Groping for the Secret of Fire

 Mr. Chamberlin is a skilled observer and re­porter of economic and political conditions at home and abroad. In addition to writing a number of books, he has lectured widely and is a contributor to The Wall Street Journal and numerous magazines.

Suppose that a primitive tribe in a distant jungle had forgotten the secret of how to make fire. Sup­pose the tribesmen were groping about with one experiment after another, trying desperately to re­gain the lost secret. There, in a nutshell, one would have a clue to much that has been going on in the Soviet Union before and since the fall from power of Nik­ita Khrushchev last October.

Anyone who has followed Soviet developments in the speeches of Soviet leaders and in Soviet news­papers and magazines during the last few years must be impressed by the amount of attention de­voted to failings and breakdowns in the management of industry and agriculture. Khrushchev made one experiment after another. First, he set out to decentralize the cumbersome state economic bureaucracy that tries to run the national economy. Then, finding that the decentralized local “coun­cils of national economy” were trying to keep for themselves more than their proper share of the available resources, he lurched uncertainly back to new methods of central direction. He was never able or willing to admit that the root of the trouble is in the systern itself, not in this or that de­tail of administration or organiza­tion.

Khrushchev followed the same pattern in agriculture, regarding which he imagined himself a spe­cial authority. In his last years of power he was continually rushing about the Soviet Union, hauling local officials over the coals, issu­ing a stream of new recommenda­tions and orders. In 1958, when good weather gave the Soviet Un­ion a record harvest, the bouncy extrovert believed he had the farm problem licked. He began to boast that the Soviet Union would soon pass the United States in per capita output of meat and dairy products—a boast which inspired considerable skepticism in all who have lived and traveled in both countries.

But there was a very different story in 1963 when the Soviet Un­ion was saved from hunger, if not actual starvation, by purchasing millions of tons of grain from the United States, Canada, and Aus­tralia. The other communist giant, Red China, found itself under the same necessity. A joke began to circulate about Khrushchev that he deserved a Nobel Prize in agri­culture. He had planted grain in Russia and harvested it in Amer­ica.

Although political change in the Soviet Union is enveloped in a thick cloak of secrecy, it seems probable that economic failure ranks high among the reasons why Khrushchev had to go. For seven years he had stood on the pinnacle of Soviet power; he had been given his opportunity to make good on Stalin’s old predic­tion that the Soviet Union would overtake and outstrip the leading capitalist countries, including the United States. (This boast elicited a private joke overheard by a number of foreign travelers in Russia: “We shouldn’t get too far ahead or they will see we have nothing on our behinds.”)

Standard of Living of Soviets Still Low by Comparison

There is a mountain of evi­dence to show that the Soviet standard of living today, with the fiftieth anniversary of the com­munist revolution less than three years off, remains abysmally low by comparison with the United States or most countries of West­ern Europe or even some of the Soviet satellite states in East Eu­rope. Two recent news items may suffice. Here is an excerpt from the British New Statesman of Octo­ber 23, 1964, written by a corres­pondent on the spot about living conditions in Moscow. (The New Statesman is a magazine of strongly socialist sympathies and, although not communist, cannot be accused of bias against the So­viet regime.)

“Russia is still the only major world power which cannot provide an adequate supply of fresh milk, eggs, fresh fruit and vegetables for its population. Distribution is still shocking. The quality of the meat usually makes it fit only for stewing. The waiting time for a telephone is from three to five years, depending on where you live. Buses, trains, and the under­ground are hopelessly overcrowd­ed at most times of the day, mak­ing traveling to work and back much more of a nightmare than the rush hour is in London. Laun­dries and shoe repair shops per­petually ruin or lose things and the consumer has little redress. The housewife has fewer labor­saving devices than anywhere else in the rest of Europe, although a great number of women go out to work.”

Item Number Two: Radio Lib­erty, which broadcasts in Russian and other languages of the Soviet Union and monitors Soviet broad­casts, recently made a calculation of comparative New York and Moscow prices, in terms of work­ing time required to earn this or that commodity. Roughly speak­ing, the Soviet worker or employee must toil ten times as long as the American for a quart of milk, sixteen times as long for a pound of sugar, ten times as long for a pound of coffee, seven times as long for a pound of pork—and soon through a long list of com­modities. And the important con­siderations of quality and avail­ability are also much more dis­advantageous in Moscow than in New York.

What with foreign tourists com­ing into the country, foreign broadcasts, and a limited number of Soviet cltizens permitted to travel abroad, the Soviet citizen is becoming more and more aware of how badly off he is. The old excuses are played out. It is al­most twenty years since the last shot was fired in World War II. If, as around-the-clock propagan­da assures him, the Soviet eco­nomic system is superior to the individualist or capitalist, Ivan Ivanovich, the Soviet man in the street, would like to see a few tangible proofs.

An Urgent Problem

So, as several of their public statements indicate, the front men for the new Soviet regime, Leonid Brezhnev and Aleksei Kosygin, face an urgent problem in creating more tolerable living conditions. And it is in the field of internal economic policy that they have de­parted most noticeably from Khrushchev policies.

The fallen Khrushchev proceed­ed on the basis of tightening the control of the local branches of the Communist Party over every detail of industrial and agricul­tural production. These branches were even split up into two de­partments, one for industry, one for farming. This split has been canceled and present policy is to let the Communist Party stick to the function of providing “gener­al political guidance,” leaving tasks of management to the state managerial class. Although the small private plots of land which are left to peasants in the collec­tive farms for individual cultiva­tion produce a disproportionate share of such foodstuffs as poul­try, vegetables, and dairy prod­ucts, Khrushchev had been cut­ting back on these allotments as a source of capitalist infection. One of the first acts of his suc­cessors was to repeal these cuts.

Professor Liberman Proposes Test of Sales and Profits

There now seems to be an inten­tion to try out on a much larger scale the ideas of Professor Yevsei Liberman, of Kharkov University, who has long been advocating a freer hand for the individual en­terprise within the general scheme of a state planned economy. Liber­man’s central idea, as he expressed it in a letter published in The Economist of London, is as fol­lows:

“The success of a factory’s work is judged, first by how wellits wares sell, and, second, by the profit level.”

Formerly, the state planning agencies tried to dictate every de­tail of factory production and sales. This proved especially un­workable in the consumers’ goods industries and created a tempta­tion to fulfill the plan figures at any cost, paying little regard to quality or consumer desire. Now, the clothing industry and perhaps some others turning out consumer goods will experiment with the Liberman method, which will at­tempt to test genuine efficiency, not simply to produce a given number of units of this or that product. Many examples of the disastrous results of this latter method appear in the Soviet news­papers. So one can learn from Pravda—official organ of the So­viet Communist Party, which in this case was living up to its name, “Truth”—that every television set purchased by Muscovites in the first half of 1960 had been re­paired at least twice; that the “Saratov 2” and “Dnieper” types of refrigerators were useless; that the shoe factory at Chernovtsy, in the Ukraine, had piled up 40,­000 pairs of children’s shoes that no one wanted to buy.

Equally instructive are the woes of one Mr. Kamenev, general man­ager of GUM, the department store in Moscow which is the biggest establishment of its kind in the Soviet Union. In a letter to Izvestia, another leading Soviet newspaper, he stated that during the previous year he had sent more than 100,000 letters of protest, complaint, and advice to the in­dustries supplying his store, with­out receiving a single reply. In the overcoat department alone the unsalable stock had reached a val­ue of 30 million rubles (nominally a slightly larger sum in dollars).

A hat factory with the martial name of Krasny Voin (Red War­rior) turned out every year 150, ­000 hats, all black and unaccept­able in shape, and GUM lost a mil­lion rubles trying to sell them. When an inquiring reporter from Izvestia got in touch with the man­ager of the Krasny Voin, he re­ceived a standard reply in such circumstances: “We have fulfilled the production plan; the rest doesn’t concern us.”

To anyone who, like the writer, has lived for a considerable time in the Soviet Union, these com­plaints are a very old story. For, although criticism of the basic dogmas of Marxism and commu­nism is strictly forbidden, Soviet citizens are permitted and even encouraged to blow off steam de­nouncing cases of poor quality and inferior service. But the psycho­logical satisfaction of blowing off steam is about all they accomp­lish. For the automatic remedies which prevent the existence of such conditions in a free enter­prise system—market pricing, competition, the penalty of bank­ruptcy for firms which fail to meet customers’ requirements—have been entirely absent under the Soviet command economy. So far, the industrial manager there has been able to “get by” merely turning out an arbitrarily set figure of units of production, quite regardless of quality, dur­ability, and general satisfactori­ness. The Liberman proposals, which have been debated for years, represent an effort to inject something of these missing ele­ments into the Soviet productive scheme.

Authority Without Responsibility

Whether the normal techniques of private capitalism can work within the strait jacket of a state-owned, state-controlled economy remains to be seen. On this ques­tion Mr. Henry Hazlitt ventures a pessimistic forecast in his recent book, The Foundations of Moral­ity: “If 1 am a government com­missar, selling somethin^g I don’t really own, and you are another commissar, buying it with money that is really not yours, neither of us really cares what the price is.”

But what is significant is that Khrushchev during his time of power, and now his successors, recognized that some dynamo was lacking in the Soviet system of production and groped around as desperately as one might imagine primitive tribesmen doing who had forgotten how to light their campfire. This same trend is no­ticeable in the Soviet satellite states of eastern Europe, especially in Czechoslovakia, where a rigid planning system led to such a breakdown that a radical reorgan­ization of the whole system of pro­duction and distribution is under way.

Conditions for Progress

To ignite fire or, to drop the figure of speech, to make a modern industrial and agricultural system function at high efficiency, the fol­lowing elements are essential: the right to earn and inherit prop­erty, the payment of differential incentive wages for superior skill and diligence; the right to oper­ate a business for profit—or loss; the existence of a free market to determine the value of what is be­ing produced; a sound, freely ex­changeable currency; and a com­petitive system as the surest and least painful guaranty of stand­ards of quality and efficiency. When Lenin and his followers took over power, profiting by the chaos and disorganization of Rus­sia, following years of costly war­fare and the collapse of the tra­ditional Czarist system, they threw over all these proved foun­dations of a productive economy and instituted what later became known as a system of war com­munism.

All forms of private ownership for profit were abolished; the state undertook to run the entire economy; money practically lost all value; it was meager ration that counted, not the pay in in­creasingly worthless paper rubles. Some of these changes were in line with communist ideology; others were forced on the regime by the exigencies of prolonged civil war.

The ultimate result was what even communist economists recog­nize as one of the most formidable breakdowns of production in world economic history, with industrial production falling to 20 per cent, farm output to about 50 per cent of normal. In 1921 there was a prodigious famine which took mil­lions of lives and would have taken millions more if it had not been for the large-scale supply of food by Herbert Hoover’s American Re­lief Administration and the smal­ler contributions of many other foreign humanitarian organiza­tions.

By this time Lenin realized that something had to be done, and quickly, if the whole Soviet systern, which had won the civil war against the divided and poorly or­ganized resistance of the anti­communist forces, was not to founder as a result of complete economic paralysis. He came up with what was known as the NEP, or New Economic Policy, of which one important feature was the substitution of a fixed tax for the former policy of requisitioning whatever the government judged was the peasant’s surplus food­stuffs—a policy that produced more peasant uprisings than food. At the same time private trade was legalized and a regular wage system replaced the payment of wages in kind. Small industries were again permitted to function. Considerable inequalities in com­pensation were permitted and there was an attempt, not always successful, to keep the ruble cur­rency fairly stable in terms of purchasing power.

Spectacular Results

The results of this lukewarm, halfhearted return to capitalism were spectacular, comparable with what happened in Germany after the mark was stabilized in 1948 and Economics Minister Ludwig Erhard made a bonfire of price and wage controls and told his countrymen it was up to them to improve their war-shattered stand­ard of living by intelligent hardwork. In both cases there was an almost miraculous appearance of goods and foodstuffs; hope re­placed despair, with bustling ac­tivity instead of bleak stagnation.

But, while Germany went from success to success on the path­way of full capitalist restoration, Josef Stalin, after getting a firm grip on the levers of power, pro­ceeded to liquidate the NEP, abol­ishing private trade, forcing the peasants, with the most ruthless methods of compulsion, to give up their small private holdings and work in big state-controlled collective farms, imposing on the country all the rigors of a com­mand economy. Stalin’s goal was a swift build-up of the heavy in­dustries and the war preparedness of the Soviet Union; and he suc­ceeded—at the price of millions of human lives and a reduction of his subjects to a bleak, drab stand­ard of living. He kept the per­sonal incentive system in wages and salaries and he abolished some of the more foolish early ideas of the Revolution, highly permis­sive methods in education and preference in admission to uni­versities for applicants of work­ing-class origin. But he based the Soviet economic system on a foun­dation of hideously exploited and maltreated slave laborers. And the nominally free workers in factor­ies and offices were forbidden to change jobs without permission and were subject to imprisonment for tardiness or absence.

The Missing Spark

After the grim dictator’s death in 1953 there was an easing of his more ruthless measures. Many of the victims of his slave labor camps were released and condi­tions in the camps were somewhat humanized. Slave-driving methods in the factories were relaxed. The peasants, who had been the low men on the Soviet totem pole, as they had been, indeed, throughout Russian history, were given a lit­tle more incentive.

Yet some essential sparkplug was lacking; and this fact became clearer as the Soviet economy be­came more complex. It had been comparatively easy to set a few simple goals: so much steel, coal, oil, and the like, although agri­culture lagged badly as a result of the destruction of the peasant’s old incentive of personal owner­ship of land. There were years under Stalin when the output of farm products was little more than it had been before the Revolution, despite the growth of population and the large injection of tractors and other modern machinery.

Somehow, the secret of fire had not been rediscovered and the groping for new methods of stim­ulating productivity under Khru­shchev and under Khrushchev’s successors let some curious skeletons out of the cupboard. It is obvious from the most orthodox Soviet sources that the national economy has bent, almost to the breaking point, under a crushing load of competing and often con­flicting bureaucratic planning in­structions. About the end of 1964 a deputy in the Supreme Soviet (parliament) cited the case of the Izhora factory, which received seventy different official instruc­tions from nine state committees, four economic councils, and two state planning committees, all authorized to give orders.

Some of the grotesque things that have been happening would have defied the imagination of the great Russian satirical humorist Gogol. There was, for instance, a chandelier factory where the workers were paid higher bonuses for turning out heavier chan­deliers. The upshot was that they produced chandeliers that pulled down the ceilings.

Small wonder that Yevsei Lib­erman and other would-be reform­ers are getting a hearing. Yet the pull of communist dogma and of the vested interests in maintain­ing the old system of bureaucratic controls should not be underes­timated. Once a machine of bu­reaucratic planning is set up, dis­entanglement becomes as difficult as for a fly to extricate itself from flypaper. It is still far from cer­tain, given the Soviet political and ideological system, that its rulers will succeed in relearning the se­cret of fire.

However this may be, two con­clusions seem to be in order. The first is that the Soviet Union is not and never has been and never will be under its present economic system, a serious challenger to the United States, or to any advanced industrial country, in terms of achieving a high standard of everyday living. The Soviet sys­tem makes possible successful con­centration on costly stunts in space, of which the practical value is extremely dubious. It does not make possible the assurance of an all-around high and rising stand­ard of living.

Second, we can see today a new illustration of the truth of Ox­enstierna’s maxim: With how lit­tle wisdom the world is governed! Just when state economic plan­ning, pushed to extreme lengths in the Soviet Union, is emitting sounds that suggest a death rat­tle, the people of Great Britain, by a very narrow margin to be sure, have entrusted their government to a party which holds up the planning of productivity and the regulation of individual incomes as Alpha and Omega of progress and economic wisdom.

 

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Necessarily Inefficient

Every government activity is delayed and directed by hundreds of democratic checks and balances. Economically, this is neces­sarily inefficient. But the preservation of freedom requires us to keep these checks and balances, even though the cost of govern­ment services and production is thereby greatly increased.

Inefficiency in government is the price we pay for liberty. If, in an attempt to make our government more efficient, we under­mine the cumbersome checks and balances and divisions of power specified in our Constitution, liberty will disappear in the United States.

Dean Russell