SECOND ACT IN THE SECOND WORLD

...Fifty major projects and hundreds of small ones were abandoned in mid-course for a lack of capital or raw materials or foreign exchange...

...It was a tragedy because it halted, at least for the present, a hopeful trend toward decentralized communism that had attracted attention around the globe...

...And it could not have failed to strengthen the prospects of international peace...

...In handicrafts, commerce, and service industries, small private businesses have been chartered, provided they employ five or fewer persons...

...China's transformation is a gradual one, but there, too, the trend is toward a new form of communism, distinct from but akin to the self-management models that have been established in Yugoslavia and Hungary...

...China, it was claimed, was not merely fashioning an ideal society but shaping a new kind of human being—moral, dedicated to the common weal, uncompromisingly humane...

...For several years, Polish living standards rose at an annual rate of about 6 per cent, but the increase was illusory, fueled by the heavy influx of foreign funds...

...At the same time, the principles of decentralization have spread to provinces and cities, which now hold on to some of their funds to pay for construction projects they design and manage on their own...

...It has, in fact, been a crucial issue for half a century and more...

...This was the challenge that impelled Tito, over the next few years, to develop the system of worker self-management that provided material incentives at the factory level...

...Mao Zedong's Great Proletarian Cultural Revolution offered one kind of answer to these questions in the decade from 1966 to 1976, and today's Yugoslavia and Hungary offer a totally different reply...

...He forced peasants from their farms into collectives, so that their crops could readily be gathered up and exported to raise the hard currency needed to pay for foreign machinery...

...The regime had no choice but to make concessions to the militant new union, Solidarity, and it had to find a way to pay for those concessions and for the debts that had been incurred by Gierek...

...The Party's glacial pace in instituting even the most obviously needed reforms played no small part in bringing the Polish crisis to a head...

...Because the system is not obliged to worry about competition or profitability, it can let such things slide...

...China is still a rigidly regimented society, but pressures on the people are easing, living standards are going up, material incentives have been offered to spur production, farmers are being permitted for the first time to sell on the open market the grain and animals they raise on their tiny private plots, some individual initiative is being allowed and even encouraged in enterprises ill-suited to state management, and widespread cultural changes are readily apparent in such visible areas as fashion and the arts...

...The government and Solidarity agreed that a program of self-management would be an essential element of any system devised for Poland but they differed significantly on the details...

...But since the real capitalists had been overthrown long before, the upheaval was, in fact, directed against those Communists who opposed the Stalinist economic model China had been following with only temporary deviations since 1949...

...In Poland, a popular movement obviously provided the catalyst for change: Five times in the last thirty-six years—in 1956,1968,1970,1976, and 1980—the Poles have rebelled against their shortage economy...

...That zealously ideological climate allowed for no material incentives to stimulate production...

...It was a crime because his martial law regime reversed a process of democratization that had been under way for a year and a half...

...Even the Soviets have been caught up in that tide...

...Furthermore, local directors are now allowed to retain and reallocate some of the profits earned by their enterprises...

...To finance the scheme, Poland was able to borrow $26 billion from Western governments and Western banks...

...What incentives— material or moral—must it offer its people to win from them the needed levels of exertion and even sacrifice...

...In the Maoist catechism, these are transgressions against socialism, but their impact has been to make more goods and services available and to raise living standards after years of stagnation...

...A second, even less acceptable proposal, reflecting the strains of a prolonged stalemate, was Solidarity's call for a national referendum on the nature of the Polish form of government...

...The regime of Janos Kadar, imposed after Soviet tanks struck down thousands of Hungarians who demanded a decentralized, humane socialism, pursued a harsh line for a couple of years...

...By 1976, almost one-third of Poland's yearly national income was devoted to economic development...

...Some would lose power under decentralization, and others might lose their jobs in a system that placed a greater premium on performance and efficiency...

...Furthermore, Solidarity put forth two demands to which the Polish government could not possibly agree: In its negotiations for a system of worker self-management, the union insisted on a completely free market in which the government would under no circumstances intervene...

...Millions were tyrannized by the young self-appointed watchdogs of ideological purity who called themselves Red Guards...

...They have not yet found buyers...

...How and when the process of reform is to be resumed remains to be seen...

...The conflict between centralized (Stalinist) communism and decentralized (worker self-managed) communism is certain to grow more acute...

...SECOND ACT in the SECOND WORLD Despite the setback in Poland, world communism is moving toward decentralization BY SIDNEY LENS When General Wojciech Jaru-zelski placed Poland under martial law in December, he committed a crime and created a tragedy...

...No regime, and especially not one caught up in the kind of crisis confronting Poland in 1981, could be expected to consent to such a plan...

...There are hopeful signs in the "readjustment and reform" program China's new leaders have mounted in the last few years...

...Regardless of the crisis in Poland, however, a strong and irreversible tide is running within the socialist world—including the People's Republic of China—toward an anti-Stalinist, decentralized kind of communism...

...Immediately after Stalin's death in 1953, hundreds of thousands were released from the forced-labor camps, and Premier Georgi Malenkov introduced the "New Course," which encompassed the conversion of some heavy industry to light industry, a sharp increase in the production of consumer goods, an easing of rules governing sales by collective farmers, and a substantial boost in farm income...

...It's too bad Lech Walesa and his comrades in Solidarity failed to come to grips with these realities...

...His successors had no choice but to try to raise living standards for a people whose average per capita income was only about $235 a year...

...General Jaruzelski is likely to set out on a similar course, but the Polish reforms of 1980 are sure to be held in limbo for at least a year or two, and when they are officially revived they will take a less radical form than seemed attainable before the crackdown...

...Only months after approval of the plan, Communist Party officials recognized that its goals could not possibly be met...

...In place of moral incentives and ideological exhortations, the state now offers hard cash to induce workers and managers to boost production...

...What had been denounced as "capitalistic" during the Cultural Revolution is now officially encouraged...

...Some of these organizations exist only on paper, and others confine themselves to receiving reports and offering suggestions...

...If Yugoslavia hoped to sell its wares in London or Vienna, it had to produce better goods at lower cost...

...Little was heard of the other side of the Cultural Revolution—the lives destroyed, the schools closed, the economy reduced to ruins...

...Payments to communes for their agricultural output have been raised at an estimated cost to the government last year of $13 billion—about one-sixth of the national budget...

...The primary purpose of the Cultural Revolution, as proclaimed by the Chinese Communist Party's Central Committee on August 8, 1966, was to "overthrow those persons in power taking the capitalist road...

...Toward the end of the 1920s, the Soviet Union under Stalin adopted an economic model that was, in effect, geared to an imminent expectation of war...

...it would have had incalculable consequences for the Soviet Union itself, and for all the rest of the Communist world...

...So long as the Eastern bloc economies could draw on a pool of unemployed or underemployed labor in the rural areas, they were able steadily to increase production despite inefficiency and poor worker morale...

...instead, it laid down targets—for example, "increase shoe production by 8 per cent"— and attempted to guide the economy toward achievement of its goals by offering such inducements as credit or foreign exchange...

...The director of a carpet-weaving plant told me how Red Guards ordered him to abandon traditional rug patterns in favor of designs that would "glorify the revolution...

...In 1980, when the government tried to raise prices without public notice or discussion, a full-scale revolt erupted...

...Warehouses now hold $205 billion in products—equivalent to almost a year's national income—which will never be sold...

...In 1948, when Yugoslavia was expelled from the Soviet bloc and cut off from trade with its members, Marshal Tito's government was forced to turn to the West...

...The Chinese leaders have made no secret of the fact that they are favorably disposed toward self-management and want to move in the direction that has been chosen by Yugoslavia and Hungary...

...such decisions had previously been made only by higher-ups in the appropriate ministries in Beijing...

...Polish exports did not begin to pay for such imports, or even to service Polish debts...

...In a sense, Tito was replicating the socialist workshop plans devised a century earlier by Louis Blanc...

...There was no such thing as consumer choice, and no incentive for managers or workers to improve efficiency or quality...

...Prices and production goals were set by workers' councils and management committees in each enterprise,-rather than by the State...

...In most of the factories that now enjoy this measure of autonomy, workers' congresses have been elected...

...Solidarity...

...In a total rejection of the Stalinist model, heavy industry was downgraded because it consumed too much capital and provided no quick gratification to consumers...

...Stalin, convinced that the capitalist West was about to mount an attack against the Soviet Union like the invasion of 1918-1920, restructured the Soviet economy to give top priority to production of weapons and munitions...

...Solidarity called for a totally free market...

...Farmers sell produce from their small plots on the open market, and there are reports of peasants earning $500 a month and more from the sale of chickens and pigs— extraordinary sums in China, where top officials earn only $175 to $225 a month and average workers $25 to $50...

...in 1979, there were 300,000 such enterprises, and by the end of 1980 the number had grown to 810,000...

...the Communists insisted on the State's right to intervene at times of crisis...

...Under a new bonus plan, the average Chinese worker receives the equivalent of two or three months' additional pay each year...

...The nationwide total of monthly wages, I was told in Warsaw last year, was 145 million zloty higher than the nationwide value of monthly production...

...A Polish version of the sort of system that has evolved in Hungary or Yugoslavia would not only have amounted to a great step forward for the Poles...

...One consequence was that the Soviet Union—and the Communist nations which came into being with a Russian shove after World War II—lagged behind the capitalist world in providing consumer goods...

...But now that surplus labor pool has been drained, and Communist planners must improve both efficiency and morale if they are to achieve levels of production commensurate with those prevailing in the West...

...Though official statistics showed annual increases in national income during the years of the Cultural Revolution, much of what was produced was shoddy or worthless...

...All decisions about prices, wages, and production goals were left in the hands of the governmental bureaucracy...

...Communist leaders are aware of these considerations...

...Not even Sidney Lens, The Progressive's Senior Editor, visited Poland, China, and several other Communist nations last year...

...Whether there was real justification for such draconian measures is still a matter of conjecture and debate...

...Referring to the workers' struggle in Poland, one of the Russian officials had said, "Our system at home also needs grass-roots pressure to shake it up...

...Their initial solution was another ambitious plan: a sweeping program of modernization that would have required more than $500 billion in new capital over an eight-year period though this was as much as China had committed to capital formation in the preceding twenty-six years...

...Compared to the Stalinist standard, Yugoslav self-management was remarkably decentralized...

...But then it began to release political prisoners, and it introduced a democratic agrarian system and an economic program that have given Hungary a considerably higher standard of living and made the nation a showcase of the Eastern bloc...

...Deng Xiaoping's China is steering away from the former and toward the latter...

...Nonetheless, China's new course seems steady and bound for still wider application...

...Most important, Belgrade gave workers and managers a greater degree of autonomy than could be found in any Stalinist state— the right to travel, to quit one job and take another, to seek work abroad, and to exercise at least a measure of free speech...

...Certainly Solidarity had good reason to demand shorter hours and higher wages for Polish workers...

...On each occasion the government promised reform, but each time it merely tinkered with the Stalinist system, leaving its essential components in place...

...Respected Polish economists cautioned Gierek that trouble was coming: The industrialization program couldn't work because Poland still lacked both the raw materials and the productive efficiency required to compete with the West...

...Solidarity wanted workers to run the factories...

...There have been problems: Last year, while the central government was attempting to cut down on capital investment, the cities and provinces were increasing it...

...He stressed heavy industry and neglected consumer goods...

...In 1970, for example, when Eduard Gierek replaced Wladislaw Gomulka as head of the Polish party and government, he introduced a grandiose development plan designed primarily to modernize and expand heavy industry...

...the Communists insisted that ownership had to be vested in the State...

...However, the shift toward a different kind of communism has begun in China, too, and long before that shift has run its course the impact will be immense—for China, for Eastern Europe, and probably for all of us...

...But the fact is that Stalinist economic planning was the worst kind of planning, subordinating considerations of quality, efficiency, and cost to the quantitative goals of "the plan...

...Light industry—the factories that produce shoes, clothing, household utensils, and such—received new attention and support, and this sort of output increased by 9.6 per cent in 1979 and 18.4 per cent in 1980...

...But some of the blame must be allotted, too, to Poland's insurgent trade union movement...

...It relied, instead, on moral incentives—slogans, propaganda, appeals to idealism, denunciations and persecutions of those "revisionists" and "capitalist roaders" who failed to measure up...

...When the cutbacks in heavy industry went into effect a few years ago, for example, the director of an aircraft plant set aside part of his production line for the manufacture of electric fans...

...The word for this was "readjustment," and one Chinese writer defined it as "doing things according to our capabilities...

...Some other Communist states rushed to follow the Soviets' New Course in the 1950s, but it was abandoned after a short time when Nikita Khrushchev forced Malenkov from power...

...When negotiations collapsed and the regime's fate seemed to be in jeopardy, martial law was imposed...

...Adam Smith—or the most zealous American libertarian—could have gone along with such a scheme: There are moments of crisis—natural disasters, economic dislocations, emergencies of many sorts—when state intervention is unavoidable...

...instead, those stood still or declined...

...The Poles will probably have another chance—as the Hungarians did after the Soviet invasion of, 1956...

...Hungary adopted much of this format in the mid-1960s, about a decade after Soviet tanks had rolled into Budapest to crush a revolution...

...Around the world in China, changes now taking place may ultimately have a more profound effect on the Communist world—and on the entire world—than anything that has been happening in Poland...

...That will require the regimes to grant both democratic rights and material incentives to workers and managers...

...A farmer who sold produce to a neighbor, a cobbler or plumber who did private work in his spare time, was denounced for taking the capitalist road...

...The blame for this serious setback belongs, first of all, to the Polish Communist leadership, which clung stubbornly to an economic program that many Polish economists had long warned could lead only to bankruptcy...

...Workers, too, were promised higher wages and lower prices...

...What is the State's role in this process—should it provide guidance and inspiration, or should it impose rigorous discipline...

...Housing was neglected to the point where even after several recent years of intensive construction, the average resident of Beijing occupies only 3.6 square meters of living space, as against 4.2 meters before the Cultural Revolution...

...Directors of some 6,000 large plants (which account for 60 per cent of the nation's manufacturing output) have been given latitude in buying raw materials, setting production goals, and selling the goods they produce...

...Even minor free-market operations, they feared, carried the danger of a return to capitalism...

...Disruptions of normal life on such a massive scale affected every aspect of the society, and they continue to claim their toll...

...No one knows yet how many Chinese were killed or banished to backbreak-ing labor in rural communes...

...After 1979, scores of major projects were postponed— indefinitely in some instances...

...That meant suddenly competing with far more efficient economies...

...Poland presented an extraordinary opportunity to bring about a form of what the Czechs in 1968 called "socialism with a human face...

...But without a restructuring of the economy to achieve higher productivity, any gains in wages or reductions in hours were bound to be pyrrhic victories, swiftly wiped out by uncontrollable inflation and the black-marketing of goods in short supply...

...The central government got out of the business of detailed planning...

...As it gained momentum, the Cultural Revolution became an orgy of fanaticism, though Chinese leaders (and their sympathizers in the West) depicted it as something else—a formula for building real communism...

...In vast and diverse China, the transformation is likely to be a gradual process—especially since it is already encountering serious resistance...

...High military leaders are said to oppose the rapid dismantling of Maoism, and millions of Communists are also reluctant to change direction...

...And Poland, until the imposition of martial law, was clearly in the early stages of a similar (perhaps even more sweeping) transformation...

...He sent living standards into a sharp decline...

...China's experience conformed to the standard pattern of the Stalinist economic model: Industrial output increased substantially from 1966 to 1975, especially in heavy industry, but none of this was reflected in higher living standards...

...One critical set of questions lies at the root of all these developments: How can a socialist economy accumulate the capital it needs for development...

...It will continue in Poland, it is under way in China, and it will surely arise sooner or later in every Communist nation...

...At Warsaw's best hotel, the Victoria, where the daily rate is $100 (in hard currency), there was no orange juice, fresh or canned, when I was there, and half the items on the menus of the best restaurants were unavailable...

...But the trend is toward giving workers an important and perhaps even controlling voice in economic decision-making...

...Theirs were economies of perpetual shortage, and the evidence has been on display to every visitor—empty shelves in the stores, or long lines for such items as meat, cigarettes, and sugar...

...When I was in Poland during last year's Communist Party convention, a magazine editor told me about a luncheon he had just attended with two members of the Soviet central committee...

...But the most significant changes in China are system-wide and structural...

...Schools were closed for half a decade, leaving an acute shortage of the high school and college graduates China needs to provide managerial skills...

...Mao and his supporters, including the group now vilified as the "Gang of Four," insisted on centralized economic planning that emphasized heavy industry at the expense of consumer goods...

...The bubble burst in 1975, and by 1978 Poland was buying four times as much grain from the West—on credit—as it had in 1971...

...Mao died in the fall of 1976 and his great experiment died with him...

...Nonetheless, efforts to introduce "socialism with a human face" continued in East Germany, Poland, Hungary, and Czechoslovakia...

...On the other hand, the output of heavy industry was allowed to go into decline...

...China lacked the energy resources, the transportation system, and the building materials that would have been required...