What Capitalism Can Do When Allowed, And Communism Never Will

This article was originally published on Real Clear Markets on July 17th, 2020.

Mikhail Sergeyevich Gorbachev was awarded the Nobel Peace Prize in 1990 “for his leading role in the peace process which today characterizes important parts of the international community.” Maybe, but it sure didn’t start out that way.

By that, I don’t mean to suggest Gorbachev was some warmonger cloaking himself in the language of peace. On the contrary, the man was sincere. He was also sincere in his commitment to Communism and the Soviet way. What ultimately led him to such international acclaim was first his honesty in looking inward at that system itself. The rest was mere expedience.

History has made the words perestroika (restructure) and glasnost (literally: listen) synonymous with the man. And while these were crucial in how the old Soviet way would end up being dismantled, it was very far from their original purpose.

On December 15, 1984, at the Soviet embassy in London, Gorbachev met with KGB agents and representatives from officers in its Line X. The latter were there to bring him up to speed on its tactical successes. Line X had been established for the purposes of stealing particularly American technology. Not military secrets, mind you, corporate knowledge, new products, and know-how.

Gorbachev himself wasn’t yet in full control of the massive Soviet empire. Though Yuri Andropov had died that February, and had made it widely known he wished Gorbachev to succeed him as General Secretary of the Communist Party, some top government politicians were concerned he was too young (53 at the time) standing up Konstantin Chernenko (a holdover Brezhnev guy) instead.

Chernenko was Gorbachev’s opposite in many ways, including age. Too old and too frail, it was left to the younger man to essentially take control regardless of who had officially followed Andropov.

Most importantly, though, where Chernenko and his support base had been concerned, the Soviet state should hold fast to the course they were on. Gorbachev, like Andropov, realized this was suicide. But, they had judged Soviet Russia’s faults lay with the application of Marxist-Leninist thought, not in the doctrines themselves.

Very early on in the Russian Revolution, as far back as 1918, before the Red government was really fully operational, there was already a coalescing secret police apparatus being put in place. Directorate K, for example, was charged with counter-intelligence which, back then, meant spying as much on Russians as anyone else. Service A was dedicated to developing active measures to assist each directorate and its various departments.

Directorate T was the scientific and technical intelligence division. As Lenin himself allegedly said, the Communists would need to pursue Western technology “with both hands.”

Communism, you see, isn’t meant to compete with capitalism, rather it is meant to replace it. The capitalists create all this marvelous technology which the Communists then expropriate as the basis from which to create their perfect human society.

As I wrote last week, that’s why Karl Marx had envisioned (demanded, in some parts of his work) that the socialist revolutions would take place only where industrial capitalism had already contributed such grand innovations and knowledge. To attempt to impose communism on a pre-industrialized society was, even to Marx and his partner Friedrich Engels, madness. Doomed to failure.

Vladimir Ilyich Ulyanov (Lenin) wouldn’t wait, however, even though Russia was nowhere near this prerequisite state. Instead, he’d try it his own way; the revolutionaries would take over before the country was ready economically, and then, often using capitalist practices, they would bring the country up to snuff (central planning) beginning with the first National Economic Plan in 1921.

And, as much as possible, pilfer, filch, and steal every single bit of technology and innovation they could from the capitalist pigs to speed up the process and narrow the gap.

It was Leon Trotsky who had taken this idea to its furthest conclusion, in the process angering Josef Stalin. Writing later to try to save himself from Uncle Joe’s angry gaze, unsuccessfully, Trotsky clarified how his thoughts were consistent with Lenin’s; including how he, like Lenin, had spoken often of the possibility Marx was wrong. Perhaps not all national systems needed to pass through the democratic, capitalist stage in order to set the proper stage for pure socialism.

So long as some in the world industrialized and took the capitalism road as far as it would take them, pre-industrialized societies had the right to expropriate those gains, catch up to them, and then even lead the entire world, capitalist, too, in a global socialist revolution overthrowing the entire old order.

In his Pre-Requisites of Socialism, written back in 1919, Trotsky argued how the technological gap had become so large it wasn’t realistic to expect the socialist system (of co-operatives) to have to catch up. Instead:

“It is evident that if this took place, the co-operative societies would then simply have automatically to expropriate all capitalist undertakings, after which it would remain for them to reduce the working day sufficiently to provide work for all citizens and to regulate the amount of production in the various branches in order to avoid crises. In this manner, the main features of socialism would be established. Again, it is clear that no revolution and no dictatorship of the working class would be at all necessary.”

That would mean to literally “expropriate all capitalist undertakings” everywhere; not just what little had been induced in Russia.

Stalin, on the other hand, wanted to focus his iron grip on Russia alone, perfecting this sort of heterodox socialist experiment in that place before exporting the revolution elsewhere (Socialism In A Single Country), putting him at odds with this Trotsky-ite Permanent Revolution viewing everything globally.

Gorbachev, like Andropov, fell somewhere in the middle. He wanted to get Soviet Communism right, to focus just on the Russian version, and was absolutely dedicated to doing so. But in order to have any chance, they’d have to catch up using any means they could. Still committed to the Revolution, in 1985 he said:

“We must not change our policy. It is right, correct, authentically Leninist. We have to accelerate our rhythm, go ahead, be frank and overcome our faults and see clearly our luminous future.”

Directorate T and Line X had implanted agents all over the West in the seventies, taking full advantage of the pre-Reagan policy of “détente” in going after the soft corporate targets of especially technology companies. In July 1981, French President Francois Mitterrand demanded a private conversation with Ronald Reagan to inform the new US President of a Line X spy’s defection to French Intelligence.

Colonel Vladimir I. Vetrov, a KGB Directorate T official, had handed over purportedly thousands of documents showing the mountains of secrets Line X had robbed from Corporate America, particularly the potential from its nascent computer industry just then becoming unlocked.

Vetrov, given the French codename Farewell, showed how infiltrators would insert themselves into otherwise benign foreign delegations touring private corporate facilities. In one instance, at a visit to a sensitive Boeing factory, Line X personnel applied adhesive to the bottoms of their shoes to covertly pick up samples of any stray material uncollected on the facility floor for scientists back in Russia to examine and extrapolate.

According to US intelligence sources, the Americans used Farewell’s information to implant all kinds of false data, unworkable technology, and ridiculous plans in a counterintelligence sting that ran for years. By the time Gorbachev was in London being amazed at all these tactical successes, they had been widely compromised and stopped being very useful (in one story, the CIA allegedly convinced a chipmaker to stamp a taunting message on one false mold so that when the mold was inevitably stolen and a Russian factory began producing the chips from it the note was reproduced right on the product for the predictably Russian audience to choke on; then there were the fake Space Shuttle plans and the real, flawed shuttle the Russians built from them).

Perestroika wasn’t any kind of attempt at peaceful co-existence. As Gorbachev said to those KGB guys in London, Line X was supposed to be a key part of it! Reform was going to mean Trotsky plus Stalin equals Communism Wins.

To put it quite simply, the Russian version of the Marxist revolution hadn’t gone very well. It was already two generations old, and the third had become sincerely apathetic about the whole enterprise. Under Brezhnev, instead of catching up to the West as had been planned the Russian economy kept falling further and further behind.

Much of that was due to its attempts to export this brand of socialism to the rest of the world. The military spending this required, to keep the US at bay while they did this, the feeble economy just couldn’t support it. With production in domestic industries falling off, productivity in terminal decline, by the late seventies the Russians were in deep trouble.

As one old Soviet joke said, whenever the Party boss showed up at the mine (or factory) to give the workers their daily admonishments to work harder, the workers would laugh to themselves about how they’d continue pretending to work so long as the Party continued pretending to pay them.

This was no joke, not so far as the system was concerned. As Marx said, it is the workers who have to lead the revolution; if they don’t buy in, forget the whole thing. And in order for the workers to buy in, they have to have something to buy in to. A realistic future where the socialist paradise made sense, a much better alternative to the rising living standards and technological prowess on display practically everywhere else.

It just never happened in Russia, after a few generations they figured how unrealistic it was, and here was Gorbachev to attempt dealing with the fallout. He only began by paring back Soviet military commitments. Right from the start, there was no hope of reforming the system with the economy having to carry such a massive burden (some estimates put military spending at 20 to 25% of meager contemporary Soviet GNP).

With so much diverted to guns, there was no means by which to invest especially in developing new technologies and productive capacities in the true Marxist tradition. As Nikolai Leonov, a KGB general, wrote:

“First there was a visible decline in the rate of growth, then its complete stagnation. There was a drawn-out, deepening, and almost insurmountable crisis in agriculture. It was a frightening and truly terrifying sign of crisis. It was these factors that were crucial in the transition to perestroika.”

That was his “peace” initiative. Gorbachev had no alternative but to try to work with the Americans as his first step to getting the socialist dream back on track.

The rest of perestroika was, get this, simple capitalism. Just as Lenin realized he had to take this step in 1921 (“one step backward in order to take two steps forward”), Gorbachev was acceding to doctrinaire Marxism; to try to restart the two-step approach all over again, to salvage the Revolution from Lenin’s original sin of jumping the gun before Russia was sufficiently advanced.

By the eighties, it still wasn’t sufficiently progressed because capitalism across the rest of the world had redefined, yet again, the standard for “advanced.”

Glasnost was political reform intended to soften the blow of Soviet hardliners who would resist any such sliding back defying the ideals of the Russian Revolution – just as Victor Serge had complained bitterly of Lenin in the early twenties and instead, clearing the path for Stalin. By softening up the uncompromising authoritarian stance which was Stalin’s legacy, and allowing at least some limited freedom of expression, Gorbachev counted on this openness clearing his path toward restructuring.

Those reforms led ultimately to total dissolution. Why? Because as the central hand of the state was loosened, what there was of Russia’s economy simply collapsed further. Forget microchips and robotic assembly, mass starvation would come to be a very real prospect. Again.

By 1990, it grew to full-blown crisis. Perestroika was significantly revised (for the fourth or fifth time, depending on who was keeping track) into a plan whose end would have meant full-blown, no holds barred, free-market capitalism. In Soviet Russia.

In a top-secret document, now in the hands of the US Library of Congress, the minutes of Meeting No. 2 of the Politburo of the Central Committee of the CPSU held on September 20, 1990, show that Gorbachev signed the following pledge on its behalf:

“We adopt the position that was elaborated during the discussions of the Politburo of the Central Committee on the further activity to be taken by party organizations in connection with the conversion to a market economy, with the proviso that this matter is to be reviewed at the next Plenum of the Central Committee.”

What followed was one radical proposal after another to do just that. The one which came closest to being acted upon was called the Five Hundred Day Program, or Shatalin Five Hundred Days Plan. Stanislav Shatalin along with Grigory Yavlinsky, an economist (Communist, but still) and close confidant of Gorbachev’s who had worked on perestroika with him throughout, had proposed selling off all state properties, rethinking much of the top-down economic structure, and sanctioning a return to private property.

Even a true stock market.

It never happened. The hardline opposition Gorbachev had skillfully kept at bay with glasnost on his hip would no longer be held back by such a radical move. Forcing him to first denounce the Shatalin plan after so publicly supporting it, and Yavlinsky, Gorbachev tried to find compromises that just weren’t available. In August 1991, the old guard Communists attempted their coup.

Though he survived it, Mikhail Sergeyevich Gorbachev was out not long after and the Soviet Union gone with him.

In January 1992, not coincidentally, Deng Xiaoping embarked upon his famous Southern Tour; his political campaign to convince Chinese Communist hardliners that they had better remember their Marx, their Trotsky, and to see the Soviet example for what it represented. The risks were more than real, and right next door.

Like Russia, China had been forced into its socialist revolution too soon. The Chinese economy was even less industrialized in 1949 than Russia’s had been three decades earlier. Not much had changed by 1989 when the massacre at Tiananmen Square turned world opinion solidly against them. Cooperation wasn’t much of an option.

If China’s Communist Revolution hoped to survive, it would have to go all the way – on the economy. Embrace the wealth and technology that only a capitalist system could invent and then multiply. And, of course, stealing, pilfering, and thieving as much as possible where possible; that’s the part of Trotsky they all seem to agree on.

Unlike the Russians, though, the Chinese would keep a tighter political grip while this happened. That’s the lesson they ultimately learned; more wealth first, and even more authoritarian to achieve it. So long as the rest of the world’s workers refused Trotsky’s old invitation, China would have to do it Stalin-style: Socialism with Chinese Characteristics in One Country.

They keep waiting for “enough” wealth to be created, or just show up at their doorstep delivered clandestinely by whatever they might call their own version of Line X in Chinese, since communism doesn’t create its own wealth. They’ve been indoctrinated into believing that the capitalist West will, eventually, exhaust itself, the Communist countries industrialized as well as pre-industrialized will catch up, and then the workers of the world will unite!

It just never happens. Those countries unfortunate enough to fall victim to this misanthropic, ill-conceived, and, really, stupid ideology end up with authoritarians trying to transition their economy from wherever it was before to where it cannot and never will go. Instead, they’re just stuck with the authoritarians and their quixotic quest to impose their utopia which justifies the authoritarianism – and all its evils – in the minds of the authoritarians.

And over the years, especially recent years, proponents have made all kinds of excuses for why Soviet Russia didn’t fail, or if it did why it wasn’t their fault. Blah. Blah. Don’t listen to them; watch what they all did in the early nineties, especially the Chinese. China’s miracle growth and breathtaking transformation since that very time isn’t actually a miracle at all, nor was its timing coincidence.

As much as they might want to, they just can’t steal their way to paradise. And if there’s always more left to steal, where does it truly end?

It’s what capitalism can do, when allowed, and what communism never will. There’s no such thing as terminal wealth and technology. After almost four centuries of progress, we should expect and even prepare for how it all just stops? As I wrote above, socialism really is a stupid, deeply misanthropic ideology.

Capitalism sure is messy, unpredictable, and, most of all, lumpy. It doesn’t go in a straight line, can cause tremendous stress and pain, and there are times when it gets caught up, for prolonged periods, in the bureaucratic messes of interfering morons. But once it is eventually set free, stable money, the world’s workers end up united if only in having no interest in the deplorable Marxist revolution – Trotsky, Lenin, or Mao – and its authoritarian Hotel California.

For as bad as it might get at times, including these, it sure can get worse. If we let it. The trick is, not to fall for the trick in the first place. If you never check in, you’ll never have to worry about how you can never check out.