Thirty Years After: The End of European Communism in Historical Perspective

24
Thirty Years After: The End of European

Communism in Historical Perspective
charles s. maier
“A spectre is haunting Europe . . . ” The most famous phrase to emerge from

the revolutions of 1848 has come true in a totally unintended way: 170 years
later, communism in Europe is just a spectre, a ghostly memory. This
movement – which seemed so frightening during 1848, the Paris Commune
of 1870–71, the aftermath of World War I and the Spanish Republic of 1936–39,
which took power in Russia in 1917 and was imposed on Eastern Europe after
1945 – has become merely history and no more than hardly remembered at
that. To be sure, nominally communist regimes still govern China, North
Korea, Vietnam and Cuba – but in diverse ways radically different from the
original Marxist-Leninist model.
How do we explain this millennial collapse? This chapter attempts an

interpretation that focuses on the global transformations of political
economy that not only led up to 1989, but have continued their transfor-
mative impact until the present. State socialism was an economic system
that saw itself in perpetual competition with “capitalism.” It judged itself
comparatively, as have its historians, but even without yielding to the
comparative framework it must always look different with the passage
of time.
To focus on political economy is not to dismiss ideas and politics, but to
relate them to the institutions that structured material conditions. Citizens in
Eastern Europe resented the regime of controlled information, secret police
and informers, one-party rule, arbitrary denial of privileges, and the whole
apparatus of repression, even if some had sympathized earlier with social
goals. The transformations in the Soviet Union unfolding under Mikhail
Gorbachev gave hope that Moscow would not again repress the protests
against these instruments of rule as it had in Berlin in 1953, in Budapest in 1956
600
Downloaded from https://www.cambridge.org/core. Australian Catholic University, on 28 Oct 2017 at 14:27:10, subject to the Cambridge
Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/9781316471821.025
Thirty Years After
and in Prague twelve years later and that had led General Wojciech Jaruzelski
to impose martial law in Poland in 1982. The possibility of successful protest,
it slowly became evident, was finally clear.
Intellectuals certainly recalled their disillusion with the ideals that had led
them to embrace state socialism: “[C]hildren of the twentieth century, who
had come to thirst for belief . . . carried away by frightful and beautiful plans
for transforming the world, aware of themselves as belonging to an elite and
simultaneously fascinated by being part of a community, a member of
a collectivity,” gradually or suddenly awoke.1 But individual dissent did not
bring down the system. It led to applause from the West and jail sentences at
home. Collective solidarities had to be formed anew and energized as they
had been in Poland in 1981 and again at the end of the 1980s. In a system that
depended on barbed-wire frontiers, borders had to be opened, as they were in
Hungary in the summer of 1989 – a breach that catalyzed a frantic emigration.
And citizens had also to mobilize on the streets at home, as they did by the
autumn of 1989 in the German Democratic Republic (GDR), and thereafter in
Czechoslovakia.
For a decade after the collapse, or what came to be called “the transi-
tion” (or Wende in German), political analysis suggested that the organiza-
tions of civil society – the collective organizations that had resisted regime
control – had successfully reasserted their aspirations and their demands.
Trade unions and the church in Poland, peace organizers and then peaceful
street protesters in the GDR, nationalists in Hungary and courageous
intellectuals in Czechoslovakia had by dint of peaceful protest brought
down the self-coopting guardians of party orthodoxy.2 Despite the
somewhat unfortunate term “implosion,” which deprecated the role
of the activists, sometimes intentionally, this was true; the courageous
organizers and protesters transformed the political landscape. The “round
tables” endowed them for critical months with a quasi-constitutional
institution. But their activity became efficacious only under certain condi-
tions. Significantly, the organizations of civil society and the political
groups that emerged so dramatically and encouragingly in the late 1980s
did not really function well over the long run. Poland’s Solidarność, the
Czech Civic Forum, the GDR’s New Forum and all the other organizations
1 Carola Stern, In der Netzen der Erinnerung. Lebensgeschichten zweier Menschen (Reinbek bei
Hamburg: Rohwolt, 1989), 11–13.
2 On “civil society” and the opposition to the communist regimes of Eastern Europe, see
John Ehrenberg, Civil Society: The Critical History of an Idea (New York: New York
University Press, 1999), 173–98, and further reading in the Bibliographic Essay.
601
charles s. maier
soon fractured and found it difficult to perpetuate their coalitions of

protest. This chapter thus asks what ambient conditions allowed civil
society to reclaim a voice that for a decisive moment could transform
the regimes they lived under.
Undoubtedly a major order of causation was economic; the centrally planned

economies performed badly in comparison with the Organisation for
Economic Co-operation and Development (OECD) states. And comparison
was integral to the metric that the state-socialist societies themselves insisted
on. They continually pointed to achievements in themselves: industrializa-
tion in Eastern Europe, recovery from the devastation of World War II, the
production of durable goods, some showpiece urban centers and buildings.
But citizens who could travel or received news from the West understood
that progress took place far slower, consumer goods, varieties of food, access
to apartments and automobiles were scarcer and slower, and what was
on offer was of inferior quality. Total factor productivity was significantly
lower. Most telling, the gap seemed to widen, not close. Perhaps the most
encompassing account of the reason for this inadequacy was provided by
the Hungarian economist János Kornai in his theoretical summa, The Socialist
System.3 Kornai laid bare the reasons for the perennial scarcities and
unprofitable enterprises that characterized central planning and the Soviet-
dependent countries that constituted Comecon or the Council for Mutual
Economic Assistance (CMEA).
But economic causation should not be taken as merely a matter of prices
and wages, output and consumption, or even the uncloseable productivity
gap vis-à-vis the OECD. Economics incorporates moral and political
assumptions, notions of legitimacy and justice, or illegitimacy and injustice.
Supporters of the state-socialist regimes could argue that inequality had
been narrowed, especially in comparison with the West. They could point
to educational access, collective child care and in some cases land reform.
But the particular inequalities that ruling party officials enjoyed – even
though they were usually far smaller in terms of income and privilege than
Western corporate leaders preserved – remained galling enough and could
give rise to a literature on the creation of a “new class.” The collapse of
communism, taking place as it did without violent resistance, involved
a recognition that whatever legitimacy the ideology and the regimes might
3 János Kornai, The Socialist System (Oxford: Oxford University Press, 1992), but see also
Kornai, By Force of Thought: Irregular Memoirs of an Intellectual Journey (Cambridge, MA:
MIT Press, 2006).
602
Thirty Years After
once have enjoyed had long since evaporated. As Christoph Hein’s

Lancelot told King Arthur in his allegorical 1989 drama, Knights of the
Round Table, “the people outside . . . no longer believe in our justice and
our dream . . . For the people the knights of the round table are a pile of
fools, idiots, and criminals.”4 This bitter acknowledgement (which of
course was resisted by many of the displaced old guard, particularly in
the GDR) meant abandoning the claim that a single party – especially one
that had to rely on its own secret police and, at critical moments of
opposition, ultimately on Soviet soldiers – really was fit to shape complex
modern societies.
The socioeconomic world that communism ruled in Eastern Europe was
far from the one their ideology had originally imagined. Historically, the
communist parties were a creation of the era of coal and iron and steel and
the heroic decades of industrialization, then of semi-legality in Eastern
Europe and finally of wartime resistance. Fittingly their most ruthless leader
took “steel” as the basis of his revolutionary name. Communist self-images
stressed the fundamental class divisions between workers and bourgeoisie.
The Marxist commitment to a labor theory of value made it cumbersome to
work with concepts of demand or marginal utility. Bourgeois finance
retained a certain sleight-of-hand: “All that is solid melts into air.” Soviet
economic planners worked with input–output tables that linked the diverse
physical inputs and outputs of the economy, but the system paid less atten-
tion to the cost of capital as the measure of tradeoffs between present and
future. Central planners decreed quantities and fixed prices they believed
would cover costs, but enterprises hoarded inputs and, as Kornai explained,
made scarcity integral to the system. Despite their professed international-
ism, the regimes remained focused on the transformation of national
economies.
All the premises that earlier had helped make Marxian economics
plausible were changing from the mid 1960s through the 1980s.
Globalization, the digital revolution and the displacement of iron and
steel production and of basic consumer goods to economies with lower
labor costs demanded reform of the so-called Fordist or mass-production
economies, West and East. But the Western economies could turn to
market incentives to restructure their industries and shift their resources;
and they were wealthy enough to support workers and families through
4 Christoph Hein, Die Ritter der Tafelrunde. Eine Komödie (Frankfurt am Main: Luchterhand
Literaturverlag, 1989).
603
charles s. maier
an admittedly painful and often conflictual transition. It made more sense

(at least according to the logic of Western capitalism) to leave large
segments of the working and middle classes as a slack resource subsisting
on welfare for a sustained period than to preserve noncompetitive indus-
tries. The state-socialist economies in the Soviet orbit, in contrast, found it
difficult to simply shut down noncompetitive sectors or rely on market
incentives and profits to generate new initiatives. Despite skilled labor and
some advanced technological sectors, Soviet-style economies clung to
a suicide pact with obsolescence.
Ideological erosion ineluctably accompanied the material ones.
Communism, as a variant of socialism, always held out the promise of future
abundance, not just in the sense of steady growth as did the Western OECD
economies, but as a qualitative “leap forward,” overtaking capitalism.
It privileged the future over the present, and the credibility of its future ran
out. The West’s vision of the future, expressed in terms of continual incre-
mental growth, remained more believable, although its own credibility may
be ending as well.5 Communism was an artifact of nineteenth- and twentieth-
century industrial modernity – precisely therefore seized on by national
movements that wanted to impose modernity – and it succumbed as the
traits of industrial society (theorized by sociologists from Max Weber to
Raymond Aron) yielded to what by the 1960s Daniel Bell and others were
labeling postindustrial.6
The standard narrative suggests, moreover, that the fall of the
communist parties, especially the Communist Party of the Soviet
Union, and indeed the dissolution of the Soviet Union itself explain
the disappearance or attrition of Western communist parties in Italy
and elsewhere. But the evolution of the Italian party – its migration via
the “Oaktree,” then the “left,” to the Democratic Party – and the
numerical reduction of the French communists were not merely
consequences of the disarray in the Kremlin. The Spanish and Italian
parties had embarked on their independent course as Eurocommunists
in the mid 1970s – responding in part to the opening of the post-Franco
political system in Spain and the vision of a “historical compromise” in
Italy, which despite the shared resistance to terrorism, could never really
5 See the recent history of the growth idea as institutionalized by Western economics:
Matthias Schmelzer, The Hegemony of Growth: The OECD and the Making of the Economic
Growth Paradigm (Cambridge: Cambridge University Press, 2016).
6 Raymond Aron, Trois essais sur l’âge industriel (Paris: Plon, 1965); Daniel Bell, The Coming
of Post-Industrial Society: A Venture in Social Forecasting (New York: Basic Books, 1973).
604
Thirty Years After
be consummated. Western communism, observers generally decreed,

lost its vocation with the end of the Soviet Union.
But it was not the collapse of the communist parties in Eastern Europe and
the Soviet Union that undermined the communist parties in the West.
Rather, the collapse of the ruling communist parties in the East and the
reorientation of socialist parties in the West followed a more general loss of
collectivist or leftist vision, East and West, during the 1970s and 1980s.
“The times they are a-changin’,” as Dylan had sung in the mid 1960s. But
they were no longer changing in the way the Sixties generation had expected.
The collapse of any credible social-democratic redistributionist policies in the
1970s and 1980s undermined the claims of all ideologies on the left and exerted
its impact in the communist world. Lyndon Johnson’s Great Society had run
aground in Vietnam. The “stagflation” of the 1970s seemed to condemn
Keynesian “demand management.” When Margaret Thatcher declared,
“There is no alternative,” many among the Western left protested, but in
effect acquiesced. Neither did the tiersmondiste vision of peasant revolution
recruit mass enthusiasts once the Cultural Revolution gave way to Deng
Xiaoping’s reforms in China. Fidel survived, but Che perished. The grand
sweep of a global left that had seemed on the offensive since the turn of the
tide in World War II up through the end of the 1960s faltered in the 1970s, its
great ideas (diverse as they were) exhausted.
Against that backdrop of ideological ebb and flow, the central thesis of this
chapter is that the economic crisis that overtook communism was not a test
for communism alone. Rather, it was part of a major systemic transition in
the global political economy that has played out in different ways across the
world and that everywhere has forced the abandonment or modification of
all political settlements and economic doctrines. Looking ahead from the
1970s, three different regional paths were to open up. The countries of East
Asia could take over the tasks of mass production, whether of steel or autos
or the other goods that Western economies imported in quantity. In South
Korea, Japan, Indonesia and elsewhere, interlocking family conglomerates
provided organizational structure. China’s post-Mao leadership under Deng
Xiaoping embarked on their own state-capitalist variant. Deng understood
that his rapidly developing country might preserve his party’s political hold
but still allow capitalist incentives to help transform its economy.7 Early
7 See Ezra F. Vogel, Deng Xiaoping and the Transformation of China (Cambridge, MA:
Harvard University Press, 2011).
605
charles s. maier
enterprise zones in the Guangzhou region led the way to the unleashing of
state-owned enterprises and private firms from central direction. In the long
run China could also draw upon a vast countryside labor reserve no longer
available in Western Europe and North America. So might other countries in
the “global South,” although they used market and tax incentives and not
political control.
In a second fundamental evolution, West European and North
American economies revealed the capacity to undergo the painful
transitions required as they ceded basic industries to East Asia and
emerging economies. A capital market that could respond to new
incentives and the ability to shut down unprofitable industries and
reallocate labor – or to support it when “redundant” – allowed eco-
nomic survival and adaptation. As the years since the 1980s revealed,
this was not an easy path: It often left blighted cities or “rustbelts,”
along with disaffected middle- and working-class groups, including
youth, who have since faced high unemployment, stagnant wages and
less-qualified jobs. At the same time, the Western economies relied
increasingly on migrants from the less-developed economies outside
their borders to fill low-wage service occupations, whether the
demanding specialized skills of health care, or the less-qualified tasks
in mass food preparation that replaced housewives now working out-
side the home, the custodial jobs required by urban development, the
burgeoning security services and the cash registers of retail outlets.
Over the long term such a labor market allowed the proliferation of
consumer goods and even basic education, but also growing inequal-
ities within societies.
The third path, which ended in a blind alley, was that taken by the
Soviet and East European state-socialist economies that sought to
preserve the industrial structures inherited from the postwar years
within a planned economy. The socialist economies confronted labor
as a force too potentially explosive to break up, but remained unable to
provide the quality of life in the West (not to speak of the freedoms).
They guaranteed employment and preserved heavy industry at tremen-
dous ecological cost, but, without competitive products, they could not
acquire the consumer goods their people yearned for and which the
West and Japan produced far less expensively. Capitalism allowed
liquidation that protected shareholders but laid off workers; the
CMEA economies evaded bankruptcy with what Kornai termed soft
budget constraints. These economies ended up in different destinations
606
Thirty Years After
after the transition. GDR state assets were placed in

a Treuhandgesellschaft (trusteeship corporation) and sold off as individual
properties to Federal Republic of Germany (FRG) firms that would
absorb their short-term losses. Czech, Slovak and Hungarian industry
had already sought to integrate partially with the West and after the
transition could serve as maquiladora subsidiaries of Western firms or
make a go of it as relatively low-wage manufacturers in the more
competitive European environment. In Bulgaria, Romania and above
all Russia, the large public-sector firms ended up often in the hands of
new oligarchs, who were allied with the postcommunist leadership.8
The events of 1989–91 – the transitions in Eastern Europe and the
Soviet Union – were interpreted as a political triumph for liberal democ-
racy, as indeed they were. But they also comprised one of the major
episodes of adjustment that the world economy and its political frame-
works have undergone in the long arc of global development from the
1960s to today. The same changes whose progress as of the 1970s and
1980s helped undermine the centrally planned economies continued to
intensify and severely challenged the capitalist economies of the early
twenty-first century. The advent of a post-Fordist economy (to use that
short-hand term for a stage of development that was less dependent on
assembly lines, more diverse in terms of manufactured output, and more
reliant on advanced electronic components and services and on a labor
force that was harder to organize collectively) helped to undermine state
socialism. Its continued development challenged capitalist economies.
So too did the continuing geographical transformation of the global
economy, notably the reemergence of Asian countries, particularly
China but also Southeast Asia, Japan and South Korea, as powerful
centers of industrial production. Employment structures changed and
vast numbers of workers migrated, not only from country to city, but
also internationally and across continents. As part of this massive reshuf-
fling of work opportunities, the inherited representation of labor was
significantly weakened. These changes had to transform the assumptions
and expectations on which perhaps seventy years of economic and
political objectives had been constructed. What the Italian sociologist
Aris Accornero has dubbed the century of labor, in which societies
organized themselves toward production and work, became
8 On outcomes of the transition, see Gérard Roland (ed.), Economies in Transition:

The Long-Run View (Basingstoke: Palgrave-Macmillan in association with the UN
University-World Institute for Development Economics Research, 2012).
607
charles s. maier
transformed.9 The craft and industrial trade unions that had defended
a more collective organization of the economy were diminished in
numbers and often in the radicalism of their claims. The final dimension
of these epochal transformations was the vast expansion of financial
capital as a generator of speculative wealth and in effect the lubricant
of all the other changes, an elusive trend whose role was often obscured.
I will return to the revolution of financial capital, but must first com-
ment on the original dislocations, West and East, that opened up at the
end of the 1960s and intensified through the following decade.
The economic circumstances that undermined state socialism are
covered in André Steiner’s chapter and other publications and need not
be repeated here. State socialism was a blunt instrument, more suitable for
rapid industrialization, reconstruction and infrastructural projects than for
progressing to a sophisticated consumer economy. It was imposed on
Eastern Europe after devastating wartime destruction (Czechoslovakia
excepted). The new regimes in Eastern Europe confronted a peasantry
resentful at collectivization, which was successfully resisted in Poland.
They had no source of foreign capital equivalent to the surpluses that
the United States could provide. Whereas Western Europe moved quickly
to build an interlocked regional economy under the benevolent hegemony
of US foreign (and military) assistance, the East European economies set
about the transformation from agriculture to industrialization that the
Western economies had undertaken in the previous century. East
European progress from 1949 to 1973 was significant, with growth rates
running at almost 4 percent until the 1960s, but the gap between West and
East seemed to increase.
Central planning led to dilemmas of production and distribution that the
Western powers did not have to cope with. No price system equilibrated
supply and demand or signaled when output of commodities was too high
or insufficient. The need to meet plan quotas, dictated from the center, led
to hoarding and perpetual scarcity. The consolidation of firms and the
nationalization of enterprise stifled the artisanal trades that were required
for quality to be maintained. By the 1960s communist economists were
advocating a degree of autonomy for state firms with the right to retain
profits. Some called for the freeing of prices to inaugurate a “market
socialism” that would allow market-clearing prices, even as it preserved
9 Aris Accornero, Era il secolo del lavoro (Bologna: Il Mulino, 1997), 22, notes that the
industrial struggles in the 1970s gave the appearance that working-class power was
increasing, but in fact the tertiary sector was becoming more important.
608
Thirty Years After
public ownership. But partial attempts to institute these policies led to

bottlenecks and shortages, not an easier modern economy. And when the
political events associated with the Prague Spring threatened to undermine
communist party influence throughout Europe the reforms were
reversed.10 Could a more radical reliance on a price system have rescued
the socialist economies? Kornai remained skeptical: “The truth was that
only a capitalist economy could operate a genuine – not a sham or
simulated – market economy . . . Were not the reformers fostering illu-
sions? Were they not raising vain hopes in many naïve, benign people with
semi-socialist convictions that professed ‘anti-capitalist,’ Marxist-Leninist
principles could all be reconciled?”11
Communism failed the tests of political and economic reform in an
increasingly competitive world that it itself encouraged. Instead, the
Soviet Union relied on a transitory surplus of a key natural resource,
petroleum, to reconsolidate its imperial hold. So long as the Soviets kept
the price of oil below the high world-market prices (the latter politically
determined by the OPEC price hikes of 1974 and 1979), the satellites drew
some benefit as the USSR delivered petroleum to its satellites below world-
market prices. East Germany exploited its own lignite deposits to generate
electricity and sold the refined Soviet oil to Western Europe to earn needed
Western currency. But as the real world-market price of oil tended to
stabilize, the advantage Moscow’s partners could draw became less
important.
At the same time the Soviets attempted to run their own protected or
neomercantilist zone for trade and exchange – the Council for Mutual
Economic Assistance – to create greater interdependence among their
satellites and minimize the goods and services purchased from the West
in Western currencies. Intra-Comecon debts were to be settled in notional
exchange rubles. In fact, however, each economy found that to satisfy
consumer expectations, they needed Western goods and assistance, thus
requiring convertible currencies.12 The systemic strains were concealed by
10 For Evsei Liberman, see Emil Bej, “Some Aspects of Industrial Planning Under
Brezhnev–Kossygin Rule,” Jahrbuch der Wirtschaft Osteuropas 13, 1 (1989), 176–97; for
Ota Šik, see his Plan and Market Under Socialism (White Plains, NY: International Arts
and Sciences Press, 1967) and his post-Prague Spring thoughts, The Third Way: Marxist-
Leninist Theory and Modern Industrial Society, trans. Martin Sling (London: Wildwood
House, 1976).
11 Kornai, By Force of Thought, 279.
12 Randall Warren Stone, Satellites and Commissars: Strategy and Conflict in the Politics of Soviet-
Bloc Trade (Princeton: Princeton University Press, 1996). See also Michael Marrese and
609
charles s. maier
borrowing abroad: Edward Gierek’s Polish government embarked on

a credit spree from 1970 onward, following violent clashes with workers
protesting austerity programs. The GDR quickly followed. “Increasing
foreign trade means we increasingly confront the principles of the world
market,” as Alfred Neumann, one of the East German Politburo’s old-
timers warned the Council of Ministers when the fragile system began to
crumble. “Increased indebtedness to the nonsocialist world is not possible.
We’ve gone as far as we can politically. Otherwise we’ll get into a situation
that is politically dangerous, and in that case our comrades in the
Volkspolizei and the Ministry for State Security won’t be any help at
all.”13 Egon Krenz, who replaced Erich Honecker in October 1989, reported
that debt service on the US$ 26.5 billion owed in 1989 would require more
than 60 percent of export earnings. The debt, another critical insider,
Gerhard Schürer, charged, had begun to spiral in the early 1970s when
Honecker had succeeded Walter Ulbricht and the Eighth Party Congress
approved the “unity of social and economic policy,” a generous commit-
ment to social policy as well as investment. Hungary allowed state enter-
prises to produce for their own profit once they fulfilled a state quota.
By the late 1980s they finally accepted that they had incurred a major debt
burden.
The sense of panic probably exceeded the real impact of the debt; what the
Central Committees suddenly comprehended was that they had no plausible
strategy for diminishing the burden. Emerging markets have confronted
periodic debt crises and have survived, albeit by enduring harsh recessions
(Argentina, Brazil, Southeast Asia). But deprivation of living standards threa-
tened renewed political upheavals that the East European regimes believed
they could not incur. The workers’ and peasants’ states lived in fear of their
own subjects. The Soviets also had to become the privileged purchaser for
Jan Vanous, Soviet Subsidization of Trade with Eastern Europe: A Soviet Perspective (Berkeley:
University of California Press, 1983); and Vlad Sobell, The CMEA in Crisis: Toward a New
European Order (New York: Praeger, 1990). For the economic difficulties as experienced by
East Germany in particular, see Charles S. Maier, Dissolution: The Crisis of Communism and
the End of East Germany (Princeton: Princeton University Press, 1997), ch. 2.
13 Sitzung des Ministerrats vom 19. Okt. 1919: Bundessarchiv, DC 20 1/3/2861, Bl. 89, cited
in Maier, Dissolution, 59. There is a large literature on the growing indebtedness of the
Eastern bloc. For citations as well as a summary, see André Steiner, The Plans That
Failed: An Economic History of the GDR, trans. Ewald Oser (New York: Berghahn, 2010);
and Stephen Kotkin, “The Kiss of Debt: The East Bloc Goes Borrowing,” in
Niall Ferguson, Charles S. Maier, Erez Manela and Daniel S. Sargent (eds.), The Shock
of the Global: The 1970s in Perspective (Cambridge, MA: Harvard University Press, 2010),
80–93.
610
Thirty Years After
CMEA goods even as they undertook a missile-modernization program –

they were overstretched by the 1980s, which placed before them a choice
they could hardly evade: Either dismantle the planned economies or run
them by tightening political compulsion – the attempted answer of the Yurii
Andropov interlude. All these challenges were occurring as a host of devel-
opments were transforming the technological possibilities of society:
The transistors of 1947 were followed by integrated circuits. Home compu-
ters that offered 264 kilobytes of RAM would be exponentially improved.
Ronald Reagan’s commitment to the Strategic Defense Initiative (“Star
Wars”) threatened to ratchet up the claims of military expenditure.
Still, the difficulty of Western economies attracted just as much attention

in the 1970s. The working-class militance of the late 1960s in France and
Italy, then the impact of the OPEC oil price hike, unleashed a decade of
inflation and significant unemployment. The international architecture of
capitalism also seemed at risk as the United States abandoned its commit-
ment to currency convertibility in 1971 and forced a new system of parities
as it transitioned to free exchange. The capitalist economies of the 1970s, in
which governments felt that allowing greater inflation could reduce unem-
ployment (a relationship summarized by the famous Phillips Curve),
seemed only to generate sustained inflation. The OECD nations resorted
to state-supervised wage-bargaining between unions and employer
confederations – a pattern of political wage-setting dubbed neocorporat-
ism that appeared to be a waystation to a planned economy. Labor
delegations as well as industrial confederations chafed under the discipline.
The Keynesian political economy seemed headed for a corporatist
euthanasia.
Conservatives blamed excess wage hikes and an overdeveloped welfare
state for changing capitalist incentives as well undermining entrepreneurial
mentalities. Growth would be hard to restore as long as unions were power-
ful and pressed for generous social expenditures. States were overburdened,
commentators for the Trilateral Commission argued, and the capacity for
private investment reduced. Critics from earlier left positions argued that
contemporary capitalism made consumption, not innovation and entrepre-
neurship, central to the economy. Capitalism had eroded its own moral and
behavioral premises.14
14 Among other statements, see Daniel Bell, The Cultural Contradictions of Capitalism
(New York: Basic Books, 1976).
611
charles s. maier
By the end of the 1970s, more economists accepted the monetarist

idea that central banks must stabilize the quantity of money by refusing
to finance government deficits. They slowly abandoned Phillips Curve
analyses. Exponents of the newer school of “expectations” argued that
resolutely ending the belief in future monetary accommodation of their
demands on the part of unions, employers and state bureaucrats would
break the cycle of inflation. More importantly, at the end of the 1970s
unhappy electorates rejected this twilight economy in Britain and the
United States and installed Margaret Thatcher and Ronald Reagan.
German Social Democrats were ousted by a hairline parliamentary
vote in the Federal Republic in 1982; the socialist government of
François Mitterrand, which had campaigned in 1981 on a program remi-
niscent of the prewar Popular Front, abandoned its strategy two years
later in order to preserve the monetary alignment of the franc with
the Deutschmark. The Italians moved beyond their congealed
communist–Christian Democratic confrontations of convenience, aban-
doned efforts at a “historic compromise” and installed reformist “lay”
governments drawn from and led by the smaller groups of the center-left
in a coalition with the Christian Democrats. Even the Bank of Italy
gained independent status, and the Bank of England gained greater
autonomy from the Exchequer. The Western economies toughed out
a recessionary period in the early 1980s as they endeavored to tighten
monetary supplies. Governments achieved a significant stabilization of
public expenditure.
Although welfare states were not dismantled, the political forces that
had sustained them effectively lost the political power they had gained in
the 1960s and 1970s. Whether the British coalminers or the US air traffic
controllers, labor unions began their long slide from overt influence, retain-
ing power primarily among public-sector workers. Central banks gained
independence as wage indexation was modified, which meant that market
outcomes had to be accepted. These reforms gave market economies the
breathing space to survive, even as technology transformed them. The steel
and coal sector was shut down in large measure and abandoned to the rising
Asian economies.
The 1980s brought a sense of recovery to the nonsocialist economies:
After initial recession, reforms seemed to lower inflation and reinvigorate
production. Likewise, the European Union renewed its advance with the
Single European Act, the Schengen border regime and, by 1992, the
Maastricht accord and agreement on a common currency. The Western
612
Thirty Years After
political economies seemed triumphantly affirmed by the recovery of the late

1980s, even as the centrally planned economies became increasingly discre-
dited. The fear of communist geopolitical advance in Afghanistan, in Angola
and briefly in Portugal dissipated. Gorbachev’s policies of glasnost’ and
perestroika suggested that fundamental communist reforms were imminent;
the Polish government opened talks with Solidarity representatives; the
Hungarians maneuvered closer to the West. By 1990–91, Germany was
unified, Václav Havel was president of Czechoslovakia, the Warsaw Pact
disbanded and even the Soviet Union fragmented. Outside Eastern Europe,
democracy also appeared momentarily triumphant in South Africa and South
America: Under left-center governments democratic capitalism, now
rebranded as “market democracy,” was trump, communism a discredited
memory. On the local level, Western cities arrested their apparent slide into
shabbiness, crime and impoverishment and began a process of rejuvenation,
gentrification and renewal.15
From the perspective of thirty-five years later, the East–West comparison, so

decisively favorable to the West, seems more ambiguous. The recovery of
the 1980s and 1990s was genuine, but also began the process that led to the
great crisis and long difficulties that have marked Western economies since
2007. The unhealthy trends of the 1970s in the OECD economies that seemed
most telling were the rate of inflation and the expansion of public credit.
The 1980s and 1990s saw the taming of inflation and the stabilization of public
debts. Labor representatives were cajoled into acceptance of anti-inflationary
measures as they came to realize that nominal pay hikes did not translate into
real gains; and in any case those unions that resisted were defeated in
spectacular confrontations. But how could governments win the adherence
of the financial and industrial interests that had also come to depend on easy
credit?
Aggregate statistics suggest that national governments and central banks
accomplished this task only by allowing the private banking sector and
investors to create a compensatory mass of credits over the next years.
The liquidity that public authorities and independent central bankers sopped
15 Not unrelatedly, another fundamental prediction of modernization theorists was also

going awry, and with important political consequences. Confident predictions that
modernity meant increasing secularism received a significant blow as political Islam
secured a major success with the Iranian Revolution in 1979. But if in Iran it overturned
a compliant pro-Western ruler, it gained further transnational influence with armed
resistance to the Soviet occupation of Afghanistan.
613
charles s. maier
up in the public sector they allowed to expand in the private sector. Private
financial institutions were unleashed in every conceivable way, whether
through lowered reserve requirements or new authorization to take on
investment banking and lend abroad.
The readily available time series suggest a break in trend in the 1980s and
a continuation of expansion thereafter: US nonfinancial corporate business
debt (that is borrowing by firms not themselves in the banking business) rose
modestly from US$ 174 billion (milliard) in 1970 to US$ 439 billion in 1980,
hardly an increase in real terms when discounted for the cumulative inflation
of the decade. By 1980 it was US$ 1,024 billion or US$ 1.24 trillion in US usage,
then US$ 2.97 trillion in 2000 and US$ 5.53 trillion in 2015.16 A related measure –
the domestic credit provided by the financial sectors of every country to its
own economy (including its housing sector) – also rose as a percentage of
global GDP: from 80.3 percent in 1970 to 88.6 percent (1980), to 126 percent in
1990, 164 percent in 2000, 169 percent in 2010 and 180 percent in 2015.
US borrowing somewhat outpaced global debt – up to 187 percent in 2010
and 195 percent in 2015.17 Investment simultaneously poured into countries
abroad: Global foreign direct investment (FDI) was US$ 10.2 billion in 1970,
US$ 51.5 billion in 1980, US$ 196.3 billion in 1990, US$ 1.42 trillion in 2000 and
US$ 3.0 trillion in 2007. It fell to US$ 1.4 trillion by 2009 and was back to US$
2.0 trillion in 2015. In percentages of GDP this represented 0.5 percent in 1970
and virtually the same in 1980, but 0.9 percent in 1990, 4.3 percent in 2000 and
4.14 percent in 2006; after tumbling in the years of the 2008–14 recession, it
was back to 2.7 percent in 2015. Most of these funds represented rich countries
investing in other rich countries, although the emerging economies (BRICs)
won an increasing share.18
Financial rules were decisively relaxed. As Piergiorgio Alessandri and
Andrew O. Haldane point out, a centuries-old dependency was reversed.
Whereas states had earlier depended on banks, banks came to depend on
states.19 At the same time banking assets grew enormously. UK banking-
sector assets remained about 50 percent of GDP from 1850 to the mid 1960s,
16 FRED (Federal Reserve Bank of St. Louis), Non-Financial Corporate Business Debt,
fred.stlouisfed.org/series/NCBDBIQ0275 (accessed 29 Aug. 2016).
17 International Monetary Fund, International Financial Statistics and Data Files, and
World Bank and OECD GDP estimates, data.worldbank.org/indicator/FS.AST.PRVT
.GD.ZS (accessed 18 Aug. 2016).
18 For the raw numbers in current US dollars, see data.worldbank.org/indicator/BX.KLT
.DINV.CD.WD (accessed 28 Aug. 2016). For FDI as a percentage of GDP, see data
.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS. The term “BRICs” refers to
Brazil, Russia, India and China.
19 “Banking on the State” (Bank of England, Nov. 2009).
614
Thirty Years After
climbed to 100 percent during the 1970s, reached about 250 percent by the end
of the 1980s and about 550 percent by 2006. Returns on bank equity jumped
from below 10 percent on average from 1920 to 1970 to about 20 percent in the
1970s and, after a temporary reversal in the late 1980s, surged up toward
30 percent at the end of the 1990s until 2006. Volatility on returns grew, and
the central bank’s support as measured by its balance sheet grew to World
War II levels from the early 1990s on.
This compensatory monetary loosening, it must be emphasized, was
a bipartisan policy promoted by “New Democrats” in the United States and
“New Labour” in Britain. It found its major exponents in the policies of the
Bill Clinton administration. The Mexican financial bailout of 1994, the sub-
sequent effort to offset the Southeast Asia financial collapse, the repeal of the
Glass–Steagall prohibition on fusing commercial and investment banks, and
the periodic lowering of the Federal Reserve’s interest rates to keep the
equities markets advancing (or recovering) were the product of a regime
that believed deeply in market democracy. All this meant that the potential
for a vast expansion of credit and monetary equivalents went in search of
opportunities to earn a profit – whether in emerging markets or the
American housing sector, or in the stock market.
Indeed, looking back, one can discern a significant but unavowed change
in the underlying parameters that financial authorities relied on to determine
policy. The gold standard before World War I and the amended gold
exchange standard between the wars gave priority to the fixed exchange
values of currencies even at the cost of high employment. After the experi-
ence of the 1930s and World War II, macroeconomic management tended to
switch from a gold standard to an implicit full-employment standard as the
orienting variable. Once this “Keynesian” phase seemed to unleash unaccep-
table levels of inflation, central bankers restored price and exchange-rate
stability as the regulative parameter in the 1980s, a priority written into the
mandate of the European Central Bank. But policymakers of the 1990s
followed a more contradictory course. Although the goal of price stability
remained publicly inscribed, the implicit goal of policy (in the regulative
sense) really became the performance of the equity markets – what might be
called the Greenspan standard after the Republican banker who served as
chairman of the Federal Reserve Board from 1987 until 2006, thus from Nixon
through Clinton and into the George W. Bush administration. Reconciling
a stable exchange rate with an implicit objective of stock-market advance
meant that inflationary pressures found their outlet in asset markets rather
than wages or consumer prices. This meant, as well, a continuing increase in
615
charles s. maier
housing prices, in a period when encouraging home ownership was likewise

advanced by the federal agencies for guaranteeing home mortgages (so-called
Freddie Mac and Fannie Mae) as well as private lenders. Forging a social
consensus to carry policy forward meant undermining resistance on the one-
time left (whether through New Democrats or New Labour) and granting
the privileges of creating money to the private financial sector.
This does not mean that that the prosperity of the 1990s and early 2000s
was spurious, but it was hostage to the conviction that growth must
continue indefinitely. Certainly technological revolution connected with
computers, electronics, miniaturization of components and telecommuni-
cations surged ahead, as did innovation in logistics. The medical sector
claimed an ever greater share of GDP. Travel and hospitality services
also grew, but transformation of output could outpace the retraining and
redeployment of workers. Manufacturing and industry continued to
migrate off shore. The United States’ huge shopping centers, which pro-
vided employment for immigrants and African Americans as assembly
lines shut down, sold what was woven and knitted and constructed else-
where. China, which produced less than 20 percent of world steel output in
1970, would produce more than a third of a doubled steel output by 2006
and half the world’s steel by 2015.
Most significant when considering the economic crisis that began in the
United States in 2007, but then came to afflict Europe, too, was the
mobilization and creation of financial capital as a source of wealth in its
own right. Between the 1980s and 2006, Western capitalists restored
the confident belief in ever increasing future payouts. Securitization of
mortgages and debt seemed to create wealth far beyond the underlying
value of hypothecated assets. Despite the financial time-bomb it concealed,
subprime lending had a point: It was part of a program to broaden the
groups who had a stake in asset holding. Freddie Mac and Fannie Mae were
instruments of social change. Along with the growth of vast pension funds
invested in equities and commercial paper, the financial and equity mar-
kets promised continuing enrichment. They made future returns far more
important in the financial calculations of millions of families, especially
when these families came to believe that future wealth was becoming
relatively costless in the present.
Thus the Atlantic economies escaped their constraints by creating a vast
amount of credit in the private sector, both for the American housing market
and for commercial activity. This was a solution that was likely to increase
tendencies toward inequality, as analyzed by Thomas Piketty in his recent
616
Thirty Years After
bestseller.20 Why did the financial economy – what David T. Bazelon had
once called the paper economy – sustain apparent prosperity for so long?
Viewed from a global perspective, the US and Western soft-money coalition
was able to export many of the inflationary tendencies and difficulties to the
emerging markets, contributing to financial crises by 1994 in Mexico (which
Washington then helped to contain), by 1997 in Thailand and Indonesia, and
Russia in the following year. Of course these difficulties were prepro-
grammed, as it were, by policy errors at home. Nonetheless, pressing credits
on vulnerable economies helped produce their inflation, increased domestic
debt, and led to default and/or devaluation and widespread misery. After
2008 those emerging economies fared better – in part because of the orthodox
remedies that they accepted from the International Monetary Fund, in part
too because of major rescue packages as in the case of the Mexican turmoil in
1994.21 But precisely because the emerging markets behaved more prudently,
the advanced capitalist economies had less ability to export the crisis. There
was no Third World or ex-socialist economy large enough and precarious
enough to take the fall for Western capital.
The adverse consequences were thus postponed until the period after
2008, when the contraction of debts required or led to a policy of austerity
across the European countries. The West was not to escape a serious crisis,
but could postpone it and work through it without any serious ideological
challenge. In contrast to the global conditions prevailing when the socia-
list economies slowed down, there was no longer any systemic alternative
to the market economies that might apparently promise an easier
economic outcome. Throughout the postwar decades, the communist
political economies could not isolate themselves from comparisons
with the more efficient economies in the West. In particular the
German–German juxtaposition, where the GDR depended upon credits
from the FRG to avoid a social explosion, continually revealed the weak-
ness of a centrally planned economy. But during the crisis of 2008 to 2015
(lasting as long as the world depression from 1931 until 1938), there was no
rival economic system that beckoned on the left: State socialism was
discredited and abandoned by the 1990s. While the outgoing Bush
20 Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard

University Press, 2014). Piketty’s claim that the tendency for returns on capital to
continually grow at the expense of wages and salaries is less well demonstrated than his
history of how it has done so in recent decades.
21 See Ray Kiely, The BRICs, US “Decline” and Global Transformations (Basingstoke:
Palgrave Macmillan, 2015), for analysis of the United States–BRICs relationship.
617
charles s. maier
administration and the incoming Obama administration managed to

pump enough liquidity into the banks to prevent a systemic collapse, the
consequences were harsh. Partial fiscal stimulus (under the so-called
TARP) was adopted as an emergency measure by the two US administra-
tions but was largely precluded by the rules of the Eurozone and the EU.
Since the united German economy, with its commitment to current
account surpluses and balanced budgets (a social democratic government,
after all, had trimmed the welfare system with the so-called Hartz IV
reforms), seemed to function so robustly, there was no pressure to resort
to Keynesian remedies. Discontent instead would manifest itself more in
populist movements on the right than in radical doctrines on the left. Few
people yearned for a return to state socialism. The centrally planned
economies were afflicted by hopeless impediments – what Kornai had
summarized as the economics of scarcity. From the viewpoint of informa-
tion theory, they systemically distorted feedback from consumers and
producers; they skewed incentives and immobilized enterprises. There
should be no nostalgia.
Still, thirty years after the crisis of European communism, it is
appropriate to reflect on the triumph of capitalism from the 1980s through
2006: Was the continued confidence in a leveraged future, based on the
expansion of easy finance, justified or not? It presupposed the indefinite
continuation of ever-increasing growth and productivity, which benefited
from continuous technological innovation (the digital revolution of the
era) and ironically on the vigor of China’s state-capitalist advance. And as
the West embraced financialization, it produced inequalities that were
ineluctably to generate a populist backlash. What sort of calculus justified
a bank president or the chairman of a pharmaceutical firm earning 350
times the mean per capita income, above all when so many families had
to scrape by on far less? Aside from questions of equity, another conse-
quential issue loomed: What might be the consequences of the “secular
stagnation,” i.e. the end to continuous growth, that some economists now
predicted? Growth rates – the regulatory parameter that had eclipsed all
others in the postwar decades – seemed either unable to be sustained, or
increasingly inadequate as a measure of “the wealth of nations.” With
employment and remuneration far more precarious for so many, the
meaning of growth was less clear. Were the innovations of the computer
age as significant as they were transformative? Robert Gordon’s persuasive
study suggests that in fact after 1970 the digital innovations contributed less
to general productivity and economic progress than had earlier inventions:
618
Thirty Years After
railroads, automobiles, air travel, containerization, air conditioning,

antibiotics.22 The percentage of GDP devoted to finance, that is to moving
claims to paper wealth, grew enormously. It changed the structure
of living patterns – “world cities” grew in number and size even as the
global countryside was emptying. The world of work – that basic value
orientation that had been so central since the proverbial expulsion
from Eden – was less central. Consumption and leisure activities and social
communication replaced the intense productivism of the earlier epoch.
Communism suffered first from this civilizational transformation, for it
had defined its role with respect to the world of labor and work.
But a doctrine and set of practices that had seemed plausible during the
era of industrialization, first in Europe, then among still largely peasant
societies (and those often emerging from colonialism), made less sense
by the late twentieth century. Whether the capitalist political economies,
the great winners of 1989–91, can themselves remain unchanged is the
great question that remains. In any case, historians of the future will see
the outcomes for both communism and contemporary capitalism as
aspects of the epochal economic transition that postindustrial society has
embodied.
A decade and a half into the twenty-first century, we can look back upon
the intense political conflicts of the twentieth century and ponder the fates of
the great ideological movements. If communism considered as an economic
system contended with capitalism, considered as a political system it
confronted both fascism and multiparty democracy. In Europe fascism was
defeated by communism and democracy in tandem after the greatest war in
history. Forty-five years thereafter democracy apparently triumphed over
communism without a final struggle. (The communist regime in China, of
course, did not yield: 1989’s demonstrations in Beijing were crushed. Still
Chinese communism was on its way to developing a new hybrid authoritar-
ian structure that allowed for capitalism without democracy.) As of this
writing, nearly thirty years on, the anti-communist victories of 1989 seem
more problematic. Authoritarianism without a mass party has recovered in
Russia. And even in countries earlier designated as “the West” the question
arises whether, even without a credible communist threat, fascist-like appeals
might not revive as a political alternative that confronts democracies buffeted
by recession and prone to inequality. The enduring power of market
22 Robert J. Gordon, The Rise and Fall of American Growth: The US Standard of Living Since
the Civil War (Princeton: Princeton University Press, 2016).
619
charles s. maier
capitalism to perpetuate liberal democracy, growth and affluence may yet be

tested anew.
Bibliographical Essay
On the general economic record of the socialist governments after
1945, see László Bruszt, “Postwar Reconstruction and Socio-economic
Transformation,” in M. C. Kaser (ed.), The Economic History of Eastern
Europe 1919–1975, vol. III, Institutional Change with a Planned Economy
(Oxford: Clarendon, 1986). See also Barry Eichengreen, The European
Economy Since 1945 (Princeton: Princeton University Press, 1945). For the-
oretical reflections, see János Kornai, By Force of Thought: Irregular Memoirs
of an Intellectual Journey (Cambridge, MA: MIT Press, 2006.); and
János Kornai, The Socialist System: The Political Economy of Communism
(Oxford: Oxford University Press, 1992). On the economic predicament
of the GDR and its wider implications, see Charles S. Maier, Dissolution:
The Crisis of Communism and the End of East Germany (Princeton: Princeton
University Press, 1997).
On “civil society” and the opposition to the communist regimes of Eastern
Europe, see John Ehrenberg, Civil Society: The Critical History of an Idea
(New York: New York University Press, 1999), 173–98; Andrew Arato, “Civil
Society Against the State: Poland 1980–1981,” Telos 47 (Spring 1981), 23–47;
Jean Cohen and Andrew Arato, Civil Society and Political Theory (Cambridge,
MA: MIT Press, 1992); John Keane (ed.), Civil Society and the State: New
European Perspectives (London: Verso, 1988); Vladimir Tismaneanu, In Search
of Civil Society: Independent Peace Movements in the Soviet Bloc (New York:
Routledge, 1990); and Vladimir Tismaneanu, Reinventing Politics: Eastern
Europe from Stalin to Havel (New York: Free Press, 1992); as well as essays by
Václav Havel, Adam Michnik and the US Helsinki Watch Committee,
Reinventing Civil Society: Poland’s Quiet Revolution, 1981–1986 (New York:
US Helsinki Watch Committee, 1986).
On Western ideas of growth, see Matthias Schmelzer, The Hegemony of
Growth: The OECD and the Making of the Economic Growth Paradigm
(Cambridge: Cambridge University Press, 2016). For discussions of the long
inflation of the 1970s, see Leon Lindberg and Charles S. Maier (eds.),
The Politics of Global Inflation and Stagnation (Washington, DC: Brookings
Institution Press, 1987). On the economic impact of the 1970s and its con-
sequences for Soviet-type economies, see Niall Ferguson, Charles S. Maier,
620
Thirty Years After
Erez Manela and Daniel S. Sargent (eds.), The Shock of the Global: The 1970s in
Perspective (Cambridge, MA: Harvard University Press, 2010).
For an assessment of the postcommunist economic transition in some
East European countries and in Russia, see Gérard Roland (ed.), Economies
in Transition: The Long-Run View (Basingstoke: Palgrave Macmillan in
association with the UN University-World Institute for Development
Economics Research, 2012). On the Chinese transition, see Ezra F. Vogel,
Deng Xiaoping and the Transformation of China (Cambridge, MA: Harvard
University Press, 2011).
621

Thirty Years After: The End of European Communism in Historical Perspective

Uploaded by

Copyright:

Available Formats

Thirty Years After: The End of European Communism in Historical Perspective

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Thirty Years After: The End of European Communism in Historical Perspective

Uploaded by

Copyright:

Available Formats

24

Thirty Years After: The End of European

“A spectre is haunting Europe . . . ” The most famous phrase to emerge from

How do we explain this millennial collapse? This chapter attempts an

soon fractured and found it difﬁcult to perpetuate their coalitions of

Undoubtedly a major order of causation was economic; the centrally planned

once have enjoyed had long since evaporated. As Christoph Hein’s

an admittedly painful and often conﬂictual transition. It made more sense

be consummated. Western communism, observers generally decreed,

after the transition. GDR state assets were placed in

8 On outcomes of the transition, see Gérard Roland (ed.), Economies in Transition:

public ownership. But partial attempts to institute these policies led to

borrowing abroad: Edward Gierek’s Polish government embarked on

CMEA goods even as they undertook a missile-modernization program –

Still, the difﬁculty of Western economies attracted just as much attention

By the end of the 1970s, more economists accepted the monetarist

political economies seemed triumphantly afﬁrmed by the recovery of the late

From the perspective of thirty-ﬁve years later, the East–West comparison, so

15 Not unrelatedly, another fundamental prediction of modernization theorists was also

housing prices, in a period when encouraging home ownership was likewise

20 Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard

administration and the incoming Obama administration managed to

railroads, automobiles, air travel, containerization, air conditioning,

capitalism to perpetuate liberal democracy, growth and afﬂuence may yet be

You might also like