Hopkins economist indoctrinates visiting Russians in capitalism


In Vienna, Steve Hanke had a colleague with his teeth all gone. The year was 1978, and the colleague was Russian. His teeth went away during a series of lengthy imprisonments in Siberian labor camps. His crime? He was an economist who kept suggesting there were a few problems with the Marxist system.

The memory of the man with no teeth came back to Dr. Hanke three days ago, in a room at Johns Hopkins University. Hanke teaches applied economics there, when he's not hopping around the globe advising foreign governments on how to embrace capitalism.

This time, he was giving a one-day cram course to 10 Russian economists who accompanied Boris Yeltsin to America and no longer have fear of Siberia or lost teeth and suddenly have plenty of public loathing for Marxism.

While Yeltsin was in Washington, cozying up to President Bush, Hanke was telling the new Russian president's top economic advisers how to cast off the tattered, discredited remnants of socialism.

"All at once," he was saying at week's end. "I told them, 'You can't do it gradually. You do it gradually, you're going to crash and never make it. People will lose confidence. Without people's confidence, the system falls apart.' "

The Russians sat there with little Walkman-type amplifiers in their ears, through which translators simultaneously turned the economic language of English into Russian. It's not easy. Just translating economics within the same language is difficult enough.

But Hanke says there was less distance between his style of economics and the Russians' than between the Russians' and Mikhail Gorbachev's.

"That's the big problem," Hanke said. "Gorbachev. He's bobbing and weaving. Nobody knows what he's going to do, and nobody in the Soviet Union trusts him. Depending on who he's talking to, he's got a different policy, even different laws. They change almost daily.

"Perestroika has nothing to do with transition to a market economy. Gorbachev's trying to patch together socialism and make it work a little better. He's said, repeatedly and adamantly, that he'll die a socialist and a Marxist. They're not compatible with a market economy. And that's why he can't lead the way."

The remarkable thing, for those who remember the 45-year Cold War, is this: Every Russian in the room agreed with Dr. Hanke, and all were free to say so. Siberia fades with the Cold War. The Soviets send their top economists to America now and meet with the likes of Hanke, who was a senior member of Ronald Reagan's Council of Economic Advisers.

Hanke is now the economic adviser to the deputy prime minister of Yugoslavia. He commutes routinely to Belgrade. He advises several members of the U.S. Congress, plus politicians in Europe and South America.

Last week, when he met with Boris Yeltsin's advisers, he found they wanted one thing: Get to the bottom line.

"They told me, 'Don't try to convince us that socialism is a complete bust. We already know that,' " Hanke said. "They didn't need preliminary convincing. They're past that. They said they'd concluded socialism was an obvious and complete failure.

"See, most people don't realize how bad the economic situation is in the Soviet Union. It's primitive. You go to the Soviet Union, you're dropping off the radar screen. You work all day in some factory and then spend the rest of your time in lines, and you wonder if you can find food for your family. And there's absolutely no light at the end of the tunnel."

Hanke stressed a couple of things to the Russian economists: Privatize all businesses, including social security. Change the currency system. Resist setting up a central bank.

"Absolutely privatize," Hanke said at week's end. "That's the reason you have all these ethnic problems, all these nationality problems over there. The state has so much power and owns all the resources.

"So the only way to protect yourself from the state and gain privileges from the state is to form up in special interest groups that run along national and ethnic lines. As soon as the state starts withering away and its power is reduced, people won't have to worry about getting a piece of action from the state. The state won't have any to give. And so people will concentrate on profit and loss statements instead of ethnic feuds."

What's exhilarating is that the Russians will take Hanke's ideas home and perhaps put them into immediate action.

What's intimidating is the sense of danger along the way.

"It's like going over Niagara Falls in a barrel," Hanke said. "There's a danger of drowning. But my purpose was to put insulation around the barrel as they go over the falls. Gorbachev can never take them over the falls without drowning. We can at least help them."

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