The Museum of Communism in Prague is located above the local McDonald’s and next door to a casino — a location the museum’s owners are evidently delighted by.
The museum is a fascinating collection of old memorabilia and products, featuring statues of Marx and Lenin next to communist-made motorbikes, and vintage ads for the Czech version of Coca-Cola.
The Czech Republic today is so open and Western-facing that it is hard to believe that after World War 2 the former Czechoslovakia elected a communist government which was forcibly annexed in 1969 when the Soviet Union sent tanks into the country after that government made the mistake of briefly flirting with liberalisation. It was only in 1989 that a “Velvet Revolution” restored democracy, and today Czechia is a member of the EU.
The part of the museum that had the most impact on me when I visited this spring, however, was the section on what day-to-day life was like for ordinary people during the Cold War. How they worked and shopped, what they ate, and what they did for money.
I was reminded of the museum when I read a July 12 note from Barclays analyst Alejandro Arreaza, describing the deterioration of Venezuela. The government there reclaimed a Kimberly Clark factory for the workers. Arreaza wrote:
“President Maduro has signalled more radical stance. Last night, he announced a new structure for the government in which all ministers will be subordinated to the Minister of Defence, Vladimir Padrino Lopez, under a new ‘great mission of sovereign and secure supply’ to control the food, pharmaceutical and industrial sectors. He ordered the immediate occupation of any plants that have stopped operations, starting with that of Kimberly Clark, which announced yesterday that it was temporary closing its operations in Venezuela due to the crisis in the country.”
This was exactly what the Czech government tried to do 50 years ago: control the price and supply of basic consumer goods.
In theory, plentiful food and goods at prices workers can afford sounds great. And the fact that Czech communism was a diluted version of hardline Russian Soviet communism meant that by the 1980s the Czech people had a higher standard of living than the rest of the Soviet Union. So there remains a certain allure to the model … maybe it is actually possible to control the market and make it work for the people, and not The Man?
But the Prague museum has some harsh reality checks for anyone pondering the Venezuelan dream.
The first problem in Czechoslovakia, as the museum describes it, is that price controls led immediately to shortages. Once the government set the price of bread and meat and other staples, food makers instantly knew they would not get paid enough to make or ship their goods. So they stopped. Shelves went bare.
Very quickly, certain professionals became very powerful. Bakers, butchers, doctors and plumbers — anyone who had valuable skills or access to extra food and soap — could trade or barter their goods and services on the black market. They could carve out a comfortable life for themselves, especially if they maintained a secret network of friends.
But most people lost out immediately.
The communist dream was to serve factory workers, but those workers found their skills outside the factory turned out to be useless: You can’t swap your prowess on the assembly line for a bottle of shampoo.
Some of the richest people in Prague were the prostitutes. They were able to trade their skills to Western visitors and diplomats in addition to local clients. Smart women could make a month’s wages in a single night, and receive it in valuable foreign currency not the devalued Czech koruna.
So Czech communism replaced the class structure of capitalism with a different (but familiar) class structure of communism, in which government officials and black marketeers did well, and everyone else got screwed. (The museum sells a funny T-shirt summing this up: It says, “You couldn’t get laundry detergent but you could get your brain washed.”)
You can see something similar happening in Venezuela right now.
Price controls and government supply edicts have led to chronic shortages of everything. Last weekend, tens of thousands of Venezuelans crossed the border to Colombia just to buy toilet paper, which is now impossible to find in their own country.
The Venezuelan black market for toilet paper is now a huge business, because everyone needs it. Companies come up with elaborate trades in order to ensure they get it, in which a truck full of TP somehow costs less than a single roll.
The Venezuelan secret police have begun busting company managers who supply TP for their workers’ bathrooms. The most comfortable people in Venezuela right now, in more ways than one, are those with illegal toilet paper to sell.
Citibank, General Mills, Procter & Gamble and Bridgestone have all withdrawn operations from the country or reduced their supply of goods to it.
Not because they’re evil capitalists who want to sabotage President Maduro.
But simply because, like a Czech butcher, no one is paying them enough to bother.
NOW WATCH: We tested an economic theory by trying to buy people’s lottery tickets for much more than they paid
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