The communist system in Eastern Europe rests on two pillars: military conquest and revolution. After liberating the region from Nazi occupation in World War II, the Kremlin engineered sweeping economic and social changes in order to consolidate its own political domination.

It is thus a remarkable paradox that the Soviet-style model of the command economy, which Joseph Stalin imagined would help keep his newly acquired empire quiet, has instead become a cause of recurrent instability and social unrest.

For all its harshness, Stalin's "revolution from above" transformed the face of what used to be a predominantly backward part of Europe. Homes, roads and factories sprung up out of the debris of war. Millions of people migrated from the depressed countryside to the new industrial towns. For three decades, the Soviet Bloc boasted some of the highest economic growth rates in the world.

Yet today the system is viewed widely as a failure by the very people it was most designed to benefit: the workers. Shortages of food and other basic consumer items are proliferating throughout the Soviet Bloc. Privilege and corruption are rampant, despite 35 years of socialism. Young married couples wait an average of 15 years for an apartment of their own. Standards of public health and work safety, the main concerns of the welfare state, are sloppy at best.

Here lies the background to the recurrent explosions of discontent in Eastern Europe: East Germany 1953, Hungary 1956, Czechoslovakia 1968, Poland 1956, 1970, 1976 and 1980. There have, in addition, been local revolts, hushed up at the time by the authorities, such as in Romania's Jiu Valley in August 1977, when 35,000 miners struck for three days against poor living conditions.

For years, the citizens of the people's democracies were encouraged by their rulers to believe that socialism would protect them from the "cyclical crises of capitalism." Now that claim evokes only hollow laughter. Instead Poles, Czechoslovaks and Romanians ask themselves in mock despair: "Have we reached real communism yet -- or is this going to get worse?"

Growth rates have dwindled to zero all over the Soviet Bloc. In the case of Poland, the most obvious candidate for economic collapse, industrial production has slumped for four years in succession -- and is now back somewhere at the level of the early 1970s. The average production of a Polish worker is less than a quarter that of an American.

With the exception of Hungary and Bulgaria, none of the countries that make up this once rich agricultural region can feed itself. A net exporter of grain not so long ago, Poland is now a recipient of international food aid. Czechoslovakia, which used to have the reputation of being the workshop of Central Europe, has difficulty selling its machine tools to the West.

Rationing, abolished elsewhere in Europe soon after the war, has reappeared in Poland, Romania and even parts of Yugoslavia. As a special treat this Christmas, Poles will receive an additional allowance of two pounds of sugar, a bar of soap and a pound of detergent. Children under the age of 18 are entitled to a couple of lemons and grapefruit each.

When the U.S. Embassy in Warsaw held a public auction of discarded household equipment last month, astronomic prices were paid for electric stoves without doors, chairs without legs and freezers without lids. As the purchaser of a battered washing machine with no engine explained: "I'll hire an electrician and he'll fix it somehow. Otherwise it means a five-year wait for a Polish machine."

The shortages have led to a thriving black market that even the imposition of martial law in Poland has done little to check. In Warsaw, a tube of toothpaste sells for four times its official price. A gasoline attendant takes a standard bribe of 500 zlotys ($6) to fill up a car with unrationed gasoline. A shop assistant makes 1,500 zlotys ($18) on every man's suit he sells under the counter. The dollar itself trades on street corners for roughly five times its legal value.

The economic chaos creates a climate for social ills such as alcoholism, prostitution and drug addiction that Marxist ideologists often portray as the hallmark of life under capitalism. At the Victoria-Intercontinental Hotel in Warsaw, guests have to run a gantlet of prostitutes between the dining room and the lobby. About 3 million Poles, or 8 percent of the population, get drunk every day.

Heinrich Machowski studies the economies of the Soviet Bloc from the Western side of the Berlin Wall, the symbol of a divided Europe. A leading analyst for the West German Institute for Economic Research, Machowski has reached the conclusion that the Stalinist model of central planning is incapable of pulling Eastern Europe out of its present crisis.

"The Communist leaders came to power with nothing to guide them except for the works of Karl Marx," Machowski said in an interview. "What they created were war economies, which proved very effective in mobilizing resources for a limited number of priorities, but are unresponsive to changing conditions. In the long run, the Stalinist economic model has proved disastrous for Eastern Europe, which is much more dependent than the Soviet Union on trade with the West."

Until the early 1970s, the countries of the Soviet Bloc experienced what economists describe as "extensive growth." The high rates of economic growth were the result of building an industrial structure and shifting workers from the land into factories. Command economies are, however, ill-equipped for the challenges of "intensive growth": upgrading out-of-date technology, improving labor productivity, using energy more efficiently.

Machowski maintains that "the root cause of the Polish economic disaster" is the lack of competitive efficiency. He pointed out that Soviet Bloc goods are becoming less attractive in Western markets. In 1975, East-West trade accounted for 6 percent of total world trade. Today it amounts to less than 4 percent.

In an article for a samizdat (underground) publication in Hungary, Janos Kis, a dissident sociologist, said that the recent upheavals in Poland are part of an area-wide crisis. What he described as "Eastern Europe's exceptional economic dynamism" had been due initially to forced industrialization and constraints on consumption. The elimination of the "most unbearable horrors of Stalinism" also spelled an end to high rates of growth.

A complicating factor, mentioned by Machowski and Kis, is the energy crisis. Eastern Europe was protected to some extent from the effects of the oil price rises in the early 1970s by guaranteed deliveries of cheap Soviet energy. The price of Soviet oil is, however, gradually catching up with that charged by OPEC -- and supply is falling short of demand.

The Soviet Bloc belatedly has entered what Machowski calls "the post-Yom Kippur world," and it is having even greater difficulty than the West in adapting to the consequences.

The Soviet Bloc's present predicament can be traced back to 1968 -- and the suppression of the Czechoslovak reform movement known as "the Prague Spring." Traumatized by the Czechoslovak experience, Communist Party leaders drew the conclusion that economic reform carried too many political risks. They decided instead to buy social peace by improving the lot of the ordinary consumer.

In the short term, the least painful way of increasing consumption was to borrow money from the West. Hard-currency debts of the Soviet Bloc rose from a few million dollars in 1968 to a combined total of $80 billion this year. Much of the money was misspent, but now it has to be paid back.

The antireform trend of the 1970s was felt even in Hungary, the only Soviet Bloc country to have introduced free market mechanisms into the economy successfully. In 1973, the Hungarian leader, Janos Kadar, was forced to sacrifice some of the most prominent advocates of the "New Economic Mechanism" in order to save what he could of their ideas. Among those dropped from the Hungarian Politburo was Rezso Nyers, who had earned the title "father of the Hungarian economic reform."

Interviewed in Budapest, Nyers was very critical of what he called "the erroneous economic policy" followed in Hungary and other Soviet Bloc countries in the late 1970s.

"The strategy of relying on Western credits without economic reform failed. Experience has shown that credits are not well used in a centralized economy because there is no efficient mechanism for allocating resources," Nyers explained.

Nyers, who now heads an economic research institute, criticized "the slogan of technocracy" that swept through the Soviet Bloc in the 1970s -- notably in Poland under Edward Gierek.

"It was assumed that technology could solve all our problems. This view has now been proved wrong. In order to produce progress, technology must be accompanied by greater democracy and managerial decentralization," he said.

A recent study by Poland's Supreme Board of Control into the purchase of 44 foreign licenses between 1971 and 1980 concluded that only three were economically justified. The remainder were attributable to the personal whims of Polish leaders, large bribes from Western companies or sheer bureaucratic incompetence.

The notion behind buying the licenses was that Polish factories would be able to earn valuable hard currency by selling some of their products to the West. In fact, most of the Polish products turned out to be substandard and unsalable on Western markets, particularly at a time when the West was in recession. Dozens of projects -- from the manufacture of golf carts and hunting rifles to color television sets and cranes -- were uncompleted.

To quote a small example, the same study showed that Poland spent $6.5 million for the purchase of machines and raw materials for the manufacture of leather shoes. The planners had hoped to recoup the investment by selling most of the shoes to the United States -- but only 7 percent of the planned export level was ever attained. There is now a desperate shortage of shoes in Poland, because factories do not have the hard currency to import essential materials such as glue.

Cases of economic mismanagement on the grand scale abound throughout the Soviet Bloc. In the 1970s, Romania devoted enormous resources to building a huge oil-processing industry -- much of which is lying idle following a forced cutback in oil imports. Romanian motorists now have to wait in line for up to two days to buy gasoline, and street lighting has been reduced to a minimum to save fuel.

A Polish writer recalls how, in the early 1970s, an array of attractive Western consumer goods appeared in Warsaw shops. The prices were subsidized by the state.

Contrasting this bonanza with today's empty shelves, she remarked: "When they started selling expensive French perfumes for zlotys, that's when I began saying to myself, 'No, there's something wrong, this cannot last.' "

Visitors to Moscow are struck by the Western veneer the city has acquired during the past few years -- from the modern West German-built airport to the downtown American Express office to bars that sell Western-brand orange drink. It is, however, a misleading impression, because behind the facade, things have changed very little; the same old Russian ways prevail.

The contradiction was caught in a remark of a Swissair stewardess furious at being unable to get a meal after 9 p.m. in one of Moscow's sparkling new Western-built hotels: "It's like someone who goes and buys himself a Porsche without having the proper gas to make it work."

Economic failure in Eastern Europe has created a huge extra financial burden for the Soviet Union. Western economists differ on the size of Moscow's annual subsidy to its East European allies, but they all agree that it is increasing year after year.

Soviet trade subsidies to Eastern Europe were estimated at more than $21 billion in 1980 by Wharton Econometric Forecasting Associates of Washington. Since then, the Kremlin has had to delve even deeper into its hard-currency reserves in order to help bail Poland out.

All this contradicts the widespread belief among ordinary East Europeans that it is they who are subsidizing the Soviets, and not the other way around.

"That is simply wishful thinking," insists Machowski. Along with most other independent experts, he believes that Eastern Europe ceased being economically profitable to the Soviet Union in the late 1950s. It was during this period that the Soviet leaders, under pressure from events in Poland and Hungary, agreed to renegotiate the grossly unfair trading pacts that had been imposed on Eastern Europe by Stalin.

The Soviet Union is one of the rare historical examples of an "imperial metropolis" that exports cheap raw materials to its "colonies" -- and is used by them in return as a dumping ground for shoddy industrial goods. This reversal of normal imperial logic has led some observers to predict that, sooner or later, the Kremlin will be forced to look for ways of reducing the economic strain on its resources.

In an interview in early 1980, a Yugoslav Communist Party leader, Alexander Grlickov, forecast major changes in the Soviet Bloc. He said he believed they would come about peacefully and gradually, because "the Soviets are looking for greater economic independence while the satellites are seeking greater political autonomy."

The premises of Grlickov's argument are still valid. The Polish crisis has shown, however, that there are limits to the political concessions that the Kremlin is prepared to make for the sake of economic gain. Territorial security is a priority, almost an obsession, that overrides all others.

Fortunately for Moscow, the failure of the command economy has had contradictory political effects in Eastern Europe.

On the one hand, it has created centrifugal pressures within the Soviet empire by fueling popular unrest with the communist system. On the other, it also has acted as a cohesive force by making individual governments more dependent than ever on Soviet subsidies.

That is another paradox. Eastern Europe remains economically bound to the Soviet Union -- but in a manner quite different from that originally conceived by Stalin. Next: Reform in the future?