From Socialism to Social Democracy

When socialism collapsed, as Ludwig von Mises had shown it would, we all hoped for a free market. We knew that entrenched communist elites would oppose any diminution of their power, but few of us suspected that Western institutions would aid the nomenklatura in its fight.

For the last 18 months, however, Keynesian economics and the National Endowment for Democracy, as well as the international Monetary Fund and the World Bank, have been promoting that other name for democratic socialism, "social democracy."

In Warsaw recently, street-stall owners were arrested for not having business licenses. And the Polish government, with Western advice, is establishing an IRS, FTC, SEC, and labor laws modeled on our own. It was also told to go slow on privatization, and it is following the advice, as I confirmed on a recent trip to Warsaw and the Baltic Republics with Howard Phillips's Conservative Caucus Foundation. Through the efforts of the CCF, the anti-Soviet forces were bolstered, and I was grateful for the chance to talk about private property and free markets to government officials and private leaders.

Keynesian economists tell us that these countries cannot become capitalist because they have very little capital. But that is just the point. Capital formation doesn't precede markets; markets must be established to generate capital.

Socialism can be fixed, say the best of these establishment economists, by freeing prices and nothing else. But free prices are not enough. They cannot reflect real conditions in the economy unless they also reflect actual exchanges between private property owners. To the extent that government owns the means of production, or intervenes in any way, it distrirts prices and hobbles the economy.

In a free market, the property owner can invest where and when he wants, can assume the risks and rewards of entrepreneurship, can manage his enterprise as he thinks best, can sell his property when and to whom he wants, and can safeguard his earnings from state depredation.

Instead of striving for this ideal, which built America, these countries are being exhorted to shun it and create instead social democratic welfare states, the road to permanent poverty and new tyranny.

As a result, Poland plans to sell only 30% of the shares of some state enterprises. But when politicians and bureaucrats run most or even part of a company, the enterprise cannot fully serve consumers. Nor can it be cost efficient, for politics will prevent bankruptcy, a necessary process for these black-hole state firms.

Instead of auctioning off state industries, Poland has hired appraisers to set selling prices. Appraisers perform an important function in a free economy, but no one in Poland can know what anything is worth because of socialism. For example, estimates on the huge, archaic Gdansk shipyards ran from $7 million to $2 billion. Social democrats use this confusion as an excuse not to sell, when the only way to know what it is worth is through open bidding. The same is true of the immense Nowa Huta steelworks, built on Poland's best farmland in the late 1940s with 1920s Soviet technology. Entrenched interests want to keep these enterprises in the state's hands, and the privatization minister is going along.

In Latvia, the economics minister told us that he was seeking 30% privatization over the next five years. In Lithuania everyone over 35 years old will get vouchers worth 5,000 rubles to buy shares in state property. But the vouchers cannot be sold and they add up to only 20% of state assets. 80% socialism is better than 100%, but this hardly qualifies as the free-market revolution which Lithuania needs. And under the influence of a social democratic think tank in the U.S., Lithuania is planning high corporate taxes and a graduated income tax to 50%. In Estonia, the ex-communist social democrat who runs the republic is "uninterested" in privatization.

The social democrats claim it is too difficult to establish free markets, and indeed there are problems. The public doesn't fully understand the need for real free markets, but the most serious impediment is the entrenched bureaucrats. Below the top rung, they won't be fired for collaboration, but they will be the petty tyrants of the new welfare states.

But there are free-market parties and citizens' organizations working in Poland and the Baltics, many of which requested aid from the Mises Institute. Economics, like the other social sciences, was avoided by everyone decent, for it consisted only of statist gobbledygook. They need real, Misesian economics, and the Mises Institute will do its best to supply it.

I was especially impressed with the leaders of the Republican and Liberal parties in Poland, the right wing of Lech Walesa's Centrum Party, the Sajudis independence movement in Lithuania, the Latvian National Committee, the Estonian National Independence Party, and the Estonian Christian Democratic Party, and I was able to distribute free-market books to them.

The best people in the Baltics are working to establish their independence, return all property stolen by the Communists to its original owners or their heirs, give economic rights to Russians living there but no vote (since there is no natural right to vote, and the Russians were sent there on a cultural genocide mission), preserve cultures long attacked by coercive russification, and quickly desocialize. As one Latvian put it, "Independence is not an end in itself, but a means to establish liberty and preserve our national culture."

An Estonian told the story of the young Lenin, who upon being arrested by the Tsarist police, was told, "Do you not see that what you are doing is hopeless? Do you not see the wall that stands before you?" The future mass murderer is supposed to have replied, "Yes, I see it, and I see that it is rotten. A push or two, and it will be gone." That is the U.S.S.R. today, he said. "Do not fund their wall."

No one looks forward to the suffering that will accompany the breakup of the Soviet Union, but even humanitarianism dictates that we help bring it on, or at least not prolong its evil life. Every person we met on the trip, no matter what his place on the political spectrum, pleaded for no aid to the U.S.S.R.

Not only is Gorbachev not moving toward the market, he is undoing the small progress made two years ago, and calling for a Western bailout to keep himself in power. Yet the bipartisan juggernaut in Washington wants to bail out this admitted Leninist.

If we do, and he is thereby able to strengthen the military and the KGB and suppress the captive nations, it will be Yalta Two.

The U. S. government is broke. And it is breaking us. Now it seeks to bail out this bloody Soviet dictator, and to fund – through that neoconintern, the National Endowment for Democracy – "democratic socialists" throughout Eastern Europe.

Isn't it about time we stood athwart D.C. and yelled STOP?