Postwar

operating exclusively in the private sector—were meeting nearly 60 percent of local demand for services, from plumbing to prostitution.

Add to this private peasant production, along with public resources (bricks, copper wire, typefaces) ‘diverted’ for use by workers in private enterprise, and it can be seen that Soviet-style Communism—much like Italian capitalism—relied for its survival on a parallel economy.[274] The relationship was symbiotic: the Communist state could sustain its public monopoly only by channeling into the private sphere all activities and needs that it could neither deny nor meet; while the second economy depended upon the official one for resources, but above all for the very inefficiency of the public sector which guaranteed it a market and artificially elevated its value and thereby its profits.

Economic stagnation was in itself a standing rebuke to Communism’s claims to superiority over capitalism. And if not a stimulus to opposition, it was certainly a source of disaffection. For most people living under Communism in the Brezhnev era, from the late Sixties through the early Eighties, life was no longer shaped by terror or repression. But it was grey and drab. Adults had fewer and fewer children; they drank more—the per capita annual consumption of alcoholic spirits in the Soviet Union quadrupled in these years—and they died young. Public architecture in Communist societies was not only aesthetically unappealing, it was shoddy and uncomfortable, a faithful mirror of the shabby authoritarianism of the system itself. As a Budapest taxi-driver once remarked to the present author, pointing to the serried ranks of dank, grimy apartment blocks that disfigure the city’s outer suburbs: ‘We live in those. Typical Communist building—summer is hot, winter very cold.’

Apartments, like much else in the Soviet bloc, were cheap (rent averaged 4 percent of a typical household budget in the USSR), because the economy was regulated not by price but by scarcity. This had its advantages for the authorities—the arbitrary allocation of scarce commodities helped maintain loyalty—but it carried with it a serious risk, which most Communist leaders understood very well. Ever since it had become clear by the end of the Sixties that the future promise of ‘Socialism’ could no longer be counted upon to bind citizens to the regime, Communist rulers had opted instead to treat their subjects as consumers and replace (socialist) utopia tomorrow with material abundance today.

This choice was made quite consciously. As Vasil Bil’ak, the Czech hardliner who was instrumental in inviting the Soviets to invade his country in 1968, put it to his party’s Ideological Commission in October 1970: ‘[In 1948] we had posters in the shop windows about how socialism is going to look, and people were receptive to it. That was a different kind of excitement and a different historical time, and today we can’t put up posters about how socialism is going to look, but today shop windows have to be full of goods so that we can document that we are moving to socialism and that we have socialism here’.[275]

Consumerism, then, was to be encouraged as the measure of Socialism’s success. This was not the same as Khrushchev’s famous 1959 ‘kitchen debate’ with Nixon, when he assured the American Vice-President that Communism would outperform capitalism in the foreseeable future. Bil’ak—like Kadar in Hungary—had no such illusions. He was content for Communism to be a pale imitation of capitalism, so long as the goods on offer kept consumers happy. East Germany’s Erich Honecker, who replaced the unmourned Walter Ulbricht as party leader in 1971, likewise set out to offer the citizens of the GDR a modest adaptation of West Germany’s 1950’s ‘miracle’.

This strategy was moderately successful for a while. The standard of living in Czechoslovakia, Hungary and Poland improved through the 1970s, at least when measured by retail consumption. The number of cars and televisions—the iconic consumer durables of the age—rose steadily: in Poland the number of privately-owned cars per head of the population increased fourfold between 1975 and 1989. By the end of the eighties there were four televisions for every ten people in Hungary; the figures for Czechoslovakia were similar. If buyers were willing to accept poor quality, indifferent styling and little choice, they could usually find what they wanted, in official shops or through the ‘private’ sector. In the Soviet Union, however, such ‘optional’ goods were harder to find—and relatively more expensive.

The same was true of basic necessities. In March 1979 a shopper in Washington DC would have had to work 12.5 hours to afford a generic ‘basket’ of basic foods (sausages, milk, eggs, potatoes, vegetables, tea, beer, etc). A similar basket would ‘cost’ 21.4 work-hours in London, but 42.3 work-hours in Moscow, despite high levels of subsidy.[276] Moreover the Soviet or East European consumer had to spend many more hours finding and purchasing foods and other goods. Measured in time and effort, if not in rubles or crowns or forints, life under Communism was expensive as well as exhausting.

The problem with defining Communism by its success in satisfying private consumers was that the whole economy was geared, as noted above, to the high-volume manufacture of industrial machinery and raw materials. Except for food, Communist economies did not produce the things that consumers wanted (and they were not very efficient at producing food, either—the Soviet Union had long since become a net importer of grain, tripling its food imports between 1970 and 1982 alone). The only way around this impediment was to import consumer goods from abroad, but these had to be paid for with hard currency. The latter could only be acquired by exports: but except for Soviet oil the world market had little use for Socialist output unless sold at a sharp discount and in many cases not even then. In practice, the only way to stock the shelves in the East was to borrow money from the West.

The West was certainly keen to oblige. The IMF, the World Bank and private bankers were all happy to lend to Soviet bloc countries: the Red Army was a reassuring guarantee of stability, and Communist officials misrepresented their countries’ output and resources to convincing effect.[277] In the course of the 1970s alone Czechoslovakia’s hard currency debt rose twelve-fold. Poland’s hard currency debt increased some 3,000 percent, as First Secretary Gierek and his colleagues sucked in subsidized Western goods, introduced expensive new social insurance programs for peasants and froze food prices at 1965 levels.

Once borrowing at these levels took off it was hard to contain. Gierek’s food price increases of 1976 triggered angry riots and were quickly repealed, the regime choosing instead to keep borrowing: between 1977 and 1980 one-third of Poland’s external line of credit was used to subsidize domestic consumption. Communist economists in Prague recommended phasing out subsidies and introducing ‘real’ prices, but their political masters feared the social consequences of such a retreat and preferred to increase their debts instead. As in the inter-war years, the fragile little states of eastern Europe were once again borrowing capital from the West to finance their autarkic economies and avoid hard choices.

Miklos Nemeth, the last Communist prime minister of Hungary, was to acknowledge as much a few years later. A loan of one billion Deutschmarks from Bonn, granted in October 1987 and portrayed by West German politicians as a contribution to Hungarian economic ‘reform’, was in reality disbursed thus: ‘we spent two thirds of it on interest and the remainder importing consumer goods to ease the impression of economic crisis.’ By 1986 Hungary’s official deficit on current account was $ 1.4 billion per annum. Between 1971 and 1980 Poland’s hard currency debt had risen from $1 billion to $20.5 billion, with worse to come. By its own reckoning the GDR in its last years was spending over 60 percent of its yearly export earnings just to cover the (very generously discounted) interest on its Western debts. Yugoslavia, always a favored client (from 1950 through 1964 the US had covered three-fifths of Belgrade’s annual deficits) received generous loans and stand-by arrangements on the basis of official data that bore not even a passing relationship to reality.

Taken as a whole, eastern Europe’s hard currency debt, which stood at $6.1 billion in 1971, grew to $66.1 billion in 1980. By 1988 it would reach $95.6 billion. These figures did not include Romania, where Ceausescu had paid off his country’s foreignloans on the backs of his long-suffering subjects; and they might well have been even higher but for some latitude on price-setting introduced in Hungary over the course of the Seventies. But their message was clear: the Communist system was living not just on loans but on borrowed time. Sooner or later it would be necessary to make painful and socially disruptive economic adjustments.

In years to come Markus Wolf, the East German spymaster, would claim that by the late 1970s he had already concluded that the GDR ‘wouldn’t work’ and he was certainly not alone. Economists like Hungary’s Tamas Bauer and his Polish contemporary Leszek Balcerowicz knew perfectly well how fragile the Communist house of cards had become. But so long as the capitalists would underwrite it, Communism could survive. Leonid Brezhnev’s ‘era of stagnation’ (Mikhail Gorbachev) fostered many illusions, and not only at home. In 1978, when a World Bank Report actually determined that the GDR had a higher standard of living than Great Britain, Prince Potemkin must surely have smiled in his far-off grave.

But Communists understood something that the bankers of the West had missed. Economic reform in the