How Israel Won the Six Day War in the First

The Six-Day War between Israel, Egypt, Syria, and Jordan established Israel as a great military power in the Middle East. In less than a week, Israel was victorious over the Egyptian forces. How is it that a nation as small as Israel could defeat the biggest power in the Arab world? Due to the well prepared planning, better leadership, and mistakes and carelessness of Egypt, Israel was able to gain control of the Sinai Peninsula, Golan Heights, West Bank, and the Gaza Strip, approximately a geographical location four times bigger.[1] Israel had essentially won the war after the tremendous success of the first day of fighting.

Leading up until the first day of fighting, the troops of Egypt, Syria, and Jordan mobilized their troops on Israel’s borders in what would be an all-attack.[2] At 0710[3] on June 5, 1967, sixteen Magister Fouga jets took off from Hatzor Airfield. Within twenty minutes, 200 planes were in the air for Israel’s preemptive air strike on the Egyptian Air Force, owning approximately 385 aircraft. This would prove to be the most important move by the Israelis. By 0740, the last Egyptian MiG-17 and MiG-21 fighter-interceptors had landed after their successful half-hour combat air patrols along the Egyptian-Israeli border in Sinai. The last of the pilots then joined the rest of the comrades at breakfast.[4] They flew extremely low, sometimes no more than fifteen meters high, to avoid detection by any of Egypt’s eighty-two radar sites[5] as well as Soviet and American.[6] While observing radio silence and using hand signals, even as flight paths crossed, Colonel Rafi Harlev, chief of Israel Air Force (IAF) operations, told his pilots that in the event of mechanical trouble, they could not call for assistance; they were instructed to crash in the sea. This allowed the planes to reach the Egyptian coast undetected.[7] Every morning the IAF ran routine flights, flying west across the neutral Mediterranean Sea. In Egypt, the radar operators noticed the daily morning flight and thought nothing of it since the flights had been flying regularly for two years.[8]

This surprise attack was extremely successful because of the Israelis’ secrecy of the mission. Only a handful of the ministers knew of the operation, and members of the general staff received no more than a single-page summary.[9] Egypt received a warning from Jordan’s radar facility, supplied by the British, at ‘Ajlun, near Jeras. One huge mistake made by the Egyptians consisted of changing their encoding frequencies the previous day, but without updating the Jordanians.[10] The Egyptian Defense Minister had gone to bed just a few hours before the attack, and left strict orders not to be disturbed.[11] This was also another minor mistake by the Egyptian military. The attack was so successful that the Arabs originally concluded that the British and Americans had assisted Israel with aircraft, but this hypothesis was eventually discontinued.[12] One of the men responsible for the tremendous success of Operation Focus was Commander Mordechai Motti Hod. Hod had earned a reputation as a “skilled and cool-headed pilot,” and known more for his resourcefulness and grit rather than brilliance. He concentrated on refining Focus, shortening the turnaround time for refueling and rearming to eight minutes, whereas the Egyptians’ turnaround time was a whopping eight hours.[13] The conditions for the attack were optimal, with visibility being excellent and the wind factor close to zero. The jets flew up as high as 9,000 feet and then dove after the Egyptian radars went off. The planes approached in foursomes and attacked in pairs.

Another reason why Egypt suffered such heavy losses is due to the superior Israeli strategy. On the first morning of the attack, Israel sent all but twelve of its jets in a massive assault on the Egyptian airfields. Since the Egyptians had virtually no defensive infrastructure there were no armored bunkers to house and protect the planes. The lining up of Egyptian MiGs in neat rows on the airfields also helped the Israelis in destroying several aircraft.[14] The tactic of bombing the runways of the Egyptian airstrips along with the fighter jets allowed Israel guaranteed air superiority since the planes that were not hit were rendered virtually useless since the runways were destroyed by tarmac-shredding penetration bombs.[15] The bombs began to fall right after radio contact with Kabrit air base near Cairo went dead.[16] Half of the eighteen Egyptian front-line airfields between mid-Sinai to Cairo were each struck by four Israeli bombers starting around 0745. Moments later, a tenth Egyptian runway was attacked at Fayid.[17] Radar screens were also destroyed, twenty-six Egyptian screens, sixteen in Sinai.[18]

One part of Israel’s ingenious tactics involved the types of bombs used on the planes and flight patterns. The small rockets on the bombs allowed the explosives to dive straight downward, even through a concrete runway surface, and retard forward motion. The young Israeli pilots optimized the use of their payloads by flying up and diving down steeply and then released the bombs in order for higher accuracy.[19] The Israeli jets also flew in strafing patterns in order to avoid being hit by air-to-ground missiles that were equipped with infra-red heat-seeking systems. Due to the swiftness of the turnaround time and strafing tactic, each pilot made two, and sometimes three, strafing passes.[20] This surprise air raid was a key factor for winning the war – without air support, Egypt was doomed in their fight against Israel. In all of the first morning’s confusion, the Egyptian military did not know whether to attack or defend themselves. At night after the first day of fighting, Israel had complete control of the sky. Hod had reported that 387 Arab aircraft had been lost, Egypt with the most at 300 MiGs, 280 of them being destroyed on the ground alone and 204 jets lost within the first thirty or forty minutes of the air raid.[21] Syria lost 52 planes, Jordan 20, and Iraq with the least at 15. Only 19 Israeli aircraft had been lost and nine pilots killed, approximately ten percent of its total strength.[22]

At 0815, Israeli troops began their ground offensive against the UAR forces in the Sinai Peninsula, employing a three pronged attacked each supported by a division of about 15,000 men.[23] The Egyptian commanders had sent a large chunk of their troops in the southern region of the Sinai Peninsula several days before the initial attack since they anticipated an Israeli offensive from the coast of the Gulf of Aqaba, resulting in an attack at Egypt’s weakest point, the northern coast of Sinai.[24] General Tal commanded the first column, assaulting Khan Yunis with tanks at the southern end of the Gaza Strip and headed west. The second column, led by General Ariel Sharon, headed toward the heavily fortified Egyptian complex of Abu Agweigila, situated about 25 miles southeast of El Arish, which would be captured by the end of the day. The third force, headed by General Avraham Yoffe, penetrated Egypt between the other two columns and came around behind the Egyptian forces that were being attacked by Tal’s column to prevent an escape route to the west. Thousands of Egyptians were taken as prisoners in the battle for Gaza, including the military governor of the Gaza Strip, General Abdul Monam Husseini.[25] After the defeat at El Arish, Tal split his forces into two groups, one heading west towards El Mazar and the other group turned south to join Yoffe’s column, which was preparing to combat the UAR army’s second defense line.[26]

In comparison to the IAF, the Jordanians grew tired of waiting for their unreliable allies. Sixteen Hawker Hunter jets took off to bomb Israeli bases. They came back thirty minutes later claiming they destroyed four planes on the ground without losing any men. These were the only aircraft they saw, since Israel concentrated their efforts on destroying the Egyptian Air Force.[27] The Israelis in Tel Aviv were about to place their attention elsewhere. Hod gave the order to go to the next phase of Operation Focus, the attack on Syria and Jordan.

At 1235, the Israelis attacked Mafrak Airbase in Jordan. The air raid left craters 5 meters wide and 1.6 meters deep and left Durendal bombs inside the craters. These bombs were equipped with timers set to go off at random intervals, thus disallowing repair on the runways. They also had a mercury switch that was set to explode if they were moved, rendering the already destroyed runways completely useless.[28] The Durendals were a top-secret device created jointly with French developers. These bombs weighed 180 pounds and were stabilized by a retro-rocket and a parachute until the bomb was directly over its target and pointed at a 60 degree angle downwards. Over 100 Durendal bombs were dropped on Abu Suweir, Egypt alone in less than one hour.[29]

In order to help cover their aggression, Israeli ambassadors announced that the Egyptian ground forces had started the fighting by firing artillery on Israeli border villages. Radar screens indicated that early on the first day of the war, Egyptian planes were headed toward Israel’s coast on the Mediterranean and the Negev Desert. As a result of this “report,” the Israelis sent jets to intercept the planes.[30] Even Prime Minister Eshkol lied to President Johnson, sending a message about Egypt’s aggression “culminating in this morning’s engagements and the bombardment… in Israeli territory.”[31]

The Israelis were not the only ones lying. When Nasser telephoned Field Marshal Amer about their losses, he would not give a straight answer. When Nasser demanded to know, Amer responded with a loss of forty-seven planes, with most being able to be repaired. By lunchtime on the first day, Egypt lost all of its heavy and light bombers, along with most of its fighters.[32] Eventually Nasser found out the truth about Egypt’s situation before 1400 that day. Even radio broadcasts were reporting that Arab forces had shot down twice the number of Mirages Israel had.[33] The Egyptians claimed that the forces of the UAR, Syria, and Jordan shot down 161 Israeli planes. Cairo reported only two Egyptian losses.[34] Because of the false reports, when Israeli jets approached Mafrak Airbase in Jordan as previously mentioned, they assumed they were allies, until the jets started attacking.[35] The IAF also managed to kill one of the Jordanian squadron commanders, Major Firass Ajlouni as he was trying to take off in his already damaged plane.[36]

Not only did the Israelis have the element of surprise and sophisticated military equipment, they also had excellent military leaders such as General Tal. Tal had served in the Jewish Brigade Group, part of the British Army. Educated in philosophy at Hebrew University, he rose through the ranks of the Israel Defense Forces (IDF) and later commanded the Armored Corps. Tal was also a bit of a technical genius, he was awarded the Israel Prize for important inventions in the field of security twice, and later designed an Israeli battle tank, the Merkeva, or Chariot tank, which at the time was one of the most advanced tanks in the world.[37] He later became adviser to the Minister of Defense on development and organization.

The Israelis had another brilliant leader in Moshe Dayan. He was a recipient of the Distinguished Service Order, one of Britain’s highest military honors, for his fighting with the Australian 7^th Infantry Division, which was combating the Vichy French during World War II.[38] This is when Dayan lost his left eye and wore an eye patch, which would become his trademark. During the 1948 Arab-Israeli War, Dayan was commander over the defensive effort in the Jordan valley and later given command over several military units on the central front. Between 1955 and 1958, he was the Chief of Staff of the IDF and commanded forces during the Suez Crisis.

In the end, Egypt and the rest of the Arab world had been destroyed by Israel. The superior tactics of Israel, advanced equipment, mistakes and carelessness of the Egyptian forces, and better leadership led to complete Israeli victory by the end of the first day. The Israeli forces lost approximately 600 to 700 men, which pales in comparison to the Arabs’ 25,000.[39] The outcome of the war did not lead to a peace settlement between Israel and its neighbors – the land won during the Six-Day War is still in dispute today. Because of Israel’s supreme military strength, the Israeli’s have relented from backing down from an enemy they know they are capable of defeating.

---

[1] “Six-Day War.” Wikipedia online (2005). http://en.wikipedia.org/wiki/Six_day_war. 5/5/05.
[2] Tuchman, Gary. “Mideast 101: The Six Day War.” CNN online (2002). http://archives.cnn.com/2002/WORLD/meast/04/14/me101.tuchman.1967/. 5/6/05.
[3] All times are Israeli military time.
[4] Hammel, Eric. Six Days in June, How Israel Won the 1967 Arab-Israeli War. ibooks, inc.: New York. 1992. Page 166.
[5] Oren, Michael B. Six Days of War, June 1967 and the Making of the Modern Middle East. Oxford: Oxford University Press. 2002. Page 170.
[6] Hammel, 166.
[7] Oren, 170.
[8] Hammel, 165.
[9] Oren, 171.
[10] Oren, 172.
[11] Oren, 172.
[12] Kosut, 74.
[13] Oren, 174.
[14] Kosut, 72.
[15] Wikipedia online.
[16] Hammel, 166.
[17] Hammel, 166.
[18] Kosut, Hal. Israel & the Arabs: The June 1967 War. Facts on File, Inc.: New York. 1968. Page 72.
[19] Hammel, 167.
[20] Hammel, 167.
[21] Oren, 175.
[22] Bowen, Jeremy. Six Days. Simon & Schuster: London. 2003. Page 150.
[23] Kosut, 74.
[24] Kosut, 74.
[25] Kosut, 74-75.
[26] Kosut, 77.
[27] Bowen, 137.
[28] Bowen, 157.
[29] Oren, 174.
[30] Kosut, 66.
[31] Bowen, 137.
[32] Bowen, 139.
[33] Bowen, 144.
[34] Kosut, 73.
[35] Bowen, 145.
[36] Bowen, 145.
[37] Herzog, Chaim. The Arab-Israeli Wars. Random House: New York. 1982. Page 155.
[38] “Moshe Dayan.” Wikipedia online. (2005) http://en.wikipedia.org/wiki/Moshe_Dayan. 5/5/05.
[39] Tuchman, Gary. CNN online.

Asian Attitudes Towards Japanese

I wrote this paper for a class called "Modern Japan" at Rice. It primarily deals with the present-day attitudes of Koreans towards Japanese.

The first major contacts and conflicts between the Japanese and Koreans occurred during the Japanese invasions from 1592-1598. Led by General Toyotomi Hideyoshi, the man responsible for unifying Japan in 1591, these invasions were primarily naval battles fought in two different waves beginning in 1592 and 1597.[1] Originally the Japanese requested free passage through Korea to invade China. King Sonjo sent envoys to unearth Hideyoshi’s true plans. When the envoys returned, there were conflicting reports, and the Korean king chose to believe the report that Japan really wanted passage and would not attack Korea. The purpose of the Japanese attacks was to conquer Korea in order to gain a better position to eventually attack China since the Koreans refused to allow passage.[2] There were no military preparations due to this report by the envoy sent by King Sonjo. After suffering heavy defeats, the Korean forces chose Admiral Yi-Soon-Shin and his fleet of kobukson, or “turtle boats,” to lead and eventually defeated the Japanese in one of the largest naval battles in history. The kobukson were the first iron-clad boats to exist, preceding the Monitor and the Merimac of the American Civil War over two and a half centuries later. Korea would begin an isolation policy of her own due to these attacks, earning the nickname the “Hermit Kingdom,” and would not come into much contact with the Japanese until the nineteenth century.

In 1876, twenty-two years after the Japanese signed a treaty with the United States, Japan utilized the same western style gun-boat diplomacy on Korea to open her doors for trade with the signing of the Kanghwa Treaty.[3] Due to rising Japanese resentment, King Kojong declared himself the emperor of the Taehan Empire, an independent Korea, in 1907 after the murder of this wife Queen Min in 1895. She was stripped naked, raped, and then burned alive by the Japanese.[4] This declaration by King Kojong would later prove pointless as Japan encroached on Korea during the Russo-Japanese war in 1905. The two nations signed the Japan-Korea Protection Treaty enacted on November 17, 1905, which would eventually lead to the annexation of Korea to the Japanese Empire in 1910.[5]

After being annexed by Japan in 1910, the Japanese implemented several laws, including the ban of the Korean language. Korean was banned in public places, schools, and places of business. Japanese became the official language of Korea in 1910, forcing housewives to attend classes to learn Japanese.[6] Koreans were also forced to adopt Japanese names. The attempt to change Korean culture and identity is not the only factor for the resentment.

Violence against Koreans was commonplace during the Japanese Occupation. It did not take long for movements and political groups to call for Korean Independence. A movement on March 1, 1919 involved between half a million and two million Koreans demanding freedom from Japan. In response to this huge rally, the Japanese fired into crowds of Korean Christians singing hymns and crucified Christian leaders, saying that they “can go to heaven” by being nailed to wooden crosses.[7] In addition to these killings, churches were burned and young children were beheaded by mounted policemen. The differences in the Japanese and Korean reports of the violence were extremely skewed. Japanese and Korean accounts were 533:7,500 killed, 1,409:15,000 injured, and 12,522:45,000 arrested, respectively.[8] Later in September of 1920 in Manchuria, a Korean Independence Army occupied Hunchun and killed all the Japanese in the town. In response to this, the Japanese Army sent two divisions to crush the KIA. About 2,000 Japanese soldiers were killed, with 3,000 Korean survivors fleeing to Siberia. The Japanese retaliated by killing over 6,000 Korean civilians; women and babies bayoneted, village elders burned alive, captured soldiers either quartered or skinned alive, and Christian pastors crucified.[9] Another incident involving discrimination and killing of Koreans at the hands of the Japanese is the Kanto Earthquake on September 1, 1923. The earthquake occurred around noon time in Tokyo, and hundreds of fires broke out and swept through the city just after lunch. With the mass chaos and confusion that soon ensued, Koreans were blamed for the tragedy. People suspected of being Korean were told to speak to find any hints of an accent. Anyone with Korean accents in their Japanese were beaten and antagonized. After a paper reported that Koreans were planning “treasonous and rebellious plots,” between 3,000 and 6,000 Koreans were executed.[10] These events in Korean history are just minor contributors to the resentment towards Japanese. The jugun ianfu (comfort women) employed by the Japanese are one of the most heated topics as far as the history between Japan and Korea are concerned.[11]

Beginning in 1932, the Japanese Army opened up comfort stations in an attempt to placate the numerous reported rapes by the Japanese troops.[12] Jugun ianfu was a euphemism for the real word, teishintai, which translates to “voluntary corps.”[13] The soldiers would pay a fee, receive a ticket with a condom, and then admitted into a room which was often partitioned with sheets in order to save space. They would recruit women by using the strategy of offering the young girls jobs in factories or other deceptive means. If the family found out the truth, anyone caught trying to rescue their teenage relatives would be either beaten or murdered. These women serviced between twenty and thirty men a day. The girls who resisted the forced sex were either beaten or killed. Several women became sterile from the repeated rapes, and anyone who became pregnant or caught a disease would be given shots of an antibiotic called terramycin, which would usually cause an abortion.[14] The Japanese government recruited between 80,000 and 200,000 women from throughout the Japanese Empire, but a majority of them came from Korea.[15] The social stigma in Korea attached with this event in history forced women to keep quiet about their experiences until recently in the past couple decades. To this day the Japanese government has yet to issue a formal apology and an acknowledgement of the atrocities committed against Korean women by Japanese troops.

Albeit it has been half a century since these actions were committed by the Japanese, many Koreans today hold a grudge with the Japanese. By polling several college students in Korea with five questions each, I received some expected and unexpected responses. The first question was, “How do you feel about Japanese people?” As mentioned earlier, the answers were varied, but many students’ answers were similar with each others’. Out of the eleven students polled, the first question asking for their personal opinion of the Japanese drew six responses of “I hate Japan,” two that said they liked Japan, two that replied they did not care, and one who misunderstood the question completely.[16] One of the hate responses stated they hate the Japanese for no reason and that they believe that Japanese are “two faced.” Another student simply rejects Japan and the Japanese all together, while another student uses a racial term jok ba li, which does not translate to anything specific in English. An additional response to the first question was that the Japanese and Koreans are physically close in geography, but mentally they are far apart. The student further stated that Koreans are interested in Japanese culture, but not the people themselves. A fifth student replied that she never had good feelings toward Japan.[17] It seemed that the majority of the students dislike Japan in a social context.

For the second question, I asked, “How do your parents and grandparents feel about Japanese?” After the first question was asked, two students said that “I don’t even want to think about that” and “I don’t want to talk about that,” clearly displaying irritation at the subject of the question. One student replied that their parents do not particularly like Japanese, but his grandmother absolutely hates them. Another responded that his parents have stronger negative attitudes toward Japanese, and that his parents do not even want to learn about the Japanese culture. The most interesting response for this question came from a student that wrote that the older generations think the Japanese are “insane” since some of the Japanese, even politicians, still go to the World War II shrines and worship the ashes of the dead.[18] This clearly shows that some Japanese have little or no remorse for the actions committed during World War II. A forth student replied that many parents do not have a particular personal reason for disliking Japan, they just simply “hate them.” The majority of the students believe that the older the person is, the more hatred they have for Japan.

The third question asked, “In your opinion, how do you think Korea feels about Japan?” Many of the students misunderstood this question, thinking that I meant a relationship in the sense of economics and politics, rather than Korea as a whole. For the political answer, a few believed that Korea should take more action about a territorial dispute that is currently a hot topic. Japan asserts the Dok Doh Islands as her own, while the Korean citizens want their government to claim the island back. One student did not understand why the Korean government allows Japan to keep the territory without a dispute. As far as the answers I was looking for, one student said Korea will not accept Japanese culture or anything else they have to offer, contrary to what one student stated earlier. A different response maintained that the relationship between the two countries is better than it used to be. He continued that Koreans still dislike Japan since they never issued a formal apology and repented for the comfort women and other horrors committed during the occupation. He pointed out that Germany had apologized for their actions toward the Jews during World War II and monetarily paid for what they did. An amusing answer came from the same student who used the racial term in question one, which he said he wants to “destroy Japan.”[19]

I asked the students in the fourth question, “What do you think is the main reason for the difference in opinions between young and old generations?” This question had an obvious answer. Several students previously addressed that history is the reason for the differing opinions between their parents/grandparents and the youth of today. Experiencing the occupation and reading about it in books are two completely different methods of education answered one student. Another stated that their parents always heard stories from their grandparents about how horrible the Japanese were, and the evil things they did. In short, the experiences are the determining factor in why a large gap exists in opinions between young and old.[20]

Finally, for the last question I asked, “Will Japan and Korea ever truly be friendly neighbors?” Again, many students believe that until Japan issues a formal apology to the Koreans for the acts committed, Koreans will have a stronger negative attitude toward their neighbors. Some of the students gave a time frame for when they felt Japan and Korea will put the past behind them, ranging from fifty to two-hundred years. The student who answered two-hundred years did not say that it would be definite, but that it “MIGHT” happen after two centuries. Others suppose that this is purely a hypothetical question, answering that it will “never happen” or it is “impossible.” One interesting view expressed by a student was that the younger generations do not truly dislike the Japanese, only because that is how they are raised. He pointed out that in America blacks and whites, for the most part, get along with each other, but there are still blacks that are bitter about slavery.[21]

In summation, the friendship between Korea and Japan has been strained due to the history between the two countries, especially the Japanese Occupation between 1910 and 1945. It is only natural for a group of people to dislike, distrust, and to prejudge another group if “bad blood” exists throughout the history between the two. Many believe this social strain between Japan and Korea will last for at least the next century, while others think the tension will last forever.

---

[1] http://www2.hawaii.edu/~sford/research/turtle/. May 1, 2004.
[2] http://www2.hawaii.edu/~sford/research/turtle/. May 1, 2004.
[3] Gordon, Andrew. A Modern History of Japan. Oxford University Press. 115.
[4] http://www.kimsoft.com/2002/jp-rape.htm. May 1, 2004.
[5] http://www.gkn-la.net/master_timeline.htm. May 1, 2004.
[6] http://www.gkn-la.net/master_timeline.htm. May 1, 2004.
[7] http://www.gkn-la.net/master_timeline.htm. May 1, 2004.
[8] http://www.kimsoft.com/korea/jp-hist1.htm. May 1, 2004.
[9] http://www.kimsoft.com/korea/jp-hist1.htm. May 1, 2004.
[10] Gordon. 154.
[11] http://csf.colorado.edu/bcas/sample/comfdoc.htm. May 1, 2004.
[12] http://research.unc.edu/endeavors/win97/comfort.html. May 1, 2004.
[13] http://csf.colorado.edu/bcas/sample/comfdoc.htm. May 1, 2004.
[14] http://research.unc.edu/endeavors/win97/comfort.html. May 1, 2004.
[15] http://research.unc.edu/endeavors/win97/comfort.html. May 1, 2004.
[16] Written Poll, conducted by Rob Paek. April 8, 2004.
[17] Written Poll. April 8, 2004.
[18] http://www.ananova.com/news/story/sm_374340.html. May 2, 2004.
[19] Written Poll. April 8, 2004.
[20] Written Poll. April 8, 2004.
[21] Written Poll. April 8, 2004.

Soviet Transition to a Market Economy

I wrote this paper my last year at Rice. This was for a course that was a history seminar, but it seemed more like an anthology course. Anyways, I had to pick some type of subject that dealt with Eastern Europe and political change (or something like that). So I chose to do a paper geared towards economics, but I'm not good at economics, in fact I suck at it, but nevertheless, I think it's a decent paper. It got me an A.

Russia’s transition to a market economy yielded no significant changes in the social organization of production. Naturally there was some doubt as to whether Russia was undergoing a transition to capitalism at all. The transformation of the Soviet Union into a modern, capitalistic Eastern Europe obviously did not occur overnight. This transition to a market economy is an ongoing process. This concept of transition economies surfaced in the early 1990s after the collapse of the Soviet Union. Approximately 25 communist or planned economies undertook the transformation from a centrally planned to a market-based economy, as well as the transition from single-party states to liberal democracies. Economic growth has a substantial impact on a nation’s economic performance. Naturally, economic growth is the primary objective in a nation’s economic policy (Deliktaş & Balcilar 7). Similar to post-Socialist Europe, other countries throughout history have undergone comparable patterns, often involving slow economic growth and currency inflation. Any change of government, whether the collapse of an old regime or a revolutionary movement – economic turmoil, if not recession, is almost always imminent. This paper discusses issues such as modes of production, national currencies, inflation, dollarization, and the transition to a market economy in Post-Socialist Eastern Europe.

Soviet Management Practices

In his entry in Post-Communist Economies, Simon Clarke writes about the management of holding companies in Russia. He argues that the “spontaneous development of the institutions and practices typical of a capitalist market economy” was not the result after the fall of the Soviet Union (Clarke 405). It is almost impossible to imagine a nation’s economy with a changing government to assimilate quickly. As a result, several critics doubted whether or not the former Soviet states were in a transition towards capitalism. However, there was a form of capitalism in Eastern Europe, dubbed “booty capitalism.” Booty capitalism is when banks and trading monopolies extract profits and nothing is reinvested back into production (Clarke 405). Thus the only winners in booty capitalism are big businesses, not the common worker or nation as a whole. Since these “new” businesses fail to reinvest in alternative methods of production, it is sometimes labeled “industrial feudalism” because it allows traditional Soviet practices to continue (Clarke 405). One of the many reasons why the Soviet system of labor failed was due to the fact there was little, if not any, incentive for management to intensify labor, lengthen the working day, economize the use of resources, or increase productivity. Clarke further reports that the management style can be characterized as “authoritarian paternalist.” The enterprise director, as he calls it, had absolute authority in a hierarchical formal structure (Clarke 407). To achieve the production tasks and goals, a chain of command involving chiefs, section chiefs, foremen, and sometimes ordinary workers enforced a system of punishments and rewards. Any internal conflicts were resolved off the record (that is, no official reports are made) or via transfers; any other larger conflicts were directed against the higher authorities (Clarke 407). This method of conflict resolution appears strikingly similar to that of a capitalist workplace. It seems that any minor incident usually concluded with a warning or informal meeting rather than dramatic measures.

Even the management structure in the new economy seemed to be a hybrid of Soviet and Capitalist practices. High levels of professionalism and loyalty of the senior managers was a repeated theme. These senior managers often possessed both technical and higher educations. The new managers generally were young and studied abroad for management training. Due to the resentment that often stems from appointing people from the outside to senior positions (because it inhibits promotions), senior managers are either appointed internally or from the holding company’s own staff (Clarke 412). This creates a better working environment for both the company and the common man – the company is happy because the worker is happy, and the worker is happy because of the possibility of a promotion through hard work is now available in a capitalist economy. Naturally this allows for a small, if not a substantial, growth in production and productivity. The ability to climb the proverbial “corporate ladder” is a great incentive for employees to work harder.

Currency and Inflation

One of the major problems that former Soviet states faced was hyperinflation. After the Soviet Union broke up, ten out of the fifteen former states of the Soviet Union were hit by hyperinflation. Prior to 1993, hyperinflation has appeared a total of eighteen times in recorded world history (Åslund 49). Åslund believes hyperinflation can be attributed for the preliminary failure of the market economic reform in twelve members of the Commonwealth of the Independent States (CIS). Åslund offers evidence for his theory – three Baltic nations, Estonia, Latvia, and Lithuania, broke out of the persistence of the common currency area in the CIS in 1992 and escaped hyperinflation, along with Kyrgyzstan, the first CIS member to establish its own national currency in May 1993 (Åslund 49). Albeit Kyrgyzstan is not an economic powerhouse, the ability to prevent hyperinflation is one step toward building a solid economy. Åslund also believes that even factors such as the years of communism, geography, and the degree of economic distortions are not as important of a factor for a post-communist transition compared to membership in the ruble zone. He blames the IMF for the preservation of the ruble zone, deeming it the “worst single mistake in the post-communist transition in terms of cost” (Åslund 50).

Nevertheless, in the end the preservation of the ruble zone stabilized. According to scholars John Odling-Smee and Gonzalo Pastor, there were three policy options open for the alternative currency regimes: “a cooperative ruble area arrangement in which all participating central banks would have a say in credit and monetary policy for the ruble area; national currencies; and a Russia-dominated ruble area in which the CBR (Bank of Russia) would be solely responsible for monetary and exchange rate issues” (quoted in Åslund 50). Obviously the Russia-dominated ruble area was politically impossible, and people would question if the Soviet Union truly had broken up. By the end of 1991, all of the fifteen Soviet republics had set up their own central banks and began issuing money, independently of the other banks, including the Soviet Gosbank (Åslund 50).

Currently all of these former Soviet states have their own independent national currencies. The introduction of these national currencies helped financially stabilize each nation. The three aforementioned Baltic countries that created their national currencies first were also the first economies to stabilize (Åslund 50). Even though the national currencies were successful in stabilizing their own economies, it did lead to some problems. The fifteen banks were competing with one another in issuing credits. The more credits one bank or country issued, the bank or country received a larger share of the total GDP. The smaller republics could not issue as much money and therefore obtained a smaller share of the common GDP (Åslund 50-51). This clearly is a handicap to the smaller or poorer nations. That is one reason why the Baltic nations insisted on a national currency and introducing it as early as possible. It was believed to be impossible to control monetary production by more than one central bank in one currency zone through a cooperative agreement (Åslund 51). Through false reporting and the illegality of electronic payments, the Soviet republics did not trust each other and felt that mutual cheating was the only logical approach. It was obvious that a cooperative monetary system in one ruble zone was impossible to implement, and by breaking up the ruble zone, separate national currencies emerged to be the best alternative (Åslund 51).

Ukraine: Trouble with Transitioning

Besides Russia, Ukraine was by far the most important republic economically in the Soviet Union. In addition to producing four times the amount of the next-ranking Soviet state, its fertile black soil accounted for more than one-fourth of Soviet agricultural output (CIA World Factbook). Ukraine’s varied heavy industry supplied unique equipment, such as large diameter pipes, and raw materials to other regions of industrial and mining locations in the former Soviet Union. Because of Ukraine’s dependency on the importation of energy, notably natural gas, it imports approximately 85 percent of its annual energy requirements. Relying on foreign imports of energy, especially from other Soviet states can only lead to disaster with the dissolution of the USSR.

Robert S. Kravchuk writes, “The former Soviet Republic of Ukraine has suffered the worst of what economic transition has to offer” (Kravchuk 45). His evidence includes the country’s decreasing economic production in output, employment, productivity, and investment. During the two year period of 1991-1993, Ukraine’s inflation record was the worst of any former Soviet state with average monthly price increases of 33 percent in the beginning of 1992 to mid-1994 (Kravchuk 45-46). Kravchuk even labels Ukraine as an “economic basket case” due to its ridiculously fluctuating economy and continuous inflation. According to the definition of hyperinflation – a general monthly price increase in excess of 50 percent, Ukraine has been guilty of hyperinflation seven times during this period, six of them in the second half of 1993 (Kravchuk 46). These price inflations were accompanied by rapid growth and production of the money supply. The period of the greatest monetary expansion occurred between 1992 and 1994, around the same time as the highest price inflation. Monetary stabilization was achieved around mid-1996, approximately the same time as the introduction of Ukraine’s permanent currency, the Hryvna (Kravchuk 46).

How did the Ukrainian government benefit from inflation and not collapse in the face of adversity? Kravchuk suggests John Maynard Keynes’ theory that governments in general raise their revenues by purposefully inflating their currencies. Keynes wrote that a nation’s ability to “live for a long time… by printing paper money” and “live by this means when it can live by no other” (Kravchuk 54). This tactic essentially deceives the public as to the basic value of its monetary assets. The exclusive right for a government to issue new money is called seigniorage. The depreciation of existing money balances since the newly issued money is termed the inflation tax. The actual change in monetary holdings, or real balances, is equal to the sum of seigniorage and the inflation tax (Kravchuk 54). The combination of seigniorage and the “new” inflation tax help deceive, or cover up, the government’s weakening currency. Domestically, this is a brilliant way to mislead the public; internationally, the national currency becomes more worthless. Ukraine’s inflation began to dwindle around 1995-1996, mainly due to the implementation of fiscal reform backed by an IMF-sponsored program (Kravchuk 55). Luckily for the Ukrainians, their period of deception was relatively brief. Continuous years of purposefully inflating currency can only lead to a larger predicament for the government to patch up in later years.

Ukraine’s most significant success in the economic realm in its first half decade was the Currency Reform of September 1996 (Kravchuk 61). The aforementioned hryvna was announced on August 24, 1996 by then President Kuchma. Because it coincided with the fifth anniversary of Ukraine’s independence, the announcement was anticipated with much regale. One of the most important reasons why the previously used karbovantsi needed replacing by the hryvna was the inflation. The simplest of transactions could involve millions of karbovantsi (Kravchuk 61). This new currency obviously saved time in bookkeeping since the large amounts of karbovantsi needed allowed the record-keeping to be free of fewer errors. The introduction of the new currency also had to come at a time of relative price and monetary stability, to ensure not to disadvantage anyone in the reform. During the summer months of 1996, monthly inflation rates were a measly 0.1 percent, an ideal time for the currency conversion of 100,000 karbovantsi to 1 hryvna (Kravchuk 62). This basically eliminated five digits from prices.

The Ukrainian government should be applauded in their conversion efforts; approximately 95.5 percent of circulated cash was converted between September 2 and 16 (Kravchuk 62). The new currency also proved strong from its inception – the Ukrainian Interbank Currency Exchange reported that the hryvna started trading at 1.76 to the dollar, holding through October and slowly rising to 1.82 per dollar in November and 1.88 in December. Even the Russian currency exchanged at 3,000 rubles per hryvna and 1.18 to the Deutsch Mark (Kravchuk 63). It is extremely impressive that the Ukrainian currency proved to be significantly stronger than the Russian ruble. The elimination of dollarization and currency inflation via a new, stronger currency greatly assisted the Ukrainian economy. A stronger currency allows a nation to open its trading doors to other countries that may have been skeptical about the worth of their products and currency inflation, thus promoting economic growth through exports.

Dollarization and Poland

In addition to the issues of national currencies and stabilizing economies, dollarization can sometimes help control inflation. Dollarization is the use of any economically stable foreign currency as a country’s unofficial national currency. The United States dollar is often the most popular currency used, hence the term dollarization (Bien 68). Havrylyshyn and Beddies continue to define their definition of dollarization as to mean “the holding by residents of a significant but still partial share of their assets in the form of any foreign currency denominated asset” (Havrylyshyn & Beddies 330-31).

Visible forms of dollarization, that is, forms that can be measured, are cash dollarization, deposit/asset dollarization, and liability dollarization (Havrylyshyn & Beddies 331). Why does dollarization occur? Currency inflation is usually the primary reason; when the use of domestic currency for purchases and transactions is too high due to the lack of confidence in the local currency, it motivates the public to adopt a more reliable currency. Even more than a decade after these former Soviet states gained independence, the amount of dollarization is relatively high and even rising in some countries. Expectantly dollarization is lowest in the Baltics at 27 percent with the average rate of dollarization approximately 35 percent among the former Soviet states, and as high as 52 percent in Belarus (Havrylyshyn & Beddies 337). Regardless of Havrylyshyn and Beddies arguing that dollarization does have benefits, it is difficult to ignore the fact that the countries with the lower dollarization rates are the ones that have lower inflation rates and more stable economies, like the Baltic states.

There are several costly consequences of dollarization. It leads to the lower demand of domestic money because of reduced credibility in the local currency, forgone tax revenue through underground economic activity, and a facilitation of crime and corruption. Accounting for macroeconomic instability, dollarization can also lead to high inflation and depreciating exchange rates (Havrylyshyn & Beddies 330). Despite these negative aspects of dollarization, it does have an upside. Most studies initially believed that dollarization was harmful, but now indicate that it is not as damaging as previously thought and actually has a beneficial dimension in promoting the growth of financial market developments (Havrylyshyn & Beddies 329). This growth of financial market developments is made possible through better portfolio diversification, which can then reduce or even reverse capital flight. Since dollarization occurs as a free choice by rational economic agents, it can be used as an inflation-beating strategy (Havrylyshyn & Beddies 330).

The use of a foreign nation’s currency is not a new trend. Its classic form appeared during the hyperinflation period in Germany after World War I, peaking in 1923 (Bien 68). Dollarization comes in both direct and indirect forms. In the direct form, the foreign currency is mixed in with the domestic currency and performs the same functions, including circulation and payment. The indirect form is limited to a measure of value: the prices of products, services, and loans, but the regulation of obligations are still based off the “exchange rate of the national currency on the day of liquidation of the obligation” (Bien 69). Poland has utilized dollarization for several years prior to 1991, but after the fall of the Soviet Bloc dollarization was closely managed and limited by legal regulations. Initially it did not have a significant influence on the circulation of the local currency, but is now displacing the Polish currency in areas of economic and private life (Bien 69-70).

The legality behind dollarization began in Poland during the 1950s, but was especially favored in between 1980 and 1982 because of the general consensus of the weakening Polish zloty, and thus began stocking up foreign currencies (Bien 70). It is interesting to note that dollarization is often characterized by consumers using foreign money to purchase goods on the black market or in times of hyperinflation (the case of Germany between the World Wars). Poland actually used dollarization as a part of its economic reform – exporters were given the right to purge a portion of revenues earned in foreign currencies in the form of foreign exchange allowances. This included using these so-called allowances to pay for imported and capital goods, as well as transferring a portion of the allowances to their partners (Bien 70). In addition to these uses, exporters were allowed to cover major losses in exporting with their earnings from selling a portion of the foreign exchange allowance at rates above the official rate to other enterprises (Bien 72). Not only were large exporters “rewarded” with dollarization, private importation increased in Poland. Travel bureaus offered destinations to attractive markets and bazaars worldwide, and with the reduction or removal of taxes on goods in the domestic market, coupled with the introduction of a unified tax of 15 percent on imported products, thousands of people desired to go into the private importation business while utilizing foreign currencies (Bien 72-73).

However, as a result there was an increase in demand for foreign currencies and continuing dollarization in Poland, leading to a speedy increase in inflation. In the fourth quarter of 1986 the dollar was worth 790-950 zl, and a year later it climbed to 1,350 zl (Bien 71, 73). At the end of 1988, the Polish government announced a quick “return to normalcy” of the country’s economy. One tactic was to turn the dollar into a common commodity that could be easily acquired by anyone with the amount of cash in domestic money at a price created through supply and demand. In turn this maneuver would place more confidence in the local currency and turn it into “real” money, and at the same time converting the dollar into an everyday commodity (Bien 73). The government banked on combining the official and black market rates in order to substantially reduce the exchange rate. In order to do this, the black market was made legal, and several money exchanging businesses opened to buy and sell foreign currencies, both from the private sector and foreigners (Bien 73). Yet this plan backfired – the market reacted with a sharp increase in the rate of the dollar, peaking at 12,000 zl in October 1989 and dollarization greatly increased due to the rise of inflation (Bien 74).

The impact of dollarization is evident – although it may lead to a small beneficial role in the economy, for the most part it makes countries more dependent on the foreign currency. As shown with Poland, Dollarization can lead to higher rates of inflation and exchange rates, as well as black market economies that do not account towards the country’s economic welfare. A nation must either have confidence in its currency or the ability to control dollarization if it desires a smooth transition into a strong, if not at least successful, market economy.

Macroeconomic Performance: GDP & TFP

Economic growth has a substantial impact on a nation’s economic performance. Even with the fairly successful transition of the Ukrainian economy, currently some of the former Soviet republics are still experiencing economic regression and contraction. These regions have experience a substantial drop in GDP growth since 1990, and in some cases the transition economies barely recovered to pre-transition GDP levels as recently as five years ago.

Ertuğrul Deliktaş and Mehmet Balcilar estimate efficiency measures for twenty-five Baltic and Eastern European countries, including former Soviet republics utilizing stochastic frontier analysis (SFA)[1] and data envelopment analysis as a confirmatory study to determine if the transition to a market-based economy increased in total factor productivity (TFP)[2], economic efficiency, and technical progress (Deliktaş & Balcilar 6). The mean annual efficiency level for the 25 transition economies is 0.548, and the yearly rate of growth in technical efficiency is 1.8 percent between 1991 and 2000. However, the mean annual technical change in those economies is -4.3 percent; there is zero technological progress, which actually equates to technological regress (Deliktaş & Balcilar 6). Some of these nations are having difficulties, leading to taking a step back rather than a step forward in their transition to a market economy.

As previously mentioned, economic growth is the primary objective in a nation’s economic policy. The absence of economic growth can become a barrier in curbing a nation’s long-term poverty (Deliktaş & Balcilar 7). Table 1 (attached) from Deliktaş’ and Balcilar’s study shows the annual mean GDP growth rate of these transition economies between 1990 and 2000 (Deliktaş & Balcilar 8). According to Table 1, only seven nations, including Poland and the Czech Republic experienced positive growth rates during the time period.

There are three major factors that economists use in determining the economic performance of a nation. The first focuses on growth in real per capita GDP, also known as real per capita income. It is a first hand indicator that is associated with the standard of living. The other two factors are the disparities in the distribution of income among poor countries and the average productivity performance of workers, such as output per person employed or per hour worked, along with “multifactor productivity measures based on the concept of total factor productivity (TFP) and its components…”(Deliktaş & Balcilar 7).

Slow and regressing GDP rates obviously have a considerable effect on a nation’s GDP per capita levels. Poland is probably one of the best success stories, if not the best, of all the transitioning economies. The 2004 estimate of GDP per capita for Poland was $12,000 (CIA World Factbook). Table 1 indicates that Poland experienced a 4.6 percent average annual GDP growth in 1990-2000. Compare this to Tajikistan’s growth of -10.4 percent. In the same year, the estimated GDP per capita was just a measly $1,100 (CIA World Factbook). The relationship to GDP growth and GDP per capita for these two countries is not a coincidence. The direct proportion of higher GDP growth and GDP per capita reveal a better quality of life for workers. The quicker and smoother assimilation to a market economy can ultimately benefit not only the government, but all of its citizens as well. After all, the government’s ultimate goal is to help as many of its citizens as possible through its reforms and laws.

Conclusion

In summation, there exist numerous barriers for the transformation from a socialist to a capitalist market economy. Incentives such as promotions, the restructuring of management, and utilizing a punishment and reward system can lead to more productive workers. Emulating a capitalist workplace through both internal management of businesses and methods of conflict resolution can achieve better economic production. Eliminating hyperinflation and currency inflation through the use of either a new domestic currency or establishing noncompetitive central banks can help stabilize a transitioning economy. Separate national currencies are the best alternative because of the false reports of “cheating” banks in the failed ruble zone. Unlike the Ukrainian government, avoiding seigniorage and economic dependence with other Soviet states is a key move in obtaining an economy without holes in resources and exports. Strict regulation of dollarization can help prevent the otherwise negative consequences of high inflation rates, loss of confidence in the domestic currency, and black markets. Economic growth is by far the primary objective for any nation, especially since it is linked directly to the standard of living and poverty of a country. The transition to a market economy can be extremely difficult, but as we have seen through Poland and Ukraine, it is possible to be successful.

---

[1] The econometric methods (SFA) can be classified as (1) those that assume all deviations from the frontier are due to inefficiencies, and (2) those that allow some variation around the frontier due to factors that cannot be controlled by the firm. In the first method, a deterministic frontier is prescribed, while a scholastic frontier is prescribed in the second. Econometric methods allow flexible functional forms for the frontier and impose some restriction on the statistical properties of efficiency terms (Balcilar and Cokgezen 2001, quoted Deliktaş & Balcilar 12).

[2] Productivity and economic growth are important because they determine the real standard of living that a country can achieve for its citizens. There is a simple link between a nation’s productivity growth and standard of living. TFP growth is simply the sum of efficiency and technical changes. These two changes constitute the TFP change index (Balcilar and Cokgezen 2001, quoted Deliktaş & Balcilar 12).