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Democratic Concepts
Socialism—Capitalism—Communism
Transition in Context
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"
The implosion of communism was often presented - not least by
Francis Fukuyama in his celebrated "The end of History" - as the
incontrovertible victory of economic liberalism over Marxism. In
truth, the battle raged for seven decades between two strands of
socialism.
Social democracy was conceived in the 19th century as a benign
alternative to the revolutionary belligerence of Marx and Engels. It
sparred with communism - the virulent and authoritarian species of
socialism that Marxism has mutated into. European history between
1946-1989 was not a clash of diametrically opposed ideologies - but
an internecine war between two competing interpretations of the same
doctrine.
Both contestants boasted a single market - the European Union and
COMECON, respectively. In both the state was heavily involved in the
economy and owned a sizable chunk of the means of production, though
in the Soviet Union and its satellites, the state was the economy.
Both sported well-developed, entrenched and all-pervasive welfarism.
Both east and west were stiflingly bureaucratic, statist, profoundly
illiberal and comprehensively regulated. Crucially, the west was
economically successful and democratic while Russia evolved into a
paranoid nightmare of inefficiency and gloom. Hence its demise.
When communism crumbled, all of Europe - east and west - experienced
a protracted and agonizing transition. Privatization, deregulation,
competition and liberalization swept across both parts of the
continent. The irony is that central and east Europe's adaptation
was more farfetched and alacritous than the west's.
The tax burden - a measure of the state's immersion in the economy -
still equals more than two fifths of gross domestic product in all
members of the European Union. The countries in transition - from
Russia to Bulgaria and from Estonia to Hungary - are way more
economically liberal today than France, Germany and even Britain -
let alone the nations of Scandinavia.
An increasingly united Europe has opted for "capitalism with a human
face" - the democratic isotope of socialism (sometimes with a touch
of corporatism). But it now faces the challenge of the Anglo-Saxon
variety of the free market. Nowhere is this ideological altercation
more evident than in the countries formerly behind the iron curtain.
Long before Enron and World.com, the tech bubble and Wall Street's
accounting frauds and pernicious conflicts of interest - transition
has exposed the raw and vulnerable nerves running through the
foundations of Anglo-Saxon capitalism. Eastern Europe is a monument
to the folly of unmitigated and unbridled freemarketry.
Transition has given economists a rare chance to study capitalism
and economic policies from scratch. What's more important - free
markets, institutions, education, democracy, or capital? Central and
east Europe became a giant lab in which to peruse policies
pertaining to criminality, private property ownership,
entrepreneurship, privatization, income distribution, employment,
inflation and social welfare.
Superficially, the debate revolved around the scientific rigor and
usefulness - or lack thereof - of the "Washington Consensus".
Opposing monetary and fiscal policies, free trade versus
protectionism, capital controls and convertibility - these occupied
the minds and writings of all manner of economic and
development "experts" in the first decade after the fall of the
Berlin Wall.
Yet, deep underneath, transition - perhaps because it was so
thoroughly botched - taught us unforgettable lessons about markets
and the way they work, namely that "objective", "mechanical"
capitalism is a mirage.
Perhaps the most important moral is that, like all other economic
processes - transition is, mostly, in the mind. Successful
capitalism requires education and experience. The blind in east
Europe were led by the one-eyed. Capitalism was presented -
especially by Western protagonists of "shock therapy" - as a deus ex
machina, a panacea, guaranteed to transport the region's derelict
economies and destitute people to the kitschy glamour of the tacky
soap operas that flooded their television screens.
Bedazzled by the alleged omnipotence and omniscience of
the "invisible hand", no one predicted the utter meltdown that
ensued: the mass unemployment, the ubiquitous poverty, the glaring
abyss between new rich and always poor, or the skyrocketing prices
even as income plummeted. Nor were the good parts of the new
economic regime understood or explained: private property, personal
profit, incentives.
The dangers of transition were flippantly ignored and the peoples of
central and eastern Europe were treated as mere guinea pigs by eager
Western economists on fat retainers. Crime was allowed to hijack
important parts of the post-communist economic agenda, such as the
privatization of state assets. Kleptocracies subsumed the newborn
states. Social safety nets crumbled.
In their vainglorious attempt to pose as accurate and,
thus, "respectable", scientists, economists refused to admit that
capitalism is not merely a compendium of algorithms and formulas -
but mainly a state of mind. It is an all-encompassing, holistic,
worldview, a set of values, a code of conduct, a list of goals,
aspirations, fantasies and preferences and a catalog of moral do's
and don'ts. This is where transition, micromanaged by
these "experts" failed.
The mere exposure to free markets was supposed to unleash innovation
and entrepreneurship in the long-oppressed populations of east
Europe. When this recipe bombed, the West tried to engender a
stable, share-holding, business-owning, middle class by financing
small size enterprises. It then proceeded to strengthen and
transform indigenous institutions. None of it worked. Transition had
no grassroots support and its prescriptive - and painful - nature
caused wide resentment and obstruction.
The process of transition informed us that markets, left to their
own devices, unregulated and unharnessed, yield market failures,
anomies, crime and the misallocation of economic resources. The
invisible hand must be firmly clasped and guided by functioning and
impartial institutions, an ingrained culture of entrepreneurship and
fair play, classes of stakeholders, checks and balances and good
governance on all levels.
Wealth, behavioral standards, initiative, risk seeking - do not
always "trickle down". To get rid of central planning - more central
planning is required. The state must counteract numerous market
failures , provide some public goods, establish and run
institutions, tutor everyone, baby-sit venture capitalists, enhance
innovation, enforce laws and standards, maintain safety, attract
foreign investment, cope with unemployment and, at times, establish
and operate markets for goods and services. This omnipresence runs
against the grain of Anglo-Saxon liberalism.
Moreover, such an expanded role of the state sits uncomfortably with
complete political liberty. That capitalism is inextricably linked
to democracy is a well-meaning fallacy - or a convenient pretext for
geopolitical power grabs. East Europe's transition stalled partly
due to political anarchy. China's transition, by comparison, is
spectacular - inflated figures notwithstanding - because it chose a
gradual approach to liberalization: first economic, then political.
Last but not least, pure, "American", capitalism and pure Marxism
have more in common than either would care to admit. Both are
utopian. Both are materialistic. Both are doctrinaire. Both believe
that "it's a jungle out there". Both seek social mobility through
control of the means of production. Both claim to be egalitarian
forms of social engineering and are civilizing, millennial,
universal, missionary pseudo-religions.
The denizens of the nether regions of central and eastern Europe
have been the victims of successive economic utopias. They fear and
suspect ideological purity. They have been conditioned by the
authoritarian breed of socialism they endured, really little more
than an overblown conspiracy theory, a persecutory delusion which
invariably led to Stalinesque paranoid backlashes. Indeed, Stalin
was more representative of communism than any other leader before or
after him.
The Economist summed this semipternal mass hysteria neatly thus:
"The core idea that economic structure determines everything has
been especially pernicious ... The idea that ... rights have a
deeper moral underpinning is an illusion. Morality itself is an
illusion., just another weapon of the ruling class. As Gyorgy Lukasc
put it, 'Communist ethics makes it the highest duty to act
wickedly ... This is the greatest sacrifice revolution asks from
us.' Human agency is null: we are mere dupes of 'the system', until
we repudiate it outright. What goes for ethics also goes for
history, literature, the rest of the humanities and the social
sciences. The 'late Marxist' sees them all ... not as subjects for
disinterested intellectual inquiry but as forms of social control."
Many in Europe feel that the above paragraph might as well have been
written about Anglo-Saxon capitalism. Reduced to bare-bones
materialism, it is amoral, if not immoral. It upholds natural
selection instead of ethics, prefers money to values, wealth
formation to social solidarity.
Predators everywhere - Russian oligarchs, central European cronies,
Balkan kleptocrats, east European managers - find this gratifying.
All others regard capitalism as yet another rigid and unforgiving
creed, this time imposed from Washington by the IMF and
multinationals rather as communism was enjoined from Moscow by the
Kremlin.
With eight of the former communist countries now new members of the
European Union - albeit second rate ones - transition is entering is
most fascinating phase. Exposed hitherto to American teachings and
practices, the new members are forced to adhere to a whole different
rule book - all 82,000 pages of it.
European "capitalism" is really a hybrid of the socialist and
liberal teachings of the 19th century. It emphasizes consensus,
community, solidarity, equality, stability and continuity. It places
these values above profitability, entrepreneurship, competition,
individualism, mobility, size, litigation and the use of force.
Europeans firmly believe that the workings of the market should be
tampered with and that it is the responsibility of the state to see
to it that no one gets left behind or trampled upon.
European stakeholder capitalism is paternalistic and inclusive.
Employees, employers, the government, communities and suppliers are
partners in the decision making process or privies to it. Relics of
past models of the market economy still abound in this continent:
industrial policy, Keynesian government spending, development aid,
export and production subsidies, trade protectionism, the state-
sanctioned support of nascent and infant industries. Mild
corporatism is rife and manifest in central wage bargaining.
For some countries - notably Estonia - joining the EU has translated
into a de-liberalized and re-regulated future. Others find the EU's
brand of the market a comfortable and dimly familiar middle ground
between America's harsh prescriptions and communism's delusional
model. The EU's faceless and Kafkaesque bureaucracy in Brussels -
Moscow revisited - should prove to be a relief compared to the IMF's
ruffians.
The EU is evolving into a land empire, albeit glacially. The
polities of central and eastern Europe were always constituents of
empires - reluctantly or by choice. In some ways they are better
suited to form an "ever closer union" than the more veteran members.
==============================================================
Sam Vaknin is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.
Until recently, he served as the Economic Advisor to the Government
of Macedonia.
Visit Sam's Web site at
http://samvak.tripod.com
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