Kitsch shouldn't be thought of being limited to 'art'.
Kitsch is a constant (to some degree) in most of our interactions with one another. Smiling when you see someone when you're not really particularly happy to see them. Withholding negatives and pretending that things are fine, etc. Kitsch is about being dishonest; about hiding or withholding that which would make us real live human beings. Or at least ignoring negatives...
Kitsch is about saying that you're absolutely not a nonconformist and you see nothing really wrong with this status quo.
And it doesn't take a totalitarian state for it to thrive, although I imagine it helps.
What was done to art inside the Iron Curtain was awful. Here today, the concept of kitsch matters more outside of art.
But then the concept grows and maybe becomes too vague; where any selling out becomes kitsch, the second half of Office Space where everything works out just swell, etc...