Isaac Deutscher 1959

The Soviet Economic Commonwealth: Stalin’s Answer to the Marshall Plan – And How It Grew

Source: The Reporter, 9 July 1959. Scanned and prepared for the Marxist Internet Archive by Paul Flewers.

The Soviet news agency Tass has announced that in May the so-called Council of Economic Mutual Assistance (CEMA) held its eleventh session in Tirana, Albania, and took a number of decisions concerning ‘coordination and specialisation’ of economic activity in the countries of the Soviet bloc. The announcement, both dry-as-dust and full of propagandist overtones, could not arouse much interest in the non-Communist world, and probably it did not cause any great stir in the Communist countries either. Yet the council’s activities are undoubtedly of great consequence. It is potentially perhaps the most important international institution functioning within the Soviet bloc.

The council is made up of representatives of the governments of the Soviet Union and all its satellites in Eastern Europe. Delegates of China, North Korea, North Vietnam and Outer Mongolia also attend the meetings as observers. The council was formed in January 1949, and its title reflects its origin rather than its present functions. In a sense, Secretary of State Marshall was the council’s unwitting begetter, for it was Stalin’s reply to the Marshall Plan. Having forbidden the Poles and Czechs to accept Marshall aid, which they were only too eager to obtain, Stalin had to make a gesture to compensate them, at least symbolically. He invited his European satellites to constitute the council as a counterpart to the West European international organisations that were being set up under Marshall’s auspices. Heralded by propagandist flourishes, the council held its first three sessions within a few months, but in 1950 it was put into the deep freeze and forgotten for many years.

Too Many Socialisms: Stalin had, of course, no use for any Council of Economic Mutual Assistance: he held no counsel with anyone, least of all with his satellites; and in 1949-50, when the Soviet Union still laboured under the after-effects of war, he was in no position to give assistance to anyone, even if he had wished to. To speed up Soviet recovery, he squeezed his satellites as hard as he could, and for this he had no need of any ‘mutual aid’ institution. As during the two decades of the Soviet Union’s prewar isolation, Russian self-sufficiency and ‘sacred egoism’ were still Stalin’s guiding principles. The isolation was now a matter of the past; but Stalin, dominating the new and vast Soviet bloc, behaved like a driver who had changed over from a horse-drawn cab to an automobile and remained convinced that the car would run better and faster if he went on cracking his old whip.

Only a full year after Stalin’s death was the council brought back to life and assembled for a session in Moscow in March 1954. Stalin’s successors, aware of the burden of liabilities he had left them in Eastern Europe, were about to disband the various Soviet-Hungarian, Soviet-Romanian and Soviet-East German mixed companies, and to renounce other economic privileges Stalin had secured; and they were anxious to associate the East European Communists with this disengagement from the Stalinist legacy.

It began to dawn on Moscow’s new leaders that the policy of Russian self-sufficiency and sacred egoism not only aroused intense resentment in Eastern Europe but also produced tremendous waste and economic chaos – it was indeed the most inefficient of all conceivable Soviet economic policies. Stalin had killed off all too many geese for whose eggs the Soviet Union might have had some use.

Worse still, his economic policies had been zealously copied by every one of the satellites: each East European government aimed at achieving national self-sufficiency, until Eastern Europe could boast of building simultaneously seven or eight single-country socialisms. Poland, Hungary, Romania, etc, each tried to build up within its own boundaries the basic branches of heavy industry (including heavy engineering), and to duplicate, each on its own scale, the Soviet economic structure. The result was a severe over-all crisis of over-investment in heavy industry and under-investment in primary production, light industry and farming.

The Age of Specialisation: It was to deal with that crisis that the CEMA was convened in March 1954. The crisis was to remain on the council’s agenda for the next three or four years. (Not until several years after Stalin’s death were the Communist governments of Asia invited to join the council as observers: China in 1956, North Korea in 1957, and North Vietnam and Mongolia only last year.)

Already in 1954 some Soviet officials and economists favoured the idea that the council should be used as a sort of a clearing office for the economic planners of all Communist countries and that it should, in due time, be transformed into an international planning authority for all the countries of the Soviet bloc. During the post-Stalinist ferment of ideas, new notions were making their appearance, or, rather, were re-emerging from the limbo of condemned heresies. A few economists began to speak, very cautiously at first, of the advantages of ‘international division of labour’ – the idea, though stemming from good old Adam Smith, had had a ‘Trotskyist’ flavour about it and had been anathema in Stalinist Russia.

Nobody knew, however, how to translate the abstract notion into practical terms. Several schemes for the economic overhaul of Eastern Europe were canvassed. One of these, vaguely associated with the ‘Malenkov line’, advised the East European governments to give up their ambition to develop heavy industry and to concentrate instead on light industry and farming, to export consumer goods to the Soviet Union, and to rely mainly on the Soviet Union for their imports of producer goods. Another scheme, which came to be regarded as the ‘Khrushchev line’, sought to maintain some priority for heavy industry in Eastern Europe as well as in Russia, but to cope with the crisis of over-investment by curtailing a number of the heavy industrial projects. This scheme underlay many hasty shifts carried out in the years 1954-56 and was at the basis of the various East European Five-Year Plans for the years 1956-60.

However, the immediate effect of the remedies was to aggravate the illness. Halting some of the biggest heavy industrial projects did not succeed in even mitigating the scarcity of food, fuel and consumer goods in Eastern Europe. The stoppage, freezing enormous resources, only intensified the economic chaos.

In May 1956, the CEMA met in East Berlin for a session of crucial importance. It reached the conclusion that the Five-Year Plans adopted in 1954-55 were unworkable. All these plans (covering the period 1956-60) were scrapped, as was also their model, the Soviet Plan; and the council recommended the broad principles of a new economic policy. Henceforth – this was the gist of its recommendations – the East European governments should avoid investing in parallel lines of industry and stop building extremely costly engineering plants in small countries. Instead, they should seek to complement and integrate their development schemes. The Soviet members of the council came forward with a specific project for ‘industrial specialisation and coordination’. The project provided for the distribution, or redistribution, of the production centres of no less than 600 groups of engineering manufactures all over Eastern Europe.

The Russians thus took their first long step towards international planning, a quite unprecedented step. At the same crucial session they also urged the council to expand greatly its machinery and to set up permanent ‘branch commissions’, whose job it should be to coordinate in a similar manner the work of the various national industries within the respective branches.

This daring initiative, however, had few if any practical consequences at first. The East Europeans voted for the Soviet recommendations but went home and ignored them. True, they had more urgent business to cope with at the moment – the goods famines and the growing unrest in their own countries. Barely a month after the council’s session, the workers of Poznań rose in June 1956; in October the Poles moved to the brink of armed insurrection and the Hungarians went beyond it. Throughout Eastern Europe the distrust of all things Russian was at its fiercest.

Paradoxically, the nationalists and anti-Communists and the most hide-bound Stalinists found themselves united in opposition to the new economic policy. To the Stalinist, everything coming out of Moscow since Khrushchev’s attack on Stalin at the Twentieth Congress – the curtailment of heavy industry, the general liberalisation, and the new talk about ‘international division of labour’ – reeked of heresy and treason. To the anti-Communist and the anti-Russian at large, Moscow’s new talk of ‘international division of labour’ was utterly suspect: he scented a new Muscovite design to despoil the subject nations.

In this situation, while discipline was on the decline throughout the Communist camp, the CEMA could do nothing. More than a year passed before it assembled again, this time in Warsaw in June 1957. A protracted crisis in the Polish coal industry overshadowed the session. In 1956-57 the extremely low output of the Polish miners threatened to bring to a standstill Polish, Czech and East German industries, which are all as much dependent on Silesian coal as West European industry is on the coal of the Ruhr.

The Fifteen-Year Plan: To meet a need of the moment, the council made a further step towards international coordination and planning. To avert the recurrent coal shortages, it was decided to re-equip and modernise the Polish mines; and since the Poles could not undertake the job alone, the re-equipment was to be the joint responsibility of Polish, Czech and East German producers of mining equipment. At this session, too, the Russians came out with a definite proposal that the council should at last begin to tackle long-term planning for the whole of Eastern Europe. The Russians spoke of a ‘Perspective Plan’ covering 10 to 15 years.

This was evidently a critical point in the council’s career. Its Russian members pressed for something like a supranational planning authority. The others replied in effect that the council, being merely a consultative body on which sovereign national governments were represented, had no authority to engage in international planning and could not claim supranational prerogatives. A debate of this kind would not have been possible in Stalin’s days, but now there was a genuine conflict of views. Implicitly, this was a matter of nation-state versus ‘international division of labour’. The council had to refer the conflict to the chiefs of the Communist parties; and the issue figured prominently on the agenda of the Moscow conference of the Communist leaders in May 1958.

Their decision is reflected in the fact that since last summer the CEMA has entered a new and more exalted phase of its career. It has held three prolonged sessions in the course of 11 months, while previously one session a year was thought to be enough. The machinery of the council has been further expanded, and so has the scale of its activities.

This is not to say that the conference of the party leaders has given any clear-cut answer to the problem posed before it. The party leaders rather tried to reconcile conflicting views. Khrushchev in particular refused to commit himself too strongly, however much his intellectual advisers may have pressed him for a decision. The issue was and is one of the greatest delicacy and complexity. Though the argument for the merger of the whole of Eastern Europe into a single economic entity, and for its ‘organic’ link-up with the Soviet Union, may be attractive to ‘advanced’ circles in Moscow, official policy must take into consideration the national susceptibilities of the East Europeans. It might be too dangerous to press the latter for a virtual surrender of national economic sovereignties so soon after the insults and injuries Stalin inflicted on their patriotic sentiments and after national sovereignty had more or less spontaneously reasserted itself within the Communist framework. In addition, ‘international division of labour’ and the ways and means of achieving it are still novelties; and cautious minds prefer to move warily on untrodden ground.

A survey of the council’s work in the last year indicates, nevertheless, that slowly and gradually it is developing into something like an international planning authority. Moscow has reaffirmed that the member states of the council have the right to veto any decision taken by it. But the party leaders have also jointly and emphatically instructed the council to conduct its work with an eye to the overriding needs of the ‘international division of labour’ and to carry that division into new fields of the economy. For the first time, Soviet production is being adjusted to the council’s East European plans, and China’s connection with the council has grown closer. What appears to be coming into existence is not merely a Communist ‘Common Market’ but an organisation designed to pool, distribute and develop jointly the resources of the Soviet Union and Eastern Europe, and eventually of the entire Soviet bloc.

According to His Ability’: A few examples may illustrate the kind of work the council is engaged in. Under the new arrangements, Czechoslovakia is to concentrate on the output and export of heavy trucks and tractors, while East Germany is to make the lighter type. Both countries are to produce enough sugar refineries to satisfy the needs of the Soviet Union and Eastern Europe. The output of certain high-quality steels and of light-section rolling mills is to be confined mainly to East Germany and Poland, while Russia and Czechoslovakia are to specialise in large-section rolling mills. The Soviet Union and Romania are to be Eastern Europe’s chief suppliers of oil-drilling and refining machinery. Certain types of excavators for opencast mining are to be made in East Germany and Czechoslovakia, others in the Soviet Union. Machine tools for ball-bearing plants are to be standardised; the Russians are to produce 55 types of tools, the Germans 40, the Poles 12 and the Czechs 10. To avoid overlapping, all new investment in engineering is henceforth to be cleared through the council’s appropriate branch commissions.

Other items show another aspect of the council’s activity. The Soviet Union, Poland and Czechoslovakia are beginning to build an oil pipeline from the Volga region to Central Europe. Germans, Czechs, Poles and Romanians are to construct a mammoth cellulose plant at Brăila, Romania, which should meet Eastern Europe’s deficit of this commodity. The development of Hungarian aluminium is to be tackled in the same way. (In every case the industrial plant is the property of the nation on whose territory it is situated, and the foreign contributors to the projects are to be paid in goods.) An all-East European electricity grid is to be connected with the power system of the western regions of the Soviet Union by 1964. Poles and Germans are jointly responsible for the construction of the Oder-Danube Canal. Member states also cooperate in development schemes outside Eastern Europe: Czechs and Germans build power stations in China, the United Arab Republic, Iraq, etc.

All East European plans are to be adjusted to Soviet planning. Yet although most of these run, as the present Soviet Plan does, up to 1965, the adjustment could hardly be more than superficial. Otherwise it would probably cause another grave upheaval in Eastern Europe. Only by regulating all future industrial investment will the CEMA be able to set the stage for a more thorough integration in the next planning period.

Division of labour and specialisation, promoted on so vast a scale and in a rapidly expanding economy, presuppose an enormous volume of trade. Yet if one is to judge from the official Soviet trade forecasts, either the directors of Soviet trade have not yet caught up with the CEMA or they treat its ideas rather sceptically. Here, too, lip service is being paid to the new internationalism; and autarky is out of fashion. The Soviet Union has indeed moved far since the days when its share in total world trade was not more than one per cent – and this in the shrunken trade of the 1930s. But habits of autarky seem to be dying much harder among the Soviet bureaucrat-merchants than among the planners and producers. The entire Soviet bloc’s present share in world trade is, according to official Soviet sources, not more than 10 per cent. (Three-quarters of this consists of trade within the bloc itself, which is still conducted, as it was in Stalin’s times, by means of bilateral agreements and a clearing system.)

As the Soviet bloc claims to be producing about a third of the world’s total industrial output, the disproportion between production and trade is striking. The Soviet Union and its partners would have to sell and buy at least three times as much as they do in order to approach relatively, not absolutely, the present level of capitalist trade. By 1965, Moscow expects the Soviet bloc to produce just over half of the world’s industrial output. The forecasts about trade, however, are timid: they suggest that, given an unchanged volume of world trade, the share of the Soviet bloc would rise at the most to about 20 per cent, three-quarters of the rise occurring within the Soviet orbit.

An international division of labour as intensive as that prevailing in the West at present would require the trade of the Soviet bloc to increase at least fivefold between now and 1965.

It is, I think, a safe bet that events will compel the directors of Soviet foreign trade to set their sights much higher than they have and to remove some further disproportions, which have been hinted at even by Soviet analysts. Thus, the East Germans already trade four times and the Czechs five times as intensively as the Russians do, if their trade is related to population. Trade between the Soviet Union and China, with its more than 600 million people, is no larger than that between the Soviet Union and East Germany, a fact that has undoubtedly brought forth some bitter comments from the Chinese.

But to a large extent this state of affairs is normal. It is far easier for an industrial nation to trade with another developed nation than with an underdeveloped one that is not in a position to pay for large-scale imports. Although the Soviet Union has given China considerable industrial aid without payment and has exported much on credit, Chinese poverty has set narrow limits to economic exchange.

The Dragon’s Teeth: However, Communist China’s rapid industrialisation and increased agricultural production are bound to make China’s influence increasingly felt within the Communist ‘Common Market’.

China’s presence at the Council for Economic Mutual Assistance, even in the role of an observer, has already presented the council with a special problem. The Peking delegates have claimed for their country ‘exemption from the processes of coordination and specialisation’ that the council is busy with. On the basis of size and population, China is claiming the right to complete self-sufficiency. Moscow has somewhat over-emphatically accepted the claim. For the time being, no one thinks of extending to China the methods of work that are now undergoing trial in Eastern Europe. But some Soviet economists, with the recent instructive experience of their own nation’s period of autarky, hardly believe that the Chinese will maintain their claim when they have advanced further on the road of industrialisation.

It will be seen from all this that six years after Stalin’s death Moscow has turned into a hotbed of experimental economics. Sets of ‘maximalists’ and ‘minimalists’, internationalists and shamefaced isolationists, are fighting somewhat confused battles, whose significance transcends the boundaries of the Soviet bloc. The ‘maximalists’ preceded the council’s Tirana conference in May with a barrage of new demands. They asked for uniform price fixing procedures and methods of accounting throughout the Soviet zone, for stricter and more extensive international standardisation of engineering and other manufactures, for the replacement of the present bilateral trade by a multilateral organisation embracing all Communist governments, and for more trade and even more aid. The published decisions of the Tirana conference suggest that these demands have not been accepted; but their initiators are certain to press them, even if they offend some East European susceptibilities. No matter how much political obeisance Communists find it wise to pay to the nation-state, economic integration is gaining momentum.

The internationalists, in Moscow and elsewhere, see the whole Soviet bloc, including China, as potentially a single economic entity and a common market, five or six times larger than the North American market and twice as large as would be a common American and West European market. Within such an economic entity, they argue, where even now there are no tariff walls, few protectionist interests and no fear of commercial competition, standardisation and mass production can develop on a scale hitherto unseen and undreamed of.

The ‘minimalists’, the older bureaucrats, the highly ‘practical’ business managers, the trade directors and some of the political leaders, view this sweeping prospect with shoulder shrugging and at times are even alarmed at so much ‘Utopian scheming’. In the ruling group the balance of opinion is uncertain and shifting, but it is not difficult to feel the way the wind is blowing.