How the Soviet Union Committed Suicide
Dec. 31, 2011
Twenty years ago, the Communist Party of the Soviet Union declared the end of the Soviet Union. The largest and most powerful empire in history folded up its tent without bloodshed and departed from the pages of history. We read on Wikipedia:
The dissolution of the Soviet Union was a process of systematic disintegration, which occurred in economy, social structure and political structure. It resulted in the abolition of the Soviet Federal Government ("the Union center") and independence of the USSR's republics on 26 December 1991. The process was caused by weakening of the Soviet government, which led to disintegration and took place from about 19 January 1990 to 31 December 1991. The process was characterized by many of the republics of the Soviet Union declaring their independence and being recognized as sovereign nation-states.
How could this have happened?
Anthony Easton offers answers. He knew some of the participants. He had installed the elite's satellite TV dishes in the late 1970s.* * * * * * * * * * *
The 20th anniversary of the fall of the USSR is upon us.
On 8 December 1991, the Russian, Ukraine and Belarus presidents signed the Belavezha Accords, declaring the Soviet Union dissolved and replaced by the looser Commonwealth of Independent States (CIS) in its place. This was followed up on 21 December 1991, when the representatives of all 15 Soviet republics (including the Baltic States and the Asian Muslim "stans") except Georgia signed the Alma-Ata Protocol, confirming the accords.
On the western Christmas Day, December 25th, 1999, General Secretary Mikhail Gorbachev, head of the Union of the Soviet Socialist Republics (USSR) and the head of the Communist Party, resigned, officially dissolving the Union of 293+ million people which spanned 9 time zones, and freeing another 100 million+ people in "satellite" countries (such as Poland and Czechoslovakia) formerly behind the "iron curtain" in Eastern Europe. The following day, the Supreme Soviet, the highest governmental body of the Soviet Union, dissolved itself. A brutal story of a failed trans-national totalitarian empire spanning 9 time zones and nearly 70 years had come to an end.
By the Russian Orthodox Christmas Day, January 7, 1992, a much smaller and effectively bankrupt Russian Republic had assumed the rump powers that Gorbachev had held at the end. The first-ever-elected Russian president Boris Yeltsin agreed to also assume the debts of the old USSR in their entirety. A new age had begun.
The old Soviet Union was, as Winston Churchill said, "a riddle wrapped in a mystery inside an enigma". It pretended to be a great power, and for a short time it actually was. But in the end, it collapsed due to old-fashioned economics: the bankrupt economics of Keynesian-socialism. It was helped along by an elite cadre of the men at the top of the Communist Party and its think tank, the KGB, who could no longer trust the old system to continue to provide them - and their families - with wealth, power, control and security that the ruling class maintained in the classless "workers paradise".
The KGB had, of course, for a very long time known that the USSR system of rigid central planning and central control by the Moscow bureaucrats (the "nomenclature") was collapsing. You have to know the brutal truth to be able to continue to tell the general population the Big Lie - less you inadvertently reveal the truth in the process. This is rule 1 of all totalitarian governments. The KGB had followed it faithfully. The 97% of the population who were not members of the elite Communist Party (the "serfs") would need to be controlled.
By the 1980s, the USSR was an organism which had grown, like a cancer, to consume the total resources of its environment. It only recognized itself as existing - or having the political right to exist.
And it universally applied four absolute rules which governed all economic aspects of Soviet life.
Rule One: There is no relation between supply and demand.
The State determines all activity of the means of production (and demand) through the use of 5-year plans, rationing coupons, government housing, and Gosplan (the State Planning Commission) which regulates all critical resources from coal and steel production to shoe manufacturing. The free-market concept of a price being set by a willing buyer and seller is illegal. All prices are fixed by the government. There is no debate.
Result: massive shortages of desirable goods and massive oversupply of unwanted goods.
Rule Two: There is no relationship between what something costs and what it sells for.
In fact, its impossible to calculate the real costs. Since the State subsidizes the production and consumption of all items and services and the concept of "profit" does not exist in the official language, the cost of an item is determined arbitrarily and politically. People "want" TV's (OK) and telephones (no). Why? TV's can broadcast one-way the State's official propaganda message.
Old Soviet joke: There are two national TV channels. One channel one, a bureaucrat is droning on and on about how many metric tons of wheat are being grown (shot of happy peasants in the fields of forced labor). Getting bored, the viewer switches the TV over to channel 2 where a KGB officer in uniform and pointed gun orders: "turn back to Channel 1 comrade!" Telephones are two-way. People can use them to communicate with each other and thus bypass the State's control. This must not be allowed.
So, the USSR built 2 telephone systems, the old "black" rotary-dial static-noisy decrepit one used by the citizens (with installation waiting times of upwards of 10-20 years), and the fancy "red" touch-tone system used by the Communist Party elites (and which could direct-dial anywhere in the world).
Result: mispricing of nearly everything. State funds spent by political decisions rather than real-world economic needs.
Rule Three: There is no relationship between time and money.
Since everyone pretends to be working and whether you work or not you still get paid, what does it all matter for? Black markets thrive, and people are regularly rounded up and shot or shipped off to Siberia to die for selling "stolen" goods expropriated from the State warehouses. Bootleg Vodka is everywhere. Time efficiency doesn't exist. There's no incentive for a banking system to create checking accounts. Therefore everyone is paid in cash weekly.
Old Soviet joke: "they pretend to pay us and we pretend to work!" But even this joke is backwards. In the free market, the worker (the producer of his labor) sells it to the consumer (the company employing him) who then pays him after he has done the work. Not the other way around.
Result: Because of rules 1 and 2, everybody is constantly out in the streets trying to buy something, anything, with limited ration coupons, lack of supplies, shortages, and long lines everywhere as other resentful workers provide slow shoddy indignant service. The government offices are always half-empty. Chronic shortages shut down factory production lines and farming co-ops. Alcoholism is endemic. The average life expectancy for a Soviet male is 59.
Rule Four: Paper is more important than people. "Show me your papers, comrade!"
Every citizen must carry at all times his "internal passport" which reveals where he is authorized to live, his nationality, and his work. He must show it upon demand to any policeman. If he wishes to travel from Moscow to St. Petersburg to visit a cousin, he must get permission. He will be stopped at both ends of the train. He will not be allowed to stay in St. Petersburg longer than a few days. He cannot move to St. Petersburg to live, or get a job, obtain an apartment without the Communist Party nomenclature permission. Only 50,000 people, or so, have real international passports allowing them to travel outside the Soviet Union or its satellite states.
Every Communist Party member proudly carries a special "red pass book" stamped by his Party superior which allows him to bypass lines, use special clubs, access closed Party-only stores, travel widely, and obtain health services from Party-only hospitals, doctors and dentists using western drugs and pain killers. He flashes it several times a day. The policeman on the beat salutes him. His children will be able to attend private Party schools and elite Party institutes of higher education that will prepare them for entrance into the elite world of the Communist Party management themselves. These are the special 3% who rule over the country and the other 97% of "the people". The red pass is like the VIP ticket for Disneyland. When Nixon brought Khrushchev to Disneyland, the park was closed for the day. There were no lines. Everything was free. Khrushchev must have felt at home.
So, after 70 years of suppressing the free market, the rubber band finally snapped. The Communist Party elites running the USSR recognized that. Bright young Ph.D.'s who were not members of the Party were snapping at their toes. When they retired, the Communist Party elites lost everything: the private car with chauffer, the vacation Dacha on the Black Sea, the fine dining, the power. Under the old system, they could retain some of the benefits by making sure their son would up in a similar top position. They could piggyback on his Dacha. The son couldn't obviously take over the factory his dad ran, but he could assume control of his dad's best friend's organization, and his dad's best friend's son could assume his dad's place. The old boy network of "Crony Communism" would see them through to the next generation of control. The Communists would still be the Bosses, the management class. Now that was all finished.
What to do?
The KGB had figured it out. Under Gorbachev, a new law was introduced throughout the USSR to allow so-called "joint-ventures" to be established with foreign entities who would invest inside the USSR with local food co-ops, factories, and government agencies. TrenMos a 50-50 joint venture between a Moscow-region food co-op and a Trenton, New Jersey restaurant entrepreneur, Jeffrey Zeiger, opened up in Moscow in the late '80s. It took dollars as well as rubles. It was an immediate smash hit with the growing western diplomatic community - as well as the ruling Party elite.
Another new law allowed for the massive increase in the issuance of international passports -- first to the Communist Party comrades, then to the ordinary people. Clever Communist managers traveled to places like Cyprus and opened up bearer companies nominally owned by eager local attorneys. Returning home, they entered into similar "joint ventures" but with themselves, and proceeded to export raw materials from the USSR through these joint ventures at reduced prices. These were sold by the joint ventures overseas, and the hidden profits accrued to the Communist Bosses. Sales of Mediterranean property soared in Nice, especially near the old St. Nicholas Russian Orthodox Cathedral founded by the Imperial Court in 1912.
The KGB came apart at the seams. There was no money to keep it going as it had been. Two-thirds left. Half went on to become the new entrepreneurs; half the new mafia. These people had the "juice". They knew how things worked, where resources were, who controlled them. They became rich. The people who stayed behind wound up in the newly renamed FSB with its domestic and international spying activities reduced but not abolished.
When the USSR was dissolved, the Communist Party was "dissolved" to. The billions of dollars in Party bank accounts overseas in the Moscow Narodny Bank and elsewhere were, in fact, controlled, by a few Party Bosses. They promptly moved the money elsewhere and left the country. When the Russian government eventually came looking for the Party's money (remember, the Party was above the government, not below it as in the west) it had all vanished.
Yeltsin had assumed control of a basket-case economy. The government was bankrupt and needed to borrow massive amounts of money to pay the military, pensioners and bureaucrats. The new Oligogs were happy to oblige. It was announced that the best way to jump start the collapsing economy was to turn the old state enterprises into private share-holder companies. A scheme was devised. The State would control the largest or majority interest, 10% or so would go to the Communist Bosses in control, and 40% or so would go to the workers. Ownership vouchers (like share certificates) were issued to the Bosses and the workers. They were effectively worthless. But clever entrepreneurs (including some of the very Bosses who had acquired wealth through their foreign "joint venture" companies) offered to buy up these vouchers for pennies. Most workers were more than happy to immediately sell these worthless pieces of paper for cash, especially if it was in dollars. The oil, gas, steel, and other industries were quickly sold off. Now under non-government hands, real deals with western companies eager to jump into the emerging Russian market could be cone.
The conversion to a crony capitalism economy was complete. Billionaires were created overnight (Moscow has the greatest concentration of billionaires in the world). The old Communist Party was outlawed, and the reconstruction of the new economy along the lines of the Italian model would commence. Perhaps instead of a few dozen Italian families controlling the economy there would be several hundred "buzinesmen". In fact, the "corporation" that has resulted had a recognized Chairman and a few close "shareholders". But a market-based economy was established - especially in Moscow and Saint Petersburg.
And western investment, goods and services poured into the country. Today, Moscow boasts the highest living costs in the world. Unfortunately, the dreams of the bright young things of 20 years ago -- to become entrepreneurs and wealth-creators - have been retarded. Recent surveys now reveal that most university graduates in Moscow want to get a government job where they can "rent seek" in a system which has continued the corruption of the previous structure.
Things are, indeed, getting better in Russia, especially for the growing middle class. But the transition of the economy from a communist-controlled system to a capitalist system, while it came without major bloodshed or global war, has come at a heavy price for the citizens who survived the old regime. Short Russian life expectancies are resolving these issues day by day.
Copyright © 2011 by Anthony T. Easton
for publication in Gary North's Specific Answers (www.garynorth.com)