REORGANIZATION OF ECONOMIC MANAGEMENT IN THE EUROPEAN SATELLITES 1956

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A000900090002-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 23, 2016
• Document Release Date: April 4, 2013
• Sequence Number: 2
• Publication Date: October 14, 1957
• Content Type: REPORT

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SECRET
ECONOMIC INTELLIGENCE REPORT
N9 72
REORGANIZATION
OF ECONOMIC MANAGEMENT
IN THE EUROPEAN SATELLITES
1956
CIA/RR 107
14 October 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
SECRET
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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
REORGANIZATION OF ECONOMIC MANAGEMENT IN THE EUROPEAN SATELLITES
1956
CIA/RR 107
(ORB Project 41.1672)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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CONTENTS
Page
Summary 1
I. Introduction 3
II. Models for Managerial Reforms in the European
Satellites It
A. Soviet Model 4
1. Decentralization in Planning 14
2. Increased Powers for Factory Directors 5
B. Yugoslav Model 5
1. Organizational Decentralization 6
2. Partial Decentralization of Planning 6
3. Role of the Workers' Councils 7
III. Reorganizations of the Central Governments 8
IV. Partial Decentralization in Planning 14
V. Increases in the Power of Middle and Lower Level
18
Management
A. Middle Level Management
B. Factory Management
VI. Establishment of Workers' Councils
VII. Conclusions
18
19
22
24
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(ORR Project 41.1672)
REORGANIZATION OF ECONOMIC MANAGEMENT
IN THE EUROPEAN SATELLITES*
1956
The inefficiency resulting from overcentralization in the economic
management of the European Satellites has become sufficiently serious
to warrant the increasing attention of Satellite leaders. Since 1955
they have been reorganizing the economic structure of the Satellites to
make it less costly, less complicated, and more responsive to central
policy decisions. At the same time, efforts are being made to de-
centralize some of the planning and operating functions to lower
administrative levels with the intention of increasing the initiative
and resourcefulness of those people who directly manage the economy
on a day-to-day basis. In reorganizing the economic structure of
the Satellites, central bureaucracies have been reduced and streamlined,
with some ministries and other central organizations being merged or
even eliminated.
The purpose of the partial decentralization of planning within the
Satellites has been to simplify the national plans by limiting the
number of production targets to be determined centrally. The details
of the plans are to be filled in by officials of the middle and lower
levels (regional, district, municipal, and rural governments), and
there is to be less reporting to higher levels of management on the
details of plan fulfillment. There is also to be more freedom for
factory directors to make decisions concerning minor investments with-
out central governmental approval.
The managerial reorganizations in the European Satellites have
increased substantially the authority of economic officials at the
middle and lower levels. These officials have been granted the power
to make decisions concerning certain local investments, to have some
voice in the preparation of the budget, to manage certain categories
of enterprises, and to handle the procurement and sale of certain
categories of agricultural commodities.
* The estimates and conclusions contained in this report represent
the best judgment of ORB as of 1 August 1957.
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Factory directors in several of the Satellites have been given
increased authority to plan and manage their resources. Their
additional powers include the right to alter the plan of the factory
within carefully defined limits, to change the internal table of
organization, to appoint and dismiss department heads, to use produc-
tion bonuses more freely, and to accept orders from other factories
for certain categories of goods not included in the annual plan.
Finally, some factory directors have been given authority to negotiate
contracts directly with private firms both inside and outside of their
countries.
There has been a growing tendency to introduce workers councils
or their equivalents in many factories. In Poland and Hungary,
especially, the councils possess through their management boards
certain "legal" rights to approve or disapprove of the appointment
of key factory personnel, to issue directives to the factory manage-
ment, to "advise" on production matters, and to have a voice in wage
determination and the distribution of bonuses. The actual power of
the councils to oppose the regularly constituted factory management
appears more limited in practice than their legal authorization implies.
The economic reforms in the European Satellites can be expected
to solve some of the more urgent administrative problems which have
arisen in these countries. The reduction of duplication in management
should result in reduced eosts. Clarification and simplification of
the managerial chain of command will be accomplished by assigning to
each administrative level definite responsibilities not handled at
other levels. Transference of minor decision-making power to lower
levels of management should lighten the workload of central officials
and also should result in more realistic economic decisions, since
managers at lower levels, who are better able to appraise productive
capacity, will be able to influence investment planning.
The long-range effects of the reforms are more difficult to
anticipate. Piecemeal decentralization of managerial power may not
resolve the apparent contradiction of attempting on the one hand to
retain a high degree of centralization in planning and managing the
economy and on the other to grant more independence to lower level
officials. The current aim in the European Satellites is to make
the two concepts mutually compatible.
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I. Introduction.
The USSR and the European Satellites have aimed at rapid industrial-
ization and the maintenance of a high rate of economic growth. The
leaders of these countries have realized, however, that to achieve these
goals all available resources must be efficiently exploited. The two
main resources which have not been fully developed, they contend, are
those of management and technological developments.*
Failure to develop the full potential of the managerial structure
is a result of the contradiction inherent in a highly centralized
economic system which assumes on the one hand that the entire economy
must be planned and directed in detail from the central government
and on the other hand that a high level of efficiency must be achieved
at the local level. About 1950 the Yugoslav leaders realized that to
achieve high productivity at a minimum cost the initiative and resource-
fulness of local economic managers (who themselves were becoming
increasingly skilled) should be fully tapped. They care to believe
that detailed central planning and direction of virtually all economic
activity prevented officials at the middle and lower levels from
discovering cheaper and quicker ways of operating factories and from
devising new ways of increasing production.
The solution which the Yugoslav and later the Soviet leaders
evidently considered more and more inescapable was to reorganize their
managerial structures by simplifying them, by making them more streamlined
and by partially decentralizing some planning and control of the economy
to these lower officials. In February 1956, Khrushchev acknowledged that
the training and experience of subordinate officials had now reached a
point where they could be entrusted with increasing power and authority
in economic management.
In Yugoslavia, then in the USSR, and finally in the Satellites the
economic systems were partially decentralized.** At first the actual
delegation of authority to lower levels was very cautious, limited, and
confined to minor details in planning and decision-making. Gradually
* This report is confined to economic management and will not deal
with technological developments.
** Decentralization may be functional or geographical in nature or
may be a combination of both. Thoroughgoing decentralization involves
establishing more than one center of policy determination. Most simply,
decentralization refers to the transferral of some decision-making
authority from higher to lower levels of management.
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the trend toward decentralization was extended further in Yugoslavia
and in the USSR.* Yugoslavia has made more progress in this direction
than have any of the European Satellites: it was, for example, the
first to abolish its central ministries. The current Soviet re-
organization along regional lines, probably the most radical and
extensive Soviet reorganization since collectivization, may go almost
as far in genuine decentralization as has the reorganization in
Yugoslavia. The managerial reforms now in process in the Satellites
appear to be following the earlier patterns set in Yugoslavia and
the USSR.
II. Models for Managerial Reforms in the European Satellites.
In most of the European Satellites the pattern of reform within
the past 2 years has relied heavily on Soviet experience. Since early
1956, and especially since the Polish and Hungarian uprisings of
October and November 1956, there has been an increasing similarity
between some of the Satellite reforms and those carried out earlier
in Yugoslavia.
A. Soviet Model.
Managerial reforms in the USSR since 1950, apart from reorgani-
zation of ministries, transfers of factories, and limited decentrali-
zation of planning, included elimination of superfluous administrative
links between central and local authorities, consolidation or abolition
of parallel and duplicating organizations, and reduction of the number
of administrative staff personnel in various headquarters organizations.
Most recently the Soviet economy has been undergoing an extensive
reorganization aimed at decentralizing large parts of the managerial
apparatus and reorienting Soviet industrial organization from a
functional approach to one that is regional. Since May 1957, Soviet
officials have abolished 27 national ministries, reorganized the central
government and planning apparatus, and established 105 economic regions
throughout the country to guide and direct industries and construction
activities of national importance.
1. Decentralization in Planning.
Since 1953 the national economic plan of the USSR has been
partially simplified. The number of specific commodities for which
* Central over-all planning and control as well as broad policy
determination has not been delegated to lower levels.
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production targets are established by central officials was reduced
from a total of 5,000 items in the 1953 Plan to a total of only
1,700 in the 1955 Plan. 1/* It will be reduced even further as a
result of the reorganization of May 1957. This reorganization
delegated responsibility for drawing up minor details in the national
plan to a level where they could be more realistically determined.
The expected result, from the Soviet point of view, is that factories
will now have production targets more in accord with their actual
and potential capacities.
Ministries also have been given other planning powers.
These include limited authority to change general plans of subordinate
units; the right to modify financial plans within certain limits; and
authority to transfer and reallocate several categories of personnel,
materials, and supplies. 2/ Directors of factories have received
additional authority to plan certain details of production assignments.
For example, directors have the right to modify quarterly production
plans for certain finished commodities. 3/
2. Increased Powers for Factory Directors.
One of the most needed managerial reforms in the USSR
has been the granting to factory directors power and authority more
commensurate with their responsibilities. Among the additional powers
which factory directors have recently acquired, apart from planning,
are limited authorization to sell the surplus materials and supplies
of factories; the right to accept from other factories independent
purchase orders which are not a part of the fixed plan; the power to
alter, within limits, technological processes; the prerogative to
change the table of organization and the power to exercise greater
discretion over the use of funds assigned to factories. 14:/
B. Yugoslav Model.
Managerial decentralization in Yugoslavia rests, in part, on
the belief that adequate incentives for workers, coupled with more or
less free cooperation between factories and other local units of the
economy, encourage more efficient management and render a high degree
of administrative centralization unnecessary and even harmful to higher
productivity. 2/ In fact, Yugoslav theorists contend that further
"democratization" of industrial management as exemplified in more
thoroughgoing decentralization is a necessity for the successful
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"achievement of socialism." It is claimed that state ownership of
production is inconsistent with true socialism, under which production
is the responsibility of the producers themselves. g
1. Organizational Decentralization.
One of the most extensive managerial reforms undertaken
in Yugoslavia since 1950 has resulted in a significant decrease in
centralization within the bureaucracy. Central economic ministries
which formerly directed specific branches of industry have been
abolished, and their duties have been divided among other governmental
bodies as follows //:
Supervising
Function Governmental Body
Coordination and over-all policies
Administration
Production
Councils, committees, and
boards composed of national
and republic officials
Councils of peoples committees*
and ministries of constituent
republics
Councils of producers**
One result of this reorganization has been that many
administrative units of the government at the republic and local levels
have been drawn into direct management, which was almost exclusively under
the jurisdiction of the central bureaucracy. The councils and boards
(jointly national and local) which now guide industry appear to have
reduced the bulky central administrative apparatus and measurably to
have enhanced the degree of economic decentralization.***
2. Partial Decentralization of Planning.
Before 1950, central planning in Yugoslavia was closely
patterned after that of the USSR. Under the new planning structure
* ?Units of local government.
** One house of the two-house legislature, elected by the workers
and existing at the national, republic, and local levels.
*** The national government maintains over-all control over the
economic apparatus through the broad supervision exercised by the
national Economic Council.
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which started sometime in 1950-51, central planning, which is done
by the Chief Planning Administration,* has been restricted to setting
broad production goals for basic materials, over-all investments,
minimum wages, tax rates, and national revenue. Responsibility for
completing the details of the national plan rests with the republic
governments; the worker-elected management organs; and, in some cases,
individual factory units. Control and guidance over plan implementation
Is maintained by the national government through the participation in
industry at all levels of the powerful national Economic Council. 27
3. Role of the Workers' Councils.
The contribution of Yugoslav managerial decentralization
Is found not only in its reorganization of the central government but
also in its establishment of workers' councils in individual factories.**
By official admission the workers' councils constitute the basic unit
in the entire program of Yugoslav decentralization. 11/ The success or
failure of much of Yugoslav decentralization probably will have to be
judged on the record of the workers' councils.
The fundamental principle of the workers' councils is that
they are elected by the workers; the councils then elect management
boards to manage the factories in conjunction with the factory direc-
tors.*** The legal power of the councils includes the following 12/:
a. Election from among the workers of a factory management
board and retention of power to dismiss the board.
b. Adoption of wage regulations.
c. Formulation of operating plans for the factory
supervision of balance sheets. 50X1
* Compose& of three national officials and the heads of the planning
commissions of the republics.
** Soviet officials will soon organize
"production councils" in factories, which will be somewhat similar to
yet less influential than the Yugoslav workers councils. 10/ (For a few
months in 1917 and 1918 the Bolshevik Government of Russia permitted
workers' committees actually to manage the factories.)
*** The workers' councils also elect councils of producers which, in
turn, constitute one of the two houses of the legislature at the
republic, district, and national levels.
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d. Distribution of part of the profit of the factory
among such categories as wages and amortization.
Supposedly, Yugoslav workers' councils control and direct
the management of the factories. In practice the councils appear less
Influential than their legal charter implies. Tito has been quoted
as saying that implementation of laws giving workers control over the
factories will depend on "the pace of cultural development" (evidently
meaning how soon the workers can become responsible and mature). 12/
Other limitations on the actual influence over management by the
workers' councils stem from a lack of technical and managerial know-
ledge on the part of the members of the councils' management boards;
excessive demands on the time of the members, whc have regular factory
assignments apart from their duties on the board; the power of the
factory directors to postpone action on decisions of the boards; and,
finally, effective control of both the management boards and the
workers' councils by the local Communist Party officials. 1LV
The development of the Yugoslav system of workers' councils,
despite its seeming imperfections, has set a pattern which several
other Communist countries plan to adopt in one form or another.
III. Reorganizations of the Central Governments.
Limited decentralization of the managerial structures in the
European Satellites normally has begun with a partial reorganization
Of the central governmental structures,* designed to eliminate over-
lapping organizations and superfluous personnel, to simplify the
administrative chain of command, and to delegate responsibilit?, for
specific functions to appropriate lower levels.
The most extensive reorganization of the central governmental
structure in the Satellites has occurred in the Polish government.
Since the uprising of October 1956 a number of central staff offices
have been dissolved, the State Planning Commission has been abolished,
and a new and smaller commission with considerably reduced functions
has been formed to take its place. The Council of Ministers was
reorganized, special committees were established to handle special
problems, and an Economic Council was set up.
* Central governmental structure includes the main organizations
which comprise a national government, such as the Council of Ministers,
ministries, and other key national organizations.
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In reorganizing the Polish Council of Ministers, bureaus as well
as branch specialists of industry attached to the deputy premiers
were eliminated. At the same time, 3 temporary organizations were
created and attached to the Council -- 1 for industrial production,
1 for building and transportation, and 1 for agricultural production
and rural problems. 12/ In addition, special committees were es-
tablished for investment plans, government housing, water economy, and
plan technology. ly
Effective on 1 January 1957 an Economic Council was formed under
the Polish Council of Ministers. The Economic Council is composed of
35 members (prominent economists and scientists) and will function as
a temporary advisory body. The main task of the Economic Council is
the preparation of a "Polish model of a socialist economy." It will
deal with both current and long-range economic problems. According
to one of the deputy chairmen, these problems will include such ques-
tions as the "autonomy and decentralization" of enterprises; a reform
of the present system of prices, wages, and incentives; the comparative
and appropriate rates of growth in the various branches of the national
economy; and the possibilities of and limits to a rise in the standard
of living. 11/ The first plenary meeting of the Economic Council took
place on 9 February 1957. lY
The Polish government recently abolished the Ministry of State
Control and established in its place a Supreme Control Chamber sub-
ordinated to the Sejm, or to its inner group when the Sejm is not in
session, rather than to the Council of Ministers. 19/ The objective
of this change is to broaden state control to include checking by
the legislative branch (the Sejm) on administrative decisions and
decrees as well as on the executive branch of government (the Council
of Ministers).
The Polish Council of Ministers in the latter half of 1956 trans-
ferred some of its prerogatives to the individual ministries. Ministers
may now exceed planned production costs and losses and make certain
changes in the investment plan, within limits. ?2/ Banks also were
given additional responsibilities by the Council for controlling wage
funds in order to prevent excessive expenditures attributed to "loosened
wage discipline" on the part of some lower level supervisors. ?1/
A number of ministries in Poland, such as the Ministries of
Forestry, the Food Industry, Internal Trade, and State Agricultural
Farms, have undergone reorganization since mid-1956. In foreign
trade, import-export companies such as Polimex (machinery) and
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Varimex (miscellaneous equipment and consumer goods) are being replaced
by individual firms which will be "state controlled" but will have
more operational freedom than their predecessors. In addition, the
Ministry of Internal Trade has established local boards of trade in
each of six cities to supervise local trade enterprises. In larger
towns, municipal boards of trade will be established to handle local
trade matters. 22/ Finally, a new draft law has been drawn up which
provides for the merger of 10 economic ministries into 5 ministries. .g.3./
The extensive reorganization of the Polish government illustrates
the intention of present Polish leaders to focus the reorganization on
their own specific needs rather than to follow automatically the
Soviet pattern of development. In this manner, central bureaus
attached to deputy premiers were abolished, the State Planning Commis-
sion was reduced in influence, and an Economic Council was set up to
develop a Polish "model" of socialism.
In June 1956, Czechoslovakia merged several ministries, offices,
and state committees in order to simplify the ministerial structure
and make it more flexible. In this merger the newly created Ministry
of Agriculture and Forest Economy, for example, assumed many of the
functions of the former Ministries of Agriculture, State Farms, and
the Forest and Timber Industry. Furthermore, much of the actual
control over state farms was decentralized to the appropriate regional
committees. Other aspects of this reorganization were aimed at
clarifying the structure, such as removing wood processing from the
control of the old Ministry of Forestry and Timber Industry and placing
it under the control of the new Ministry of Consumer Goods. As part
of these measures for simplification, the ministries, moreover, are
to be freed of some of their time-consuming indexing, reporting, and
other minor administrative tasks. 2)1/
In addition to the ministerial reorganization in Czechoslovakia,
which includes the transfer of many ministerial functions to regional
councils and committees, the administration of a number of ministries
has been made more efficient. Examples are the simplification of the
dispatching procedure in the railroad system of the Ministry of
Transport and the reduction in number of chief directorates of the
Ministry of Building. ?2/ In an editorial the Czechoslovak Party
newspaper stated that the objective in the new managerial reorganiza-
tion is to remake the ministries into small, directing bodies, which
will confine themselves to broad problems of coordination and of
long-term planning. gY Also, heads of budgeting organizations in
ministries are to receive greater authority regarding the internal
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transfer of employees and the establishment of salary scales. 21/
In April 1957 the East German government established an Economic
Council attached to the Council of Ministers. The duties of the
Economic Council are to coordinate and supervise the drafting and
implementing of the annual plan and to make decisions on allocation
of material and financial resources. It will also supervise the
state budget as well as insure uniform and comprehensive direction
of the economy. Reportedly the new council will relieve the Council
of Ministers of much of its detailed direction of economic management.
The Economic Council will be composed of leading officials, such as
the Chairman of the State Planning Commission and the Minister of
Finance. LY
In Hungary the following ministries were abolished effective
31 December 1956:
Agricultural Procurement State Farms*
Town and Country Management State Control
In addition, a decree of the Presidential Council dated 1 January
1957 merged some other ministries as follows:
Reorganized Ministries Present Ministries
Mines and Power
Chemical Industry
Light Industry
Food Industry
Education
Popular Culture
Heavy Industry
Light and Food Industry
Culture
Furthermore, several bureaus and offices dealing with labor affairs
reportedly will be abolished and replaced by a single Ministry of
Labor Affairs. 32/
* Reportedly to be replaced by a Chief Directorate of State Farms
in order to grant to subordinate organs greater independence in crop
selection and investments.
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In Rumania there has been a substantial reduction in the number
of ministries (from 30 to 16) and other central institutions through
abolitions and mergers. Following are the Ministries affected:
Reorganized Ministries Present Ministries or Departments
Cults (Nationalities) Department of Cults
Health
Social Insurance
Education
Culture
Communal Administration and
Local Industry
State Farms
Agriculture
Forestry
Produce Collections
Petroleum and Natural Gas
Chemical Industry
Construction
Building Materials
Posts and Telecommunications
Road, Water, and Air
Railroads
Domestic Trade
Foreign Trade
Light Industry
Lumber Industry
Food Industry
Defense
1
Transport
Health and Social Provision
Education and Culture
Affairs of Local Organs of
State Administration
Agriculture and Forestry
Petroleum and Chemical
Construction and Building Materials
Transport and Communications
Trade
Consumer Goods
Armed Forces
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Reorganized Ministries Present Ministries or Departments
Electric Power and Electric-
Technical Industry Heavy Industry
Metallurgical and Machine Building
The Ministry of Produce Collections was one of those abolished. The
abolition followed the recent abandonment of compulsory delivery
quotas for many agricultural products. 31/ There has been a reduction
in the number of officials of ministerial rank, and the central staff
of the Council of Ministers has had its workload reduced. The State
Bank has been reorganized and given a more independent status under the
Council of Ministers in order to tighten control over the execution
of financial and currency plans. Finally, as in Poland and East
Germany, an Economic Council has been established to deal with broad,
over-all problems of the economy. The official rationale for these
changes is that large numbers of central organizations no longer
manage the economy satisfactorily in the light of present require-
ments. 2/ The government does not admit that these reorganizations
are aimed at improving the deteriorating Rummnian economy, which has
been suffering from decreased state revenues, unemployment, poor crops,
shortages in consumer goods, and inadequate housing.
Bulgaria has reorganized a number of its ministries in accordance
with a government decree of 17 January 1957 in order to streamline its
economic structure. Some ministries, committees, and directorates
were merged. From the 10 ministries, committees, and directorates
Involved, 5 ministries have been formed as follows:
Reorganized Ministries Present Ministries
Building Materials and Timber
Construction
Post, Telegraph, and Telephones
Transportation
Education
Culture
Construction and Building Materials
Transportation and Communications
Education and Culture
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Reorganized Ministries Present Ministries
Finance
State Control Commission
Domestic Trade
Foreign Trade
3.
Finance and State Control
Trade
By this move, the government hopes to reduce the over-all state
apparatus by 30 percent within the next 3 years. 21/
IV. Partial Decentralization in Planning.
Leaders of the European Satellites apparently do not intend to
abolish or even seriously to weaken the basic Communist principle
of centralized, national planning. They do wish, however, to make
planning more flexible, more realistic (in terms of present and
potential capacity), less costly, and less time consuming. Accord-
ingly they have been confronted with the difficult problem of how
far to go in transferring functions from central to lower echelons
without violating the basic Communist principle itself.
In mid-1956 the Czechoslovak Communist Party called for annual
planning to be simplified and its functions "gradually transferred"
to lower authorities. Party officials stated that simplification
and decentralization of planning for material-technical supplies,
financing, and capital investment will make it possible for the
ministries to 'concentrate on the principal economic problems facing
them, thus freeing them from minor administrative details. These
measures should also reduce the size of the ministerial staffs. 14/
In 1954 the government centrally fixed over 2,200 plan targets
Including production goals for over 950 specific commodities in the
national plan. In the very near future it should be possible (accord-
ing to a Czechoslovak editorial) to limit the centrally fixed targets
to only 850 and the production goals for specific commodities to only
400. 151 In the 1957 Plan the centrally fixed targets will number
four-fifths of those for 1956 lY (the number of targets for 1956 is
not known).
A Czechoslovak editorial argued in July 1956 that present economic
control methods are inflexible and have prevented the fulfillment of
the "requirements of continued economic growth" (evidently implying
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that they are too costly to maintain). This inflexibility stems
directly from the restrictive nature of excessive centralization. 11/
Accordingly, Czechoslovak ministries have been given authority to
build up certain commodity reserves and to carry out minor adjust-
ments in the plan which seem unavoidable. Ministers also have been
given more power to transfer their funds and to allocate surplus
production. Even factory directors are to be granted greater free-
dom of action regarding these two functions. Earlier limits for
above-plan construction (that which is not included in the original
plan) are to be raised to give additional leeway to ministers and to
the regional committees. The data from lower level organizations
required by central authorities for approving construction planning
will be reduced. Factory administrations will have greater power to
use their managerial funds and excess profits for minor investments.
Ministries and regional committees also will have greater power over
local investment. 1?/
The agricultural directorates of the Czechoslovak regional committees
are to be the decisive authorities for determining agricultural
investments. These committees also will have increased power in plan-
ning for machine tractor stations, formerly the sole prerogative of the
central government. 12/
In December 1956, Polish leaders stated that future planning must
be oriented to specific Polish problems. The Polish government wants
to decentralize both planning and management more than has been the
case in the USSR. Unlike Yugoslavia, Poland reportedly will retain
central planning only insofar as it is considered necessary by the
officials.* Central planning, accordingly, will be restricted to
setting the main targets for key industries, establishing general
wage funds and principal investments, and setting prices for only
certain articles of the key industries. kg/
In light of the foregoing, Poland reorganized its planning
structure in 1957 by abolishing the State Economic Planning
Commission (Panstwowa Komisja Planowania Gospodarczej PKPG). The
commission was criticized for interfering with management of
Industry and for being a large, entrenched bureaucratic apparatus.
It comprised 4o subdepartments and employed about 1,800 people. In
its place a new planning commission was established with less than 30
* Yugoslav officials contend, however, that their system embraces
centralization only where absolutely needed.
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subdepartments and less than 1,000 people. Unlike its predecessor, the
new commission will be confined to over-all planning and will not
concern itself with detailed planning or with incidental control and
supervisory functions over industry. Furthermore, the new commission
will not have the power its predecessor had to issue to ministries
and peoples councils binding directives on managing industry. 'ill
In Hungary, only a 1957 Plan has been drawn up at the present
time. Later, a Three Year Plan probably will be instituted. )S/
This apparent lack of long-range planning may be as much, if not
more, the result of the recent Hungarian uprising than of any inten-
tion to reorganize the planning structure. There has been, however,
some conscious decentralization of decision-making within the planning
structure, chiefly by limiting the number of centrally fixed commodities.
Henceforth, only the most important commodities will be included
in the national plan by the central government. Furthermore, the
ministries and factories may omit from their annual plans quarterly
breakdowns of many commodities. In 1957, central determination of
specific targets will be reduced by 35 to 4o percent below targets
of the previous year. LQ/
In agricultural matters the Hungarian Council of Ministers will
give more planning authority to local government councils. Market
prices will be set by the central government for only 19 specific
agricultural products. Drafting of the detailed cultivation plan is
to be left to members of producer cooperatives -- following confirmation
by the appropriate district agricultural department. Finally, direct
negotiations for planning purposes are now permitted between producers
and buyers of farm products. 101/ To assist in this limited decentrali-
zation of planning, the government decided in mid-1956 to enlarge
counties and county districts, thus enabling them to take care of the
new planning functions delegated to them by the central government. h.5./
The East German State Planning Commission in late 1956 issued a
regulation providing for some decentralization in the administration
of state-owned factories. These factories are no longer to submit
preliminary reports on annual and long-term plans (particularly on
labor force requirements, labor productivity goals, wage funds, and
services for employees) for study and approval to the central govern-
ment, but rather they are to submit them to the county (Kreis) councils.
State-owned factories have also been given the right to object to their
part of the annual plan and to offer counterproposals to it. LY
The number of centrally fixed production targets in East Germany has
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been sharply reduced -- from 950 in 1955 to 810 in 1956 and to 440
in 1957. Moreover, officials of the State Planning Commission believed
that control over the production of at least some consumer goods
should be transferred from the ministries to the district (Bezirk) and
county councils because the latter are considered to be in a better
position to assess local requirements. Lt1/ Allocation of consumer
goods is also to be assigned, in large respect, to district and
county councils. Formerly, such allocations were made by the Ministry
of Trade and Supply. The councils now may use their discretion in
allocating commodities by categories, according to the needs of the
various trade organs. This limited decentralization in allocation
will enable local retail outlets to purchase a limited quantity of
commodities directly from the producer. hp]
In Rumania the individual commodities for which production targets
are established by the national plan have been reduced to 375 in
1957 compared with 470 in 1956. Furthermore, commodities included in
ministerial plans were reduced by 2,500 in 1957 -- to roughly half
of what they had been in 1956. The national plan of 1957, for
example, no longer sets the targets for kerosene, galvanized tin
pails, brushes, and pencils. These items will be manufactured by
producing factories only at the request of consuming factories and
supply organizations. The effect of this change is intended to
permit factories to discontinue formal planning a full year in
advance for such minor commodities. Moreover, the quality of these
Items will be improved because a consuming factory -- if it is not
satisfied with the products of one producer -- will be able to contract
for these commodities with another producer.112/ This authority to
change producers, however, may open the door to more serious modification
of centralized allocation than was originally intended.
Decentralization of planning in the Satellites has been chiefly
directed at delegating to lower managerial levels more and more of the
details of plan formulation.. The immediate advantage should be to
achieve more realistic planning by more accurate determination of
existing and potential productive capacity.
There are limits, however, to which delegation of planning
functions can be carried out without damaging the basic concept of
centralized planning. It is not certain, for example, that Satellite
leaders can safely delegate all minor planning functions and yet
retain major policy determination at the center.
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V. Increases in the Power of Middle and
Lower Level Management.
One of the main techniques in recent
has been to partially decentralize minor
to middle and lower managerial levels.*
Satellite reorganizations
decision-making authority
A. Middle Level Management.
By mid-1956, Czechoslovakia had decided to grant to its
regional national committees** considerably greater power. The
Czechoslovak Communist Party stated that the regional committees,
not the central government, should make final decisions in questions
concerning agriculture, local economy, education, culture, and the
health service. Ministries responsible for these functions are to
transfer gradually to the regional committees the power to make more
decisions on the utilization of materials, capital investment,
financial resources, and manpower. 22/ In this the Czechoslovak
leaders were ahead of Soviet decentralization programs and followed
more closely the rather advanced Yugoslav program.
The regional committees in Czechoslovakia are to be given
expanded supplementary budgets as well as greater over-all financial
flexibility. The committees will also manage state farms; motor
transport (including the repair of small- and medium-size motors);
water and sewage installations; and retail trade outlets. Finally,
decentralization is to be carried out within the jurisdiction of
regional committees themselves by their delegation of greater power
and authority to subordinate district, city, and rural committees. 21/
This latter point was the subject of a government resolution adopted
on 24 July 1956: On 22 December 1956, Premier Siroky criticized the
implementation of this program by noting that the directives for
further decentralization of functions down to the district and local
committees had not yet been carried out. 22/ Additional plans for
expanding the role of regional and subordinate committees were to
be completed, and the new system was to be in full operation by
1 January 1957. 51/
Apart from ministerial reorganization, national committees
and provincial councils in Hungary (units of middle and lower level
government) have been granted greater economic powers. National
* Including district, city, rural, and factory management.
** These committees are organs of local government existing at the
regional level.
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committees are now permitted to prepare budgets for factories and
other subordinate organizations such as state transportation companies
and state and collective farms. These budgets were formerly drawn up
by ministers. 21.4-/ The fiscal authority of provincial councils has
been expanded, as has been their right to transfer the subordination
of a number of enterprises and institutions from one organization to
another. The provincial councils also have authority to construct
and maintain roads. 22/
On 9 February 1956 the East German government made provisio6
for the transfer of certain administrative functions, when and if
necessary, from higher to lower managerial levels as follows 2W:
(1) inspection of trade and maintenance of roads from central
ministries to district (Bezirk) governments; (2) local, state-owned
enterprises and determination of investments for some local construction,
from districts (Bezirke) to cities (Staedte) and towns (Gemeinden);
and (3) service and supply enterprises (except suppliers of power),
from counties (Kreise) to cities and towns. This authorization
for transferring certain managerial functions somewhat modifies the
former system of highly centralized control.
Rumania also has been giving greater power to peoples councils.*
The contracting and procurement of agricultural products, following the
abolition of the former Ministry of Collections, has apparently been
turned over to the executive committees of these councils. In 1957,
some enterprises of rather minor importance reportedly are to be
transferred to the jurisdiction of the councils in a test region. If
the experiment is successful, the transfer reportedly will be applied
throughout the country. 21/ A later report stated that the councils
will manage a number of enterprises) such as certain food industries)
construction, trade, and utilities. 2?/ Finally, the peoples councils
are to receive greater authority over budgetary matters for their
respective areas. 29/
B. Factory Management.
One of the highlights of administrative decentralization
occuring in Yugoslavia and the USSR since 1950 has been the steadily
increasing authority given to factory directors. The director has
received greater decision-making powers, chiefly by being permitted
wider latitude in utilizing the resources at his disposal.
* Organs of local government on the regional, district, city) and
rural levels.
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A new Czechoslovak law regulating national factories and
"certain other organizations" took effect on 1 January 1956. In
addition, a decision of the Czechoslovak Communist Party in mid-1956
further extended the powers of factory directors. They have been
granted independent decision-making authority in all matters not
specifically reserved to ministries and the government. ..0/ They
also now have the right to alter delivery terms of products and
equipment in agreement with the consumer (within the framework of
the quarterly plan); to add certain production tasks to the plan;
to define and change the table of organization of the factory; to
appoint and dismiss the heads of factory departments; and, within
certain limits, to determine salaries, introduce piece work, and
set norms which have not yet been established by higher authority.
Also the director will now have the power to approve bonuses and
payments from a special fund, to engage in limited transfer of
operating funds, to dispose of specific categories of surplus raw
materials, and to write off small claims and approve certain losses
within limits set by higher authorities. ?1/
In Poland a decision of 9 April 1956, adopted by the Communist
Party Central Committee and the Council of Ministers, considerably
expanded the authority of factory directors. Among their more
important powers, factory directors now have the right to approve
detailed plans for their factories (within the framework of the annual
plan); to work out the detailed organization of their factories
(including the authority to alter certain wage scales and to fix
temporary work norms); to accept orders from other state enterprises;
to market their products directly (if such does not detract from
plan fulfillment); and to utilize certain funds for specific
purposes, such as modernizing plant equipment. ?.2/ Following the up-
rising of October 1956 the factory directors, according to a draft
resolution of the government of November 1956, were given additional
rights covering such fields as the approval of prices for commodities
in agreement with the purchaser, the determination of investments and
capital repairs, the sale of surplus commodities, and the general
field of employment such as hiring and wage setting. .?3./
In July 1956 the Hungarian government reportedly transferred
three food enterprises to the status of "independent economy": that is,
the enterprises have the right to make their own marketing contracts,
to accept work orders, and to determine the distribution of 70 percent
of their profits. ?2.il In January 1957 the government authorized three
industrial factories (the Ganz Freight Car Company, the Hungarian
Freight Car Company, and the United Incandescent Company) to negotiate
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trade contracts directly with foreign companies (presumably including
Western firms). This greater freedom will enable these factories
to gain direct experience in the requirements of foreign markets. .61/
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In the spring of 1956 four Hungarian factories were reorganized
according to the Yugoslav system: that is, the directors were given
authority to set wages; to contract directly with other factories
without going through the state machinery; and to determine
distribution of profits, provided part of the profits would be used
to raise wages. Finally, if the system were effective, it would be
introduced throughout the Hungarian economy.
East Germany, in early 1957, announced that factory management
in the current year will exercise greater control over its investments
for maintenance of building and machinery. Management will also have
more authority in matters of employment and will have greater voice
in disposing of its awn operating funds. ?1j The increased authority
of enterprise management follows from the additional authority granted
to directors in late 1955 to have more control over their own tables
of organization, production technology, acceptance of independent
purchase orders from other factories, and the general expenditure of
their funds.
In Rumania also, the authority of factory management was
Increased in 1957. Factory directors now have the necessary authority
to hire and train the workers they need. More responsibility for
planning and administering the wage fund has been given to factory
directors, including the right to reward workers (in consultation
with the factory committee). In addition, the planning for and
supply of 2,500 products recently was transferred from the jurisdiction
of ministries to that of factories. The factories also are to be
given more control over the distribution of their above-plan profits. ?_9/
Most significantly, however, factories and state farms in Rumania
reportedly are to have freedom to make purchases outside the socialist
sector of the economy. 12/
The increased authority of management at the middle and lower
levels in the European Satellites reveals several interesting develop-
ments. Czechoslovakia, in granting additional managerial responsibili-
ties to its regional committees, has anticipated the rather extensive
decentralization of economic power now under way in the USSR. In both
countries there is a conscious effort to grant to middle level managers
some of the administrative authority for operating the economy which
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was previously reserved to the officials in the central government.
The powers of factory directors in the European Satellites,
following the trend of the past few years in the USSR, appear now
to be more commensurate with their responsibilities. The most
important development, however, seems to be in the expanded power
of factory directors to contract with one another, to negotiate
directly with foreign firms, and to purchase some commodities from
private enterprises.
VI. Establishment of Workers' Councils.
In Po:land, Hungary, and East Germany, workers' councils* have
been established in an attempt to achieve a measure of internal
factory decentralization by placing in the hands of workers some
of the managerial power previously reserved to the director and
his staff. The objective is to "democratize" factory management,
thus exploiting more fully the initiative as well as the technical
and administrative ability of the workers. It is hoped that such
action will result in a speed-up of production as well as in a
lowered cost of production.
Late in November 1956 the Polish government drew up a draft bill
on the organization of workers' councils. It stated that the councils
are the highest authority within the factories. 72/ One official
announcement stated that the basic principle of the new Polish
economic model is "the independence of socialist enterprises based
on administration by the workers councils." 12/ The draft bill of
November 1956 sets forth the powers which the councils will have.
These include authority to elect an executive presidium which will
manage the factory on behalf of the workers; to accept or refuse
the appointed director and other key officials of the factory; and,
following refusal, to propose their own candidates for these positions.
If, however, there is a conflict between the workers' council or its
presidium and the director of the factory regarding factory adminis-
tration, the director may suspend the decisions of the council or
its presidium. In such a case the matter will be referred for
decision to the appropriate minister or presidium of the regional
government. 72/
Workers' councils reportedly have been established in 35 factories
of the Polish engineering industry. Effective 1 January 1957, one of
* Called workers' committees in East Germany.
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these factories inaugurated a workers' council. The council is to
meet quarterly, and its resolutions are to be binding on the
director. If the director disagrees with the presidium of the
council on an issue, an extraordinary meeting of the workers' council
will make a final decision. /V At the Zeran Motor Car Factory in
Poland a workers' council of 40 members was elected on 5 December 1956.
The presidium of the Zeran council is reportedly the highest authority
In the factory to which the director will be subordinate. The director
will execute the instructions of the council on inner-factory matters,
although he is still to have full power over factory management, and
the council will have the power to nominate and dismiss the director. 22/
The actual power of the councils over production decisions, however,
is still unclear.
In. Hungary, after a period of much confusion over the legal status
and actual influence on government of local workers' councils during
the rebellion in late 1956, a system of factory workers' councils is
gradually being introduced. By Decree No. 25 of 1956 the Hungarian
government stated that only manufacturing factories, mines, and similar
organizations were entitled to establish workers' councils. I@ Indica-
tions are, however, that such councils have been formed in a consider-
able number of agricultural production cooperatives and state farms. /I/
In January 1957 the official gazette of Hungary issued a decree on the
appointment and dismissal of leading officials of factories and agri-
cultural organizations such as the chief engineer, the chief accountant,
and the chief agronomist. In such personnel actions the consent of the
presidium of the appropriate workers' council is required. The appoint-
ment and dismissal of administrators not in the leading category
however, remains the sole responsibility of the director. It/ rnwA
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little information is available on
the specific power
over production which the councils may possess.
In East Germany, workers' committees are to be established in
factories which, according to Walter 'Ulbricht, will differ both from
the Yugoslav and the Polish models. The committees will not possess
autonomy but probably will have some voice in setting work norms and
In distributing certain production bonuses. Wage setting and the
right to hire and fire workers reportedly will be left to the trade
unions, although it is doubtful if the unions will have such power
In practice. /9/ the committees will
assist in formulating factory plans and will influence the distribution
of bonuses, job classification, and other "important" personnel
matters. tr.(2/
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The relative newness of factory workers' councils in the European
Satellites precludes a meaningful evaluation of them at this time. In
Poland the councils apparently are destined to become a significant
force in factory management but in Hungary probably somewhat less so.
In East Germany the committees probably will have few real powers to
Influence management. Certainly the councils could become an important
management device if they are permitted to exercise a measure of
genuine authority.
VII. Conclusions.
The current reforms in economic management in the European Satellites
can be expected to solve some of the more urgent administrative problems,
and elimination of waste and duplication should result in a consider-
able reduction of administrative costs. The managerial chain of command
will be both clarified and simplified, chiefly by assigning to each
administrative level definite functions not covered by other levels.
The transfer of minor decision-making and planning authority to lower
levels should measurably lighten the workload of the central government
officials and also should result in more realistic decision-making and
management.
The long-range effects of the reforms, however, are more difficult
to anticipate. It is questionable whether piecemeal decentralization
of managerial power can solve the conflict created by attempting to
retain centralization in planning and managing the economy while fostering
limited "democratization" of the economy (the granting of more independ-
ence to lower level officials). The current aim in the countries of the
Soviet Bloc, and in Yugoslavia, is to make the two concepts mutually
compatible.
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