861.50/1–1347: Telegram

The Ambassador in the Soviet Union ( Smith ) to the Secretary of State

secret

80. Despite emphasis given in Soviet internal and external propaganda to grave economic difficulties in capitalist world and inevitability of serious capitalist depression, it is becoming clearer each day that Soviet Union is itself undergoing serious economic difficulties. In an effort to stem tide Soviet authorities for past 6 months have, as already reported, introduced several far-reaching if not drastic decrees, latest being decrees on cooperatives and on change in production plans for light industry, both designed to increase production of consumers’ goods. These decrees, coupled with earlier ones regarding abuses in collective farms, increase in ration prices, as well as efforts to rekindle ideological enthusiasm, form a definite pattern.

It seems clear authorities in drawing up 5-year plan year ago miscalculated temper and ability of people to accept further sacrifices. Authorities eager to reconvert and reconstruct heavy industry and thus rebuild their military economic potential made minimum provisions for production of consumers’ goods. After prewar and wartime sacrifices people expected peace to bring higher standard of living. Disappointment on this score had demoralizing effect which not only seriously affected production of labor but apparently caused peasants to adopt what might be called policy of passive resistance as far as cooperation with govt concerned. While peasants of necessity delivered up amount of products required under procurement plan, they either consumed themselves or diverted ‘to free market considerable amount of their foodstuffs, particularly those produced outside collective farm system, good part of which would ordinarily find its way into govt-controlled channels. This was undoubtedly an important replenishment of stockpiles for external political purposes or simply to build up depleted stocks in general, and was contributing factor to postponement of derationing promises for 1946. Furthermore, on basis firsthand reports considerable amount of grain which should have been properly stored was left in open at collection points or railway stations, causing appreciable losses.

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Thus, far-reaching decrees regarding cooperatives and light industry make it clear that authorities realized that in order to obtain cooperation of countryside, as well as increase morale and productivity of workers, it was necessary to revise plan by diverting considerably larger amount of national effort to production of consumers’ goods. In other words, amount of consumers’ goods had to be increased to make it worth while for peasants and workers to increase their productivity.

Moreover, in order to increase labor supply both for heavy and consumers’ goods industry, govt also found it necessary to try to force idle persons into industry by refusing to give rations to certain categories of dependents. For same purpose large number of persons were dismissed from administrative jobs which meant loss of their ration cards unless they seek work in industry.

Because of tremendous amount of work needed for reconversion and reconstruction of economy, authorities, beginning last summer, began to [try?] to remedy situation by introduction or enforcement of disciplinary decrees. Since these were not sufficient by themselves, govt in autumn forced to offer inducements by changing production plans so as to increase amount of consumers’ goods in an effort to obtain greater productivity from various sectors of economy. It is interesting to note that despite drastic nature of some of decrees, govt has not resorted to mass punitive methods to attain its goals. It apparently realized that anything resembling purge would reduce number of competent personnel and be so demoralizing as to complicate further already serious economic situation.

Whether these efforts will be successful is still a moot question. Indications from various parts of country confirm that morale is still very low. People feel that things are going to get worse before they can get better, and unless remedial efforts are successful, heavy industrialization plans will have to be further whittled down. These developments, while they do not constitute threat to regime, are of serious nature.

It is possible that one of explanations for less aggressive international attitude taken by Soviet authorities in recent weeks is in part attributable to this situation. In any event, it seems probable that in connection with firm stand taken by US and other nations against further Soviet aggression in Europe and Middle East, Soviet leaders also took internal economic situation into account in their calculations, which apparently convinced them that they had obtained all they could out of situation for moment. They apparently felt, therefore, that because of these and perhaps other factors they would have to adopt more conciliatory tactics in order to endeavor to consolidate their position in periphery, create more favorable atmosphere for attainment [Page 517] of their basic objectives regarding Germany, as well as divert considerable amount of energy and attention to working out difficulties on Soviet internal front.

This does not mean that Soviet leaders have permanently abandoned their aggressive tactics. No conclusive evidence has come to hand to show that this is more than temporary retreat by which they hope to gain time to consolidate their position internally and externally and prepare to take advantage of any future openings which may become available. They will continue to agitate by Comintern 1 methods or otherwise to maintain, if not increase, their influence in Soviet controlled areas as well as in Germany, France and elsewhere.

We should be careful, therefore, not to interpret these moves or temporary economic distress in country as having brought about permanent change in strategy. Authoritative Soviet commentators continue to stress, for internal as well as external consumption, inevitability of conflict between “socialism and capitalism.” Any relaxation on our part will encourage them to renew their efforts to extend areas of Soviet influence and control.

Dept repeat to Nanking and Tokyo, Paris as No. 10, London as No. 10 and Berlin as No. 14.

Smith
  1. The Third (Communist) International founded by the Bolsheviks at Moscow in March 1919.