Comecon Totally Explained

Everything about Comecon totally explained

The Council for Mutual Economic Assistance (COMECON / Comecon / CMEA / CAME / COMMIECON),, 1949 – 1991, was an economic organization of communist states and a kind of Eastern Bloc equivalent to—but more geographically inclusive than—the European Economic Community. The military equivalent to the Comecon was the Warsaw Pact, though Comecon's membership was significantly wider.
   The descriptive term Comecon was often applied to all multilateral activities involving members of the organization, rather than being restricted to the direct functions of Comecon and its organs. This usage was sometimes extended as well to bilateral relations among members, because in the system of socialist international economic relations, multilateral accords — typically of a general nature — tended to be implemented through a set of more detailed, bilateral agreements. Czechoslovakia, Hungary, and Poland had remained interested in Marshall aid despite the requirements for a convertible currency and market economies. These requirements, which would inevitably have resulted in stronger economic ties to Western Europe than to the Soviet Union, were absolutely unacceptable to Stalin, who in July 1947, ordered these communist-dominated governments to pull out of the Paris Conference on the European Recovery Programme. This has been described as "the moment of truth" in the post-World War II division of Europe.
   However, as always, Stalin's precise motives are "inscrutable" They may well have been "more negative than positive", with Stalin "more anxious to keep other powers out of neighbouring buffer states… than to integrate them." Furthermore, GATT's notion of nondiscriminatory treatment of trade partners was incompatible with notions of socialist solidarity. In any event, proposals for a customs union and economic integration of East Central Europe date back at least to the Revolutions of 1848 (although many earlier proposals had been intended to stave off the Russian and/or communist "menace") and the state-to-state trading inherent in centrally planned economies required some sort of coordination: otherwise, a monopolist seller would face a monopsonist buyer, with no structure to set prices.
   Comecon was established at a Moscow economic conference 5 January–8 January, 1949, at which the six founding member countries were represented; its foundation was publicly announced on 25 January; Albania joined a month later and East Germany in 1950.
   At first, planning seemed to be moving along rapidly. After pushing aside Nikolai Voznesensky's technocratic, price-based approach (see further discussion below), the direction appeared to be toward a coordination of national economic plans, but with no coercive authority from Comecon itself. All decisions would require unanimous ratification, and even then governments would separately translate these into policy. Then in summer 1950, probably unhappy with the favorable implications for the effective individual and collective sovereignty of the smaller states, Stalin "seems to have taken [Comecon's] personnel by surprise," bringing operations to a nearly complete halt, as the Soviet Union moved domestically toward autarky and internationally toward an "embassy system of meddling in other countries' affairs directly" rather than by "constitutional means". Comecon's scope was officially limited in November 1950 to "practical questions of facilitating trade."
   One important legacy of this brief period of activity was the Sofia principle, adopted at the August 1949 Comecon council session in Bulgaria. This radically weakened intellectual property rights, making each country's technologies available to the others for a nominal charge that did little more than cover the cost of documentation. This, naturally, benefited the less industrialized Comecon countries, and especially the technologically lagging Soviet Union, at the expense of East Germany and Czechoslovakia and, to a lesser extent, Hungary and Poland. (This principle would weaken after 1968, as it became clear that it discouraged new research—and as the Soviet Union itself began to have more marketable technologies.)

The Khrushchev era

After Stalin's death in 1953, Comecon again began to find its footing. In the early 1950s, all Comecon countries had adopted relatively autarkic policies; now they began again to discuss developing complementary specialties, and in 1956, ten permanent standing committees arose, intended to facilitate coordination in these matters. The Soviet Union began to trade oil for Comecon manufactured goods. There was much discussion of coordinating five-year plans.
However, once again, trouble arose. The Polish protests and Hungarian uprising led to major social and economic changes, including the 1957 abandonment of the 1956-1960 Soviet five-year plan, as the Comecon governments struggled to reestablish their legitimacy and popular support. The next few years saw a series of small steps toward increased trade and economic integration, including the introduction of the "transferable rouble", revised efforts at national specialization, and a 1959 charter modeled after the 1957 Treaty of Rome.
Once again, however, efforts at transnational central planning failed. In December 1961, a council session approved the Basic Principles of the International Socialist Division of Labour, which talked of closer coordination of plans and of "concentrating production of similar products in one or several socialist countries." In November 1962, Soviet Premier Nikita Khrushchev followed this up with a call for "a common single planning organ." This was resisted by Czechoslovakia, Hungary, and Poland, but most emphatically by increasingly nationalistic Romania, which strongly rejected the notion that they should specialize in agriculture. In Eastern Europe, only Bulgaria happily took on an assigned role (also agricultural, but in Bulgaria's case this had been the country's chosen direction even as an independent country in the 1930s). Essentially, by the time the Soviet Union was calling for tight economic integration, they no longer had the power to impose it. Despite some slow headway—integration increased in petroleum, electricity, and other technical/scientific sectors—and the 1963 founding of an International Bank for Economic Co-operation, the Eastern European Comecon countries all increased trade with the West relatively more than with one another.

The Brezhnev era

From its founding until 1967, Comecon had operated only on the basis of unanimous agreements. It had become increasingly obvious that the result was usually failure. In 1967, Comecon adopted the "interested party principle", under which any country could opt out of any project they chose, still allowing the other member states to use Comecon mechanisms to coordinate their activities. In principle, a country could still veto, but the hope was that they'd typically choose just to step aside rather than either veto or be a reluctant participant. This aimed, at least in part, at allowing Romania to chart its own economic course without leaving Comecon entirely or bringing it to an impasse.
   Also until the late 1960s, the official term used to describe Comecon activities was cooperation. The term integration was always avoided because of its connotations of monopoly capitalist collusion. However, after the "special" council session of April 1969 and the development and adoption (in 1971) of the Comprehensive Program for the Further Extension and Improvement of Cooperation and the Further Development of Socialist Economic Integration by Comecon Member Countries, Comecon activities were officially termed integration (equalization of "differences in relative scarcities of goods and services between states through the deliberate elimination of barriers to trade and other forms of interaction"). Although such equalization hadn't been a pivotal point in the formation and implementation of Comecon's economic policies, improved economic integration had always been Comecon's goal.
   While such integration was to remain a goal, and while Bulgaria became yet more tightly integrated with the Soviet Union, progress in this direction was otherwise continually frustrated by the national central planning prevalent in all Comecon countries, by the increasing diversity of its members (which by this time included Mongolia and would soon include Cuba) and by the "overwhelming asymmetry" and resulting distrust between the many small member states and the Soviet "superstate" which, in 1983, "accounted for 88 percent of Comecon's territory and 60 percent of its population."
   In this period, there were some efforts to move away from central planning, by establishing intermediate industrial associations and combines in various countries (which were often empowered to negotiate their own international deals). However, these groupings typically proved "unwieldy, conservative, risk-averse, and bureaucratic," reproducing the problems they'd been intended to solve.
   One economic success of the 1970s was East European investment in developing Soviet oil fields. While doubtless "East Europeans resented having to defray some of the costs of developing the economy of their hated overlord and oppressor," they benefited from low prices for fuel and other mineral products. As a result, Comecon economies generally showed strong growth in the mid-1970s. They were largely unaffected by the 1973 oil crisis. Another short-term economic gain in this period was that détente brought opportunities for investment and technology transfers from the West. This also led to an importation of Western cultural attitudes, especially in Central Europe. However, many undertakings based on Western technology were less than successful (for example, Poland's Ursus tractor factory didn't do well with technology licensed from Massey Ferguson); other investment was wasted on luxuries for the party elite, and most Comecon countries ended up indebted to the West when capital flows died out as détente faded in the late 1970s, and from 1979 to 1983, all of Eastern Europe experienced a recession from which (with the possible exceptions of East Germany and Bulgaria) they never recovered in the Communist era. Romania and Poland experienced major declines in the standard of living.

Perestroika

The 1985 Comprehensive Program for Scientific and Technical Progress and the rise to power of Soviet general secretary Mikhail Gorbachev increased Soviet influence in Comecon operations and led to attempts to give Comecon some degree of supranational authority. The Comprehensive Program for Scientific and Technical Progress was designed to improve economic cooperation through the development of a more efficient and interconnected scientific and technical base. Gorbachev and his economic mentor Abel Aganbegyan hoped to make "revolutionary changes" in the economy, foreseeing that "science will increasingly become a 'direct productive force', as Marx foresaw… By the year 2000… the renewal of plant and machinery… will be running at 6 percent or more per year."
The program wasn't a success. "The Gorbachev regime made too many commitments on too many fronts, thereby overstretching and overheating the Soviet economy. Bottlenecks and shortages were not relieved but exacerbated, while the East European members of Comecon resented being asked to contribute scarce capital to projects that were chiefly of interest to the Soviet Union…" Furthermore, the liberalization that by 25 June 1988 allowed Comecon countries to negotiate trade treaties directly with the European Community (the renamed EEC), and the "Sinatra doctrine" under which the Soviet Union allowed that change would be the exclusive affair of each individual country marked the beginning of the end for Comecon. Although the Revolutions of 1989 didn't formally end Comecon, and the Soviet regime itself lasted until 1991, the March 1990 meeting in Prague was little more than a formality, discussing the coordination of non-existent five-year plans. From 1 January 1991, the countries shifted their dealings with one another to a hard currency market basis. The result was a radical decrease in trade with one another, as "Eastern Europe… exchanged asymmetrical trade dependence on the Soviet Union for an equally asymmetrical commercial dependence on the European Community."
The final Comecon council session took place 28 June 1991 in Budapest, and led to an agreement to disband within 90 days.

How Comecon exchanges worked

Working with neither meaningful exchange rates nor a market economy, Comecon countries had to look to world markets as a reference point for prices, but unlike agents acting in a market, prices tended to be stable over a period of years, rather than constantly fluctuating, which assisted central planning. Also, there was a tendency to underprice raw materials relative to the relatively shoddy manufactured goods produced in many of the Comecon countries.
   International barter helped preserve the Comecon countries' scarce hard currency reserves. In strict economic terms, barter inevitably benefitted countries whose goods would have brought higher prices in the free market or whose imports could have been obtained more cheaply, and harmed those for whom it was the other way around. Still, all of the Comecon countries gained some stability, and the governments gained some legitimacy, and in many ways this stability and protection from the world market was viewed, at least in the early years of Comecon, as an advantage of the system, as was the formation of stronger ties with other communist countries.
   Within Comecon, there were occasional struggles over just how this system should work. Early on, Nikolai Voznesensky pushed for a more "law-governed" and technocratic price-based approach. However, with the August 1948 death of Andrei Zhdanov, Voznesensky lost his patron and was soon accused of treason as part of the Leningrad Affair; within two years he was dead in prison. Instead, what won out was a "physical planning" approach that strengthened the role of central governments over technocrats. At the same time, the effort to create a single regime of planning "common economic organization" with the ability to set plans throughout the Comecon region also came to nought. A protocol to create such a system was signed 18 January 1949, but never ratified. While historians are not unanimous on why this was stymied, it clearly threatened the sovereignty not only of the smaller states, but even of the Soviet Union itself, since an international body would have had real power; Stalin clearly preferred informal means of intervention in the other Comecon states. This lack of either rationality or international central planning tended to promote autarky in each Comecon country, because none fully trusted the others to deliver goods and services.
   With few exceptions, foreign trade in the Comecon countries was a state monopoly, and the state agencies and captive trading companies were often corrupt. Even at best, this tended to put several removes between a producer and any foreign customer, limiting the ability to learn to adjust to foreign customers' needs. Furthermore, there was often strong political pressure to keep the best products for domestic use in each country. From the early 1950s to Comecon's demise in the early 1990s, intra-Comecon trade, except for Soviet petroleum, was in steady decline.

The oil transfers

Beginning no later than the early 1970s, Soviet petroleum and natural gas were routinely transferred within Comecon at below-market rates. Most Western commentators have viewed this as implicit, politically motivated subsidization of shaky economies to defuse discontents and reward compliance with Soviet wishes. However, other commentators say that this may not have been deliberate policy, noting that whenever prices differ from world market prices, there will be winners and losers. They argue that this may have been simply an unforeseen consequence of two factors: the slow adjustment of Comecon prices during a time of rising oil and gas prices, and the fact that mineral resources were abundant in the Comecon sphere, relative to manufactured goods. A possible point of comparison is that there were also winners and losers under EEC agricultural policy in the same period.

Structure

Although not formally part of the organization's hierarchy, the Conference of First Secretaries of Communist and Workers' Parties and of the Heads of Government of the Comecon Member Countries was Comecon's most important organ. These party and government leaders gathered for conference meetings regularly to discuss topics of mutual interest. Because of the rank of conference participants, their decisions had considerable influence on the actions taken by Comecon and its organs.

The Comprehensive Program further emphasized that the processes of integration of members' economies were "completely voluntary and don't involve the creation of supranational bodies." Hence under the provisions of the Charter, each country had the right to equal representation and one vote in all organs of Comecon, regardless of the country's economic size or the size of its contribution to Comecon's budget.

Furthermore, in the words of the Charter (as revised in 1967), "recommendations and decisions shan't apply to countries that have declared that they've no interest in a particular matter."

Although Comecon recognized the principle of unanimity, from 1967 disinterested parties didn't have a veto but rather the right to abstain from participation. A declaration of disinterest couldn't block a project unless the disinterested party's participation was vital. Otherwise, the Charter implied that the interested parties could proceed without the abstaining member, affirming that a country that had declared a lack of interest "may subsequently adhere to the recommendations and decisions adopted by the remaining members of the Council."

Comecon Versus the European Economic Community

Although Comecon was loosely referred to as the "European Economic Community (EEC) of Eastern Europe," important contrasts existed between the two organizations. Both organizations administered economic integration; however, their economic structure, size, balance, and influence differed:) didn't affect those members who declared themselves disinterested parties. Unlike the EEC, where treaties mostly limited government activity and allowed the market to integrate economies across national lines, Comecon needed to develop agreements that called for positive government action. Furthermore, while private trade slowly limited or erased national rivalries in the EEC, state-to-state trade in Comecon reinforced national rivalries and resentments.

Prices, Exchange Rates, Coordination of national plans

� See: Comprehensive Program for Socialist Economic Integration

International relations within the Comecon

� See: International relations within the Comecon

Soviet domination of Comecon was a function of its economic, political, and military power. The Soviet Union possessed 90 percent of Comecon members' land and energy resources, 70 percent of their population, 65 percent of their national income, and industrial and military capacities second in the world only to those of the United States .The location of many Comecon committee headquarters in Moscow and the large number of Soviet nationals in positions of authority also testified to the power of the Soviet Union within the organization.
Soviet efforts to exercise political power over its Comecon partners, however, were met with determined opposition. The "sovereign equality" of members, as described in the Comecon Charter, assured members that if they didn't wish to participate in a Comecon project, they might abstain. East European members frequently invoked this principle in fear that economic interdependence would further reduce political sovereignty. Thus, neither Comecon nor the Soviet Union as a major force within Comecon had supranational authority. Although this fact ensured some degree of freedom from Soviet economic domination of the other members, it also deprived Comecon of necessary power to achieve maximum economic efficiency.Further Information

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