Industrialized Eastern Europe is discovering that it no longer is immune to the economic ills that afflict its capitalist neighbors. The impact of higher oil prices, increasingly unresponsive economies, and even inflation are leaving their mark.
Foreign debts are soaring and so is the requirement for Western technology.
"No Eastern European country can meet the goals set out in its five-year plan without Western invesment and technology," says one U.S. banker.
Soviet officials are quick to point out that a two-way street is involved, with Western industry and agriculture in need of the markets that the East has to offer.
Yet, that Western technological "fix" has become tied up with the East's burgeoning debt and the imponderables of politics as demonstrated by the freeze on detente during the American election campaign.
Western banking sources say that the cumulative debt to the West of members of the Council for Mutual Economic Assistance (Comecon) stood close to $40 billion by the end of 1976.One of the most worrisome problems for Western analysts is shortterm debt, which totals more than $5 billion at high rates of interest. Preliminary estimates of the needs of Comecon members show a potential increase to about $60 billion by 1980, without accounting for such unknowns as the two disastrous harvests that struck the Soviet Union during the 1970-75 plan period.
The ability to pay off this debt has begun to worry some Western bankers, particularly the West Germans, who hold the biggest proportion (about 25 per cent) of the Eastern debt.
The whole situation has led to what one U.S. analyst calls a treadmill effect, particularly for some Eastern European countries.
The situation in Poland, while extreme because it is so politically volatile, provides a good example.
By mid-year, the Poles had been hit with a double problem of harvest difficulties and declining exports, partly because of the economic recession in the West. Coal exports, a major foreign-exchange earner for Poland, ran considerably below expectations for the first six months of 1976. Although there was a good winter harvest, summer crops were down and food imports increased, depleting foreign exchange and adding to a foreign debt approaching $10 billion. All this came on top of price increases imposed by the Soviets on all East European countries in 1975 for raw materials, reflecting the impact of inflation in the West and the sharp increase in world oil prices.
Poland's labor force has enjoyed a significant growth in average incomes - about 40 per cent since 1971 - and the availability of consumer goods also has increased markedly. The Polish worker was being paid and rewarded with material goods as an incentive to more efficient production.
The middle of 1976 brought a squeeze, however, and the answer the Polish government came up with was to raise prices. The response was violent rioting, similar to that which brought down Wladislaw Gomulka in 1970, and Gomulka's successor. Edward Gierek, quickly rescinded the increases.
Ultimately, it was Moscow that came to the aid of the Polish government. Although none too happy with the obvious differences in living standards between the Soviets and the Eastern Europeans, Soviet leader Leonid Brezhnev and his colleagues apparently decided stability in Eastern Europe was a more overriding concern. The result was an aid package valued at $1.3 billion that includes a large credit for Soviet food, raw materials, capital equipment and finished goods.Some oil shipments apparently are included, according to well-informed sources. Poland will repay through shipments of finished goods to the Soviets.
The solution to the immediate problem, however, shows the treadmill effect of longer-range issues of industrial development in Eastern Europe:
By borrowing from Moscow, Poland relieves immediate pressures and gets raw materials for which it otherwise might have had to pay hard currency. Available hard currency can go to repay the existing debt, but the finished products that could have gone to the West as hard-currency earners now must go to Moscow. What's more, there still is need for investment and plant from the West, and the impact on the labor force remains uncertain.
Moscow, by shipping more raw materials to Poland, loses the option of selling those raw materials at higher world prices in Western Europe or japan. While the Soviet debt position is not viewed as seriously as that of several Eastern European countries, Moscow, too, needs hard currency, and its raw material exports are the way to get them.As one analyst put it, every barrel of oil that goes to East Germany means that many fewer deutschemarks from West Germany. Czechoslovakian leaders reported toward the end of the year that there were considerable delays and shortages in the energy sector. There are signs that the Soviets no longer are meeting Czechoslovakia's full energy needs, forcing Prague to turn to the much more expensive world market.
Like Poland and East Germany, Czechoslovakia also is turning increasingly to the world market for food. Total food imports for these three countries have risen steadily from 9.4 million tons in 1973-74 to 11.9 million in 1975-6 to an anticipated 13.5 million tons in 1976-77, according to U.S. figures. Hungary alone of the more advanced Eastern European countries generally meets its own food needs and has some leftover for exports. But it, too, was affected by last summer's drought.
Soviet economic planners, meanwhile, have found that the weather - the factor that defies control - makes a major difference. Performance on the last five-year plan fell below expectations, with at least some of the blame going to the disastrous 1972 and 1975 crop years. Production for 1976 was around 220 million tons - a very comforting figure for Moscow - but did not come in time to save Moscow money on agricultural imports. Figures for the period from October 1975 to September 1976 show that Moscow imported 26 million tons of grains at an average purchase price of $150 per ton. This meant that there was a foreign exchange outlay of almost $4 billion, not counting shipping expenses and the considerable cost and disruption to the domestic transportation system to move the grains from the ports.
Faced with the food shortages, the Soviets set a very modest goal of a 4.3 per cent increase in industrial output for last year. They were running slightly ahead of that rate, according to latest available figures. This year's plan, bolstered by the good harvest, raises the goal to 5.6 per cent, but Western analysts believe that the five-year plan adopted this year generally forecasts a slowdown in the Soviet Union's rush toward economic parity with the industrialized West and Japan.
While the Soviet planners anticipate significant advances in agricultural and industrial output over the five years from 1976 to 1980, Western analysts have noted that the projected rate of capital investment drops behind the expected advances in national income. Because the Soviet labor force is growing very slowly - and is expected to peak by about 1980 - the Soviet planners must be anticipating more efficient production to reach their goals.
"If capital investment grows less than national income, and the labor force slows, productivity will have to increase very fast - faster than they have been able to do it in the past," one expert said.