III. Main Features of the Economic Reform
One of the important aims of the economic reform was to correct and enhance the system of material incentives. This aim had sever implications for income policy. Unlike the USSR, income distribution was very egalitarian in Czechoslovakia. This would not be considered undesirable except that the small income differentials worked as anti-stimuli, keeping labor productivity low, and causing misallocation and waste of labor, a very scarce production factor indeed. The rigidity of the central administrative allocation of the labor force and wage funds also contributed to the above-mentioned problems. The efforts of the central bodies to keep the growth of money wages within the very low planned limits resulted in the creation of 'wage ceilings', which had very strong disincentive effects on workers.
The solution to this problem was naturally sought in increased wage differentials 40 and in the abolition of the administrative methods o income distribution. In particular, 'wage ceilings' were regarded as extremely harmful. To quote from The Principles of Accelerated Implementation:
From 1967 on, neither average wages nor the total wage funds were prescribed for enterprises as obligatory indicators. The wage determination was decentralized and each enterprise was free to increase the wages of its employees according to its income position. In a situation of extreme shortage of labor, as was the case in Czechoslovakia, the newly gained freedom would very likely result - as it actually did - in inflationary growth of wages. To provide some counteractive force, a special 'stabilization tax' was devised, which consisted of two components: each enterprise had to pay (i) a tax of one per cent of its total wage fund for each one per cent increase in the number of employees, (ii) and a tax of thirty per cent of the increment of its total wage fund.
It is clear that the intended role of the stabilization tax was to slow down the growth of both employment and total volume of wages but not to prevent a further increase of average wages. Actually, the acceleration of the growth of average money wages was regarded as necessary to provide room for 'increasing wage differentials and to resuscitate the stimulating function of wages. The growth of average money wages in Czechoslovakia was much slower than in the capitalist countries of Western Europe. For example, in the eight years between 1958 and 1966 average money wages in West Germany, Italy and the Netherlands almost doubled and in Great Britain increased by 46 percent, but in Czechoslovakia they rose by only 19 per cent. 42 The growth of money wages in Czechoslovakia even lagged behind the other East European Countries. During the period 1960-9 the annual rate of growth of money wages was 3 per cent in USSR, 3.3 per cent in Poland 2.4 per cent in GDR, 2.7 per cent in Hungary, 3.5 per cent in Bulgaria but only 1.5 per cent in Czechoslovakia. 43
The removal of wage ceilings and administrative methods of determination resulted in considerable acceleration of the rate of growth of money wages.
Source: Statisticka rocenka CSSR, 1970, p. 127.
The extremely high rates of growth in 1968 and 1969 suggested t the stabilization tax was not effective enough, which is not v surprising if the political upheavals in those years are taken i account.
From the middle of 1969 strong attempts were made to reinstitute central control over the growth of money wages. Associations and enterprises were under strong pressures to accept much more moderate growth rates of average wages in 'agreements'. The measures of 1971 restored the obligatory character of central income regulation Since that time, annual plans determine for each enterprise binding limits for both basic wage funds and bonus funds as percentages of sales and profits respectively. The freedom in wage determination was almost totally lost. The only remnant of the wage reform was a payroll tax which was retained as a useful instrument of central pressure against spontaneous wage demands. The fifth Five-Year Plan provided a target to retard the rate of growth of money wages to 2.5 - 3 per cent annually. 44