Spread of Soviet Model in Eastern Europe – Essay

After the Second World War, Eastern European countries and the Baltic states adopted many aspects of the Soviet model, although they initially favored very moderate versions of it since, unlike the case of Russia in 1917, the state had hitherto played a moderate role in the economy.

In the Baltic States, the assimilation into Soviet practice was quick, since Latvia, Lithuania and Estonia became members of the USSR.

Elsewhere in Eastern Europe, the move came after the statement of the Truman Doctrine, the initiation of the Marshall Plan and the formation of the Cominform (1947). After this the USSR encouraged countries under its political control to adopt its own perspectives on economic development.

The Soviet model’s crucial role in the region’s economic development was the result of the USSR’s post-war military presence in the region and its position as the main recipient of reparations from Hungary and Rumania, who had supported the Axis powers.

In a departure from what occurred in the Soviet Union, though, almost in all cases, in the form of socialist industrialization that took place, small-scale cultivation played an important part in agriculture, although collectivization was encouraged in the years after 1949 for a brief period, and various measures were taken to hold such cultivation together in collective or cooperative enterprise.

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Hungary, (and to some extent Rumania) were slightly exceptional. Here large state farms also had a major role in agriculture. This was an outcome of the organization of agriculture in Hungary and Rumania before 1945, when large latifundia played a considerable part in agriculture.

The share of such latifundia substantially passed on to the state. A decade-long experience of extreme varieties of Soviet-style planning and state control in these countries came under the aegis of the Cominform and the Council for Mutual Economic Assistance, acting in tandem as sources of pressure, in the period after 1949.

A good deal of industrial output was sold to the USSR at reduced rates (sometimes linked to reparations, as in the case of Hungary and East Germany, but sometimes not, as in the case of Poland).

The ‘Stalinist’ experiment was subject to major attacks during the mid 1950s (during the disturbances in Hungary and Poland in 1956), but it was only modified in any meaningful manner after the approval to economic reform by the Soviet economist Liberman in the Soviet newspaper Pravda in September 1962.

Here, the reform focused on: a reduction in planned targets; a greater stress on profitability; economic rewards for efficiency; greater variety in pricing; greater Industrial concentration, accompanied by decentralization. Stiffer controls were reintroduced rapidly, though, after 1968 (and the move against economic reform in Czechoslovakia).

The only country which was able to maintain its reforms was Hungary, where, despite the ups and downs of the reform system, imports of Western technology, relative freedom of movement abroad and encouragement of small-scale private industry became a permanent feature of the country by the late 1970s. In all countries, increase of Soviet oil prices in 1975 seriously destabilized the economies.

Hungary

With Soviet occupation, a Hungarian National Independence Front, comprising a number of radical and socialist parties formed a Provisional Government (December 1944) which quickly moved towards economic reform. At the time, large-scale private wealth dominated the economy.

In agriculture, there existed a number of latifundia or great estates that were commercially oriented and that were owned by aristocratic families (Esterhazys, Szechenyis, Karolyis and others). Small holdings which belonged to peasant proprietors were divided: some were very small, others substantial and geared to the market.

Industry was concentrated, with the Credit Bank and the Commercial Bank having major shares in over 60% of what there was, and a number of important players running the important manufactures (the Vida, Kornfeld, Weiss and Dreher-Haggenmacher families primarily).-

The reforms came in the following stages:

i) In January 1945, workers control was introduced in almost all industry through a decree which gave major powers to factory committees.

ii) By a decree of 17th March, the great estates were taken over by the state, as were the holdings of the Catholic Church. Almost all peasant farms were exempt from the decree. About 60% of the land was distributed – a large portion going to agricultural labourers and small-scale proprietors.

iii) Despite the success of the non-socialist parties in the elections of November 1945, pressures from Soviet forces, the Communist and Socialist parties and a section of the Smallholders’ Party forced through the nationalization of four of the country’s largest industrial enterprises.

iv) A Three Year Plan was adopted in July 1947. In the wake of the political crisis of 1947 (after the elections of August) in November 1947, nationalization of the major banks followed, as did the adoption of a Three Year Plan. On 25^lh March 1948, the nationalization of factories employing more than 100 workers took place.

The implementation of the reforms fell to the Hungarian Working People’s Party, which was created from a fusion of the Social Democrat and Communist Parties in June 1948. This party was reconstituted in 1956 as the Hungarian Socialist Workers’ Party, following the Hungarian Revolution of 1956. Both before and after 1956, the party dominated the government and followed the model of the Soviet economy.

In the period up to 1956, intensive industrialization was the order of the day, with a stress on capital goods industries. Hence, under the first Five Year Plan (1950-54), industrial production increased by 130%, and machine industry production by 350%. There was little development of consumer industry, and collectivization of agriculture was encouraged.

After 1956, cooperativization among small-holders, rather than collectivization, became the goal of the socialist economy, and a greater diversification into consumer industry was noticeable.

Under the New Economic Mechanism (launched on 1st January 1968), steps to develop a programme of’ liberalization’ were undertaken. These involved greater imports of Western technology and freer travel abroad and independence to major enterprises: measures devised by Rezso Nyers, the country’s best known ‘reformist’.

Increases of oil prices by the USSR led to a restoration of controls on enterprises, and heavy subsidies to maintain low domestic prices (and Nyers’ removal from the Politburo).

A return to a reform programme began in 1977, with restrictions on private farmers relaxed in 1980 (they were permitted to acquire machinery), gradual division of large enterprises and license to small foreign firms to work in the country.

Prices were permitted to rise in 1979 (to allow them to come to world levels) and in 1982, the country joined the International Monetary Fund (IMF) and the World Bank. Attempts to return to a system of controls and subsidies in 1985 led to the consolidation of a dissident radical group in the country under Imre Pozsgay.

The group’s influence was felt when long-serving President Janos Kadar was forced to step down (22 May 1988), Pozsgay was admitted to the Politburo of the Hungarian Socialist Workers’ Party in a prelude to Hungary’s quiet revolution of 1989.

Rumania

Soviet troops were in occupation of Rumania from August 1945, although the Communists (the Rumanian Workers’ Party) only formally established control over the government of the country after the abdication in 1947 of King Michael. Under occupation a number of steps were taken to adapt the economy to the Soviet model.

The main stages of the adaptation of the Rumanian economy to the Soviet model were:

i) The dissolution of the main Rumanian banks in August 1948 and concentration of financial activities in the National Bank of Rumania (later the Bank of the Rumanian People’s Republic).

ii) The formation of a number of joint stock companies (Sovroms) based on Soviet and Rumanian government investments in various industries – iron and steel, where (the Resita organization was transformed into a Sovrom), petroleum, where the Sovrompetrol was formed, insurance and mining.

Here the USSR took over the German and Hungarian share in the industries concerned by a law of April 1946. During 1954-56, Soviet shares in industry were systematically transferred to the Rumanian state.

iii) The creation of centres of control for the mining industry in 1948 at Bai Mare (northern Transylvania) and Brad (Bihor Mountains, central Transylvania).

iv) The promulgation of Land Reform Acts on March 22 1945 (mainly involving, the expropriation of properties over 50 hectares) and March 2nd 1949 (which involved the confiscation of the land of property owners of more than 15,000 hectares). This intensified inter-war expropriation of large estates and redistribution of property.

The main beneficiaries were peasants (who dominated the wool and subsistence agriculture oriented economy of the Carpathian uplands and Transylvania; but, as in Hungary, larger holdings were directly controlled by the state also the commercial grain economy of the Banat and the cash crop belt of the Carpathian lowlands (Moldavia and Wallachia), where vineyards and market gardens are common.

Poland

The Polish Committee of National Liberation undertook the application of the Soviet model of socialist economic development to Poland. Formed in 1944, this was the core of the post government. The main features of the socialist transition (eventually supervised by the Polish United Workers’ Party) were:

i) The decree of 6 September 1944, which confiscated all landholdings above 50 hectares. This followed up legislation of the inter-war period which pushed through redistribution of great estates. Together with the confiscation of Church land ((1950), the 1944 measure increased the domination of agriculture by peasant holdings, albeit to the advantage of richer peasants.

Hence, while 65% of the land was held in allotments of under 10 hectares, over 33% was still held in allotments of between 10 and 50 hectares. Polish governments did not focus on collectivization after redistribution, except for a brief period during 1947-53, when they encouraged collective farms, which only covered 10% of arable land by 1954, and maintained state farms.

Collectives were allowed to dwindle after 1956 (in 1959 they only covered 1% of arable land). Since state farms came to 15% of the arable land at their peak, the bulk of agriculture was based on peasant smallholdings until the most recent times.

The government tried various measures to induce collective activity (for instance the formation of Agricultural Circles in 1956, where members could rent machinery at reduced costs). These had hardly any effect.

ii) The formation of a Central Planning Office which organized a three Year Plan (1947-49), and later a Six Year Plan for the economy. Most industrial production and mining were transferred to state hands after 1945. By 1949-50, 92% of industry was nationalized.

Call for reform by Polish economists such as Lange and Brus in 1956 included demands for flexibility in approach to economic policy, encouragement of foreign investment and decentralization of industrial organization.

Demonstrations in favour of this intensification of the ‘New Course’ (initiated in 1953 by First Secretary Bierut after Stalin’s death) merely led to a change in leadership in Poland (the selection of the ‘moderate’ Gomulka as head of the Party) reforms after 1962 (concentrated around 1968-70), led to price increases and a wager on increased investment in ‘modern industries’ (machine building, electrical and chemicals).

This in turn led to and demonstrations against the effects of such measures (in December 1970) and to the ascendancy of Edward Gierek in the Polish Party

Czechoslovakia

Soviet troops moved out of Czechoslovakia in November 1945. But a Works Council Movement began in 1945, which demanded nationalization of mines and industry, establishing workers’ control.

After initial reluctance by the Communist Party of Czechoslovakia to accept this nationalization plan, it gave way slowly, and measures in this vein were systematically undertaken, especially after 1947 and the statement of the Truman Doctrine and the formation of the Co inform. The pattern of land redistribution and rapid state takeover of industry was followed here as elsewhere:

i) In March 1948, all estates of over 50 hectares were confiscated, redistribution and cooperativization were initiated. Thereafter, all cooperatives were merged into collective farms by a law of 23rd February 1949, which was enforced with special severity after 1953.

ii) By 1949-50, 96% of industry was nationalized, after initial restraint in this area (in 1948, 20% of industry was still in private hands). Under planning, stress fell heavily on heavy industry and munitions production.

Bulgaria

Collectivization was more marked here in the earlier stages of economic reform, although peasant production never ceased to be important. Small plots occupied 13% of the arable land in 1975, and produced 25% of produce (dominating potato and fruit output). A commitment to large scale industrialization developed in the late 1960s, when there was a move away from traditional stress on food processing.

i) During 1945-48, landholdings were limited to 20 hectares, and holdings above this level were redistributed. Thereafter, smallholdings were merged into collective farms, and 50% of arable land was in these by 1953.

All privately owned machinery and farm equipment was compulsorily acquired ‘ by the state, and a kulak defined as one owning over 5 hectares. 1 Proprietors owning over 10 hectares had to sell 75% of their grain crop to the state (1950), while collectives had their delivery quotas reduced (1953).

ii) By 1949/50, 95% of the limited industry that existed in the country was nationalized.

East Germane (German democratic republic)

Adaptation to the Soviet model began late here, since a myth was maintained that East Germany would be united with West Germany in the long term, and radical alteration in the production system was not a good idea considering this.

Nationalization of industry and trade, however, began long before the formal decision to embark on socialist construction by the Socialist Unity Party in 1952 under the direction of Walter Ulbricht. Industry and trade in private hands (19% and 37% respectively) was taken over by the state thereafter, and collectivization of agriculture begun and intensified (especially after 1958).

The Liberman-sanctioned reforms took shape in the GDR in the form of the New Economic System that lasted from 1963 to 1970 (when controls through Planning were intensified). Industrial production grew by 5.8% between 1960 and 1964, and 6.4% between 1964 and 1970. Per capita growth rate and increase in standard of living was of the order of 4.9% between 1970 and 1975.

Abandonment of the New Economic System was marked by the dismissal of Gunter Mittag from the Council of State in 1971, and adaptation to increased Soviet oil prices (after 1975) by increases in state subsidies of domestic prices.