Andre Gunder Frank

Economy, Politics, and Ideology in Contention

WHAT WENT [AND STILL IS?] WRONG?:
ECONOMY, POLITICS AND IDEOLOGY IN CONTENTION
September 8, 1992 second draft

Is there a future for socialism?
- Meghad Desai, Contention No.2, 1992

How many angels can dance on the head of a pin?
- Medieval debate, circa 992

"What Went Wrong?" was Eric Hobsbawm's opening question in the first essay in Contention Number 1. He and several other contributors, Gellner, Chirot, Desai, Mann, Berend, Halliday, Keddie, and Pipes offer many instructive, revealing, useful, and suggestive answers in Numbers 1 and 2. Yet, these answers are reminiscent of both "Rashomon" and "The Blind Men and the Elephant": Each writer relates a different partial and often ideological account of the same material elephant, which is acceptable only within each author's own and limited conceptual framework, if at all. Therefore at best also, the authors and their answers "contend" with each other -- if they do not write past each other altogether. Indeed, some answers - and the explicit or implicit questions underlying them - have about as much relation to the real world elephant as the two rather similar questions quoted above.

To preview my argument below, my own answer to the first epigraphic question was formulated at a 1980 Glasgow conference dedicated to the same. While for most self- proclaimed socialist participants the answer was negative, my own answer was that the question itself was non-sense. Litterally, the first question is devoid of any meaning just like the second one, at least if it is intended to refer to the only one real world we live in.

As to the question "what went wrong?," the authors and their answers in [1] and [2] not only contend with and contradict each other, as they should. Most of them are also internally contradictory in themselves, as they should not be. Nonetheless, all is not in vain. The publication of these questions and the Rashomon answers elicited by Contention offers many valuable pieces to permit a good start in assembling the jigsaw puzzle of a more holistic answer -- if we observe the age old rule that the whole [world] elephant is more than the sum of its parts. Unfortunately, our contending authors neglect this adage and also seek escape from the material limitations of our one world by resorting to flights of fancy into various and mutually or even internally contradictory appeals to ideology. Many seem to seek their answers to the "what went wrong?" question in terms of the first epigraphic question about "what future for socialism?" and on the wave length of the second one about "how many angels" as well. Yet, the answer to the question "what went wrong" must be sought much more in the material reality of our one world economy than in any ideological discourse in the former Soviet Union or by the present authors.

Contention allows Rashomon to flourish, thank you. Hobsbawm [1] answers his own question about "what went wrong?": "Russia and Eastern Europe were all viable economies, and would have remained viable if they could have been kept insulated from the rest of the world.... What I think really cut the throat of these economies was increasingly, first of all, the inability to deal with the world economic crisis of the '70s and '80s....They were completely incapable of developing the equivalent of the information society.... A last piece [was] Brezhevite megalomania, trying to compete" (1: 19,20). Yes indeed, but insulating "these economies" and not having to compete would only have been possible if the world were composed of separate square pieces instead of being a single round globe. If I could empty the oceans of water, I could walk around the world as well.

The other distinguished interviewee, Ernest Gellner, was featured in the second issue [2] on his return from a year in Moscow. Gellner echoes the first part of Hobsbawm's reasoning, but denies or at least silences the second: "What had gone wrong economically? The simple answer is that nothing had. The West doesn't realize the Soviet Union isn't so terrible economically. This is very important." So what did go wrong? No answer from Gellner.

Daniel Chirot [1] and Meghad Desai [2] do offer answers. They do recognize economic imperatives and especially that there is no escape from competing in our one world. (Chirot 1:42): "Continuing tensions between capitalist countries ... are older problems but they persist. Utopia has not arrived. There will continue to be losers in the world." In response to the world economic crisis mentioned by Hobsbawm, Desai (2:155) correctly observes "capitalism in its successful restructuring passed on the costs of this restructuring to the unemployed and the welfare-dependent at home, to the Third World poor, and lastly to the East Europeans. It was done through the instrumentality of monetary and fiscal policy via interest rates.... Socialism in Eastern Europe was caught by its inability to produce sufficient surplus to be able to service its debts." Quriously, Desai does not pursue his own and world economic logic to observee that the same Western monetary and fiscal policy was also instrumental in bankrupting the Soviet Union, which was also unable to compete, notwithstanding the denial of the same in turn by Fred Halliday [in 2], as we will observe below.

More curiously still both Chirot and Desai then turn to abandon their economic analysis and to contradict themselves - and each other- by recurring instead to ideology! Even though utopia has not arrived in our one world economy, both authors turn around to answer the opening "what went wrong?" question in terms of ideology! Chirot [1:36,37]: "So why did the East European regimes collapse...? The reason is that socialism ... began and is ending as a utopian ideology. Lies were built on lies ... this sense of the omnipresent lie.... If the moral basis of socialism had not become a hollow shell long before, the political changes of 1989 would not have occurred." Desai agrees with Chirot that the problem is ideolgy or ideological. So what is their disagreement or contradiction and contention? Chirot's position is good riddance of a bad ideology. Desai [2:156] instead has regrets: "Socialism will continue to live as an alternative program for the very reason it has waxed and waned in the past - the nature of capitalism."

Still more curiously once again, Michael Mann is not satisfied with still another Rashomon account of what went wrong: Mann extends his Rashomon account even to his version of the accounts of others as well! According to Mann [1:185], Chirot, "like Desai, he gives an economistic theory of the decline of Soviet-style socialism. It is unsatifactory." Unsatisfactory these accounts, including Mann's own, may be. If so however, the failure to satisfy can hardly be their "economistic theory" since they themselves said "the reason is ideology." Rather they are unsatisfactory, because they are internally contradictory and ultimately abandon their economic account for an ideological reason. For Mann instead, the problem here as in his other writings turns on politics and political power for its own sake instead: "Their failure was ultimately political .... Capitalism is a system of power.... One might thus expect some discussion of the politics of socialism" [2:186,187,185, all emphasis in orginal]. Thus, Mann also calls the economically based American, European and Japanese economic reguionalization of the world "trilateral politics as normal" [2:190]. Mann also argues that in France in 1981-82 "capital expressed its power by leaving," [2:188] when the French purchasing power created by Mitterand's ill-fated Keynesian Indian summer bought German goods and shot to hell the French balance of payments and therefore the French franc -- in a single world economy. Mann's unwillingness to acknowledge and analyze world economic exigencies leaves him holding no more than one statist political piece of the elephant at a time -- and he out-Rashomons Rashomon.

Ivan Berend, in contrast, understands world economic exigencies and limitations, only to forget them again when it comes to answering the next question, "after socialism/ communism, what?" Berened [2:104] ends with the beginning: "The Eastern borderline of Europe [is] traditionally the River Elbe (equally in 815, in 1526, in 1945, or in 1989)." His Hungarian compatriot J. S cz had already observed that, when the dividing line was drawn across Europe at the end of World War II, "it is as if Stalin, Churchill and Roosevelt had studied carefully the status quo of the age of Charlemagne on the 1130th anniversary of his death." Eastern Europe has been the underdeveloped part of Europe that was dependent on Western Europe at least for the more than 400 years since the second date Berend mentions. Therefore as he [1:90] also points out, socialism "turned from being a utopian dream, into a model for modernization to cope with the traditional backwardness, low capital accumulation, rigid social srucruere and lack of industrialization." "The origin of the collapse of Communism in East-Central Europe is deeply rooted in post- War technological-economic changes," with which it was unable to compete [1:92-93].

However as Hungarians, S cz and Berend both also evoke the concept of a historical "Central Europe" as a sort of second class semi-industrial semi-western Europe. It is to be distinguished from the third class/ third world Europe of the East. Indeed, if any part of the ex- "socialist" economies have any chance of joining the West -- and the EEC -- in the forseeable future, it is these Central European regions in East Germany, Moravia and Bohemia in what was Czechoslovakia, Slovenia in what was Jugoslavia, and perhaps Hungary. Chirot [1:46] does not hold out much hope even for them: "Economic failure...is virtually guaranteed in Russia and Romania, and highly likely in some of the other East and Central European countries." Berend [2;103] sees them in a sort of Catch-22: to join Western Europe they need first to be more developed, and to develop more they first need West European Marshall Plan type help, which is not forthcoming. Why not? Here Berend abandons his world or even European wide analysis. For in contrast to the post-war years in which Marshall Plan economic expansion was possible and profitable, the world and European economy is not only still in a long economic crisis but in its so far probably deepest recession. It is this recession that is the present impediment to further European union, more than and before any political obstacles like the "No" vote in Denmark and second thoughts elsewhere including France and even Germany. All these which should themselves be seen as the political consequences of this recession, any possible reservations by Mann's "politics in command" notwithstanding. If the present recession has these consequences regarding economic cooperation even in Western Europe, a fortiori will it have analogous but greater ones regarding closer economic ties with or more investment in Eastern Europe and the former Soviet Union, as long as prospects for profit there remain poor.

For the Soviet Union and Eastern Europe therefore, the economic - and therefore political prospects are as dim as Berend and Chirot paint them -- or worse. They are the new victims of this world economic crisis and its renewed recession since 1989, and they will return to form part of the underdeveloped Third World, which they always were at least during the past half millennium. That is, really non-existing "socialism" failed -- as a model for modernization, but no more of course than really existing "capitalism" in most of the Third World elsewhere. Indeed regardless of their ideologies and/or politics, in both "systems" economic policy in face of the debt crisis of the 1980s was exactly the same, for the same reasons, and with the same disastrous results.

This brings us back from "what next?" to what went wrong? Not "socialism." Nor even "capitalism." Fred Halliday [2] develops a singular argument indeed to explain "A Singular Collapse." We may well agree that "no explanation in terms of a single factor is possible," but that does not warrant claiming that "internal weakness of the system [which] played a major role" compared with the "international factors ... of relevance," [1:121], including competition in technology and Afghanistan, which he tries to blow down as so many alleged straw men, but quite unsucessfully so. "It was a failure to compete internationally that, on top of the internal crisis, led to the post-1985 changes in the U.S..S.R." [1:133] Yet "this interstate competition, comprehensive as it was, is not sufficient to explain how, why, and when the communist system collapsed" [1:137].

Halliday [1:126] erroneously concludes "it was not the 'market,' in any direct sense, of intervention within these societies and economies, that contributed to their demise." How not? Halliday [1:129] correctly notes that the rise in the price of oil gave the USSR a windfall profit. However, he conveniently disregards that the same imposed an unexpected stormy cost for oil importing countries in Eastern Europe and that the renewed decline in oil - and gold - prices since 1981 deprived the Soviet Union of the much needed foreign exchange. It was generated by the oil and gold exports, which were over 90 percent of its hard currency earners in this market, which according to Halliday did not intervene in Soviet economy or society!

Then Halliday considers but virtually dismisses the significance of the arms race in general and "Star Wars" in particular. "Important as it is, there are reasons to qualify the import of the arms race explanation as the major factor behind the Soviet collapse" [1:127]. How so? "The very high rate of [Soviet] military expenditure as a percentage of GNP is but another way of saying that GNP itself was rather low. ... In absolute terms the U.S.A. was outspending the U.S.S.R. The focus must, therefore, be as much on the efficiency and allocative mechanisms of the civilian sector as on the claim of the military on GNP" (1:128). On the face of Halliday's argument alone, could it not be equally well the other way around? GNP was already low and growth rates were declining and then stagnated in the 1980 as Berend [2] related. Therefore, it could equally well be argued that the increased military expenditures coming on top of declining foreign exchange earnings affected efficiency and allocative mechanisms negatively or at least impeded their betterment. In that case and contrary to Halliday, both the "market" and the "arms race" did indeed intervene in Soviet economy and society.

However, it should be noticed but hardly ever is that the "Second Cold War" arms race itself was also market driven! To begin with, the Second Cold War was started by U.S. President Carter in mid-1979 several months before the Soviet Union invaded Afghanistan. It involved the NATO agreement to increase military expenditures by 3 percent a year after inflation, the "double track" decision to place American Pershing II and Cruise missiles in Western Europe, and to play the "China card" against the Soviet Union. The Soviet invasion of Afghanistan in December 1979 followed when perhaps the Soviets miscalculated that they had no more detente to lose anyway. They were wrong, since the American response political and also military response and escalation was much stronger than expected, even in America [only in recent days new relevaltions were published of massive CIA intervention and finance] Why? Not by happenstance or other accident did all this begin in 1979 precisely during the beginning of another economic recession that laasted until 1982, the longest lasting and most severe one since World War II -- until the present one that began in 1989. In every recession since World War II, every administration before and since Carter also escalated military engagement and/or expenditures, as President Bush did again against Panama and Iraq.

The 1979 recession, probably more than the Iran hostage crisis, cost Jimmy Carter the election and ushered Ronald Reagan into the presidency. He called the Soviet Union an "evil empire" and started "Star Wars" with the express purpose of outspending the Soviet Union to its knees. But Reagan did not invoke this ideological/political/military policy before instituting the remainder of "Reaganomics." This was no more than the continuation or escalation of the "monetarist" and "supply side" policy already inaguarated by Jimmy Carter, when he [and not Reagan] abandoned Keynesianism in 1977 and appointed Paul Volker to head the Federal Reserve in the 1979 recession to manage Reganomic monetarist policy all through the 1980s.

As Desai [2] pointed out, the costs of the crisis and especially of the 1979-82 recession were shifted onto the backs of those who could least afford their burden and least defend themselves in the West, and especially in the South and East -- of the world economy! The monetary and fiscal policies and debt service were the instruments, Desai pointed out. However, he neglected to go on to point out as well that the debt crisis - which broke out during the 1979-82 recession in Poland in 1980/81 - removed the South and East from availability as borrowers of last resort to prop up demand in the economies of the West. A replacement was needed, and it was found in the United States, which by 1986 replaced all others as the world's largest debtor.

The instrument was still the same monetary and fiscal policy, except that now it was called "Reaganomics" and functioned through "military Keynesianism" or "Star Wars." Reagan's renewed increase of miltary expenditures [coming on top of Carter's] generated the famed American "twin deficits" in the federal budget and the foreign current account. This U.S. deficit spending was necessary not only to keep the American economy, but to keep the entire Western economy afloat during the 1980s. This world economic imperative and the always uneven distribution of its costs benefited parts of the West, including Western Europe, Japan and the East Asian NICs who were dependent on te American market. However, it was this same world monetary and fiscal policy that pushed Latin America, Africa, Eastern Europe AND the Soviet Union into an economic depression, which is already more severe than that of the 1930s.

So, Halliday could not be more mistaken than when he claims that the [world] market did not intervene in Soviet economy or society. He claims that instead "the central feature of the collapse" was "the ideological dimension ... [that] was in some ways decisive" [1:137,138]. "The central feature of the collapse...[was] the collapse [of] underlying self-confidence ...first among the leadership and then within the population as a whole" [1:135]. That supposedly led to Gorbachev's purportedly capricious change of heart. Yet, Gorbachev himself asserted time and again that there was no alternative to perestroika in view of the serious problems faced by the Soviet economy. Of course, these were vastly aggravated by the pressures emanating from the world economy of which it was a part. Michael Ellman argues that the Gorbachev team made serious mistakes of economic policy, and that is true. However, these mistakes were also "mistaken" responses to economic exigencies over which the Soviet Union or its political leadership had scarce control. That is contrary again to Michael Mann, politics was NOT in command all that much. Neither was ideology in command, despite the "in the final analysis" claims to that effect by Chirot, Desai, and even Hobsbawm.

Indeed, politics and ideology were not in command in Washington either. President Reagan did not "get the government off our backs" and "make America No. 1 again," as he had promised. Instead, world economic pressures mediated by political "policy" made the government's share of GNP rise [in Thacherland also!] and the led the United States itself in giant steps toward thirdworldization. Star Wars not only bankrupted the poor Soviet Union; it nearly bankrupted the rich United States as well, and still may. The difference is that the U.S. government and the American economy has so far been bailed out by a sort of international Chapter 11 operation. For world economic reasons much more than political/ ideological ones, Western Europe and Japan have made "voluntary" capital contributions to the U.S. and the Third World and Eastern Europe made involuntary ones through their forced debt service. None of the above, of course, was available to the Soviet Union, which went down the drain instead.

However, the American economy is now also threatened with similar bankruptcy as this inflow of capital disappears in the recession or depression of the 1990s: In Japan, the recession and deflationary crash in stock and real estate prices have obliged its financial institutions now to repatriate more capital to Japan than it exports. In Germany, far from causing the present recession as the populist myth has it, reunification first postponed and still obfuscates the cause of the recession: First, the western carpetbagger conquest of the eastern market through reunification maintained effective demand longer than elsewhere in the West. However, this demand was temporarily maintained, but is now peetering out again, for West German [and European] firms through a German version of "Reaganomic" fiscal deficit finance in the East. This policy obliged the rate of interest to rise to permit the state to attract private capital in Germany. Of course, the high German interest rate also pulls interest rates up and excerpts an additional recessive influence elsewhere in Europe as well. Thus, both the new recession generated Japanese and the German competition for capital also draw capital away from the American economy and its U.S. government. Yet for both of the latter this capital has become a habit forming fix, the withdrawal symptoms from which can only spell political disaster for the United States and the world. No wonder that so many can lament the failure of the July 1992 Munich economic summit -- without however analyzing either the causes nor the probable disasterous consequences of that failure.

Thus the legacy of global Reaganomics is now aggravated again by the renewed present world wide recession or perhaps depression. The political events in the East since 1989 were the direct result of world economic crisis generated economic decline in these regions. Now economic depression is hitting them too. In 1990, production declined by 20 per cent in Eastern Europe and by nearly 10 percent in the Soviet Union. In 1991, that decline was by some 20 percent again in both, and in 1992 it threatens to do so once again. Among and within all the above named, the hardest hit are the weakest and poorest population segments and regions, such as those in declining industrial regions and in the former Soviet Central Asia, where unemployment rose to over 20 percent before recent events to which it contributed. In the former Jugoslavia, today's terrible civil war is the direct consequence of the economic and debt crisis of the 1980s. An alternative Western policy could have lessened the debt's sociopolitical ravages and avoided Jugoslavia's dismemberment and civil war.

Thus, the prospects are dim indeed, probably even more so than Chirot and Berend let on. The reason is less ideologically or politically grounded, although of course it manifests itself in the "combination of chuavinism, xenophobia, populism, and authoritarianism" that Chirot [1:47] quotes from the observations of Adam Michnik. Since then, matters have already gotten even more dreadful and threatening: right radicalism, racism, attacks on womens rights and conquests, nationalism, ethnic strife, war, etc. The reason is that the world economy is still the same crisis, which started in the mid 1960s and whosee 5th recession began in 1989. The "revolution of 1989" came at the worst possible time, therefore, to have any hopes of economically grounded sucess. Of course also, had it not been for the deepening world economic crisis and the renewed recession, these events in the Eastern Europe and the Soviet Union would not have ocurred in the first place.

Perhaps Nikki Keddie is right to observe that revolutions cannot be foretold, because too many factors and decisions can cumulate ultimately to make things go one way or another. Yet there is some "causation" and "determinism" [2:178] without which they do not go one way. In this regard, it is difficult to understand the experts on nationalism, Hobsbawm and Gellner, who are interviewed in [1] and [2] respectively. In these issues, as well as writing elsewhere, they virtually neglect the economic sources of national and ethnic strife in the former Soviet Union and Jugoslavia and probably soon elsewhere. Yet undoubtedly, this strife was generated by the deterioration of these peoples' national and local economies, as a result of the world economic crisis. Nor can these new "nation states," and much less their chauvinistic and populist leaders, ideology and politics take any more command over the one world economy and the burdens it imposes on their peoples than their predecessors could. Indeed and alas, determinism or not, they will only be able to do much less -- other than to engulf us all again in terrible war. "What went wrong?" -- "Everything," answered Richard Pipes [1:24]. Perhaps, but in that case the wrong was not limited only to "Marxism and Communism" as he suggests. Pipes also sees only a part of the whole world political economic elephant and neglects to observe that this "everything" is rooted in our one world elephant as a whole.

Endnotes

1. See also Micahel Mann The Sources of Social Power, Cambridge: Cambridge University Press 1986.

2. Jen Sz cs "The Three Historical Regions of Europe," Acata Historica Adademiae Scientiarum Hungaricae Vol. 29, Nos. 2-4, p. 133.

3. Andre Gunder Frank "Revolution in Eastern Europe: Lessons for Democratic Socialist Movements (and Socialists)" in The Future of Socialism: Perspectives from the Left. William K. Tabb, Ed. New York: Monthly Review Press 1990, pp. 87-105. "No End to History! History to No End?" Social Justice, San Francisco, Vol.17, No. 4, Dec. 1990. "Economic Ironies in World Politics" Economic and Political Weekly, Bombay, Vol. XXVI, No. 30, July 27, 1991, pp PE 93- 102. Economic Review Colombo, Sept.-Oct. 1991,pp 1-3,41-49.

4. For an accounting see Andre Gunder Frank "Third World War in the Gulf: A New World Order Political Economy" Notebooks for Study and Research No. 14, Amsterdam/ Paris, June 1991, pp. 5-34. ENDpapers 22, Nottingham UK, Summer 1991, pp. 62-110. Economic Review, Colombo, vol. 17, Nos. 4 & 5, July/ Aug. 1991, pp. 17-31, 54-60, 68-73.

5. Sean Gervasi has documented this deliberacy in ...

6. Or could he? My old friend Halliday and I repeatedly and publicly locked horns about these and related matters all through the 1980s at semi-annual meetings of the Transnational Institute in Amsterdam. Then, Fred steadfastly asserted that THE main competition in the world was the ideological- politico-military Cold-War between the United States and the Soviet Union, which he regarded as strong enough to deny even the possibility of any such post 1989 outcome, which he also regarded as undesireable. I, on the other hand had already published The European Challenge: From Atlantic Alliance to Pan European Entente in 1983 and consistently asserted that European East-West rapprochement was possible and desirable over and above any Cold War competition and ideology. Not that I argued, but rather would East-West competition takes a back seat to world economic competition, especially West-West competition among American, European, and Japanese interests, which are much more fundamental in shaping future events. At one meeting, Fred broke off the dialogue by asserting he never wanted to hear my "politically incorrect" claptrap again. After the events since 1989, we exchanged a friendly post mortem correspondence; but Fred still insists on getting it wrong again. Nikki Keddie is more gracious to Fred. She did not mention him among the "experts" who totally failed to call the revolution in Iran, which ocurred just as his Iran book hit the bookstores and its sales benefited from the very events he failed to foresee or discuss.