Scrapping Socialism

September 25, 1990|By Steve H. Hanke

WHEN THE COMMUNISTS gained control in Eastern Europe, the transition from capitalism to socialism was technically easy. The new parasitic system simply latched onto existing capital and began to feed.

Since the Berlin Wall came down, the ravages of socialism have become clear to even the most casual observer: antiquated factories, crumbling roads and bridges, fouled environments and impoverished workers. It is ironic that socialism, which was violently and ruthlessly imposed in the name of workers, has left the Eastern European proletariat ill-trained, unmotivated, incapable of making ends meet and disgruntled.

To assess the damage, the nations of Eastern Europe have imported Western accountants in large numbers, since competent members of that profession are nowhere to be found in the East. These shock troops of capitalism are busy examining the industrial corpses. For example, about one-quarter of all West Germany's accountants are presently attempting to make sense of the 8,000 largest enterprises in East Germany. Not surprisingly, ''insolvent-must liquidate'' has been stamped on most of these operations. The parasites haven't left much of value. In consequence, most of the factories will have to be scrapped -- literally.

Scrap metal, which represents the remains of socialism, will be one of the East's most significant exports over the next few years. It will provide the raw material for a boom industry in Europe: mini-mills. These small mills are electric-arc furnace steel plants. At least 25 new mini-mills will be fed by the scraps from Eastern Europe. Each mill will efficiently produce a half-million to a million tons of steel a year.

Interestingly, as the new mills digest those scraps, they will pose a growing competitive threat to the world's integrated steel mills, such as Baltimore's Bethlehem Steel. That may be reported as either bad news or a success story, depending on where you live.

There will be rough waters on both sides of the Atlantic. Contrary to many press accounts, the peaceful transition from parasitic socialism to productive capitalism will require a huge and sustained effort. The scrapping of socialism will be analogous to traveling down the Niagara River in a barrel: above and below the Falls, the waters will be rather calm. But the transition will be a bitch.

Mr. Hanke, a professor at The Johns Hopkins University, serves as economic adviser to the vice president of Yugoslavia.

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