The Pros And Cons Of The Warsaw Pact

Following the end of World War II, Europe was in shambles and a drastic rebuild was needed. The war resulted in a division of Europe which led to among other things, the creation of the United Nations and the Soviet Bloc. The conclusion of World War II lead to East Germany, the Czech Republic, Slovakia, and others to align themselves with the Soviet Union through the Warsaw Pact. Each country’s future was shaped by the policies of each organization. Since the end of World War II, the Czech Republic, Slovakia, and East Germany have experienced the advantages and disadvantages of a centrally planned economy and their individual struggles to transition to a free market economy.

LAY OUT EACH COUNTRY’S ECONOMIC SYSTEM UNDER USSR…….

HOW THEY TRANSITIONED

AND WHAT THEY DID……
DEFINE MARKET ECONOMY…..
Merriam-Webster defines a market economy as, “An economy in which most goods and services are produced and distributed through free markets.”(Webster) This means that prices are determined by supply and demand of competing firms.
Free market economies are centered on the belief that individuals strive for financial gain and that firms are profit-seeking. This leads to decision-making based on the consumption, investment, and production levels that steer to the most economic gain for economic actors, not the government or central agency. Economic actors, or the users of economic resources, assure that equilibriums of price and quantity are reached while maximizing utility.
WARSAW PACT…….(LEAD INTO ECON SYSTEMS)
The Warsaw Treaty of Friendship, Cooperation, and Mutual Assistance, also known as the Warsaw Pact, was an agreement between Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania, and the Soviet Union that was signed in Warsaw, Poland in 1955.

This region also came to known as the Soviet Bloc, and its members consisted of countries that had communist governments and foreign policies that were aligned with that of the Soviet Union. The agreement designated a unified military presence among its member countries. The treaty was in response to the Paris Agreement allowing West Germany to join the North Atlantic Treaty Organization (NATO.) This agreement was the initial step towards the Soviet Union strengthening and expanding its grasp across Europe. (Britannica) In 1968, the Soviet Union sent Warsaw Pact troops into Czechoslovakia in an attempt to regain order after freedom of expression bans had been loosened and relations with the West were gaining strength. After democratic revolutions and upheavals swept Eastern Europe in 1989, the Warsaw Pact was deemed “nonexistent” on July 1, 1991 at the final summit of Warsaw Pact leaders. The meeting was held in Prague, Czechoslovakia. All of the former members of the Warsaw Pact joined NATO, except for the former Soviet Union, now known as Russia.

(Britannica)
EACH COUNTRY’S ECONOMY
EAST GERMANY:
The occupation of the Soviet Union in East Germany led to the implementation of a centrally planned economy.
Despite these challenges, East Germany’s production increased significantly following the War. In fact, during the 1950’s and 1960’s, the industry sector continued to increase dramatically and GDP increased with it. However, in the 1970’s, the West’s technological advancements began to pull away from centrally planned economies like East Germany. For example, producing a variety of good quality products became too expensive for East Germany’s centrally planned economy.
East Germany was considered to be the most advanced industrial country in the Eastern Bloc. Once the Berlin Wall was erected in 1961, East Germany had the best economy in the Eastern Bloc. The advantage that East Germany had over other Bloc nations was West Germany. West Germany often times, sneakily, provided goods to East Germans. The West German government also supported projects to rebuild East Germany. However, East Germany was still under Soviet policies which meant central planning still dominated the marketplace. Labor wages in the East were 60%, when accounting for taxation, of the wages in West Germany. (WIKI)

CZECH REPUBLIC:
Following the end of World War II, Czechoslovakia emerged relatively unscathed. After the war, economic sectors were split between government control and private control. For Example, the industry sector, which was the largest during the War, was taken over by the German occupation. However, after the war, the Czechoslovak government took over the industry, but foreign trade remained privatized.
The country intended on joining the Marshall Plan to rebuild Europe until Joseph Stalin prohibited the alliance in 1947. By 1948, production returned to prewar levels. In February 1948, the KSC took over complete control over the political and economic landscape of Czechoslovakia and implemented Soviet policies. The government fully nationalized all economic sectors by 1952. This lead to the removal of experienced and qualified managers and instead placed political operatives in control. The central planning policy provided guidelines for all economic activity to follow.

Czechoslovakia’s economic future could have been drastically changed by receiving aid through the Marshall Plan. Although critics of the Plan debate its actual effects, the country could have benefited greatly from the removal of trade barriers since the majority of their trade was with the West at the time and the assistance in modernizing industry since that was their largest economic sector following the war.(MY THOUGHTS)

CENTRALLY PLANNED ECONOMY
The theory of a centrally planned economy is that the market does not work in the best interest of all people and that a central authority is required in order to achieve social objectives. This system enables the planning agent to set prices, quantity produced, and also allows the agent to focus resources on projects without the need for private capital. (Investopedia)
The advantage of a planned economy is that it has the ability to maximize resource utilization that it has a social fulfillment rather than individual fulfillment.

The disadvantages of this economic system are the ignorance of product quality and the inefficient utilization of resources and goods and services. This in turn makes trade with other economies that produce higher quality products very difficult. To combat this, the central agency created five-year and one-year plans to produce goods and services in the most efficient way possible.(Econ10 Paper).

The Eastern Bloc countries depended on materials from the Soviet Union. Trading in the Eastern Bloc was significantly impacted by joining the Warsaw Pact. Prior to the War, the Eastern Bloc averaged 1%-2% of their trade with the Soviet Union. By 1953, trade with the Soviet Union by other Pact nations averaged 37%. Stalin’s prohibition of the Marshall Plan and its trade initiatives played a huge role in this increase.

The Council for Mutual Economic Assistance (CMEA), or COMECON, determined what products would be traded within the Eastern Bloc. Upon conception, COMECON was intended to allow the Soviets to take materials and equipment at will from other Eastern Bloc countries. However, by the 1970’s, the Soviet Union became the net subsidizers for the other countries by exchanging low quality finished goods for low cost raw

materials.
Before the fall of the Eastern Bloc, some goods were being exported for prices that were lower than the value of their raw materials.