PRINCIPAL ECONOMIC DEVELOPMENTS IN THE EUROPEAN SATELLITES IN 1958 (RR IM 59-14

Created: 8/7/1959

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INTKLLIGKNCK MEMORANDUM

PRINCIPAL ECONOMIC DEVELOPMENTS IN THE EUROPEAN SATELLITES8

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CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

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)TiIHCJPAL ECONOMIC DKVKLOrMEHTS irUE EUROIWUI SATELLITES IK

Summary

The dominant economic trends In the European8reater conformity to Soviet policies, impressive rates of Industrial grovth, an over-all decline In agricultural output, progress In expanding and balancing foreign trade, more intensive efforts to rationalize the structures of the economies,lowing down orof improvements in living conditions.

/ Changes in economic policy generally reflected moreof opportunities for increasing production ond strongerinvestment. The socialization of the economics along Sovietpushed vith greater determination. Increased attention wasImproving the efficiency of economic management and theof workors. Those shifts In policy nre exemplified by the"leapn Bulgaria; the upward revisions ofIn Czechoslovakia, East Germany, and Hungary; intensifiedof farms in several Satellites; the gradual revisionnorms and wage systems; andecentralization ofin operational matters. ..

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

The terms European Satellites and Satellites are usedin this. All references In this memorandum to the national Income ofare based on the Communist concept, which excludesservices but includes indirect taxes.

Increases in nationalere lower than the averages7 in several Satellites, but rates of Industrial expansion vere favorable throughout the area. Gains In gross Industrial production ranged fromoercent In the most developed countries end even more In Bulgaria and Albania, exceeding the planned goals in each In Bulgaria, Czechoslovakia, and East Germany, tho Increases were the largest of theears. Increases la employment made an Important contribution to the growth of industry in nearly all of tbe countries, including thoseV>i shortages. How and Improved production facilities and the Increased availability of industrialalso yielded importantutput.

Considerable progress was made in the formation of collective farms* in several Satellites. The collectivized areas ln East Germany, Czechoslovakia, and Rumania grew by about one-fourth to one-half. By the end of the year, collectivized areas in the Satellites ranged from aboutercent of total agricultural land lo Bulgariaercent in Poland.

Czechoslovakia, Hungary, and Poland were uble to boost theirsubstantiallynd trade balances were favorableSatellite except Albania and Poland, which continued tocredits extended earlier. New Soviet credits for-'thewere much smaller than67 and probably wereby Satellite loans to underdeveloped.

The efforts of the Council Tor Mutual Economic Assistancecoordinate Satellite economic plans and prooote specializationwere intensified ililateral tradecountries of the Soviet Bloc were preparedand in outlinender the terms "ofthc USSR has agreed to supply much larger volumes ofmaterials to the most developed Satellites, especially An analysis of long-tcrir trade and production-plane by however, reportedly revealed serious deficiencies in thesupplies of industrial materials. Steps ore being taken tothese-

Little or no improvement in living conditionszechoslovakia, Rumania, or (probably) Albaniand theni*es in thc other countrieser than inears. The availability .of- food. Inalories per capita) *'as been adequate in recent yearslbania, but progress in improving the quality and variety of the diet has been slowi'i'Supplies of durable consumer goods, although increasingre-still quite limited. The shortage and poor quality of housingserious'. problca except possibly* in Czechoslovakia. inned to worsen In Poland, Hungary, and Rumania

1. Scone-ale Policy

'iis

SlGnificant changes ln economic policy occurredin moot" of the Satellite countries. Tiic do-cinant orientation of policy in *

" The term collective farms refers in this mcutorandum'tof Cooperatives for agricultural production.

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as adjustment to the uprisingsonsolidationachievements, moderation In fixing production goals foryear, and increased consideration of the needs of In contrast, the policy changes8 reflected aofficial assessment of economic capabilities, awith future rates of grovth than vith Improvements inconditions,esire to press forward with thesocialism" in spite of some cost iu productive efficiencysupport. Economic developments8 vereby the policies of the previous year, but changes in 8 already have had important effects on agriculturaland can be expected to make themselves feltj

The most striking change8 was the projected "leap for-|wurd'1 in Bulgaria. This proposal, by Party Secretary Zhivkov callspeedup of economic activity that is without precedenthe Satellites. Even if the announced intention to fulfill the. Third Five Yearears is takennd fulfillmentears is most- improbablesuch specificeetives as doubling agricultural outputear and trebling itears seem unattainable. The subsequent reduction of thegoal9percent increase does notimprove the realism of the plan. .The speedup appears to be based on the hopeiraculous upsurge of productive effort by' the population rather thanoasoaable estimate of what might, be accomplished with the means at hand,'even under.the assumption of an extreme shift of resourcesupportleap."

Revisions of over-all production go^l3 were also announced InEast Germany, and (inungary, butarc appreciable only for the last two countries^"increase50 in the gross industrial produc-of East Germany, initially announced asercent andtoercentas boosted toercent inthis latest revision might beonsequence of.Secretary Ulbricht's victory over the "economic.realists" inEast German government, the goal does not seem unrealisticof recent accomplishments and the economicy the USSR. Inecent resolution by theOf the Party called for the achievement9 of theImportant objectives set0 in the interim Three Year Except in industry, this accelerated program appears to bethe capabilities of the

Some changes in agricultural policy appeared in the Satellites8 andll in the direction of greaterwith current Soviet practices. Collectivization of agriculture:

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was pushed more vigorously in several of the Satellites. The push was more subtle than in thea, although Instances of harsh methods have been reported, especially in Rumania. Bulgaria and Czechoslovakia announced plans for the elimination of compulsory deliveries of agricultural products9 and, together with Bast Germany, indicated their Intentions of transferring at least some of the equipment and personnel of the machine tractor stations (MTS's) to collective farms.

In some of the Satellitesolicy concerning theof national Income between consumption and investment shifted slightly to the advantage of Investment. Investment grew much more rapidly than consumption In Czechoslovakia,ore equalis planned Is Hungary the pace of economic recovery from the effects of the uprising encouraged the regime to raise the investment goalyut the regime adhered, to'itsosition that living standards could be maintained only at.7 level. The share of investment ln the national income thus is being increased more rapidly than'was scheduled in the Hungarian Three "fear Plan, but the proportion (about -lU. percent of national Incomeemains low by Soviet Bloc standards.- ^

The principal development affecting consumption ln Eastthe abolition of rationing of certain basic foods.* Theas motivated by the desire to eliminate the aspectstate" that continued rationing suggested andissatisfaction of tho consumers by offeringamong'goods. This action, however, implied no major':changepolicy concerning the share of national income devoted

everal Satellites undertook revisions of work norms und wage rates to encourage their workers to .increasehe characteristic features of the "reforms" are.increases.in both norms and basic wage rates, reduction of bonuses for above-norm performance, and some adjustment of wage differentials among-various industries or occupations. Perhaps the most striking aspect of these reformshe cautious manner ln which they are beinghe revisions in Czechoslovakia, first announcedere finally-tried" outew establishments during the second half0 end/ despite "some demonstrations by workers, were extended to includenterprises by .Completion of the reform is scheduledChanges were also introduced experimentally innterprises In.Bulgaria.andew enterprises in Polandnd gradual extension,to other enterprises .is planned ln both countries. Little progress was made In East Germany, whoro long-continued efforts by the regime .to .introduce reforms have been frustrated by actual or threatened opposition -'from.

workero. Efforts to strengthen work iocentlveo .In Hungary were focused,rofit-sharing plan, the amounts distributed being determined in part by reductions in production costs. In Rumania tbe wage reform begunompletedpparently without much open resistance.

. Economic-

The degree of plan fulfillment and actual percentage gains in industrial production were quite favorable in every Satelliteut the slow growth or decline or agricultural output held some over-all rates of economic growth below earlier levels, official data and estimates Indicate Increases Inncomeefined in Communist countries) ofercent to five of the larger countries andercent In'Albania. There apparently vas little or no growth in the national income of ftmvtula. 'These increases generally compare favorably vith recent "growth rates in Western Europe, even after an allowance is mode for diffcrencps In the concepts and methods underlying thehe announced or estimated percentage increases la thetheare shown below.

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'. Bulgaria "

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AgrlciltumL production Inrincipallyesult of poor*hegroBB agricultural outputcrceat'claimed Euet Cermony, and Poland appear to;beTheincreases were more thao offset by the where weather coalitions for'crop"production'were -

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I occo in gross industrial production were'large throughouttbe area, amounting tooercent la the'most developed coun- -tries and even more In Albania endLaaned'levels ofuatrlal production, which reflected oore:cautlous officialloau than In earlier years, were exceeded in every country by margins

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ercent. Rates of growth In Bulgaria,East Germany wore the highest of theears and ansource of satisfaction to the

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Several factors contributed to this expansion of industry. Increased employment in industry was an important source ofoutput in nearly all of the countries. Even in Bast Germany and Czechoslovakia, where there hashortage of labor tot several years, the number of "production workers"lassification used by the Satellites in computing gains in productivity) grewercentercent, respectively. -Increasesercent or more were registered in all of the other countries except Poland, where the gain was only 1Shortages of labor or "drives for greater efficiency resultedranbfer of workers in soma ofatellites from "nonproductive"roductive" activity-with in in-duever-all industrial employment consequently did not. in every case ri*se as much as the numberroduction: k i;

The improved availability of raw materials andappreciably to.the rise of industrial-production.^Thiswas the result of the buildup of7 when additions to inventories vere especiallyEast Germany, Hungary, andreater volume ofof industrial materialsvThese improvements Ina more .complete and efficient use of the labor force

New and' Improved production facilities also contributed to the Increases in output. This factor probably was. ofmportance than usualzechoslovakia and East .Germany, .where: the'growth of investment in fixed capital was especially large6 and exceeded the rates of growth for national income The-payoff from this investment in these countries began to appear significantly in

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- Several of the Satellites also attempted to boosts output 3through reforms of their wage: structures(as..outlined.above) jond,d? changes in their systems of:hangea^of.'thetype were carried out8 and were begunhe nature* of the modifications varies from' country;-to.-country, but. all-of; them -have some decentralization of dec is ion-mak Ing in operational mattersentral feature. At the same time, the higher policymakingin East Germany have been concentrated further byhe powers of the State Planning Commission at thefcthe $fis economicome of which were, abolished. or the East German reorganization was strongly

of Party control was expected toecidedly favorable ccooocic effect. Although the effects oo output of the wage revisions and changes In economic organization In the various Satellites can hardly be Isolated, these effects clearly did not disrupt the expansion of industrial output, indeed, ln viewhe accomplishaents of industry during the year, some beneficial effects might reasonably be Inferred.

3- Agricultural Collectivization

One of the outstanding economic developments in the he substantial increase in tbe area held byln Albania, Czechoslovakia, and East Germany. The areawas also expanded In Bulgaria, Hungary, andthere was no change in Poland. By the end of the year thcof total agricultural land ln thc collective sectoraboutercent in Bulgariaercent lnin the degree of collectivisation during the year andImportance at the end of the year of the socialist.farms and state farms combined) may be summarized

Percent of Total Agricultural.

Collective

and.;

* State Farms^;^

7 End

Bulgaria , 01 3 .

Czechoslovakia

East Germany 25 - n.2 . 8 ,i

: -is;:'a. .

- . * -t-or

> z,

The data show that tbe socialization of agriculture .was essen-tlally completed in Bulgaria and covered more than three-fourths of

iL-* til ft! AimnJao ttftukfSO^^t

* The data on Albania and Hungary represent arable land,land consists of arable land plusoadowa, ;vineyards, and

** Tills sliere Increased toercent by the end of .March

the land in Czechoslovakia and Albania by the end was lees advanced In East Cermany and Rumania in spite of the Increases of the year. The previous cautious efforts of the Hungarian government to recoup the losses6 gave wayigorousIn8 and9 vhlch doubled the collectivized areaonths, so that the proportion approximated thepeak In Poland, however, there was no seriousto Increase the collectivized area.

Eevclopmente8 thus accentuated the already greatin the status of agricultural collectivization among the In no other sphere of economic activity are therein effective policy, and In no other respect doin any of the Satellites diverge so much from theas in Polish *

iucii:'kl i'&ajAJzt 'is.

Most of the peasants In the Satellites evidently remain opposed in principle to.the idea of collectivization. "Recentowever, that this-resistance.can gradually be overcome*under certain circumstances withouteduction in output, although-without making Increases ln output difficult. The growth of collec--tivlzation la these countries during the past several years cannot for the most part be attributedegree of coercion or economic discrimination

Such methods are etUl to be found, but (with occasional exceptions, as in Rumania8 andelrecently) they have become less prevalent sinceintroduction of the "new course." theless, the continuation-of collectivization effortseriod ofears or_so .no. doubt ihas_1canaed _eome_lpss of hope amongpeasants and worn down their resistance. . v -.

The attitudes of these peasants have also beenore positive way by changes In policy that huve facilitated;in- reases in output (by expanding agricultural investment'and-.theof supplies) and increases-in agriculturaly'rals- -ing commodity prices and other means). Changes of this typeboth independent and collective farmers, during the-past-several years have overshadowed efforts to drive Independent formers into collectives by increasing the burdens on private operations or by broadening the economic advantages.offered by collective farmsjri?

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Efforts to collectivize clearly haveepressing effect on agricultural'output ln the sense that the potential for production with existing resources and technology has-not beenective farms in the Satellites have on tho whole provedfficient producing units than private farms. Peasant.tov Joining collectives has been overcome and thc collectivized area'.

steadily expanded, but tho sluggishness of the growth of output. In spite of the increased attention given to production inputs andshows that the program hasigh economic cost.

h-. Foreign Trade and Economic ': j;_V_ .

One of the foremost objectives of economic planning inapid expansion of the output of exportable goods. Steadily rising volumes of exports are needed in the more Industrializedto pay for growing Imports of raw materials and in tho lesscountries to pay for needed capital equipment. Nearly all of the Satellites, moreover, have the task of maintaining or achieving surpluses of exports in spite of rising requirements for Imports. Surpluses of exports in commodity trade vere needed In several of the countries Into cover customary deficits on the services account, to implement credits extended to underdeveloped areas or otherries of the Sino-Soviet Bloc, or to reduce short-term foreign. debtedness. The Satellites that recently have received long-term; creditsnotably Poland and Hungaryhave the additional task over the next few years of developing export surpluses sufficient >to permit initiation of the repayment of theefctpj-sis

The scattered data available for the Satellites indicateachievements in foreign trade. These achievements -werepossible not only by the sizable gains in industrialthe area but also by changes in the terms of. trade^Czechoslovakia; East Germany, and: Increasesvolume of exports vere especially large inend Poland, while their volumes of imports citherthe same as7 or declined slightly.Balances intrade were on the whole more favorable thannduo net foreign investment in tbe countriesroup.Aatabulation of the net export or import balance intrade shows, export balances were achieved& inexcept Poland and Albania. .- SssTyCi-^fXA* *

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Czechoslovakia.. ,

East L*

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Poland can aged to Increase its volume of exports byercentut lover prices in the West for coal held down earnings from trado with countries outside the Sino-Soviet Bloc and limited the over-all grovth of exports toercent in terms of value. Because the value of Imports declined, however, the trade deficit vas about three-fifths as large as that This reductiononsiderable achievement, but further intensivewill have to be made to expand exports If adequate surpluses are to be available for scheduled payments of debt ina.:'.

The foreign trade balance of Hungary8 reflects therapid recovery of industrial output since thes veil as more favorable terms of trade. Tbe value of exports rose ercent above the valuehllo the*very high level of imports made posslblo by foreign aid:7 ua3 reducedhe large deficit7 accordingly vas converted to'a small surplusmall payment vas mado on "the"debts "incurred

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East Germany, the largest net Importer of rav andamong the Satellites, also profited^ when'surpluses-ofdeveloped In Western markets. West Germany vasto Increase deliveries of materials'-(against) to the extent which the Ulbricht regimein an effort to'take economic'and propaganda advantage "of* Westmarket difficulties.n oplteecline-'in-Eastt German"to Western markets,balancedimports' of about ttcims'of lvalue"?real volume of iaporta of industrial'-materials -increasedmore than that, however," AtfJ Abimz O'rcfl sjodw frij ao sisw

" aa't"Joa:oJshare of the turuoverof foreign^traderaccountedl'f6ri.by'-theBloc declined inercent**of-the*increased moderately in Czechoslovakia',evel in tho other Satellites for which data areEast Germany, and.Thesewhichercent in Poland to perhapsercent In3 level for every Satellite. The USSRercent of the total trade turnover of Polandithercent in

The efforts of CEMa to makethe Soviet Bloc more rational were intensifiedAn'rimpe'tus to heightened activity in. this field was provided by Khrushchev during his visit to Hungary In April. The Soviet leader sharply criticized -the Inadequacy of economic cooperation among the Satellites and urged both increased

Industrial specialization and coordination of plana as bases for more efficient production. These remarks were followed by an eco-noialc conference attended by Party leaders in Moscow ln Kay, ut which the Importance of plan coordination and the role of CEMA were stressed, andlenary session of CEMA in Bucharest in June, which directed the preparation of trade agreements5 and in broad outline

Subsequent analysis by CEMA of the preliminary plans forand trade in the Satellites5 reportedly revealed serious deficiencies and inconsistencies, especially in thc plans for supplies of industrial materials. This problem was discussed,uth plenary session of CEMA in Prague in December, and the standing CEMA committees for various industries were instructeddraw up detailed recommendations for presentationh plenary .session, which met in

5. Relations with the USSR' ^

New credits extended by the USSR lo the Satellitesmaller than those67 and probably were exceededcredits ofmillion to underdevelopedthe Sino-Sovlet Bloc. This change reflects lessin the areahole rather than an alteration of thepolicy of promoting the economic growth and stability of-

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East Germrury was the principal beneficiary of new Sovietof economic assistance to the Satelliteredit in the amount5 million was negotiated to cover substantially increased Soviet deliveries, chiefly of industrial materials, to East Germany during the next-severaln.^addltlon^.Eas^^rman.for the support of .Sovietirst reducedhen nonnjlVtely^

year. How these-concessions affected.East.Cenaan support8 is uncertain, but their Valueiliicn IKE (Deutsche Markr

iavdthc other.Satellites, oviet.loon ofof an oil refinery,projects was

in the latter agreement was, nQtaarinounccd,^

the credit for. the oillthough'only. Eastulgaria obtained new Soviet credits ceveral of the( notably Hungary and Poland) received :gocMlsffrom'SSR-Kj during the year under.the terns of Soviet loans.arrange^^

Each of the Satellites except Albaniaong-term trade agrcomcnt vith the USSH8 to cover the period These agreements suggest that the USSR is willing to support the economic development of the Satellites, and especially of East Germany, by furnishing greatly increased quantities of industrial materials in the future. This willingness la underlined by the large Increase planned in Soviet deliveries of Iron ore, which Is In tight supply in the USSR. The degree of Satellite dependence on Soviet supplies already is large. Accordingigh Czechoslovak official, the USSR provides aore thanercent of Satellite imports of crude oil, aboutercent of the Iron ore,ercent of theercent of the cotton,7 percent of the rolled steel products,"and the major -part of the grain. Tbe following data-show some'Of the Increases in Soviet-deliveries that are schedulcd-ih tho long-term trade-

Thousand mi-trie Ton"-

"Plan--'

- jo tfirOeit.

Cruderem*dj' "iO-XOyJObonviron"$teel;

Metallurgical coke . li0

Coppersiro? ^iOj;-QSV

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These SuppllcS-are'to^bc* ea

and equipment,'of -'

certain raw materials,"foodstuffs,^aifo;induVtrlal -cbrisumer^gbbds will continue Ito'heVimportant

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The development ofSatellites la motivated by both economic and political'wayosts lb'fJof"

tlon,"Judgingtrib^ ingf^Industrializa'tion^reacned^ probably also

Sizable increase In theatellite^foreign* of^Aus^rian^

the Soviet

with countries outside the Sino-Soviet Bloc other than thecountries. The underdeveloped countries may be able to supply increasing amounts of some materials (mostly foodstuffs andut the USSR must take upon itself the task of satisfying growing Satellite needs for fuele and metals.

Economic policies in the Satellites are influenced both, by the doctrine and example of the USSR and by thc Judgment of Satellite leaders of how the Soviet line should, and under the circumstances can, be applied to conditions in their respective countries. Tho recent changes in the Satellites that are most suggestive of Soviet influence (and perhaps pressure) are the sudden farmdrive in Hungary afterears of caution, the economic reorganization now under way in Bulgaria (which resembles the earlier Sovietnd the moves by Bulgaria and Czechoslovakia to re-.duce the role of the MTS's. When Khrushchev's plan to merge the -'mtS's with the collective farms was.first reported in earlythe initial reaction of the Bulgarian and Czechoslovak regimes was -that conditions in their countries were not suitable forhange.

, . The USSR probably also influenced the decision of Easto abolish rationing of food last year. Abolition of rationingortedly bad been encouraged by the USSR for some time,'no doubt with an eye to its politicalertainly, this step could bererequisite to 'successful-propaganda use ofo.surpass West Germanynd tbe most important industrial:consumer goodstikely that the USSR, supported;the :action either by assisting In tho buildup of stocks or by guaranteeing the supply of additionalL titles of foodstuffs that might be needed to meet consumer demands.

6. Living Conditions *.

The gradual improvement in living'conditions-that has.taken placethe Satellites in recent years continued in someut not in others. There,wa8-little or no change-inCzechoslovakia, and probably Albania, and the gains incountries generally were smaller than, in preceding years be-of lower rates of growth or.sizable-increases inInvestment. Even inthe countries where the trend,inhas beenissatiofaction,_withlevels of livingi-rtc3 2

he more rapid growth of national, income;8 and-thedecline in population permittedpercent inf consumption per capita in East Germanypi-obably the-largest

among the Satellites. Poland's increaseercent In totalyieldedorccnt gain per capita because of the rapid growth of the population. The improvement ln living- conditions thus was small compared with that6 There wasno increase in consumption per capita in Hungary, where the regime aimed only at the maintenance of the gains granted7eaction to the revolt. The rise amounted to lessercent In Czechoslovakia, where thereoticeable shift of resources to investment.

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r capita availabilities of food (in calories) roseAlbania, Bulgaria, and Rumania inmaking up for the declines of the preceding year in eachand reaching the highest postwar point in Rumania. Aof these levels-is expected, however, because of :favorable harvests. East German per capita availabilities ofincreased,s Little change in9 is indicatedother

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Now that average daily food consumption in the variousAlbania) has been raised to the level ofotho problem is more one .of improving the quality andthe diet of urban, families than, of adding more calories.-'has achieved-.an:almost satisfactory, balance-between -and the desirable.high-proteinarticularly in-thersupplles'of meat inhe: pre6Sure-to."iboost. exports of. food products,opportunities to improve the qualityjof the.

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There were further sizable increases in the Satellites inproduction and retail sales of some types of such as bicycles, radios, television sets', andMeasured'agalnstitheowevermost manufactured consumer "goods remain: quitend:very high.for the average2ox in-'.

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The shortage'of-housing^ls an'outstanding deficiency.'In. theliving of urban consumers .'In nearlyheountrieslittle change one way.or:another:can be expected;lnone year,.It is significant.that.the/stepped-up-housingnot sufficient to prevent-aiworseningiofjconditlonscinand Rumania Conditions are improvingut evenTCzechoslovakiaSatellite with

way to goto catch up with, such Westcrnfcountries; as.West

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