Foreign trade as a means of division of labour in a modern, globalized world has irreplaceable significance for every economy. This of course is particular by the case for small states with relatively advanced industry but a limited internal market, such as the Czech Republic and the former Czechoslovakia. The stability of the Czechoslovak economy always depended directly on the effectiveness and success of foreign trade, since the above-mentioned factors amplified the problems of a limited raw material base for extensive industry (Czechoslovakia was self-sufficient only in fuel). Industry, which became established during the Dual Monarchy, was geared to service the more than 50 million-strong market of the Austro-Hungarian Empire. Small Czechoslovakia was forced to export a substantial part of its production and traditionally used exports to pay not only for imported goods, especially necessary raw materials, but also for food and various services (the so-called invisible trade, that is patents and licences, import of capital, tourism, transport, etc.). As the overall balance of services was always passive for Czechoslovakia, a trade surplus became indispensable.

Czechoslovak foreign trade after the end of the Second World War continued the tradition of its pre-war development. The economy, which up to 1948 functioned as a market economy in principle, naturally had to overcome the problems of the altered balance of power in Europe and the economic status of its traditional trade partners. The two biggest, Germany and Austria, temporarily lost their pivotal Central European economic positions and Czechoslovakia was forced to look for a replacement.

Introduction

The aim of this chapter is to give an analytical overview of the foreign trade between Austria and East Central Europe from the 1940s to the 1980s. The study presents aspects of stability and aspects of change. The first section is devoted to structural features which show considerate persistence over time. Three important characteristics are highlighted: a high degree of economic interdependence between Austria and other East Central European states, persistent patterns of trade, and specific relations of economic growth with export supply and import demand in the socialist economies. The following section analyses structural changes, which reflect three phases of different trade regimes. In the first part of that section, a general survey is presented, with respect to relevant political and economic aspects, and the development of contractual relations is addressed. Statistical features of trade development and estimates of trade functions are discussed in the second part. The chapter concludes with a summary of the findings.

The term ‘Eastern trade’ is used for trade relations between Austria and the seven most important trade partners within the Council for Mutual Economic Assistance (CMEA). To provide clarity, this group is named CMEA7 in the text. In some econometric estimates data for the GDR are omitted. The reason for this lies in the lack of valid GDP data and in the specific nature of economic relations between the GDR and the Federal Republic. The Eastern group without the GDR is referred to as CMEA6.

Introduction

This chapter analyses the relationship of the largest Czechoslovak automobile company, Škoda Auto, with its dealers in the neutral countries in the years from 1948 to 1964.

The takeover by the Czechoslovak Communist Party in February 1948 and the rising tensions of the emerging Cold War isolated the Czechoslovak manufacturer from the other European and global producers. This translated into a wholesale shift of the commercial, financial and technical relationships that Škoda had originally established, resulting in a redirection of the export of its motor vehicles towards the Soviet Union and the CMEA countries.

Nonetheless, behind the Iron Curtain, Škoda technicians continued jealously to preserve their own technological ‘know-how’, acquired before 1949 and for the most part foreign to the Soviet industrial paradigm. In the light of this, this chapter argues that the technical and commercial relationships maintained by Škoda with its dealers in the neutral countries – in particular Finland, Switzerland, Austria and Sweden – during the first and second five-year plans, played an important role in stimulating and directing the modernization of Czechoslovak automobile production.

From this perspective, the letters of grievance received by Škoda and Motokov – the state monopoly in charge of exporting automotive products – from their Austrian, Scandinavian and Finnish partners are examined. In the late 1950s, these letters, pointing out defects and bottlenecks of both Škoda production processes and products, seem to have been used by the technicians responsible for the Czechoslovak motor vehicle industry as a valid learning tool.

Introduction

Trade with the Soviet Union during the Cold War was of no major importance for the Swiss economy as a whole, although it was considered vital for some export-oriented firms, especially of the machine industry. Between 1945 and 1970 it remained less than one per cent of the total volume of foreign trade. For the Swiss authorities economic relations with the Soviet Union were primarily a means of demonstrating the time-honoured principle of neutrality.

Swiss neutrality looks back on an extremely long tradition. After the defeat at Marignano (1515) the Confederacy had definitively withdrawn from European wars and politics, in which until then it had played a not unimportant role. The new strategy of ‘stille sitzen’ (keeping quiet) was not yet a policy of active neutrality. Nevertheless it proved extremely successful: Switzerland managed to keep out of the innumerable European wars and was not invaded by foreign armies until 1798, when revolutionary France conquered the country. After the Napoleonic wars Swiss neutrality was re-established and recognized by international law at the Congress of Vienna (1814/15). Thus, a strategy that had originally been a simple guideline for foreign policy resulted in an important part of Swiss national identity.

Strictly speaking and from the point of view of international law, the principle of neutrality applies only in times of war, and means that neutrals must not take part in military actions on either side. They are, however, free in their trade relations with the belligerents.

Introduction

In the overall context of Austria's economic relations with the Central European, East Central and South-East European socialist countries, the Soviet zone of occupation of Germany, and, from 1949 onwards, the German Democratic Republic (GDR) is a special case. This is true in the sense that Austrian–East German economic relations were not rooted in the specific economic links which had for centuries existed between Austria and the other Länder of the Habsburg Monarchy – links which, despite rather strong tendencies towards economic nationalism in the ‘successor states’ during the inter-war period, had never been completely severed.

Apart from that, Austrian–East German economic relations were shaped by four basic determinants. Firstly, both partners were relatively well-developed industrial countries. From this follows the fact that the ‘objective’ opportunities for co-operation on a technologically advanced level were very high; at least they were higher than the potential for co-operation between these two industrial countries on the one hand and the less industrialized or agrarian CMEA countries (with the exception of Czechoslovakia) on the other. Secondly, it was impossible to make the most of these opportunites because bilateral economic relations were impeded by ‘systemic conditions’: that is by the fact that a centrally planned and administered economy of the Soviet type established contacts with a (Keynesian) market economy. The inflexibilities inherent in centrally planned systems, especially the specific methods by which these economies organize their external relations (above all the foreign trade monopoly of the state and the inconvertibility of the currency), were somewhat obstructive to economic co-operation reaching beyond national boundaries.

This chapter presents an analysis of three phases and of the beginning and the end of geopolitical influences on ‘trade with the East’ in Austria. The second half of the year 1945 has deliberately been chosen as the starting point for the reflections presented here, although it is well known that Austrian neutrality, a product of the State Treaty negotiations of 1955, was not adopted by parliament as a constitutional law until 26 October 1955. This chapter will focus on the basic geopolitical framework and the historical context of the export trade, and ultimately also on the import economy. What is not intended here is an analysis from the point of view of the history of economics; some excellent analyses of this kind are indeed forthcoming.

Economic war getting off to an early start in 1945

While Sweden and Switzerland managed, albeit slowly, to adapt their neutral-political objectives to the emerging realities of the geopolitical confrontation straight away in 1945, Austria was itself a bone of contention in the East–West conflict from the moment of its rebirth as a state. The provisional government of Karl Renner, established in Upper Austria on a Soviet initiative and comprising representatives of the equally newly founded parties, SPA, APP and CPA (that is, Social Democrats, People's Party and Communist Party), in fact constituted a breach of inter-Allied agreements: such a premature government was not part of the pact that had been made, and it was only with difficulty that the Western Allies could be persuaded that this was not another case of a communist puppet government.

Finland was, until the beginning of 1991, the last remaining developed market economy to trade with the USSR on a bilateral basis, with a clearing payment system. This trade system shared features with those prevalent among the CMEA countries. There is, however, a paradox. Within the CMEA the trade system was often – and over the years increasingly – criticized for being inefficient and, as a crucial part of the centrally managed – Soviet-type – economic system, indeed a major source of retarded development. In Finland, on the other hand, bilateral trade was – and, as we shall see, still is – regarded as a major factor in the achievement of the above-average economic growth rates that the country enjoyed in the post-Second World War period. This paradox needs to be explained.

In two earlier articles the current author has taken two of the available paths for approaching the paradox. The first one is an overview of existing analytical research on Finland's Eastern trade. Most of it dates from the 1980s or early 1990s, has also a practical interest tied to that time (‘should the bilateral trading system be/have been continued?’), takes up a number of interesting hypotheses, but yields only limited answers. This is to a great extent because company-specific information on the profitability of exporting to different markets is not available. Typically, even the companies involved would not have calculated that. The second article adopts a somewhat more exotic approach, looking at the opinions and interpretations prevalent in what can be called the ‘folklore’ of Finland's Eastern trade.