COLUMN RIGHT / PAUL CRAIG ROBERTS : Plunder Puts Soviet Wheels in Motion : Unofficial privatization is illegal but serves a purpose.

The communists were wrong. In the end, power did not come out of the barrel of a gun. Freedom and truth proved more powerful. The Communist Party coup against Mikhail Gorbachev’s “bourgeois values” rapidly collapsed because the people, fed up with communism, had no intention of letting it make a comeback.

There is a lesson and a danger here.

The lesson is for our professors, who delight in deconstructing in their classrooms the values that define a free society. They had best note the vindication of truth and liberty in the streets of Moscow, or American intellectuals will become as irrelevant as the gray Leninists catapulted from history by last week’s events.

The danger is that the demand for economic justice will move the issue of property to the forefront, where it may overwhelm the abilities of politicians.

In the Soviet Union the problem of property is being solved informally. Traditional bosses and power brokers are privatizing the economy by acting as owners of the state resources that they control. Countless individual acts of plunder have shifted resources from the failing state-run economy to the growing private sector where they produce more value.

This unofficial privatization process is illegal. The failure of half-hearted economic reforms created the opportunity and the pressure for managers and officials to increasingly allocate state resources through unofficial channels in order to better meet needs. In effect, elements of the nomenklatura have become the de facto owners of the resources they control.

Today Soviet life is dependent on this unofficial economy and the web of de facto property rights that make it possible. Entire distribution networks have grown that are filled with diverted state resources and products privately produced and transported by equipment nominally owned by the state. Illicit profits are paying illicit wages to illicit workers.

This unofficial privatization has been possible because unresolved jurisdictional claims of the Soviet, republic and local governments paralyzed the ability of any government to combat it. The failure of the coup, by breaking the political stalemate and elevating the authority of republic governments, makes it possible for the new democratic politicians to challenge the unofficial privatization that is being conducted by members of the old order.

The grabbing of wealth by discredited members of society is a political problem for Boris Yeltsin and the new democratic politicians. There will be pressure from public opinion to stop the looting.

However, this cannot be done without taking measures against the unofficial economy that has taken root and is making life liveable. With the official economy in chaos, disruption of the unofficial economy would intensify the economic crisis. The economic failures that damaged Gorbachev could soon haunt Yeltsin.

It is unjust and unfair for the old bosses to appropriate wealth that will ensure their prominence in the new society. Nevertheless, their privatizing actions are socially useful, just as the acts of lords of the manor, in declaring themselves owners of the land and evicting serfs, eventually brought feudalism to an end.

The temptation will be great to punish and dispossess the de facto owners for their looting of society’s wealth. Even if the Soviet Union has politicians wise enough to realize that this demand for fairness may be economically destructive, their credibility can only suffer if they accept this looting as part of the economic transformation. Yet, if they act to stop it and to roll it back, they will have to officially address the problem of privatization.

This itself is no small challenge. To legally engineer the transformation of an entire society might be beyond the power of politics. Politicians of every stripe would have to agree on a workable plan and be able to implement it without disrupting the tenuous ability of the existing economy to sustain life. This is an enormous task for political and bureaucratic institutions.

Unless the new leaders are confident that the political process can handle the problem of property, they might do themselves and the revolution a favor by accepting the informal privatization that has occurred, compensating where they can with such measures of fairness that they can devise.

Informal processes often succeed where politics fails. Yeltsin and his compatriots will have their hands full dealing with the ownership of land, oil and mineral resources and factories too large to be suborned, without worrying about every widget factory. Private property is always an improvement over state property, even when the process of getting there doesn’t meet textbook standards of fairness.