BRIEFING OF THE DCI (Sanitized)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70T00666R000200110011-0
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 5
• Document Creation Date: December 12, 2016
• Document Release Date: August 23, 2002
• Sequence Number: 11
• Publication Date: September 9, 1966
• Content Type: BRIEF

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9 September 1966
STAT
COMMUNIST ECONOMIC REFORM
(13 Reforms in 10 Minutes)
At the latest count, seven of the European Communist countries
are engaged in reforming their economic organizations. These are
East Germany, Poland, Hungary, Czechoslovakia, Bulgaria, Russia, and
Yugoslavia. Those missing are Rumania and Albania, two countries
which have made a hobby of being different. This wave of reforms is
almost like a fad. Its fashionable in the Bloc to have an economic
reform. Thus Bulgaria is growing steadily at 9 percent a year and
had no pressing need for reform. On the other hand, in East Germany,
Czechoslovakia, and Russia, the motivation for the reforms was a
painful slowdown in economic growth in the 1960's. First East Germany
announced a reform in 1963, Czechoslovakia in 196+ after a decline in
GNP in 1963, and the USSR and others followed in 1965.
The reforms in the various countries are quite diverse. A common
theme in all, however, is a conscious attempt to reduce the degree of
central control, and less consciously to make use of price and profit
incentives. These economies have been called command economies. The
1566
STAT
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government not only owns nearly all the land and capital, but also
has tried to direct economic production in detail. They have been
run like armies, the central control organs issuing orders through
intermediate levels to producing enterprises as to what to produce,
and how to produce it, and to whom to distribute the product. The
result of this excessive bureaucracy was a very obvious waste in
all the countries -- poor quality goods, which could not be sold,
excess labor, underutilized machinery, prolonged periods of con-
struction, etc.
As long as economic growth was rapid, the Communist leaders
ignored the waste. Whenever there were economic problems, the govern-
ments have attempted to reform.
The current reforms are only the latest in a succession of
"reforms." The first was the Yugoslav reform in 1950-52. Then came
the Polish "new economic model" in 1957, following the uprising in
1956. Also in 1957 was Khrushchev's famous industrial reorganization.
He attacked the problem of overcentralization by abolishing the indus-
trial ministries and replacing them with 101 regional economic councils
with a certain amount of autonomy. It was the job of the local Party
organizations to keep the regional councils in step with national
objectives. The autonomy of the regions did not last long. After a
few months it was withdrawn.
The three most interesting of the current crop of reforms are the
Soviet, the Czech, and the Yugoslav. The Soviet reform was hailed by
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an an enthusiastic Soviet economist as ranking in significance with the
NEP, and the initiation of the five-year plans. The key change is
the use of profits and sales to measure the success of the enterprise,
instead of physical product, in the hope of lowering costs and stimu-
lating higher quality production. By the end of the year, one-third
of industry is supposed to be operating under the new system. But
the price reform that was supposed to accompany the other reforms
is still in the future. Will the Soviet reform work? Answer, based
on experience, no! A similar scheme was tried by the Czechs in an
earlier reform in 1958. They found that a profit motive combined with
state fixed prices led to the production of the wrong things. In
addition, in the USSR we already have reports of ministries over-
ruling actions of enterprises, actions which the reform decrees
specifically gave the enterprises the right to do. This illustrates
a basic problem which has undermined all reforms so far. The new
and old systems cannot work simultaneously. The old, represented by
ministries, must be dismantled before the new can take over.
This identical problem has arisen in the latest 1965-66 Czech
reform. In principle, enterprises will be guided by profits and free
market prices. But in practice only, a very few prices have been
freed and the central authorities and the industrial trusts are
actively and closely directing enterprises, to the dismay of the
reform advocates.
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Yugoslavia represents an ultimate stage in Communist economic
reform, a model which has influenced all other reforms. In the origi-
nal reform in 1950-1952, not only were most enterprises given almost
complete freedom, including freedom to set their own prices, but the
central industrial ministries were dismantled and the central plan
and planning organization was severely curtailed. There seemed to
be every prospect of establishing what is known as market socialism,
that is, a socialism which emulates a capitalism in the use of free
markets and market prices and profits as guides to producing enter-
prises. But provincial and local officials and Party members quickly
rushed in to fill the void left by central planners, and an inflationary
investment and monetary policy soon led to price controls and more
state intervention in a familiar pattern.
In 1965 and 1966 Tito had to set out to reform all over again,
to stabilize the over-all price level and to free individual prices,
to take economic control away from provincial officials and Party men
and vest it in enterprises and banks which hopefully are neutral,
objective and non-capitalistic. He has not yet achieved stable and
free prices and it looks like the second objective is turning into a
purge of the Party, the outcome of which is unpredictable.
We conclude from all this that only a thorough-going dismantling
of economic bureaucracies and the substitution of market processes
will significantly improve the operation of these economies. And it
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remains to be seen whether any Communist Party will allow this to
happen. The present round of reforms are, except possibly in
Yugoslavia, not thorough-going enough to really change the essence
of these systems nor to overcome lag in growth. This suggests that
this round of reforms is not the last and the next round, as in the
Yugoslav reform, may be more radical.
P.S. Would you believe 12 minutes?
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