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Innovation and productivity in Easter Europe: an international comparison.


The aim of the study was to approach an assessment of the technological level of the economies in Eastern Europe, particularly in the newly-democratising countries-Bulgaria, Czechoslovakia, Hungary and Poland--by means of studying their innovative activity and productivity levels in comparison with the West.

After setting the scene with a few macroeconomic indicators a set of productivity comparisons will be discussed, followed by study of the adoption of selected major postwar innovations and their diffusion in the Eastern countries, their performance in 'high technology' areas, certain aspects of their energy economics, as well as the international patenting activity of these countries. Where applicable comparisons will be made with the West; these will include in every possible case Austria and Finland, which seem the most appropriate for this purpose, as well as Belgium whose prewar industrial structure was rather similar to that of Czechoslovakia.

Macroeconomic indicators

For the economies of East/Central Europe, 1929 was the best interwar year; they were severely hit by the Great Depression of the 1930s and their recovery was slow. The war years were followed by the transition from market-dominated to Soviet-type central planning/command economy and then an upswing started around 1950 that was to last for about a quarter of a century. The growth was concentrated on industry, particularly on heavy industry. The figures in table 1 clearly indicate the rapid growth and the slowdown in recent periods. Maddison (1989) estimated that the annual rate of economic growth of Eastern Europe (without the USSR) fell from 5 per cent in 1950-73 to 1.8 per cent in 1973-87.

Contrasting the distribution of the labour force in East and West, as in table 2, the differences are striking: the share of labour working in services in the East is remarkably low, whilst agriculture and industry employ a much higher share there than in the West. This points to the low productivity of labour in agriculture and industry as well as to the neglect and poor quality of services.

The structure of the manufacturing industries shows noteworthy differences: the metal-based industries are strongest in Czechoslovakia; in Hungary the chemical industry and in Poland the textile industry are more important than in other Eastern countries; the food/beverage industries account for more than one fifth in Bulgarian and also in Polish manufacturing.

Each of the Eastern countries attached paramount importance to the development of the engineering/metal-using industries. Within that broad category, industrial machinery (SITC 72 and 74) were dominant in Czechoslovakia; office machinery and telecommunications equipment (75-76) in Bulgaria, electrical machinery and road vehicles, mainly buses (77-78) in Hungary were more important than in the other three countries, whilst in Poland specialised industrial machinery, road vehicles and metal manufactures (72, 78 and 69) stood out as the most important engineering categories.

The composition of engineering exports shows similarities with the production pattern. Most of them went to other CMEA countries: 81 per cent of TABULAR DATA OMITTED Czechoslovak engineering exports (in 1989) and between 55 and 71 per cent in the other three countries. No more than 9 per cent of Czech engineering exports were destined for Western type market economies, whereas the share of OECD was 20-9 per cent in the other three countries.

Nearly 60 per cent of the engineering imports of Hungary and Poland originated in OECD countries and only about one third from the CMEA. In Bulgaria and Czechoslovakia the proportions were reversed. This high share of machinery imports from the East was probably to the detriment of the overall efficiency of the Bulgarian and Czechoslovak economies.



Table 3 brings together productivity level comparisons of various scholars, done at different times. Apart from the well-known calculations of Colin Clark and Bean for the interwar years and the UN estimates for 1980 and 1985, all of them originate from Eastern sources. in most cases Austria has been taken as the basis for comparison.

Among the Eastern countries productivity in the inter-war years was highest in Czechoslovakia; per capita productivity there was only 7 per cent below the Austrian level and 11 per cent lower than in Belgium (column B). in a Czechoslovak assessment for the year 1939, productivity (in the present territory of the country) was estimated as equal to that of Belgium (column C).

Next to Czechoslovakia, Hungary and Poland showed the highest productivity in the interwar period, about 30 per cent below that of Austria, comparable to that in Finland and ahead of Italy; productivity in Bulgaria and the USSR was lower, and it was lowest of all in Romania.

The UN calculations for 1980 and 1985 included only a few Eastern countries; even the highest per capita GDP among them, that of Hungary, was only around half of the Austrian figure (columns D and E). The Bulgarian estimates for 1987 (column F) put Czech productivity at 53 per cent of the Austrian level, Hungary marginally lower, with the other Eastern countries following with considerable gaps. The Czechoslovak estimate brings their own productivity slightly nearer to the Austrian (column G), only' 40 per cent below; but for both 1975 and 1985 Czech productivity appears as less than one half of the Belgian level. The most recent Polish study not only reinforces the message of earlier reports but points to further deterioration during the 1980s column H).

Table 4 concerns productivity in industry only; in their own estimates the Czechs and Hungarians assess industrial labour productivity well below that of Austria and indicate very marked further deterioration during the past two decades.

Productivity level comparisons are always intricate and difficult exercises; depending on the method, those reproduced here may give slightly differing values for the same country and for similar periods. Nevertheless the overall message is clear: sharp and continued deterioration of productivity during the four decades of central planning vis-a-vis the West. The true picture may be even worse than that presented above in view of certain peculiarities of the command economy, such as the distorted price system, the disregard for quality differences and other factors explained in more detail in the main report.

Major post-war innovations

Technology has advanced very rapidly since the war; the new technologies were superior to the conventional methods and in the West market forces worked in favour of their earliest and widest possible adoption. Competition in the Western sense hardly operated in a command economy. The stimulants for innovation, aimed at catching up with the West, were weak, fragmented and localised. As a result a good deal of the productive equipment has become obsolete.

In this section the adoption and diffusion of selected major innovations will be studied in three basic heavy industries (steel, bricks and glass)--which used to be high on the order of priority of the planners-and in one major consumer industry: cotton textiles.

Two major innovations started in the 1950s to transform the steel industry of the West: the basic oxygen steelmaking process (BOP) and continuous casting (CC). BOP rapidly replaced the earlier methods (chiefly the open hearth-on the Continent called Siemens-Martin-system): by the middle of the 1970s no more than one tenth of crude steel output was produced by the conventional processes in West European steelmaking countries and by around 1980 they had been entirely abandoned.

Eastern European countries introduced BOP at least ten years later (Czechoslovakia and Poland in 1966, but Hungary only in 1980) and its dissemination has been slow. Whereas by 1981 each major European steelmaking country produced its crude steel by one of the modern methods (BOP or electric)-and some of them, for example Belgium and Finland as early as 1978-in Eastern Europe still some 40 per cent, and in the USSR more than half, of the output was produced by the earlier, traditional methods even by 1989. The small Bulgarian steel industry alone went further in adopting more modern methods (table 5).

Similar delay in adoption and even slower diffusion characterised CC. The degree of dissemination by 1989 varied by country, Hungary having reached the highest diffusion with just over half of steel output continuously cast, and Poland with 8 per cent had the lowest rate of diffusion. The same share in the USSR was under one fifth. At the same time in most major West European steelmaking countries the CC share was around or above 90 per cent.

Thus modernisation appears to have been lagging even in steelmaking, the flagship' of the Soviet industrial system.

in view of the high energy efficiency of the tunnel kiln, in most West European countries more than 90 per cent of bricks were being burnt in this type of kiln by the early 1980s. As table 6 indicates, this share was considerably lower in the Eastern countries. It is noteworthy, however, that in Hungary the relatively high diffusion of the tunnel kiln technique had been reached not by the building of new kilns but by means of the clever conversion of the traditional Hoffmann kilns to the tunnel principle.

Pilkington's float technique introduced a new concept in glass production. It was vastly superior to earlier methods and rapidly became universally adopted throughout the Western world. By the middle of the 1980s the old systems for making plate (thick) glass had practically disappeared in the advanced industrial countries and the majority of the sheet (thinner) glass capacity had also been replaced by float lines.

In the Eastern block the first float plant came on stream in 1969 in Czechoslovakia (followed there by another in 1988) and the second in the USSR in 197-only some 4-5 years behind leading Western countries. By 1989 nearly all plate glass and about a quarter of sheet glass was made by the float technique in Czechoslovakia. In the other East European countries the float technique has not been introduced, except for Hungary where the first float line came on stream as late as this year (1991).

The innovation chosen in the textile industry-shuttleless looms (SLs) in cotton-type weaving--is of particular interest because the Czechoslovak textile machinery industry was one of the pioneers in this area, with the important innovation in 1961 of the jet loom, one of the three main types of SLs. Even so, SLs were introduced into Eastern weaving sheds 10-15 years later than in the West. The new looms account for about one third of the total loom stock in Eastern Europe, against about 60 per cent in the West (table 7). In the USSR some two thirds of all looms in the cotton-type textile industry are SLs; these are mostly Soviet-made looms manufactured under licence from the Czechs after the mid-1960s when a large-scale refurbishment of the Soviet textile industry took place.

The cotton industry in the Eastern countries has so far escaped the huge contraction in the West: during the 1980s the number of looms was reduced by some 20 per cent in contrast to Western Europe where the main producers' already greatly reduced loom stock decreased by a further 50-60 per cent from 1980 to 1989. This was because the industry in the East was effectively protected from the competition of the cheap producers in the Far East and elsewhere which caused the severe contraction of the Western industry. As a result, the number of looms (regardless of quality) in the six countries of Eastern Europe is almost comparable to that in the EC and EFTA countries together (table 7).

Lack of competition might have contributed to the postponement of modernisation--in the same manner as the foolproof protection of the Eastern internal steel market resulted in the absence of Japanese competition which forced the Western steel producers into the adoption of the most up-to-date techniques. Protection thus secured temporary relief for Eastern industries but with the long-term consequence of large-scale obsolescence.


'High-tech' denotes novel systems based on the microprocessor and other products of the electronics industry. in view of the strategic and other importance of the new electronic techniques the sale or export of certain advanced new products or processes to the USSR and Eastern Europe was prohibited (in the so-called COCOM lists) by Western governments over a fairly long period. Some progress has nevertheless been achieved in the East, particularly in the USSR, but it was concentrated in specific spheres (such as sputnik-type space research and military use) which were highly secret and virtually without any noteworthy spin-off to civilian production. The export restrictions in the West therefore carried some weight.

The number of high-tech products and processes is high. We start with numerically-controlled machine tools (NCMTs) for two reasons: machine tools have always been important products of some of the. Eastern countries and, secondly, MTs were the medium through which the new microelectronic technique was first adapted to the needs of industry.

Simpler NC soon gave way to CNC (computerised NC) and nowadays one unit of NCMT may vary from the simplest NC lathe (price maybe [BRITISH POUNDS]20,000) to a complex machining centre shaping the metal in any direction including curvatures in three dimensions (costing about [BRITISH POUNDS]1.5 million or more).

Some of the East European countries play important roles in the world machine tool market. In 1989, East Germany accounted for almost 7 per cent, and Czechoslovakia for over 2 per cent of world exports of MTs. The USSR was the world's third largest producer of MTs (after Japan and West Germany).

The Czechs and Poles produced the first NCMTs in the Eastern bloc, towards the end of the 1950s; Hungary followed later, in 1964, and Bulgaria only in 1974. Yet the latter-Bulgaria--has developed the production of NCMTs the most rapidly. By 1985 she produced the highest number of NCMT units and their share in total MT production was also the highest. This was because Bulgaria had been appointed, by agreement, as the specialised producer of certain types of NCMTs within the CMEA. These appear to have been relatively simple types accounting (in 1989) for 17.5 per cent of MT output by value. The much smaller number of NCMT units produced by Czechoslovakia made up 24 per cent of the production value in the same year (table 8). The average values of the produced units also point to the much higher sophistication of Czech machines. Only a tiny proportion of the Bulgarian NCMT exports could be sold in OECD countries (most of them went to other CMEA destinations), whereas the Czechs delivered one third and the Poles and Hungarians one quarter of their exports to OECD.

Analysis of the imports also reveals considerable differences between Bulgaria and the other countries. In 1989, only 11 per cent of Bulgarian machine tool imports originated in OECD countries, whilst the same proportion in the other three countries was around 70 per cent (table 8). Since the machine tools purchased from the West were of higher quality/performance and generally more advanced than those offered by CMEA countries, it appears that Bulgarian industry had little demand for advanced equipment and, presumably, this was reflected in its production pattern as well.

Considering numbers only (in other words, disregarding quality and performance of the machines) the Bulgarian industry again stands out: one ninth of its machine tool stock consists of NC machines. This is comparable to the Japanese level, which was itself ahead of the US and West European industries. Although difficult to believe, this might possibly have been the case since the machinery industry there was indeed well equipped, if quantity alone serves as a yardstick. The inclusion of quality would however greatly alter the comparison. The Hungarian NC stock (5 per cent in 1987) compares fairly well with West European figures; the Polish and particularly the Czecholslovak data are much lower. The probable explanation for the latter is that Czech-made NCMTs were easily exportable for hard currency and this was preferred, even at the cost of leaving the home industry lagging.

Each of the four countries covered in detail by our study has been operating a certain number of industrial robots. As table 9 indicates, there are difficulties with the definition and measurement of robots, but it also shows that the Eastern countries are seriously lagging behind the West in this area too.

Definitional problems are even greater when we come to flexible manufacturing systems; it will suff ice to say that some kind of flexible manufacturing systems have been installed--and may be in operation-in each of the Eastern countries studied. On a strictly comparable basis their number, relative to the industrial labour force, is also likely to be considerably lower than in the West.

An attempt has been made to analyse the production and trade in each of the four countries of products with high-tech content. The most noteworthy finding was the high value of the output and exports of office machinery and computers (SITC 75) in Bulgaria. This again--as in the case of simpler NCMTs--was the result of the concentration within the CMEA of the production of some of these products in Bulgaria. Ideological reasons might have contributed to this, presumably supported by the USSR: the fact that with progressive equipment and specialised patterns of production the advent of a highly-developed socialist economy would occur in the previously only semi-industrial country of Bulgaria. The degree of success is doubtful: whilst there are no arguments about the quantity, according to views of the trade in other CMEA countries the quality of Bulgarian high-tech products was often not up to the mark and the supply of spare parts remained unsatisfactory.

The impression gained by a more thorough study of the civilian high-tech area is that the Eastern countries are way behind the Western level. Probably the best illustration of this lag is the comparison of telephone stocks, which-as table 10 shows--are far lower than anywhere in the Western European countries.


Whilst the USSR is the leading world producer of oil, natural gas and coal, the East European countries are not so favourably endowed with energy resources (table 11). Coal is the only fuel produced in significant quantities but, apart from Poland, only a small part of the output is good quality hard coal.

The analysis of the energy balances of the Eastern countries (see the main report) indicates that whereas the USSR is a considerable exporter of energy-though its position would seem to be jeopardised by the recent severe decline in production-all the Eastern European countries rely to various degrees on imports. Even Poland, earlier a net exporter, turned into a marginal net importer in the late 1980s; Romania and East Germany imported about one quarter of their primary energy requirements in 1988, Czechoslovakia over one third, Hungary more than half and Bulgaria almost three quarters. Oil was the heaviest item on their energy import bill.

After the 1973 and 1980 oil shocks, serious efforts have been made in the West in two directions: to reduce energy use in general and the reliance on oil in particular. In both areas these efforts have achieved marked success. One of the aims of our investigation has been to assess the changes in these areas in the East.

We started by comparing per capita energy consumption in the East with that in the West. In 1988, per capita primary energy use was 15 per cent higher in Eastern Europe (and almost 50 per cent higher in the USSR) than in the West. in the period 1973-88, despite a strong increase in GDP, Western per capita energy use declined by 4 per cent; in Eastern Europe it rose by 13 per cent (and in the USSR by 46 per cent). in Czechoslovakia alone has there been a fall in this period.

Per capita electricity consumption--which used to be taken by some as an indicator of progress--was in 1988 25 per cent lower in Eastern Europe (and 7 per cent lower in the USSR) than in the West (table 12).

In the similar period, 1973 to 1987, in the West European countries total primary energy use either fell in absolute terms or rose much less than GDP; oil consumption fell everywhere (table 13). This was not the case in the East. In Bulgaria, Hungary, Poland (and particularly the USSR) energy use rose ahead of GDP; in East Germany and Romania the increase in energy consumption was significant but less than that of GDP; only in Czechoslovakia did the energy conservation effort achieve any success, in terms of both primary energy and oil. In all the other Eastern countries oil usage grew in absolute terms.

The use of energy tends to be very inefficient and damaging to the environment. As a result, the average specific energy consumption of these countries, by unit of GDP, is almost twice that of the Community, and the levels of polluting emissions are significantly higher. These countries are lagging behind considerably in the technological field and their infrastructures are inadequate or are not adapted to all stages of the fuel cycle.' (EC, 1990, p. 50)

Apart from the generally backward technology mentioned above, the roots of inefficiency are in the excessive size of energy-hungry heavy industries, the lack of reliance on high-tech controls, the pricing system and some other characteristics of the command economy.

The only positive point in the analysis of the Eastern energy economies was their high utilisation of nuclear power stations. Measured by kWh output per installed kW capacity, this compared favourably in 1988 with the West, with Hungary, Bulgaria, East Germany and Czechoslovakia (in that order).

International patenting

To have a patent granted internationally-say in the United States--is costly; and the costs have to be paid in US dollars. This is one of the reasons why the international patenting activity of Eastern countries -always short of hard currency--cannot be compared with that of the West in a straightforward manner. (There are of course other, similarly weighty reasons as well, stemming from other peculiarities of the command system.) it is therefore not surprising that the East European contribution to all foreign patenting in the US was small: in the 25 years ending in 1987 it amounted (without the USSR) to one third of one percent and that of the USSR to just under half a per cent.

There have been significant differences in the international patenting activity of the various countries of Eastern Europe, as measured by the number of patents granted to them in the US. Relative to their populations, Hungary and Czechoslovakia have been the leaders, with many more patents than the others (table 14). Of course, partly or chiefly for the reasons mentioned above, the number of patents of Eastern countries appears dwarfed by those of the Western countries.

Any patent, particularly an international one, is the result of successful research and development work. The detailed analysis of the patents granted to Eastern countries reveals their specific advantages in terms of R & D: their specialisation in certain areas. This kind of Eastern specialisation was found in a number of cases, such as for example agricultural chemicals, drugs and bio-agents in Hungary or nonelectric specialised industrial equipment in Czechoslovakia.

The performance' of East European R & D as revealed by their international patents should be interpreted in the light of their input into R & D. Our analysis indicates that although the number of R & D personnel was high, the expenditure on R & D per head of those working in that area was much lower than in the West and similarly much lower was investment in R & D, which means significantly poorer research equipment.


Despite their recorded growth, as measured by the Soviet-type net material product, the gap in the productivity level of the Eastern Countries as compared with the West widened very markedly during the forty years of central planning. They were not only slow to introduce some major innovations but, more importantly, they were seriously lagging in disseminating those innovations through their industry. The high technology related to military and space research remained isolated and in civilian application of electronics they are also far behind the West. The industrial structure is outdated, the technology mostly obsolete, the service sector neglected and undeveloped.

In this gloomy picture there are nevertheless a few glimmers of light. Even in the darkest period there has been proof of ingenious inventiveness, such as for example the Czech innovation of shuttleless jet looms or the Hungarian practice of converting traditional brick kilns into more energy-efficient equipment. Despite undeniable obstacles a respectable number of patents originating in the East have been granted in the US and their high concentration indicates considerable R & D expertise and specialisation in certain areas.

Thus, the basis, including the necessary 'human capital', probably exists to convert these economies into something that will eventually be comparable to the modern Western model. This conversion is likely to be difficult, however, and will take a long time.


Bean, L.H., 'International industrialisation and per capita income' in Studies in Income and Wealth, Volume Eight, National Bureau of Economic Research, New York, 1946.

Clark, Colin, The Conditions of Economic Progress, Macmillan, London, 1940.

(EC),'energy in Eastern Europe', Energy in Europe, no. 15, August 1990, Commission of the European Communities, Directorate-General for Energy.

Maddison, A., The World Economy in the 20th Century, OECD, Paris, 1989.


(1) This project has been supported by a grant from the ESRC (No. R000232684). The full report (Innovation and productivity in Eastern Europe--an international comparison, Report No. 2, pp.128) is available from the National Institute. Price [BRITISH POUNDS]10.00.

(2) 'Eastern Europe' is used for convenience throughout although it is realised that some of the countries concerned may rather be categorised into Central or Northern Europe respectively.
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Author:Ray, George F.
Publication:National Institute Economic Review
Date:Nov 1, 1991
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