861.50/940
The Chargé in the Soviet Union (Thurston) to the Secretary of State
[Received October 8.]
Sir: With reference to the Embassy’s despatch number 451 of May 6, 1940,80 and to previous similar despatches relating to economic conditions in the Soviet Union, I have the honor to submit on the following pages a brief review of the principal features upon which definitive information is currently available of the development of Soviet national economy during the quarter ending on June 30, 1940.
Introduction.
In the economic realm the second quarter of 1940 was particularly marked by the introduction of additional far-reaching and extraordinary measures designed to tighten labor discipline and to increase the productivity of Soviet industry. The policy of territorial expansion to which the Government is apparently committed was further manifested toward the close of the period by the occupation of Bessarabia, and northern Bukovina, and the intensification of defence preparations has gradually reached such a scale, both in respect of the number of men under arms and in the placing of industry on a [Page 212] war footing, that the entire economic structure of the country must, for practical purposes, be regarded as mobilized for war. The acceleration of this trend has imposed an added strain upon the material resources of the country and the authorities have been constrained to accentuate their already heavy demands upon the working masses in the drive to speed up military preparations. These increased demands, as suggested have taken the traditional form of drastic efforts to induce high productivity of labor, as well as to restrict consumption and to force economy in the use of materials and in monetary expenditures.
Mention was made in the Embassy’s economic review covering the first quarter of the year (despatch number 451, May 6, 1940) of the increase in work norms and decrease of wage rates applied in many branches of Soviet industry, as well as of the increase in retail prices effected early in the year. These steps appear to have failed to improve the situation, since further price increases were resorted to during the quarter under survey. Moreover, the results of industry continued to be unsatisfactory, falling far short of the ambitious requirements felt to be imposed by the hazards of the international situation. On June 26, 1940, therefore, as has been separately reported,81 a law was issued under which the return to the 8–hour day in industry and to the 7-day week was provided, and under which severe penalties for unnecessary change of employment or for absence from work without leave were imposed. Simultaneously an adjustment of work norms and wage rates was again made. The provisions of the law of June 26 were shortly made applicable in general to tractor and combine operators working in machine tractor stations and press comment which has subsequently appeared seems to indicate that it may soon be extended to collective farmers also.
With the view to precluding attempts at passive resistance on the part of the workers, usually manifested in an increase in the proportion of defective production, as well as to put an end to the so-called liberal attitude of managers and technical staffs toward such workers, a law was issued on July 10, 1940,82 by which it is provided that the issuance of poor-quality or defective industrial products, or of goods below the obligatory standards, shall be considered as “wrecking.” Under this law directors, engineers, chief of departments of technical control in industrial enterprises, and others responsible for defective, non-standard or incomplete production, are liable to imprisonment of from five to eight years.
[Page 213]The foregoing legislation, taken together with the new and drastic agricultural procurement regulations which have been separately reported by the Embassy, constitutes a formidable intensification of the pressure on industry and agriculture in the Soviet Union. The third issuance of the State Loan of the third five-year plan, approved on July 1, 1940, did nothing to ease the situation, as this in effect amounts to a forced loan. All these measures were presented to the people as made urgently necessary by the growing threat of the spread of the “capitalist war” to the confines of the Soviet Union. The labor laws have been very strictly enforced and it is reported that they have encountered a considerable amount of passive resistance.
Curtailments of administrative and office personnel, referred to in the Embassy’s economic review for the first quarter of the year, have continued during the second quarter.
The developments described have accentuated the tendency toward reduction of the income of the civil population and the resultant decrease in purchasing power has contributed to producing a greater apparent availability of foodstuffs. A more real and immediate alleviation of the food situation has been afforded by the good vegetable crop this year.
Light Industry of June 10, 1940, Machine Building of June 9 and 18, and Industriya of June 10 have devoted editorials to continued over-expenditure of wage funds, increased production costs, and poor management. The new labor laws are, of course, also connected with these conditions. The press campaign urging economy of raw materials and reduction in monetary expenditures has, as indicated, continued unabated during the quarter under survey.
The principal economic problems with which the authorities are confronted as the third quarter proceeds remain substantially unchanged from the Embassy’s previous economic review. The steps taken are intended to eliminate these difficulties and while their nature is such that rigid and unremitting application of them might induce some temporary improvement, past experience indicates rather that the dislocations which they are likely to cause may vitiate to a large degree their remedial value. It has been unofficially reported to the Embassy, for example, that in one shop of a local automobile factory where 400 men are employed 50 of these have already had their wages docked by one third for a period of six months for being late in arriving at work. Such pressure on the workers is regarded by them as out of all proportion to their fault, since transport facilities are so inadequate that it is practically impossible to avoid being a few minutes late from time to time. On the other hand, some observers suggest that the Government’s desire for greater economy in [Page 214] wage expenditures has led it to resort deliberately to such methods in order to attain the desired end, while characterizing tardy workers as deliberate saboteurs. It is undoubted that the financial strain of the enormous defence expenditures is great and there seems every reason to believe that the funds required to meet this outlay will be disproportionate to any savings which may be achieved in the civil branches of the national economy. Efforts to control the latent inflationary tendency which the Embassy has repeatedly indicated in its despatches may thus be expected to become increasingly manifest.
Industry: general summary.
With the view of improving technical management in industrial enterprises the authorities have issued a number of decrees ordering mass transfers of qualified engineers and technicians from offices and designing bureaus to enterprises and workshops. A decree of May 28, 1940, also gives wider responsibility to foremen in the heavy machine-building industry, according them higher wages and a number of new prerogatives, such as the right of dismissing and employing workers, setting of wages, awarding of premiums and imposing of fines. The functions and power of a Soviet foreman are now believed to be very similar to those possessed by the foreman of a prerevolutionary plant.
According to the press, the majority of the machine-building plants are at present being switched over to two-shift operation, instead of a three-shift operation as before. The press contends that three-shift operation has been uneconomic and that the actual volume of production on the three-shift basis was in many cases below that turned out in two shifts. On the other hand, all mining enterprises have been ordered to operate in three shifts, current repairs and overhauling to be effected during and in the periods between the shifts.
As in the first quarter, no comprehensive statistics have been published showing the volume of industrial production. Information derived from press sources, however, tends to indicate that a certain improvement was recorded by a number of industries as compared with the preceding trimester. Nevertheless, the total volume of industrial production during the first half of 1940, with the probable exception of the defence industry and of some branches of the machine-building industry, apparently did not show any appreciable increase over that of the first half of 1939, and lagged behind the plan figure.
According to Izvestiya of June 8, 1940, a number of industries, among which were the steel, oil, and coal branches, were backward during the first five months of the year. Industriya of June 15, 1940, also points to considerable under-fulfillment by these industries. At the same time, the paper emphasizes marked improvement in the work of the gold industry.
[Page 215]Machine Building of June 12, 1940, mentions successes achieved by heavy machine building, locomotive, and press and forge equipment plants. On the other hand, the operation of machine-tool, railroad-car, and agricultural-machine plants is condemned.
During the period under survey, the textile industry is stated to have recorded improvement over the first quarter, but owing to the poor showing of the earlier months the plan of the first six months was not fulfilled.
The light and food industries also improved their working during the period under survey, it is stated.
It should be observed in this connection that because of the very low general level of production for the first quarter of 1940 that period scarcely provides a fair yardstick by which to measure the good functioning of Soviet industry.
Press comments reveal that the execution of the industrial capital construction program during the first six months of the year was far from satisfactory. This is apparently due in part to the fact that in 1940 far greater attention is being paid to the construction and equipping of military enterprises in the strict sense of the word than was the case heretofore.
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Defence industries.
The Soviet press pays close attention to problems concerning armaments and their manufacture, but carefully refrains from releasing any factual or comprehensive data pertaining thereto. Particular emphasis has been laid by the press upon the construction of naval vessels and military aircraft.
In this connection Machine Building of May 21, 1940, writes that over two hundred plants belonging to all branches of industry are now participating in the supply of material to the shipyards. The latter are now said to be operating on a “speed system” in the construction of warships, according to this source.
Machine Building of July 28, 1940, states that “the change in the international situation which took place during the year …84 requires that we redouble our efforts in the work toward increasing the military power of our socialist fatherland.” The paper further states that during the first six months of this year the volume of production turned out by the shipyards has greatly increased in comparison with the same period of 1939.
Machine Building of May 21, 1940, devoted a number of articles to the introduction of mass production methods in the construction of military aircraft. The paper urges the adoption of American methods of mass production. The same paper for June 5 and June 14 discussed [Page 216] the quality of the new planes and their characteristics in action, emphasizing the necessity for the rapid development of new models. The industry is urged to accelerate immediately the designing, construction, and testing of new experimental models, and it is stated that very often delays render the new model practically useless, because of the rapid advances in technique.
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Conclusion.
The fear of involvement in the European war, coupled with an urgent desire to acquire additional territory as rapidly and with as little serious military effort as possible, have caused the Soviet authorities to apply sharply increased pressure to both industry and agriculture in the months under review, with the avowed aim of erecting the most formidable defensive machinery which can be achieved and with the less publicized purpose of enabling them to take advantage of the European struggle to realize their territorial aspirations while their principal potential adversary is preoccupied elsewhere. As stated earlier in this despatch, Soviet economy has reached at the present date what can only be described as a war footing, with the result that needs of the people are entirely subordinated to the inherent demands of this condition, as well as that the fundamental weaknesses of the economic organization of the country are becoming more rather than less apparent.
Respectfully yours,