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Czechoslovakia ECONOMIC STRUCTURE AND ITS CONTROL MECHANISMS
In the mid-1980s, Czechoslovakia had a highly industrialized
economy, a fact reflected in the 1985 official statistics
concerning production of the net material product of the country
(the official measure of aggregate production). The industrial
sector accounted for 59.7 percent of the value of the net
material product; construction, 11.2 percent; agriculture and
forestry, 7.5 percent; and various other productive services
(including transport, catering, and retailing, among other
activities), 21.6 percent. As of 1980 the socialist sector (state
enterprises or cooperatives) generated 97.4 percent of the
national income. Of the total work force, almost 99.8 percent was
employed in the socialist sector.
The Czechoslovak economy, like most economies in communist
countries, differs markedly from market or mixed economies. The
most notable feature common to nearly all communist economies,
including Czechoslovakia, is the deliberate and almost complete
severance between market forces and the allocation and use of
resources. In market economies, decisions by individual consumers
and producers tend automatically to regulate supply and demand,
consumption and investment, and other economic variables. In most
communist economies, these variables are determined by a small
governing group and are incorporated in a national plan that has
the force of law. The leaders and planners make most economic
decisions: setting quotas for production units that are almost
completely state owned; directing the flow of materials through
the economy; establishing prices for nearly everything, including
labor and capital; and controlling investment and consumption.
Most communist economies are organized vertically in a command
structure radiating from the central authorities down to the
individual production units. This is the case in Czechoslovakia,
where the centralized economic structure parallels that of the
government and the Communist Party of Czechoslovakia
(Komunisticka strana Ceskoslovenska--KSC). This structure gives
the party firm control over the government and the economy. It is
generally referred to as the Soviet model and was first applied
in the Soviet Union, which was initially an agrarian nation with
extensive natural resources, a large internal market, and
relatively little dependence on foreign trade; the goal was to
quickly develop heavy industry and defense production.
Czechoslovakia, by contrast, was a small country that had already
reached a high level of industrialization and was rather heavily
dependent on foreign trade when the Soviet system was first
imposed after World War II.
Government ministries prepare general directives concerning
the desired development of the economy
(see Government Structure
, ch. 4). They pass these along to the economic advisory body, the
Central Planning Commission, which in turn prepares the long-term
targets of the economy. These are expressed in extensive economic
plans--in general plans covering periods fifteen to twenty years
into the future and in the well-known five-year plans. Since
1969, economic plans for the Czech Socialist Republic and the
Slovak Socialist Republic have been produced by their own
planning commissions, although the central plan remains the most
important. Most significant on a daily operational basis,
however, are the short-term annual production objectives. In
their final form, these more detailed annual plans have the force
of law, no longer being merely guides or recommendations.
In formulating the various plans, the Central Planning
Commission converts the directives of the ministries into
physical units, devises assignments for key sectors of the
economy, and then delivers this information to the appropriate
ministries, which oversee various functional branches of the
economy. The production plans are made more specific and concrete
through implementation of the system of "material balances," an
accounting system that allocates available materials and
equipment in an effort to make plan fulfillment possible for all
sectors in the economy.
Upon receiving their assignments, the various ministries
further subdivide the plan into tasks for the industrial
enterprises and trusts or groups of enterprises under their
supervision. (A parallel process takes place for agriculture, in
which the federal Ministry of Agriculture and Food supervises the
planning procedures for the collectives and state farms.) The
ministries provide more detailed instructions concerning
fulfillment of the assignments and pass them along to the trusts
and enterprises. Upon receipt of their proposed tasks, individual
enterprises draw up a draft plan with the assistance of their
parent trust or ministry. As noted by economist John Stevens,
during this phase of planning an important reverse flow of
information occurs, from the actual producers at the bottom of
the hierarchy to the authorities at the top. Bargaining may take
place among the various levels. After receiving feedback
concerning the plan, the ministries consult again with the
Central Planning Commission and, assembling all the draft plans,
formulate an operational plan that can achieve the central
directives. The appropriate parts of the assignments are then
dispatched once again to the trusts and enterprises. This time,
their acceptance by the enterprises and trusts is mandatory.
The norms included in the instructions to the enterprises
usually specify the volume and kinds of production required,
inputs available, a production schedule, job categories and wage
rates, and a description of the centrally funded investment
planned. National and republic budget levies and subsidies,
profit targets and limitations, and plans for the introduction of
new products and technology are also set forth in the
instructions.
Evaluation of enterprise performance occurs on several
levels. The planning authorities assess plan fulfillment, but
there are additional control devices internal and external to the
enterprise. Among the duties of KSC members and trade union
leaders within the enterprise is monitoring plan fulfillment. The
federal Ministry of Finance also sends representatives into the
enterprise to investigate accounts. In addition, the State Bank
of Czechoslovakia can exert influence on enterprise activities by
monitoring enterprise bank accounts
(see Banking and Finance
, this ch.). Nevertheless, the main source of information for the
planners is the enterprises themselves.
Under the Czechoslovak system, foreign trade is a state
monopoly, supervised by the central Ministry of Foreign Trade.
The ministry oversees the operation of about thirty foreign trade
enterprises. As intermediaries between the domestic export
producers or import purchasers and the external market, the
enterprises are responsible for arranging contracts as well as
for financing and generally supervising Czechoslovak foreign
trade, usually setting prices that have little connection with
domestic production factors.
Advocates of this centralized system of managing the economy
contend that it has a number of advantages. In a centrally
planned system, authorities can distribute resources and
production targets as they choose, balancing the needs of
consumption and investment on the basis of long-range goals.
Planners in postwar Czechoslovakia, for example, were thus able
to expand the country's heavy industrial base as they wished. In
turn, research efforts, being centrally directed, can focus on
areas deemed vital to the economy's goals. In general, central
planning can make it possible for producers to take advantage of
economies of scale, eliminating superfluous and wasteful
activities. If planning is really effective, the system should
result in virtually full employment of resources.
As critics have pointed out, however, certain aspects of the
system interfere with its effective functioning. One problem is
the assignment of production quotas. Planners generally must base
these assignments on the past performance of enterprises.
Enterprise managers, knowing that planners tend to assess
enterprise performance according to completion or noncompletion
of assigned tasks, may be tempted to understate and misrepresent
the production potential of their organizations in order to
obtain an assignment they can easily handle. Also, they may have
little incentive to overfulfill aspects of the current plan; such
achievements might lead planners to assign a substantially more
difficult or even unachievable task during the next planning
period, resulting in a poor performance evaluation for the
enterprise. Such a disparity might call into question the
validity of the information previously furnished to the planners
by the enterprise managers. To ensure plan fulfillment, managers
tend to exaggerate their material and labor requirements and then
to hoard these inputs, especially if there is reason to worry
about punctual delivery of supplies. Furthermore, since planning
under the Soviet model aims at full utilization of resources,
plans are typically "taut," and an ambitious manager who seeks to
obtain resources beyond those needed to achieve the plan norms
may find the process difficult and discouraging, if not
impossible. Given the emphasis on fulfillment of the plan,
managers may also hesitate to adopt new technology, since
introduction of a new procedure might impede operations and even
jeopardize plan fulfillment. Critics have also noted that central
planning of production can result in an inappropriate assortment
of goods from the consumers' point of view or in low-quality
production.
The Czechoslovak leadership, aware of these criticisms and
also of the deteriorating performance of the national economy in
the late 1970s and early 1980s, undertook a series of modest
reforms, the "Set of Measures to Improve the System of Planned
National Economic Management after 1980" for industry in 1981 and
a similar program for agriculture in 1982
(see Economic Policy and Performance
, this ch.). These measures focused on monetary
reform, decentralizing somewhat the management of investment
funds by giving more authority to enterprises or, more often, the
trusts that supervised groups of enterprises. The reforms left
the centralized system fundamentally unchanged, however.
Data as of August 1987
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