Welles was pointing to a fact that had nothing to do with the Cold War. The arts have often flourished in regimes we'd call despotic. This isn't because artists and writers do their best work when they're being persecuted - a Romantic cliche that doesn't stand up to any careful inquiry.
It's because traditional tyrants left a good deal of freedom in society. Ancient China wasn't anything like a modern democracy, but it produced some of the greatest art there's ever been, while Mao's China produced nothing. Tsarist Russia contained many kinds of discrimination and injustice, but in the late 19th and early 20th Century it was in the vanguard of literature, painting, music and dance. The Soviet Union produced little that was even remotely comparable. The arts flourished in the empire of the Habsburgs, while Nazism produced Leni Riefenstahl's repugnant and much over-rated Triumph of the Will. Whereas authoritarian regimes leave much of society alone, totalitarianism aims to control everything. Invariably, the result is a cultural desert.