page_title: Economy of communist Czechoslovakia
section_title: 1960s
hierarchical_section_title: Economy of communist Czechoslovakia / History / 1960s
caption_attribution_description: English: Bata store at Česká street in Brno, Czech Republic. Čeština: Obchodní dům Baťa na České ulici 4 v Brně. Původně obchodní dům Brouk &amp; Babka, funkcionalistická stavba Miloslava Kopřivy. Vchodové průčelí budovy.
context_page_description: In the mid-1980s, Communist Czechoslovakia was prosperous by the standards of the Eastern Bloc, and did well in comparison to many richer western countries. Consumption of some goods like meat, eggs and bread products was even higher than the average countries in Western Europe, and the population enjoyed high macroeconomic stability and low social friction. Inhabitants of Czechoslovakia enjoyed a standard of living generally higher than that found in most other East European countries. Heavily dependent on foreign trade, the country nevertheless had one of the Eastern Bloc's smallest international debts to non-socialist countries.
  The command economy of Czechoslovakia possessed serious structural problems. Like the rest of the Eastern Bloc economies, producer goods were favored over consumer goods, causing consumer goods to be lacking in quantity and quality in the shortage economy that resulted. Economic growth rates lagged well behind Czechoslovakia's western European counterparts. Investments made in industry did not yield the results expected. Consumption of energy and raw materials was excessive.
context_section_description: During the early 1960s, industrial production stagnated and the agricultural sector also registered a relatively poor performance. Agriculture had been a weak part of the economy throughout the 1950s, consistently failing to reach planned output targets, and the minimal reforms of 1958–59 had done little to alter the situation. Targets set for the national economy in the Third Five-Year Plan (1961–65) quickly proved to be overly ambitious, particularly with regard to foreign trade. The plan was dropped after a recession in 1962, and annual plans covered the remainder of the period. National income actually declined in 1963. By 1965 it was only 1.9% higher than in 1960, in comparison with a 6.9% growth rate in the 1956–60 period.
  Many factors contributed to the economy's poor performance, including adverse weather for agriculture, cancellation of orders by China resulting from the Sino-Soviet dispute, and unrealistic plan goals. By this time, however, reform-minded economists had reached the conclusion that much of the blame lay in deficiencies of the Soviet model. They began to prepare additional reform measures to improve the economy's efficiency.
  Serious defects in the Soviet model for economic development had long been recognized by some Czechoslovak economists, and calls for decentralization had occurred as early as 1954. Economists and others had argued that
  it was inappropriate to apply the Soviet model to Czechoslovakia in a dogmatic manner, because:
  The country was already industrialized, had few natural resources and a small internal market, and remained dependent on foreign trade in significant ways.
  The model emphasized extensive development, such as building new factories, rather than intensive investment in which production processes were modernized and efficiency improved.
  The pressure for greater investment and defense production during the 1950s had caused private consumption to grow more slowly than net material product. The result had been a chronic inflationary bias, reflected in shortages of consumer goods and forced savings by the population.
  Plants and construction firms held large inventories of materials to compensate for irregular deliveries from suppliers.
  Completion of most investment projects required an inordinate amount of time, freezing funds in unproductive uses.
  Inadequate investment in agriculture had contributed to the latter's chronically poor performance.
  Prices were also a problem, based as they were on often conflicting policies; prices reflected neither scarcity nor cost, bore little rational relationship to one another in the domestic market, and had become increasingly divorced from world prices.
  The system appeared to stifle innovation and to offer no basis for selecting between investment and production alternatives or for judging efficiency.
  By the early 1960s, several Czechoslovak economists had analyzed these problems and had remedies to offer. In October 1964, the party published a set of principles for major economic reform and, beginning in 1965, started implementing specific measures. In June 1966, the Thirteenth Party Congress gave its official approval to the new program, which came to be called the New Economic Model (NEM). The implementation of the reform started in 1967 and it accelerated the political developments of 1968. The reform program was multifaceted, and portions of it were never implemented. Its principal object was to limit significantly the role of the central planning authorities while expanding the autonomy and responsibility of the enterprises:
  The central planning authorities were to concern themselves only with overall long-term planning and to provide general guidance.
  Enterprises and their associations would be free to determine short-term production targets.
  Individual enterprises were to become financially viable, realizing a profit from their sales.
  State subsidies would gradually end; enterprises that could not operate at a profit would have to close.
  Profit, rather than fulfillment of planned quantitative output targets, was to become the ma
caption: Under Tomáš Jan Baťa, the Baťa became the world's largest footwear company
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