The Oligarchs (6 page)

Naishul sat in the very heart of a great beast, one that ruled the economic life of an empire, allocating the resources for everything from the titanium hulls of the world's largest nuclear submarine, the
Typhoon,
which were being built in the Northern Fleet shipyards, to the simple manufacture of a sundress from cotton and dyes in the provincial textile town of Ivanovo.

The empire was fabulously rich in resources, brimming with natural gas, oil, and vast quantities of timber, coal, and precious metals. It was also impossibly large, covering one-sixth of the Earth's landmass, stretching eleven time zones from east to west and straddling two continents, Europe and Asia. The monopoly on power over this gigantic country was held by the Communist Party in a top-down hierarchy, starting with the Politburo, then the general secretary, the Central Committee, and hundreds of thousands of party functionaries in republics, regions, cities, factories, theaters, offices, schools, and institutes. The party had a special personnel system, the
nomenklatura,
by which it kept track of this network of appointees, from the elite in Moscow to a distant factory director or infantry unit. All roads led back to Moscow and the central authorities. Not only did they command a globe-spanning military force, not only did they seek to control literature, art, theater, and culture, not only did they dominate the sciences and seek to rule a far-flung empire of satellite nations, but
also from the center, from the corridors and balance sheets of Gosplan, they tried to control every important economic decision.

From his seat at Gosplan, Vitaly Naishul gradually began to see that something was wrong. Naishul's soft smile and black, wiry hair concealed a bit of revolutionary spirit. He did not openly display his suspicions and emotions, for that might have been risky. Instead, he began to secretly write about what he saw, and the result was a remarkable book in
samizdat
(or self-published) in dog-eared, carbon-paper copies. The book was titled
Another Life
, and it was a visionary tract.

To understand why Naishul's work—written at his kitchen table in the early 1980s—was so important, it is necessary to reach back in time to a momentous battle of ideas. Let's take a brief tour of this conflict, which was at the center of the Soviet economy and its collapse, before returning to Naishul.

 

In the Industrial Revolution of the mid-eighteenth century in Britain, automation and factories transformed rural, agricultural economies into urban, industrial ones. A new, more important economic actor was created, the industrialist, who pushed aside the early dominance of landholders, merchants, and traders. Adam Smith, the Scottish economist and philosopher, was the prophet of this new age. In his great work,
The Wealth of Nations
, Smith explained coherently how the central underlying motive in economic life is self-interest. In his most famous passage, he wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages.” Smith said the individual “is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

This observation marked a huge step forward in economic thinking. Smith made self-interest respectable. Central to Smith's argument was the concept of free trade and competition. His ideas were later refined by other European philosophers, who peered into the inner workings of early industrial capitalism and laid down a set of rules about the way the world worked. They believed that the basic relationship between employer and worker, or between land, capital, and labor, never changes. They stand in a state of “equilibrium.” There could be
changes in the supply of labor and capital, for example, but that only would only bring a new “equilibrium” that was profoundly stable.
⁶

A relentless German revolutionary who lived a quiet, isolated life in London, Karl Marx mounted a mighty challenge to classical economics and the theory of stability. His long-time colleague, Friedrich Engels, said Marx was “before all else a revolutionist,” because he saw the world not at rest in equilibrium but constantly changing. Marx believed that just as the new industrialists, the capitalists of his age, were displacing the landed, ruling classes, the capitalists would also pass. The system described by the classical economists would come to a spectacular end with a revolt of the working class. Marx saw capitalism as just a passing phase—although a necessary one—and believed that it would have to “ripen” fully before it would eventually consume itself.
⁷

Marx and Engels gave full voice to their theory in
The Communist Manifesto
, published in 1848, in which they describe the world as splitting into “two great hostile camps,” the capitalists or bourgeoisie on one side and the working class, or proletariat, on the other. Marx and Engels quite accurately observed that capitalism had unleashed enormous productive powers in the hundred years since the beginning of the Industrial Revolution. But they declared that capitalists had reduced everything in human relations to “naked self-interest.” They saw the small shops and merchants of an earlier age turned into the “great factory of the industrial capitalist,” where workers are “daily and hourly enslaved by the machine” and by the capitalist himself. They demanded the abolition of private property and predicted the demise of the bourgeoisie in a revolt by the working class.

Marx's ideology was enthroned in 1917, when Vladimir Lenin and the Bolsheviks seized power in Russia. But Lenin and his revolutionary cohorts did not seize a country with a ripe, developed capitalism of the kind that Marx had foreseen. Nor were they propelled to power by an abused working class. Instead, Lenin both sparked and led a revolt in a country where industry and capitalism were unevenly developed, the economy was predominately agricultural, and the people were disinclined to rise up against their economic masters. Lenin's accomplishment was to organize a coup d'état while giving the appearance of a workers' and peasants' revolt. Lenin shrewdly played on the peasants' hunger for land, but the Bolshevik revolution later proved a disastrous turn for the peasants. Lenin could not wait for capitalism
to “ripen” as Marx had predicted and believed that the Russian revolution would touch off a worldwide socialist revolt. It did not, but in the years after the revolution, the Bolsheviks put into practice their ideas of what Marx intended, erratically and violently. It was the beginning of a seventy-four-year experiment to defy the laws of capitalism and suppress the basic instincts of human nature. It was an experiment that, however grim and ultimately disastrous, touched all of those described in this book, who attempted to lead Russia on a different path.

The experiment took twists and turns. The civil war was marked by chaos, anarchy, and a period of stringent economic measures known as War Communism. A relative easing began in 1921 under Lenin's New Economic Policy, which tolerated some market mechanisms in agriculture and trade. This short interlude was crushed by Joseph Stalin at the end of the 1920s. Stalin began to impose a massive command economy on the nation. He repeatedly tried to force prices downward, especially on grain and agricultural goods, with devastating results. Those who set their own prices, the private entrepreneurs, were accused of criminal “speculation.” Stalin turned viciously against the stubbornly independent peasants, forcing them onto collective farms. In 1929 he attempted a forced “revolution from above,” brutally collectivizing agriculture and creating a vast legacy of human misery—famine, death, and shortages.

One of Stalin's most important tools was central planning. The Bolsheviks had tried to get rid of money, to destroy free trade, to dictate prices—in short, to break the basic laws of capitalism. But now they went a step further, trying to coerce the behavior of the entire economy. Instead of leaving anything to choice and competition, to a multitude of accidental and self-interested transactions, the state seized all the levers of the economic machine through central planning. It adopted five-year plans intended to dictate how the economy would work; the first was approved in 1928. After a relatively good year, suddenly the targets were adjusted to accomplish the whole plan in four years. Later Stalin suggested maybe three years. Instead of the original goal to produce 35 million tons of coal over the period, the plan was revised to 75 million and then 95–105 million. “We are fifty or a hundred years behind the advanced countries,” Stalin said in 1931. “We must make good this distance in ten years. Either we do so, or we shall go under.”
⁸

Any dissent was suppressed by fear, and central planning endured, along with legends of superhuman productivity. In September 1935, a coal miner, Alexei Stakhanov, supposedly achieved output fourteen times greater than the target and was hailed by the party as a hero; with this exploit the Stakhanovite movement was born, an idealistic symbol of the new society in the making.

Stalin's model heaved the Soviet Union into the industrial age, accomplishing in slightly over a decade what in other countries had taken more than a century. Gigantic factories were carved out of the wilderness; beyond the Ural Mountains, a colossal steelworks was built at Magnitogorsk that eventually churned out more steel than all of Canada. Stalin turned a backward country into a major industrial power at enormous human cost, as millions were sent to prison camps, including talented managers, engineers, technicians, and planners. Everywhere there were said to be spies, wreckers, and saboteurs. The burst of industrialization sucked labor from the villages into the cities, leading to misery and urban overcrowding. The Stalin model of central planning, directed at heavy industry and militarization, helped the Soviet Union through World War II and later was expanded to support a massive Cold War military machine. Virtually all other components of the economy were secondary, especially consumers.

By the 1970s, Brezhnev's era, the Soviet Union had become a global superpower, and yet the great economic leaps forward that Stalin had accomplished were no longer possible. The demands of a more complex economy made it especially difficult to set plans from above. Two attempts at reform—one by Nikita Khrushchev in the late 1950s and another under Alexei Kosygin in the mid-1960s—failed. The state kept its tight grip on property, prices, and trade; none of the attempts to breathe new life into the system worked. The oil price spikes of the 1970s and early 1980s had cushioned the decline by providing the Soviet Union with revenue from its vast reserves. But the West was beginning a new Industrial Revolution in high technology. The Soviet Union was entering the twilight years of the socialist experiment.

 

Now we return to Naishul, the mathematician sitting at Gosplan, the heart of the central planning machine. Naishul came to a profound conclusion in the early 1980s from his vantage point inside Gosplan: the system was sick. Supposedly, he knew, the Communist Party set
down goals and instructions, which were passed down through Gosplan and then through the branches of government, the ministries, the factories. But the reality he witnessed was far different. One day, Naishul's boss went to the Kremlin, and when he came back to Gosplan, he told an amazing story of what he had just seen. The prime minister told the minister of metallurgy that the Soviet Union had to manufacture a new kind of steel in thin sheets. This was an order from the top, from the party, written into the party's guidelines for the five-year plan. And the minister of metallurgy said, without a pause, “No.” But then he added, “Unless you give us the resources to build new factories and enterprises, we will not do it!” Naishul's boss just shook his head with amazement, for he thought the minister would be thrown out. Fired. Shot. But he wasn't. Nothing happened. That was a glimpse of how the system really functioned, and the system was sick.

Inside what was formally known as the administrative-command economy, there was a complex parade of input and output targets, goals and quotas, balances and controls, that marched up and down the ladders of authority. By the 1970s, the promenade of planning, an elaborate blizzard of paper, was nightmarishly complicated. Just the industrial supply and distribution plans created by Gosplan totaled seventy volumes of nearly twelve thousand pages and dealt with over thirty thousand commodities. The Gosplan mathematicians toiled over their models, but after a while, Naishul saw that his bosses took his mathematical work and, to his horror, they just
changed the answers
to fit whatever outcome they wanted or needed that day.

Naishul had a sudden insight. The system no longer was really commanded from the top. There was no dictator! Instead the whole bureaucratic planning system had become a strange, never ending, undisciplined bazaar. At the core there were no firm commands but bargaining. From below, factory directors made demands on the ministries and the ministries made demands on the central planners; all the tugging and pulling went up the ladder and then came tumbling back down again in the form of a cascade of decisions that never matched the initial demands. If the decision was to take away from one factory and give to another, the loser did not accept the decision and began to lobby others for what it wanted, sometimes not up the ladder but sideways, from other factories. The key players in these transactions were often not the central planners at all, but the factory managers, who gained more and more power as the system weakened.
Everyone, not just factories, was engaged in a wild crisscrossing web of demands, permissions, secret hoards, trade-offs, and shortages, and the planning system could hardly keep up, much less control it.

Naishul liked to tell of a Communist Party boss in a faraway region. The people in Moscow thought he was busily building socialism. But, the boss told Naishul, “My business, the first half of my day, is to exchange chickens from my region for eggs produced in another.” The growth of these side deals meant that Gosplan gradually controlled less and less. In the 1920s, central planning had been born to grab the levers of power over the economy and jerk them sharply; now the levers were jerked back and forth and there was no result. The steering wheel was being turned, Naishul liked to say, and nothing was happening.