To Market, to Market

JEANE KIRPATRICK

May 05, 1992|By JEANE KIRKPATRICK

The transition from communist to market economies in Eastern Europe has proved complicated and difficult. Because the Soviets had more time to eradicate the vestiges of their own traditional economy, dismantling the centralized socialist economy and creating a market system in the former Soviet Union will be more difficult still.

Despite the difficulty of the transition, the rulers of the new states and the leaders of the major industrial democracies (the ,, G-7) have concluded, as their finance ministers put it last week, ''There is no productive alternative to establishing a market economy in Russia.''

However, there is far less consensus on how to create a market economy out of a fully centralized socialist system than on the desirability of doing so. Thus, as they completed work on a multi-billion-dollar aid package for Russia and the other former Soviet republics, disagreement had already developed among the G-7. Quite different views exist within this group and the international fiscal institutions through which they have opted to deliver much of the package.

Americans emphasize the magic of the market as the means as well as the end of the transition. The market rather than central planning, they say, should be relied on to allocate resources, determine prices and guide economic development. In the U.S. view, the most important contribution of government to the process is to remove obstacles to initiative and competition, and then remove itself.

In the former Soviet Union, removing these obstacles is a fairly large job which includes establishing a legal framework that permits and protects private property and safeguards contracts, and provides a currency that is both stable and convertible. Manifestly, the American goal is to produce an economy much like that of the United States.

The Japanese, who believe their increased financial contributions entitle them to increased influence in the decisions of international bodies, are now pushing some very different views about the means and ends of economic development.

Not surprisingly, the Japanese believe the goal should be to produce an economy much like their own, one which relies more on cooperation than competition among industries and between industry and government.

In the Japanese view, government has an important, legitimate, positive role to play in encouraging, guiding and sustaining economic development -- with subsidies, low-cost or no-cost loans, tariffs and other protection against foreign and domestic competition. What Americans regard as collusion and restraint of trade, the Japanese see as mutually supportive cooperation.

In favor of their position, the Japanese cite not only their own success, but also that of South Korea, Thailand and other Asian ''tigers'' whose pattern of development includes a cooperative, supportive relationship between government and industry. They also note that such a role for government may seem more familiar to peoples accustomed to a command economy than the American ''laissez faire'' approach.

The professionals of the International Monetary Fund have yet other views on how best to produce development. The fund's French director, Michel Camdessus, is a product of the prestigious Ecole National d'Administration and, like most of its graduates, believes strongly in the importance of central planning.

In addition to central planning, the IMF approach relies on a combination of root-canal economics and wide security nets to order the economy in a humane, if painful, fashion. The typical IMF recipe, which has already been recommended for Russia, calls for slashing budget deficits, ending price controls, reducing subsidies and curbing the growth of money supply -- all at the same time and all at a pace that no self-governing country with an opposition party would tolerate.

The level of planned austerity and economic sacrifice in the IMF approach has already prompted Russian President Boris Yeltsin's chief economic adviser, Deputy Prime Minister Yegor Gaider, to observe that, ''We are doing enough.'' And Mr. Yeltsin himself reminded all that, ''We do not intend to work under the direct orders of the IMF. We do not agree completely with this organization's viewpoint, and we will stick to our point of view.''

The fact is, no one knows for certain how to best help the peoples of the former Soviet Union make this unprecedented transition. No one knows for certain how difficult or how long it will be. No one knows how long it will take to develop a market system in a culture that experienced 70 years of ''education'' aimed at de-legitimizing capitalist motives and incentives.

But, if Adam Smith was right, human nature will overcome the Soviet past and also the mistakes of well-meaning international helpers. In ''The Wealth of Nations,'' Smith wrote, ''The natural effort of every individual to better his own condition when suffered to exert itself with freedom and security is so powerful a principle that it is above and without any assistance not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumber its operation.''

This propensity of human nature believed by Smith to be ''common to all men'' can in itself resolve most of the problems of transition and create new levels of prosperity for the peoples of the former Soviet Union.

Jeane Kirkpatrick writes a syndicated column.

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