The controlled press of the Soviet Union and other Communist countries has recently found fresh and juicy evidence of capitalist decline: the double-digit inflation now ravaging Western nations. By contrast, Red journalists crow, living standards in the socialist bloc have markedly improved in the past decade or so, while price rises have been virtually nil. There is some truth to that claim, but like vodka, it has to be taken cautiously in order to avoid losing touch with reality.
Officially, most Communist governments maintain virtually zero inflation because prices for almost all goods and services are set by state agencies and changed only rarely. Though workers who overfulfill production quotas are showered with medals and occasionally cash bonuses, wages, too, are generally controlled, on the basis of supply of consumer goods available. If supply goes up 5%, say, so do wages. That way, supposedly, there is no excess cash chasing scarce goods.
So goes the theory. The reality is somewhat different. Basic services such as housing, medical care and mass transit in the Communist countries are generally cheap, but prices for many items from cars to quality foods have long been set so high that they remain beyond the reach of most Russians, as well as Poles, East Germans, Czechs, Rumanians, Hungarians and Bulgarians. Says one Soviet economist ingenuously: "We do not have inflation — we just have high prices."
Moreover, as a matter of policy, prices for some goods are set below the cost of making them. Vladimir Sitnin, chairman of the Soviet Union's state price committee, notes: "There is some relation between production costs and prices, but not necessarily a direct one. Retail prices have a social objective, varying from low prices for schoolbooks to higher prices for liquor."
Consumers pay dearly in other ways for official price stability. Many goods are offered in only skimpy variety and threadbare quality because that is all factories can afford to make at state-set prices. Massive government subsidies must be paid to industries and to Soviet agriculture in order to keep prices steady despite regular rises in production costs, caused by inefficient use of workers and machines. The subsidies chew up capital that would otherwise be invested in new plant and equipment and contribute to the persistent inability of Communist economies to expand fast enough to meet demands of consumers.
In addition, undisguised inflation exists in sectors not subject to iron-fisted government control—imports, goods sold on sanctioned free markets and those peddled in widespread black markets. There is an Orwellian rip-off on the prices of so-called new products. By making the most minute change in any item—even installing a new car heater —a factory manager can get it classified as new and kick up the price. That does not count as an "increase" because the product theoretically has just come to the market. In the Soviet Union, the latest model Volga car costs $12,170, about 68% more than its predecessor, though only an engineer could see the difference.