Macroeconomic Management and the Enterprise in East and West

Policy makers and their advisers, whether in government or in enterprises, whether in market or socialist economies, and whether their interest lies in macro- or microeconomics, have been forced by the turbulent environment of the last 10–15 years to reconsider the aims and methods of their strategic thinking and the instruments with which strategies can be executed. How changes of direction have been accomplished-in some cases failed to be carried through — is the main theme of this book. The authors, many with long experience of strategic planning as operators or as analysts or in both capacities, discuss the lessons to be learnt for forward-looking policy making.

There are many reasons for supposing that both the world economy and international politics are on the verge of major changes. This makes it difficult to forecast the progress of events, the more so because our mental attitudes are to a great extent governed by old ideas. Thus, most Western economists expected the depreciation of the US dollar, and the drop of oil prices, to bring about a significant revival of the Western economy. This forecast still fails to be justified by events; indeed there are many symptoms of short run weakness.

Background factors for the world economic environment have rarely looked so favourable as they do now. Energy prices are now following the laws of supply and demand, which are more understandable than the somewhat arbitrary decisions of OPEC. The US dollar has depreciated from its unusually high value in early 1985. Interest rates have been falling in many countries and inflation has been brought under control in most, if not all, parts of the world. None of these momentous economic events is an unqualified positive factor in the outlook, but in every case the good outweighs the bad side in its effect on world averages.

This chapter deals with macro-economic performance and macroeconomic policy in Austria in 1973–1985. In this period the world economy was hit by the two oil price surges with devastating effects on output, employment and inflation. The Austrian economy, of course, was no exception. But it proved to be somewhat more shock resistant than the average of the industrialised countries.

The structure of decisions on questions of external economy derives from numerous factors in the socialist economic system.

In the past decade the national economy of the GDR, like other socialist economies, was faced with the challenge to convert the primarily extensive economic growth onto an intensive path. The aim was that this conversion should involve no losses in growth. The GDR economy — an open system and also a net importer of energy and of major mineral materials while a net exporter of machinery and equipment — had considerable difficulties in maintaining and restoring the conditions of balanced foreign trade. Moreover, political pressures were exerted and former embargo practices, reminiscent of cold war times, were revived. New restrictions on the transfer of technology, on the import of grains, and on credits were imposed by those circles uninterested, or no longer interested, in mutually advantageous East-West trade relations. As a result, the economic and trade relations of the GDR with the non-socialist economic region were considerably strained and, more seriously, the foundations of confidence, laboriously created in the process of détente, were severely shaken. Notwithstanding this general trend, the relations between the GDR and several western industrial countries continued to develope over this period.²) This move was politically and economically motivated and originated in reasonable and realistic efforts made by groups intent on restoring momentum to détente and thus taking advantage also of the economic relations between East and West.

In every national economy — and the German Democratic Republic is no exception — growth strategy is both subject to external constraints and involves internal structural changes. No national economy can decisively determine global political or economic developments but will rather have to adjust to them. But a government can influence the process of adjustment through its political, social and economic aims — which requires internal structural adjustment, both social and economic.

There is a kind of paradox about the favour accorded by economists to the EMS. At the inception of the European monetary experiment, a deep scepticism was the rule. Seven years later, the success of the EMS is generally acclaimed, not only in Europe but all around the world. Occasionally, someone even proposes to generalise the system to the whole world economy and to develop a “World EMS System” with a “target zone” mechanism derived in fact from that in Europe.

During the 1950s and 1960s the volume of international trade and the economies of most nations in the world, particularly the industrial countries, grew at an unprecedented rate. The merchandise trade of industrial countries grew at an average rate of about 8 per cent a year and this fuelled a growth in real GDP of over 4 per cent a year. This period can truly be regarded as a golden age of growth and stability.

Comparative economics should go beyond the simplistic classification of countries as capitalist vs. socialist, or as market economies vs. centrally planned economies (CPEs), because those terms veil important similarities between countries belonging to different groups as well as significant differences within them.

The purpose of this paper is to discuss some questions arising in a socialist economy about interactions between central decisionmakers and state-owned enterprises, taking into account the behaviour of workers and consumers. The paper concentrates on a certain field of those interactions, namely the markets for industrial (non-food) products and the allocation of resources needed for industrial production.

Investment decision-making in Yugoslavia has undergone many changes, directly connected with the development of the planning system. These changes have followed a firm dedication to strengthening a socialist and self-managed society, as well as responding to the problems arising in the course of Yugoslavia’s social and economic development. After 1945, Yugoslavia passed four new Constitutions (in 1946, 1953, 1963 and 1974). Each of them marked a new phase of social and economic development, the main idea being the further decentralisation of social management, the planning process and investment decision-making. Thus, the development of the planning system may be presented in four stages:

METALSERVIS, hereafter MS, was founded in 1947 as a trading enterprise supplying industry with production materials. In the 30 years of its business activity there were no large fluctuations. In the postwar economic development of Yugoslavia, MS gained the reputation of a reliable business partner. In 1975–1976 MS went through some kind of personnel crisis or crisis of management. The new, educated generation of experts had come in, but their arrival caused many disturbances. At that time, MS dealt with only one activity — wholesale trade on the domestic market. In 1976, the firm had about 800 employees. On January 1, 1977 the new management took over; changes began to be introduced and have remained in effect.

Few of us like uncertainty, but until this century mankind generally accepted the impossibility of determining one’s destiny. The belief that only divine (or the devil’s) intervention made prophecy possible was held by most cultures. Only during the last fifty years or so did the assumption spring up that application of the scientific method, of vastly expanded information flows and of hitherto unbelievable speed of processing information, can make prediction of the future possible.

Strategic planning in many companies has been navigating in troubled waters over the last decade. The planning processes and methods developed and successfully applied in the relative economic stability of the 1960s and early 1970s proved to be — at best — of little assistance in dealing with rapid change; in quite a few cases they were misleading and dangerous. Corporations are having to learn the art of coping with uncertainty and instability in the external parameters for their decision-making, i.e., in industry trends and socio-political developments.