Volume 3 Number 11
Taking a Chance on the Market
01 December 1990

As former Eastern bloc nations roll back 70 years of Marxist economics, Michael Smith looks at the struggle to avoid the unacceptable face of capitalism.
The sight astonished the young Russian woman on her first visit to London. It was 6pm and the supermarket shelves were still full. Back home in Leningrad you were lucky to get meat more than once a week - and the only vegetables were cucumbers. In Moscow angry queues form as bread and potatoes run out, and eggs sell for £2 each. Early next year both cities, and others in the USSR, may be forced to introduce rationing.

This year the Soviets had a bumper grain crop. Yet much of it rotted while railroad wagons were being used to transport grain imported from the USA. The transport infrastructure and the economy are in ruins, prompting President Gorbachev's top economic adviser to say he has been critical of central planning for 20 years. After all, small farmers, who are allowed a profit on private sales, today produce over a quarter of the USSR's food - on only three per cent of the land.

Now many of the former Eastern bloc nations are racing towards the market economy. Poland expects to privatize 8,000 state-run companies by the end of next year; East Germany was absorbed into the European Community overnight as it reunited with its Western spouse.

In the Soviet Union, President Gorbachev walks a tightrope as he balances reforms with the danger of sparking civil disorder, or needing to impose martial law, before the benefits of a market system are felt. Some 19 million Party bureaucrats enjoy a system of patronage and privileges which they will not readily relinquish. The Soviet Minister of Labour has predicted anything up to 27 million unemployed following the abolition of the guaranteed employment law. Meanwhile the Russian Federation takes its own unilateral steps towards a free market.

How to roll back 70 years of disastrous Marxist economics? Fundamental to this are, the values on which economic reforms are based. For not everything in the West is necessarily good for the East.

Poland is furthest down the road of reform, following its `big bang' towards the market economy last July. Even before the birth of Solidarity, there were those who were looking for an alternative to state control.

In the late 1970s Polish intellectuals, operating underground in Krakow, began formulating an ethic or `charter' for the market economy which would replace the command economy - and guard against the excesses of consumerism. They were among the first behind the Iron Curtain to do so. Legalized in 1987 as the Krakow Industrial Society, they now run a school of business that aims to teach budding entrepreneurs to foster honesty, initiative and responsibility in business practice.

Its leading light and founding President was Miroslaw Dzielski, Associate Professor of Philosophy at the Jagiellonian University. He was no ivory tower intellectual. During the Solidarity revolution he became an expert member of the workers' committee in the Lenin shipyard as well as press spokesman for Solidarity in Krakow.

An adviser to Cardinal Glemp on social and economic issues, Dzielski found he had to reconcile the social teaching of the Church, which emphasized justice, with his own commitment to free market liberalism. In doing so he stressed the dignity of the worker - and that work needed to be `motivated morally' - while he condemned `hedonistic consumerism'.

Liberals like Dzielski, commented Andrzej Walicki, Professor of History at New York's Notre Dame University, `can be accused of a certain extremism in praising the free market' at the expense even of the mixed economy. Yet they were also bitterly aware that `the system' had taken such deep roots that most Poles had become a part of it. As a result, the liberals had concluded, placing the blame on 'them'- the Party and its government - could no longer be justified. `In keeping with this diagnosis', wrote Walicki in the USA quarterly Critical Review, `they have launched a remarkably successful campaign for a "moral rearmament" in the name of true intellectual independence, a work ethic, economic rationality, political realism and the liberal culture of compromise.... It appears that they have already been successful in changing the intellectual climate of Poland.'

Walicki was writing in 1988, and today three members of the Polish government, including the Minister for Industry, hail from the Krakow Industrial Society. When Miroslaw Dzielski died a year ago, The Times of London commented, `The theories worked out by the Krakow Industrial Society have had a considerable influence upon the present Mazowiecki government.'

Translating their theories into practice, however, is no easy matter. Grzegorz Palka, the Mayor of Lodz, Poland's second largest industrial city, describes the nightmare of rising unemployment among a skilled textile workforce as guaranteed export quotas to the USSR disappear. The Gulf crisis has made matters worse, forcing the Polish National Bank to increase its base lending rate from an already prohibitive 34 per cent to 43 per cent. Poland expects to enter 1991 with over a million unemployed. At the same time factory managers, many of whom come from the old Communist Party bureaucracy, are slashing wages and earning themselves a reputation as 'nomenklatura capitalists'.

Such circumstances seem to justify Andrzej Walicki's warning against the `extremism' of dismissing the mixed economy, even though the reaction to anything that smacks of state control is understandable. Free market forces on their own cannot provide a cushion for the unemployed, let alone deal with the great social issues of environmental pollution or the gap between the rich and the poor nations. Increasingly industry is facing up to its social responsibility towards the environment, while there are those who say that the costs involved should be reflected in the selling price of goods. But the state will not, in Marx's words, `wither away', even under capitalism.

Hubertus Dessloch is an adviser to the Bavarian government on EEC matters, and has worked for 25 years on issues of European economic integration. He points to West Germany's post-war experience of building a new economic order out of the devastation of defeat. It developed the social market economy, under the leadership of Christian Democrats like Adenauer and Erhard. This aimed to combine personal freedom with social justice as a 'third way' between the free market and the command economy. It emphasized the dignity of the individual, personal responsibility and selfdetermination, and social solidarity with the state supporting individuals unable to cope for themselves. A social market economic order, stresses Dessloch, `allows space for the creativity of Christian motivations'.

It also aims to decentralize social services as much as possible, so as to keep decisionmaking close to local conditions - something which the Soviets have not begun to contemplate. Yet Czechoslovakia, Dessloch points out, is looking almost entirely to (West) Germany's economic model.

Another who advocates the social market economy is British industrialist Neville Cooper, Chairman of the London-based Institute of Business Ethics. A totally free economy, he says, `isn't practical and isn't envisaged by anyone'. For him the issue is not to defend capitalism as being morally superior to any other system. `It is a mistake to attribute moral qualities to economic systems.' Yet the market economy, he believes, `is the most effective, and is indeed necessary for a sound society'. It is not allsufficient, however, `for the ethical aims of all those involved are also an essential ingredient. There is an unacceptable face of human nature,' he says, under whatever economic system.

Such an ethic, says Finnish businessman Paul Gundersen, must include the glasnost of absolute honesty. In 18 years of trading with the East he has `come across many socalled advisers on East bloc trade'. Some of them said it was necessary to be `more devious than the devious' to succeed. Dismissing this approach, Gundersen prefers to tell of the two Finnish industrialists who were asked by the press what was the secret of their long-term success in trading with the Soviet Union. Both replied, `absolute honesty'. Comments Gundersen: `That was the basis of the trust they had managed to build over the years.'

`A reference point,' he adds, `that can be elegantly manipulated according to circumstances is no reference point at all. Without absolute standards you can always fairly successfully find an excuse to justify more or less anything you have done or want to do.'

If honesty is one requirement, service to the customer is another, suggests John Carlisle, managing director of the UK business consultancy firm Transform. For 50 years state monopolies in the Eastern bloc `lost all respect for the customer who deserves value for money'. This, says Carlisle, is one of the fundamental issues facing President Gorbachev: while he and his economists look to new economic models, there is also a need to instil a new spirit of service. And that includes delivering quality. Years of state monopolies have allowed people to dissociate the things they were making from the people they were being made for. Above all, it is a question of a new motivation in people, says Carlisle. As Gorbachev has said himself, `Changing our mentality has turned out to be the greatest problem for perestroika.'

What the East needs now, adds Carlisle, is a 'redeemed capitalism' and not an 'outof-control market force economy'. For without such a spirit of service, free market forces are a 'spurious idea', he says.

Carlisle cites the Japanese car company Honda which this year is expected to overtake Chrysler as the third largest manufacturer in the USA. One of the major reasons for this, he says, is the outstanding relationship that Honda has built with its component suppliers, so that they in turn want to give Honda an exceptional service.

Jiri Jira, personnel director of Skoda cars in Czechoslovakia, says that Skoda will have to improve their quality if they are to meet the challenge of international competition. Having enjoyed a monopoly, they expect to retain no more than 40 per cent of their own country's market, and have to go into partnership with a German car company to survive. Skoda's component suppliers, such as steel- and paint-makers, have also enjoyed a monopoly and this has `caused shortcomings that are among the main contributors to Skoda's poor reputation for quality and performance'.

Another major issue facing people in the East, says German businessman Klaus Turck, is whether or not they have the will to be enterprising for themselves -after years of only acting on commands from above. He fears paralysis, especially where the ground-soil of religious faith and motivation is missing. Hubertus Dessloch, however, believes that paralysis is `nearly unimaginable' given personal freedom, the rule of law, a hard currency - and the skills of a well educated people, something which eastern Germany at least has never lacked.

`Nevertheless people must become aware of their inherent dignity,' Dessloch told a Catholic seminar in northern England, `to be able to distinguish freedom and responsibility from permissiveness and irresponsible greed.' And that, he said, is learnt from the Gospel. The social market economy grew in Christian soil. `If this seedbed is to be further eroded, so also will be the achievements of the social market economy.'

Klaus Turck believes that habits formed over decades will need to be broken. It has become customary, for instance, for employees in eastern Germany to leave work even several times a day to join the queues for daily provisions. That was alright when shortages of materials in the factories meant long intervals without work. But it can't continue if they are to match the productivity and competitiveness of the West.

George Samsondi-Kiss, Under-Secretary of State in the Hungarian government, hopes that `a brand new quality of life will emerge' as the nations of Central Europe work through `the new dangers we are now facing'. Economic growth, he told a Moral ReArmament industrial conference in Switzerland, will lead to a 'stretching of the muscles' and the `arrival of the new type of man who feels responsible for the future, for nature and for the ecology'. He speaks from personal experience. An architect who has been catapulted into government office, he is in charge of negotiating with Hungary's neighbours over the future of the Danube barrage - a hydro-electric power project which, after 30 years of state planning, has proved to be a massive white elephant because of damaging ecological side-effects.

A brand new quality of life won't come on the cheap, though. Klaus Turck tells of an economics professor in Dresden who chose to stay in his home city, training young managers in the new free market system, rather than accepting a job at six times his present salary in the western half of Germany. Yet it may come as a salutary thought to old Marxist diehards that the `new type of man', which they have dreamed about for so long, is far more likely to be born out of a free economy than one that is controlled from the top. Regimes like Ceaucescu's Romania bulldozed communities, destroyed creativity and imposed a grey conformity in the name of the new man. But the market economy requires the human values of enterprise and initiative, integrity, quality and service in order to function.

Of course, the worst abuses of capitalism are also contained within man himself. And it is worth remembering that during the earliest days of the West's industrial revolution the most appalling conditions of exploitation were allowed to flourish under a laissez-faire system. Today, corruption, fraud, profiteering and disregard for the welfare of individuals are still far too widespread, while asset stripping, plant closures and the flight of capital across frontiers can all too easily make shop floor workers feel they are the victims of free market forces.

A British printing worker tells how his boss, the head of a publishing multinational, reassured him, `Don't worry, I'm not going to take your pocket book away.' A week later he was made redundant. It took him three years to find a new job to match his skills. His experience may not be typical - there are many employers who have put the welfare of their employees among their top priorities. But as the French MP Jean-Marie Daillet warns, `It would be a tragedy if those who emerge from a system of the most inhuman collectivism only discover the inhuman side of capitalism.'

It need not happen, especially if the emerging democracies of Eastern Europe can create and affirm strong autonomous trade unions. Yet the worst abuses of capitalism won't be avoided without also nurturing the seed-bed of religious faith and motivation that Dessloch talks about. In this respect, the moves to the market economy in the East offer a timely chance for the West also to rethink its values.