Iron Curtain: The Crushing of Eastern Europe, 1944-1956

by Anne Applebaum

  Everything here was destroyed. The shop windows were smashed in and the people had looted all the groceries from the store. There was nothing left … the doors had been locked but people had got into the shop by climbing through the shop windows. We nailed up the shop front with pieces of wood and then a panel—a glass panel—was taken out and made into a shop front of sorts … a kind of peephole basically, measuring two by one and a half meters or so. That became the shop window …15

  Faced by this catastrophe, his mother and grandfather had no doubt about what to do: they reopened the shop and went back into business. They were not alone.

  Between the wars, Eastern Europe had not been as wealthy and as industrialized as the western half of the continent.16 Businesses were small-scale, trade was limited, and infrastructure was poor. Many states in the region, most notably Nazi Germany, had practiced forms of corporatism that gave the state a large role in the affairs of business, especially big business. Nevertheless, at the most basic level, Poland, Hungary, Czechoslovakia, and the other nations of Eastern Europe had been recognizably capitalist societies. Small workshops, small factories, and retail shops had all been in private hands. Some wholesale distribution had been done through cooperatives, as in Western Europe and the United States, but these were usually private cooperatives, organized by merchants for their own benefit. All had established systems of commercial, corporate, and contract law; functioning stock markets; and property rights.

  After the war, small businessmen like the Fests were initially allowed to continue operating. This was not because the new authorities liked or admired small businesses. Lenin himself, correctly spotting the importance of small-scale enterprises to a healthy free market economy, once wrote that “unfortunately, small-scale production is still widespread in the world, and small-scale production engenders capitalism and the bourgeoisie.”17 Although they didn’t necessarily say so in public, most communist leaders shared Lenin’s loathing for small business. At a Central Committee meeting in October 1946, for example, German communist leaders discussed not whether private shops should be brought under state control but when. One of those present argued against acting fast: an overly rapid dismantling of the sector would lead to chaos, which would drive people into the arms of the reactionaries. Another argued for greater speed, on the grounds that dangerous liberal economic ideas were taking hold among small businessmen: “We must prove to retail that a planned economy is a higher form of people’s economy.”18

  All present were clearly hostile to private business, though anxious that they should not appear to be. The public might react badly to an overnight nationalization of all trade. More to the point, all present knew that private trade was still necessary because there wasn’t anything else. In the ruins of the Eastern European cities, there was no way to stop starving people from trading, and indeed there was no alternative means of distributing food. In the most devastated parts of the region, it would have been difficult even to organize rationing. The Italian writer Primo Levi, upon being liberated from Auschwitz, immediately trudged to the nearest city:

  The market of [Kraków] had blossomed out spontaneously, as soon as the front had passed by, and in a few days it had invaded an entire suburb. Everything was bought and sold there, and the whole city centerd on it; townsfolk were selling furniture, books, paintings, clothes and silver; peasant women, padded out like mattresses, offered meat, poultry, eggs, cheese; boys and girls, with noses reddened by the icy wind, searched for tobacco-addicts to buy their ration …19

  But as the occupying authorities across the region began to impose rationing, tax laws, and regulation, that sort of market acquired a sordid reputation and became known as a black market. The people working in it were no longer traders but rather black marketeers. In order to rid squares and plazas of (in their eyes) messy and uncontrolled capitalism, communist authorities set out to nationalize the retail and wholesale industries right away in just about every country in the region. In eastern Germany, for example, the Soviet authorities resurrected a prewar cooperative, Konsum, setting it up to behave exactly like a state company. Instead of serving its members as it had before the Nazis shut it down, Konsum received privileged access to wholesale goods and could choose to whom to sell them.20

  Though their businesses were technically legal in 1945 and 1946, Eastern Europe’s small-scale capitalists understood right from the start that they were operating in a hostile environment. In Fest’s retelling of his family’s story, his grandfather’s decision to reopen his shop during that period acquires the attributes of a heroic struggle. Immediately after the war, the Fests had to fight just to get allotments of flour and sugar from the state offices (Handel und Versorgung), which had quickly taken over the distribution of basic goods, all of which were eventually allotted through ration cards. “We didn’t get nearly enough merchandise to match the amount people wanted to buy,” Fest remembered. So he and his family would collect customers’ ration cards and take them over to Konsum, where they used them to purchase the goods that they hadn’t been able to procure themselves. They made no profit from this activity, which they saw as a favor to customers. They hoped it would build loyalty and help keep the shop open.21

  Down the street from the Fest establishment, Ulrich Schneider’s family business, a textile and clothing shop, underwent a similar transformation. The Schneiders’ shop had also been in the family for several generations and was also the focus of enormous hopes and fears. In the final days of the war, his father had hidden their inventory—coats, dresses, rolls of fabrics—in friends’ houses and barns. What remained in the store was plundered by the Russians in May 1945. The Red Army then adopted the family house as a provisional headquarters, using the shop windows to lay out their dead in coffins. Schneider and his parents moved into an apartment above the shop. In August his father—who had not been in the Nazi party and somehow avoided Soviet arrest and deportation—received a permit from the occupation regime to resume trade.

  Like the Fests, the Schneiders boarded up their shop windows with wood, leaving only a few small openings so that some of their wares—whatever had been rescued from the local attics and basements—could be displayed and sold off. They dragged a few sewing machines out of hiding and began doing alterations and making rag dolls. “There wasn’t anything else to do,” remembered Schneider.

  After a few weeks, Schneider’s father began making regular trips to the Erzgebirge, the mountains on the German–Czech border, the traditional home of the textile industry. Though the region was hundreds of kilometers away, he went by horse-drawn cart: “It was very trying, because there were checkpoints everywhere and he was held up wherever there were Russians.” He had no other options because there was no other source of goods. But what he brought back he could certainly sell.22

  Hope that things would improve kept the Fests, the Schneiders, and other small entrepreneurs open throughout the years of 1945 and 1946. By 1947, however, it became clear that things were not going to get better. The Leipzig Fair, reopened that year for the first time since the war, proved a major disappointment and was for textile merchants like the Schneiders a turning point. Although the fair, a central feature of German commercial life since the Middle Ages, was hailed with much fuss and propaganda, no textiles or fabrics were actually for sale. In the past, “you met other companies there or caught up on things—what there was, what was new,” Schneider explained. But now the fair had become a propaganda event, not a place to exchange real business information.

  The year 1947 was a turning point in Poland too. Following the parliamentary elections in January, the “victorious” communists launched a series of reforms designed to increase the number of industrial workers, who presumably might support them in the future, and to cut down on private industry and retail, which did not support them at all. This was the infamous “battle for trade,” launched by the economics minister, Hilary Minc. Personally appointed by Stalin, Minc was a prewar communist who had acquir
ed a real gift for Marxist economic jargon. “The struggle for the conquest of the market does not mean the elimination of market-capitalist elements,” he told the Central Committee plenum in April; “it means only a struggle for control over these elements by the People’s Democratic State.”23 There would be a “free market,” in other words, but it would be kept under firm government control—which meant it would not be free, of course.

  In practice, Minc tried to kill off private enterprise without ever quite saying so. The “battle for trade” took the form of rigid price regulation and high taxation, accompanied by criminal penalties for the failure to fill out proper forms, as well as a massive licensing and permit system. All entrepreneurs had to have business licenses that required them to prove they were “professionally qualified,” whatever that meant in the postwar chaos. Limits were placed on the number of people one entrepreneur could employ and on what quantities of goods could be taken in and out of the country and even in and out of Warsaw. As in Germany, the Poles also effectively nationalized the wholesale industry. Private businesses were prevented from buying and selling specific commodities, including food, at wholesale prices.

  Officially, the communist press trumpeted the “battle for trade” as a resounding success, and official Polish historiography continued to do so until the 1980s. But the economist Anders Åslund notes that this success was short-lived: “It is difficult to join in the exultation, since the ‘battle for trade’ dealt a savage blow to trade as a whole.” Between 1947 and 1949, the number of private trading and distribution firms fell by half, and the state sector was not able to replace them. Thanks to the death of wholesaling, the remaining private shops and businesses, especially in small towns, had no legal access to goods of any kind.24 The imposition of these new rules was unpredictable. “From one day to another, specified economic activities lost their legal basis of existence,” recalled one economist.25 But the result was perfectly predictable: the rapid development of more black markets (now clandestine), the chaotic distribution of goods—and chronic shortages of everything. A former auditor of a rural cooperative—a fancy name for what was, in practice, a state-managed wholesaler—remembers that it was difficult to know whether the shortages in her sector were the result of theft or incompetence. As a part of her job, she was required to inspect the account books of her company’s regional branches, and they were full of mistakes: “I didn’t always know the reason for the missing money … all the shopgirls were uneducated, they couldn’t add or measure.” By 1950, the cooperative had expelled whatever remained of the prewar “blue-blooded” management and replaced them with reliable members of the working class, in one case a hairdresser. Not surprisingly, the situation failed to improve.26

  Overnight the rule of law disappeared, since the only way for many to stay in business was to break the law. Small businessmen ceased to be respectable and instead became prywaciarze: privateers, semi-outlaw figures. The daughter of a talented engineer who ran a very small manufacturing business in that period remembers being embarrassed to tell her friends what her father did for a living.27 Some entrepreneurs bent rules that limited the number of employees by employing family members, or bent rules limiting the size of a business by appointing family members as “owners.” Private businessmen also learned to avoid big investments—they attracted too much attention from the tax authorities—and to focus on business plans that could be started and halted very quickly, as the legal situation changed. Long-term planning was impossible.

  Over time, businessmen also learned how to work together. Many renamed themselves “craftsmen,” a designation that allowed them to maintain tiny businesses and workshops without the stigma of being “capitalists.” They also created guilds, state institutions that sometimes acted in the interests of their members. The guilds tried to organize access to raw materials for private shops at official, state-controlled prices. They also altered registration rules so that car mechanics, plumbers, and others could become “craftsmen.” A former guild boss—technically a state employee—recalls “bending the rules” on more than one occasion, in the expectation that sooner or later the whole system would be improved: “I thought people would change, as they studied more, learned more, that the system would become more intelligent.” Alas it did not.28

  In Hungary, the nationalization of retail proceeded more slowly, not least because in 1945 and 1946 the communist party didn’t initially have a large enough parliamentary majority to control every aspect of economic policy and wasn’t able to impose harsh regulations and taxes. The party conducted a “war on trade” anyway, not through regulation but through propaganda organs and police. In the summer of 1945, the communist party’s invective against small businessmen, small traders, and informal street markets grew ever fiercer, until it was nearly as harsh as its attacks on fascists. In July, the Budapest police chief declared he intended to “liberate the workers of Budapest from the hyenas of the black market.” By September, some 600 policemen, accompanied by 600 Soviet soldiers and 300 detectives, had detained 1,500 “black marketeers,” mostly in the course of two raids on large Budapest street markets.

  The antibusiness propaganda campaign quickly spread beyond the street markets. Later in July, Szabad Nép printed a series of photographs showing workers laying tram rails while people sat in cafés nearby, sipping coffee—in other words, enjoying themselves while the working class worked. Police raids on cafés, bars, and restaurants in Budapest followed soon afterward. The police even shut down the Café New York, a beloved prewar institution; confiscated the food found in its storerooms; and ostentatiously distributed it to returning prisoners of war.29

  Through bribery and connections some restaurants stayed open. But that led to another campaign and another series of raids a year later. In June 1946, Szabad Nép reported that ten “luxury” restaurants had been shut because “by serving the most expensive banned meat products to satisfy the needs of the few, they endangered social peace and public calm.” That might well have been true: the communist campaign was intended to be popular, and among some people it probably was. In a period of shortages, inflation, and real hunger, resentment of those who could eat well must have been running very high.30

  Other articles tried to make private restaurants seem not just immoral but laughable. Some mocked the “bourgeois” practice of tipping, and one made fun of the tailcoat, the traditional garb of the Budapest waiter:

  This out-of-date outfit is still widespread, waiters are still dressed in them, as if displaying the spirit of the lackeys of old times … In the near future the trade unions will abolish the wearing of tails by waiters … this unhealthy, uncomfortable piece of clothing will hopefully vanish, to make room for a better, more appropriate, more comfortable, and more tasteful outfit.

  The secret police followed up, investigating private business for all manner of fraud and impropriety. A baker in an elegant district was detained by the police after they discovered that “not a single gram of salt is added” to his bread, although he had received 400 kilos of salt as a part of that month’s ration.31 He was suspected of selling the salt on the black market. Another target was the owner of the Baghdad Café, whose aesthetics were deemed immoral. “The entrance of the restaurant leads the visitor into a wardrobe with mirrors on the wall, beside a painting depicting ladies dressed in evening dress in erotic positions with their thighs uncovered,” the police report complained. Worse, “two Negroes are members of staff.” This last observation reflected not merely racism but also a deep suspicion of an establishment able to retain such exotic foreign employees.32

  Hoping to stay in business, restaurateurs tried various strategies to stay afloat. One café owner transformed herself into a street vendor; others joined the communist party, with the hope that this would absolve them of political suspicion. Eventually, many café owners volunteered to be “nationalized,” the better to ensure their own future as “managers” of their former businesses. One such petition, filed by Mr
s. Lászlóné Göttler in 1949, reads like a for-sale advertisement:

  I hereby request the Management of the National Company to take over my restaurant in operation from 1923 at Benierky Street 19, Sashalom, and to keep my person as a manager … It is a corner house consisting of a winter pub and a separate room, an open veranda, a terrace, a buffet, and a kiosk in the garden. Up until today it has been a unit of good revenues close to the canning factory without unpaid taxes …33

  Some of them succeeded. Klára Rothschild, proprietress since 1934 of the Clara Salon in Váci Utca, Budapest’s most exclusive shopping street, managed to stay in charge of her shop following its nationalization, not least because she was so popular among party leaders’ wives. Rothschild followed Paris fashions and adapted them to Budapest tastes. Because of her high status, she was even allowed to travel to Paris in order to keep au courant with French styles.34

  Over time, nearly all private restaurants in Budapest became “people’s” cafeterias or state-owned “proletarian” pubs. The names changed too: instead of the New York Café they adopted short, Hungarian-sounding names—Adam’s Buffet or Quick Café—or else simply a number. Waiters and tips disappeared. Queues replaced good service. In a city tht had fueled itself on espresso and cream cakes for decades, these were truly revolutionary changes.

  Land reform came first because land reform was thought to be popular. Retail came later because the communists knew its elimination would be unpopular. But industry—especially heavy industry—was the main prize. Industry had always interested communists far more than “backward” sectors like farming and “irrelevant” sectors like retail. In the Marxist view of the world, manufacturing was the future. Steel plants, mills, and machine-tool factories would modernize the country, eliminating old-fashioned ways of thinking. The goal of industrialization was ultimately political: once everybody was an industrial worker, then everybody would support the communist party—or so the theory went. In the meantime, the destruction of the property-owning class would deprive the opposition of powerful allies.