The late Hans Jalasto was one of Estonia’s top economists, if not THE top economist; he was also one of co-blogger Russ Deane’s and my closest friends in Estonia in 1990-1991. Hans was also a world-class sailor and was the head of the 1980 Olympics Sailing Regatta that took place in Tallinn, Estonia’s capital city (These were the Olympic Games that President Carter had boycotted in response to the Soviet invasion of Afghanistan). As Russ and I were both sailors and we were in Estonia for an extended visit, Hans somehow borrowed a nearly-new 35 foot fiberglass sloop with sleeping accommodations, a head, and eating facilities. We had a delightful day sailing through the waters of the Baltic Sea, with a few Soviet PT boats following us out of curiosity; a most pleasant experience.
When we returned back to the dock and went to dinner, Russ asked Hans how much one of those boats cost. Hans said the boats were made right in Tallinn, he knew the manager of the boat plant well, and he would ask tomorrow. The next day, Hans reported back that after converting from roubles into dollars, the sales price of the boat was $3,000 (this would have been about three years of salary for Hans, a salary that provided Hans and his family just enough to live on). Russ and I looked at each other, and said at almost exactly the same instant, “Hans, how would you like to own a boat?”. The idea was that Russ and I would put up $1500 each, or $3000 total, and Hans would then buy the boat and maintain it in Tallinn. From time to time, perhaps Russ and I could visit and take a sail into the Baltic. It didn’t matter. What did matter was that one of Estonia’s great sailors would, finally, have a boat of his own. By evening, the boat had a name .. a combination of the names of his two granddaughters, the “Tiki-Marie”. It was an exciting moment.
The next day, Hans went to see the manager of the boat factory and made his (our) offer. The manager exclaimed: “Hans, these boats aren’t for sale to Estonians. They are all sold to Russians back in Saint Petersburg.” What the manager didn’t have to say was that many of those boats were then sold throughout Scandinavia for $35,000 or more, with privileged Russian communists and/or crooks pocketing the huge difference.
At that precise moment, Estonia’s top economist suddenly realized how he and his fellow Estonians had been enslaved by the Russians since the late forties; how 20 million communists, especially top party officials from Russia, made millions from their remaining 270,000,000 slaves. These 270,000,000 people all had an annual salary of about $1,000 or less. Many old women chipped the ice from sidewalks and swept the streets of Soviet cities for even less, a true pittance … but an important pittance geared to the price of bread and dairy, which prices were also controlled by the government. Farm subsidies made bread so cheap, in fact, that around 1990, farmers realized that, for the same cost, their pigs could get more nutrition from the bread in the stores instead of milled grain.
The L’viv (Ukraine) Forklift Plant had customers all over the Soviet Union in 1990 … plus some customers in Japan. An American friend of mine and economist, Tom, who was doing a study of L’viv’s heavy industry, asked “how come Japan?” The plant sales people had wondered the same thing, and reported to Tom that when the forklifts arrived in Japan, they were stripped of everything valuable, and were then melted down for the metal.
By means of total government control over all economic activity, the Soviets had created a value-subtracting economy ... a marvelous invention.
In the initial week of teaching the first MBA class in all of the USSR in Kiev in 1990, I thought I would teach the class about comparative advantage. I said. “assume you were the best barber in Kiev, and you were also the best lawyer in town, but you could only choose one of the two professions. Which one would you choose?” The ensuing debate went on in Russian for some time. After things settled down, they told me that some would choose the law and that some would choose to be barbers. After all, both professions paid the same amount of money, they both had the same length of vacation, all taxes and employee benefits cost about the same, and both obtained the same lousy medical care. Both could also cheat on their real income. The lawyer had a bit more status, however, and might be able to travel 10,000 miles across the Soviet Union on "official business" (with government permission, of course) for a ticket costing five or ten dollars, while the barber enjoyed a better quality of life.
Once a government controls what Lenin termed the commanding heights of an economy (say, just for example, the banking and finance, agriculture, automotive, and health industries as in the US today, not to mention artificial controls on a failing currency), they can redistribute wealth easily. The end result, as we have seen, is that everyone but the chosen few in government and privileged factory positions will live closer to subsistence levels. Entrepreneurship will be criminalized out of existence. The country will become a nation of crooks. Official corruption will become endemic .. corruption so densely ingrained that even when a new government tries to clean up the mess, it can take decades or, for all practical purposes, forever. All this follows from a top down, monstrous command effort to redistribute a nation's wealth.
By the 1980s, wealth across the Soviet Union had finally been successfully redistributed as far as possible by communist officials and their doctrine; the fact that those officials got much more than their share, if not in money then “in kind”, was their just reward for doing the redistributing. The second fact that the total wealth of the country was vanishing rapidly went largely unnoticed (except by our CIA). It's not hard to do. All that's necessary, really, is to kill human ingenuity.
President Obama and his administration, and liberal legislators in general, are steering the United States down that same path. It is unlikely that "We The People" of the United States will let things deteriorate to the level of the former Soviet Union, however. The Tea Party crowd, for example, has proven itself to be informed, concerned, determined, hard-working, decent, non-violent Americans, despite the violent, indecent, hate-spewing, angry taunters from the left who are merely following their leader.
The mystery to me is why we are even headed in that direction in the first place. We know, however, that while the nation as a whole is suffering, and will surely suffer more, some few, like George Soros, are experts at capitalizing on the misery of others; Soros, after all, grew up under tyranny.
Some months after the USSR collapsed in 1991, our friend Hans died … perhaps of a broken heart when, as the nation’s top economist for such a long time, he realized how badly he and his fellow Estonians had been deprived and duped throughout his entire professional career. He might have lived a longer and happier life as a barber.
