Chapter 4

Communism was characterized by tensions between party, state and the economy - exactly as the medieval polity was plagued by conflicts between church, king and merchants-bankers. Paradoxically, communism was a faithful re-enactment of pre-capitalist history.

Communism should be well distinguished from Marxism. Still, it is ironic that even Marx's "scientific materialism" has an equivalent in the twilight times of feudalism. The eleventh and twelfth centuries witnessed a concerted effort by medieval scholars to apply "scientific" principles and human knowledge to the solution of social problems. The historian R. W. Southern called this period "scientific humanism" (in "Flesh and Stone" by Richard Sennett, London, Faber and Faber, 1994). We mentioned John of Salisbury's "Policraticus". It was an effort to map political functions and interactions into their human physiological equivalents. The king, for instance, was the brain of the body politic. Merchants and bankers were the insatiable stomach. But this apparently simplistic analogy masked a schismatic debate. Should a person's position in life be determined by his political affiliation and "natural" place in the order of things - or should it be the result of his capacities and their exercise (merit)? Do the ever changing contents of the economic "stomach", its kaleidoscopic innovativeness, its "permanent revolution" and its propensity to assume "irrational" risks - adversely affect this natural order which, after all, is based on tradition and routine? In short: is there an inherent incompatibility between the order of the world (read: the church doctrine) and meritocratic (democratic) capitalism? Could Thomas Aquinas' "Summa Theologica" (the world as the body of Christ) be reconciled with "Stadt Luft Macht Frei" ("city air liberates" - the sign above the gates of the cities of the Hanseatic League)?

This is the eternal tension between the individual and the group. Individualism and communism are not new to history and they have always been in conflict. To compare the communist party to the church is a well-worn clich‚. Both religions - the secular and the divine - were threatened by the spirit of freedom and initiative embodied in urban culture, commerce and finance. The order they sought to establish, propagate and perpetuate conflicted with basic human drives and desires. Communism was a throwback to the days before the ascent of the urbane, capitalistic, sophisticated, incredulous, individualistic and risqu‚ West. it sought to substitute one kind of "scientific" determinism (the body politic of Christ) by another (the body politic of "the Proletariat"). It failed and when it unravelled, it revealed a landscape of toxic devastation, frozen in time, an ossified natural order bereft of content and adherents. The post-communist countries have to pick up where it left them, centuries ago. It is not so much a problem of lacking infrastructure as it is an issue of pathologized minds, not so much a matter of the body as a dysfunction of the psyche.

The historian Walter Ullman says that John of Salisbury thought (850 years ago) that "the individual's standing within society... (should be) based upon his office or his official function ... (the greater this function was) the more scope it had, the weightier it was, the more rights the individual had." (Walter Ullman, "The Individual and Society in the Middle Ages", Baltimore, Johns Hopkins University Press, 1966). I cannot conceive of a member of the communist nomenklatura who would not have adopted this formula wholeheartedly. If modern capitalism can be described as "back to the future", communism was surely "forward to the past'.

Transition in Context

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Also Read

Lessons in Transition

Is Transition Possible?

The Rip van Winkle Institutions

The Author of this Article is a Racist

The Eureka Connection

Women in Transition:

From Post Feminism to Past Femininity

Axes to Grind - The Taxonomy of Political Conflict

The Solow Paradox

Forward to the Past - Capitalism in Post-Communist Europe

Leapfrogging Transition - Technology and Post Communism

Contracting for Transition

Women in Transition

The Kleptocracies of the East

The Washington Consensus - I. The IMF

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 about to become 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 would translate into a de-liberalized and re-regulated future. Others would 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.

Eastern Advantages

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Also Read

Transition in Context

Lessons in Transition

Is Transition Possible?

Leapfrogging Transition - Technology and Post Communism

Many of the nations of central and east Europe have spent most of their history as components of one empire or another. People in this region are used to be at the receiving end of directives and planning from the center. Though ostensibly fervid nationalists, they are ill at ease with their re-founded and re-found nation-states.

The identity of the denizens of these parts is more regional than national and evolving towards the supra-national. People are from this or that city, or district, or village. And they aspire to become citizens of Europe and the great experiment of the European Union. They are only hesitantly and tentatively Macedonians, or Moldovans, or Belarusians, or Kazakhs, or Yugoslavs.

The likes of the Czechs, the Estonians and the Slovenes are well-suited to become constituents of a larger whole. They make better Europeans than the British, or the Norwegians. They have survived far mightier and more bloated bureaucracies than Brussels'. They are unsurpassed manipulators of officialdom. In the long run, the new members stand to benefit the most from the EU's enlargement and to form its unwaveringly loyal core.

Not yet the full-fledged individualists of the Anglo-Saxon model of capitalism - these nations are consensus-seeking team-players. Tutored by centuries of occupation and hardship, they are instinctual multilateralists. They are avid Westerners by persuasion, if not yet in practice, or geography.

Moreover, their belated conversion to the ways of the market is an undisguised blessing.

Though still a promise largely unfulfilled, the countries in transition could now leapfrog whole stages of development by adopting novel technologies and through them the expensive Western research they embody. The East can learn from the West's mistakes and, by avoiding them, achieve a competitive edge.

Technology is a social phenomenon with social implications. It fosters entrepreneurship and social mobility. By allowing the countries in transition to skip massive investments in outdated technologies - the cellular phone, the Internet, cable TV, and the satellite become shortcuts to prosperity.

Poverty is another invaluable advantage.

With the exception of Slovenia, Estonia, Croatia and the Czech Republic - the population of the countries in transition is poor, sometimes inordinately so. Looming and actual penury is a major driver of entrepreneurship, initiative and innovation. Wealth formation and profit seeking are motivated by indigence, both absolute and relative. The poor seek to better their position in the world by becoming middle-class. They invest in education, in small businesses, in consumer products, in future generations.

The Germans - sated and affluent - are unlikely to experience a second economic miracle. The Serbs, Albanians, Ukrainians, Poles, or Romanians won't survive without one. The West is just discovering this truth and is opening its gates - albeit xenophobically and intermittently - to poorer foreigners. For what is immigration if not the importation of ambitious indigents, certain to revitalize the EU's rich and somnolent economies?

The countries of central and eastern Europe, thus, stand to benefit twice.

Their own economic Renaissance is spurred on by a striving home-grown proletariat. And they are uniquely positioned - geographically and culturally - to export destitute go-getters to the wealthy West and to reap the rewards of the inevitable spurt in entrepreneurship and innovation that follows. Remittances, returning expatriates, thriving and networked Diasporas would do more to uplift the countries of origin than any amount of oft-misallocated multilateral aid.

This cornucopian vision is threatened from numerous sides.

Geopolitical instability, resurgent trade protectionism, dysfunctional global capital markets and banks - can all reverse the course of a successful transition to market economies. Still, the more pernicious threats are from the inside: venal, delegitimized politicians, brain drain, crumbling infrastructure, cheap foreign competition, or inter-ethnic tensions.

Perhaps the most serious hindrance to progress would be a fanatic emulation by the countries in transition of the European Union. An overly generous social safety net, a sprawling bureaucracy, inane laws and regulations about everything from the environment to the welfare of pigs, paralyzed decision-making processes and deleterious subventions - can all scupper progress and depress entrepreneurship and innovation.

The cautionary tale of east Germany - smothered by western red tape and lethargy - should forewarn every new member and aspiring candidate. They need to join the European Union in the hope of helping to reform it from the inside. They should not succumb to the allure of German largesse, nor acquire the French, Spanish, Greek and Portuguese addiction to it. They cannot afford to.

Europe's Four Speeds

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

Pomp and circumstance often disguise a sore lack of substance. The three days summit of the Central European Initiative is no exception. Held in Macedonia's drab capital, Skopje, the delegates including the odd chief of state, discussed their economies in what was presumptuously dubbed by them the "small Davos", after the larger and far more important annual get together in Switzerland.

Yet the whole exercise rests on a series of politically correct confabulations. To start with, Macedonia, the host, as well as Albania, Bulgaria, Romania, Ukraine and other east European backwaters hardly qualify for the title "central European". Mitteleuropa is not merely a geographical designation which excludes all but two or three of the participants. It is also a historical, cultural, and social entity which comprises the territories of the erstwhile German and, especially, Austro-Hungarian (Habsburg) empires.

Moreover, the disparity between the countries assembled in the august conference precludes a common label. Slovenia's GDP per capita is 7 times Macedonia's. The economies of the Czech Republic, Poland, and Hungary are light years removed from those of Yugoslavia or even Bulgaria.

Nor do these countries attempt real integration. While regional talk shops, such as ASEAN and the African Union, embarked on serious efforts to establish customs and currency zones - the countries of central and eastern Europe have drifted apart and intentionally so. Intra-regional trade has declined every single year since 1989. Intra-regional foreign direct investment is almost non-existent.

Macedonia's exports to Yugoslavia, its next door neighbor, amount to merely half its exports to the unwelcoming European Union - and are declining. Countries from Bulgaria to Russia have shifted 50-75 percent of their trade from their traditional COMECON partners to the European Union and, to a lesser degree, the Middle East, the Far East and the United States.

Nor do the advanced members of the club fancy a common label. Slovenia abhors its Balkan pedigree. Croatia megalomaniacally considers itself German. The Czechs and the Slovaks regard their communist elopement a sad aberration as do the Hungarians. The Macedonians are not sure whether they are Serbs, Bulgarians, or Macedonians. The Moldovans wish they were Romanians. The Romanians secretly wish they were Hungarians. The Austrians are sometimes Germans and sometimes Balkanians. Many Ukrainians and all Belarusians would like to resurrect the evil empire, the USSR.

This identity crisis affects the European Union. Never has Europe been more fractured. It is now a continent of four speeds. The rich core of the European Union, notably Germany and France, constitutes its engine.