Economic_History_anim.gif (3797 bytes)  CZECHO-SLOVAK  

 

A Partial Survey of 

 
Stalinist Economic Model    
in Czechoslovakia, 1948-1957


by Jeffrey Lin
 

 

After the Communist Party assumed power in Czechoslovakia in February 1948, the Stalinist Economic Model was to be the economic policy for the next decade. Stalinist Model emphasized the goals of further industrialization and expansion of socialist ideals i.e., Marx's idea of social equality. Both goals were achieved, but the drive for industrial growth was unnecessary; because Czechoslovakia was already a relatively industrialized nation before communist takeover. This can be seen from the fact that in 1937 industry already generated 53% of Czechoslovakia's national income (Stevens, 20). Nonetheless, the industrial drive did increase Czechoslovakia's industrialization, i.e., in 1955, industry was 64% of the national income (Stevens, 20). The goal of further industrialization was completed through an industrial strategy that reallocated resources. Agricultural and service sector suffered the most decrease. This is evident from the data on various sector's contributions to nation income in the year 1948 and 1955: agricultural sector's contribution fell from 22% to 16%, and trade and service sector's contribution fell from 8% to 6%; all the while industry's contribution grew from 59% to 64% (Stevens, 20). However, the growth in the industrial sector is concentrated on producer goods rather than consumer goods. Producer goods, especially heavy industrialization, such as machine building, grew at an average rate of 13%, while consumer goods' growth rate was less than 10% (Michal, 21). Two exceptions to this general trend were mining of fuel, and glass and ceramics industry. The mining of fuels was not able to keep up with the other heavy industries because of Czechoslovakia's natural resources constraints. These constraints created constant problems for the planners. The glass and ceramics industry, which was consider a consumer goods' industry, was encouraged after 1953.

 

In addition to reallocation biased new investments that favor heavy industries also contributed to Stalinist Model's goal of further industrialization. In terms of gross fixed investments, heavy industries have consistently been receiving about 50% of the total investments (Zauberman, 55). Light industries, which generally produce consumer goods, experienced an increase in its share of total investment after Stalin's demise; thus up to 1952, light industries admitted approximately 15% of total investment, but in 1958, light industries had approximately 26% of total investment (Zauberman, 56). Effectiveness of these investments was questionable, since heavy industry's growth from 1950 to 1960 was only approximately 9%, while fixed capital rose 29% (Stevens, 26). One of the possible explanation for the ineffectiveness of the new investments is that very little of obsolete fixed capital was retired. In fact, retirement of fixed assets was estimated at 1%, which is very much below the depreciation rate of 5% (Michal, 186). Also, if a new factory, with new equipment, was built, the new equipment was operated by new and inexperienced worker. There was no reassigning of experienced workers, who presumably would be more productive to the new equipment. Another explanation for the failure of substantial return to investment is the general system. The Stalinist Model called for completion of targets as priority; thus there were incentives to meet the targets rather than to improve the quality of production. The expulsion of Sudeten Germans, who were experienced craftsmen, also contributed greatly to the failure of returns to investment.

 

To have industrial growth, labor is needed. Similar to resources allocation, labor was drawn from the agricultural sector. In 1948, 39.6% of the labor force was in the agricultural sector, but by 1957, only 29.6% of the labor force were in the agricultural sector (Michal, 64). Employment growth in the producer goods' sectors greatly outpaced consumer good's sector. Between 1948-1947 the industrial manpower in heavy industry grew by 42%, while light industry only grew by 4% (Stevens, 28). To comply with Marx's idea of complete social equality, women were added to the labor force. In 1948, approximately 2,098,000 women were in the labor force. By 1957, this number has increased to 2,563,000 (Michal, 19). The increase in working hours of the industrial sectors, from less than 47 hrs per week in 1947 to 50 hrs. per week in 1954, contributed to the increase in industrial labor productivity (Stevens, 28). The low per capita real income also served as an incentive for longer working hours. The newly introduced legislation, which required males to work up to age 65 and females up to age 60, also increased economy's total employment. While the over all growth of labor productivity was impressive, it did not match the investment. This was due to several reasons. First the expulsion of Sudeten Germans cost Czechoslovakia dearly in terms of productivity. Second, the Stalinist Model required many more bureaucrats, and that diverted labor from the manufacturing sectors.

 

It should be noted that a big flaw in the Stalinist Model was the use of material balancing. Material balancing calls for equating output of certain product with the use of this product as an input in other sectors and in final consumption. The problem with material balancing is the reliance upon the estimated data and technological norms. Enterprises have incentive to under report production capabilities while over report input demands; this allows them to meet output targets more easily. Furthermore, given limited time constraint, it is unlikely that the planners can balance the entire economy precisely; thus the plan will inherently deviate from real requirements. Another problem for the planners is that goals might need to be modified during the process of balancing. Essentially, material balancing has too many variables that render the process ineffective.

While industrialization was achieved through reallocation, new investment, and increased labor, social equality was partially achieved by two waves of nationalization of private business (1946 and 1948) and by the Stalinist Model's money and finance policies. In 1945, deposits over 500 Kcs were frozen, while prices and wages were allowed to rise; thus the real value of the deposits decreased. In 1953, a second monetary reform was instituted. This second reform exchanged the old Kcs with the new Kcs at a 1:5 ratio for a limited amount and 1:50 for the rest (Stevens, 39). The second reform essentially eradicated whatever real wealth the deposits may have had, thereby moving the economy closer to equality. However, the second monetary reform had also an ulterior motive, which was repressing the inflation. Before 1953 wages grew and prices were fixed, so that the purchasing power of individuals increased. Supply of consumer goods did not increase accordingly and an inflation pressure began to build. By taking away the deposits, considerable amount of liquid assets was removed and inflationary pressure was temporarily eased. As it can be surmised, the second monetary reform was extremely unpopular and demonstrations were held in some areas.

 

In addition to the monetary reform, a progressive income tax was introduced in 1952. The tax rate from 5% to 20%, was considered modest since the social security was extremely generous (Stevens, 39). The major source of revenue for the government was not the income tax but the turnover tax on consumer goods (introduced in 1953). Very high rates of turnover tax were imposed on luxury (by socialist standard) goods. In the interest of the new foreign relation, the domestic use of foreign currencies was outlawed.

The Stalinist model's goal of rapid industrialization and social equality were achieved, but the industrialization drive was unnecessary. Reallocation, new investment, and increase in labor were the components of the industrialization drive; however, the ineffectiveness of material balancing, the expulsion of Sudeten Germans, and retention of old equipment, took away some of Czechoslovakia's total labor productivity. The abolishment of private property, combined with monetary reforms, moved Czechoslovakia closer to social equality. The Stalinist model caused many problems that eventually led up to calls for economic reforms. However, in terms of Stalinist model's goals, the model was relatively effective.

 

References:

  • Czechoslovakia At the Crossroad, by John N. Stevens

  • Industrial Progress in Poland, Czechoslovakia, and East Germany, by Alfred Zauberman

  • Central Planning in Czechoslovakaia, by Jan N. Michal

  • The Industrial Enterprise in Eastern Europe, by Ian Jeffries

  • The Economies of the Soviet Bloc, by Stanislaw Wellisz

 

 

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons