The Power of Freedom. Mart Laar

      In fact, maintaining the empire became increasingly costly for the Soviet Union with each passing decade. The Soviet economy simply could not afford to retain the satellite states, but the Soviet leaders ignored all the warning signs. Central and Eastern Europe did not help to increase Soviet security; in fact, it created more problems than it solved. In order to preserve internal cohesion and the stability of the Communist bloc, the Soviet Union had to keep 585,000 troops stationed in the Central and Eastern European countries and 1.4 million along its Western borders. To sustain the Communists’ hold on power, the Soviet Union had to subsidise the Central and Eastern European economies, particularly important in view of the regular insurrections against Communism. The Soviet Union had to pay to keep its allies quiet, writing off Polish debt in 1956 and again in 1981, as well as making economic concessions to Czechoslovakia after 1968. According to estimates, Soviet aid to socialist countries had reached $20 billion a year by the 1980s.92

      Development was still uneven. It mainly affected countries, such as Bulgaria or Romania, that had been less well-developed in comparison with the European average before the Communist takeover. But even there, local leaders were more than aware that the price of this development was absolute dependence upon the Soviet Union and that they were, in fact, already bankrupt. When Moscow asked for its money by the end of the 1950s, the Bulgarian leader, Todor Zhivkov, secretly handed over the national gold reserve to the Kremlin. In July 1963, Zhivkov decided to cut the country’s losses by dissolving Bulgaria and integrating it into the USSR as the sixteenth republic. When the Soviet leadership declined, fearing that to do so might incur geopolitical problems, Zhivkov raised the question again in 1973, hoping in this way to pay its debts to Moscow. In order to keep its satellite afloat, the Kremlin decided to subsidise Bulgaria’s economy with up to $600 million annually for agricultural produce and the provision of subsidised oil.93

      In real terms, the Central and Eastern European economies could not compete with those of the Western European countries. Productivity was still poor and most of the goods produced were not competitive on world markets, with the result that they could only be traded on the closed socialist markets. Czechoslovakia, for example, which earlier in the century had ranked among the top ten industrialised nations, found it increasingly difficult to compete in Western markets in the 1970s and 1980s with its low-quality manufactured goods. The share of its total trade with less competitive socialist countries rose steadily from 65 % in 1980 to 79 % in 1987. When compared with the structure of employment and the output of goods and services in OECD member countries, it is apparent that agriculture accounted for a larger share of employment and gross domestic product in the Central European economies. Furthermore, the service sector in Central Europe was much smaller than it was in Western Europe. Industry in Central and Eastern European countries was over-concentrated and lacked small and medium-size enterprises. Compared to other European countries, energy consumption in the Communist satellite states of Central and Eastern Europe was two to four times greater than would have been expected based on its per capita GDP. As a result, the technology employed in civilian industries became increasingly backward in relation to the West and the environment suffered increasingly in Central and Eastern Europe. The situation was even worse in the USSR, where waste in all areas was greater and productivity lower. The use of raw materials and energy in the production of each final product was 1.6 and 2.1 times greater, respectively, than it was in the United States. The average construction time for an industrial plant in the USSR was more than ten years, whereas in the United States, it was less than two years. In manufacturing per unit, the USSR used 1.8 times more steel and 7.6 times more fertilizer than the USA. During the 1980s, the level of productivity in the Soviet Union fell by 14 % and dropped to roughly one fifth of the Western level. Productivity in the Baltic countries was higher than it was in other Soviet republics, but in comparison with their capitalist neighbours, the productivity gap widened.94

      In view of Communism’s modernist pretensions, it is striking how backward the Eastern bloc remained in the fields of computer technology and telecommunications, the leading sectors in the advancing global revolution. While in West Germany, the number of unskilled workers with a phone rose from 20 % to 58 % in the early 1970s, in East Germany, only one home in seven had a phone in 1990.95 The average waiting time for a new phone in Poland was 13 years. Facsimile had only a small role to play in Central and Eastern Europe because of the poor quality of transmission.96 East German attempts to go in for microchip specialisation resulted only in an annual subsidy of three-billion marks. The computer age, heralded in 1974 by the appearance of the personal computer, did not arrive at all in the Communist world. By the end of the 1980s, the ratio of personal computers per capita was, at best, no more than 10 % of the average Western level.97 At the same time, socialist countries tried to present themselves as vanguards of progress by falsifying data and concealing problems.

      In reality, the local Communist leaders were familiar with all of these problems. But to find solutions for them without liquidating some basic Communist principles was impossible. Nevertheless, in the 1970s, a serious attempt was made to win people over to a society whose material well-being compensated for its politics. Socialism was now to take on a more consumerist style. Communist societies were to be ‘normalised’ not only by the security police but also by growing prosperity, washing machines and televisions. It was hoped that people who could set off in their family cars for weekends at their summer homes in the countryside would worry less about the absence of political liberties. Other aspects of life, such as sporting pride or national sentiment, were also exploited. This was all well and good, but in order to achieve these goals, the economies of Central and Eastern Europe were modernised through foreign loans and technology to be paid for by growing exports rather than economic reform. In the beginning, this strategy appeared to be successful. In Poland, wages went up by 40 % in real terms during the early 1970s. Overall, by the end of the 1970s, wages in Central and Eastern Europe were three to four times their 1950 level in real terms. Such growth, however, was not sustainable. In Poland, for example, it resulted in a hard currency debt that stood at $20 billion by 1980, by which time debt service charges had risen to 82 % of exports. Poland had not exploited its Western-derived technology as effectively as had been anticipated and could not even afford the necessary spare parts. The global rise in oil prices and interest rates made the situation even more difficult – it became clear that Poland simply could not pay back its debt.98 The situation was no better in other Communist countries. The $20 billion debt that Hungary owed was approximately double the value of the country’s hard currency export income. Bulgaria too became insolvent and requested a rescheduling of their debt payments, while the leaders of the GDR had to have secret negotiations with West Germany in order to acquire new loans with which to repay the old ones. Romania tried to escape the indebtedness trap by ordering repayment and drastically cutting domestic consumption. The stores were empty, while cities and homes languished in darkness and went unheated in the winter. Everywhere, the socialist command economy descended into irreversible decline and eventual bankruptcy99 (Table 4).

      Table 4

      Sources: Economist Intelligence Unit 1985, 16, cited in Brown 1989, 507; World Bank 1997a; 1997b. For Yugoslavia, 1984–89; Vienna Institute 1991, 391.

      Neither was Yugoslavia, whose model of self-managing socialism had proved quite successful during the 1960s and 1970s, spared these problems. Yugoslavia was effectively a free market where, from 1965 onwards, enterprises were free to dispose of their profits through wages or reinvestment as they saw fit. Foreign investment entered the country, creating the economic

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