Studies in the Political Economy of Communism and Post-Communism

Konstantin Zhukov

Advisor: Peter J Boettke, PhD, Department of Economics

Committee Members: Rosolino Candela, Christopher Coyne

Online Location, Zoom
July 13, 2023, 03:30 PM to 05:30 PM

Abstract:

The transition of the former Soviet and Soviet Bloc countries from communism to market-oriented economies have had significant ramifications. Transition impacted the economic, social, and cultural conditions of millions across Europe and Asia, and gave rise to a rich stream of multi-disciplinary literature. In line with the literature, this dissertation investigates the influence of communist and post-communist institutions on people's perceptions of markets and examines the transition of Poland from communism to a market-based economy. 

Chapter one addresses the question of when and why are illicit markets regarded as morally legitimate. The chapter addresses this question in the context of Soviet and post-Soviet Russia, where the moral legitimacy of commerce has waned since the collapse of the Soviet Union. I do so by analyzing the continued resiliency and robustness of illicit markets and their moral perception in Soviet and post-Soviet Russia, where de facto private property rights have remained insecure in spite of de jure political and economic reform. Given the continuity of illicit markets across both periods, I argue twofold. First, what has remained constant in the moral nature of illicit markets across both periods has been the entrepreneurial drive to realize gains from trade by circumventing and evading a predatory state. Secondly, given this constancy in the form of illicit market exchange, I contend that changing moral attitudes toward commerce have resulted from the changing manifestation of illicit market exchange, in response to the predatory nature of the state. In both the Soviet and post-Soviet period, the state has remained a means to create monopoly privileges. However, whereas in the Soviet period, illicit markets served as a means to "grease the wheels" of commerce, economic transition in post-Soviet Russia corrupted the moral legitimacy of a market economy by transforming illicit markets into a means to "grease the palms" of government officials in the name of "privatization."  

Chapter two documents the results of the Polish experiment with socialism. I show that there was a wide chasm between the lofty goals of socialist ideology and the realities of socialism as experienced by the Polish people. The experiences of the Poles, like those of so many behind the Iron Curtain, demonstrate the value of economic freedom, the immiserating consequences of its denial, and the often-painful process of regaining lost freedoms. Moreover, Poland’s road to socialism teaches us something about the intellectual development of economic thinking. As I illustrate, the debate surrounding economic calculation in a socialist economy highlighted not only a fundamental flaw in socialist planning but also a critical feature that allows markets to work. Markets work because they permit economic decision-makers to engage in rational economic calculation. This calculation depends on the constellation of relative prices and the accounting of profits and losses that emerge from the free choices of individuals trading property rights. It allows us to sort out the economically viable projects from the technologically feasible ones. Without such a price system, these calculations are impossible, and this sorting does not occur. Resources are systematically wasted and inefficiencies in production and exchange abound. 

Chapter three illustrates that while Poland’s transition back from a socialist to a mixed economy was not without its own pain, it did unleash the extraordinary productive power of the Polish people, allowing their standard of living to rise at more than twice the rate of growth that prevailed during the socialist era. Poland attempted a radical pace of reform that came to be known as “shock therapy.” With shock therapy, reforms are implemented quickly and immediately, as opposed to gradually over time. In the case of Poland, several factors proved to be decisive in adopting a relatively fast pace of reform. First, there was an urgent need to arrest runaway inflation. Second, incomplete and sluggish reforms throughout the 1980s had led to the belief that policies must be implemented as a package and within a short timeframe so that changes in bureaucrats’ or the public’s whims cannot throw them off track. It was also hoped that shock therapy would improve the synergy between stabilization, liberalization, and institutional change. Perhaps the most important factor was the political capital of the reformers. The general public expressed strong support for economic and political transition after the collapse of the regime and waiting for another several years would have run the risk of eroding this support.