The complexities of communism

Another day, another political speech mocking science and calling for funding cuts:

Another little one here, which I am sure might be a favourite of many sitting on the opposition side, is a study of Marxism and religion and the relationship between theology and political radicalism—$60,000. Another one here is $180,000 for a study rethinking the history of Soviet Stalinism to provide a sophisticated understanding of the complexities of Stalin’s Russia. We know the complexities—obviously, Stalin must have been a good bloke who was misunderstood. We need $180,000 to find that out.

That kind of rhetoric has of course been seen and debunked many times before, but still keeps coming back. No, we don’t need to spend money to “study” whether Stalin was a good guy or not. That’s clear enough. The specifics of it, on the other hand, are a different matter altogether. Especially with so many politicians throwing around words like “socialism” or “central planning,” it would indeed help to have a better understanding of the concrete realities and mechanisms involved, both among specialists and in the popular discourse.

I’m still reading and thinking about Tony Judt’s “Postwar.” I wrote one post about communism already and got into some discussions elsewhere (hi everyone!), so I’ll follow up on that. I’ve said that Judt does not really explain how the Eastern European “planned economies” actually worked, a matter that tends to be widely misunderstood in the West. I’ll try to clean that up a little bit here.

Let’s start with what Judt does talk about: emphasis on unprofitable and outdated heavy industry, rigid quota, bureaucracy, inefficiency, corruption, wastefulness, shortages and supply bottlenecks.

The crippling defect of Communist economies by this time [the 1970s] was endemic, ideologically-induced inefficiency. Because of an unbending insistence upon the importance of primary industrial output for the `construction of socialism’, the Soviet bloc missed the switch from extensive to intensive, high-value production that transformed Western economies in the course of the Sixties and Seventies. Instead it remained reliant upon a much earlier model of economic activity, redolent of Detroit or the Ruhr in the 1920s, or late nineteenth-century Manchester.

Thus Czechoslovakia – a country with very limited resources in iron – was by 1984 the world’s third largest (per capita) exporter of steel. To the bitter end, the GDR was planning ever-expanded production of obsolete heavy industrial goods. No-one who had any choice actually wanted to buy Czech steel or East German machines, except at heavily subsidized prices; these goods were thus produced at a loss. In effect, Soviet-style economies were now subtracting value – the raw materials they imported or dug out of the ground were worth more than the finished goods into which they were transformed. […]

Much of the responsibility for all this lay with the inherent defects of centralized planning. By the late 1970s Gosplan, the Soviet central economic planning agency, had forty departments for different branches of the economy and twenty seven separate economic ministries. The obsession with numerical targets was notorious to the point of self-parody: Timothy Garton-Ash cites the example of `The People’s Economy Plan for the Borough of Prenzlauer Berg’ (in East Berlin), where it was announced that `Book-holdings in the libraries are to be increased from 350,000 to 450,000 volumes. The number of borrowings is to be increased by 108.2 percent.’

The description is absolutely correct and the anecdotes ring true. I could add more along the same lines. The symptoms were obvious enough, easy to mock and critique.

But wait. Why, exactly, was heavy industry so important to the communists? Was it a matter of ideology, as Judt suggests? While Marxist theory does (sort of) prioritize industry over agriculture, it does not prescribe favouring any specific kind of industry in particular. Even if it did, communists have been known to make greater compromises in the name of staying in power, going all the way back to NEP in the early days of the Soviet Union. Khrushchev had plans to reorient the economy towards production of consumer articles in the 1960s; after the unfortunate initial period of hardship and difficult choices, socialism was to bring prosperity and abundance. There was talk of similar reforms in the satellite states. With all the central planning structures at their disposal, why didn’t the communists go ahead and reallocate the resources accordingly? Were they stupid, or suicidal?

On a related note: in popular imagination, “Communism” is synonymous not only with inefficiency, shortages and corruption, but also with a rigid, brutal totalitarian system, 1984-style. How did those two aspects of it coexist? Aren’t dictatorships supposed to be good at making trains run on time? Is there some reason why the government couldn’t just mandate a transition from heavy industry to intensive high-value production, and then have the security apparatus enforce it? Why, for that matter, were the bureaucrats allowed to continue in their inefficient ways? There’s a long record of unsuccessful government-initiated attempts to overhaul and modernize socialist economies, from the 1960s all the way to Gorbachev’s perestroika in the 1990s. Why did they fail? Inertia is often mentioned, and rightly so – but can’t inertia be broken by force? Evidently, the ruthless dictators (and make no mistake, they were ruthless) did not actually have that much power over their own domains.

In addition to my own memory, experience, and assorted reading over the years, I’ll rely on “PRL for Beginners,” a short book by Jacek Kuroń and Jacek Żakowski. Kuroń was a prominent opposition leader in the communist Poland and the minister of labour and social affairs after 1989. The book, written entirely in his voice, is largely autobiographical and has many good stories, but Kuroń also provides excellent high-level political and social analysis, both concise and insightful. I have the original Polish edition; the translation below is my own.

We first need to be clear on what the “leading role of the Communist Party” meant in practice. All power structures in the country, from the government to regional authorities to factory managers, were duplicated by Party committees and secretaries. The Central Committee (and its Political Bureau) was the de facto government, offering “guidance” to the nominal one; this was made easy by the fact that most government members were also high-ranking Party officials. Further down, each region, city, district had a Party committee or at least a responsible official. So did factories, schools, universities, hospitals. The Party secretaries acted as movers and shakers on behalf of their regions or institutions, advocating, negotiating deals, coordinating with other units. Much of the actual work of governance was thus decided within the confines of the Party, between “comrades” with no clearly delineated responsibilities other than their “leading role in building socialism,” and often with no relevant education or qualifications, either. Nor did they necessarily have to suffer the consequences if something went wrong. The factory manager was far more likely to get fired than the Party secretary. (After Stalin’s death and Beria’s execution, the Party took steps to ensure its own immunity from the security apparatus.)

“Planned economy,” as it was originally conceived, had everything from supply and production levels to pay rates to consumer prices planned out and dictated centrally by the state. In theory, with the state in control of all production, it should be possible to coordinate everything perfectly: have the producers manufacture just the right amount of goods, provide just the right amount of supplies, make the whole process run smoothly and efficiently. The idea sounded good enough that intelligent, well-intentioned people could buy it. (It helped that many Poles, still disgusted with the stunning incompetence of their pre-war government, were ready for a change.) The Soviet Union, then the satellite countries, instituted elaborate multi-level plans covering the entire economy, on the household-level logic that with a little bit of planning and budgeting we should be able to do more with less.

That was a pipe dream. Many of the new communist leaders had never actually managed anything larger than a household, or not even that, and nobody had any idea how to go about planning on the required scale. In the early years, the initial quota might be just pulled from thin air, then increased by 20% for the following year because that looked like a good number. Appelbaum cites a story of Poles debating seriously whether they should just take a shortcut and set the same prices of basic goods in Poland as in the USSR.

Could it have worked if it had been executed with more competence? Spufford’s Red Plenty novelizes a more legitimate attempt from Khrushchev’s era, based on Kantorovich’s “linear optimization.” Spufford’s central planners, in their naivete, boundless self-confidence and unconditional trust in mathematics, remind me of the Wall Street quants of more recent notoriety. In reality, as Spufford points out, it’s not just that optimizing a country’s economy – a nonlinear problem with way too many variables – is and probably always will be beyond our computational powers. It’s also that the plans are based on outdated and incorrect data from the beginning, its collection being slow and reporting far from truthful. The participants will not always act as directed, but rather game the system at others’ expense, whether for personal gain or to avoid the consequences of individual failure (Wall Street comes to mind again). Nor does the mathematics of planning account for its social costs, which could be considerable, or for unanticipated events that may require a change of plans.

In the Stalinist years (roughly, 1948-53), economic development in Poland was based on a very simple “extensive” mechanism. Mass migration from the countryside to the cities and the employment of women created a large amount of low-cost workforce. Construction and industry development took off right away, with no initial investment needed when the bulk of the work was done using the simplest hand tools like shovels and cartwheels. (This was romanticized to no end in the official popular culture.) The vast labour reserves compensated amply for the inefficiency.

But that could only go so far. In the 1950s, as the economy went straight into a crisis (made worse by the expensive arms race), the government resorted to desperate measures, such as the 1951 “currency exchange” that wiped out people’s savings. It became clear that further progress required intensification of production as well as introduction of some market-like mechanism. Stalin himself deigned to acknowledge that “the laws of political economy reflect law-governed processes which operate independently of the will of man,” a statement that signalled some flexibility. Kuroń:

[Central] planning must predict how many handkerchiefs the society will use up, how many bread rolls they will eat, how much lemonade they’ll drink and how many socks they’ll wear out. It must not only count the number of handkerchiefs and socks to be produced, but also the amount of energy that this production will require, how much the workers will get paid for it, how much of that they will spend on food, how much on vacations, how much they’ll save. For the plan to work, the equation must be balanced on the scale of the entire country. And since such a calculation is obviously impossible to balance, one must create reserves. Thus planned economy always leads to hoarding, and at the same time it is an economy of shortages, since the hoarded goods rarely match the current needs.

The paradox is that, in order to make such economy more efficient, one must introduce the elements of market and competition, increasing economic freedom, and this encourages people to articulate their interests, which makes planning even more difficult, forces more hoarding, intensifies the shortages and deepens the crisis.

Worse still, in a planned economy, exposing the play of interests not only makes planning more difficult, but also increases the pressures on the central planner. The more freedom, the stronger the pressures, and the more effective. And everyone, roughly, aims to lower their quotas and increase the investments as much as possible. The lower the quota, the easier it is to meet it, and the higher the investments, the more money there is to share.

The result was what Kuroń calls “communist corporationism.” As he describes it (and it sounds right to me), the industry was organized in branches, which effectively became powerful interest groups competing for investments and resources. In the absence of a genuine financial market, the main source of power and instrument of lobbying was not money, but rather connections and personal relationships. Given the dual governing system as described above, competition between industry branches often translated into a power struggle between factions in the Party.

In Poland, coal and steel had powerful representatives both in the Party and in the government, including (at different times) both a first secretary and a premier. Committees and legislative bodies could talk all they wanted about shifting resources to, say, communications or the textile industry; somehow, somewhere along the way, money would get redirected to coal and steel. Of course, you couldn’t quite put it that way in official documents. Instead, coal and steel became the crucial pillars on which socialism must be built as per the fundamental teachings of Marxism-Leninism or whatever. Many Western historians could make a quantum leap in their understanding of the East if they figured out things like that.

The actual economic performance of the branches or units in question had little influence on the process. Coal had the advantage of being one of Poland’s main exports, but steel and heavy machine industry also enjoyed privileged status without having to worry about profitability. In fact, the converse often happened: the Party officials who placed themselves in strategically (for them) chosen branches and proved skilled at extracting money and concessions were praised for their economic successes and managerial skills, and promoted to more senior positions. That, apparently, was how Gierek ascended to the Party leadership.

Resistance to reforms came from several directions. First, a powerful lobby (such as steel or heavy industry) could block or neutralize any reforms disadvantageous to them. Second, the dual governing system could come into play. Market reforms would require giving companies the freedom to make their own decisions and, up to a point, to pursue their own interests. As Kuroń puts it succinctly, it would make the factory director more important than the Party secretary, and that was not acceptable to the Party nomenclature. A director could show some initiative, but only within limits allowed by the secretary; when the secretary felt that things were going too far, he could intervene, remove the director if he thought it appropriate, and then proceed to fix the problem using his own methods, usually having little to do with the market.

Third, there was actual social support for this. By the 1960s, the communist Poland had developed its own “middle class,” including not only intelligentsia and administration but also the upper part (about 30%) of the working class. They were not as prosperous as the middle class in the West, but still, they had their state-assigned apartments, long-term jobs, benefits, furniture and appliances on a payment plan, modest but stable comfort. They were attached to their workplaces in multiple ways, both social and financial. In short, they actually had something to lose. They were vested enough in the system to resist any reforms that would rock the boat too much.

(Which is not to say that they supported the system without reservations, or that they “believed in communism,” whatever that might mean. They, too, were affected by food shortages and price increases. Kuroń writes that in the 1980s, street riots were usually started by the “nomadic” working class, people who changed jobs often and lived in substandard conditions even when they could afford better, but that a strike could only be organized successfully when the middle class was involved.)

These are all just generalities; there is much more in the details. Kuroń has much to say about the Polish agriculture, reformed back and forth, collectivized, then privatized again, then collectivized again via a back door, and so on – something that I have not mentioned here at all. There were other enclaves of private enterprise. Different branches of the economy had their own stories, and of course differences between the Eastern Bloc countries should not be underestimated. I was only aiming to convince you, if you don’t know it already, that the Western “common knowledge” about socialism doesn’t really scratch the surface or convey much of an impression of how people actually lived in that part of the world.

If I were to name the most “socialist” things that I see or hear about on this side of the pond – “socialist” referring to the reality I’ve experienced, not to the latest myth du jour – Obamacare or “big government” would not be especially close to the top of the list. (If you recall, the problem with the “big government” in the Soviet bloc was a little bit more particular than it just being big.) On the other hand, big U.S. banks and other “too big to fail” entities are pretty good analogues of the coal and steel communist corporation. Pork barrel politics. I’ve mentioned Wall Street already. Academic politics, in so many ways that it just hurts to think about it. But also bureaucrats and politicians who try to micromanage academic research they don’t understand and use arbitrary indicators of “usefulness” to evaluate it, much like communists instituted a set of “criteria” to control production. Kuroń again:

First, it was the number of produced articles that counted – the more, the better – so that factories increased quantity at the expense of quality. The market was full of small-sized shoes, but no large sizes. So the central planner started using weight as a criterion. Producers understood quickly that shoes must be as heavy as possible – steel soles were best. […]

When I became minister of labour in 1989, I was shown a list of 36 criteria used to evaluate companies. All along, as the number of criteria increased, the actuaries all over Poland figured how to game the system and win. And they always managed it – that is to say, they were able to position themselves so as to produce little, badly and expensively, but still make good money, and even receive honours.

You see, studying the “complexities of communism” can tell you how people will respond to that sort of thing.

As I’ve said before, I’d like to do at least one more post on the subject, about the 1980s. I’m not sure when, though. I have other work to catch up on after the holidays.

Author: Izabella Laba

Mathematics professor at UBC. My opinions are, obviously, my own.

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