From Socialism to Capitalism: A Winding Road

Abstract Three great economic shifts have shaken the world in the last thirty or forty years. The Soviet Union, the torch-bearer of socialism, after engaging in an inner-generated perestroika (reconstruction), increasingly veered toward a stronger role for the market until it moved to full-blown capitalism. At about the same time, China, another beacon of socialism, also moved inexorably toward a socialist market economy and eventually to a virtually capitalist approach. But the Soviet Union, now fragmented, with the Russian Republic its remaining flagship, moved politically toward an imperfect democracy and suffered a painful economic decline. Meanwhile, China retained the authoritarian rule of the Communist Tarty in full control and its reaction to the change was surprisingly favorable with spectacular growth and remarkable prospects. And while these profound transitions rocked the socialist powers, the US, the capitalist titan, together with the whole capitalist world, suffered its own slide into sudden recession with severe hardship, unemployment and exploding fiscal deficits. This Article explores the ramifications and relationship involved in these various and contrasting developments. I. INTRODUCTION In recent years, there have been two cosmic coUapses of contrasting economic systems: first, the sociaust system involving the former Soviet Union and its Eastern European alUes experienced a rather sudden decUne and crisis and was transformed painfuUy into a part of the world capitaUst system.1 Later the world economy, predominandy capitaUst in character and led by the US, entered an abrupt decline, which is still ongoing as I write.2 Meanwhue, a third economic entity, China, nominaUy sociaUst, but trending toward capitaUsm, experienced part of the world-wide decline but displayed remarkable health and resilience and was thought by many to be moving to a leading position in the world.3 AU this may be telling us something about capitaUsm and sociaUsm, their futures in the world, and, more generaUy, about the role of government in the dominant economies of the future. To explore these issues we wiU first examine the decline and faU of the Soviet Union and related systems. Then we wiU examine contemporary events in China, where some but not aU the same forces and counterforces were at work but with strikingly different results. In contrast with these Soviet and Chinese experiences, we wul explore the financial crisis and economic decline in die US and its consequences. FinaUy, we wul attempt to determine what comparative analysis can teU us about poUcy trends and our poUcy choices in the years ahead. II. SOCIALISM IN THE SOVIET UNION Until about 1975, the health of the Soviet planned economy was not in such serious question that anyone feared its coUapse. Its growth rate since at least 1928 had been robust, even though experts might quarrel about its precise strength4 However, the economy had obvious areas of weakness. One such area was agriculture, where coUectivization had apparentiy led to decUning productivity and an inabiUty to meet the needs of die country for food.5 Further, the efficiency and productivity of the economy, in contrast to its maintenance of gross levels of production, could be cast in doubt. Particularly in later years, there were obvious concerns about the environmental impact of economic activity.6 Another unarguable defect of the economy was its apparent inability to manufacture consumer goods (or even capital goods) of passable quality. According to one informed estimate and viewing matters most indulgendy, only seventeen to eighteen percent of Soviet manufactures were of a quality corresponding to world standards and exportable to the West.7 This was a serious deficiency because, among other things, it sharply limited the potential for hard currency export earnings based on the sale of manufactured goods. Significant exports were limited to natural resources - primarily oil and gas. …