Want a Financial Crisis? Impose 'Fairness'

In the early 1990s I worked as a private consultant and interpreter for American business people visiting the former USSR. My employers, many of whom became my personal friends, were looking for business opportunities, which at the time seemed abundant -- even to me. I knew that government corruption existed, but the real scope of the disastrous legacy of Soviet socialism was only revealed to me when our travels exposed me to situations and facts I would not have otherwise known. To make matters worse, government corruption, incompetence, and the attempts to take advantage of my American friends were disguised with the fig leaf of fairness, caring for the workers, and protecting their wages. It was practically a matter of habit; sometimes I wondered if the crooks themselves knew where the cynicism ended and the caring began.

None of the proposed joint ventures came through because of government officials’ absurd demands for kickbacks combined with the requirements of Western-style wages for the workers at a time when the average cost of living in Ukraine was about $50 a month for a family of four. Like children on Christmas Eve, the bureaucrats were holding their breath in anticipation of foreign gifts, exorbitant junkets, no-show jobs, and ready-made factories with salaries equaling those in Europe and the U.S., without realizing that cheap local labor and low maintenance were their only edge and their only chance in the world economy.

In the meantime, factories continued to close, in part because no one wanted to buy their crude products designed for the Soviet market. The economy was crumbling, half of the country's workforce was unemployed, and even a monthly wage of $50 would have been an improvement, at least until things would pick up.

It was then that we visited the unsmiling woman director of the local sewing factory with a proposal to make jeans from the locally made hemp cloth for a Californian store chain. Keeping a poker face, she gave us a production cost estimate per item that equaled their retail price in an American thrift store. That made no sense, given that in local terms the cost was higher than her average worker's weekly earnings. She was lying and we diplomatically asked her to reconsider. The director, who in Soviet times used to be the equivalent of a U.S. congresswoman, looked us sternly in the eye and repeated that such was the real cost and it was final. We didn't even get to the part where we could gripe about the quality of her products.

At least she didn't ask for a cushy job for her niece right up front like some others did. Every encounter was different; the attitude was almost always the same. One by one the frustrated Americans went home empty-handed, leaving the local officials complaining about the greedy Yankees. I sincerely hope that the business climate has improved since I left the country. But at the time, the solicitations of kickbacks aside, the indignation at the prospect of capitalist exploitation seemed genuine -- at least on the part of former party bosses.

The gap between Western and local wages was painful and incomprehensible to most Soviets, whom the fall of the Iron Curtain suddenly exposed to the real world. Whatever inequality existed between them and the party elites was now dwarfed by the wealth of American middle-class visitors. The bureaucrats seemed to resent the fact that private U.S. citizens, obviously standing on a lower societal rung because they didn't hold privileged government jobs, could easily travel around the world, launch projects without any government supervision, act like equals with anyone they spoke to, and pay for a single dinner with a few guests at the local restaurant costing almost as much as their betters in the local government earned in a whole month.