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Morality and the free-market in Eastern Europe

WASHINGTON - During the 1980s, Washington got used to male attire that made a political statement. Earnest conservatives wore neckties emblazoned with likenesses of Adam Smith, a pioneer of free-market economic theory and a moral philosopher. Ideological neckwear is now another American idea that has gone east. At a meeting in Davos, Switzerland, of European leaders from east and west, Vaclav Klaus, Czecholsovakia's new finance minister, was wearing a University of Chicago necktie. He never went to that noble institution, but it, in a sense, came to him.

The name "Chicago school" has recently referred to the free-market teachings of that university's economists, such as Milton Friedman and George Stigler, both winners of Nobel Prizes.

Richard Perle, who was a bete noire to the "socialist bloc" when he was an assistant secretary of defense, and who now is invited to contribute articles to publications that until recently excoriated him, congratulated Klaus on his necktie. Klaus responded: "The Vienna School may be dead in Vienna, but it is alive in Prague." And so the circulation of ideas comes full circle.

The "Vienna school" of economics, exemplified by Friedrich von Hayek and Ludwig von Mises, taught not only the efficacy of free markets as rational allocators of resources, but also the morality of capitalism by virtue of its connection with free political arrangements. These teachings took a detour through the Hyde Park section of Chicago on the way to Prague, where the intellectual flame was kept by a small group - let's call it a cell - of free-market students within the Communist youth organization.

Communism came to power in the Soviet Union as an irrational approach to modernization and has become more irrational as the 20th century hasbecome more modern. It was dreadfully inefficient, even as an approach to forced-draft development of heavy industry in a backward country. It has become steadily less suited to society as the quantity and velocity of information has mattered more and more to economic life.

Communism was a moral imperative to some of its adherents, but to the Soviet regime it has always been primarily a doctrine of modernization. This explains Gorbachev, his motives, his strengths - and his by now glaring limitations as a leader.

He is a modernizer who knows that the essence of the Soviet system, "democratic centralism" (control of a command society by a party claiming a monopoly of the interpretation of history), is incompatible with modernity. Modernity requires broad dispersal for decision-making.

Gorbachev seems reconciled - one cannot, on the evidence, put it any stronger - to such dispersal.

For all his narrow-gauge radicalism, Gorbachev is a recognizable Russian phenomenon. He is a modernizer looking west, as Peter the Great did. However, he is not also a moralist. He has received much, in fact quite enough, praise for saying what every store shelf in the Soviet Union says: Communism does not work. But he has never said communism is wrong.

By indicting existing arrangements solely in terms of materialist criteria - yes, we have no bananas - Gorbachev convicts himself, in advance but not far in advance, of failure as defined by those criteria. In Davos, Nikolai Shmelve, a member of the Soviet Parliament, predicted that the Soviet Union might soon require "100 percent rationing of everything - a labor camp economy."

To reconcile his restive citizens to what is certain - grinding scarcity for the foreseeable future - someone needs to make the moral side of the argument: Freedom is a natural right, right for our nature and an end in itself.

Gorbachevism is dangerously thin gruel because it lacks what Vaclav Klaus and kindred spirits find so satisfying about the Vienna and Chicago "schools": a fusion of economic analysis and moral philosophy.

Washington Post Writers Group