Freeman

ARTICLE

Perspective: Why the Soviet Economy Is Still in Trouble

JULY 01, 1989 by NICHOLAS DAVIDSON

Recent reports from the Soviet Union indicate that the Soviet economy has faltered under Mikhail Gorbachev’s perestroika, or restructuring. The news is puzzling to Western journalists, as it must be to the Soviet governors themselves. After all, the regime has promoted more efficient management of the economy and waged a major campaign against the corruption that affects every level of Russian life. But instead of the expected flowering of production, distribution, and consumption, things have gone from bad to worse. Today, even in privileged Moscow, such basic items as beef, sugar, tea, coffee, toilet paper, and gasoline are usually scarce and often nonexistent, at least in the stores open to ordinary people.

Such a development, however—or rather, such a lack of development—will not surprise the economically alert. It is the essence of perestroika to be a restructuring of the Soviet managerial economy, an assertion of power from the top down. Indeed, perhaps to facilitate his task, Gorbachev has been increasing the already tremendous powers granted to him under the system inherited from his predecessors.

The Soviet leaders and their legions of Western admirers do not see, however, that they are taking precisely the wrong actions to achieve prosperity. The fundamental problem of the Soviet economy is that it is too heavily centralized, too thoroughly managed. The spontaneity needed to meet consumer demand, introduce new products, and adjust prices to each other simply cannot happen under these circumstances. In fact, one of the few things that keeps the Soviet economy running at all is corruption, for, in a society where nearly all economic activity has been made criminal, corruption is almost the only way in which goods and services can be freely exchanged. So, by cracking down on corruption, perestroika has chilled the only area of Soviet life in which genuine economic behavior is possible.

At the same time, the few “market-oriented” reforms tried have been half-hearted and enmeshed in threats against those who seek to “profiteer.” In a nutshell, people are terrified to start businesses, for they never know when even the slight incentives offered might be revoked, and those who have taken advantage of them persecuted as criminals.

Gorbachev may or may not be a good man who sincerely desires to improve the lot of the peoples of the Soviet Union. What is certain is that Gorbachev is wholly on the wrong track with the policy of perestroika both as stated and as implemented. What the Soviet economy needs is not “restructuring” but destructuring; not more government control over the economy, but less. If Gorbachev and his henchmen could bring themselves to simply leave the Soviet people alone to grow, to produce, to invent, to buy, and to sell, they would soon find themselves sitting on top of an economic colossus, and it wouldn’t take a penny of Western aid.

—Nicholas Davidson

Why the Russians Didn’t March

There is a joke in which an American and a Russian argue about who has more freedom. The American says, “I can come up to the White House and yell, ‘Down with the President of the United States!’” The Russian says, “Well, I can come up to the Kremlin and yell, ‘Down with the President of the United States!’ too!”

This joke is a completely inaccurate reflection of Soviet realities: Soviet citizens do not even have that kind of freedom. Here is a typical episode.

In the year of the fiftieth anniversary of the founding of the USSR, the Party organizer at one of the departments of Moscow State University declared at a meeting that Communist enthusiasm was waning in our society: no one had even thought of organizing a parade to mark an event of such importance. The Party organizer called on the department to fan the dying flames by holding a march, on their own initiative, in honor of the anniversary of the Soviet state. Signs and posters had already been prepared, and the time was set for the march to begin. But the procession did not take place. When the dean’s office found out about the proposed unauthorized event, they were horrified. The march was banned, the posters confiscated, and the Party organizer reprimanded.

Why were the authorities so horrified? The hapless Party organizer had unwittingly violated one of the chief principles of Communist rule: a doctrine that contains absolute truth cannot give the individual any freedom at all, not even the freedom to support the doctrine on his own free will.

—Gleb Anishchenko,

writing in Glasnost, a dissident publication founded in Moscow in 1987. Translation provided by the Center for Democracy in the U.S.S.R., 358 W. 30th Street, Suite 1-A, New York, NY 10001.

Social Security

Today’s workers should keep in mind that the payroll taxes they pay will not finance their social security benefits. Rather, tomorrow’s workers will pay for these benefits through payroll, or other taxes. Furthermore, in order to pay currently promised benefits, tax rates will have to rise. Depending upon future economic and demographic conditions, payroll tax rates may well have to double or triple to cover social security benefit payments.

Future workers, however, may object to ever-rising taxes. Faced with opposition, politicians will alter the structure of social security, as they did in 1983 when social security benefits were taxed for the first time and the retirement age was raised. Because social security is neither an annuity nor a legal guarantee, today’s workers may well find that the social security benefits they actually receive will be less than what is currently promised. Moreover, because of the detrimental economic effects of higher tax rates, today’s workers will face a lower standard of living all along the way.

—Aldona E. Robbins,

writing in The ABCs of Social Security,

published by the Institute for Research

on the Economics of Taxation

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July 1989

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