861.50/946
The Ambassador in the Soviet Union (Steinhardt) to the Secretary of State
[Received March 12.]
Sir: With reference to the Embassy’s despatch No. 868 of October 21, 1940,30 and to previous similar despatches31 relating to economic conditions in the Soviet Union, I have the honor to submit on the succeeding pages a brief review of the principal features upon which definitive information is at present available of the development of the economic situation in the Soviet Union during the quarter ending on December 31, 1940.
Introduction.
The far-reaching and extraordinary measures in the field of strict labor regulation which were introduced by the Soviet Government during preceding quarters of 1940 were followed at the outset of the fourth quarter by two further ukases of the Presidium of the Supreme Soviet of the U. S. S. R., the one relating to the obligatory transfer of engineers, technicians, foremen, office employees and skilled workers from one enterprise or institution to another, and the second concerning the organization of state labor reserves. According to the latter of these ukases, issued on October 19, 1940,32 the People’s Commissars of the U. S. S. R. are accorded the right of obligatory transfer of all skilled labor from one to another of the enterprises within their respective jurisdictions. The earlier ukase (October 2, 1940)33 decreed the organization of state labor reserves by investing the Soviet of People’s Commissars of the U. S. S. R. with the right to mobilize annually from 800,000 to 1,000,000 persons from among the city and village youth of the male sex aged from 14 to 17 for training in special trade schools. This mobilization and training of the country’s youth was to be commenced at the end of November 1940. To supervise the training and handling of the new labor reserves a special Chief Administration of State Labor Reserves was set up. The texts and apparent implications of both of these ukases have been reported to the Department separately in detail.
[Page 241]The importance attached by the authorities to the labor legislation put into application during 1940 is further emphasized by the following statements made by Shcherbakov,34 Secretary of the Moscow Party Committee, in a speech delivered on January 21, 1941, on the occasion of the 17th anniversary of Lenin’s death: “The Party and the Soviet Government must not disregard the quality of new admissions to the ranks of the working class. Loafers, shirkers and all kinds of ill-starred, good for nothing persons should not be permitted to enter the factories and shops”.
Shcherbakov further stated that 600,000 youths have already been mobilized and have started their training. “From one year to another their numbers will increase. This means that in the near future our country will have new contingents of qualified and politically trained young workers burning with the desire to devote their energies to the good of the fatherland and to the strengthening of its power”.
According to Shcherbakov the labor laws introduced during 1940 are directed against “those who have wrongly understood the right to work to mean the right to choose their own places of employment, in disregard of the interests and the needs of the state”.
Shcherbakov further admits that the losses caused to industry by “shirking” and “loafing” during the period of the Second Five-Year Plan ran into billions of rubles.
These statements bring out the fact that the labor policy of the Soviet Government as inaugurated during 1940 has not been prompted solely by the progress of the European war and the changes in the international situation occasioned by it, but that it was also a direct result of internal difficulties arising out of the peculiar methods pursued in the development of the Soviet national economy. It is equally evident that the labor laws introduced in 1940 are not a series of extraordinary measures put into effect for a short period of emergency, but that they constitute an expression of a long-term policy.
The drive for drastic enforcement of the labor legislation continued unabated during the final quarter of the year and press reports ascribe to the wholesome influence of these laws the fact that the working of many branches of the national economy during that quarter showed “satisfactory” improvement.
Every precautionary measure has been taken by the authorities to check any increase in the wages paid to workers and employees. Thus, according to Trud of January 3, 1941, the establishment of progressive systems of payments for piecework as well as of premiums for overfulfillment of work norms should be effected with the greatest possible reserve and care, since many such systems of payment have in the past been based on wrong principles and have provided for [Page 242] excessively high rates of remuneration. Moreover, Trud of December 27, 1940, hints at further upward changes in work norms to be effected in 1941.
The trend during the fourth quarter of 1940 was emphatically toward a reduction in wage funds and toward further drastic economy in public expenditures as well as in the utilization of raw materials in industrial enterprises.
. . . . . . . . . . . . . .
The sweeping restrictive measures applied by the authorities in the course of 1940 with respect to labor, wages and work norms, taken together with the repeated price increases, have resulted in a marked decline in the purchasing power of the population, as mentioned in the Embassy’s economic review for the third quarter of the year.35 In the final quarter this decline became even more pronounced. In this connection it will be noted, however, that the persons mostly affected have been those engaged in civil life, whereas expenditures in connection with the armed forces, policy, national defense and certain of the machine-building industries have been steadily rising.
The Government has obviously exerted great pressure in order to check inflationary tendencies, which have long been latent in the Soviet economy and which were particularly noticeable toward the end of 1939. In order to avoid sharp currency inflation the Soviet authorities have resorted, among other things, to an inflation of prices—a step which they had hitherto been very reluctant to take. Having realized that the growing monetary inflation was accentuating the shortage of consumers’ goods in the state stores and occasioning a rapid upward movement of prices on the so-called open or kolkhoz market, it was logically concluded by the authorities that price inflation would inevitably follow monetary inflation and that they had better introduce the latter themselves in order to check the first. Price increases alone could not bring about a stabilization of Soviet finances; accordingly, the authorities began in addition to curtail severely the earnings of the population by the means described. During the quarter under review this policy was carried out with some success, but it is too soon as yet to characterize the present state of Soviet finances as stabilized. The rumors current in Moscow several weeks ago concerning a possible revaluation of the ruble may have reflected a desire of the authorities to introduce some measure of this kind eventually, but the present time does not appear propitious for such a step.
. . . . . . . . . . . . . .
[Page 243]Industry: General Summary.
According to press reports the working of most branches of Soviet industry during the final quarter of 1940 was satisfactory. Particularly good results were achieved by the major branches of heavy industry, such as steel, iron ore, and coal. The petroleum industry also improved its operation during the quarter. The textile, light and food industries have likewise shown good results. On the other hand, most branches of the machine-building industry were characterized as backward.
In a statement made in a speech delivered on the occasion of the twenty-third anniversary of the establishment of the Soviet state and published in Pravda of November 7, 1940, Kalinin said36 that the production of Soviet industry during 1940 was expected to exceed that of the preceding year by about 11 percent. This estimated percentage, however, represents the increase in industrial output in terms of gross production by value and is thus of very restricted usefulness. Kalinin also stressed the fact that during the first 6 months of the year industry had encountered numerous difficulties in executing its plan assignments, these difficulties being mostly due to international complications.
The marked improvement in operation which was achieved by Soviet industry during the latter portion of the year is attributed by the Soviet press to the strict enforcement of the new labor laws and a consequent increase in labor productivity. The influence of state-organized “social competition” campaigns upon the expansion of industrial output has also been favorably commented upon by the Soviet press.
Judging from official reports the poor operation of industry as a whole during the first six months of the year prevented the majority of its branches from accomplishing their annual plan assignments. Steel, coal, petroleum and other major branches of industry failed to fulfill their production programs for 1940 by a wide margin, although most of them augmented their output in comparison with the preceding year. The plan of the final quarter was likewise executed by few branches of industry only, notwithstanding that the percentage of execution was said to have come nearer to plan figures than during any of the preceding quarters.
Indirect evidence may be had from press sources to the effect that the production program for some industries has been reduced in the course of the operating year. This makes the estimating of actual production in kind in 1940, which is attempted in the following pages of this survey,37 difficult and of doubtful reliability. On the whole, [Page 244] however, it may reasonably be assumed that the original provisions of the Third Five-Year Plan have been considerably modified and can no longer be considered as effective.
. . . . . . . . . . . . . .
Conclusion.
The main lines of Soviet economic policy remain essentially unchanged since the Embassy’s last economic survey. Close collaboration with Germany has been reaffirmed by the economic agreements recently entered into, and there is every reason to presume that this will be continued under existing circumstances. The desires to avoid involvement in a major military adventure, to build up the country’s defensive strength to the highest possible degree in the shortest possible time, and to profit to any extent which may be found practicable within the terms of these aims from the progress of international events remain basic, it is believed, in the minds of the Soviet leaders. The economic legislation applied during the latter months of 1940 seems thus far to have resulted in a speeding up of Soviet industry—with national defence emphasized as a major consideration behind the measures passed. There is no doubt that the pressure on the Soviet worker and peasant has been augmented during the year which has just drawn to a close, but the depth of their capacity to endure is, so far as can now be seen, as yet unplumbed.
Respectfully yours,
- Not printed.↩
- See despatch No. 705, August 22, from the Chargé in the Soviet Union, p. 211.↩
- See telegram No. 1377, October 21, 2 p.m., from the Ambassador in the Soviet Union, p. 232.↩
- See telegram No. 1275, October 3, from the Ambassador in the Soviet Union, p. 230.↩
- Alexander Sergeyevich Shcherbakov.↩
- Despatch No. 868, October 21, not printed.↩
- See the report on Kalinin’s speech in telegram No. 1503, November 8, 5 p.m., from the Ambassador in the Soviet Union, p. 235.↩
- These estimates are not printed.↩