Economic_History_anim.gif (3797 bytes)  CZECHO-SLOVAK  


The Reforms of 1964-1968 in Czechoslovakia

and the Issue of the Autonomy for Enterprises.

by Alexandre Teles Carreira


As a result of the post-war economic rehabilitation of the economy, until 1960 the Czechoslovak economy grew at an average of 8 percent. This contributed substantially to the increases in the standards of living of the population . Notwithstanding, this impressive development, the Czechoslovak economy started to decline in its levels of efficiency in the beginning of the 1960s. It was necessary to expand production facilities, to build new capacities and enlarge the old ones, and to bring more labor into the industrial sector. However, the system of planing and management of the soviet style command economy started to reveal itself incapable of including these trends in its own dynamic.(1) As a result of these deficiencies the rates of growth of the economy started to decline.


According to Professor Ota Sik, a prominent Czechoslovak economist, the declining levels of efficiency of the economy were related to the centrally planed policies of investment (which prioritized the expansion of production facilities, while neglecting the renewal and modernization of existing plants). Another factor was the production structure (both macro and micro-structures.) Ota Sik also points out that the macro structure of the Czechoslovak economy did not take due account of the country's natural resources and economic conditions, and that the system of central management had proved itself unable to create a balance between the structure of demand and the structure of supply. The lack of sufficient stimuli to improve technologies, use new materials and to create better and more up-to-date goods were also important causes of the negative performance of the Czechoslovak economy.(1)

The solution for these deficiencies of the economy, according to the proponents of the reforms of 1964-68, should be the replacement of the command system by a socialist market economy. The proposals for the economic reforms of the 1960s, thus, were substantially different from the proposals of the reforms of 1958, which aimed at the partial modification of the soviet type command economy rather than the complete modification of the economic system.


The plan for the economic reforms was worked out during 1964 and approved by the communist party in 1965. In this plan, among other proposal the reformers recommended the elimination of obligatory targets, the liberalization of prices, and considerable decentralization of investment decisions. As a result of compromises between the reformers and the still very strong conservative political forces, the plan contained some inconsistencies. For instance, the role of central planning was to remain an important feature of the economy; the plan also kept several specific obligatory production quotas; it also provided for further administrative concentration of the economy into about 100 gigantic associations.(2)


The dissatisfaction of the reformers about the incomplete character of the reforms and the week implementation of the measures previously approved by the communist party motivated the elaboration of a new version of the blueprint of reforms. This new doc ument emphasized the importance of the functioning of the market, the liberalization of prices; the need for a modified form of central planing,; the importance of the autonomy of enterprises; the need for a new taxation policy; and gave specific orientat ions for the implementation of the reforms.(2)

Even after the publication of the second version of the blueprint for reforms, the economic reformers remained unsatisfied with the timid steps undertaken by the political power. For instance, prices were not fully liberalized, and the decentralization of the economic decision making process was unsatisfactory. It was not until 1968, when substantial changes in the political system occurred, that the ideological obstacles for the discussion and implementation of controversial alternative economic policies were removed.(2)


With the removal of the Stalinist Antonin Novotny from the direction of the communist party and his replacement by Alexander Dubcek, important new economic features were incorporated in the Action Program of the Communist Party in April 1968. According to Oldrich Kyn, some of the most important features incorporated in the Action Program were: (i) the separation of economic management from the state and specially from the party apparatus; (ii) organizational freedom: each enterprise should have the right to leave or join any association, and new enterprises could be independently created; (iii) workers' councils: appointment of directors and the basic entrepreneurial functions should be vested in councils democratically elected by the employees of each enterprise.(2)

The issue of the need to grant more autonomy to the enterprises in order to allow them to react more efficiently to the conditions of the market and production was considered, in fact, an important point of the new agenda of the communist party. This fact is well illustrated in the party's long range program worked out during the summer of 1968 and presented to the Fourteenth Congress of the Communist Party. In this program two new concepts were introduced: the concept of ownership, and the concept of self-determination.(3)


The proponents of these concepts argued that state ownership makes it impossible for the enterprises to act in their own economic interest. As an alternative to the state ownership it was proposed an "enterprise (group) ownership." In this new form of ownership collectives of employees of the former state enterprises would substitute the organs of state in their functions of administrators. However, in this new set up it was clear that there was no need to change the owners ( the people).(3) An ideological justification for these proposals had to come along so that the reforms would not run against the official Marxist doctrine of the ruling party. According to the reformers, the economic interests of the population would be expressed by the autonomous enterprises, which would be regulated by the state economic policy and the rule of law. Even though these enterprises were supposed to act in their own interest and under the pressure of realizing profits, these enterprises were in fact not owned by the employees. The employees would just administer the enterprises on behalf of the Czechoslovak society (hence, complying with the Marxist principles). Indeed, these new enterprises would be forced to turn over part of their profits to the state treasury, and also pay capital levies.(3)


Not all the enterprises were going to change their ownership status. Some enterprises were to be allowed to stay under state ownership so that the basic functions of the economy could be performed without the risk of being affected by the oscillations of the market. For instance, the rail transportation system, the sectors of production and distribution of electricity, gas, and water power would remain under state ownership.(3)

Another form of ownership, the cooperative ownership, was also going to be allowed. This form of ownership already existed in the agriculture and services sector, but others were to be created in those industrial branches where individual production could be applied and where customers demanded not only standardized mass products but also small-series or individual goods or services. Also according to the reformers, there was no incompatibility between private ownership and socialism if the nature of the production forces was individual, as for example in the production of crafts.(3)


The concept of enterprise self-administration was also an important aspect of the proposals of the economic reforms of 1968. There were at least three different variants of self administration. Following is the description of these variants according to Radoslav Selucky (1972, pp. 100).The first was pure employee self-administration of the democratic type which came close to the form of democracy in the management of economic units. In this variant, workers' councils were to be elected by the enterprise personal. The second variant was a model of self-administration allowing for a representation of experts in the enterprise councils and determining the ratio at which employees, experts, and representatives of political or interest organizations should be represented in the self-administration. The third variant was a combination of the first two variants. However, the reformers thought that the enterprises should be responsible for choosing each of the variants that most suited their specificity.(3)


With the invasion of Warsaw Pact troops on 21 August 1968, the Czechoslovak reformers suffered a decisive blow. The political reforms were stooped; however, it was not clear whether the economic reforms were going to be allowed to continue. Meanwhile, there was an impressive effort made by the reformer and politician not ousted from power to continue the economic reforms.(2)

The invasion, however, did not instantaneously stopped the formation of the workers' councils during the summer of 1968. And reformers did not halt the discussions of the 'Enterprise Bill,' which was intended to legalize the autonomy of enterprises. It was not until the next year that the new political leadership outlawed the creation of new workers' councils, and discussions of the 'Enterprise Bill' were stooped. The abandonment of all features of market socialism introduced by the reform movement and the return to the old model of soviet type command economy was made clear and legally binding by governmental decrees published in 1971.(2)



  • 1) Selucky, Radoslav. Economic Reforms in Eastern Europe. New York: Praeguer Publishers, 1972.

  • 2) Hohmann, Hans-Hermann, and Michael Kaser, eds. The New Economic System of Eastern Europe. Berkley, CA: University of California Press, 1975.

  • 3) Peace and Socialism Publishers. Economic Reforms in the Socialist Countries. Prague, 1967.





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