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Communism For 15

The varying levels of enthusiasm for democracy and free markets may be driven in part by different perspectives about the degree to which societies have made progress over the past three decades. Most Poles, Czechs and Lithuanians, and more than four-in-ten Hungarians and Slovaks, believe the economic situation for most people in their country today is better than it was under communism. And in these five nations, people are more likely to hold this view now than was the case in 2009, when Europe was struggling with the effects of the global financial crisis.

Communism for 15

Toward the end of communism, output plunged in virtually all Soviet-type countries, according to official statistics. Turning dramatic in the first year of transition, it continued for years.1 Poland was the first to return to growth after two years of transition, while Ukraine did so only after eight years. The total registered declines in GDP range from 13 percent from 1989 to 1992 in the Czech Republic to 77 percent from 1989 to 1994 in Georgia. This has been widely proclaimed the worst depression in the industrialized world, exceeding the Great Depression of 1929-33.

With the collapse of communism, officially-recorded output plummeted throughout the post-communist world. Annual falls over 10 percent were standard, and in Armenia GDP sunk the most with 53 percent in one year (see table 1).

However, statistical biases are monumental. The first problem is the starting point. Economic chaos prevailed at the end of communism, and Romania and the Soviet Union registered sharp falls of output in the last year of communism, 7.9 percent in 1989 and 6.1 percent in 1991, respectively (see table 2). While East-Central European transition is measured against the last communist year, the standard for the former Soviet republics (FSRs) is 1989, although it should be 1991, if we discuss post-communism. That correction eliminates an average of 5 percent of 1989 GDP of the decline for the FSRs.

The fundamental problem with socialist economies was qualitative. Enterprises had little or no interest in producing what customers wanted because of prevailing shortages of goods and services, as well as soft budget constraints on enterprises. The persistent shortages implied extreme monopoly, reinforced by severe protectionism. Enterprises aimed at attaining their physical production targets, happily ignoring quality and choice of products, which steadily grew worse. Almost anything was difficult to buy in the Soviet Union, and a typical Soviet grocery store was empty when communism collapsed. Richard Ericson (1994, p. 195) has perceptively characterized this state of affairs: "Thus the whole economic system was based on economic illusion?the pursuit of goals unrelated to economic value creation in the absence of real economic information." Partial market economic reforms had improved the situation significantly in Central Europe, notably in Poland and Hungary, but it remained bad.

For most countries, this decline in industrial share ? or reduced value detraction in industry ? is in the range 9-20 percent of GDP till 1995.5 This decline largely corresponds to the intensity of structural reforms. As hard budget constraints started to bite later on in most FSRs, the contraction of their industrial sectors continued after 1995, while non-reforming Belarus pumped up its old industrial sector after 1995, undoing its initial reduction of value detraction. It appears plausible that the share of unsalable goods, or value detraction, amounted to around 20 percent of GDP in the last year of communism in most countries.

The economic distortions of communism were especially severe in trade among socialist states, as such trade was largely politically determined, with regard to both commodity structure and prices. Socialist states mostly exchanged goods nobody wanted, forcing substandard and overpriced merchandise upon one another. The wrong things were traded for the wrong reasons between the wrong people in the wrong places at the wrong prices.

Without more detailed knowledge, it would appear reasonable to deduct the difference between the investment ratio under late communism and the investment ratio at the nadir. The result is displayed in Table 9. While the average decline in the investment ratio of 11 percent of GDP makes sense, the individual observations clarify that these data contain far too much noise. Any single year of measurement contains special biases, and investment ratios vary greatly from year to year. Some countries had artificially boosted investment ratios in 1989/90 (especially Armenia, Latvia and Poland). A few countries suffered truly devastating crises, which brought down investment excessively at the nadir (notably Georgia, Armenia and Bulgaria). Most countries undertook large-scale wasteful public investment long after their nadirs, while new productive investment started early on. Moreover, as some double counting may occur with unsalable goods being included in investment, we abstain from making a justified adjustment.

Does this revision tally with other observations related to output? Obviously, communism caused a serious economic crisis, which contributed to its collapse. Then, it would be strange if the abandonment of communism greatly enhanced social costs, even if the poison pills of communism led to significant transition costs.

Obviously, these social improvements indicate an ameliorating average social-economic situation. After communism, excess demand and thus value detraction dwindled, as private hoarding ended instantly. In national accounts, the dishoarding after price liberalization looked like sudden destitution verging on starvation (Cornia 1994), as both sales and demand declined, but real welfare might not have been affected. Scrutinizing statistics on consumption, investment and exports, Sachs and Berg (1992) found that the decline in Polish GDP from 1989 to 1990 was not 12 percent as stated in the production statistics, but 4.9 percent. Unfortunately, we do not possess such statistical series even for Poland, so we have to make do with production statistics and just keep this bias in mind.

Finally, we are left with the question why people in opinion polls indicate that the material situation has deteriorated. The best counter-evidence comes from East Germany, where people admit to massive material improvements on all specific questions, while they claim a general deterioration. This appears a more psychological than material issue. One reason is that people are unable to handle negative publicity about their own society, which was prohibited under communism. Another explanation is that they learned how badly off they were in comparison with the Western world, which few knew under communism. A third reason is that people do not think in terms of Pareto optimality, whether total welfare rise or fall. They look upon their relative position. Finally, these were times of massive changes, and it is particularly notable that pensioners opposed reforms, while they were the main beneficiaries of the early reforms (Milanovic 1998). Thus, public sentiment about the general situation should be taken with a great deal of skepticism.

First of all, the purported tragedy of universal output loss after communism is a myth, though the region suffered from stagnation during the first half of the 1990s. This helps to explain the mysterious absence of social unrest and of electoral backlashes against reformers. Nor is it possible to understand the sharp rise in social expenditures in most post-communist countries in the first half of the 1990s, if an output collapse had taken place.

Second, the Soviet economy was in far worse shape than most Western observers believed at the time of its demise. The evidence is overwhelming for anybody who wants to check. A Soviet economist reported in 1988: "The USSR has 4,000 district hospitals, but more than 1,000 of them have no sewage system, 2,500 have no hot running water, 700 have neither hot nor cold running water" (Bolotin 1988). Universal old-age pensions were introduced in the Soviet Union as late as 1985. In the late 1980s, Soviet health statistics, industrial structure and foreign trade structure placed the country close to Mexico and Brazil among what the World Bank calls "upper-middle-income countries" (Åslund 1990). The alleged misery in post-communist transformation is primarily the delayed revelation of the true costs of communism. In the future, we may realize that the Soviet stagnation did not start around 1980 but perhaps a decade earlier.

The overall lesson is that radical reforms, involving liberalization and financial stabilization, were both economically effective and socially desirable. The real social concern of post-communism was no initial decline in output but lasting stagnation in many countries. Reformers should have stormed the Central Statistical Office and demanded correct statistics from the outset. A telling case was Russia, where the pre-democratic parliament controlled the State Committee on Statistics for the first two years of reform and utilized it for bizarre doom-saying. We urgently need better statistics to improve our understanding of the real effects of different policies.

Most people surveyed in Poland, the Czech Republic and Lithuania say the economic situation today is better than it was during communism, as do more than 4-in10 in Slovakia and Hungary. But more than half of people surveyed in Russia, Ukraine and Bulgaria say their lives are worse today than during communism.

The trajectories opened up for a nominalist concept of communism by these retreats may be schematized as follows: (1) a focus on voluntarism and self-organization in the emergence of new political subjectivities; (2) a rethinking of proletarianization in accordance with new analysis of class contradictions; (3) a call for philosophical critique as a political orientation in response to depoliticization. The questions and concerns raised by such positions are well rehearsed, but worth repeating. At stake is the capacity to theorize socio-political change without resorting to a bourgeois concept of freedom.


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