Catherine Samary on Eastern Europe

[Louis Proyect <lnp3@xxxxxxxxxxxxx>]

Excerpts from "FORMER COMMUNIST COUNTRIES BRACED FOR CHANGE"
By CATHERINE SAMARY

Le Monde Diplomatique, November 1999

[Trotskyist doctrine in introduction clipped]

In the 1980s the peoples of Eastern Europe were faced with a deterioration
in their meagre social achievements. Their only desire was for a higher
standard of living and greater freedom. If they had any model in mind, it
was that of Sweden or Germany (now suffering from the impact of
reunification and dislocation in the east). Sick of ideology, they simply
wanted to catch up with civilised countries and live like everyone else in
a market society that was supposed to guarantee prosperity, efficiency and
individual liberty. The Berlin Wall fell and the dictatorships collapsed.
But now that the cheering has died down, how do matters stand after a
decade of systematic change?

Is the Russian crisis an exception mainly affecting its neighbours such as
Ukraine? The analysis and figures in the authoritative Guide to the
countries of Central and Eastern Europe - 1998 (5) do not ignore the
difficulties, particularly in the Balkan countries, but still paint a
rather optimistic picture. "In the Peco countries" (6), writes Jean-Pierre
Page, "the prescriptions of market economics have worked fairly well,
especially as those countries already possessed structures and institutions
that were in the process of transition to the market. In Russia and
Ukraine, however, the same measures, applied to economies and populations
that were not prepared for them, have not worked well and have even had
adverse effects."

While the Central European countries' gross domestic product has been
growing since 1993-94, that of Russia now stands at half its 1991 volume.
The old saying "when Russia sneezes, Eastern Europe catches cold" no longer
holds true. In the same report Jacques Rupnik argues that "the pace and
conditions of the transition to democracy and the market economy in Central
Europe are relatively independent of the former imperial metropolis" (7).

This view is, however, debatable. Even if the scenarios are different
(because the starting points for the transition were also different), there
are more common features than might appear at first sight. Nowhere were
people prepared for the deterioration in social circumstances which the
majority of the population has experienced in all the countries concerned.
And throughout the region the rejection of socially destructive policies at
the polls is leading to the formation of centre-left coalitions, with high
scores for former communist parties going under various labels. But
whatever the election promises, all governments tend to behave in a similar
fashion once in office , responding first and foremost to the pressures and
demands of Western free market economics.

So despite the initially different therapies adopted, the trend towards
similar policies in the Eastern European countries is creating a political
system that is bipolar in form yet devoid of any real political
alternatives (8). As public disenchantment grows, so does the danger of
rightwing nationalism and populism. In every country a minority is growing
rich while the majority is experiencing "one of the most violent shocks
that has occurred anywhere in the world since the second world war" (9).
According to Unicef, the changes that have taken place in Eastern Europe
are unprecedented both in kind and in extent. In relative terms, they are
more pronounced than those that affected Latin America and Africa during
the lost decade of the 1980s. The increase in poverty and unemployment, and
the huge differences in living standards, are general. Queues have been
replaced by price increases. Shop windows display a wide range of goods,
but the vast majority of people cannot begin to afford them.

When growth resumed, as in Poland, it widened the gaps in living standards
and regional development. Only the free market ideologists think the market
reduces those differences. Although distinctions can be made between groups
of countries in terms of growth and the stability of the transition
process, no simple pattern emerges. Market reforms began in former
Yugoslavia long before its neighbours. With the exception of Slovenia,
however, it is faring no better than they are. After the Prague Spring,
Czechoslovakia remained one of the most totalitarian regimes in the Soviet
bloc, but the Czech Republic is now one of the five "advanced" candidates
chosen for the first wave of accession to the European Union. Slovenia has
the highest standard of living of the former communist countries even
though the pace of privatisation has been slower than in others. From
Russia to Bosnia, including the Czech Republic, the regimes in power are
tainted by similar financial scandals and corruption, whatever their
political labels and their stage in the transition process. Prague was
recently the scene of a new scandal involving the payment of backhanders
worth $6m by a Dutch firm to secure the contract for the privatisation of
the country's telecom system (10).

The Peco countries' realignment with the EU also has a downside. Over 50%
of their trade is now conducted with the EU, but their new dependence is
beginning to have adverse effects. Their exports have fallen sharply on
account of the Union's sluggish growth rate, while imports from the EU are
growing by leaps and bounds. As a result, all the Peco countries have
worrying trade deficits (11). The influx of volatile foreign capital into
Poland is making matters worse by bumping up the exchange rate. And,
contrary to claims from Brussels, adoption of the EU's economic operating
criteria has increased instability in the region.

The rush to join the capitalist world and lay hands on exportable resources
has been a major factor in the disintegration of federal states from the
Soviet Union to Yugoslavia. The process is not finished yet, either in
Russia or in the Yugoslav Federation (Serbia and Montenegro). Access to the
sea (in Daghestan, Montenegro or Croatia), control of mines (in Kosovo),
oil (in the Caspian) and the pipeline route, are not open demands in
national and international conflicts, but they nourish them. There was no
war in Czechoslovakia but the same social and economic logic underlay the
break-up of the federation. The Czech Republic wanted to get rid of
Slovakia, just as Slovenia and Croatia wanted to get rid of Yugoslavia's
less developed regions.

A high level of development under the former regime is an advantage for
accession to the EU: the poorer you are, the more it costs to catch up. It
is also more attractive to foreign investors, especially because of the
greater availability of qualified labour. All this tends to widen the gaps,
undermine solidarity, and encourage the richer regions or countries to
break away. There is a significant increase in the number of contracts
awarded to local branches of multinational companies whose target is the
European market. Certainly, the prospect of EU membership may work in
favour of political and social stability in the short term. But because
that prospect is accompanied by ever more sacrifices, public attitudes
towards the EU are becoming more negative. This trend is clear in Poland
(12), the Czech Republic and Slovenia.

The statistics on privatisation in Russia, as in the Czech Republic,
Romania, Poland and elsewhere, are tailored to the expectations of foreign
creditors, the International Monetary Fund and the European Commission.
Eastern European countries have to prove they are on the right road.
Privatisation extends even to sectors that worked well under the old
system, such as Hungarian agriculture and the Slovenian health service. And
enterprises the authorities are unable or unwilling to sell to foreign
capital are privatised without any real capital input.

The return to capitalism is taking place in an unprecedented historical
context. The mass of former communist bureaucrats have embraced
privatisation projects in order to enhance their old official status with
property privileges. Yet the capitalist system now being introduced suffers
from lack of capital and an organic bourgeoisie. The creation of a real
market for labour and capital is hampered by the global environment -
dominated by multinationals with whom it is impossible to compete - and by
the social cost of the transition.

Under the old system property was not privately owned, but nor was it owned
entirely by the state. Legal transactions have often been necessary for the
state to gain ownership of property and the right to sell it. But property
was not controlled by society either - and even less by the workers. In a
situation where property was a hybrid belonging to everyone in general and
no one in particular, money did not function as capital that could be used
to acquire the means of production.

In the Soviet Union, for example, there was a distinction between two types
of rouble. In the movement of goods (machinery, raw materials,
semi-finished products) between public enterprises, an "accounting rouble"
was used to give monetary expression to plans that were essentially worked
out in kind. Quantities of steel or tractors to be produced by various
enterprises were fixed by administrative decision, and the accounting
rouble could not be used for real sales or purchases. The practice of
camouflaging resources, and the unofficial distribution networks, developed
in response to this constraint. The second type of rouble was distributed
as income for the purpose of purchasing consumer goods. But it could not be
used to buy enterprises or raw materials. At the same time, there was no
market in stocks or bonds, and the banking system was an instrument of
official planning. So bureaucrats had no means of transferring property to
their offspring.

The privileges of the bureaucracy were thus mainly confined to the consumer
sector (special shops, rare goods, travel facilities, dachas, special
clinics, etc.) As a result, the primitive accumulation of capital did not
precede and pave the way for the transformation to capitalism. It is taking
place now, along with the transition to the money economy. So, while
mafia-type organisations and parallel networks existed under the old
system, it is only now that they can really expand.

The only other capital available was money kept in savings accounts. Many
evaluations have shown that it was enough to cover about 20% of the
property to be privatised, estimated at the lowest prices. In practice
privatisation by direct sale has been virtually confined to Hungary, where
the superior purchasing power of foreign capital was used to acquire the
country's finest assets. The remainder was legally converted into various
types of stock companies, in which the state was initially (and often
thereafter) the main shareholder. Following this transformation various
forms of mass privatisation were undertaken, involving redistribution of
the majority of shares. Share coupons were issued to workers in the
individual enterprises or to the general public. The coupons could be sold,
used to buy shares, or deposited in investment funds. Whereas the workers'
main motivation for becoming shareholders was to protect themselves against
foreign owners and safeguard their jobs, the financial experts hoped that a
sufficient concentration of property would emerge to produce real owners
capable of imposing disciplined management - i.e. a programme of
redundancies. For them, the aim of mass privatisation was twofold: to
sweeten the pill of privatisation for the general public and to enable the
principles of free market economics to be applied without any real input of
capital.

How these management changes work out in practice depends on a complex set
of interactions in which the new banking system plays a key role. Where the
banking sector has been opened up to foreign capital, as in Hungary and
above all Poland, it tends to impose tough management constraints. Where,
as in the Czech Republic, the banks are both the principal national
shareholders in the enterprises that are to be restructured and also their
creditors, the planned restructuring is not carried out. And in all
countries the new banking systems are being undermined to a greater or
lesser degree by bad debts contracted by enterprises which they are in
practice continuing to prop up. Unless, of course, the banks are looking to
make a profit, as is overwhelmingly the case in Russia. Then they grant no
loans to businesses, preferring to borrow abroad and, like foreign capital,
speculate in government bonds.

But the main obstacle to restructuring is the social, and hence political,
cost. It is compounded by another hangover from the old system. Money was
not the only means of subsistence of a Soviet-type wage-earner. In order to
achieve the quantitative objectives of the official plan and maintain a
sufficiently qualified workforce, the directors of enterprises supplemented
the meagre wages they paid by benefits in kind, such as creches, housing,
special hospitals, holiday camps and shops. Big enterprises were thus
centres of social activity for their workforce and sometimes provided a
structure for the whole surrounding region.

Despite the Russian crisis many of these social benefits are being
maintained, though in a much degraded form. They enable the directors to
lessen the social impact of the non-payment of wages, and at the same time
to use payroll funds for profitable financial dealings. In Russia barter
arrangements and non-payment of debts between enterprises, as well as
non-payment of wages and of taxes, have assumed considerable proportions
(13). But in the Czech Republic too, despite the privatisation of large
enterprises and relatively low unemployment, non-payment is widespread and
a large proportion of the countries' enterprises are not being restructured
in accordance with capitalist criteria of profitability. In Poland there
are considerable regional and sectoral differences, depending on the size
and nature of the enterprise. And throughout Central and Eastern Europe,
wherever it has not been possible to privatise housing and thus dissociate
it from employment, the restructuring problem is compounded by the housing
issue.

In all the countries of Central and Eastern Europe, the same factors are
attenuating public reaction against the situation. Those factors are the
black economy, the preservation in a degraded form of systems of protection
involving benefits in kind, and the crisis itself. There is a proliferation
of petty jobs not declared for tax purposes. In Russia the cultivation of
vegetables on tiny private plots replaces or supplements unemployment
benefits. The old trade unions remain very bureaucratic but sometimes still
have the power to distribute benefits in kind, while the new "independent"
unions, whose leadership is soon corrupted, have often become nothing more
than conveyor belts for free market policies.

The economic, moral, environmental and political damage left over from the
old regime is constantly being assessed. But who is assessing it and by
what criteria? Where "economically unsound" full employment is replaced by
"economically sound" unemployment; where queues disappear but the goods in
shop windows are inaccessible; where run-down public services are
privatised in a two-tier world in which poverty is spreading all the time
whether you have work or not; where the growth of the markets and the money
economy does not mean greater access to goods and services for the great
majority, but instead more stocks and shares and luxury goods for a
minority, we are heading for an explosion that could open the way for the
rightwing extremists who inveigh against "cosmopolitan" globalisation.

* Lecturer at the University of Paris IX, research associate at the Centre
Réforme et ouverture des systèmes économiques (post) socialialistes (Roses)
of the CNRS (National Centre for Scientific Research), author of Yugoslavia
dismembered (translated by Peter Drucker), Monthly Review Press, New York,
1995.


(1) The award of last year's Nobel prize for economics to the Indian
economist, Amartya Sen, who has so strongly criticised the prevailing
separation of ethics from economics, is highly welcome. After the Asian,
Russian and Brazilian crises, the jury may well have been ashamed of
awarding the previous economics prize to a pair of stock-market game
modellers working for the hedge fund LTCM, which a few months later was on
the verge of bankruptcy.

(2) Leon Trotsky, The revolution betrayed : what is the Soviet Union and
where is it going?, Faber & Faber, London, 1937, translated by Max Eastman,
Chapter II, Section 1.

(3) Ibid, Chapter I, Section 2.

(4) In Selected political writings of Rosa Luxemburg, Cape, London, 1972

(5) Jean-Pierre Pagé, "Panorama économique", p. 5, in Tableau de bord des
pays de l'Europe centrale et orientale - 1998, Centre for International
Studies and Research (CERI) of the National Foundation for Political
Science, Paris, 1998; see also Edith Lhomel and Thomas Shreiber (coord.),
L'Europe centrale et orientale, Etudes de la Documentation française,
Paris, 1999, and Roberte Bertoni-Hogge and Marie Agnès Crosnier (coord.),
Les pays de la CEI, Etudes de la Documentation française, Paris, 1998.

(6) The ten Central and Eastern European countries that have association
agreements with the EU and have applied for membership, namely: Bulgaria,
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania,
Slovakia and Slovenia.

(7) Jacques Rupnik, "Paysage est-européen après la crise russe", in Tableau
de bord, op. cit., p.15

(8) See Bruno Drewski, "Les paysages politiques du post-communisme", in
Violette Rey (ed.), Les territoires centre-européens. Dilemnes et défis -
L'Europe médiane en question, La Découverte, 1998.

(9) See Jean-Yves Potel, Les Cent portes de l'Europe centrale et orientale,
pp. 214-218, Editions de l'Atelier, Paris, 1998.

(10) L'Europe centrale et orientale - 1999, op. cit., p. 173

(11) Nicolas Meunier, "L'Inquiétant creusement des déficits commerciaux de
l'Europe de l'Est", Flash, no. 99-02, 11/1/1999, CDC.

(12) See Robert Soltyk, "Poles torn between hope and fear", Le Monde
diplomatique, English edition, February 1999.

(13) See Yves Zlotowski, "La crise des paiements en Russie', in CERI
Studies no. 34, August 1998, National Foundation for Political Science, Paris.

Translated by Barry Smerin

ALL RIGHTS RESERVED © 1999 Le Monde diplomatique


Louis Proyect

(The Marxism mailing list: http://www.panix.com/~lnp3/marxism.html)