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Lessons from the Cold War

Lessons from the Cold War

Prof. John Moore, President Emeritus, Grove City College, Former Deputy Director, National Science Foundation

May 25, 2011

About the speaker

Dr. John H. Moore served as President of Grove City College from 1996 to 2003. Previously, he was Director of the International Institute at George Mason University, Deputy Director of the National Science Foundation, Associate Director and Senior Fellow at the Hoover Institution, and Associate Director of the Law & Economics Center at the University of Miami. He began his career at the University of Virginia, where he taught economics and served in various administrative posts. He has written or edited numerous books and articles published in professional journals. Now retired, he lives in Florida.

A One-Day Conference: May 25th, 9:00 a.m. to 3:00 p.m. Key Bridge Marriott, Arlington, Virginia

The death of Osama bin Laden significantly affected both sides in the War on Terror. The most important questions now are how will al Qaeda and its associated movements respond to the death of their leader, and is the United States safer or in more danger today? The Westminster Institute is bringing together world-renowned authorities and national security practitioners for a one-day special event in Washington, D.C. Together they will provide answers to these questions and also address the broader questions of what impact bin Laden’s death will have on non-violent jihadists such as the Muslim Brotherhood, and what strategies can the U.S. employ to turn this battlefield win into a definitive victory.

Transcript

Katharine Gorka:

I thought Patrick and Steven did a superb job of pulling back the veil as one of our audience members noted. I think that they, you know, said many things that some of us already know but they said it in a very succinct and straightforward way. These may seem like self-evident truths to many of us, but the fact is that in fact you still cannot say many of these things.

It’s not insignificant that we’re having this discussion outside of a government context. While many people within various agencies and offices know already some of these realities, the fact is in most organizations and government agencies you can’t talk about it this way. You can’t talk about it this way and that we have to come to a place like this to talk openly about these things. What our next panel will do is we will hear some important lessons from history about experiences that our country has had in the past in finally bringing to light these kinds of uncomfortable truths.

We’re going to start with John Moore and he may seem in some respects the most out of place, but in fact I think the story that he tells and the lesson that he has is one of the most important. For me it was really a life-changer when I heard this story for the first time at an event in Slovenia. You know, by the time the Berlin Wall fell, I was already an adult and I just assumed as I think many people do now that we won the Cold War and that we were unified in our belief that communism had been a bad thing, and indeed, that was not the case. As John will tell us, there was tremendous belief in the lies being propagated by the Soviet Union and it was very, very difficult in the early years to come out and to try to challenge the lies being put out by the Soviet Union and I think it took tremendous courage.

You’ll hear the great story of Warren Nutter. It took tremendous courage on his part to come out and say the things that he did and I think I wanted him to tell this story because I think there’s a great parallel and I don’t mean to steal your thunder. I hope I’m not but there is a great parallel to what’s going on today and what’s going on now and I think the story is heartening because it reminds us that we’ve been here before.

Then, after John we’re going to hear from John Lenczowski and Bob Reilly and they are going to talk about both the importance of revealing the truth but also the difficulty in it and again, John will draw a little bit more on the lessons from the past. He’s going to tell us a little bit about his experience under Reagan and again, the lessons for today. But again, both of them will reflect a little bit more on the role of public diplomacy, which, unfortunately, in this area right now is an area which we are doing a terrible job, so they’re going to both highlight that and also guide us somewhat in how that can change.

I want to just also put in a quick plug for their books. John has just come out, John Lenczowski has just come out with his new book, which we do have available, called Full Spectrum Diplomacy And Grand Strategy, Reforming the Structure and Culture of U.S. Foreign Policy. This is available outside. You’ll hopefully hear a little bit more about it and Bob Reilly, I think it was Patrick who already mentioned Bob’s book, it’s an extraordinary book. I know some of you have already picked it up from us, The Closing of the Muslim Mind. I’m ashamed to say I left the twenty copies that I ordered in my office, so you have to take my word for it. I don’t have it here. I do have it available at the office. I know you can get it on Amazon as well. It’s in its third printing, tremendous book, so that’s The Closing of the Muslim Mind. And with that, I’ll turn it over to John Moore.

John H. Moore:

Let me also add my endorsement to Bob Reilly’s book, which I found fascinating and illuminating and I’m looking forward to seeing John’s book when I have a chance. What I’m going to do is tell a tale from the Cold War. It shows how one man’s work, Warren Nutter, made a big difference. It shows how the work was resisted by the academic establishment at the time and how that resistance was based on a shared ideology, and then I’m going to say something about what happened after all this.

Well, as you know the Cold War was fought on many fronts but in important ways it was about ideology, conflicting visions of the good society or at least the kind of society that the leaders or peoples of the combatants wanted were at its heart, collectivism versus individualism, socialism versus capitalism, comprehensive economic planning versus the free market, the totalitarian state versus democracy and individual liberty. All of these were part of this ideological struggle.

One point where they converged was economic performance and economic doctrine. The principles of collectivism and the omnipotent state were those of central economic planning, which was in turn the stepchild of socialism. On the other hand,  the principles and institutions of democracy and liberty were and are those of free market capitalism. The implementation of comprehensive central planning in the Soviet Union was a central feature of its version of socialism. The early success of the Soviet economy together with the alleged moral superiority of socialism won many supporters in the West.

Indeed, in the 1950s and the 1960s, supporters of socialism held the upper hand in ideological debates in the West and throughout the world. On academic campuses especially, those who favored capitalism and the free market were a distinct minority. The University of Virginia’s economics faculty at the time, the time was the mid-’50s and ’60s and later, was known for being on the politically incorrect side of the ideological field of battle. They were politically incorrect before the term was invented, actually.

One of the professors there, G. Warren Nutter, a friend of mine and a colleague of mine, was responsible for a study that powerfully challenged the conventional wisdom about Soviet central planning. Because that challenge was so powerful, and because it struck at the center of strongly held beliefs, the study and Nutter himself were subjected to harsh criticism by academic Sovietologists.

In the sense the criticism was based on ideology, the study and the reactions to it provide insights into the workings of ideology in academia, but the ideology of socialism and central planning was held by many people in and out of the universities and the issue of the efficacy of the Soviet economic system went far beyond the groves of academia.

The episode and its aftermath also show how dramatic world events may or may not influence ideological beliefs. So, what about the study? Well, the study in question was a major part of the series of studies of the Soviet economy that was launched by the National Bureau of Economic Research in the early 1950s. The genesis of that project is very interesting. I won’t go into that right now. But the motivation was the impressive performance of the Soviet economy, especially its high reported rates of growth at least according to official Soviet data and to the estimates then-prevailing in the West.

It was commonly believed that Soviet industrial output was growing significantly faster than that of the United States and that the Soviet system of central economic planning was responsible. Moreover, it was believed that these high rates of growth could be sustained indefinitely. Think China today if you will.

The belief that the Soviet economy was growing so rapidly and sustainably had two major implications. One was practical in the light of the Cold War and the other was ideological and concerned the struggle between socialism and capitalism.

The practical issue was clear. The Soviet Union’s industrial output was the fuel for its ambitions for global domination, including its military power. After the devastation of World War II, the economy had recovered very rapidly. By most estimates, 1945-1955 growth rates were at least as high as during 1928-1940, the years of the first five-year plans.

Military production grew rapidly. The development of nuclear and other weapons of mass destruction and the means to deliver them also was proceeding rapidly. After the war, the Red Army returned quickly to full capability. In short, the pace of industrial production raised deep concerns in the West about Soviet intentions and the threat that the increasing productive capability provided.

The performance of the Soviet command economy also cast doubt on the relative efficiency of Western capitalism. The Soviets boasted that their economy would soon overtake the U.S. and that prediction found its way into the American economics profession, which was often predisposed – as it is today – to criticism of capitalism and the free market.

Throughout the 1970s – this is years after the bureau’s studies were published – throughout the 1970s, leading economics textbooks retained optimistic predictions of Soviet economic performance relative to American, including projections showing Soviet output overtaking American by the 1980s. This you can find in late editions in Paul Samuelson’s textbook, basic textbook, for economics, which was the most popular textbook at the time, and showed the Soviet production was half that of the American through 1990.

These beliefs about Soviet post-war performance provided powerful arguments for those in the West who favored socialism. This was so not only for Communist Party members and fellow travelers but also for many non-communists who harbored pro-socialist views for other reasons.

For many, the Soviet system provided a kind of large scale experiment to test the idea that a socialist system with its claims to equity was a viable alternative to Western, particularly American, capitalism.

So, the study was originally planned to include several elements, a study of Soviet, which was concluded, a study of freight transportation, which was also completed, a study of agriculture, which was not, a study of industry, which is the main subject of what I’m talking about, and a final summary volume. That final summary was never published either.

Professor Nutter was named general editor of the project. He was also going to carry out the study of industrial production and write the summary. The results from his industrial output study were first reported in papers delivered in 1956 and in 1957 at the annual meetings of the American Economics Association.

The complete results were published in his book, The Growth of Industrial Production in the Soviet Union, which was published in 1962. That book contains a wealth of information about Soviet industrial production from the late-czarist period, 1870 to 1913, through 1955.

There are many conclusions and comparisons, but I think the most controversial are these. First, the rate of growth of Soviet industrial production was slowing. Second, Soviet production in certain key industries was lagging far behind U.S. production in comparable industries and it was extremely unlikely that Soviet industrial production would ever catch up to America’s. And third, the best estimate of a long-term growth potential in the Soviet Union was the average growth rate during the late czarist period, 1870-1913, ironically enough.

It should be noted that Nutter was not a member of the studies establishment. His work and conclusions came under especially harsh attack because of this. An early review of this book captured this bias in its opening paragraph and here I quote, “There is, we must not conceal it, prejudice against Mr. Nutter in the orthodox establishment of Soviet studies in the U.S. He comes out of the National Bureau of Economic Research and they in turn are an annex of the Chicago. He can’t read Russian. He was driven into this field by certain high authorities in order to prove the establishment wrong. He believes a priori that capitalism is more dynamic than communism,” etc., etc., close quote.

By the way, this bias was very endurable. In 1987, a survey was published in the Journal of Economic Literature on Soviet economic growth. That survey does not mention the bureau work, any of it.

So Nutter was an outsider, but in addition, his works were sharply different from the prevailing consensus. The general consensus at the time was that the Soviet system could produce sustained high rates of growth over long periods. One of the establishment economists, Donald Hodgman, said in 1953 that an annual rate of growth of 8% would be, quote, “not unreasonable as a basis for extrapolation.”

As late as 1962, Peter Wallace, who is author of the quote I just made, was published. 1962 now, this is when Nutter’s book was published and five, six years after he first presented his results. While it was published, the assertion that Soviet industrial production increases at an annual rate of 10%. Nutter was the first to claim publicly that the rate of growth was slowing.

Actually, things started to change after he published that book. A couple of years after he reported his first results, two other economics, Kaplan and Moorstein, noted that their index showed slowing output growth from the first five year plan and subsequent plan periods. They also noted that the seven year plan, that’s 1959-1965, implied lower rates of growth, but they qualified that by hinting that the seven year plan might be over fulfilled, which would, of course, reverse the retardation.

By 1966, retardation was so obvious that it was the main focus of the CIA’s report to the Joint Economic Committee. However, the reasons given for the slowdown did not speak to the shortcomings of the Soviet planning system. Despite acknowledging slow down, the authors still concluded that, quote, “The planned average annual increase of industrial output of 8.0% to 8.4% during 1966-70 seems cautious enough.”

Perhaps, the most telling statement of longstanding conviction of sustainable high rates of growth came from Senator Daniel Moynihan, who said in 1990, quote, “For forty years we have hugely over estimated both the size of the Soviet economy and its growth,” close quote.

The sharpest objections were leveled against Nutter’s comparisons with the United States. As I’ve already mentioned, he made several such comparisons. The most controversial were those of the ‘lags behind U.S. output’. That showed no evidence that Soviet output was catching up to America.

It was controversial because many Western experts as well as the Soviet leadership believed or claimed that production of the two countries was gradually convergent and he also ran afoul of the establishment in arguing that the best estimate of long term growth potential in the Soviet Union was the czarist period, the late czarist period.

Now, after all of that I should say that the criticisms of his work did not focus on its quality, which is generally credited as being sound, rather it centered on what Nutter made of it. As Peter Wiles put it in his review, quote, “It is the interpretation of Nutter’s figure, which must leave us as it left the American Economic Association in 1958, gasping,” close quote.

Why did the explanation leave the audience gasping? The simple answer is that Nutter’s results and interpretations ran directly against what was at the time a generally-held set of beliefs about the Soviet economy and the capacity of the Soviet system of central planning to generate high rates of growth. They contradicted assumptions about assessing Soviet growth that were, in essence, received wisdom about the economy.

In so doing, they represented a frontal attack on a paradigm or, I’d say, an ideology. The paradigm that underlay the work on the Soviet economy at the time and was widely accepted in the American economics profession was largely due to Abram Bergson, who was a professor of economics at Harvard and the leading figure among Soviet specialists in the post-war period.

Bergson’s preeminence was owed to his work in the 1930s on welfare economics and his wartime and immediate postwar career in the American intelligence services. During the war he was director of the Russian Economic subdivision of the OSS. After the war he led the organization in planning for studies of the Soviet economy in the newly established Central Intelligence Agency.

During the course of his work he developed a set of conclusions about analyzing the Soviet system that became the framework for virtually all Sovietologists at the time. This paradigm had three main elements. First, a socialist economy in which the means of production were owned by the state was held to be feasible. In this, Bergson took the side of Oscar Lange, Fred Taylor, and others in the so-called great socialist debate. The intellectual leaders on the other side were Ludwig von Mises and Friedrich Hayek.

To reach his conclusion, Bergson became convinced that the incentive problem in an economic system without private property could be solved. If so, then an economic outcome could be achieved without resorting to the free market of capitalism. Of course, that message has a strong, anti-capitalist message and therefore carried a lot if ideological content.

Bergson – I don’t think – ever advocated a pure socialist economy in the U.S., but that message resonated with many others who did favor the replacement of capitalism with some other system.

The second element was an extension of the first, and that was that a central planner or planning agency could actually solve an enormous set of equations that would be needed to implement a plan in a socialist economy. Maybe you couldn’t achieve optimality at the time given the computational power then-available, 1950s, but the conclusion implied that a centrally-planned economy like the Soviet Union’s could work in practice as well as theoretically. So, that was a second element.

The third element concerned the data. The first official Soviet abstract did not appear until 1957, 40 years after the revolution. Prior to that, researchers had to dig through myriads of sources, including ministerial reports, statistics for individual industries, trade journals, and many more to assemble their data.

Whatever the source, it was widely believed the physical output data were biased upwards by incentives at the local level and by propaganda purposes at higher levels. Bergson and others, after study of the biases, concluded with knowledge of those biases that the understanding that they tended to be roughly stable through time – Alec Nove called this the “law of equal cheating” – and with proper care and adjustment, the Soviet data were usable.

So, those were the three elements. Nutter did not accept the first two elements. He was convinced that socialism could not work, that private incentives could not be aligned with the aims of a socialist system. He also did not believe that a central planning agency could cope with these enormous computational complexities.

Moreover, as a matter of ideology he rejected the authoritarianism and collectivism that a planned socialist state required. He objected to the idea that the goals for a society should be determined by a political authority, even a democratic one, much less a dictatorship.

He did though accept the third leg of the paradigm. I guess he had no choice. The NBER study of Soviet statistics that I mentioned earlier and his own work with the Soviet data gave him enough confidence to allow him to use them for his measurements.

Reliance on the paradigm and in many cases sympathy for what many saw as a grand experiment in socialism produced the kinds of claims for Soviet performance and its future that I have noted, so for academic specialists, Nutter’s results struck at the heart of their conclusions and beliefs.

It was not only the scientific conclusions that were questioned, although that was bad enough, but his conclusions also challenged the belief that a socialist planned economy could compete effectively with a free market capitalism system and shattered the idealistic dream of a future, socialist system.

This view that catching up with the U.S. is highly improbable struck very hard at that belief. Even worse was that the best estimate of the long term growth rate of the Soviet Union was the late czarist period, that Soviet socialism was no better than despotic czarism must have been unthinkable for many. No wonder people gasped.

Of course, socialism and central planning have other, deeper roots than mere macroeconomic efficiency. Sympathy towards the Soviet system can be traced to a post-Enlightenment mentality that believes that human reason can and should be applied to the design and operation of an entire economic system.

From 1935, about twenty years before the NBER project, Hayek wrote, quote, “Today, there is hardly a political group anywhere in the world, which does not want central direction of most human activities in the service of one aim or another. It seems so easy to improve upon the institutions of a free society, which have come more and more to be considered as a result of mere accident,” close quote.

I think that such a rationalist view of central planning was supported by the successive war time planning – World War II that is – in the U.S. and elsewhere. If thousands of aircrafts, tanks, trucks, ships, and tons of munitions and materiel could be produced in short order under the hand of government, it seemed obvious to many that the same kind of direction could or would produce far better results for the post-war civilian economy than the apparent – to untrained eyes – disorganization of the free market.

Even Nutter conceded that the Soviet system had produced impressive results. Here’s a quotation from the 1962 book, quote, “In terms of its ability to generate sheer growth in industrial output, the questions of how much the growth has cost, what product mix has evolved, how the products have been put to use being laid aside, the Soviet system of centralized direction has proved itself to be more or less the peer of the market economy as exemplified by the United States,” an amazing concession.

Of course, events a few decades later would show this gave far too much credit to the Soviet system, I mean after all it disappeared, but it is crucial to be careful about that statement. Nutter meant as he went on to say that the Soviet system guided by the political leaders, was focused on a relatively meager mix of products, including emphasis on investment goods and munitions.

Now, it is interesting that forty years later another expert gave this a name; structural militarization. If you want to look it up, it’s Steven Rosefielde. By this he meant the planners focused on the military and its requirements. Resources were allocated in response to demands for the military sector. Non-military sectors were left to compete for the leftovers.

This form of planning is relatively simple because there is a singular, dominant consumer, the military, that presents well-defined requirements to the planning agency. Success in fulfilling those requirements is relatively easy to measure, often being merely technical. It avoids the central issue of the great socialist debate: how the varying demands of the multitude of individuals can be met by producers who necessarily have limited knowledge of those demands, of the available resources, and of the technologies that might be used to produce the goods and services.

I insert a little sidebar here. I think that Ronald Reagan understood this. I think he understood that the Soviet weakness was its militarism and he knew that the Soviet system could not keep up with ours, so he attacked the weakness with the arms buildup and the system eventually cracked. Economics was the key and the economic pressure was the weapon.

Of course, he also understood the importance of ideas, as I know John and Bob are going to emphasize, and of calling Soviet communism what it was. I think that was directed partly at our audience here at home as well as to audiences behind the iron curtain. But it was obviously crucial in the outcomes of the Cold War.

A couple of other points on the appeal of socialism. The Great Depression I believe contributed to sympathy for some form of planning or at least a much more intrusive role for the central government. It left an indelible mark in the American psyche, leading people to think that the market system was unstable, unpredictable, and unreliable, and – or so it appeared – the Soviet system was impervious to such fluctuations. Actually, the Soviet system had fluctuations. They were not the same kind of fluctuations as we see in our country or in the West but it did have fluctuations that are traceable precisely to the central planning system.

The appeal of socialism lay not only in the belief that it would produce more goods and services and do it more reliably than the free market or in its appeal to post-Enlightenment rationalists, socialism also had – and has – an emotional appeal based on what its adherents believe to be the injustices of capitalism, especially related to the distribution of incomes.

So, the NBER study represents the earliest public indication of the inherent weaknesses of Soviet socialism but the specialists in the field began to change their judgments. Only one year after the final NBER study was published, that is to say in 1963, Abram Bergson himself had modified his position. In 1948, he had been persuaded that a socialist economy was feasible. By 1963, he had concluded that a centrally planned economy was inferior to a market economy.

As years passed and evidence mounted, others also came to doubt the long term superiority or even parity of the Soviet system but its total collapse was a shock to nearly everybody. Although the great experiment with socialism and central planning had not produced the nirvana that some had expected, still it was believed that the system itself could survive, albeit at a lesser level of performance than had been hoped for and expected.

Even Nutter, never sympathetic to socialism, central planning, and the Soviet Union, had thought that it could survive and continue to expand at rates approximating those of the late czarist period, but collapse it did. Did collapse resolve the ideological conflict? Was the idea of socialism as a practical approach to the organization of an economy really put to rest?

Well, many former Communist Bloc countries swiftly abandoned their socialist systems and adopted some form of market order. In subsequent years of course, we’ve seen that spread to a lot of other places. And I think that the spectacular collapse of Soviet socialism played an important role in those developments, but advocates of socialism persist and their ranks are, in my opinion, growing.

The recent financial collapse of course is a prime reason for this; the reviving pro-socialist arguments about the instability of capitalism and even the moral arguments about the ethics of income distribution in a capitalist society. Few eminent socialists now advocate the outright abolition of private property in the means of production and the pure Marxian belief in the inevitability of socialism has largely disappeared, although I think you can still find it on certain academic campuses.

But what might be called soft socialism persists and is growing as central governments increasingly regulate the use of – and restrict the exchange of, property, fix prices of goods and services, and otherwise attenuate private property rights. The socialist impulse is channeled in many ways. For example, in the environmental movement, the provision of healthcare, and restrictions on private determination of executive compensation.

If the Soviet collapse should have implicitly settled anything, it is that the comprehensive central planning of the Soviet type is not feasible in a complex, modern economy. Yet our daily political discourse is full of advocacy for economic planning. The identification of a problem, which usually means an outcome that somebody dislikes, commonly leads to calls for government to solve that problem. This usually means some form of government action; regulation, targeted taxation, subsidies, prohibition of selected activities, and so forth. While not usually considered economic planning, such actions have in fact the same nature.

The unfortunate result is the accretion of thousands of such regulations, taxes, subsidies, and so forth. Look at the federal register. It creates a snarl, a tangle of often conflicting laws, whose overall effect is to impede economic development. Not even this nor the spectacular failure of the more comprehensive Soviet system seems capable of vanquishing the myth of economic planning by government.

Well, this session, my session, is called lessons, so let me give a couple of lessons. Arguably, economic pressure was the approximate cause of the collapse of the Soviet Union. The NBER study exposed the weakness of the system. Subsequent research confirmed it. Reagan recognized it and seized it.

Economic pressure I think was necessary but not sufficient. It was necessary because the system might have limped along without that pressure. It was not sufficient because of the need to appeal to people for change, for better lives. The rapid adoption of the market-like systems in the former CMEA countries after their release from Soviet dominance after the fall of the Berlin Wall shows that, but I think that subsequent developments in the West shows something else.

People cling to their ideologies even when evidence shows that these result in poor or even disastrous outcomes. In the end, I believe people are really persuaded by ideas not be evidence. I had a colleague at the University of Virginia who made that point very clearly once. I’ve never forgotten it.

And finally, ideologies die hard. The Cold War lessons about planning, about government interference in the market, even about socialism itself seem to gradually be fading away. People are forgetting what it was like during those days and what a struggle that was and what we thought we learned from the whole experience.

It tells me that these things require permanent long term effort. Patrick mentioned Islam’s commitment to permanent, ideological war or even war, period. I think in a sense we have to adopt that same perspective. These are not short term fixes we’re after. These are long term, permanent, ideological battles we must fight.

Socialism after all had a history if you date it from Marx of only – that is formal socialism – of only a couple centuries. That’s not much in the scale of things. Islam’s been around for 1400 years. I might also mention that Christianity’s been around for 2000. So, thank you very much. These are a few comments on an episode in the Cold War.

Katharine Gorka:

John, thank you so much. I hope you heard the many, many parallels. I was intrigued by the economist person that he mentioned who I think for many of you probably invoked the name John Esposito for today’s fight. I think it’s also interesting that at the time of the economic collapse in 2008 and in the year or two subsequent, Sharia finance has been often presented as a more humane form of economic organization than capitalism and I think that’s one of the areas that really needs the scrutiny of our study to uncover the truths behind that.

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