Elsewhere [A] we have dealt with the record of the exploitation of the European satellites by Russia in the years 1944-1953. It was shown that Russia milked these countries by paying very low prices for the exports to her, charging high prices for goods supplied to them, and owning a number of enterprises in them. According to the most thorough study available, Russia extracted from Eastern Europe, in the period 1945-1956, a total of about 20,000 million US dollars (of which 15,000 million were from East Germany, 2,000 million from Poland, 2,000 million from Rumania, 1,000 million from Hungary). 
This policy, however, led to an economic impasse, and during the last years of the Stalin era the economies of the Eastern European countries were simply grinding to a halt. The plans which were then being aimed at were so much in excess of available resources that they ran into innumerable bottlenecks. By 1951 shortages of coal and electricity, iron and steel, and breakdowns of machinery, were occurring everywhere. The Western embargo imposed following the outbreak of the Korean war added to the scarcities. As Stalin insisted that the target for heavy industry must unconditionally be fulfilled, the consumer goads industries and agriculture had to take the main strain.
The results were increasing output norms imposed on the workers, a speed-up of collectivisation aimed at breaking the resistance of the peasants to delivery of their produce, and a dangerous depression of living standards. By-products of this situation were the show trials of Rajk, Kostov and Slansky.
Even if Stalin had not died early in March 1953 a reversal of economic policy in the satellites would have been unavoidable. The dictator’s death, accompanied as it was by power struggles between different bureaucracies and individuals at the apex of the hierarchy in Moscow and a consequent weakening at the centre, made a slackening of the tension imperative and hastened the change.
The first step in the “New Course” was a drastic cut in the targets for heavy industry in Eastern Europe and a corresponding boost for consumer goods targets; a reduction in work norms in industry and a relaxation of pressure on the peasants to collectivise.
Next, the Soviet enterprises in Eastern Europe were liquidated, the move taking place not long after, and no doubt accelerated by, the East German uprising in June, 1953. The Soviet shares in jointly owned companies were transferred to Rumania in September , to Bulgaria in October , and to Hungary in November 1954.  In each instance the recipient was to pay off the Soviet share on otherwise unspecified “favourable terms”. All Soviet-owned companies in East Germany were liquidated during the same period.
The final liquidation of all the obligations arising from the dismantling of the companies occurred after the Hungarian revolution and the Polish upheaval of October-November, 1956. It was estimated that the debts cancelled on the account amounted, in the case of Rumania alone, to over 700 million dollars.  In addition she cancelled further debts amounting to 800 million dollars. 
As a third measure, Russia gave large credits in 1956 and the following year to support the ailing economies of the satellites. These included 370 million roubles to Bulgaria in February 1956; 1,200 million to East Germany between July 1956, and January 1957; 200 million to Hungary in December 1956; 400 million to Poland in September 1956, and 700 million in November 1956; 270 million to Rumania in December 1956. The total credits granted to the satellites in 1956-57 was 1,300 million dollars. To this ought to be added 1,800 million dollars in Soviet credit cancellations, or a total of 3,100 million dollars. 
Moscow has repeatedly stated since 1956 that the prices prevailing in the trade between Russia and her satellites are world market prices. Now world market prices entail the exploitation of backward countries by advanced countries. As Marx’s law of value shows, industries with a high “organic composition of capital” – i.e., with a great deal of capital compared with labour – acquire part of the surplus value produced by workers in industries with a low “organic composition of capital”. This applies also to international trade between more developed and less developed countries, i.e., countries which have relatively more capital and those with relatively little. As Marx put it, “the favoured country obtains in such an exchange more labour in return for less labour.”
This is the situation under conditions of free competition. The exploitation of the poor countries becomes even harsher when the rich country for one reason or another holds a monopoly position. The backward countries are then charged even higher, and paid even lower, prices than those prevailing on the world market.
This is the situation dominating trade between Russia and her satellites.
A few figures will show this. Russia charged her satellites 307 rubles per ton of wheat sold in 1958, while countries outside the Soviet bloc were charged only 273 rubles, a difference of 12 per cent. The comparable figures for barley were 259 and 214 rubles, a difference of 21 per cent. Russian tractors were sold to the satellites for 21,500 rubles each, while outside the bloc they fetched 13,600, a difference of 51 per cent. Cotton goods sold at 1,800 and 600 rubles per square metre respectively, i.e. the satellites had to pay three times the price charged by Russia on the world market. Interestingly, the more agricultural and backward the individual satellite country, the higher the prices charged by Russia. Albania and Bulgaria did considerably worse than Czechoslovakia and East Germany.
On the other hand, for 17 commodities for which information is available, Russia paid 20 per cent less than she should have paid if charged the same prices by the satellites that they charged outside the Soviet bloc. 
Thus the exploitation of the satellites by Russia is much less severe now than under Stalin. But still it goes on.
In the twentieth century the national state, especially in Europe, appears as an anachronism. The needs of economic advance clash with the national boundaries. Balkanised Eastern Europe is a museum piece.
Stalin’s policies aimed largely at preventing the economic (and political) integration of Eastern Europe. To quote a clear case: On 27 July 1947, Dimitrov and the Bulgarian Minister of Foreign Affairs, Georgiev, met Tito in Belgrade, a meeting which was widely publicised in both countries. On 2 August, at a meeting in Bled, a treaty was signed, and contrary to former practice, its text was published immediately with a loud fanfare of publicity. Article 2 of the treaty provided for the economic co-operation of both countries, including a fixed rate of exchange, the preparation of a customs union, and the co-ordination of economic measures covering electric power, mining, agriculture, transport, and foreign trade. Dimitrov went even further. On 17 January. 1948, he said: “If and when this problem becomes ripe for discussion, the democratic countries – Bulgaria, Yugoslavia, Albania, Rumania, Hungary, Czechoslovakia, Poland, and perhaps Greece – will decide how and when such a federation should come about. What the people are doing now is, in fact, to prepare for such a federation in the future.” As an immediate step he proposed a customs union: “...we are convinced that, only a Customs union can really contribute to the development of our peoples, and therefore we conscientiously and courageously go ahead, preparing this Customs union with all .countries who wish to join it.” Thus what was envisaged was a federation not only of the Balkan countries, but their Danubian neighbours too.
Moscow immediately came out strongly against this. Pravda published an open attack on Dimitrov, claiming that “these countries do not need a problematic and artificial federation or Customs union.”  The less integrated the East European countries were with each other, the more dependent they would be on Russia.
Again, Stalin insisted that each and every one of the Communist countries should follow the same pattern of economic advance, in which priority was given to heavy industry. This resulted in the multiplication of identical economic structures and narrowed the field of their mutual dealings.
This uniformity also led to great wastage, giant heavy industries being built without the requisite raw materials necessarily being at hand. The purpose may have been to force the countries of Eastern Europe into economic dependence on Russia for the necessary raw materials.  Let us look at a few examples. Hungary built a steel industry in spite of the fact that the cost of imported raw materials per ton of steel produced in Hungarian mills alone exceeded the cost of a ton of finished steel purchased from abroad.  A similar state of affairs existed in the German Democratic Republic for the production of pig-iron. 
With the tensions in the economy becoming unbearable, and the obvious need to cut wastage. Stalin’s successors realised that economic integration of the East European countries was necessary for the more efficient utilisation of available resources. The success of the West European Common Market pressed the point home.
In contrast to Stalin, Khrushchev was concerned about the autarchic tendencies developing in the East European countries. In 1956 he stated:
We already said a long time ago that a better (economic) co-operation should be established between our countries. It is impossible to have developed everything everywhere simultaneously. Unfortunately, we have often spoken in vain. Hungarians, Poles, Rumanians, and also the others have tried to build up everything by themselves. Perhaps it is only small Albania which has not attempted this ... In the Soviet Union this is naturally not the same problem as elsewhere since Soviet industry produces for a vast demand. The same applies to China with its immense population. But for small countries this creates very great problems, for which solutions cannot be found Within national boundaries. 
However, the desire for economic specialisation and integration in the Soviet bloc was not enough to make it succeed.
Stalin himself had, as a counter to OEEC and the Marshall Plan, in fact established the Council of Mutual Economic Aid (CMEA) in 1949. However, until 1955 it led only to a shadowy existence. But thereafter more serious attempts were made to. give the Council flesh and blood. Successive meetings delineated broad boundaries of economic specialisation, and special committees were set up to deal with different aspects of this policy. In late 1955 the committees drew up all-Bloc material balances for about 20 crucial materials for the coming Five-Year Plan period. 
In 1957 a further step was taken towards the co-ordination of economic planning. CMEA recommended that each nation should begin preparing 15-year plans which would dovetail with one another.
Since 1957 these all-Bloc specialisation discussions have been slower and less spectacular but, at the same time, more thorough and systematic. For instance, specialisation of production of chemicals was discussed in the Bucharest and Prague Plena (June and December 1958); specialisation in machinery for making chemicals in the Tirana and Sofia Plena (May and December 1959). By 1960 specialisation agreements had covered more than 500 chemical products, covering about 80 per cent of the Bloc gross production, and about 1,100 machine goods and equipment for producing chemicals. Specialisation in production of machines for other major production areas is said to be proceeding at a somewhat slower pace. However, in the past several years the Council has also made recommendations for machinery production in several small industries such as sugar refining, meat packing, and paper making. 
In the June 1962, session of CMEA, a Central Executive Committee, composed of Deputy Ministers of the member states, was set up.
Khrushchev suggested the drawing up of all-Bloc material balances for production and consumption of all major manufactured goods for the time period up to 1970 as well as the working out of a system for multilateral trade planning. Oskar Lange proposed making the Council recommendations for the specialisation of production enforceable by law. Other voices have been raised for common accounting methods to be used in all Bloc countries, more realistic exchange rates, and an all-Bloc input-output table.
Attention has also been focused on forms of economic co-operation outside the CMEA. New types of intra-Bloc joint stock companies are being set up with agencies of various nations as stockholders, e.g., the Polish-Hungarian Haldex Corporation for the mining of coal or the new Soviet-Mongolian companies for mining extraction. In July 1962, all CMEA Bloc nations (except Albania) signed an agreement for the organisation of a central dispatching board for a unified all-Bloc power system to be located in Prague. (Czechoslovakia, East Germany, Hungary, Poland and the USSR have already linked their power grids. In 1963-4 Rumania and Bulgaria will be linked to the system.) 
After the November, 1962, meeting of the Central Committee of the CPSU, Khrushchev went further and proposed the formation of a single CMEA planning organ. 
These efforts at an economic division of labour in the Bloc as a whole have not borne fruit.
A few facts will show this. A Deputy Prime Minister of Czechoslovakia declared that in 1957 his country “produced about 80 per cent of all existing machine types, and he particularly emphasised the adverse effect on production costs which had been brought about by the quadrupling in the last ten years of the number of machine types made in Czechoslovakia. An East German economist estimated that in 1959 his country produced between 85 and 90 per cent of all machine types ... The effect of such duplication is, of course. non-economical short production runs.” In East Germany “one economist declared that in 1957 production runs for making office machinery were 5,000 to 30.000, compared with optimum runs in the range of 30,000 to 60.000 machines; he also noted that in 1958, 39,000 autos would be produced in several different factories, compared with an optimum production of 70,000 for any one make. (These data for optimal runs are his. Western estimates, at least for autos, are higher.)” 
Again, a Soviet economist “complained that specialisation in machine building in the Bloc was very unsatisfactory and gave several examples. Of the 70,000 metal cutting machine tools which were produced in the CMEA nations in 1957 only 3,412 (about 5 per cent) were traded; of 24,000 forge and pressing machines only 622 (3 per cent) were traded; of 37,000 tractors only 5,380 (15 per cent.) were traded. Another Soviet expert noted that only 3.5 per cent of the 200,000 metal-working machines produced in the Bloc entered into foreign trade.” 
At the time of writing the 15-year plans, announced in 1957, have not yet been drafted by all the countries of the Bloc.
Again and again individual countries in the bloc violate CMEA decisions.
Between 1956 and 1958 the Poles not only broke their coal delivery agreements with East Germany (and sent coal to the West), but also produced a great many machines which, according to the specialisation recommendations of the CMEA and the bilateral specialisation agreements, they should have imported. Even after the political thaw in 1958 they still continued to produce goods which violated CMEA suggestions, e.g. teleautographic machines. Other nations have acted similarly. For instance, Czechoslovakia was supposed to produce 25-horse-power tractors and export these to other nations. East Germany was not able to obtain enough of these tractors from Czechoslovakia and had to start producing such a model themselves. An East German commentator remarked: “In the concrete case of the Zetor (25 h.p.) which is produced in Czechoslovakia, I must agree with the foreign traders that the behaviour of Czechoslovakia is not right, since Czechoslovakia sells large amounts of these tractors especially on the Capitalist world market. For each Socialist country the maintenance of the principles of mutual advantage and brotherly aid must take place first.” 
As one of the main contradictions in capitalism is the conflict between the productive forces that have evolved and the national state, “Communist” state capitalism could have proved, at least in one respect, radically different if more progressive, if it had managed to carry out a consistent division of labour in the Soviet bloc.
This is certainly not the case. One main impediment is the distorted price mechanism. If it is difficult, if not almost impossible, to compare costs of production in different factories or different branches of the economy in one country, it is even less possible internationally. The internal prices in each country of the Soviet bloc are completely divorced from the outside world, and it is therefore impossible to determine the lowest production costs for different commodities.
Secondly, because of general mismanagement in the individual economic unit – whether a sovnarkhoz or a ministry – and the associated unreliability of supply resources, each economic unit inclines to strive after self-sufficiency. This applies even to neighbouring sovnarkhozy, let alone different countries in the Soviet bloc. As one student of the Soviet economy put it: “It has yet to be demonstrated that it is any easier for two Soviet countries than for two ‘capitalist’ countries to co-ordinate their economies through trade.” 
Thirdly, there is very little prospect of a big flow of capital from Russia to her satellites to bolster the integration process, as Russia herself is a capital-hungry country. [B]
Fourthly, whereas the different sovnarkhozy in USSR are under a centralised state power that encourages integration, Poland or Rumania, however dependent on Moscow, are subject to a less unified control, especially since the death of Stalin and the concessions to the satellites after 1953 and again after the Hungarian revolution and the Polish uprising. The rift between Moscow and Pekin strengthened the centrifugal tendencies further.
Gheorghiu-Dej, First Secretary of the Rumanian Communist Party, is rumoured to have resisted Soviet plans for the closer integration of the countries belonging to CMEA. He apparently feared that these plans would encroach on Rumania’s independence and prevent her from building up the full range of industries that every underdeveloped country wants. In March, 1963, the Rumanian Central Committee put out a statement which, while approving the “Socialist division of labour” in principle, emphasised that economic co-ordination must be based on national plans and must respect national sovereignty. 
It is, impossible to get far with international specialisation within the Bloc without a supra-national planning authority. But for political and social reasons not only will the peoples of the satellites resist the establishment of such an authority, but even the national bureaucracies will.
A. See Chapter IX.
B. Russia is more backward industrially than Czechoslovakia and East Germany, and not very much in advance of Poland and Hungary. Thus, industrial production per capita in 1955 was: Czechoslovakia, 405 dollars; East German, 339; USSR, 264; Poland, 215; Hungary, 189; Rumania, 124; Bulgaria, 99. 
1. J. Wszelanki, Communist Economic Strategy: The Role of East Central Europe, Washington 1959, pp.68-77.
2. Izvestia, 25 September 1954.
3. ibid., 12 October 1954.
4. ibid., 10 November 1954.
5. N. Spulber, The Economies of Communist Eastern Europe, London 1957, p.205.
6. Wszelaki, op. cit.
8. H. Menderhausen, The Terms of Soviet-Satellite Trade, The Review of Economics and Statistics, Harvard, May, 1960.
9. Pravda, 28 January 1948.
10. F.L. Pryor, The Communist Foreign Trade System, London 1963, p.202.
11. Statistikai Szemle, Budapest, No.7, 1957, ibid., p.28.
12. ibid., p.29.
13. Pryor, ibid., p.31.
14. ibid., p.32.
15. ibid., p.36.
16. ibid., p.232.
17. Pravda, 20 November 1962.
18. Pryor, op. cit., pp.30-31.
19. ibid., p.38.
20. ibid., p.212.
21. Nove, The Soviet Economy, op. cit., p.301.
22. Pryor, op. cit., p.27.
23. The Economist, 20 April 1963.
Last updated on 6.9.2002