THE LONG TERM PLANS FOR POLAND: A PRELIMINARY EVALUATION (RR IM 59-4)

Created: 3/31/1959

OCR scan of the original document, errors are possible

MEMORANDUM

THE LONG-TERM PLAN FORRELIMINARY EVALUATION

CIA/RR49

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

CONTENTS

Page

f tho Long-Term

Major Production

Income

k. Plans for the Utilization of

?. Factors Affecting Economic. .

.

of Labor .

of

Technology, ond

Foreign Economic

Implications of the Long-Term

Appendix

Source

"i

1 . Indexes of National lncuae of Poland, by Sector of Origin,

Selected

2. Yearly Rates of Grovth of Industrial Production la Selected

Countries, by

3- Production Indexes for Branches of Industry In Hi land,

Selected Years,

k. Production of Selected Industrial Gonraodities In Poland,

Selected

Indicators of Agricultural Development ln Poland, .

Selected

Distribution of the national Income of Poland, *

Selected Years,

--'I Dt"?iiacl -Ki

'{. Percentngo Distribution of Capital Investments ln;Poland;

Selected Periods,

- .Itzzl;

8. Distribution of Personal Consumption- ind'-

9> Population and Employment In Poland, Selected

. 19

10. Net Capital Expenditures in Poland Needed to Increase the "

Value of Net Industrial Production by One Zloty, Selected . 32

U. Percentage Distribution of the Foreign Trade of Poland,

2fr

For tbe first time6 the economic situation in Poland is sufficiently favorable and the political situation istable toong-range view of the economic prospects of that nation. The views of the Polish government and of Polish economists and technicians as to these prospects are indicated in the recently published Five Year Plannd in information on the so-called perspective plan for the longer.

The planned rote of economic growth over the entires moderate by Communist standards. The following increases are scheduled: ercent for nationalercent for industrial production,ercent for agricultural production. .The rates of growth planned for national Income and for industry arc lower than in past years and decline during the period of the plan. Heavy emphasis is given in industry to chemicals (particularly organiclectric power, and certain branches of machinery; in agriculture, to production of meat, milk, fruit, and vegetables; and in transportation, to automotive transport, electrification of railroads, and the merchant marine. Improvements ore planned in services and trade through large increases in employment in these sectors of the economy.

he-goal of the Polish economy which is given the most prominenceraising of living standards to tbe present, levels of Westernis evidence that, the present intention is touch priority to consumer-oriented production than in the periodComulka headed the government. Living standards will no longer raised by meansrash program, as, but rather atlower rate determined primarily by the long-term development ofIncome. harp rise in investments combinedarge net deficitet surplus on currentwith foreign countries Is expected to keep the growth ofbelow that of the national income. Afterconsumption is planned to increase slightly faster than

* The estimates and conclusions in this memorandum represent the best Judgment of this Office as

The steady growth planned for consumption and tho progressiveof opportunities for cheap gains In production will, bofactorseclining rate of economic growth In Outside of machine building and part of the ferrousIndustry, most Polish industrial plants are now beingor close to full capacity so that increases ln production willsubstantial investments. Similarly, many of the gainsagriculture and transportation require largo investment, and,it is planned that the share of investments allocatednot directly productive such as bousing and communal faclli-will Increase. Although improvements in technology andand less Irrational policies toward agriculture andunder the Six Tearouldavorable effectproduction, political considerations probably will preventmaking full use of its potential ln these

The structure of the long-term plan reflects the closePoland with the Soviet Bloc in several respects. It appearsfor very little development of private enterpriseretaining state control over the bulk of economicpromotes the growth of certain industries which are highlythe row materials and markets of the Soviet Bloc; it Involves a structure of foreign trade which wouldurther shiftPoland's trade to the Vest very difficult. On the whole,plan probably can be justified in terns of Poland's ownend it appears to reflect the best Judgment of thcas to the economic prospects of their country under

Although several parts of the plan will be very difficult toeven under thc most favorable conditions, the plan does not appear to be unrealistic In its basic characteristics. Moreover, given certain political limits, thc plan seems toeasonable approach to economic growth and to raising living standards.

1. Introduction.

The purpose of this memorandum is to sketch the general lines of future development now envisioned for the economy of Poland. information has been released recently on two long-term plans for the Polish economy: the Five Year Plannd the so-called perspective plan for thc- Although the targets5 (which differ somewhat in various reports) are, of

necessity, much more indefinite than those5 and hove not yet received governmental approval, the forthcoming Five Year Plan appears to be generally consistent with tho perspective plan, and therefore can be viewedtage within the latter plan. Because the goals of the plan are preliminary and probably will be changed many times, the conclusions of this memorandum are highly tentative. To some extent, however, tbe present outlines of the plan nay be used laterasis for determining possible future changes la the economic policy of Poland owing to domestic considerations or to Soviet pressure.

Among the reusons for the formulationong-term plan for Poland at tho present time are the need to coordinate notional plans under the Council for Mutual Economic Assistance (CEMA) and the hope of the Polish regime that setting long-range objectives will help the party rank and file toense of purpose and to raise its morale. Even more Important, perhaps, is the fact that an Improved economic situation, in Poland now makes realistic, long-term planning possible. Between the end5 mad Gomulka's accession to power inolish economic policy hod become increasinglyas the government was forced to make important concessions to consumer demandsime when shortages of row materials and pover were becoming more ond more severe ond earnings from traditional ex- -ports werehe plannderwent successive revisions, eachurther paring down or postponement of plannedthe result that investment remained nearly constant for several years vhlie consumption was growing faster than the national income. Because of large-scale foreign credits and various domestic measures, notably the liberalization of agricultural policy, the promises of the Gomulka regime to consumers hod been mode good, for the most port, by the end. Inflation had been halted, ond some Improvements had been affected In the structure of productionumber of:serious problems, which cannot bo solved rapidly, remainhousinghich continues to worsen, insufficient productive capacity and obsolescent, equipment In the light and food Industries, and generally low productivity and poor organization In most-branches of' industry, construction, ond tradebut the problem of-lov urban living standards:is.no longer os pressing, and theof. raw materials has been easedhe details of the long-tern plans -vlll'be7 reand possibly changes vlll be made In certain essential -respects. VFor-example, although the present draft of the plan assumes. increased cooperation under CEMA, Inconsistencies between the.plan<.forhosc-for other countries of the Soviet Bloc will have to be iroocd-outevertheless, enoughis now available .to^determlnc'.the direction and general.of the future economlcdevelopracnt of Poland, as envisioned by the Polish regime.

2. Characteristics of-the Long-Term Plan. - -.

The'principal' goal"of the lodg-tem plan, according topronouncements, la attainment in Poland5 of thestandards 'of Westernn vlev of past experienceand other countries of. the Soviet Bloc, one cannot takethat-consumption will be treated as the end of economicthe actual operation of-the plan, but there are many Indicationsa substantial growth in consumer welfare is consideredinsure domestic stability and Justify the Communist regime instatements-and economic-policies actually followed since6 indicateidespread belief in Polanderypattern of growth and strain on resources such as existedSix Yearannot be maintained for long; that thesewould'create tooaste of resources and mustengthy period of readjustment; and that they createdissatisfaction which, if it does not lead to open rebellion,to hamper-the growth of labor productivity and to weaken the in-of .the Communist Party. To avoid these difficulties lnthe Polish regime probably will attempt to promote aof consumption ln the longn relationhe priority of consumption will diminish, for to continue to theentlrenational income toa sharper decline in the rate of economic growthregime-is willing toaccept, and this lower rate of economicresult-in less consumption later

cj*mbt. ;

Connected with the Increased importance of consumer goals lnwith the Six Year Planew concept and method of planning. The Six Year Plan wasomplete plan of economicrimarily,-it set targets for priorities ln key economic sectors (for example, In metallurgy and machinend ell efforts were-directed to reoeh these targets with little regard for other partshe economy; In effect, most consumer and some raw material sectors received uhot was left over after the priority areas had been supplied, and established plans for these sectors often were completely ignored. These policies were feasible because reduced consumption did not affect inaodlately labor productivity and also because of the large amount of xcess capacity which could be put to use when investments in areas supporting priority production fell short of plan. In the future, however. Increases in production generally will require new investments; compensation must be paid to induce greater worker effort, and- tight management of resources is necessary to ameliorate the difficultof payments position, so that errors in one part of the plan are likely to Impinge severelyhe other parts.

Under the direction of Michel Kalcckl, on internationally known economist, the long-terra plan appears to have been established by projecting such variables as national income by origin and use, the supply of Investments and their effect on fixed assets, the supply and distribution of labor, and estimates of production of keybelieved to be consistent with both demand and technical possibilities. It represents an effort tolan asconsistent as possible.

3. Major Production Goals.

a. National Income.

Poland's long-term plan callsapid but declining rate of economic growth. The rate of growth of the national income is projected atearxcluding direct 'services. If direct services (education, health, administrative, military, and personal services of all kinds) were taken into account, this rate probably would be reduced toercent.*

The planned rate of growth of Poland's national income Is slightly higher at the beginning oferiod than at the2omparedercent) andlower than that expected1 percent). (See er capita basis, the projected rate of growth for the entire period would beear. ;

'b.

Primarily responsible for the decline In the rate of growth of national-Income Is industrial production, the yearly rate of growth of which foilsercentercent. For the entirehe rate of growth Is to

* It should be noted that these projections vere calculated from estimates of value added in the individual branches and sectors in6 prices. Because the prices of those goods whoseIncreases more than average tend to fall more (or increase less) thanigher measure of growth tends to be obtained6 weights than with the weights which might result from the price structureater year. Historical measures of growth in most countries usually are calculated withate base year or from linked indexes eachifferent base year. For purposes ofwith historical measures of growth, therefore, the planned easure for Poland should be deflated somewhat. ** ollows on p. 6.

Table 1

Indexes of Rationalf Poland, by Sector of Origin a/

. . Selected Years,

, '- i i- '4

. V index

) : Indexes

Sector of Origin 05 5

Industry ond handicrafts 3

Agriculture and forestry 72 3

Construction h-gil f".

Transportation and' yv j- *, . jf

conounlcatlons Ul * l9

Trade k 0

Notionalc/j; ib" if U$ 1

base Is0 equals

r" i

before the"beginning*ofeoror: exarpla.-iln the. -S i*

ercent yearly. Aa Is indicated In Tablehe actual and planned rateo of growth of Polish Industry do not differ substan tlally from the rates achievedumber of countries of Westorn Europe between the end of the postwar recovery period

Table 2

Yearly Rates of Growth of Industrial Production in Selected Countries, by Period a/

- Country

Period

Rate of Growth

Germany

.

Franco

plan)

(plan) b/

xcept for Poland, the first year of the period is the year following the attainment of

- Immediate prewar peaks or the

-b. Derived from Table-elow.

TUB rial _Tf

The structure of the planned growth of industrial production Illustrated inhich presents indexes by broadand ln Tablewhich chows the goals for selectedphysicalrorl

: !ii _. ACSIndividual Industries, the highest goals are assignedafold increase inears. Great emphasis is being;to the development of large-scale organic synthesis basedtar, and eventually also on petroleum derivatives. Thisvould require the construction of large and expensivepetroleum refineries. Raw materials from coal (that is,byproducts from coking) arc available ln quantity; bathave to be Imported, probably from then the basis oforganic chemical industry, Poland hopes toideitems (synthetics, plastics, pharmaceuticaln, and the like),which ore consumer goods and which will tend "to reduce importcotton, wool, and other materials that now encumber.Poland's bal-of payments. Plans call alsoonsiderable "expansion ofchemicals, chemical raw materials such as sulfur, andneeded to increase agricultural production. .

A rapid increase in the production of machinery and metalalso is called for, although tho rate of growth of this industry will be less than half what it was. The intention apparently is to produce higher quality goods than before and also fewer types of certain products,iew to reducing costs and In-proving Poland's competitive position ln world markets. Among the products expected to be developed rapidly ore machine tools, automotive equipment, ships, certain types of electrical equipment, agricultural machinery, and consumer durables. Backlog up thc machinery program end thc rapid growth of construction, the metallurgical lndustrleo are planned to growate somewhat less than the rate for all Industry and also much more slowly than. High prospects arefor the production of aluminum and quality oteels and forin the assortment of rolled products.

* ollows on p.* ollows on Text continued on

The planned rote of growth of construction materials lags slightly behind the planned rate of growth of construction. In line with the experience of other countries. Increased use is to be made of wallboord, concrete products, and other items which, in the long run, are leos costly than bricks. Less wood will be available because of deforestation, but the degree of processing of wood will rise

Table 3

Production Indexes for Branches of Industry in Poland a/ Selected

Bates of Growth

of Industry

Electric power Fuels

Ferrous Eetels

Nonferrous

Machinery and metalworklng"

Chemicals, rubber, and salt

Konaetollic minerals

Paper

Textiles ond clothing eather and shoes Fats and cosmetics Foods

Total industry

'>22

33"

51

Ml

150

62

69

1

nil

2.7

9>5

^

U.U

318

industry only.

Table 4

Production of Selected Industrial Commodities in Poland Selected

m

ii If

The relatively lov rate of growth of light industry probablylanned shift in the composition of raw materials from agricultural materials, mostly imported and then processed entirely within light Industry, to chemical materials to which light industry often adds only the last stage of processing. Part of what was"lightherefore, is in fact being shifted to The projected growth of food processing Is about double that of agricultural production,igh Increase in the degree of processing basic materials.

In spitecrcent increase ln total Industrialplanned05 and an attempt nearly tothe output of fuels Is to rise onlyercent andhard coal only aboutercent. Domestic requirements for fuelbe met through the partial electrification of railroads; theof exports of hard coal to the present level ofear; the rapid development of brown coal deposits; andof large amounts of crude petroleum for automotivemerchant marine, and diesel locomotives. By using brown coal toextent, production of electric power is planned tothan total Industrial production in order to promote theof economic activity and particularly the growth of'chemicalssectors which use large amounts ofs

t" .r

c. t.

* ollows on

The planned growth of agricultural productiona year, or abdutercent inears) is higher than that "achievedut lower than that expected. Fulfillment ofplans would require an increase of approximatelyercent in meat production and moreoubling in the production of fruit and vegetables In addition to substantial increases in the production of other crops from the level Because the amount of arable land In Poland is virtuallyhe growth of grain requirements will have to be satisfied through increased yields, which are planned to rise by over two-thirds compared with the average, thereby surpassing those of France and equaling those of Sweden. The planned rate of growth in agricultural production in Poland is similar to actual rates in Western Europe. Maintenance of such ratesyear period, however, would beemarkable achievement. Selected parts of the agricultural plan are presented in

Table 5

. ' , 5 .

Average f/ ? V (Pevlaod Plan) (Plan) (Plan? j/

.w

Potatoes 3

Sugar

('- vegetables:;

to

'Crop yields

Grainsuintals per 0 0

* 'J Quintals' per

r' Sugar basts,Quintals per .

'ixi'll "

Animalt-

1* .

/ Meat (live weight). -Thousand tons l

Whole silk '. :' Million cubice/ 7 6

Selected. Indicators of Agricultural Development In Poland SelectedPlan)

k. Plans for the Utilization of Production.

Over theyear'period of the long-term plan, theaccumulation* andn the nationalo change very little in comparison with those5 or As indicated in Tableccumulation was aboutercentnational income (according to the Marxist definition)o be the same percentage ln

>

Percentage

6

Distribution of the national Income Selected

Poland a/

if" Conf.uiaptiu:i

(

' 30

K

%

* Accumulation normally represents the value of gross additions to fixed assets (gross cnpital investment) less depreciation on these assets plus the value of net increases in inventories and stockpiles. In Tableowever, depreciation has not been deducted. Consumption represents the value of purchases of goods bythe government, and governmental Institutions (hospitals and the like). It does not include the services listed Nntionol Income (according to the Marxist definition) differs from groan national product (OHP) in that it does not Include the value of direct services provided to households, or to the government, and the value of passenger transport and communications used by the population. Also, It generally excludes depreciation, which, however, is included in Table 6.

- Ik -

Thc last part of thc present Five Yearnd the following Five yearallonsiderable rise ln the share of Investments ln the national Income, following the drop. Investments are planned to Increase bynd the national income byercent Thepercent growth of investments05 also exceeds the growth of the national income. n the other hand, the rate of growth of investments is planned to be slightly below that of the nattonal Income.

Only moderate changes arc projected ln the sectoral distribution of capital investments during the- As seen lnhe share of agriculture remains aboutercent; of transport and comaunications, aboutercent; of trade,ercent; and of" bousing, aboutercent. The decline In thc percent of industrial to total investments is offset primarilyapid rise in communal investments for such purposes as water works, gas works, and sewage. Within industry,onsiderable shift ln InvestmentIs envisioned. An increased share of investments is planned for allocation to electric power generation and distribution,materials, light industries, and food industries,uch smaller share, to metallurgy and metalworklng. Investments in transportation are to be directed increasingly to the Polish merchant marine, automotive transport, and tho electrification of railroads.

The growth of consumption in theears will be restricted not only by the rapid increase ln investments but also by.-the expectedarge deficitoderate surplus on foreignin goods and -services. Valued in Internal prices, thc deficit on transaction in goods and services with foreign countries is' to fall frco aboutillion tlotys"7illion ilotyss existing foreign credits".orend will changeurplusotys5 in line vith'projected schedules of This shift of-l4 billion tlotysears is equal in value to about one year's increase in personal consumption at present levels ond rates.

.esult of the above factors and of the over-all rate of economiche growth of consumption is planned to be much lower than that"'achieved in recent years. Per capita consumption lucreased byear; this rate is likely to bo cutin half,early constant rate ofeari-is projected0According to Polishate'would permit Poland to

ollows, on p?.

For the rate;of exchange,elow.

table 7

distribution capital. investments'.

er.3

otherwise indicated. unless otherwise indicated.

weighted average*

rural housing

f.

surpass the present level of per capita consumption in West Germany by eboutercent* .. 1 '

As Bight be expected, the otrncture of consumption Is planned to - change substantially In favor of consumer durables and services, at the expense of foods and alcoholic beverages. Within the foods cate-

aaaptlon of fruit, vegetables, olle, neat,items as tea and coffee Is to.^increase rapidly whereas thatla to decline. These changec In the atructure ofof course, olsdlar to those experienced by noat developingtries snd ore illustrated In Table - -

-

i

Dictrloutlon or Personal) Consumption in Poland o/

5 (nan)

Alcohol Clothing -Heme.furnish Metal articl Other goods Services

Total

'

8.0

3

6.6

yr -joo.o

Kilograms per Capita

productsLTl" 'Meat' and- iseot' prdduxtoTE Bai^yr

o &vn*nj to otoy,q>

MlSc*

33'

Per capita coosuimftidh^*invi cent of that of WestH percent.of this lcvel.ln>i9

IV plraned- tcXrcacKtoT

Tbe long-termorsubstantial improvementinonditions as measuredecline in theer room in urban areasU556close to the'present ratio'for West Germany. This projection, however, does not take'sufficient'account"of-the rapid deterioration of oldnd housing-construction'presently Is lagging considerably behind'n', improvement*"ousing conditions5 we" very*

scsc 5' FBCtorG Affecting

.cp"

a. General.

Poland's opportunities to obtain cheap gains In productionrapidly. arge port of the Increase In the nationalunder the Six Year Plan may be'1 attributed'to* shifts in theof labor from lev to high productivity occupations (foragriculture too..the_existence of partiallyand equipment (especially In the Western Territories),be reconstructedraction of ttiecostot equivalent nevto the existence of widespread unused productivefand to the ability to squeeze moreexisting houses and schools. These factors permitted theof Investments In Selected areas but were no longerby the endecline in tbe rate of-economicavoided* result of large foreign credits sndnev productive, capacity vhlch sprang from the completion ofundertaken earlier; future prospects, however,aincrease In investment requirements per increment to

b. Utilization of

Becauseow per capita Incomeapidly growingPoland haslentiful supply of laborcarcity of capital. ecline, resultingow birthrate during wartime, the rato of grovth of the population of workingill rise andercent* (See) Before World War II and,esser extent, during tbe early postwar years, there was considerable overemployment In agriculture, whereas the industrial plant was utilised far below its

potential capacity. It was possible, therefore, to raise Industrial

output by Increasing the number of workers In existing Industrial enterprises, and the loss of production la other sectors either was

small, as in agriculture, or wasery low value by the

ollows on

-S-l

Polish government, as In services and trade.

I ,1

hson

-Ith ^i

*-ooy

sits

1

This shift occurred too rapidly end was carried too far, bow-ever, partly becauseroliferating bureaucracy. According to Polish estimates, aboutercent of tbe industrial labor forceventually could be dispensed with without reducing Industrial production. Moreover, In spite of moderate improvementsabor productivity in Industry barely had regained prewar levels, whereas production Is estimated to haveines above that In the prewar period. At the same tine, nonIndustrial sectors, and particularly those supporting consumer welfare, had grown In importance from the point of vlev of the regime;-'

A major compalgnomewhat reducedin Industry, and employment In services, construction, andhad .increased. Migration from rural to urbanersons under tbe Six Tear Planhole,005 and probably had nearly haltedIn socialized trade and in private trade and

handicrafts has risen. The long*term plan, which calls foroderate Increase in Industrial employmentery large increase in employment in services and trade (stato administrationndicates that recent trends arc likely to continue. (See)0 the movement of workers out of agriculture Is likely to be resumed but only atate as to leave tho agricultural; labor orce at Its present site. Within socialized Industry, the largest per-ccntage Increases in employment are planned to take placematerials (nonractallichemicals, and machine building, and the growth of labor productivity is to account for about two-thirds of the Increase in production compared with less than half that in

Utilization of Capital.

The structure of Polishnder the Six Year Plan not provide the basisattern of economic growth thatsustained in later years. In industry, branchesercent of the value of fixed assets0 (metals,and chemicals) received aboutercent of industrialduringto official estimates,of fixed assets (in constant prices) incrcouedhis period in all industry,ercent in constructionthe light and food Industries, andercent In thecoal mine?. Moreover, mont nev Investments Intransportation probably vere offset by depreciation of oldhousing conditions deteriorated substantially. As wasthe small magnitude of Investments in many industries and in

" bove.

wi t

.transportation did notapid growth of production au long as the productive capacity of existing facilities permitted theof more labor. This condition, however, reduced thc amount of fixed assets per worker with detrimental effects on the growth of labor productivity in Industry.

, it was no longer possible to continue the former priorities of Investment, because as increasing shortages of fuels and raw materials occurred, pressure for higher living standards grew, and the balance of foreign payments become increasingly precarious. In consequence, the share of total investments in agriculture, housing, coal mining, and construction materials increased considerably. These changes, however, came too late toecline In coal productionontinued worsening of housing conditions. In tho light and food industries, investments remained extremely small, and,, Increased supplies of materials procured from domestic agriculture and Imports began to encounter bottlenecks ln processing capacity.

Thc desire to avoid the "disproportions" In the structurewhich led to such-serious difficultiesexhaustion of opportunities for substantially increasinga redistribution of the labor force are expected .toamount of investment needed toiven Increase ineven approaching thc crop yields presently achievedand Prance'will dependery large increase in capitaland-the use of-fertilizer In Polish agriculture) and. thefor'meat and.milk production also will require.substantialln buildings and equipment. Much-larger:Investments willto finance the-planned, growth of. themarineeadweight tons7 totons Inrapid development of road building

and the automotive.park, and the electrification of.-railroads. Prom the Communist point'-of view^the very large rise.in. investments planned in such areas asVhouslng and public utilities brings about an increase in costs tilthout^conpeneatlng direct returns in the form of higher output. In industry, opportunities for substantially increasing the degreetilizatlom of .eaisting" capacity are now'limited essentially toerrous metallurgy<irMoreover, much of the- production-designated- fori rapid expanaion;.is) highly- capital-intensive (for example,electric,hemical'raw.materials, organic synthesis, inorganic chemicals; chemicalement)Finally, insufficient development of new(forn: coalmining and' construction'materials) orrepair of old- facilities (for exomplefiinthe light and food .Industries) under the Six- Year Plan will-have .to be madehese factors are expected to raise sharply investment requirements per

(See Tableresult of planned* inveutnect -policies, wouldharp rise Inof- fixed" assets vhlch, givenall projected Increase In means? also'a.'large rise In the value ofper worker; This development, which contrasts sharplydecline in fixed assets per worker under the Six fear Plan,

IZiiitvr.

o!

t-iit

Table.

Net Capital'Expenditures In Pol

the Value

-ofrial Prod

by

*

i^*' v

Zlotys

socialized -Industry j e

iK-wsn;lectricFuels'** vri--Ferrous metals onferrousN .xij

- Machinery and metalvorking Chemicals,nd salt .-

SCi-fl

0

6

O.^fO

minerals

andJs;aJ: .

and

0

and

and/

50

- si

Zlotys may be converted to dollars at the tourist

rate of exchangelotys tout this rate may not reflect the.true dollar value. Net capital expendituresgross capital expenditures less depreciation. The value of net production of all socialized Industry is tbe same as value added by this Industryhat Is, the value of gross production less the cost of materials, hot production In all socialized Industry was distributed among industrial branches In proportion to the share of each branch In total labor costs plus depreciation allowances.

Growing requirements for capital per unit of increase Incertainly are an Important reason forower rate of economic growth than was achieved lo the past. Even if investments could be increased further end consumptionecline in the rate of growth of production probably could not be prevented because the capacity of the Polish economy to absorb additional investments in certain areas is limited by the supply of technical andskills. The construction of too many coal mines simultaneously, for example. Is said, by many Polish economists, to lead to aof the period of construction and, therefore, may not Increase coal production during the period of time considered. elated problem stems from the considerable dependence of Poland on foreign trade and the necessity to balance thisrofitable manner. If coal production end exports cannot be expanded sufficiently, then toorowth of other parts of the economy would raise import requirements without necessarily providing profitable exports.

d. Policy, Technology, and Organization.

:> .xit...

Thc depressive effect of the factors Just discussed on the rote of economic growth cay tc offset partly bytechnology, organization, and economicccording totechnological innovations, which may save both laborand the improvements in efficiency which the fullerof the "new economic model" may bring about have not beenaccount fully In the formulation of the long-term plan. Aregarding agriculture and handicrafts also could/bring But Communist Ideology ond Soviet influence probably, willo full utilization of opportunitiesechnological,or policy nature. .mw.

io-" . -.

Under the Six Your Plan,:Poland undertook.to produce, aof new products and more complex and specialized, equipmentwas not permitted to acquire the best Western or even

technology, and the quality of-the machinery and equipment producedPoland continued to be generally low by world standards.*'Moreover,.ln engineering often did not bring about-improvementsbecausehortage of engineers and poorlowest level of organizational and technical skill.probably wasin constructions is lllustrated^by the extremelyconstruction periods of most'3 .v-

An accelerated rate of technological' advance- in. the 'future aJcc probably will result from the growing experience of the Polesitherto unfamiliar processes of production and construction,though large-scale development of such unfamiliar Industrial branches as chemical synthesis, aluminum, and automobiles may cause serious , -

problems. There are numeroue<opportunlties for-jachleving.economiesproduction, particularly, im-theiome^benefits should stem also Xrom>the!increosed economic con--of Poland vith the Vestinally, /certain; techno log!advantages nay accrue to Poland;.through the'medium ofunder OKA, particularly In- the machinery.tedast-Germany;-and*

Communist.methods-ofrganization, and management,uj.i3 undoubtedlyighly detrimental'. effect;on>the. efficiency, ofyic ^oi factors of production In Poland under the Sixonsiderable:'a waste resulted not only from basic-errors; In the allocation;of.resources but also from the manner ln which state economic policies were lmple'-vcr mented. The Industrial structure of. Poland;Mn vhlch-.medium-': and small-scale entcrpriBee predominated,o centralized Btate-ttftffw control which greatly reduced the freedom of choice of the enterprise manager andultiplication of.othervice,unnecedsary bureau-cratic personnel. Moreover, there was general unfamillarlty with and widespread opposition to an economic* system patterned after-that of the USSR. Finally, because of.the very.limited:range ofoland and the consequenttheven small errors in economic planning and management probably,ore serious effects thanarge: and: diversified; country, such: ao -the USSR. :

Reforms in the system of planning and management7 under the heading'ofew. Polish Economicbasic characteristic of the "new economicinancial incentives for executive orders in inducingmanagers to carry out the state plan in the moot efficient The number of plan indices was: sharply, reduced, as'

the number of economic ministries; greater, freedom of choice waso the enterprise manager with recpect to assortment of products,.: sv. small investments, and selection of buyers and sellers. Production plans were set more conservatively than before, and bonuses to managers and workers were based to an increasing extent on raining profits or on reducing unit costs.At the some time/-some improvementsffected ln the syotem of prices. ubstantial rise ln prices of producer goods6 and further adjustments7 considerably reduced the need to subsidize state industry from the state budget. Selected price increases combined with larger supplies of consumer goods appear to have resulted in an approximate over-all balance of supply and demand in the consumer market. Prices of producer goods, however,ary poor basis for rational economic calculations -because they exclude such elements of cost as rent and interest, and the system of financial incentives cannot work efficiently unless priceo

axe made more meaningful than they are at present. In the consumer aector, house rents continue to be far below even the cost of house

maintenance.

Prospects for further organizational changes in theuncertain. Further changes la the system of prices and wagesto beginut are likely to be Introducedalmost certainly vlll not create as much economic flexibilityof decision -asking as the more liberalwould have wished. The "new economic model" appearsa compromise between the old line bureaucrats whose concern Iscluslvely with direct state planning ond control and thebelieve that the. state should set only tbe most generalletting the detailed operation of the economyree market. The bureaucrats remain In control butthe systemiew to avoiding the worst errors of Although the reforms node thus far are certainly In theond should have some favorable effect on thethe economy. It Is unlikely that cony of the potentialore liberal policy probably would bringbe achieved.*

n-i

Communist policy toward private agriculture, handicrafts, and trade under the Six Xeor Plan was Inspired primarily by political consider ot loos- and, on balance,'hod unfavorable economic effects. The attempt to force peasants Into collective farms through various forms of discrimination did not succeed and. In addition, resulted in lover production and even lover provisions of quality foodsrban areas.his policy, however, did increase the migration of labor, from agriculture to industry vhlch, as was seen above, tended to raise the notional Incomeew years. At the some time, private handicraft ond retail trade estobllshnents either wereby state-owned establishments using the some methods ofbut otherwise lees efficient, loss conveniently located, and lesB responsive to consumer demands or not replaced at all. To somehis policylanned shift in the allocation of labor but also resulted in Inefficient utilization of labor within the handicraft.

new agricultural policy, in which forceful collectivization vas abandoned and the status of the private former Improved, was very successful, ond there Is do Indication of any basic change In .tills .policy. In the near future. Polish spokesmen argue that, although collectivization remains the final goal and will be encouraged, at first In less developed forms such as agricultural circles, the Polish economy cannot stand the stagnation or drop In agricultural productioneturn to more forceful methods probably

dependence of Poland on the OSSR but probably axe Dot considered to be economically disadvantageous to Poland, at least In the short run,they offer the Poles an opportunity to operate these industries profitably. Reccoiaendatlons of the USSR and of CEMA certainly have been taken Into account In drafting the long-term plan for Poland,It is unlikely that, at this stage, these ideas represent sore than general guide linesreat deal of flexibility.

The planned structure of production restricts Poland's ability to shift the geographic structure of its foreign trsdo from the Soviet Bloc to the Free World. Some shift of this sort is possible, but the general pattern of the Polish economy would make It very difficult. During the next few years, and in the absence of new Western credits, the share of the Soviet Bloc in trade with Poland probably vlll rise or stay at about the present figure ofercent. This situationesult largely of the fact that the bulk of the expected increase in exports Is to consist of machinery and equipment, vhlch are, for the most part, not, salable In the West. In time, Poland may expand exports of processed foods to the West and may develop exports of specialized consumer manufactures, opportunities for vhlch were Ignored In the past. Improvements in quality and assortment may raise the demand for Polish machinery outside the Soviet Bloc, particularly In underdeveloped countries, and more Western exchange should be earned by the Polish merchant marine. But the trend of Polish economic develop ment and its probable effect on the over-all commodity distribution of foreign trade tend to tie Poland to the Soviet Bloc more closely than before. As seen Inhe share of coal andhlch in the past vere ths principal source of Western currency to Poland, in total Polish'exportsexpected-to decline sharplyercent7 to aboutercent According to Polish analyses, even tbe present moderate plan for production of coal Is somewhat strained because of long construction periods for-new mines and limitedto raise Investment*. Under""the circumstances, growingdemand for coal probably vlll -not permit any growth in coal exports,'and, 'In anyontinued shift In use of fuel from coal to petroleum and atomic power In Western Europe may limit severely the demand for Polish coal'in the long run. Exports of machinery andn the other band, are to rise from aboutercent toone-third and kO percent of total exports7Such developments as the rapidly planned Increase In production of refined petroleum and potro-chemicals, based on Soviet supplies of crude petroleum runnelcdev pipeline, and various types of economic cooperation under CEMA (in the form of specialization of existing plants or of coordinated Investment programs) also tend to tic. Poland to the Soviet

ollows on

Percentage* Distribution of tbe Foreipi Trade of Poland' 5/

"' 5 (Plan)

V?}

- (Plan) -

isoii.aoin" njii.-: .

i

** 1

and equlpmeot.

-

Materials-for'heavy Industry

ateright. industry >

v ?

- for-agriculture.

8'. ,

u .

m...

rv r: 'r-r. ..

goods

' ms-j

.

-

100

r;

_ J- _ J

38

'Jr.'

V-;

>

iio-

18

ndustrial-*consumer

.

7- Implications of; the Long-Term Plan."

Only the most-tentative and generalized answers can be giventhe three basic questions raised by the long-termre theprincipal goals of. the plan feasible? lanifferentstructure Increase the probability of achieving these goals? Is the economic evolution of the Polish economy, as provided for under the long-term plan; advantageous or disadvantageous to US interests?

Insofar as the over-oil rote of economic growth is concerned, the plan does not appear to be unrealistic. This Judgment is based on post achievements of the Polish economy, on the factors of production expected to be available, and on the experience of other countries. Although some of 'the plans for particular sectors end conmuxLities (for example, agriculture, housing, and automobiles) are questionable, other plans could be exceeded. Particularly difficult to predict Is

S

tho growth of technology end the evolution of economic organization.

In the light of past technological experience the plans for .coal and cement production, for example, could not be fulfilled, butin technology are possible. Another problem is that of popular attitudes. The plan for agriculture implicitly assumes not only tho provision of sufficient investments and Industrial Inputs butonsiderable change in peasant attitudes and know-how. In spite of numerous reservations, however, the long-term plan. In Its broaddoes not appear to be Inconsistent vith the nation's production possibilities.

Whether the long-term plan in Its prosent form makes the fullest posoible use of the productive capabilities of the economy of Poland depends on political assumptions. lan callingarge increase in small-scale private enterprise outside agriculture almost certainly would provideetter use of available resources than does the present plan. Similarly, orientation of the foreign trade of Poland to tho West might, in the long run, leadore efficient economyifferent allocation of resources, (in the short run,there would be economic losses because of the difficulty ofproducts salable oo Western markets.) On the as sumption that neither of the above circumstances Is possible politically, however, thc general allocation of resources does not appear to be unreasonable. In this connection, the economic development of the country sinceand even some of the errors committed by the regime in allocatinghave certainly changed the relative profitability of various types of production, or at least willhange In relative, profitabilities in the future. Under tho Six leer Plan, it was clearly unprofitable to investarge scale in metallurgy and machineat the expense of coal, construction materials, and light industry, but these very investments nowapid rise in machinery output at only small additional investment cost, and the Western market for Polish coal la smaller than it was under the Six Year Plan. Plansapid expansion of machinery production and exports mayargo element of wishful thinking as to prospects for improvements ln quality and technology, but there is no doubt that Poland is nowar better position thato make this production pay off Moreover, some of the worst errors of the past are being remedied through increased emphasis on areas which previously had the lowest priorities, through the growing prominence of chemicala which, except for petroleum, seem to be based on adequate domestic resourceseasonable view of future demands, and through greater attention to light industry.

From the point of view of US interests, the long-term plan continues and possibly reinforces the economic links of Poland with the Soviet Bloc and particularly the USSR. On the other hand, considering economic

trends of the Soviet Bloc as'a whole and: the narrowness of tho tonehich the assertion of national-differences' nay be permitted, the Polish long-tern planignificant, expression of.Poland'sst. It remains to be seen whether Soviet pressure will forceodifications in the* -

r=tt-t

appendix

SOVKt kavsrhices

_ Evaluations, following the classification entry and designated Bval., have the following significance:

Information

by other sources

Probably true

Possibly true

Doubtful

Probably false

Cannot be Judged

. Evaluations not otherwise designated are those appearing on the cited document; those designated "BR" are by the author of this Ko "RR" evaluation Is given when the author agrees with the evaluation oo the cited document.

Kxcept for finished intelligence, all sources used in this randum are evaluated Documentary unless otherwise Indicated.

3-.

Statistical- U. Gospodarha plnXMiwa', no. U.o. U.

Rocznlk.

-

Dally Report (USSR and Easterneb Eval- RR 2.

planowa, no U.

7- Energctlcao U.

Summary9.

RR 2.

9- Joint Publications Research Service. JPRS,

II.

10.

U. Rocznik. Daily Report (USSR and Eastern

U. Eval. RR 2.

13. Dzlcnnlk uctaw polsklcjJournal of

lavs of the PollGh People'so.

Summary,ecRR 2.

,ay . Eval. RR 2.

Rocznlk. U-

Wladanoscl stetystyczne (Statisticalo. 1.

Dally Report (USSR and Eastern

U. Fvol. RR P.

planowa. nn

Rocznlk- 0.

Oospodnrka planowa, no U.

KOE. Economic Survey of Europe-hap VII,

nlanova QS8.

27- Cospodurka planowa, no U.

28. Rocznik ntai.vctycznv. lo*^ 'oco U.

-

Original document.

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