Capitalist Comrades

William Eggers

December 25, 1990|By William Eggers

WASHINGTON — MANY WESTERN economists and political pundits are warning that capitalism may fail in Eastern Europe. They say the foot soldiers of a market economy -- entrepreneurs -- are missing. They say the region is entirely without the kind of risk-taking businessmen who have driven economic growth in the West.

This gloomy prediction misses the mark, because even though entrepreneurship in state-run economies is negligible, Eastern Europe's vast black-market economy is actually rife with entrepreneurs.

In fact, if the activity in the Soviet Union is any indication, there is an underground free-enterprise system waiting to surface: A 1987 Joint Economic Committee study indicates that the private sector in the Soviet Union provides up to 40 percent of total personal income. The Russian newspaper, Izvestia, estimates that private services in the Soviet Union account for 50 percent of shoe repairs, 45 percent of house repairs, and 80 percent of consumer services in the countryside.

Of course, not all the black marketeers are hard-working Joes trying to make an honest buck. Some are corrupt Communist Party members using Mafia-style tactics to loot huge quantities of consumer goods, which they sell on the black market. However, the power of these gangsters can be broken by removing the source of their influence -- the state and the party -- from the economy.

Until now, the long and strong arm of government has posed staggering obstacles to independent businesses. These entrepreneurs have had no legal protection of their property, no commercial codes to govern transactions, and have faced the constant threat of the government seizing their property or arresting them.

Despite this, many have managed not only to survive but to thrive, working street-corner stands, driving taxicabs, or working night from their homes. In Poland -- long before Solidarity rose to power in June 1989 and swept out the communist leadership -- scores of entrepreneurs had braved a generation of government hostility to private enterprise. There is now little need to instruct Poles how to run shops, restaurants, small farms, or even private manufacturing concerns -- they have been operating these businesses, clandestinely, for years.

In Romania, Gypsies have been making brisk sales from imported goods such as alcohol and cigarettes. Apparently not in an entrepreneurial mood, the new Romanian government began a major crackdown on black-market and speculative businesses in June. By July 26 the government had arrested more than 15,000 traders and confiscated more than $2 million in goods. But trade has continued despite the government action.

In Hungary, workers at the first Levi's factory in Eastern Europe boast that in a year their plant has become as productive as most of Levi's 50 other factories around the world. ''Hungarians always felt that they have been held back,'' says Andras Pinter, who heads Levi's operations in Hungary. ''Now that they have a chance, they want to show what they can do.''

In addition, even managers of state-owned enterprises have learned to be creative in overcoming the bureaucratic hurdles to doing business. For example, factory managers -- under pressure to meet production levels dictated by central planners -- find back-door ways to secure needed parts and raw material that otherwise would arrive late or not at all. Economist and expert on the Soviet economy Paul Craig Roberts says that ''none but the most creative could survive in this environment.'' There is no reason why these imaginative communist managers could not apply similar survival skills to succeed under a free-market system.

If East European governments cut the ropes of regulation still strangling their economies, entrepreneurs will have the breathing space to do what they do best: produce, distribute, and sell goods and services. Given the chance, they'll show what they can do, which is nothing short of starting and sustaining a new economic machine.

William Eggers analyzes East European economic studies at the Heritage Foundation.

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