Soviet Admissions: Communism Doesn't Work; P. Boettke

nomic Policy (NEP) (1921-1928), which tried to reconcile market relations with government plan ning, he also was the architect of the Bolsheviks' attempt to implement pure Communism within Soviet Russia during the "War Communism" peri od of 1918-1921.4 He represented the official posi tion of the Party throughout the 1920s. BUkharin, as Alexander Erlich put it, "was undoubtedly the best educated economist not only of his group, but of the whole party as well, with a truly outstanding facility for the rationalization, in terms of theory, of any political viewpoint he happened to em brace, and for pushing them toward the full logical consequences."5 His books, The ABC of Com munism and The Economicsof the TransitionPe riod, were regarded as the theoretical manifestos of the war communism period. These books de fended the extreme centralization policies, as well as the use of non-economic coercion, that the Bol sheviks had implemented from 1918 to 1921.

The failure of war communism by 1921,howev er, changed Bukharin's ideas about the construc tion of socialism and economic rationality. As he wrote in 1924, "The adoption of NEP was a col lapse of our illusions . . . we thought then that our peacetime policy would be a continuation of the centralized planning system of that period. . . . In other words war communism was seen by us not as a military,i.e.,as needed at a givenstage of civilwar, but as a universal, general, so to speak 'normal' form of economic policy of a victorious proletari at."6 Bukharin, though, possessed a paradigm for Nikolai Bukharin interpreting the collapse of the Soviet system under war communism-the economic theory of the Austrian school of economics.? Bukharin's work on NE~ which argued for the necessity of market relations of production for economic development, are found in such volumes as Building up Socialism (1926) and in the collec tion of essays edited by Richard Day, Selected Writings on the State and the Transition to Social ism (1982). In his work on NEP Bukharin force fully argued against the bureaucratization of the economy and for the importance of incentives in economic activity. In fact, in perhaps his most fa mous essay of this period, "Concerning the New Economic Policy and Our Tasks," written in 1925, besides encouraging the peasants to "enrich them selves," Bukharin explicitly acknowledged Lud wig von Mises's criticism of socialist planning and argued that Mises was "one of the most learned critics of communism."8 Bukharin went so far as to admit that Mises's criticism of Communism was correct-at least for the historical epoch in which he wrote.

51 "A BureaucraticUtopia" Amazing as this admission is, Bukharin was not the only Bolshevik to recognize the problem con fronting economic planning. Even Lenin had to admit the serious problems the Bolsheviks en countered in their attempt to implement socialism. In a speech to the Political Education Department on October 17, 1921,for example, Lenin admitted that "In attempting to go over straight to commu nism we, in the spring of 1921,sustained a more se rious defeat on the economic front than any defeat inflicted upon us by Kolchak, Deniken or Pilsud ski. This defeat was much more serious, significant and dangerous. It was expressed in the isolation of the higher administrators of our economic policy from the lower and their failure to produce that development of the productive forces which the Programme of our Party regards as vital and ur gent."9 Moreover, in a secret letter on February 19,1921,he wrote, "The greatest danger is that the work of planning the state economy may be bu reaucratized. . . . A complete, integrated, real plan for us at present equals 'a bureaucratic utopia.' Don't chase it."10 Trotsky also would write, in his stinging criticism of Stalinist planning, The Revolution Betrayed (1937), that while "the obedient professors managed to create an entire theory according to which the Soviet price, in con trast to the market price, has an exclusively plan ning or directive character. . . . The professors forgot to explain how you can 'guide' a price with out knowing real costs, and how you can estimate real costs if all prices express the willof the bureau cracy.... "11 These admissions, though, were buried for sev eral decades as the Soviet bureaucracy exercised its power over the Soviet economy and the minds of its people. With the Gorbachev reforms (both glasnost and perestroika) Soviet analysts are now beginning again to admit the fundamental flaw in the Communist ideal. Socialist planning, as Mises demonstrated in his classic Socialism (1922), is logically impossible because of the social system's inability to provide knowledge about which pro duction projects are feasible and which ones are not. Without private ownership, and specifically private ownership in the means of production, rational economic calculation is untenable.

Nevertheless, economic planners once in power must find some rationale upon which to base their 52 THE FREEMAN • FEBRUARY 1990 decisions, and since economic rationales are out of the question, decisions are based instead upon po litical considerations. As a result, those who have a comparative advantage in exercising discre tionary power will rise to the top of the planning apparatus. This is, as F: A. Hayek showed in The Road to Serfdom (1944), the basis for the totali tarian tendency within socialist economies. Soviet-style economies, thus, do not conform to the ideal picture of a rationally planned Commu nist economy because that system is a hopeless and unachievable utopia. Instead, the Soviet-style economy is a vast military bureaucratic system de signed to yield profits to those in positions of pow er)2 The root of the Stalinist bureaucracy that plagues the Soviet economy, however, lies in the original Marxian aspiration to plan the economic system rationally even if the original goal is unattainable. Stalinism is, whether intended or not, the logical consequence of Marxism.13 CriticismsCometo Light While these criticisms are becoming more and more common in the West, it is fascinating to see them come into print in the Soviet press during the age of glasnost. But appear they have, and with in creasing frequency over the past few years. Here are just a few examples.

Nikolai Shmelyev, in his courageous Novy Mir article "Advances and Debts" (June 1987),argued that "economics has its own laws which are just as terrible to violate as the laws of the atomic reactor in Chernobyl." The following are excerpts from Shmelyev's article: We must call things by their proper names: foolishness as foolishness, incompetence as in competence, Stalinism in action as Stalinism in action. . . . Perhaps we willlose our ideological virginity, but it now exists only in the fairy tale editorials of the newspapers. . . . We need to permit companies and organiza tions to sell freely,to buy and borrow funds from their reserves so as to create a powerful and vi brant goods market, to invest their enormous but idle resources, to unleash in practice-not just in words-economic initiative in the coun try. In place of fruitless efforts at central plan ning of our entire industrial production (some 24 million items), we should introduce contracts between supplier and consumer.

We need to realize that there is such a thing as natural unemployment among people who are looking for work or changing their place of employment. . . . The real possibility of losing one's job, of being shifted to a temporary unem ployment subsidy, or being forced to move to a new place of employment is not at all bad medicine to cure sloth and drunkenness. The economic situation of enterprises and co operatives will have to depend directly on profit, and profit cannot fulfill its function until wholesale prices are liberated from subsidies. Over the centuries, humankind has found no more effective measure of work than profit. Only profit can measure the quantity and qual ity of economic activity and permit us to relate production costs to results effectively and un ambiguously. Our suspicious attitude toward profit is a historical misunderstanding, the result of the economic illiteracy of people who thought that socialism would eliminate profit and loss.

It is time to stop deceiving ourselves and stop believing the office ignoramuses. . . . Direct contractual links and wholesale trade in the means of production are two indivisible sides of the same process. If an enterprise is to market its planned and excess production through the marketplace, the enterprise will have to be in terested in the ultimate results, and this will be a level of interest stretching beyond the fondest dreams of those who now specialize in "con sciousness raising." Bottom-line, market stimuli must extend to all stages of the process: re search, development, investment, production, marketing and service. Only the marketplace, and not mere administrative innovations, can subordinate this entire chain to the demands of the consumer. Such admissions by Soviet intellectuals of the failure of socialism and the efficacy of market re lations would continue in an article by Soviet his torian V. Sirotkin, "Lessons of NEP," Izvestia (March 9,1989). Sirotkin argued: It has become a copybook maxim to assert that the policy of "War Communism" was im posed on the Bolsheviks by the Civil War and the foreign intervention. This is completely un true, if only for the reason that the first decrees on introducing the "socialist ideal" exactly "according to Marx" in Soviet Russia were issued long before the beginning of the Civil War (the decrees of Jan. 26 and Feb. 14, 1918,on the na tionalization of the merchant fleet and of all banks), while the last decree on the socialization of all small handicraftsmen and artisans was is sued on Nov. 29, 1920, i.e., after the end of the Civil War in European Russia. Of course, the conditions of the CivilWar and the intervention left an imprint. But the main thing was some thing else-the immediate implementation of theory in strict accordance with Marx (from "Critique of the Gotha Program") and Engels (from "Anti-During") ....

The results of the policy of "War Commu nism" were catastrophic for the economy: By the beginning of NE~ the country was produc ing pig iron at only 2% of the prewar (1913)lev el, sugar at 3%, cotton fabrics at 50/0 to 6°tlo, etc. So the attempt to introduce "communism from above" had led to a rift between city and coun tryside, a sharp economic decline, the scattering of the working class, and armed resistance from the peasantry.... A most important aspect of NEP was the eco nomic reform based on decentralization and broad autonomy for enterprises that had been switched to economic accountability (within the framework of the state budget and stable prices) and business accountability (obtaining of a prof it at contract and market prices). Today, from the heights of historical retro spection, one can say that Lenin's "fundamental change in our entire viewpoint of socialism" went far beyond the bounds of Soviet Russia alone. Essentially [NEP] was a model for re structuring the entire system of economic and social relations in the world, i.e.,it was the world revolution, but a peaceful one, achieved by syn thesizing the positive aspects of socialism and capitalism, in conditions of economic competi tion between the two systems.

Despite the interventionist confusion contained within his analysis, Sirotkin's discussion of the fail ure of war communism and the "success" of the reintroduction of market mechanisms under NEP is astonishing, especially ifwe keep in mind that his comments were originally read before the Plenary Session of the Communist Party Central Commit tee. COMMUNISM DOESN'T WORK 53 The Legacyof NEP NEPist thinking permeates the Gorbachev re form era.l 4 Gorbachev, himself, has invoked the NEP model as an historical precedent for his re forms. In his book, Perestroika(1987), Gorbachev describes his policy of economic restructuring as a return to the teachings of Lenin. Perestroika is the newNE~ The Gorbachev reforms, while challenging the Stalinist past to an extent, do not go far enough in their criticism of the Stalinist economic system. In fact, Gorbachev and Abel Aganbegyan, his chief economic advisor, argue that Stalin's economic policies of collectivization were necessary given the state of development of the Soviet Union in the 1930s.15 Neither Gorbachev nor Aganbegyan address the fundamental problem of the Soviet system; the lessons of history are not learned. Oth ers within Soviet academic and intellectual circles, however, do not shy away from the obvious histor ical conclusion of the Soviet experience.

The stagnation of the Brezhnev era is a direct result of the Stalinist legacy in economic relations. And at least two writers have gone further and published essays in the Soviet press explicitly link ing Marxist-Leninism to Stalinism and the Gulag. The problem with the Soviet system lies in the fun damental political and economic mistakes inher ent in the Marxist-Leninist project. Philosopher A. Tsipko, in a series of four essays published in Nauka i Zhizen between November 1988 and February 1989, entitled "The Roots of Stalinism," challenged the very idea that Stalin was a peculiarity of Marxian thought: I personally get the feeling that the presently voguish myth that Stalin's extreme-leftist "leaps" were of peasant origin was created in or der to lay to rest the question of the doctrinal reasons for our failures in socialist construction and of the Party intelligentsia's and the working class's responsibility for Stalinism.

Paradoxically, it seems that restructuring makes it more difficult to cleanse Marxism of certain typical blunders of 19th century social thought. Judging from certain journalists' arti cles, we have no right to judge Marxism on the basis of our socialist history. Philosopher I. Klyamkin tells us, for example, that the social ism that Stalin built has nothing to do with the 54 THE FREEMAN • FEBRUARY 1990 socialism of Marx, or even with that of Trotsky, but was the product of the feverish mind of an unbalanced patriarchal peasant. If we accept that view,then we indeed have no right to com pare scientific socialism and real socialism. But if we separate scientific socialism from real so cialismin this way,we leave the former dangling in the air.... It is difficultto accept the fact that the reasons for the failures of a movement with which our entire life is bound up lie in the movement itself, its own blunders and mistakes. It is comforting to believe enemies and external causes are to blame. . . . The temptation to separate Stalin ism from our socialist construction is great, but one must consider what such a separation might lead to. What's more, one must proceed from the real historical facts.

It is common practice today to criticize the deformed, barracks-style, egalitarian socialism built in the 1930s. But that criticism diligently sidesteps the structural reasons for our bar racks-style approach. And it avoids the central question: Can a nonbarracks-type, democratic socialism be built on a noncommodity, nonmar ket foundation? That question is central not only for those who are thinking about the future but also for those seeking to understand the past. Why is it that in all cases without exception and in all countries . . . efforts to combat the market and commodity-money relations have always led to authoritarianism, to encroach ments on the rights and dignity of the individual, and to an all-powerful administration and bu reaucratic apparatus? Marx never saw that difficult question, since he lacked appropriate historical experience. Lenin sensed it at the end of his life. . . . All this bespeaks an urgent need for a serious and open "self-audit" of Marx's teachings on the economic bases of the future society,on how the theoretical forecast relates to the real results of its implementation in real life.

Whether we want to or not, we have an obli gation, in the name of our future, to take a more sober look at the nature and motives of leftist radicalism. And there will be no getting away without at least some reassessment of values and without clarifying what represents the greatest danger to us today. Criticism of Stalin ism that is not carried to the point of principles willbe of little benefit. . . . The truth is our sole guarantee against a restoration of Stalinism; it alone can protect us. Perhaps our whole prob lem, including the horrors of Stalinism, is pre cisely the result of having dissembled for so long, of not having learned to honor the truth per se, the truth of our history and its lessons. Perhaps the most important essay to appear in the Soviet press, however, was written by the economist Vasily Selyunin. Selyunin's essay, "Sources," which appeared in the May 1988 issue of Navy Mir, argued that political and economic freedoms are inexorably connected and that the Soviet political terror under Stalin was a result of the Bolsheviks' economic policies under Lenin.

Selyunin maintained that state interference with the economic system disrupts the natural workings of supply and demand and stifles economic incen tives. Soviet economic problems, stated Selyunin, are the legacy of Leninist policies. As he pointed out with reference to Lenin's early policies,"It was not famine that occasioned the grain requisition ing, but just the other way around: The mass requisitions caused the famine." The Failureof CentralPlanning Selyunin also challenged the concept of rational central planning. "It can be argued," he stated, "that historical experience has failed to demon strate any particular advantages of directive plan ning. To the contrary, we all know the· disastrous losses society has sustained in strict accordance with the plan." The problem is a lack of any means to aid the planners in rational economic calcula tion from above; in the absence of market prices for the means of production, how do planners know which production projects are feasible and which ones are not? Economic planners, rather than formulate ex ante plans as was expected in Marxian theory, are forced to rely upon the world market to generate knowledge about resource al location. As Selyunin wrote: The problem here lies not in individual mis takes but in the mistaken idea that you can pre scribe from above, more or less in detail, the proportions and priorities of economic develop ment and the scale of production of even the most important products. Our planners them selves belie this idea when they carefully study world trends, which are determined by market forces, in order to plan what we should produce.

Thus they tacitly admit that there is a better means than ours for the regulation, or rather self-regulation, of the economy. Perhaps Selyunin's most important insight into Soviet history and the current reform movement concerns the classical liberal argument about the interconnection of political and economic free doms. In a very eloquent fashion he stated the con nection: Under market-based capitalist production, a person has complete freedom to either get rich or freeze to death. Individual rights are the ob verse side of merciless economic liberties. Con versely,under total state ownership, the tempta tion arises to expropriate the individual himself, his physical and spiritual energies, in order to organize work according to a single plan and uniform procedures. Under such conditions, the individual can be viewed as merely a cog in a gi gantic machine. . . . It would be strange to speak of the individual rights or civilliberties of a cog.

The relative success of NE~ Selyunin maintained, was due to the establishment of the rule of law. "The economic successes of NEP went hand in hand with democratization: Coercion was sharply curtailed, the rule of law was strengthened, and personal liberties were greatly expanded." Therefore, if perestroika is to succeed similar ac tion must be taken. And action must be immedi ate. The bureaucracy will resist change, but this obstacle must be overcome if there is to be any chance of real restructuring of the Soviet economy: That is where the chief danger for restructur ing lies. Losing time means losing everything. Any economic-management possesses tremen dous inertia and will reject alien elements, no matter how progressive they might be. That is why it is useless to gradually introduce new rules into the existing system. The only thing that can be accomplished that way is to discredit restruc turing: "You see, years have been wasted on talk, and one can't see any changes." History will not forgive us if we miss our chance. An abyssmust be crossed in a single leap-you can't make it in two.

These brave admissions by Shmelyev, Sirotkin, COMMUNISM DOESN'T WORK 55 Tsipko, and Selyunin challenge to the core a gov ernment that derives its justification from Marxist Leninist ideology. This legitimation crisis is per haps most apparent in the growing political unrest within the Baltic nationalities. If glasnost exposes the Stalin-Hitler pact (1939) as immoral and ille gitimate, then what does that mean for the status of Estonia, Latvia, and Lithuania? But the legitimation crisis is felt even within such mundane affairs as day-to-day economic ex istence. Perestroika and glasnost evoke both hope and dismay, as Serge Schmemann has argued, "hope that at last the millions who have lived through the tyrannies and chronic shortages en demic to Communist states find some relief; dis may that so much of the terrible sacrifice, struggle and deprivation they have endured for so long must now be acknowledged to have been in vain, that the secular faith that once promised so much now stands revealed to its own adherents as a fail ure."16 ReformsFailto BringChange The Gorbachev economic reforms, slow in in troduction and inconsistent in application, have not produced any significant change in the Soviet economy. Long lines and shortages of basic food items are still the norm. This is occurring at the same time that more and more of the Soviet people are becoming aware of the reason for their misery-the Soviet system of economic adminis tration.

Within this grand drama, however, there is an other story unfolding. The death of Communism as a legitimating ideology is the ultimate vindica tion of several classical liberal scholars who were ridiculed for exposing the truth of the socialist sys tem of economic planning. History has borne wit ness to the intellectual triumph of individuals like Ludwig von Mises, E A. Hayek, Michael Polanyi, and Paul Craig Roberts. As Stephen Bohm writes with regard to Mises, "it is really scandalous to ob serve how decades of ridicule poured upon Mises's 'impossibility thesis' suddenly give way to an ap preciation of his views as if they had been part of the conventional wisdom all along.... Surely, the belated appreciation of what was once widely thought to be his greatest blunder is Mises's ulti mate intellectual triumph. "17 Communism, plain and simple, has revealed it56 THE FREEMAN • FEBRUARY 1990 self for the whole world to see as an unfortunate and terrible historical mistake. Zbigniew Brzezin ski, in his controversial book, The Grand Failure: The Birth and Death of Communism in the Twen tieth Century, concludes: The Communist phenomenon represents a historical tragedy. Born out of an impatient ide alism that rejected the injustice of the status quo, it sought a better and more humane soci ety-but produced mass oppression. It opti mistically reflected faith in the power of reason to construct a perfect community. It mobilized the most powerful emotions of love for human ity and of hatred for oppression on behalf of morally motivated social engineering. It thus captivated some of the brightest minds and some of the most idealistic hearts-yet it prompted some of the worst crimes of this or any century. . . .

Communism's grand failure has thus in volved, in summary form, the wasteful destruc tion of much social talent and the suppression of society's creative political life; excessively high human costs for the economic gains actually achieved and an eventual decline in economic productivity because of statist overcentraliza tion; a progressive deterioration in the overly bureaucratized social welfare system which rep resented initially the principal benefit of Com munist rule; and the stunting through dogmatic controls of society's scientific and artistic growth. That historic failure, now explicitly acknowl edged by the Communist leaders advocating re forms, has deeper roots than the "errors and ex cesses" finally regretted. It stemmed from the operational, institutional, and philosophical shortcomings of the communist experiment. In deed, it was deeply embedded in the very nature of the Marxist-Leninist praxis.l8 If, as Voltaire argued, history is philosophy that teaches us by example, then the lesson of the Sovi et experience should challenge our basic precon ceptions concerning government interference with free market processes. Not only socialist policies, but interventionist policies which derive their jus tification from the same pretense of knowledge must be challenged. Perhaps we have finally learned the lesson that the history of the Soviet Union has to offer us. If not, I fear, as Selyunin wrote, "history will not forgive us." D 1. On Bukharin's rehabilitation see The Current Digest of the Soviet Press, XL, #5 (March 2, 1988).

2. V. I. Lenin, "Letter to the Congress, December 25,1922,"Col lected Works (Moscow: Progress Publishers, 1977),vol. 36, p. 595. 3. Thomas Sherlock, "Politics and History under Gorbachev," Problems of Communism (May-August 1988),p. 24. 4. For a discussion of this period of Soviet history see my "The Soviet Experiment with Pure Communism," Critical Review, vol. 2, #4 (Fall 1988), pp. 149-182.Also see my The Political Economy of Soviet Socialism: The Formative Years, 1918-1928 (Boston: Kluwer Academic Publishers, 1990). 5. Alexander Erlich, The Soviet Industrialization Debate (Cam bridge: Harvard University Press, 1960),p. 9. 6. See Alec Nove, "Some observations on Bukharin and His Ideas," Political Economy and Soviet Socialism (Boston: George Allen and Unwin, 1979),p. 86. 7. It is interesting to keep in mind that during Bukharin's exile from Russia in 1914, he studied economics in Vienna and attended Boehm-Bawerk's famous seminar on economic theory. He later em barked upon a serious study of the theories of Walras and Pareto. His studies are found in The Economic Theory of the Leisure Class (New York: Augustus Kelley, 1970[1919]),which is a criticism of the Austrian school of economics and other non-Marxian schools of eco nomics. Bukharin was well aware of both Boehm-Bawerk's and later Mises's criticisms of Marxian economics. In fact, he stated that his reason for concentrating upon the Austrian school was because "it is well known that the most powerful opponent of Marxism is the Aus trian school."

8. Nikolai Bukharin, Selected Writings (New York: M. E. Sharpe, 1982),p. 188. 9. V. I. Lenin, "The New Economic Policy and the Tasks of the Political Education Departments," Collected Works, vol. 33, pp. 63 64. 10. Letter to G. M. Krzhizhanovsky, Collected Works, vol. 35, p. 475. 11. Quoted in Michael Harrington, "Markets and Plans," Dis sent (Winter 1989),p. 60. 12. See Gary M. Anderson, "Profits from Power: The Soviet Economy as a Mercantilist State," The Freeman (December 1988). 13. For an interesting discussion of how even decentralized and humanistic Marxism leads logically, though unintendedly, to central ized administration of economic and social life see David Prychitko, "Marxism and Decentralized Socialism," Critical Review, vol. 2, #4 (Fall 1988),pp. 127-148.Also see Prychitko, "The Political Economy of Workers' Self-Management: A Market Process Critique," Ph.D. thesis, Department of Economics, George Mason University, 1989.

14. As Theodore Draper argues in "Soviet Reformers: From Lenin to Gorbachev," Dissent (Summer 1987),p. 287, "This return to a NEP-type reform is particularly characteristic of the unfolding Gorbachev period; Gorbachev himself has invoked the precedent of the NEp, as if it gave him a license to do what he wants to do. Thus, we are not straying too far from the present in paying special atten tion to the NEP period. Nep-thinking is imbedded in the present." 15. See Mikhail Gorbachev, Perestroika (New York: Harper and Row, 1987),p. 41, where he argues that the "industrialization and the collectivization of agriculture was indispensable" and Abel Agan begyan, The Economic Challenge of Perestroika (Bloomington: In diana University Press, 1988),p. 46, where he argues that the period of industrialization and collectivization allowed a backward Soviet Union to speed its development so that by 1941 the "Soviet Union was already producing 10% of the world's industrial output and had caught up with the developed European countries."

16. Serge Schmemann, "In Hope and Dismay: Lenin's Heirs Speak," New York Times (January 22,1989). 17. Stephen Bohm, "The Austrian Tradition: Schum peter and Mises," in Klaus Hennings and Warren J. Samuels, eds., Neoclassi cal Economic Theory, 1870-1930 (Boston: Kluwer Academic Pub lishers, 1989). 18. Zbigniew Brzezinski, The Grand Failure (New York: Charles Scribner's Sons, 1989),pp. 231, 241.