3. Return to Normalcy

If early modern Eastern Europe was "a testing ground for bankers and financiers to practice what they would later perfect in more distant lands" (Feffer), then by the 1980s the shoe was on the other foot: it was to be a "testing ground" for the doctrines of laissez-faire economic development that had been avoided by every successful developed country, and applied under Western tutelage in the South with destructive effects. A symbolic illustration of the reversal is the role of Harvard economist Jeffrey Sachs, who "in the 1980s had devastated the Bolivian economy in the name of monetary stability," Feffer accurately observes, and then moved on to Poland to offer the harsh medicine conventionally prescribed for the service areas.

Following the rules, Poland has seen "the creation of many profitable private businesses," the knowledgeable analyst Abraham Brumberg observes, along with "a drop of nearly 40 percent in production, enormous hardships and social turmoil," and "the collapse of two governments." In 1991, gross domestic product (GDP) declined 8-10 percent with an 8 percent fall in investment and a near doubling of unemployment, reaching 11 percent of the workforce in early 1992, after an official GDP decline of 20 percent in two years. A 1992 World Bank report on the Polish economy, discussed by Anthony Robinson in the Financial Times, concluded that "The fiscal situation has worsened to the point where hyperinflation is an immediate danger. Unemployment has reached a level that cannot be tolerated for long. Investment in infrastructure and human resource development has shrunk to levels that, if maintained, will undermine the prospects for sustained growth." It warned that "None of the long-term supply side reforms" that the Bank advocates "stands any chance of success if Poland slides back into hyperinflation, or if its economy continues to decline as dramatically as it has in the last two years." "Private savings were virtually eliminated by hyperinflation and the 1990 economic stabilisation programme," Robinson adds, while problems were exacerbated by capital flight of several tens of millions of dollars a month. While the decline will "bottom out," prospects appear dim for much of the population.

Russia has been going the same way. "On some estimates," Michael Haynes observes, "capital flight from the USSR was somewhere between $14-19 billion in 1991," some of it short-term, some for longer-term structural reasons. Production declined in 1991. Economic and finance minister Yegor Gaidar warned of a further drop of 20 percent in early 1992, with the "worst period" still ahead. Light industrial production fell by 15-30 percent in the first 19 days of January 1992 while deliveries of meat, cereals, and milk fell by a third or more. From early 1989 through mid-1992, according to IMF and World Bank statistics, industrial output fell by 45 percent and prices rose 40-fold in Poland and real wages were almost halved; figures for the rest of Eastern Europe were not much better.

Western ideologists are impressed with what has been achieved, but concerned that economic irrationality might impede further progress. Under the heading "Factory Dinosaurs Imperil Poland's Economic Gain," New York Times correspondent Stephen Engelberg looks at "a worst-case instance of how the industrial legacies of the Communist system threaten to drag down economic reform plans in Poland and other Eastern European nations": the city of Rzeszow, dependent on an aircraft manufacturer for employment, tax revenues, even heat from industrial by-products. The free market policies have "brought cities like Warsaw or Cracow alive with commerce," Engelberg notes, doubling the number of private businesses (though the people too impoverished to buy even basic goods do not reach the threshold). But this welcome progress is threatened by calls for government intervention to meet minimal human needs and rescue enterprises suffering from loss of markets and supplies and unpaid debts after the collapse of the USSR.

No less ominous, Engelberg observes, is "social unrest from the workers," who now have a measure of control in factories and even go on strike to prevent closure of plants that might be rescued by "Government-guaranteed loans to rebuild foundries." The Solidarity Union calls on the Government "to forgive overdue taxes and place big new airplane orders for the Polish army." A Solidarity leader says that "the Government has to make a decision whether or not it needs an aircraft industry or whether it has to be restructured or whether one-half should produce aviation and the rest something else." But Western analysts understand that such decisions are not for the Poles to make: they are to be made by the "free market" -- or more accurately, the powerful institutions that dominate it. And no embarrassing questions are raised about the fate of the US aircraft industry, or advanced industry in general, without the huge public subsidy to create and maintain it; and so on through the functioning parts of the economy. Or about the Chrysler bail-out or Reagan's rescue of Continental Illinois Bank; or the hundreds of billions of taxpayer dollars to pay off S&L managers and investors, freed from both regulation and risk by the genius of Reaganomics. We put aside the question of how "economic irrationality" of the kind denied to the Third World created an economy in which Americans no longer pursue their comparative advantage in exporting furs.

The problem of uppity workers is also noted by Financial Times correspondent Anthony Robinson. He writes that many communities depend upon "large plants where workers' councils exert strong influence on management unversed in the ways of the market." This unwarranted influence of working people undermines the lessons of economic rationality and democracy that we are patiently trying to impart. Economic rationality requires that the tools of production overcome their reluctance to see their communities and families destroyed. "It is not for the commodity to decide where it should be offered for sale, to what purpose it should be used, at what price it should be allowed to change hands, and in what manner it should be consumed or destroyed," as Karl Polanyi commented in his classic study of the laissez-faire experiment in 19th century England, quickly terminated as it came to be understood by the business classes that their interests would be harmed by the free market, which "could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness."

As for democracy, in the approved sense it allows no room for any popular interference in the totalitarian structure of the corporate economy, with all that follows in other spheres of life. The role of the public is to follow orders, not to interfere.