The Power of Freedom. Mart Laar

found it increasingly difficult to compete in Western markets in the 1970s and 1980s with its low-quality manufactured goods. The share of its total trade with less competitive socialist countries rose steadily from 65 % in 1980 to 79 % in 1987. When compared with the structure of employment and the output of goods and services in OECD member countries, it is apparent that agriculture accounted for a larger share of employment and gross domestic product in the Central European economies. Furthermore, the service sector in Central Europe was much smaller than it was in Western Europe. Industry in Central and Eastern European countries was over-concentrated and lacked small and medium-size enterprises. Compared to other European countries, energy consumption in the Communist satellite states of Central and Eastern Europe was two to four times greater than would have been expected based on its per capita GDP. As a result, the technology employed in civilian industries became increasingly backward in relation to the West and the environment suffered increasingly in Central and Eastern Europe. The situation was even worse in the USSR, where waste in all areas was greater and productivity lower. The use of raw materials and energy in the production of each final product was 1.6 and 2.1 times greater, respectively, than it was in the United States. The average construction time for an industrial plant in the USSR was more than ten years, whereas in the United States, it was less than two years. In manufacturing per unit, the USSR used 1.8 times more steel and 7.6 times more fertilizer than the USA. During the 1980s, the level of productivity in the Soviet Union fell by 14 % and dropped to roughly one fifth of the Western level. Productivity in the Baltic countries was higher than it was in other Soviet republics, but in comparison with their capitalist neighbours, the productivity gap widened.94

      In view of Communism’s modernist pretensions, it is striking how backward the Eastern bloc remained in the fields of computer technology and telecommunications, the leading sectors in the advancing global revolution. While in West Germany, the number of unskilled workers with a phone rose from 20 % to 58 % in the early 1970s, in East Germany, only one home in seven had a phone in 1990.95 The average waiting time for a new phone in Poland was 13 years. Facsimile had only a small role to play in Central and Eastern Europe because of the poor quality of transmission.96 East German attempts to go in for microchip specialisation resulted only in an annual subsidy of three-billion marks. The computer age, heralded in 1974 by the appearance of the personal computer, did not arrive at all in the Communist world. By the end of the 1980s, the ratio of personal computers per capita was, at best, no more than 10 % of the average Western level.97 At the same time, socialist countries tried to present themselves as vanguards of progress by falsifying data and concealing problems.

      In reality, the local Communist leaders were familiar with all of these problems. But to find solutions for them without liquidating some basic Communist principles was impossible. Nevertheless, in the 1970s, a serious attempt was made to win people over to a society whose material well-being compensated for its politics. Socialism was now to take on a more consumerist style. Communist societies were to be ‘normalised’ not only by the security police but also by growing prosperity, washing machines and televisions. It was hoped that people who could set off in their family cars for weekends at their summer homes in the countryside would worry less about the absence of political liberties. Other aspects of life, such as sporting pride or national sentiment, were also exploited. This was all well and good, but in order to achieve these goals, the economies of Central and Eastern Europe were modernised through foreign loans and technology to be paid for by growing exports rather than economic reform. In the beginning, this strategy appeared to be successful. In Poland, wages went up by 40 % in real terms during the early 1970s. Overall, by the end of the 1970s, wages in Central and Eastern Europe were three to four times their 1950 level in real terms. Such growth, however, was not sustainable. In Poland, for example, it resulted in a hard currency debt that stood at $20 billion by 1980, by which time debt service charges had risen to 82 % of exports. Poland had not exploited its Western-derived technology as effectively as had been anticipated and could not even afford the necessary spare parts. The global rise in oil prices and interest rates made the situation even more difficult – it became clear that Poland simply could not pay back its debt.98 The situation was no better in other Communist countries. The $20 billion debt that Hungary owed was approximately double the value of the country’s hard currency export income. Bulgaria too became insolvent and requested a rescheduling of their debt payments, while the leaders of the GDR had to have secret negotiations with West Germany in order to acquire new loans with which to repay the old ones. Romania tried to escape the indebtedness trap by ordering repayment and drastically cutting domestic consumption. The stores were empty, while cities and homes languished in darkness and went unheated in the winter. Everywhere, the socialist command economy descended into irreversible decline and eventual bankruptcy99 (Table 4).

      Table 4

      Sources: Economist Intelligence Unit 1985, 16, cited in Brown 1989, 507; World Bank 1997a; 1997b. For Yugoslavia, 1984–89; Vienna Institute 1991, 391.

      Neither was Yugoslavia, whose model of self-managing socialism had proved quite successful during the 1960s and 1970s, spared these problems. Yugoslavia was effectively a free market where, from 1965 onwards, enterprises were free to dispose of their profits through wages or reinvestment as they saw fit. Foreign investment entered the country, creating the economic growth that raised living standards in the most developed parts of Yugoslavia – today’s Slovenia – almost to the level of neighbouring Austria. However, ‘soft constraints’ and a lack of clear property rights dogged the Yugoslavian success story to the end. Workers’ control of enterprises inhibited the intra-regional mobility of labour and technology, while the Yugoslavian model proved very vulnerable to externally driven inflation. After the death of Tito, international confidence in Yugoslavia’s stability weakened and the inflow of foreign funds decreased. Despite having grown at a rate of over 5 % annually during the 1970s, by 1987, Yugoslavia was experiencing rising unemployment, a five-fold increase in inflation (to 150 %) and drops of 26 % in real net personal income.100

      Economic difficulties in the Central and Eastern European satellite countries also created increasing problems for the Soviet Union. First of all, Moscow had to pay for this ‘consumer socialism’ with generous subsidies (Table 5). It was not only a question of supplying low-cost energy that could more profitably have been sold to the West but also of the Soviet Union’s receipt of inferior Eastern bloc manufacturing. Worse still, the satellite countries were extending one hand towards the Soviet Union for support while reaching out to Western countries with the other with a view to developing their own ‘special relations’ with them. Early in 1984, Gosbank in the USSR warned that the satellite countries’ financial situation was becoming dangerously ruinous as ‘the general level of unpaid debt of the socialist countries reached a record for the time of USD 127 billion, and the ability of some of them to pay was very low.’101 The Soviet leaders were extremely displeased by the way in which their Central and Eastern European ‘comrades’ were becoming increasingly dependent on their Western creditors and, through them, on the Western world. In their reports, the Soviet representatives explained that ‘the GDR consumed much more than it was able to produce. The result of this development was a rapid increase in the state’s foreign debt.’ West Germany was ready to provide the necessary loans but only on political conditions, which made the Soviets especially nervous.102 This led to heated debates between Moscow and Berlin, with the Soviet leaders warning the East Germans of the great danger of indebtedness to the West. The East Germans, however, had no other choice than to continue their cooperation with the West. In 1983, Honecker sent a secret letter to Franz Josef Strauss saying that he could not ask Moscow for further help and wanted the West to help him out of the current situation. Moscow was furious at the closer cooperation between the two Germanies, declaring that the measures passed by East Germany to get loans from the West, ‘from the point of view of internal GDR

94

Mickiewicz 2005, pp. 4-24; Gros 2004, pp. 41-55; Okey 2004, pp. 24-30; Sachs 1994, pp. 3-22.

95

Okey 2004, p.36.

96

Noam 1992. pp. 78, 99, 274-279.

97

Berend 2009, pp. 24-25.

98

Sachs 2004, pp. 26-34.

99

Janos, pp. 288-324.

100

Janos, pp. 269-281.

101

Gaidar 2007, p.108.

102

Adomeit 1998, p. 128.