Father O'Donovan, ladies and gentlemen:

First of all, let me thank the Father for these very gracious and warm words of welcome. I particularly appreciated his very kind comments about the column that I wrote for Newsweek, which he described as possessing "clarity," "profundity," "morality" -- words which echo deeply in my mind. And they do so particularly because, while Father O'Donovan was a devoted reader of the column, apparently it didn’t have too many other readers and Newsweek dropped it. So it’s nice to hear that there was a reader that -- that appreciated it.

I’m also delighted to take part in this conference which reflects something about America, which I think is worth registering at the beginning of my remarks -- which would be focused, not on America, but on the Soviet Union and Eastern Europe -- and that is a spontaneous collaboration between various sectors of our society in the promotion of learning, in the advancement of our knowledge, in the promotion of our shared interests. This conference is sponsored by a university and by a prominent business enterprise and, as such, I think it tells us something about the spontaneity and the creativity of American society, where different groups, different individuals spontaneously come together in the pursuit of a larger common interest. And thus, I think it's also a very healthy symptom.

In being invited to this conference, I was told by Mr. Peachey [ph] that the organizers would like me (and I quote), “to address the dramatic changes which have occurred in the East in the past couple of years and relate all of that in some way to the commercial environment, opportunities for investment, and the free-market, even if only in a philosophical sense.” And therefore, I shall now proceed to carry out this mandate.

I'd like to begin by stressing some things in common between Eastern Europe and the Soviet Union, and then to differentiate what is not common but which in fact varies between Eastern Europe and the Soviet Union, and in Eastern Europe itself. For the commonalities and the differentiations are equally important. The commonality in a way harkens back to what Father O'Donovan already mentioned, namely the broader historical crisis of communism.

I think it is fair to say that both in Eastern Europe and in the Soviet Union, Communism, Marxism-Leninism, as an organizing principle, is dead. That is to say, it no longer motivates in any significant degree public policy. And I think it’s important to take stock of this reality. This doctrine, once so confident of its historical fate, once so convinced that it was riding the crest of history, no longer animates public policy, in fact, in any country in the world -- in any country in the world. There are still communist regimes in power, ranging beyond the area of our purview this lunch, for example in Korea or in Vietnam or in China or in Cuba which assertively proclaim their fidelity to the communist doctrine. But even there, public policy is no longer motivated by the doctrine. That is to say, public policy is not committed to the construction of a socialist or, eventually, a communist society. Public policy is not dedicated to the promotion of new social relationships based on the notion that ultimately the state of some ideal Utopia, namely the face of communism, is to be reached.

If one goes back to the party program adopted by the Soviet Communist Party in the early 60s in the days of Khrushchev, one would still find in it a commitment to the attainment of the state of communism, the condition of communism in our lifespan, within this century -- in fact, presumably at some point already antecedent to today’s date. But this no longer animates Soviet policy either. Soviet policy, internally, whether in its economic planning or in its economic reforms or in its discussion of the future of the political structure of the Soviet system, is no longer animated by a conscious, deliberate commitment to the doctrine. The doctrine is discredited -- and it’s dead. And of course, that reality is more openly and explicitly acknowledged in the countries of Eastern Europe.

And thus, we are dealing with a new historical phenomenon, namely the disappearance from the active political scene of a doctrine that dominated much of the life of this century. When historians come to write the history of this century, they’ll certainly have to consider the fact that much of the intellectual and political life in this century was shaped by the appeal, the dynamism, the seeming inevitability of success of the communist doctrine. This era has now come to an end and this is common to the Soviet Union and Eastern Europe.

But that’s where the commonality also ends because, beyond that, there are increasingly significant differences to be noted. While the doctrine as an organizing principle is dead, there is considerable difference in the systemic political realities in so far as Eastern Europe and the Soviet Union is concerned, and also within Eastern Europe. In fact, when we move from the doctrine as an organizing principle to the actual state of the systems, and therefore also to their prospects, and therefore also to the possibilities of business, I think one has to note very significant differences.

And in my judgment, they fall roughly into three categories:

There are those systems in which the doctrine is dead and discredited and in which, in so far as the systems themselves are concerned, one notes the active effort to create institutionalized democracies and to implement the free-market as the economic reality, as a dominant reality.

There are, secondly, those systems in which the dismantling of communist institutions of power is highly advanced; but in the wake of that process, there is a certain lack of clarity regarding the future and it would be premature to describe these systems as engaged in the comprehensive construction of democratic institutions and in the implementation of the free-market mechanism.

And finally, and thirdly, there is a system in which the struggle over the survival of the political system itself, even though the ideology within it is dead, is still very much the dominant political reality.

The first applies to Hungary, Czechoslovakia, and Poland. The second applies to the other East European countries, specifically Romania, Bulgaria, Albania, and because of the recent crisis, though largely of ethnic origin, to Yugoslavia. And the third category applies particularly to the Soviet Union.

So we’re dealing essentially with three different stages in the process of the death of communism being translated into systemic political socio-economic consequences. One involves the ongoing process actually to build pluralistic democracies, to institutionalize them, and to base them on an operative free-market mechanism. The second involves still the difficult process of the dismantling of the system but it's not yet dominated by the extensive positive construction of an alternative, viable system. And the third involves still an ongoing struggle over the question whether this system of power, even though devoid of ideological motivation, is to be preserved or fundamentally abandoned, transformed, and is to lead to something fundamentally different.

Let me speak briefly to each of these three phases or stages of post-communist development. Poland, Czechoslovakia, and Hungary are the countries which today are in the forefront of the transition from communism to viable alternative systems. In all three of them, we have now in power democratic governments which by and large have been democratically elected, although in Poland there is still a parliament which is, in 65%, composed of appointees. But that, too, before too long, will change and, in any case, Poland recently had presidential elections which resulted in the first freely elected president in Polish political history.

All three countries have, in the main, pluralistic democratic systems in being, and in the process of being institutionalized. All three of them are engaged in the search for a defined constitutional framework. They're taking [a] close look at Western models -- be it the French, or the German, or the Finnish, or the Italian, which are getting the closest attention. And one has reason to expect that the process of political consolidation and institutionalization will continue. Beyond that, each of them in various degrees of intensity, is engaged in the process of socio-economic transformation. That is to say, all three are committed to the implementation, in the foreseeable future, of essentially pluralistic free-market economies. There are differences between them in the pace. There are differences between them in the degree of ongoing success; but by and large, I think, one can fairly say that all three are generally committed to that goal and their political institutions are supportive of that objective.

Of the three, probably Poland is the one that is engaged in this process on the broadest basis. That is to say, particularly the socio-economic transformation is being pursued with a degree of determination and urgency and scope that is larger than the case of Hungary and of Czechoslovakia. The big-bang approach, as it has been described by economists, is being implemented in Poland with a high degree of commitment but also at very high social cost. Nonetheless, progress is being made, at least in the initial phases of this undertaking, and the political system remains dedicated to its pursuit. One of the historically significant aspects of the election of Walesa as president is that it places in the center of the political system an individual with a high degree of charismatic appeal, capable of appealing to and pacifying the inevitably frustrated and disaffected masses, as the process of transition proceeds to entail difficult, indeed painful costs. The availability of political authority, capable of reassuring the country, of mobilizing support, is a key element of stability and very important to the success of the ongoing reform.

The reforms themselves are obviously going to encounter continuing difficulties and they are deprived of any ongoing model. One of the problems that all of these countries face is that there is no conceptual guideline for the actual transition from a communist-type economy to a free-market economy. We do not have a model to be applied. Involved here is a direct learning process -- a direct learning process through experimentation at considerable social cost with the possibility of acute political errors being committed, either because the process moves too rapidly or perhaps because it moves too slowly. And there is no way of telling in advance as to what is the right prescription.

As I have said of the three, the Poles have decided to move most rapidly and the hope in the West is that they will be successful. And the hope in the West is that their success will inspire others to move also in a broader front with a higher sense of urgency. But much depends on whether the Polish president, in fact, proves successful. And it is very difficult to tell whether that will be the case or not. We know of successful cases of the transition from fascism to democratic institutions but even under fascism, in Spain and Portugal, you did have a rudimentary free-market system operating. There was no parallel for that in Eastern Europe, and thus the process is infinitely more complex, practically and conceptually. And thus, we are dealing here with an experiment which is not only [a] practical one but which is a very complex one, intellectually.

And we have to be sympathetic and patient and helpful to the East European countries in the pursuit of this very ambitious objective of theirs, namely to create, at the same time, a pluralistic democracy and a free-market mechanism compressing within a narrow historical period of time stages of development which in other societies lasted quite often for several decades; or which, in some societies, involved a combination of the free-market mechanism with highly authoritarian and disciplined political systems -- for example, South Korea or Pinochet’s Chile. But this is not a model which we want the East Europeans to emulate. And this is one of the dilemmas that the East Europeans confront.

Each of these three countries, I think, has reason to be relatively optimistic, though there are differences between them. Czechoslovakia suffered the least from the communist experience in so far as the three are to be compared. Of the three, Czechoslovakia actually made communism, to some extent, perform adequately in the economic sphere. And this may be unpalatable to some Czechs and Slovaks to hear, but the frame of reference is a comparison with Hungary or Romania or Bulgaria or Poland, where communism was much more of a failure. This may be testimony to the productive and disciplined capabilities of the Czechs and the Slovaks. This may be testimony to their higher stage of economic development at the time of the communist takeover. But be it as it may, the legacy of communism in Czechoslovakia, while painful for the Czechs and Slovaks, is less destructive relatively speaking than in the case of the Hungarians and the Poles. And thus, for many, Czechoslovakia offers an attractive target in so far as business opportunities are concerned because it is an economy that was less devastated by the communist experience.

By the same token, there are also some problems inherent in that. And one of them is the somewhat lessened sense of social urgency about the scope of reforms, particularly as compared with the Poles where the failure of communism gives them really no choice but to accelerate the process of change. A further complication, in the case of the -- of Czechoslovakia, is the ethnic heterogeneity of the country which is now manifesting itself in the intensifying conflicts between the Slovaks and the Czechs, which does introduce to some extent a factor of uncertainty regarding the political framework. Nonetheless, I remain optimistic about Czechoslovakia’s prospects as I am as well about Hungary and Poland.

Hungary, in contrast to Czechoslovakia and to Poland, probably represents in a sense the safest risk from the stand point of Western interests. It is a country in which entrepreneurial tradition has made the most rapid recovery. It is a country which historically is favored to promote cooperation with Austria and the region around it. It is a country in which common sense has dominated internal economic affairs over a number of years prior to the fall of communism. And thus, its prospects in a general sense seem reasonably good. At the same time, it is a country with some cultural-political difficulties, indeed a country with a peculiarly pessimistic culture. It is a country in which psychological polls indicate a degree of pessimism about the future -- which is on the mark by Sweden -- and over time that can have an adverse impact on the pace of socio-economic change. There are some lingering difficulties in the cohesion of the political system.

Poland, of the three, probably is the biggest risk, and the biggest promise, depending on how things work out. It is the biggest risk because of the scale and complexity of the problems and because of the pace of change, which means that difficulties are being confronted with the highest degree of urgency. But it's also potentially the biggest success because if it doesn’t fail, the payoff will come the soonest and on the biggest scale. And if Poland succeeds, it will be, then, the Spain of Eastern Europe: a country which rapidly is transformed and becomes extremely advantageous to those who have become engaged in its economic and political transformation. But it is a country with considerable social difficulties and with some lingering political uncertainties, though on the whole I view the cohesion of the Catholic Church, the political power of Walesa, and the ethnic and religious homogeneity of the country as factors of stability. And it is worthwhile noting that from a religious-social-ethnic point of view, Poland today is the most homogeneous country in all of Europe. It is a country which even does not have regionalism of any significance because of the homogenization of the Polish society that took place at the course of World War II.

All of these countries, too, enjoy a relatively highly trained and well-educated labor class which is capable of being rapidly adapted and exploited to Western business. And this is a very important factor in terms of marginal utility, trade advantages, and so forth. It is perhaps not generally well known that, for example, in terms of scientific education, Hungary ranks fourth in the world in terms of mass scientific education of its public; Poland ranks number six, just behind Japan. And the United States, for example, ranks number 11; Sweden number 9, etc. So these are highly educated publics, potentially adaptable for exploitation at higher levels of technological development, particularly under conditions of felicitous foreign investment.

Beyond that, I think, the West is committed to their success; and this is an important political factor. I do not believe that the West is prepared to let these free countries fail. And this is a very important political reality which is not applicable to the rest. The West realizes that from the geopolitical point of view, the failure of the Polish experiment because it is the pioneering experiment, but also the failure of the Czechoslovak experiment or of the Hungarian experiment would be a geopolitical setback for the West. The Polish debt forgiveness which is quite monumental in scale, which has only one precedent that is comparable -- that of West Germany in 1954 -- is, I think, evidence for what I'm saying. It was not an act of charity. It was not an act of love. It was an act of geopolitical self-interest; realization that it is important for the West that the experiment of Poland not fail.

And that, I think, indicates that the West is going to be constructively responsive to dilemmas these countries will continue to face as they embark on this unknown path, as they plunge into this uncertain future, provided they continue to maintain democratic institutions and remain committed to movement on a broad front towards a free-market mechanism. And the support of the West in turn, I think, will provide the necessary margin of safety and confidence, and eventually of stimulus. And this is why, from purely a commercial point of view, I consider these three countries to be promising targets. All three of them will be associated with the common market within the next two years -- associated with the common market.¹ All three of them will be entering the common market, probably within a decade or so. That means that in a sense, their economic future is relatively foreshadowed, is relatively secure, assuming of course no major political upheaval.

This cannot be said about the other countries of Eastern Europe. Unfortunately, for a variety of specific reasons -- in Romania, in Bulgaria, in Albania, and in a very different sense, in Yugoslavia -- the struggle with the past and the political front is still the dominant reality. It is not the shaping of the future that now determines what is going on. It is the struggle with the past.

In Romania, there is still a quasi-communist regime in power whose future orientation is subject to enormous internal stresses and in which social dissatisfaction is imposing increasing strains on the overall fabric, both of society and the political system.

Bulgaria is moving forward more rapidly. It has the potential for recovery but there’s no doubt that the political struggle with the past is still the determining reality in what is happening in Bulgaria.

Yugoslavia, by all standards, should be in the first category. It should be included among the three, regarding which one is justified in entertaining greater optimism. But alas, the national problem in Yugoslavia has now become dominant and it does suggest to me that if there is to be any positive development paralleling what has happened in the leading three, in terms of Yugoslav reality, it is likely to occur on a dispersed basis. That is to say: if Yugoslavia is transformed into a genuine confederation of a very loose type; if political maturity prevails; if ethnic conflicts subside, then it is likely that Slovenia and Croatia will be the analogues to Czechoslovakia and Poland and Hungary, not Yugoslavia, as a whole.

And if Yugoslavia, as a whole, remains a determining political reality, then it is likely that Yugoslavia, as a whole, will be still part of the same category as Bulgaria or Romania or Albania. In other words, Yugoslavia, as a whole, cannot duplicate what are on the whole the positive prospects --- on the whole -- the positive prospects for Poland, Hungary, and   Czechoslovakia; but Slovenia and Croatia might. That means that the determining factor here is going to be the maturity and flexibility of the Yugoslav political leadership.

The third category is the category in which the struggle over the survival of the system is still dominant; and that, to me, defines the current Soviet reality.

In the Soviet Union, over the last five or so years, remarkable changes have taken place. And without a doubt, a great deal of credit for that ought to go to Mikhail Gorbachev, who has earned for himself a lasting place in history by setting in motion the process of dismantling the political legacies of Leninism, Stalinism. And indeed, glasnost over the last five years has contributed directly and effectively to the dismantling of the Stalinist political legacy and to the undermining, though not dismantling, of the Leninist political tradition. The era of mass terror is finished. The era of intimidation is finished. The era of political silence is finished. But one-party dominance is still a reality. This is why Stalinism is finished, politically. Leninism lingers but is on the defensive. And that is Gorbachev’s enormous accomplishment.

But he has not been equally successful on two other very important fronts, the economic and the national. Indeed, on both of these, his policies have not been successful. They have been rather in the category of failure. There is a striking contrast, for example, between the relative success of the economic reforms carefully contrived and deliberately controlled from the top down in China, pursued over the last 15 years, starting with agriculture, moving to household industries, eventually concentrating on the coastal region of China, most susceptible to entry into the larger Pacific commercial trading zone. Soviet economic policies under Gorbachev have been unsystematic. They have been not consistent. They have, indeed, in some respects been contradictory.

I sometimes use the obviously superficial analogy between his economic policies and what might have happened in Sweden 25 years ago when the Swedes decided to shift from left-hand side driving to right-hand side driving. Gorbachev’s economic policies make you think of such a shift being applied on the basis of a rule that for the first week only trucks moved to the right-hand side; and for the next month, buses; and six months later, private cars. That has been very much the character of his economic policies. They have not been consistent. More than that, they have been mutually counterproductive.

Moreover, all of that has been compounded by the growing difficulties on the national level. And here, Gorbachev has been extremely frank and revealing; and in his frankness he has in a sense been self-condemnatory. For Gorbachev has now, on more than one occasion, in his spontaneous speeches -- and these are the truly interesting speeches -- spoken of the fact that the national problem has surprised him; that when he came to Moscow, he had not anticipated that there was such an intensity of national animus and conflicts raging beneath the political surface in the Soviet Union. And he has said he has been surprised with that. But beyond that, he has also been very frank in articulating his overall perspective on the subject. And it is his determination to defend the reality of the multinational state controlled from the center. And he has spoken more than once of this being a vital historical legacy of the Russian people which has to be defended, which is a value unto itself beyond the economic, but even in the spiritual realm.

And that, I think, makes it difficult for him to adjust to the new realities which have to be recognized if the Soviet Union is to be transformed. That is to say, that the only possibility for the effective transformation of the Soviet Union is on a truly decentralized basis. I think one of the very important intellectual accomplishments of the 500-day economic program was its realization that economic success has to be based on thorough, comprehensive economic decentralization. But that, by definition, means that political decentralization has to follow. And I think Gorbachev and some of his associates, and particularly those in the Soviet Army, fear political decentralization because they have come to realize that political decentralization means the end of an essentially imperial system. And that is a bridge they are not prepared to cross; and because they are not prepared to cross that, ultimately they are incapable of reforming the system.

And that is my bottom-line judgment on Gorbachev’s position today. And it leads me to the further conclusion that Gorbachev, for all of his historical accomplishment, is now increasingly a historical anachronism because he's unable to move beyond the phase of political openness and to move into the phase of genuine political and economic transformation of the system.

One must not underestimate the difficulty of such transformation. One must take into account that the Soviet people, who are extraordinarily gifted and patient and hardworking people with enormous gifts, have been subject to a truly brutal, incompetent, and I’ll be as bold as to say explicitly, a criminal system for almost 70 years of their lives. The Russian people have not lived in a normal society since 1914. That is a terribly long time. And during that time, for a variety of political reasons, there was a process under way of the genetic liquidation of the most able, the most talented in society -- in Russian society, in Soviet society -- for decades. The ablest were subject to persecution, exile, and physical destruction.

This has depleted the intellectual stock of the population. This has resulted in the decline of the capacity for self-renewal. And all of that has been made worse by the institutionalization of power in a self-centered bureaucracy which is dedicated to the protection of its vested interests, in part because it is aware, conscious -- subconsciously aware, of its biological incapacity to compete in an open system with [the] more creative, open-minded elements of society. And there is, thus, an element of, if you will, generic self-protection involved in the desire of the established apparatchik² to preserve the system. Not for the ideology anymore because they are no longer implementing the ideology in Russian society; but to preserve their own special status which has been acquired by the application of brute force.

Thus, as a consequence of all of this, I have to say that I am pessimistic about the prospects for the Soviet Union in the course of this decade. I'm not a prophet. I do not know what there is in the future for the very many peoples of the Soviet Union beyond this decade. But for this decade, I do not see the Soviet Union resolving its internal problems. In fact, I do not see at this moment a solution for these problems even intellectually -- a solution that would lead in a reasonable period of time to either a significant improvement in the economic condition or to the amelioration of national and political tensions. Every solution, even the best of solutions, such as for example the 500-day plan, would necessarily involve a phase of acute social tensions, political conflicts, and inter-ethnic collisions.

There is no way of avoiding these but the question is, Can the process of change be consummated by a success within a reasonably definable historical period of time? And my answer, alas, is no.

I see the economy deteriorating. And if you read the OECD report just released on the state of the Soviet economy, it gives you an objectively very pessimistic prognosis for which there is no corrective insight. If you look at the national problem of the Soviet Union, the recently conducted referendum indicates how grave it has become; for if you analyze the figures, they do not show national consensus in support for Gorbachev’s vague proposition. They show national polarization for the interesting figures, where the figures that came out of the other referenda attached to the central referendum, namely, support for Yeltsin and the Russian republic. They show a considerable difference between passive popular support in the masses in the provinces for Gorbachev and high degree of disillusionment in the active proportions of the population in Moscow, in Leningrad, and in the other Russian cities. They show a striking degree of support in the Ukraine for Greater Ukrainian independence, contrary to the predictions that many Ukrainians have been racified. And of course, six of the Republics boycotted the referendum altogether.

Thus, I do not see a solution to the national problem in this decade either. I see, rather, that in the course of this decade, those people in the Soviet Union, of whom there are many dedicated to democracy, to freedom, who have been willing to run personal risks on behalf of principles, continuing their struggle.

I do not see a reversal to totalitarian rule either because there's no longer an ideology capable of motivating a reversal. But I do see sporadic attempts at repression: inconclusive, ineffective, incapable of solving the internal problems, but perpetuating the internal crisis. And thus, the process of moving away from communism manifests itself in different degrees of success and failure. And I think they foreshadow a rather different future for that part of the world which at one time we viewed as homogeneous.

And I think it has very significantly different implications also for our business policy. It creates targets of opportunity which are evident. It also indicates areas of caution and restraint. None of this argues for not furthering economic relationships but it does argue for the promotion of economic and business ties with an acute sense of the historical differences that prevail in that part of the world, of the need for discriminating political as well as economic judgments.  

Thank you.