Transcript | 1. lecture: Communism. How it did (not) function and why (Ivan Mikloš) - University for modern Slovakia

Slovakia, as a part of Czechoslovakia, was under a communist regime between February 1948 and November 1989.

The term socialism was officially used, or in the west the term real socialism was common. Here I am going to use the term communist regime. Insidiousness and depravedness of this regime lied in reports of an official propaganda. These reports said it was the highest type of a social structure based on equality, justice and freedom, while the reality was exactly the opposite. It is worth mentioning that the communism is responsible for more human lives that fascism. Worldwide, the estimated number of victims of the communism is 100 million (Francois Furet: The Passing of an Illusion: The Idea of Communism in the Twentieth Century University of Chicago Press, 1999 – the Slovak translation: Minulosť jednej ilúzie. Esej o idei komunizmu v 20. storočí. Agora, Bratislava, 2000).

Summarizing the meaning of the communism from a point of view of a political economy, it was the absence of a competition in a political and also economic area; the absence of private property; the absence of a competition and a free market; the absence of freedom.

The absence of a competition in a political area was set by the constitution guaranteed by the leading charge of the Communist Czechoslovak party. There were countries, for example the Soviet Union, in which only one communist party existed without any other. There were also countries in which more parties formally existed, although all of them respected the leading charge of the communist party and they were fully subordinated to its policy. Czechoslovakia belonged to this second group. The elections were thus a mere farce; the results are the best proof. The turnout was about 99% and all voters voted for the Communist party. They could not vote for other parties, although they could, it finally did not matter. Those who did not respect the leading charge of the party, or even criticised it with complete frankness, ended up imprisoned, or they were at least bumped out of their jobs.

In the economic area everything was centrally ruled and planned. There was personal property (cars, flats, houses), but not private property of so-called production means. Everything that could be used in a business – for producing products or providing services – had to be in state property and could not be in the private one. There were also certain, although only unimportant, differences. In Poland there were still private peasants, in Hungary private petty tradesmen. Czechoslovakia, Bulgaria and the Soviet Union belonged to communist countries with the lowest share (approaching zero) of tradesmen or private peasants.

Prices were determined administratively; a price of an item of goods was the same everywhere.

Concerning salaries, the situation was the same. There were several salary brackets for clerks and workers and for various professions. Everybody had to earn according to these tables. There was a right to work. Everybody had to work. Those who did not work were parasites and went to prison. Political dissenters or the unreliable could not study and work in those places they were qualified for. Václav Havel, for instance, worked as a worker in a brewery. Many a dissenter worked as a stoker or a construction worker.

In the late seventies I was a student at a grammar school in a small city in the eastern Slovakia. Communist restrictions are pretty depicted by a fact that we were not allowed to wear jeans and have long hair.

Shortage was an important economic phenomenon of this system. Therefore central planned economic systems were characterised in professional publications as shortage economic systems. The shortage economic system means that an overall aggregate demand is bigger than an overall aggregate offer. To say it more comprehensible, it means that despite the fact you have money you don’t necessarily have to have a chance to buy goods or services you want or need.

The shortage had various intensity and form. For instance in our country, in Czechoslovakia, it was rather negative shortage, especially concerning bare necessities of life such as foodstuffs. It means it was basically possible to buy everything necessary, but in a good deal lower quality and range of assortment than in market direct economic systems. Of course, it was not possible to buy all goods. I remember, for example, we could buy mandarins only before Christmas, oranges and bananas only every now and again.

In the former Soviet Union there was absolute shortage. In 1989 I was on a monthly study visit in Moscow and I had first-hand experience. The only foodstuffs that were possible to buy without any problem were a loaf of bread and disgusting fish cans. Everything else – meat, eggs, butter and milk was and also was not. Mostly these goods were brought once a day, meat every two/three days. Immediately there was a great crush. Bars in shops were after one/two hours again empty.

The shortage thus means that the problem was not to sell goods but to buy them. In the market economy it is exactly the opposite. One witty event gives a true picture of that. The event was once talked by a Czech entertainer Petr Novotný. A Swiss friend came to Prague to visit him. The friend was for the first time in a communist country. It was before Christmas. Driving from the airport, he saw crowds standing before each greengrocer. “What are those people waiting for?” The friend asked. “For bananas,” replied Novotný. “Hm, I would like to rather buy them,” responded the Swiss.

Another phenomenon of the centrally planned economy was a so-called soft budget constraint. It meant especially an absence of a bankruptcy. It was not the trade that determined how much, what and at what cost, but the State Planning Commission. Achieving the overall shortage, mostly there was no problem to produce and sell, but to buy. There was no possibility to assess efficiency and profitability when the prices and lines were centrally determined and deformed. If a business suffered losses, those losses were then compensated because there was no possibility of a bankruptcy. There was also no negative motivation (not to turn bankrupt), either a positive one (to profit). If anybody had tried to behave rationally it would have rebounded on them. A director of a Prague business, for instance, lowered high overemployment. The result was that his salary was cut down, because salaries were determined according to the number of employees.

Prices were at first sight low and stable, but it was at the price of unsustainable deformations and interventions. For example, the price for a litre of usual semi-skimmed milk had been 2 Slovak crowns (0,06€) for a long period of time. The problem was that the costs for milk production still were growing due to inefficiency and an objective increase of inputs (oil, fodder, salaries etc). In the late eighties the situation came to a point when average production costs for a litre of milk were more than 6 Slovak crowns (0,18€), but the price of a litre of milk in a shop was still 2 Slovak crowns (0,06€). The state then had to pay off several billion crowns annually for milk production.

It is not maybe surprising that this economy gradually lagged and all attempts to reform it through various cosmetic perestroikas showed to be hopeless.

The centrally planned economy relatively managed to rival the market economy only in the fifties and partly in the sixties. It was an era of the boom of the heavy industry and the centrally planned economy relatively successfully managed to mobilize working and natural sources that had been unexploited up to that time. From the seventies a qualitative change and stress on innovations and quality were taking gradually place. In this situation the centrally planned economies quite naturally and necessarily lagged more and more.

A fall of competitiveness and economic efficiency and thus economic unsustainability of centrally planned economies are perfectly illustrated by a comparison of East Germany and West Germany’s and North and South Korea’s development. Another fact pointing on this situation is that Czechoslovakia had markedly fallen in a ladder of the world economic level during 40 years of the communist regime. More about this topic you may find in lectures of the first trimester of UPMS.