HOW CHINA'S CHAOS AFFECTS THE WEST Communism is in crisis worldwide. We should be cheering, not fearing, the forces for reform from Beijing to Budapest, Moscow to Warsaw.
By Richard I. Kirkland Jr. REPORTER ASSOCIATE J. B. Blank

(FORTUNE Magazine) – HOWEVER the political struggles in China, the Soviet Union, and Eastern Europe turn out, the worldwide Communist movement will never be the same again. After the momentous May of 1989, the power of totalitarian states looks a lot less than total. China's turmoil has been the most dramatic, with students and workers filling Beijing's Tiananmen Square and the streets of other cities to demonstrate for ''democracy.'' But almost as startling are events in Moscow, Warsaw, Budapest, Vilna, and Tallinn. Polish and Hungarian Communist officials will soon face opposition in multiparty elections. Lithuania has joined Estonia in declaring its right to veto Soviet laws, police its own borders, and run its economy as it sees fit. And Soviet television viewers were recently treated to watching Andrei Sakharov, the once imprisoned human rights hero, challenging Mikhail Gorbachev in a spirited discussion in the new Congress of People's Deputies. % Predicting a Communist government's demise is perilous. Pessimists warn that all the ingredients are present for a crackdown. Yet even if the worst happens, repression may well be temporary. Says Winston Lord, former U.S. ambassador in Beijing: ''In China and in the rest of the Communist bloc, the road to political liberalization is going to be long, and it may hold lots of twists and turns. But the general direction has been set.'' The West, and especially business, should be cheering, not fearing, the forces of reform. When the Hong Kong stock market plunged after Beijing declared martial law, one analyst explained that ''neither cracked skulls nor anarchy is good for business.'' That's true, up to a point. But disorder that gives rise to systems where bureaucrats are less powerful, markets are more flexible, and citizens are no longer barred from possessing either the ways or means to act as entrepreneurs would be well worth enduring. Looking past the current upheaval in the Communist bloc, Robert Hormats, vice chairman of Goldman Sachs International predicts, ''In the long run the democratizing process there should create a vast new set of opportunities for Western business.'' Old China hands are keeping their nerve. ''From a businessman's point of view, this is only a bump in the road,'' says William Kinch, chairman of W.R. Grace's subsidiary in China. John Marshall, director of international business development for 3M, says his company still plans to expand in China, ''whoever wins'' the political battle. He adds, ''All parties favor continued opening of the economy.'' Says a U.S. oilman with substantial experience in China: ''Through the whole protest movement we haven't seen a single slogan against foreign investment.'' Why should democratic values keep growing in rocky socialist soil? Two ''objective elements,'' as a good Marxist might put it, give cause for optimism. The first is economic. Compared with capitalism, centralized socialism has been utterly incapable of delivering the goods. The command economy's only virtue has been political: It is an efficient mechanism for concentrating power in the hands of the party. But to avoid falling further behind the West, most Communist governments have now concluded that they must loosen their hold on the economic levers. This requires tolerating some loss of political control. The second element is technological. As the assembly line gives way to the microchip, the need for workers and managers who are better educated and better able to make independent decisions grows. In the information age, economic success increasingly depends on the free flow of data, including opinions. AT THE SAME TIME, new technologies -- satellite broadcasting and telecommunications, fax machines, the VCR, the personal computer -- make policing that flow increasingly difficult. The 30,000 Chinese students in the U.S. were a powerful conduit for transferring notions of ''democracy'' to their comrades back home. American press coverage has been faxed into China. China's students, who came of age amid soaring TV sales, say they drew part of their inspiration from watching Cory Aquino face down an army in the streets of Manila. Of course, these forces alone cannot prevent a determined Communist leadership, backed by its military, from retaining or reasserting a viselike grip on economic and political power. The unregenerate Stalinists who still rule Cuba, North Korea, and Rumania prove that. But in a wired-up, rapidly integrating global economy, the cost of clinging to the discredited command model mounts with each passing year. Gorbachev is one leader who knows that. In a rare comment on the extraordinary demonstrations that overshadowed his historic summit with Deng Xiaoping, Gorbachev declared at a press conference in Beijing, ''I am convinced that we are participating in a very serious turning point in the development of world socialism.'' Though he had earlier dismissed the hunger- striking students as ''hotheads,'' Gorbachev on that occasion stressed his belief that all Communist countries are headed toward greater freedom of expression, democracy, and individual rights. What he did not discuss, and may not fully understand, is the extent to which freeing up markets can also drive the pace of political change. Capitalism does not require democracy. But where capitalism does flourish under authoritarian sponsorship, the affluence it delivers acts as a powerful force for more personal freedom and less concentration of political power. That's why Taiwan and South Korea seem set to complete their transition from capitalist dictatorships to capitalist democracies. By boldly setting out on the most radically market-oriented path of any Communist leader, Deng Xiaoping produced a payoff no less stunning than that of his capitalist neighbors. For a decade China's GNP grew more than 10% a year. Living standards in much of the country more than doubled. But because | he refused to satisfy rising expectations of at least a modest dilution of the party's political power, Deng also delivered explosive social unrest. SOVIET COMMUNISTS, too, face a problem of rising expectations. But their dilemma is the reverse of China's. While Gorbachev's political reforms are breathtaking, his economic perestroika appears overly cautious and utterly ineffectual. French scholar Jacques Rupnik has suggested a new label: catastroika. The sprawling Soviet empire -- full of fractious Ukrainians, Armenians, Tatars, and other nationalities -- constantly threatens to come apart at the seams. The combination of political liberalization and increased regional autonomy with a stubbornly stagnating economy could prove just as damaging to the party's and Gorbachev's legitimacy as Deng's unbalanced program. In mid-1985, reviewing the sad and savage rise of that uniquely 20th century ''ism'' known as totalitarianism, historian Walter Laqueur observed, ''No totalitarian regime has ever transformed itself peacefully in a democratic direction.'' But looking ahead from 1989, a voluntary end to the Communist Party's monopoly on political power is for the first time at least conceivable in China and the Soviet Union. Even if the forces of repression return, they are unlikely to hang on for long. Certainly they won't mount the sustained assault on the human spirit's uncrushable desire for freedom that characterized Communism's earlier history. The cold war is over and the West has won. Now it must figure out what new policies to pursue. As long as the Communist dictatorships continue their progress toward more political and economic freedom, the West should be prepared to take initiatives to enhance trade and judiciously reduce armaments. Many countries in the West and the East alike are searching for ways to maximize economic growth while providing social justice and some safety nets for those who cannot compete in the increasingly complex and demanding free economies. In that noble search, the West should take the lead.