fourth, the rapid industrial expansion of the leading European Satel-
lites should enable them to assume a greater share of the burden of eco-
nomic aid to less developed Soviet Bloc countries. Fifth, the USSR
has successfully devised certain forms of aid which will benefit the
Satellites and at the same time cause little or no strain on the Soviet
economy. Gold and foreign exchange credits and supplemental orders
are the best examples. There are, moreover, reports of Satellite aid
requests being rejected by the USSR with the advice to seek aid from
East Germany or from the capitalist Free World. 109/
2. Trade.
Trade has been by far the most important form of Soviet
cooperation with the Satellites. As shown in Table 5,* Soviet-Satellite
trade in 1957 amounted to nearly $4 billion -- an increase of more than
$2 billion since 1950. The European Satellites have generally accounted
for at least 50 percent of total Soviet trade, and the USSR has been
the major trade partner of each Satellite.
Although too short a period has elapsed since the Satellite
revolts to assess their long-range effects on trade, several significant
developments have occurred. In spite of the revolts, which caused a
drop in Soviet trade in 1956 with Hungary, Poland, and Rumania, total
trade between the USSR and the Satellites continued to grow in both 1956
and 1957. In 1957, trade increased about 8 percent above the level of
1956, exceeding the level of 1955 except in the case of Poland and pos-
sibly-Rumania.
* Table 5 follows on p. 29.
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Table 5
Trade of the European Satellites with the USSR .a./
1950 and
1955-57
Million Current US $
Country
1950
1955
1956
1957 12/
Albania
15.5
20.8
26.3
36.8 si
Bulgaria
166.8
248.8
253.0
387.0 1/
Czechoslovakia
422.0
742.5
770.3
' 932.0 .
East Germany
345.8
985.0
1,197.8
1,525.0
Hungary
210.4
261.8
247.8
343.2
Poland
451.5
718.5
640.5
675.0
Rumania
253.3
477.5
447.3
N.A.
Total
1,865.3
3,454.9
3,583.0
3,899.0 2/
a. Based on sources for Table 1, p. 10, above.
b. Preliminary estimates.
c. The Soviet-Albanian trade turnover in 1957 was planned to be
40 percent above that of 1956.
d. Soviet-Bulgarian trade in 1957 was planned to increase by 53 per-
cent above the level of 1956.
e. Excluding Rumania, for which no Soviet trade data for 1957 are
available.
The importance of the USSR in the trade, of each Satellite
is indicated in Table 6.* In 1956 and 1957, from one-third to more than
one-half of the trade of each Satellite was conducted with the USSR,
which remained the primary trade partner of each. Hungary, which had
begun to loosen its trade ties with the USSR during the "new course"
(1953-55), by 1957 was conducting a greater Share of its trade with
the USSR than in any previous year. A large part of this increase is
accounted for by Soviet deliveries on credit, which brought a planned
trade deficit of almost $160 million in Hungary in 1957. Similarly,
the Soviet share of the trade of Bulgaria and East Germany rose con-
siderably in 1957; The Soviet share of the trade of Poland remained
the smallest of all the Satellites, however 7- less than one-third.
In contrast with the importance to each Satellite of trade
with the USSR, Table 7** shows the importance of this trade to the USSR.
* Table 6 follows on p. 30.
** Table 7 follows on p. 30.
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Table 6 ,
Share Of the USSR in Trade of the European Satellites
1953 and 1955-57
Percent of Total Foreign Trade of Each Country
Country
1953
1955
1956
1957
Albania
57.?
40
42?
N.A.
Bulgaria
56
46
44
55
Czechoslavakia.
36
- 35
32.
33
East Germany .
N.A.
38
41
45
Hungary .
34
22
30
36
Poland
33
32
.28
31 y
Rumania
NA,
49
48
50 91
a. Based on sources for Table 1, p. 10, above.
b. Based on the first three quarters of 1957.
c. Planned.
Table 7
Share of the European Satellites in Trade of the USSR-E/
1955-57
Percent of Total Foreign Trade of the USSR
Country
1955
1956
1957 12/
Albania
0.3
0.4
0.4
Bulgaria.
3.8
3.5
4.7
Czechoslovakia
11.4
10.6
11.0
East Germany
15.1
16.4
18.5
Hungary
4.0
3.4
4.1
Poland
11.0
8.8
8.2
Rumania
7.3
6.1
N.A.
Total
52.9
49.2
46.9 2/
a, Based on sources for Table 1, p. 10 above.
b. Preliminary data.
c Excluding Rumania,
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Although the Satellite area as a whole accounts for about half of total
Soviet trade, only East Germany and Czechoslovakia take up significant
percentages of this total -- 18.5 percent and 11 percent, respectively,
in 1957. East Germany accounted for a somewhat larger share of the
total in 1957 than in 1955. Although the share of East Germany rose
by about 3 percent compared with 1955, that of Poland declined from
11 percent to about 8 percent over the same period.
Within the general pattern of Soviet-Satellite trade,
characterized by continued growth and relatively stable relationships,
significant changes have taken place in the structure and composition
of trade. It keeping with the principles of the Declaration of 30 Octo-
ber 1956, the USSR appears to have accepted the obligation to provide
the Satellites with larger quantities of the industrial raw materials
and foodstuffs which are in short supply in Eastern Europe. The impor-
tance attached to this obligation is suggested by the terms of several
Soviet-Satellite agreements in 1957, in which additional Soviet deliver-
ies are specified as one of the concessions gained from the USSR. For
example, in the Soviet-CzechosIovak agreement of 29 January 1957, it was
stated that the USSR had agreed, at the request of Czechoslovakia, to
make additional deliveries in 1957 of grain, iron ore, ferrochome, and
aluminum. lEV In the Soviet - East German agreement of 7 January 1957,
Article 1 contained the Soviet commitment, made at the request of East
Germany to increase by more than 30 percent in 1957 the volume of Soviet
deliveries "of goods which are essential to the fulfillment of the 1957
East German economic plan goals." 111/ At least a part of this increased
export volume was intended to offset the decline in Polish and Hungarian
deliveries in 1957.
In contrast with these post-1956 export commitments, the USSR
sometimes in previous years has declined to raise its exports above the
level of required Soviet imports from each Satellite. Nagy, the former
premier of Communist Hungary, described in his now-famous testament how
Hungary had anticipated an increase in Soviet exports in 1955 in exchange
for increased deliveries of Hungarian machinery. "However," concluded
Nagy, "the USSR was willing to guarantee us only 50 percent of the 1954
import volume and only 36 percent of the items on our want list for
1955." 112/
In 1957 the USSR increased considerably its exports of raw
materials to Eastern Europe. Although Soviet-Czechoslovak trade was to
increase by 11 percent in 1957, an increase of 70 percent was planned
in Soviet deliveries to Czechoslovakia of oil, lead, aluminum, and flax
the last two to replace supplies formerly obtained from Hungary. 113/
East Germany was to receive from the USSR in 1957 about double the 1954
volume of Soviet coal, grain, iron ore, pig iron, and crude oil. 1111/
Bulgaria, Hungary, and Poland were also scheduled to obtain accelerated
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deliveries of Soviet crude oil, ores, and metals in 1957. In order to
help Bulgaria carry out its plans for expanding agricultural production,
the USSR planned to increase its exports of fertilizers to Bulgaria from
14,000 tons in 1955 to 65,000 tons in 1957. 115/
The structure of Satellite exports to the USSR underwent
some shifts in 1957, although data are incomplete. There was, in par-
ticular, a significant increase in Soviet imports of finished consumer
goods from Bulgaria, Czechoslovakia, and East Germany. A large part of
this increase was the result of supplemental Soviet orders designed to
alleviate umemployment in Satellite industry.* East Germany reported
that the share of food and consumer goods in its exports to the USSR in
1957 would exceed the level of 1953-56 by 10 to 12 percent. 11W The
export of finished textiles alone was planned to be three times greater
than in 1956. 117/ Bulgaria and Czechoslovakia reported large increases
in consumer goods exports to the USSR in 1957, although no details were
given. Nevertheless, engineering products continued to occupy a major
place in the exports of the industrial Satellites. This category made
up 50 percent of total Czethoslovak exports to the USSR in 1956. 118/
Czechoslovakia planned to ship $133 million in machinery to the USSR
in 1957, an increase of 16 percent above deliveries in 1956. 119/ En-
gineering products accounted for more than 70 percent of the planned
exports of East Germany and Hungary to the USSR in 1957. 120/ Invest-
ment goods were reported to take up about 20 percent, or more than $100
million, of the exports of Poland to the USSR in 1957. 121/
In 1957, because of the dislocations caused by the Satellite
revolts, no long-term Soviet-Satellite trade agreements were concluded.
By early 1958, however, economic conditions were sufficiently stable to
permit a partial return tb long-term planning. Accordingly, the USSR
signed, 3-year trade agreements With most Satellites covering the period
1958-60. These agreements, coupled with the Satellite obligation to
repay in commodities the recent series of Soviet loans and credits,
should keep the Satellites closely bound to the Soviet economy, at
least over the next several years. In spite of some degree of shift
toward the Free World in Satellite trade, there appears to be no sharp
reversal of the previous pattern, and the USSR continues to account
for the lion's share of Satellite trade.
B. Integration.
The directives of the Twentieth Party Congress of the USSR in '
February 1956 on the Five Year Plan called for increased Soviet eco-
nomic collaboration with the Soviet Bloc through a more rational utili-
zation of Bloc economic resources and productive capacities. This
* See IV, A, 1, p. 22, above.
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collaboration was to be accomplished by the coordination of national
economic plans, the specialization and subcontracting of production,
and, to a lesser extent, the exchange of industrial and technical ex-
perience. 122/ This blueprint for collaboration has not been altered.
Most of the important developments in Soviet Bloc integration
since the 1956 revolts are a continuation or a logical outgrowth of
earlier trends. There are, however, two specific developments which
are to be attributed at least in part to the Satellite revolts. First,
there has been a notable softening of the Soviet attitude in intra-
Bloc deliberations and a corresponding independence on the part of the.
Satellites. For example, Polish officials had complained in 1956 that
the basic obstacle to Polish trade was the compulsory allocation of
Polish coal among Bloc countries, by CEMA orders. 123/ By the spring
of 1957, however, Poland was able to reject successfully the principle
of Bloc-wide coal allocations and to insist that deliveries be based
on bilateral negotiations. 124/ On several occasions in late 1957 and
early 1958, various Satellites have been reported to reject CEMA recom-
mendations on specialization of industry. 125/ That this independent
attitude has hindered Bloc-wide cooperation is further suggested in the
communique which followed the May 1958 conference of CEMA members.
According to the communique, this conference, which was attended by
top Party officials of the CEMA countries, "found it necessary to en-
hance further the role of CEMA in organizing economic cooperation." 126/
Although the communique did not indicate how this was to be done, the
most effective way would be to make CEMA recommendations more binding
on its members.
The second development caused partly by the Polish and Hungarian
uprisings was the setback in coordination of all national economic plans
within the Soviet Bloc. The Satellites previously had been forced to
interrupt long-term planning and to initiate new long-term plans starting
in 1956 so as to bring all Soviet Bloc plans into line with that of the
USSR; which was to run during 1956-60. This coordination of plans,
hailed at the time as a "decisive factor" in the Progress of intra-Bloc
coordination, 127/ was nullified by the Satellite revolts of late 1956.
The inherent dangers of increased intra-Bloc coordination were foreseen
by a Czechoslovak economist who warned in 1955 that a failure of one coun-
try to meet its delivery quotas or import. obligations could have serious
repercussions in the. others. 128/ This warning was borne out in the
aftermath of the 1956 revolts, when stoppages of such exports as Polish
coal and Hungarian aluminum were felt throughout the Bloc. Plan co-
ordination received a further setback in 1957 as a result of the Soviet
economic reorganization and the unilateral abandonment of the Soviet
Sixth Five Year Plan (1956-60) in favor of a Seven Year Plan to run
during 1959-65,
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There have been other significant developments in Soviet Bloc
integration since the Satellite uprisings. They appear, however, to
be direct results of decisions reached at the Twenthieth Party Congress
of the USSR rather than reactions to the 1956 revolts. First, during
the Warsaw meeting of CEMA in June 1957 the member states drew up a
multilateral commercial clearing system for intra-Bloc trade. 129/ Al-
though this trade probably will continue for some time to be based on
a network of bilateral trade agreements, certain bilateral balances
may be transferred periodically to multilateral account for settle-
ment. 1.32/ In spite of its modest scale, the new system should serve
the cause of integration by making intra-Bloc trade more attractive to
the European Satellites, inasmuch as a Bloc member is no longer forced
to accept in bilateral exchange goods which it considers to be of mar-
ginal use.
A second recent step toward integration is the decision of CEMA
to work out coordinated economic plans for 1959-65 and "basic directions"
of economic development up to 1975. Since this decision (June 1957) the
problem of, coordinating long-range plans has been taken up by various
permanent technical commissions of CEMA in late 1957, early 1958, and
May 1958 at the Moscow CEMA conference of Bloc Party. leaders. At this
conference it was decided that Communist China and the Asian Satellites
would take an active part in Bloc cooperation, probably implying Chinese'
participation in planning the long-run allocation of exports of basic
materials among Bloc countries. The current emphasis on the voluntary
nature of coordination probably will mean a more gradual and less com-
plete coordination of plans than that originally envisaged by Soviet
leaders. All COMA decisions must be referred to the governments con-
cerned for ratification, and several of the Satellites have recently
shown reluctance to undertake firm export commitments very far in ad-
vance. As mentioned above, the problem of putting more teeth in CEMA
decisions was at least discussed at the Moscow CEMA meeting of May
1958.
Direct economic collaboration within the Soviet Bloc has re-
ceived added impetus since 1956, chiefly through bilateral negotiations.
The bilateral approach to economic cooperation is not a new development
but was initiated before the 1956 revolts with the establishment of
such joint commissions as the Soviet-Czechoslovak Commission on Eco-
nomic Cooperation. L3.1/ During 1957, however, the activities of such
organs have expanded considerably. Of particular interest are the
growing direct ties between producing enterprises in different Bloc
countries since early 1957. In March 1957 a joint Soviet-Rumanian
commission approved a plan for direct cooperation between the respec-
tive ministries of agriculture in the two countries. 1 In January
1957 the USSR and Czechoslovakia agreed to broaden cooperation between
Czechoslovak and Soviet research institutes, 133/ and by August 1957,
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East German and Soviet factories were collaborating directly in the pro-
duction of cement plant equipment. I,311/ The Soviet - East German and
Soviet-Czechoslovak trade agreements signed in January 1957 provided
'explicitly for coordination of their respective machine building indus-
tries with that of the USSR. 135/
Specialization of production within the Soviet Bloc to date
has not proceeded rapidly or. far. In February 1958 this fact was ac-
knowleded by the Deputy Premier of Czechoslovakia, who complained in
a Soviet press interview 136/ that CEMA branch commissions have served
mainly as forums for passing resolutions and have accomplished little
in the way of solving the many complex practical problems with which
they are faced. As in the coordination of plans, the delay in achiev-
ing specialization appears to be due largely to the reluctance of in.-
dividual Satellite governments to ratify CEMA proposals which call for
their relinquishing the production of certain lines of machinery and
other goods. 137/
The Soviet economy is undoubtedly involved in Soviet Bloc in-
tegration to a greater degree than it was before the Satellite revolts.
The USSR has increasingly participated in joint ventures to help develop
Satellite industries and resources. There is still no indication, how-
ever, of any significant degree of Soviet dependence on the Satellites,
largely because the abundant resources of the USSR historically have
been used to develop a complex and diversified economy in the interests
of economic self-sufficiency.
In spite of the fact that the Soviet economy is not deeply in-
volved in Bloc integration, an increasing degree of specialization and
integration may be expected among the European Satellites. The USSR,
particularly since 1956, has encouraged the Satellites to concentrate
production in their most efficient industries. According to Soviet
leaders, their ultimate goal is "the establishment of a common plan for
the economic development of the entire socialist system," based on
specialization of production. 138/
V. The Fruits of October: New Status of the Satellites.
All of the Satellites benefited from the new Soviet policy which
followed the Hungarian and Polish revolts of October 1956. First,
because the USSR assumed a greater obligation toward maintaining the
economic wellbeing of its Satellites, they have all been able to Obtain
more material aid than in the past. Moreover, they have had greater
success in demanding those types of aid which were most needed and in
obtaining Soviet credits on more favorable terms. Second, all the
Satellites attained, to a varying degree, a larger measure of control
over their internal economic affairs. Internal investments have been
allocated according to national interests in contrast to the detrimental
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policy followed earlier, when each Satellite was encouraged to follow
the Soviet model. Several of the Satellites have taken advantage of
the softer Soviet policy to stand up for national interests against the
interests of Bloc-wide specialization and integration. Third, Satellite
economic relations with the USSR were generally placed on a formal,
legal basis, thus restricting the area in which unilateral Soviet action
can prevail. Most economic agreements have been made public as opposed
to the many extra-legal arrangements which existed during the Stalinist
period.
The present Soviet leadership has so far tolerated a larger degree
of deviation in Satellite economic matters than in the sphere of poli-
tics. Recent intensification of the Soviet Bloc-wide campaign against
Yugoslav revisionism as well as the execution of Nagy in mid-June
appears to be in response to political rather than economic considera-
tions. Both these events have been interpreted as a warning to Satel-
lite leaders that the political unity of the Bloc must be maintained.
Although the USSR has adopted a more benevolent attitude toward the
economic problems of all its Satellites since 1956, the most successful
in asserting their sovereignty and "socialist equality" in the economic
realm are Poland and, to a lesser extent, Hungary and East Germany --
the three countries in which armed uprisings occurred. Only in these
countries have non-Soviet economic institutions arisen such as industrial
workers' councils, and only in these countries has private farming been
officially encouraged at the expense of collectivization. Hungary and
Poland have gone further than the other Satellites in orienting their
trade toward the Free World. As shown in Table 1,* nearly half of Po-
land's trade in 1957 was with the Free World as opposed to 30 percent
in 1953 and 1954. Hungary has increased its share of trade with the
Free World from less than one-fourth in 1953 to more than one-third in
in 1956. Poland, Hungary, and East Germany were the only Satellites to
extract from the USSR admissions of former economic exploitation and
to win resettlement of earlier one-sided agreements. For goods and
services provided earlier to the USSR, Hungary and Poland obtained re-
adjustments amounting to more than $600 million in their favor. East
Germany, in addition to gaining important concessions which put its
uranium mining operations on a more equitable basis, also won a reduc-
tion of $1.4 billion in its share of the cost of maintaining Soviet
troops on East German soil. The remaining Satellites (Albania, Bul-
garia, Czechoslovakia, and Rumania) received only minor concessions in
the interests of "socialist equality." It appears that among Soviet
Bloc countries, as among the Communist animals of George Orwell's
Animal Farm, all are equal but some are more equal than others.
* P. 10, above.
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APPENDIX A
PARTIAL TEXT OF THE SOVIET DECLARATION OF 30 OCTOBER 1956
ON COLLABORATION BETWEEN THE USSR AND THE EUROPEAN SATELLITES*
"In the process of establishing a new structure and deep revolu-
tionary transformations in 5oviet Bloj collective relations Lafter
World War If, there were serious difficulties, unresolved problems,
and direct mistakes, including transgressions and mistakes which
disparaged the principle of equal rights in relations among socialist
states.
"The Twentieth Party Congress of the USSR strongly condemned these
transgressions and mistakes and pointed out the task for the USSR con-
sistently to put in practice, in its relations with other socialist
countries, the Leninist principles of equal rights of nations. It pro-
claimed the necessity of taking full consideration of the past history
and individual peculiarities of each country which has begun to build
a new. life.
"The Soviet government is consistently carrying out these historic
decisions of the Twentieth Congress, which create the conditions for
further strengthening the friendship and collaboration among socialist
countries on a firm basis of maintaining the full sovereignty of each
socialist state.
? ? ?
"The Soviet government, together with other socialist states, is
prepared to consider measures for securing the further development and
strengthening of economic ties among socialist countries so as to re-
move such opportunities as may have existed for violating the principles
of national sovereignty, mutual advantage, and equal rights in economic
relations.
"These principles must be extended to include advisers. The USSR,
at the request of the socialist governments, sent specialists to these
* "Deklaratsiya pravitel'stva Soyuza SSR ob osnovakh razvitiya i
dal'neyshego ukrepleniya druzhby i sotrudnichestva mezhdu Sovetskim
Soyuzom i drugimi sotsialisticheskimi gosudarstvami" (Declaration of
the Government of the USSR on the Principles for Developing and Further
Strengthening the Friendship and Collaboration Between the Soviet Union
and Other Socialist States). 139/
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countries ... in the first period of constructing a new social structure.
Recently the Soviet government has repeatedly posed before the socialist
countries the question of recalling its advisers.
"In view of the fact that these countries now have trained personnel
in all phases of economic and military activity, the USSR considers it
urgent to review jointly with other socialist states the question of the
feasibility of the further stay of Soviet advisers in these countries."*
?
* The declaration also states that the stationing of Soviet troops on
Satellite soil can take place only with the agreement of the country
concerned in accordance with the, Warsaw Pact.
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