XV. A New Eastern European Economics?
America's Unknown Enemy: Beyond Conspiracy
Editorial Staff of the
American Institute for Economic Research
[1993]
A number of economic commentators and political analysts recently
have observed that, even if the current political liberalization in
Eastern Europe is allowed to proceed, the creation of Western-style
economic organization may prove difficult. Most analysts now expect
that economic conditions there Will deteriorate further -- perhaps for
some years -- before the needed adjustments reinvigorate the Iron
Curtain economies. Most assume implicitly, however, that the process
of "rebuilding" the Eastern European economies is
fundamentally similar to that of restructuring ailing market
economies. As we discuss below, such is not the case. The Soviet
Union, for example, lacks even the most elementary features of a
market economy - features that evolved over centuries in the
established Western economies and involved numerous conflicts. In this
respect, when "instant" revolutions have been attempted, the
results often have been dismal -- even in the United States. An
example from our own past may suggest how difficult it could be for
the newly "freed" peoples of Europe to develop progressive
economies, if indeed that is what they actually want.
The recent events in Central and Eastern Europe have startled
commentators of virtually all politico-economic persuasions -- from
the most "radical" Western proponents of socialism to the
most "conservative" exponents of free-market capitalism. The
former, who for years have missed the intellectual tide that has
eroded statist orthodoxy in nations under communist rule,
understandably seem at a loss to respond to the latest actions of "the
masses" there. At the same time, a number of the West's
most-ardent champions of individual liberty, who are understandably
skeptical that any significant "revolution" in human affairs
will occur in the erstwhile Iron Curtain countries until the former
rulers relinquish all power, say that, as yet, "nothing has
really changed."
Mainstream opinion, on the other hand, apparently shares in the
jubilation of the East Germans, Hungarians, Poles, and Czechoslovaks
who, heady with their unexpected success in toppling the apparatus
that has confined them for so many years, are publicly proclaiming
their devotion to "liberty," "freer markets," and
in some instances even unabashed "capitalism."
Admittedly, some media and political commentators both there and here
say that the road to genuine political change and sustainable economic
progress will be difficult. The Bush Administration, for example,
urges that caution and restraint are necessary in all future dealings
(and has encountered criticism from both sides of the political
spectrum for so doing). All told, however, it is our general
impression that many now believe that the path toward Western-style
democratic capitalism, with allowances made for regional and ethnic
differences, has been blazed. While traveling that road may be
difficult for a time, its direction is clear.
The Unhappy History of Raised Expectations
In our view, significant changes have occurred in communist Europe,
if for no other reason than that the people who have run things so
badly for so long apparently no longer will have unrestrained
authority. However, as the discussion below may suggest, the eventual
outcome of those changes may be quite different from what any of the
media or political pundits so far have contemplated.
Few, if any, "instant revolutions" in human affairs have
succeeded over the long run. The most successful genuine revolution to
date, that of our own country, proceeded only gradually throughout the
17th and 18th centuries, as the privileges of the colonial powers
gradually were eroded by popular requirement. Only late in the 18th
century, after more than a century and a half of not-so-subtle popular
pressure for institutional political and economic change, did the
opposition to repressive government erupt into general sustained
conflict. Even then, it took many years before the establishment of
any new authority had been completed to the satisfaction of most of
those involved in the revolution (
i.e., with the ratification of the Constitution -- a governing
document that has been and remains subject to continual modification
by different generations).
The complex process of building an economy under the precepts of
representative democracy was vastly aided here by the prior
development of innumerable social and economic conventions
characteristic of private market enterprise. Despite British
strictures, the colonial economies in practice had been allowed to
develop fairly independently according to the actual needs and
capacities of the colonists themselves. Private property was an
acknowledged right and was widespread; and private industry and
commercial markets were well-developed, despite the Crown's efforts to
impede them. In effect, the formal dissolution of the political bonds
that tied Britain and the American colonies to a large extent ratified
conditions that already prevailed. Even at that, the process was
extraordinarily difficult, as the turbulent economic and political
history of the first half of the 19th century, which culminated in
civil war, attests.
Almost everywhere else -- especially in Russia itself (and in some
parts of the United States, too) prior attempts to impose instantly a
genuinely liberal reform that were not so underpinned turned out
disastrously. In Russia, for example, the freeing of the serfs in 1862
met initially with jubilation among the reformers not unlike that of
today. But the serfs usually had no capital -- either land or anything
else -- to enable them to develop independent enterprise, and their
lot scarcely has improved since.
Closer to home, the emancipation of American slaves during and after
the Civil War similarly was greeted as the "jubilee" both by
the slaves and their abolitionist patrons. It should not escape notice
that, even more than the American Revolution, emancipation represented
the most sweeping defeat of special privilege and victory for
individual liberty that had occurred in the New World. It was widely
believed among 19th-century civil libertarians that -- although the
road would be rough and the going would be slow -- the freedmen could,
if provided the necessary aid, successfully enter the mainstream of
American private enterprise during the decades following the war.
To this end, an unprecedented effort to aid the freedmen both
economically and politically was launched during the Era of
Reconstruction. The slogan of the jubilee was "forty acres and a
mule" - and in a number of regions of the former Confederacy
rapid redistribution of landholdings was accomplished. Add to this
revolution in property the educational efforts of the Freedmen's
Bureau, numerous missionary societies, and the political power
bestowed upon the former chattels by the 15th Amendment and the
ascendancy of the Republican Party, and one might assume that a
prescription for progress was firmly in place.
As events turned, however, and as even a brief reading of the history
of Reconstruction and afterward shows, those efforts proved, in the
words of the disillusioned northerner Albion Tourgee, to be "A
Fool's Errand." Not only did the former slaves' freedom prove
hollow in many respects, but the economic and political fortunes of
the Old South's "underclass" of white farmers also declined
in the wake of the collapse of plantation slavery. By the turn of the
present century, many Southerners -- white and black -- survived a
meager existence as de facto vassals of an economic order
characterized by decreasing productivity, eroding markets, and chronic
scarcities of the goods and services fundamental to maintaining even
subsistence standards of living.
Although it remains a matter of debate, current historical research
strongly implies that some slaves, and almost certainly many
nonslaveholding whites known as "yeoman farmers," may have
been better off physically before the Civil War than they were for
many decades afterward (the emotional benefits of freedom, it goes
without saying, were incalculably greater). At the same time, the pace
of growth of the rest of the American economy during the so-called
Gilded Age accelerated (albeit punctuated by panics and depressions).
More important for the political concerns of those who are observing
the current changes, the economic debacle of the post-Civil War years
was aided and abetted by the development of an authoritarian Southern
political culture that by the advent of World War II was widely
regarded as a uniquely American equivalent of European fascism. The
genesis of that political culture, it should be noted, depended in
large part on the support of precisely those elements of society that
before the Civil War had been most resentful of the slaveholding
plutocracy -- namely, former nonslaveholders who had assumed the
status of "poor whites" by the end of the century.
The Current Analogy
It always is risky to draw too much significance from similarities
between distant events and places. That said, however, the experience
of American Southerners (both black and white) after the Civil War may
suggest how difficult it is apt to be for the peoples of Eastern
Europe today to begin the process of establishing a new liberal
economic and political order (assuming that is what they genuinely
desire, which is by no means clear).[1]
A principal difficulty of southern whites and blacks after the Civil
War was that much of the productive capital of the South had been
destroyed as a result of four and a half years of "total"
conflict. However, it is hard to see how the effects of communist
economic planning in postwar Europe (a kind of
de factoc economic warfare) have been all that different.
Reportedly, much of the "infrastructure" in the Soviet Union
-- notably the railroads -- are collapsing. And the plant and
equipment upon which Iron Curtain industry relies is said, if it works
at all, to be pitifully inefficient by contemporary Western standards
(business managers even in crucial industries still use abaci, not
computers, to perform calculations).
Of more fundamental importance, across much of the Iron Curtain there
simply is no provision for the private ownership of the means of
production. As with the post-Civil War South, no one in the Iron
Curtain countries has even begun to address the question of how land,
mineral rights, existing plant and equipment, and the like might be
converted to private ownership. Even those freedmen who got 40 acres
and a mule had no capital with which to buy seed corn or implements
with which to plant. As a consequence, most took out loans in the form
of crop liens that were held by other landholders or merchants (i.e.,
established capitalists). Given rocky markets for their product
(cotton), only a few succeeded in retaining the land; most became "sharecroppers"
who by 1900 were virtual serfs to owners who in some instances had
owned them as slaves a few decades earlier.
In the case of the Soviet Union and its satellites, the situation may
be even worse: there are virtually no capitalists at all, which
suggests that the development of those countries' resources by
necessity will depend on the distribution of rights to the means of
production via some arbitrary political, rather than market, process.
This unavoidable circumstance is a prescription for at least short-run
disaster (and which politicians will decide who gets what?).
It is worth noting that in the capitalist countries, the process of
delivering productive resources into private hands in some cases has
taken centuries and repeated internal and external conflicts -- and
indeed has nowhere been completed yet. If they wish to establish
genuinely free enterprise even on a modest scale, the Soviets and
their counterparts face an unprecedented task for which there are no
established rules.
Beyond this, even if by happenstance whoever is in charge succeeds in
conveying the means of private production precisely to those most
capable and willing, there are no established markets -- as there were
none in the American slave community -- that provide reliable
information to enable efficient production. For decades, the system of
state allocation of production quotas has stifled information about
what goods and services consumers most want. In the absence of that
information, any individual attempts to decide what and how much to
bring to market will be extraordinarily high-risk ventures (producer
risk is much greater in limited markets than in established consumer
economies, where it is distributed across a proportionately much wider
range of products and purchases).
In short, the difficulties that the "freed" nations of the
Soviet bloc now face, and the probability of disappointment, would
seem to be incalculably greater than most commentators are willing to
admit -- or even consider. Of course, the process of adjustment to
market conditions and political democracy could occur quite rapidly.
But if it does, it would be an unprecedented achievement that flies in
the face of similar experience elsewhere where conditions seemed to be
more favorable.
The opposite possibility is that, as with some prior "instant
revolutions," this one too may fail. (Although it is a matter of
speculation, this may be what those now relinquishing power hope and
expect. Presumably, they are aware of the mess that they have created
and do not want to assume the blame for further deterioration of
conditions.)[2] History strongly indicates that if such happens, the
chances for the survival of genuinely liberal institutions is slight.
Rather, as happened in our own country little more than a century ago,
a return to authoritarian political and economic organization -- even
though it probably will not be called "communism" -- seems
just as likely.
NOTES
- It is far from clear that most
people behind the Iron Curtain actually aspire to free-market
capitalism. Although news broadcasts recently have often featured
fresh-faced young people using the words "freedom" and "free
market," there is little indication that they have much idea
of what behavior those terms imply.
... Rather, recent poll' in the
Soviet Union and elsewhere in Eastern Europe strongly suggest that
many, if not most, people there oppose mainly those currently in
power -- not "the system" itself. And while many plainly
want to see an end to corruption and desire a greater say in the
political decision-making process, their use of such terms as "communist
democracy" strongly suggests that market determinants will
continue to be excluded from the economy.
... For example, reportedly when
asked if "lazy" industrial workers should be given
greater freedom or should be subjected to greater government
penalties for failure to produce according to quota, a sample of
Soviet citizens revealed that only about 29 percent favored the
former while 60 percent favored the latter ("the government
should make people work harder"). In another instance, when
asked if inefficient enterprises should be allowed to fail, an
Eastern-bloc "free marketeer" responded that they
should; however, when asked what then would happen to the workers
who were fired, he replied "the state will take care of them."
- It is not beyond possibility
that Mikhail Gorbachev attained "power" so easily
because other, more-seasoned members of the Soviet power structure
reasoned that conditions had, in fact, become unmanageable.
Gorbachev's youth and idealism favored his selection -- i.e.,
he may have been set up as a fall guy to take the blame for the
problems that his elders had created.
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