The Liberty Magazine – October 2024

Interviewer: Hanako Cho

 

Interviewer: Presidential Candidate and current Vice President Kamala Harris has proposed a $5 trillion increase in taxes including raising the capital gains tax and corporate income tax.

Gia Jandieri: First of all, if you raise tax on the corporate income, who is paying all those taxes? All such taxes gather in the prices of goods and services which are paid by ordinary people. You’re making the U.S. and the American economy less competitive. Sales go down, wages go down, and ultimately people’s disposable income is lowered.

Morality here is also wrong. The main player in the economy is the entrepreneur. They are ready to risk their resources for business, sometimes gaining, but sometimes losing, for more production, more satisfaction of people, more employment. They innovate and this is how the economy has developed. A tax on capital gains will lower the incentive of capitalists to invest, and as these investments support entrepreneurs, there can be a negative impact on the economy.

In fact, all such attempts are inefficient even if they look morally good. They claim that this will help the poor people. How can it help? If you raise the tax on corporate income, there will be some additional billions, not trillions [in taxes]. It’s not enough [to help the poor people].

 

Bread Disappears After Price Control

Interviewer: In order to convince the American public who are suffering from inflation, Vice President Harris noted that inflation was caused by “price gouging” and that she will implement price controls. If the government were to order companies to lower prices, what would happen to the economy?

Jandieri: I’ll give you one experience from Georgiain1991. Georgia was still using the Soviet ruble even after the collapse of the Soviet Union, and the Soviet ruble was inflated a lot so it was losing its value every hour. The price of bread was rising very fast as well as everything else. And the President decided to limit the price of bread at a very low level. For the next three years, there were lines to get your bread, sometimes even lines of one kilometer, and you could stand there for the bread for two days. Shops were empty with no bread but also the bread quality became very bad.

This was ended with the freeing of the bread price. Immediately on the same day, all the shops were full of bread, different types of bread, different quality, different color. We have never had such a problem with bread since then. Price control creates a serious shortage of goods.

 

The Horror of a Planned Economy

Interviewer: In the film, Mr. Jones, they depicted the lie behind the Stalin era’s propaganda that “production became more efficient through collective farms,” and that there was a great famine in the southern part of the Soviet Union and Ukraine. You’ve also said that under the Soviet-style economy you could go to space but there was a shortage of everyday necessities like toilet paper. Could you elaborate on why a planned economy doesn’t work?

Jandieri: Planned economy is an illusion that someone can know everything enough for everyone else – what to produce and what to consume.

It is very important to understand that the Soviets tried to have information. Every planning authority had special computing centers to collect the data. But how could they have enough market information about what kind of color, shape, size of clothes people wanted?

But even if they could collect accurate market information, who could read this information and make the solutions and plan production? This kind of information can only be brought about from the market. Thus, government-set prices didn’t function, and customers were fully disregarded.

 

A Planned Economy as a Means to Seize Power

Interviewer: Although equality was supposed to be achieved, a small elite group took control of the privileges, and the general public suffered in poverty. In your own words, please tell us about the horror of Stalin and the horror of communism, where power is concentrated in the hands of the elite.

Jandieri: When the Bolsheviks started the Soviet Union, they promised the people that the lands would be divided among the farmers. They needed this for strengthening their power.

When you say that you want to achieve communism, one of the things you need to do is to eliminate private property. If you have several thousands or millions of farmers who have their own land and are not dependent on the government, then you cannot make your power stronger in order to implement your plans.

The Bolsheviks were starving for power. Central planning was a kind of system to control all the economy, but also to justify the centralization of their power.

The Bolsheviks were starving for power. All the ideology was for power, nothing else.

If you ask me why they implemented central planning, it’s not really a matter of ideology, but it was mostly about power – to deprive people of their private property such as land and strengthening the power.

They didn’t think anything about implementing equality for real equality of its people. This is just how they were cheating the people by claiming that this was all for equality.

You can cheat the people that a centrally planned economy is the best organization of the economy, and then you tell them that for central planning, you don’t need private property. Then, if someone tries to oppose your ideology, and the central planning idea, you just shoot them. It’s the end of the problem.

Lenin somewhat understood the need for a market economy, but Stalin was a brutal pragmatist. He was quoted for his sayings such as, “Death solves all problems. No man, no problem”, and “A single death is a tragedy, a million deaths are a statistic.”

From the beginning, before the mass murder occurred, people wanted to oppose the collective farms, but the Bolsheviks needed this for strengthening their power. So, nothing surprising that they killed millions. This can happen anywhere. If a government decides to collectivize, then people will oppose and there will be no other way than to resign or to be killed.

Interviewer: In your article, it says that Soviet bureaucrats understood the importance of incentives (Stories from the Soviet Union: My Lada Car). Where do you think the ultimate difference lies between incentives in a market economy versus incentives in communism?

Jandieri: Private property and entrepreneurs are the most important fundamentals of any economy to work.

Despite huge efforts and propaganda, people didn’t find their personal incentive to take risks and become an entrepreneur in the centrally planned economy without private property.

Most of the production factors in Georgia were outdated. You could go to one big factory and see that it was 50, 60-year-old technology which could not produce anything of quality anymore. You need to change something, you need to innovate, you need to add something. But nobody wants to do that. Nobody wanted to change this because there were no incentives.

If you invented something by chance and tell authorities that you invented something to make our production easier, they give you some kind of small medallion to put on your jacket and maybe 300 or 500 rubles.

There was no correlation between your effort and compensation.

People tend to make a huge mistake thinking that the people who organize a business and make the economy are the highest IQ people. No, entrepreneurs are normal people who have proper incentives to take the risk.

The soviet system was funny, but it is quite similar to the understanding of many people in the world now: that the government is the owner and director of the economy, businessmen are stupid, therefore the government should control the situation and make decisions.

I don’t believe that the highest authorities in the Soviet Union did not know about problems or incentives. No, they knew very well what the situation was. But if you say these incentives are important, then you come to the conclusion that you need to bring back the market economy with all the private property rules so you are not losing power as the communists had in the Soviet Union. This is the trade-off.

 

Bribery and Corruption are the Incentives Under Communism

Jandieri: If there are incentives in the communist economy, these are corruption and bribery.

What I believe is that, in reality, corruption appears when the prices are not correct. If somebody sees that something is sold with a smaller price, then in the market they are ready to pay a bribe.

Let’s say the government makes the price of a bicycle $50. But if there was a shortage of bicycles and someone was willing to pay $70, they can pay $20 more to get a priority purchase of the bicycle. The bribery, in such a way, is the continuation of the price system, – in fact, $70 the demand price was showing you that the government was selling this for $50 creating the deficit. In a free market, price is determined based on supply and demand, but in a planned economy, there is no “right” price. This is what happened in the Soviet Union.

And the major incentive for the directors of the big factories was that they could produce some illegal goods in their factories. In big factories, every factory could have a smaller room where they would be producing illegal goods.

There was a capital punishment for that. There was a death penalty for illegally producing goods for more than 100,000 rubles. Still, it was very widespread in Georgia to take this risk, and it was believed that half of the Georgian economy was underground.

Unfortunately, this was based on stolen resources. They thought that when you were stealing more from the government and reselling it, it was good business. So the Georgian underground economy was based on stolen resources.

Also, all the population would bring their children to private tutors and teachers in parallel to official schooling. They could have private schooling. I personally know people who were imprisoned during Soviet times for private tutoring. It was unfortunate.

Interviewer: You once talked about “stealing” which had become a daily occurrence in Georgia due to the disregard for private property rights. Could you talk about why moral codes are destroyed under communism?

Jandieri: This topic is very important for me as I believe I am the first person to talk on this.

Ethics is mostly about privacy and property, and if one eliminates both then ethics is not needed anymore. This is why I believe ethics had vanished in soviet era Georgia.

Take cooperation, for example.

I believe that without private property, people forget why they should cooperate with others. It’s a very simple thing that I respect your property because I am expecting that you will be respecting my property. That’s cooperation. Everything starts from there.

An economic exchange tells you that it’s better not to cheat because you can lose customers immediately.

People cooperate not because they were told so, but because they know it is useful. But if you eliminate the usefulness, then it disappears, gradually but quickly.

We Georgians have lots of proverbs for business ethics that means [business ethics] was a strong tradition. But once people started losing the right to private property, these ethics disappeared. Nobody has property, so all the factories, or the lands, or the harvests of the farms are nobody’s. It belongs to the government and (by our government) so nobody has incentives about them.

In a market economy, in a capitalist country, most of the things belong to the private people and they are educated on private property ethics, so nobody tries to steal from others.

But in a country like Soviet Georgia, stealing and damaging the common property was a common thing. For instance, the benches in the park were always broken. It belonged to nobody so no one cared. It was the same with entrances of apartment buildings. Nobody wanted to clean them; nobody wanted to take care of the staircases etc. Everybody was thinking, ‘Oh, it’s somebody else’s job. It’s not my duty. Somebody else needs to clean it.’

It became even worse, and some people would throw all the garbage from their homes in the staircase. I thought the Georgians had become stupid. But when I went to Eastern Germany approximately 25 years ago, I discovered with some relief that if you put the Germans in the same situation where there is no private property, they do the same thing. They also become the collectivist people who care less about the collective farms or collective ownership.

Interviewer: So morals slowly were lost by society.

Jandieri: Yes. After the revolution, people understood something was wrong, but they decided to wait. They thought others needed to fight for it, and said, “Why me?” Aside from the so-called intelligentsia including the artists, poets and writers who tried to oppose it, most of the potential fighters became neutralized and shut their mouths.

 

Becoming a Betrayal Economy

Jandieri: It was not just that they kept their mouths shut.

In Russia at the time, if you suspected your neighbor was not supporting communism or communist ideas, you could write a report about them. He could be killed the next morning. Then, in order to survive, it becomes better to make reports about others before they could report about you. This is gradual and not all freedoms disappear immediately.

One day, you understand that you have no more freedoms, that you are like a slave.

You say, “It can be too late; it is impossible to change, so let’s conform now. I have family and children.”

As David Hume had warned in the 18th century, people didn’t lose their freedom, dignity and ethics in one day. Everything happened step by step.

The stripping away of freedom is advancing in the West in the form of a “welfare state.” This is how the West collected so much debt and welfare liabilities.

The problem is that everyone knows what the politicians promise, “free riding,” is wrong. Everyone sees the problem but still accept a free ride. It’s popular. Even if you knew it was wrong you can’t stop it.

But this is the same as paying taxes and giving money to the bureaucracy to decide instead you, what you want to do. I call this parasitization, or making people parasites.

Interviewer: How should we view the horror of this gradual loss of human conscience? Is it possible to say that this shows the way of the dictators from ancient times who would have been able to perfect their dictatorship if they had been able to eliminate all those who had the guts to oppose them?

Jandieri: Repression in Soviet Russia that Lenin started, and Stalin continued, began with property owners and aristocracy.

The repressions started between 1917-1919, much earlier than 1937.

They were property owners, so they didn’t want to take part in the central planning. It was said that 20 million people were killed. It is not popular to talk about this fact as they were wealthy people.

More popular is to talk about brutality against intellectuals who mostly supported the Bolsheviks from the beginning, closing their eyes to the brutality against the property owners.

What is also hidden is that communism was a very popular idea at that time, and it was easier, like now, to find support among the workers’ class if you promised lots of privileges and social rights.

What everyone forgot was that any law promising privileges and rights is directly contradicting the fundamental property rights as they diminish other people’s property rights.

Diminishing private property’s role can bring a similar result as in the Soviet Union by destroying cooperation and ethics first, and then entrepreneurship and the economy as a result. This is the lesson that we must learn.