Economic Thought in Communist and Post-Communist Europe

Hans-Jurgen Wagener, Hans-Jurgen Wagener

• Publisher: Routledge
• Year: 1998
• ISBN:
  9781134681839
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

It is now almost a decade since central and east Europe saw the demise of the Soviet-style economic planning which accompanied more ot less authoritarian political rule by communist parties. The economic thought, based on Marxist philosophy, which formed theoretical underpinning of centrally planned socialist economies, was peculiar to the region,

1 BETWEEN CONFORMITY AND REFORM: Economics under state socialism and its transformation

Hans-Jürgen Wagener

The project

Comparative economics, dealing mainly with non-market systems, was once called, by B.Ward, a ‘slum field of economies’. Marxist economics, although briefly en vogue in the West in the late 1960s and early 1970s, has never attained the status of an accepted and productive branch of the profession. So, what can be expected from a science that was focused on a socialist planned economy and inspired by Marxist thought, such as economics under state socialism? Yet, in each of the countries of Central and Eastern Europe hundreds of dedicated scholars were doing scientific work in economics for more than forty years after World War II: writing reports, publishing papers and monographs, visiting conferences, giving policy advice. Why are the results of such efforts so meagre? For they are meagre, aren’t they?

Looked at from the outside there are two viewpoints: first, what may be called the potential Nobel Prize-winning point of view of great economists since Keynes (Blaug 1985)¹ and, second, the point of view of the specialist in comparative economics. If we browse through the eminent economists’ literature (e.g. Blaug and Sturges 1983, Blaug 1985, Beaud and Dostaler 1995), the authors seem more or less unanimous. There are many East European economists among the highest ranks of the profession, but most of them are emigrants who attained their reputation as members of the Western, predominandy American, scientific community: Kuznets, Leontief, Lerner, Marschak, Domar, Kaldor, Fellner, Balassa, Scitovski, Harsanyi, Georgescu-Roegen, Vanek, and many others.² And of the few eminent economists who lived and worked under socialism in Central and Eastern Europe after World War II, two are, again, known more for their scientific achievements in England and America than for their publications when back home: M.Kalecki and O.Lange. What remains is a short list of three Soviet economists, L.Kantorovich, S.Strumilin and V.V. Novozhilov, and one Hungarian, J.Kornai. It is certainly not unfair to say that hardly any contribution of the three Soviet economists has really been absorbed into the standard body of economics (although, of course, it is well known that Kantorovich received the Nobel award for his development of linear programming algorithms; nevertheless in the east, he was considered a mathematician rather than an economist, and in the West it was Dantzig and Wolfe who set the tone in linear programming). This leaves us with Kornai as the only scholar who—as will be seen later—attempted a general theory of the socialist economy. This, indeed, is a meagre harvest, or is it the result of Western ignorance and arrogance?

The specialists from the slum field of comparative economics, of course, offered a much broader view. Being interested, like their Eastern colleagues, mostly in the workings of the planned system and being able to read the national languages, they were able to follow closely the debates between East European economists, to pass over the ideological bows, to relish the critical undercurrents, to weigh the reform proposals. In many cases they were émigrés, too, and had some concrete field knowledge of the system. There is a vast body of literature which will not be reviewed here. As far as economic theory is concerned, it was mainly the areas of political economy of socialism, reform of the planning system and mathematical economics that received special attention (see, for example, Treml 1969, Nuti 1973, Ellman 1973, Lewin 1974, Zauberman 1975 and 1976, Nove 1986, Cave et al. 1982, Sutela 1984, Lösch 1987 just to name a few representatives). Clearly, apart from mathematical economics which essentially analysed the perfect planning variant of the neoclassical paradigm, economics under socialism seemed idiosyncratic and western economists, not specially interested in planned economies, cannot be blamed if they expected little enlightenment from this side. What triggered sensations among the initiated (the Liberman discussion in 1962, the Prague Spring in 1968, perestroika in 1985), had little to offer the rank and file Western economist.

On the other side of the fence called the Iron Curtain it was of little importance to the rank and file eastern economist whether or not he entered the pantheon of the profession. He was faced with the task of bringing his professional competence in line with the ideological doctrine prescribed, of keeping à jour with all the vacillations of party politics and, finally, of contributing his share to the long-term evolution of a more rational economic system. Apparently, his task was in many respects much more practical than that of his Western counterpart. How could it have been other, since state socialism was not simply socialism, but scientific socialism? The fundamental science of this endeavour, Marxism, ascribed a special role to economic relations in society and, hence, to economics, in fact to both branches of economics: political economy analysing antagonistic social relations materializing in commodities and values (this branch was bound to disappear together with the state under communism) and economics proper which was needed for the administration of the economy. Economics was bound to be the ruler’s science (Herrschaftswissen); no wonder the rulers concluded that it was too important to leave it to the economists. Here are to be found the germs of its degeneration, both of the system and of economics as a science under state socialism.

There was a real scientific problem: the system of a planned economy. Economics had started to address this problem right from the first days when socialist planning was conceived as potential reality, that is back in the 1890s (see Pareto 1896–7, 1907, Barone 1908, Pierson 1902). This was the beginning of the famous socialist debate which gathered new momentum when, in 1917, the Bolsheviks seized power in Russia and showed themselves determined to create a socialist system. The immediate reaction of economics was Mises’ (1920) classic. But since a planned socialist economy had never existed before (we omit exotic cases like the Jesuits in Paraguay) there was no practical experience available by which to test the theoretical propositions. For Lenin, in desperate need of a model, German war practices (Rathenau) and their theoretical underpinnings (Neurath 1919) were left as the only option available; however, they had little in common with socialist ambitions. The economics of planning was developed in Soviet Russia in the 1920s on a comparatively high theoretical level (see Mau 1993), but still with only limited practical experience, and after Stalin’s second revolution of 1928 with full empirical backing, but rather limited theoretical ingenuity (due to purges, work camps, shootings, when scholars like Chayanov, Kondratiev, Bazarov and others disappeared; see Jasny 1972).

Soviet Russia was basically an agrarian and underdeveloped country by 1920. It is of no importance, in this context, whether Marx had ever meant such a country to introduce socialism. But it is quite clear that socialist planning was a special case under these conditions. The scientific and practical problem of a planned economy acquired a new dimension when, after World War II, the Soviet Union extended her sphere of influence, and the countries of Central and Eastern Europe set in motion a process of transformation to a socialist system. Not all of these countries were underdeveloped and agrarian; most of them were small and, by necessity, open economies. If the new system was to function in a satisfactory way in these countries, planning practice and planning theory had to adapt. The Soviet example was of limited use: the planning system ought to be subject to dynamic theoretical and practical evolution. For even if the socialists were guilty of the ‘fatal conceit’ of constructivism (Hayek 1988), it was unthinkable that an efficient mechanism of governing and guiding the economy had been found at first stroke and could be maintained unchanged through time and in different situations.

This is the starting point and central problem of our present study: How good was economics in Central and Eastern Europe in explaining and improving the socialist system of planning, and what was the contribution of science to system reform? If anything, this must be what Eastern European economists contributed to our science. For the failed experience of Soviet-type planning has become a historic example and will remain a textbook case of how it does not work. In this context, discussion about the workings of the system and possible reforms are to be expected to be highly informative. What we will rarely find in East European economics is a detached, abstract analysis leading to fundamental innovations in theory. As already hinted at, many interesting puzzles deriving from centralist planning have been taken up and treated in a sophisticated way by Western scholars. Examples are Leontief’s input—output model based on Marx’s schemes of reproduction and theoretically necessary for optimal planning, Domar’s (1957) growth model inspired by Feldman (1928), Domar’s (1966) and Vanek’s (1970) theory of the cooperative and self-management, the theory of incentives (e.g. Weitzman 1980). The few exceptions to this rule are, of course, the names mentioned above, that is, the Soviet theory of optimal planning which is only the planning counterpart of the neoclassical theory of market equilibrium and, hence, of little avail for practical problems, and Kornai’s (1980, 1992) theory of socialism.

The external observer may be inclined to infer from the failed socialist experience a correlation of bad theory and bad policy. And, indeed, the chapter that follows on Russia draws explicitly such a conclusion for the perestroika policy which was designed by eminent scholars of the optimal planning school. The example reveals the dilemma: optimal planning theory is excellent by Western professional standards. However, it is utterly irrelevant and thus bad theory for improving or reforming the Soviet economy of the 1980s. It did not know the notion of money, of institutions, or of individual behaviour which are crucial in this context. So, it may turn out in the end that economic thinking in Central and Eastern Europe over the last forty years had serious deficiencies, perhaps in some countries more than in others, due to political-ideological intervention. Whether or not this is true can only be determined by closer examination.

When political guidance, or even repression, is mentioned, it becomes immediately clear that science, teaching and research could not enjoy any constitutionally guaranteed liberties under a communist regime. This leads to the question which Lukaszewicz (1997:13) asked in the course of discussion of the present project: ‘is it possible that under conditions of an abortive civilizational mutation any cognitive process can proceed and bring about successful results in terms of general scientific progress?’ He answered in the affirmative claiming, at least within the Polish environment, the possibility of intellectual sovereignty. The claim did not remain unchallenged: sovereignty presupposes liberty which is precisely what was not given. However, what Lukaszewicz really meant by defining sovereignty, earnest study of the system and its characteristics, is intellectual sincerity which was difficult enough to maintain in certain situations. Autonomous science relies, as Gligorov points out (see Chapter 7), ‘on the authority of the argument, rather than on the argument from authority’. In a hierocratic system, where holy scripts, fundamentalism or partisanship (partinosi) prevail, the argument from authority cannot easily be put aside. As long as scholars have internalized the ideology, by definition they can be sincere: they are true believers. Where this is not the case, either exit, external or internal emigration, or cynicism, a distorted form of loyalty,—the voice option being precluded—is the alternative. It has not been as bad as that all the time and at all places.

Evidently, scientific results are not evaluated in terms of the sincerity of the researchers, but rather in terms of their productivity. The former may serve to separate the courtiers of power from real scientists. As to the latter, it has to be asked: productive in terms of what—explanation, prediction, propelling theory? Explanation, especially of the deficiencies of the system, is the minimum one can expect. A brilliant and very influential example is Brus (1961). But with prediction and propelling theory we hit upon another dilemma. What was there to be predicted in a system which did not know independent agents and which was guided by the autonomous, and by no means unchanging, will of administrators? And which theory could be improved by scientific efforts? Political economy of socialism, the official paradigm, was one possibility to which, for instance, GDR economists confined themselves. Others considered it barren and unproductive. An alternative could have been neoclassical theory which, for better or worse, can help to elucidate planned systems. But this was ideologically interdicted and, therefore, could be used neither in classroom nor in publications. Kornai (1980)—and he was the only one who did—chose a byway by developing a theory of his own that was generally hailed in the West. The productivity of this theory, however, is not unquestioned and it could not be used in the classroom during the socialist period.

We come to the conclusion that assessing economics under state socialism is not an easy task. What we are dealing with is history of thought. Since, evidently, the contributions to economic theory proper are few and far between, we will not concentrate upon the history of economic analysis in the sense of Schumpeter (1954), but rather upon the history of economic thinking. This includes aspects of management of economic theory as a science, its institutional organization, and its representation in teaching. It also includes some aspects of the sociology of science. In the course of the present study a special interview project was conducted among Central and East European economists in order to collect their personal views. The results have been published separately (Wagener 1997), but we will make use of them in this chapter.

A special focus of the project is reform thinking. This derives from the assumption, already hinted at, that productive economic thinking under state socialism contributes to the design of the system and is itself informed by reform practice. There is continuous feedback between economic thinking and system development which yields a form of evolution. It will be seen in the individual chapters that many economists interpreted their task within the system in exactly this way. Already in the 1950s there were the first theoretical reactions to a practice which was unsatisfactory right from the beginning. Later, the reforms of the 1960s all over the region, including Yugoslavia, are the result of such an evolutionary process. In both (and many other) cases the ‘natural’ evolution was stopped by political power that saw its position endangered and, having been brought up with and knowing nothing else but orthodoxy, cried immediately ‘revisionism!’ It will be seen in a moment, however, that political reaction to reform ideas was not only due to ignorance on the part of the power élite, but a rational, survival-oriented answer to imminent transformation of the system. Thus, institutional inertia became the hallmark of state socialism. Again, we see the germs of theoretical and practical degeneration.

It is tempting, even if it is counterfactual, to ask what would have happened if the evolution of the socialist system had been allowed to continue without too much political interference. Would the Czechoslovak ‘socialism with a human face’ have proved viable? Would there have been real systemic innovations? One possible result of such a development can be hypothesized: perhaps what appeared as radical change in 1990 would have evolved continuously anyhow. A socialist market economy would not have worked properly, practice and thinking would have propelled the system to further liberalization and, finally, privatization. Isn’t that the Chinese reform path? It is too early to draw such sweeping conclusions, but in face of this hypothesis the notorious dichotomy of shock versus gradualism seems ill-placed within the radical change of transformation as it happens in Central and Eastern Europe. Once continuity has become a stationary rather than an evolutionary process, radical change is the only emergency exit if stagnation is to be avoided. The chance for gradualism has been missed. This is one of the lessons the experience of state socialism has taught.

Transformation in itself, and particular transformation strategies, can only be understood against the background of real-sphere and cognitive developments during the previous period. This is why reform thinking, or the theory of the economic system and its mechanism, was given special attention in the project. However, a clear distinction between reform thought and reform practice must be made: the study does not aim at understanding practical policy measures and evaluating them in the light of the theories discussed. It is restricted to the cognitive pre-history of transformation and the first years of its proper history. A second restriction derives from the first: the study cannot do justice to the entire scope of economic thinking. For, of course, economists under socialism were dealing with many fields of the science that will not even be mentioned in the following chapters. Many sincere scholars, once they had come into conflict with the party watchdogs, tried to move internally into niches of the science which were thought to be less sensitive and where they did decent work: history of thought preferably of the pre-classical period, operations research where high standards could be reached, economic history. Political economy of capitalism, the Marxist counterpart of comparative economics, also had a slight slummy touch in the East: it was bound to rely on the large body of Marx’s writings on this topic which was palatable only for true believers and it was practically irrelevant such that—as happened in the GDR—prominent critics of economic policy were forced to restrict their scientific publications to this topic. And finally, there was a large group of economists working in the field of branch economics which, given the character of the system, was closer to business economics than economics proper.

Economic thinking under communism is heavily influenced by politics, that much has already become clear. Hence, the incisive events of political history must play an important role in its development. The whole period of investigation, 1945–95, can be roughly subdivided into several subperiod...