Comprehensive Program for Socialist Economic Integration
Encyclopedia
The Comprehensive Program for Socialist Economic Integration was set up in 1971, and laid the guidelines for Comecon
activity until 1990. The distinction between "market" relations and "planned" relations—made in the discussions within Comecon prior to the adoption of the 1971 Comprehensive Program—is still a useful approach to understanding Comecon activities. Comecon remained in fact a mixed system, combining elements of both plan and market economies
. Although official rhetoric emphasized regional planning
, it must be remembered that intra-Comecon relations continued to be conducted among national entities not governed by any supranational authority. They thus interacted on a decentralized basis according to terms negotiated in bilateral
and multilateral
agreements on trade
and cooperation.
economy, that intra-Comecon trade was dominated by exchanges between the Soviet Union and the other members. Exchanges of Soviet fuel
s and raw material
s for capital good
s and manufactured items for consumer
consumption had characterized trade, particularly among the original members. The liquidity
shortage in the early 1980s forced the Europe
an Comecon countries to work to strengthen the importance of intraregional trade. In the early 1980s, intraregional trade rose to 60 % of foreign trade of Comecon countries as a whole; for individual members it ranged from 45 to 50 % in the case of Hungary
, Romania
, and the Soviet Union, to 83 % for Cuba
and 96 % for Mongolia
.
Trade among the members was negotiated on an annual basis and in considerable detail at the government
al level and was then followed up by interenterprise contract
s. Early Comecon efforts to facilitate trade among members concentrated on development of uniform technical
, legal
, and statistical
standards and on encouragement of long-term trade agreements. The 1971 Comprehensive Program sought to liberalize the system somewhat by recommending broad limits to "fixed-quota" trade among members (trade subject to quantitative
or value targets set by bilateral trade agreements). Section VI, Paragraph 19 of the Comprehensive Program affirms that "mutual trade in commodities for which no quotas were established shall be carried on beginning in 1971 with a view to stimulating the development of trade turnover, through expansion of the range and assortment of traded commodities, and to making trade in these commodities
more brisk." Later in the same paragraph the Comprehensive Program called on members to "seek opportunities to develop the export and import of quota- free commodities and to create conditions essential for trade in such commodities." There was no evidence, however, that this appeal has had significant effect or that quota-free trade has grown in importance under the program.
s. Administratively
set prices, such as those used in intra-Comecon trade, did not reflect cost
s or relative scarcities
of inputs and outputs. For this reason, intra-Comecon trade has been based on world market prices. By 1971 a price system governing exchanges among members had developed, under which prices agreed on through negotiation were fixed for five-year periods (corresponding to those of the synchronized
, five-year plans of the members). These contract prices were based on adjusted world market prices averaged over the immediately preceding five years; that is, a world-price base was used as the starting point for negotiation
. Under this system, therefore, intra-Comecon prices could and did depart substantially from relative prices on world markets.
Although the possibility of breaking this tenuous link with world prices and developing an indigenous system of prices for the Comecon market had been discussed in the 1960s, the evolution of Comecon prices after 1971 went in the opposite direction. Far from a technical or academic matter, the question of prices underlaid vital issues of the terms of, and hence gains from, intra-Comecon trade. In particular, relative to actual world
prices, intra-Comecon prices in the early 1970s penalized raw materials export
ers and benefited exporters of manufacturers
. After the oil
price explosion of 1973, Comecon foreign trade prices swung still further away from world prices to the disadvantage of Comecon suppliers of raw materials, in particular the Soviet Union. In view of the extraregional opportunities opened up by the expansion of East-West trade, this yawning gap between Comecon and world prices could no longer be ignored. Hence in 1975, at Soviet instigation, the system of intra-Comecon pricing was reform
ed.
The reform involved a substantial modification of existing procedures (known as the "Bucharest
formula," from the location of the 9th Council Session in 1958 at which it was adopted), but not their abandonment. Under the modified Bucharest formula (which remained in effect in late 1980s), prices were fixed every year and were based on a moving average
of world prices for the preceding five years. The world-price base of the Bucharest formula was thus retained and still represented an average (although now moving) of adjusted world prices for the preceding five years. For 1975 alone, however, the average was for the preceding three years. Under these arrangements, intra-Comecon prices were more closely linked with world prices than before and throughout the remainder of the 1970s rose with world prices, although with a lag. Until the early 1980s, this new system benefited both the Soviet Union and the other Comecon countries since Soviet oil, priced with the lagged formula, was considerably cheaper than Organization of Petroleum Exporting Countries (OPEC) oil, the price of which increased drastically in the 1970s. By 1983-84 this system turned to the Soviet Union's advantage because world market oil prices began to fall, whereas the lagged Soviet oil prices continued to rise.
s and comprehensive exchange controls that severely restricted the convertibility of members' currencies
.
These features were rooted in the planned character of the members' economies and their systems of administered prices. Currency inconvertibility in turn dictated bilateral balancing
of accounts, which has been one of the basic objectives of intergovernmental trade agreements among members. An earlier system of bilateral clearing accounts was replaced on January 1, 1964, by accounts with the International Bank for Economic Cooperation, using the transferable ruble
as the unit of account. Although the bank provided a centralized mechanism of trade accounting and swing credits to cover temporary imbalances, it could not establish a system of multilateral clearing given the centrally planned nature of the members' economies and the inconvertibility of their currencies. In 1987 the transferable ruble remained an artificial currency functioning as an accounting unit and was not a common instrument for multilateral settlement. For this reason, this currency continued to be termed "transferable" and not "convertible."
The member countries recognized that the multiplicity and inconsistency of their administered exchange rates, the separation of their domestic prices from foreign prices, and the inconvertibility of their currencies were significant obstacles to multilateral trade and cooperation. As of early 1987, Comecon lacked not only a flexible means of payment but also a meaningful, standard unit of account. Both problems have vastly complicated the already complex multilateral projects and programs envisaged by the Comprehensive Program. The creation in 1971 of the International Investment Bank provided a mechanism for joint investment financing, but, like the International Bank for Economic Cooperation, this institution could not by itself resolve these fundamental monetary problems.
Recognizing that money and credit should play a more active role in the Comecon system, the Comprehensive Program established a timetable for the improvement of monetary relations. According to the timetable, measures would be taken "to strengthen and extend" the functions of the "collective currency" (the transferable ruble), and the conditions would be studied and prepared "to make the transferable ruble convertible into national currencies and to make national currencies mutually convertible." To this end, steps would be taken to introduce "economically well-founded and mutually coordinated" rates of exchange between members' currencies and "between 1976 and 1979" to prepare the groundwork for the introduction by 1980 of a "single rate of exchange for the national currency of every country." This timetable was not met. Only in Hungary were the conditions for convertibility gradually being introduced by reforms intended to link domestic
prices more directly to world prices.
The coordination of national five-year economic plans was the most traditional form of cooperation among the members in the area of planning. Although the process of consultation underlying plan coordination remained essentially bilateral
, Comecon organs were indirectly involved. The standing commissions drew up proposals for consideration by competent, national planning bodies; the Secretariat assembled information on the results of bilateral consultations; and the Council Committee for Cooperation in Planning (created by Comecon in 1971 at the same session at which the Comprehensive Program was adopted) reviewed the progress of plan coordination by members.
In principle, plan coordination covered all economic sectors. Effective and comprehensive plan coordination has, however, been significantly impeded by the continued momentum of earlier parallel development strategies and the desire of members to minimize the risks of mutual dependence (especially given the uncertainties of supply that were characteristic of the members' economies). Plan coordination in practice, therefore, remained for the most part limited to mutual adjustment, through bilateral consultation, of the foreign trade sectors of national five-year plans. Under the Comprehensive Program, there were efforts to extend plan coordination beyond foreign trade to the spheres of production
, investment
, science, and technology.
of internal planning." Participating countries would, moreover, retain national ownership of the productive capacities and resources jointly planned. But "joint plans worked out by the member countries would be taken into account by them when drafting their long-term or five-year plans."
The Comprehensive Program did not clearly assign responsibility for joint planning to any single agency. On the one hand, "coordination of work concerned with joint planning shall be carried out by the central planning bodies of Comecon member countries or their authorized representatives." On the other hand, "decisions on joint, multilateral planning of chosen branches and lines of production by interested countries shall be based on proposals by countries or Comecon agencies and shall be made by the Comecon Executive Committee, which also determines the Comecon agencies responsible for the organization of such work." Finally, mutual commitments resulting from joint planning and other aspects of cooperation were to be incorporated in agreements signed by the interested parties.
It was extremely difficult to gauge the implementation of plan coordination or joint planning under the Comprehensive Program or to assess the activities of the diverse international economic organizations. There was no single, adequate measure of such cooperation. The only data on activities among the Comecon countries published by the annual Comecon yearbooks referred to merchandise trade, and these trade figures could not be readily associated with cooperative measures taken under the Comprehensive Program. Occasional official figures were published, however, on the aggregate
number of industrial specialization
and co-production agreements signed by members.
and development of natural resources for the economies of the member countries. Joint projects eased the investment burden on a single country when expansion of its production capacity was required to satisfy the needs of other members. Particular attention has been given to energy and fuels, forest industries, iron
and steel
, and various other metals and minerals. Most of this activity was carried out in the former Soviet Union, the great storehouse of natural resources within Comecon.
Joint development projects were usually organized on a "compensation" basis, a form of investment "in kind." Participating members advance materials, equipment and, more recently, manpower and were repaid through scheduled deliveries of the output resulting from, or distributed through, the new facility. Repayment included a modest "fraternal" rate of interest, but the real financial return to the participating countries depended on the value of the output at the time of delivery. Deliveries at contract prices below world prices would provide an important extra return. No doubt the most important advantage from participation in joint projects, however, was the guarantee of long-term access to basic fuels and raw materials in a world of increasing uncertainty of supply of such products.
project was the largest project under the Comprehensive Program. It was undertaken by all East European Comecon countries and the Soviet Union at an estimated cost ranging from the equivalent of US$5 billion to US$6 billion, or about half of the cost of all Comecon projects under the Concerted Plan. It consisted of a natural gas complex at Orenburg in western Siberia
and the 2,677-kilometer Union (Soiuz) natural-gas pipeline, completed in 1978, which links the complex to the western border of the Soviet Union. Construction of a pulp mill in Ust' Ilim (in central Siberia) was the other major project under this program.
These two projects differed from other joint Comecon investments projects in that they were jointly planned and jointly built in the host country (the Soviet Union in both cases). Although the other projects were jointly planned, each country was responsible only for construction within its own borders. Western technology, equipment, and financing played a considerable role. The Soviet Union owned the Orenburg complex and the Ust' Ilim installation and was repaying its East European co-investors at a 2 % interest rate with an agreed-upon amount of natural gas
and wood pulp
.
The early 1980s were characterized by more bilateral investment specialization but on a much smaller scale than required for the Orenburg and Ust' Ilim projects. In these latter projects, Eastern Europe provided machinery and equipment for Soviet multilateral resource development. Work also progressed on the previously mentioned Long-Term Target Programs for Cooperation.
s, document
s, and other scientific and technical information exchanges, the available data indicate that the Soviet Union has been the dominant source of technology within Comecon. It has, on the whole, provided more technology to its East European partners than it has received from them, although the balance varies considerably from country to country depending upon relative levels of industrial development. Soviet science also formed the base for several high-technology programs for regional specialization and cooperation, such as nuclear power
and computer
s (see ES EVM
).
The Comprehensive Program for Scientific and Technical Progress up to the Year 2000, adopted in December 1985, has boosted cooperation in science and technology in the late 1980s. The program set forth 93 projects and 800 subprojects within 5 broad areas of development. A Soviet ministry supervised each of the areas and was responsible for the technical level and quality of output, compliance with research and production schedules, costs, and sales. Each project was headed by a Soviet organization, which awarded contracts to other Comecon-member organizations. The Soviet project heads, who were not be responsible to domestic planners, had extensive executive powers of their own and will closely supervise all activities. The program represented a fundamentally new approach to multilateral collaboration and a first step toward investing Comecon with some supranational authority.
n workers aiding in the exploitation of Siberian forest resources, Polish
workers assisting in the construction of the Union pipeline, or Vietnam
ese workers helping on the Friendship pipeline in the Soviet Union. Labor was also transferred in response to labor imbalances in member countries. Hungarian workers, for example, were sent to work in East Germany under a bilateral agreement between the two countries. Such transfers, however, are restricted by the universal scarcity of labor that has emerged with the industrialization of the less developed Comecon countries. Moreover the presence of foreign workers has raised practical and ideological issues in socialist planned economies. It should be noted, finally, that cooperation in the area of labor has been by no means limited to planned exchanges of manpower. Comecon countries have exchanged information on experience in manpower planning and employment
and wage policies through Comecon organs and activities.
for technological advancement put Comecon in a very dangerous position because it pulled the East European members further away from the Soviet Union and threatened to leave the entire organization at the mercy of the West. The purpose of the 1985 program was to offset centrifugal forces and reduce Comecon's vulnerability to "technological blackmail" through broadened mutual cooperation, increased efficiency of cooperation, and improved quality of output.
The success of the 1985 program would be closely tied to the success of Gorbachev's changes in the Soviet economy. Major projects for the 1986-90 period included a 5,600-kilometer natural-gas pipeline from the Yamburg Peninsula (in northern Siberia) to Eastern Europe; the Krivoy Rog (in the Ukraine
), a mining
and enrichment combine that would produce 13 million tons of iron ore annually; the production and exchange of 500 million rubles' worth (approximately US$650 million) of equipment for nuclear power plant
s; and joint projects for extracting coal
in Poland, magnesite
in Czechoslovakia
, nickel
in Cuba, and nonferrous metal
s in Mongolia.
Comecon
The Council for Mutual Economic Assistance , 1949–1991, was an economic organisation under hegemony of Soviet Union comprising the countries of the Eastern Bloc along with a number of communist states elsewhere in the world...
activity until 1990. The distinction between "market" relations and "planned" relations—made in the discussions within Comecon prior to the adoption of the 1971 Comprehensive Program—is still a useful approach to understanding Comecon activities. Comecon remained in fact a mixed system, combining elements of both plan and market economies
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...
. Although official rhetoric emphasized regional planning
Regional planning
Regional planning deals with the efficient placement of land use activities, infrastructure, and settlement growth across a larger area of land than an individual city or town. The related field of urban planning deals with the specific issues of city planning...
, it must be remembered that intra-Comecon relations continued to be conducted among national entities not governed by any supranational authority. They thus interacted on a decentralized basis according to terms negotiated in bilateral
Bilateralism
Bilateralism consists of the political, economic, or cultural relations between two sovereign states. For example, free trade agreements signed by two states are examples of bilateral treaties. It is in contrast to unilateralism or multilateralism, which refers to the conduct of diplomacy by a...
and multilateral
Multilateralism
Multilateralism is a term in international relations that refers to multiple countries working in concert on a given issue.International organizations, such as the United Nations and the World Trade Organization are multilateral in nature...
agreements on trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
and cooperation.
Market relations and instruments
It is not surprising, given the size of the SovietSoviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
economy, that intra-Comecon trade was dominated by exchanges between the Soviet Union and the other members. Exchanges of Soviet fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
s and raw material
Material
Material is anything made of matter, constituted of one or more substances. Wood, cement, hydrogen, air and water are all examples of materials. Sometimes the term "material" is used more narrowly to refer to substances or components with certain physical properties that are used as inputs to...
s for capital good
Capital good
A capital good, or simply capital in economics, is a manufactured means of production. Capital goods are acquired by a society by saving wealth which can be invested in the means of production....
s and manufactured items for consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
consumption had characterized trade, particularly among the original members. The liquidity
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
shortage in the early 1980s forced the Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an Comecon countries to work to strengthen the importance of intraregional trade. In the early 1980s, intraregional trade rose to 60 % of foreign trade of Comecon countries as a whole; for individual members it ranged from 45 to 50 % in the case of Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
, and the Soviet Union, to 83 % for Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...
and 96 % for Mongolia
Mongolia
Mongolia is a landlocked country in East and Central Asia. It is bordered by Russia to the north and China to the south, east and west. Although Mongolia does not share a border with Kazakhstan, its western-most point is only from Kazakhstan's eastern tip. Ulan Bator, the capital and largest...
.
Trade among the members was negotiated on an annual basis and in considerable detail at the government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
al level and was then followed up by interenterprise contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s. Early Comecon efforts to facilitate trade among members concentrated on development of uniform technical
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
, legal
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, and statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
standards and on encouragement of long-term trade agreements. The 1971 Comprehensive Program sought to liberalize the system somewhat by recommending broad limits to "fixed-quota" trade among members (trade subject to quantitative
Quantity
Quantity is a property that can exist as a magnitude or multitude. Quantities can be compared in terms of "more" or "less" or "equal", or by assigning a numerical value in terms of a unit of measurement. Quantity is among the basic classes of things along with quality, substance, change, and relation...
or value targets set by bilateral trade agreements). Section VI, Paragraph 19 of the Comprehensive Program affirms that "mutual trade in commodities for which no quotas were established shall be carried on beginning in 1971 with a view to stimulating the development of trade turnover, through expansion of the range and assortment of traded commodities, and to making trade in these commodities
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
more brisk." Later in the same paragraph the Comprehensive Program called on members to "seek opportunities to develop the export and import of quota- free commodities and to create conditions essential for trade in such commodities." There was no evidence, however, that this appeal has had significant effect or that quota-free trade has grown in importance under the program.
Prices
The 1971 Comprehensive Program also called for improvement in the Comecon system of foreign trade pricePrice
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
s. Administratively
Administration (government)
The term administration, as used in the context of government, differs according to jurisdiction.-United States:In United States usage, the term refers to the executive branch under a specific president , for example: the "Barack Obama administration." It can also mean an executive branch agency...
set prices, such as those used in intra-Comecon trade, did not reflect cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s or relative scarcities
Scarcity
Scarcity is the fundamental economic problem of having humans who have unlimited wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. Alternatively, scarcity implies that not all of society's goals can be...
of inputs and outputs. For this reason, intra-Comecon trade has been based on world market prices. By 1971 a price system governing exchanges among members had developed, under which prices agreed on through negotiation were fixed for five-year periods (corresponding to those of the synchronized
Synchronization
Synchronization is timekeeping which requires the coordination of events to operate a system in unison. The familiar conductor of an orchestra serves to keep the orchestra in time....
, five-year plans of the members). These contract prices were based on adjusted world market prices averaged over the immediately preceding five years; that is, a world-price base was used as the starting point for negotiation
Negotiation
Negotiation is a dialogue between two or more people or parties, intended to reach an understanding, resolve point of difference, or gain advantage in outcome of dialogue, to produce an agreement upon courses of action, to bargain for individual or collective advantage, to craft outcomes to satisfy...
. Under this system, therefore, intra-Comecon prices could and did depart substantially from relative prices on world markets.
Although the possibility of breaking this tenuous link with world prices and developing an indigenous system of prices for the Comecon market had been discussed in the 1960s, the evolution of Comecon prices after 1971 went in the opposite direction. Far from a technical or academic matter, the question of prices underlaid vital issues of the terms of, and hence gains from, intra-Comecon trade. In particular, relative to actual world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
prices, intra-Comecon prices in the early 1970s penalized raw materials export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
ers and benefited exporters of manufacturers
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
. After the oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
price explosion of 1973, Comecon foreign trade prices swung still further away from world prices to the disadvantage of Comecon suppliers of raw materials, in particular the Soviet Union. In view of the extraregional opportunities opened up by the expansion of East-West trade, this yawning gap between Comecon and world prices could no longer be ignored. Hence in 1975, at Soviet instigation, the system of intra-Comecon pricing was reform
Reform
Reform means to put or change into an improved form or condition; to amend or improve by change of color or removal of faults or abuses, beneficial change, more specifically, reversion to a pure original state, to repair, restore or to correct....
ed.
The reform involved a substantial modification of existing procedures (known as the "Bucharest
Bucharest
Bucharest is the capital municipality, cultural, industrial, and financial centre of Romania. It is the largest city in Romania, located in the southeast of the country, at , and lies on the banks of the Dâmbovița River....
formula," from the location of the 9th Council Session in 1958 at which it was adopted), but not their abandonment. Under the modified Bucharest formula (which remained in effect in late 1980s), prices were fixed every year and were based on a moving average
Average
In mathematics, an average, or central tendency of a data set is a measure of the "middle" value of the data set. Average is one form of central tendency. Not all central tendencies should be considered definitions of average....
of world prices for the preceding five years. The world-price base of the Bucharest formula was thus retained and still represented an average (although now moving) of adjusted world prices for the preceding five years. For 1975 alone, however, the average was for the preceding three years. Under these arrangements, intra-Comecon prices were more closely linked with world prices than before and throughout the remainder of the 1970s rose with world prices, although with a lag. Until the early 1980s, this new system benefited both the Soviet Union and the other Comecon countries since Soviet oil, priced with the lagged formula, was considerably cheaper than Organization of Petroleum Exporting Countries (OPEC) oil, the price of which increased drastically in the 1970s. By 1983-84 this system turned to the Soviet Union's advantage because world market oil prices began to fall, whereas the lagged Soviet oil prices continued to rise.
Exchange rates and currencies
Basic features of the state trading systems of the Comecon countries were multiple exchange rateExchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
s and comprehensive exchange controls that severely restricted the convertibility of members' currencies
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
.
These features were rooted in the planned character of the members' economies and their systems of administered prices. Currency inconvertibility in turn dictated bilateral balancing
Balance (accounting)
In banking and accountancy, the outstanding balance is the amount of money owed, , that remains in a deposit account at a given date, after all past remittances, payments and withdrawal have been accounted for. It can be positive or negative ....
of accounts, which has been one of the basic objectives of intergovernmental trade agreements among members. An earlier system of bilateral clearing accounts was replaced on January 1, 1964, by accounts with the International Bank for Economic Cooperation, using the transferable ruble
Soviet ruble
The Soviet ruble or rouble was the currency of the Soviet Union. One ruble is divided into 100 kopeks, ....
as the unit of account. Although the bank provided a centralized mechanism of trade accounting and swing credits to cover temporary imbalances, it could not establish a system of multilateral clearing given the centrally planned nature of the members' economies and the inconvertibility of their currencies. In 1987 the transferable ruble remained an artificial currency functioning as an accounting unit and was not a common instrument for multilateral settlement. For this reason, this currency continued to be termed "transferable" and not "convertible."
The member countries recognized that the multiplicity and inconsistency of their administered exchange rates, the separation of their domestic prices from foreign prices, and the inconvertibility of their currencies were significant obstacles to multilateral trade and cooperation. As of early 1987, Comecon lacked not only a flexible means of payment but also a meaningful, standard unit of account. Both problems have vastly complicated the already complex multilateral projects and programs envisaged by the Comprehensive Program. The creation in 1971 of the International Investment Bank provided a mechanism for joint investment financing, but, like the International Bank for Economic Cooperation, this institution could not by itself resolve these fundamental monetary problems.
Recognizing that money and credit should play a more active role in the Comecon system, the Comprehensive Program established a timetable for the improvement of monetary relations. According to the timetable, measures would be taken "to strengthen and extend" the functions of the "collective currency" (the transferable ruble), and the conditions would be studied and prepared "to make the transferable ruble convertible into national currencies and to make national currencies mutually convertible." To this end, steps would be taken to introduce "economically well-founded and mutually coordinated" rates of exchange between members' currencies and "between 1976 and 1979" to prepare the groundwork for the introduction by 1980 of a "single rate of exchange for the national currency of every country." This timetable was not met. Only in Hungary were the conditions for convertibility gradually being introduced by reforms intended to link domestic
Domestic policy
Domestic policy, also known as public policy, presents decisions, laws, and programs made by the government which are directly related to all issues and activity within the country....
prices more directly to world prices.
Cooperation in planning
If countries are to gain from trade, that trade must be based on rational production structures reflecting resource scarcities. Since the early 1960s, official Comecon documents have stressed the need to promote among members' economies a more cost-effective pattern of specialization in production. This "international socialist division of labor" would, especially in the manufacturing sector, involve specialization within major branches of industry. In the absence of significant, decentralized allocation of resources within these economies, however, production specialization can be brought about only through the mechanism of the national plan and the investment decisions incorporated in it. In the absence at the regional level of supranational planning bodies, a rational pattern of production specialization among members' economies required coordination of national economic plans, a process that was not merely technical but also posed inescapable political problems.The coordination of national five-year economic plans was the most traditional form of cooperation among the members in the area of planning. Although the process of consultation underlying plan coordination remained essentially bilateral
Bilateralism
Bilateralism consists of the political, economic, or cultural relations between two sovereign states. For example, free trade agreements signed by two states are examples of bilateral treaties. It is in contrast to unilateralism or multilateralism, which refers to the conduct of diplomacy by a...
, Comecon organs were indirectly involved. The standing commissions drew up proposals for consideration by competent, national planning bodies; the Secretariat assembled information on the results of bilateral consultations; and the Council Committee for Cooperation in Planning (created by Comecon in 1971 at the same session at which the Comprehensive Program was adopted) reviewed the progress of plan coordination by members.
In principle, plan coordination covered all economic sectors. Effective and comprehensive plan coordination has, however, been significantly impeded by the continued momentum of earlier parallel development strategies and the desire of members to minimize the risks of mutual dependence (especially given the uncertainties of supply that were characteristic of the members' economies). Plan coordination in practice, therefore, remained for the most part limited to mutual adjustment, through bilateral consultation, of the foreign trade sectors of national five-year plans. Under the Comprehensive Program, there were efforts to extend plan coordination beyond foreign trade to the spheres of production
Production, costs, and pricing
The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...
, investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
, science, and technology.
Plan coordination
According to the 1971 Comprehensive Program, joint planning — multilateral or bilateral — was to be limited to "interested countries and was "not to interfere with the autonomyAutonomy
Autonomy is a concept found in moral, political and bioethical philosophy. Within these contexts, it is the capacity of a rational individual to make an informed, un-coerced decision...
of internal planning." Participating countries would, moreover, retain national ownership of the productive capacities and resources jointly planned. But "joint plans worked out by the member countries would be taken into account by them when drafting their long-term or five-year plans."
The Comprehensive Program did not clearly assign responsibility for joint planning to any single agency. On the one hand, "coordination of work concerned with joint planning shall be carried out by the central planning bodies of Comecon member countries or their authorized representatives." On the other hand, "decisions on joint, multilateral planning of chosen branches and lines of production by interested countries shall be based on proposals by countries or Comecon agencies and shall be made by the Comecon Executive Committee, which also determines the Comecon agencies responsible for the organization of such work." Finally, mutual commitments resulting from joint planning and other aspects of cooperation were to be incorporated in agreements signed by the interested parties.
It was extremely difficult to gauge the implementation of plan coordination or joint planning under the Comprehensive Program or to assess the activities of the diverse international economic organizations. There was no single, adequate measure of such cooperation. The only data on activities among the Comecon countries published by the annual Comecon yearbooks referred to merchandise trade, and these trade figures could not be readily associated with cooperative measures taken under the Comprehensive Program. Occasional official figures were published, however, on the aggregate
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
number of industrial specialization
Departmentalization
Departmentalization refers to the process of grouping activities into departments.Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments....
and co-production agreements signed by members.
Joint projects
The clearest area of achievement under the Comprehensive Program has been the joint exploitationExploitation
This article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
and development of natural resources for the economies of the member countries. Joint projects eased the investment burden on a single country when expansion of its production capacity was required to satisfy the needs of other members. Particular attention has been given to energy and fuels, forest industries, iron
Iron
Iron is a chemical element with the symbol Fe and atomic number 26. It is a metal in the first transition series. It is the most common element forming the planet Earth as a whole, forming much of Earth's outer and inner core. It is the fourth most common element in the Earth's crust...
and steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
, and various other metals and minerals. Most of this activity was carried out in the former Soviet Union, the great storehouse of natural resources within Comecon.
Joint development projects were usually organized on a "compensation" basis, a form of investment "in kind." Participating members advance materials, equipment and, more recently, manpower and were repaid through scheduled deliveries of the output resulting from, or distributed through, the new facility. Repayment included a modest "fraternal" rate of interest, but the real financial return to the participating countries depended on the value of the output at the time of delivery. Deliveries at contract prices below world prices would provide an important extra return. No doubt the most important advantage from participation in joint projects, however, was the guarantee of long-term access to basic fuels and raw materials in a world of increasing uncertainty of supply of such products.
Concerted Plan
The multilateral development projects concluded under the Comprehensive Program formed the backbone of Comecon's Concerted Plan for the 1976-80 period. The program allotted 9 billion rubles (nearly US$12 billion at the official 1975 exchange rate of US$1.30 per ruble) for joint investments. The OrenburgOrenburg
Orenburg is a city on the Ural River and the administrative center of Orenburg Oblast, Russia. It lies southeast of Moscow, very close to the border with Kazakhstan. Population: 546,987 ; 549,361 ; Highest point: 154.4 m...
project was the largest project under the Comprehensive Program. It was undertaken by all East European Comecon countries and the Soviet Union at an estimated cost ranging from the equivalent of US$5 billion to US$6 billion, or about half of the cost of all Comecon projects under the Concerted Plan. It consisted of a natural gas complex at Orenburg in western Siberia
Siberia
Siberia is an extensive region constituting almost all of Northern Asia. Comprising the central and eastern portion of the Russian Federation, it was part of the Soviet Union from its beginning, as its predecessor states, the Tsardom of Russia and the Russian Empire, conquered it during the 16th...
and the 2,677-kilometer Union (Soiuz) natural-gas pipeline, completed in 1978, which links the complex to the western border of the Soviet Union. Construction of a pulp mill in Ust' Ilim (in central Siberia) was the other major project under this program.
These two projects differed from other joint Comecon investments projects in that they were jointly planned and jointly built in the host country (the Soviet Union in both cases). Although the other projects were jointly planned, each country was responsible only for construction within its own borders. Western technology, equipment, and financing played a considerable role. The Soviet Union owned the Orenburg complex and the Ust' Ilim installation and was repaying its East European co-investors at a 2 % interest rate with an agreed-upon amount of natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
and wood pulp
Wood pulp
Pulp is a lignocellulosic fibrous material prepared by chemically or mechanically separating cellulose fibres from wood, fibre crops or waste paper. Wood pulp is the most common raw material in papermaking.-History:...
.
The early 1980s were characterized by more bilateral investment specialization but on a much smaller scale than required for the Orenburg and Ust' Ilim projects. In these latter projects, Eastern Europe provided machinery and equipment for Soviet multilateral resource development. Work also progressed on the previously mentioned Long-Term Target Programs for Cooperation.
Cooperation in science and technology
To supplement national efforts to upgrade indigenous technology, the 1971 Comprehensive Program emphasized cooperation in science and technology. The development of new technology was envisaged as a major object of cooperation; collaboration in resource development and specialization in production were to be facilitated by transfers of technology between members. The 1971 Comecon session, which adopted the Comprehensive Program, decided to establish the Special Council Committee for Scientific and Technical Cooperation to ensure the organization and fulfillment of the provisions of the program in this area. Jointly planned and coordinated research programs have extended to the creation of joint research institutes and centers. In terms of number of patentPatent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
s, document
Document
The term document has multiple meanings in ordinary language and in scholarship. WordNet 3.1. lists four meanings :* document, written document, papers...
s, and other scientific and technical information exchanges, the available data indicate that the Soviet Union has been the dominant source of technology within Comecon. It has, on the whole, provided more technology to its East European partners than it has received from them, although the balance varies considerably from country to country depending upon relative levels of industrial development. Soviet science also formed the base for several high-technology programs for regional specialization and cooperation, such as nuclear power
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
and computer
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
s (see ES EVM
ES EVM
ES EVM was a series of clones of IBM's System/360 and System/370 mainframes, released in the Comecon countries under the initiative of the Soviet Union since the 1960s. Production continued until 1998...
).
The Comprehensive Program for Scientific and Technical Progress up to the Year 2000, adopted in December 1985, has boosted cooperation in science and technology in the late 1980s. The program set forth 93 projects and 800 subprojects within 5 broad areas of development. A Soviet ministry supervised each of the areas and was responsible for the technical level and quality of output, compliance with research and production schedules, costs, and sales. Each project was headed by a Soviet organization, which awarded contracts to other Comecon-member organizations. The Soviet project heads, who were not be responsible to domestic planners, had extensive executive powers of their own and will closely supervise all activities. The program represented a fundamentally new approach to multilateral collaboration and a first step toward investing Comecon with some supranational authority.
Labor resources
Just as the 1971 Comprehensive Program stimulated investment flows and technology transfers among members, it also increased intra-Comecon flows of another important factor of production: labor. Most of the transfers occurred in connection with joint resource development projects, e.g., BulgariaBulgaria
Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east...
n workers aiding in the exploitation of Siberian forest resources, Polish
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
workers assisting in the construction of the Union pipeline, or Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
ese workers helping on the Friendship pipeline in the Soviet Union. Labor was also transferred in response to labor imbalances in member countries. Hungarian workers, for example, were sent to work in East Germany under a bilateral agreement between the two countries. Such transfers, however, are restricted by the universal scarcity of labor that has emerged with the industrialization of the less developed Comecon countries. Moreover the presence of foreign workers has raised practical and ideological issues in socialist planned economies. It should be noted, finally, that cooperation in the area of labor has been by no means limited to planned exchanges of manpower. Comecon countries have exchanged information on experience in manpower planning and employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
and wage policies through Comecon organs and activities.
Changes in the mid-1980s
By 1987 Comecon's Comprehensive Program, adopted in 1971, had undergone considerable change. Multilateral planning faded into traditional bilateral cooperation, and the Bucharest formula for prices assumed a revised form. The 1985 Comprehensive Program for the Development of Science and Technology or, as some Western analysts call it, the "Gorbachev Charter," was Comecon's new blueprint for taking a firm grip on its future. Experience in the early 1980s showed that turning to the West and JapanJapan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
for technological advancement put Comecon in a very dangerous position because it pulled the East European members further away from the Soviet Union and threatened to leave the entire organization at the mercy of the West. The purpose of the 1985 program was to offset centrifugal forces and reduce Comecon's vulnerability to "technological blackmail" through broadened mutual cooperation, increased efficiency of cooperation, and improved quality of output.
The success of the 1985 program would be closely tied to the success of Gorbachev's changes in the Soviet economy. Major projects for the 1986-90 period included a 5,600-kilometer natural-gas pipeline from the Yamburg Peninsula (in northern Siberia) to Eastern Europe; the Krivoy Rog (in the Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
), a mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...
and enrichment combine that would produce 13 million tons of iron ore annually; the production and exchange of 500 million rubles' worth (approximately US$650 million) of equipment for nuclear power plant
Nuclear power plant
A nuclear power plant is a thermal power station in which the heat source is one or more nuclear reactors. As in a conventional thermal power station the heat is used to generate steam which drives a steam turbine connected to a generator which produces electricity.Nuclear power plants are usually...
s; and joint projects for extracting coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
in Poland, magnesite
Magnesite
Magnesite is magnesium carbonate, MgCO3. Iron substitutes for magnesium with a complete solution series with siderite, FeCO3. Calcium, manganese, cobalt, and nickel may also occur in small amounts...
in Czechoslovakia
Czechoslovakia
Czechoslovakia or Czecho-Slovakia was a sovereign state in Central Europe which existed from October 1918, when it declared its independence from the Austro-Hungarian Empire, until 1992...
, nickel
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
in Cuba, and nonferrous metal
Metal
A metal , is an element, compound, or alloy that is a good conductor of both electricity and heat. Metals are usually malleable and shiny, that is they reflect most of incident light...
s in Mongolia.