The relationship between the political and the economic in the transformations in eastern Europe: Continuity and discontinuity and the problem of models

East European Quarterly

Volumn 34, Issue 2, 2000, Pages 131-157

  Melich, Jiri S ^a  

^a CARLETON UNIVERSITY   (Canada)

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EID: 0011424213     PISSN: 00128449     EISSN: None     Source Type: Journal    
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References (62)

1. Claus Offe, Varieties of Transition (Cambridge, Mass.: The MIT Press, 1997), p. 8;
2. see also Valerie Bunce, "Should Transitologists Be Grounded?," Slavic Review, 54:1 (Spring 1995), pp. 111-127.
3. Leszek Balcerowicz, "Understanding Postcommunist Transition," in Larry Diamond and Marc F. Plattner, eds., Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 87; italics by Balcerowicz.
4. Cf. Claus Offe, Economic Reform and Democracy 87; op. cit.
5. And he adds: "Why govern?" Why take the trouble to govern, if you can feed off the imperial remains and vacation frequently in European resorts? The rest of society, the great mass of citizens, is left out of the contract, left in extreme cases to die out in a Darwinian struggle for survival." In Stephen Holmes, "What Russia Teaches Us: How Weak States Threaten Freedom," Johnson's Russia List (e-list), djohnson@cdi.org, 24 June 1997, pp. 5-7.
6. The latter concern has turned out to be a not too far-fetched prospect. Cf. e.g., Attila Ágh, "The Paradoxes of Transition: The External and Internal Overload of the Transition Process," in Terry Cox and Andy Furlong, eds., Hungary: The Politics of Transition (London: Frank Cass, 1995), p. 20;
7. and Charles Gati, "The Mirage of Democracy," Transition, Vol. 2, No. 6, 22 March 1996, pp. 6-12, esp. p. 6.
8. Ágh has distinguished "four types of degeneration or distortion of democracy which threaten the democratic transition in the countries of ECE which he calls semi- or pseudo-democracies." These distortions are: (1) formalist democracy, (2) elitist democracy, (3) partyist democracy (partiocrazia), and (4) tyrannical majorities (Ágh, Transition, ibid., pp. 28-29; italics by A.Á).
9. Gati has collected the evidence to the fact that most of the regions countries have found themselves in the dead-end between democracy and totalitarianism. He has concluded that "the transition is producing a group of semi-authoritarian, semi-democratic, nationalist, populist regimes" (Gati, Transition, op. cit., p. 6).
10. "OECD Economic Surveys - Russian Federation"; December 1997, Johnson's Russia List (e-list), djohnson@cdi.org, 28 December 1997, p. 3.
11. Some go even as far, as considering the whole project of privatization a mere scam. Being asked for her analysis, free market economist Larisa Piyasheva seethed, "These guys were able to carry on the biggest privatization in the world without creating a single private enterprise. It's an amazing fact of mass hypnosis which some day psychiatrists might be able to explain." Quoted in Anne Williamson, "Crime of the Century," Johnson's Russia List (e-list), djohnson@cdi.org, 12 February 1998, p. 2.
12. Cf. Paul Goble, "The Paradoxes of Privatization," in Radio Free Europe/ Radio Liberty/Newsline, 2 October, 1997;
13. also Konstantin Valtukh, "Theorems of the Impossible," in Problems of Economic Transition (A Journal of Translations from Russian), November 1994.
14. Russia's privatization programme has been criticized that it was done "back to front." While it seems advisable that enterprises be restructured first and then sold at the highest possible price (thus maximizing the return for the state and minimizing the risk for new investors), in Russia unrestructured enterprises were given into the private hands for worthless vouchers. Thus, "the industrial monoliths should have been broken first so that price competition between their privatised bits would lead to rest." Cf. Claus Offe, Problems of Economic Transition (A Journal of Translations from Russian), op. cit., p. 8;
15. also see Bunce, Problems of Economic Transition (A Journal of Translations from Russian), op. cit., pp. 111-127.
16. In Russia, unregulated "business groups" and networks have paralyzed a potential progress. As one analyst has put it, these "clans" service their respective sectors of putatively privatized firms, "whether arranging barter relations, cheap state credits or international transactions...skim proceeds for themselves." (Quoted from Michael Urban, V. Igrunov, and Sergei Mitrokhin, eds., The Rebirth of Politics in Russia [Cambridge: Cambridge University Press, 1997], pp. 295-6.)
17. In the same vein, it has been noted that "[the] directing forces in the economy are primarily parasitic ones, deriving their profits from the movement of goods and services - licensing duties, taxes, marks-ups on turnover, bribes and protection payments - rather than from production." Consequently, production stagnates, as resources appropriated from it "are not reinvested for future growth but either end up in Western banks (as the 'flight capital') or consumed or set to work at home but just to renew the turnover in trade and the disproportional profits derived from it" (Urban, Igrunov, Mitrochin, The Rebirth of Politics in Russia op. cit., pp. 295-6).
18. Also, as it is known, the combination of overregulation and laxness in responsibilities, arbitrary administration rulings, abrupt tax changes, and chaotic and primitive judicial application of business law have frustrated many joint-ventures. (Cf. "A Survey of Russia," The Economist, July 12, 1997, p. 13.)
19. Holmes, "What Russia Teaches Us," pp. 4-6.
20. According to Holmes, the Russian state is an illiberal state partly because it is insolvent, and it is insolvent because it is corrupt because norms of public service are weak, an potential taxpayers do not trust the government (Holmes, "What Russia Teaches Us," pp. ibid., p. 5).
21. Handelman has warned about potential implications of such a state of affairs for the global order: "...it is capitalism of an older, darker model. Left unrestrained by legal authorities, Russia's economic "boom" threatens to institutionalize the rapaciousness which once lay concealed behind the rigidities of Soviet society. And it is not hard to imagine the dangers when a corruption-plagued economy the size of Russia's becomes part of the network of global trade and finance. In Stephen Handelman, "Russian mafiya"; a review on St. Handelman's book Comrade Criminal (1997), in Johnson's Russia List (e-list), djohnson@cdi.org), 6 April 1997. And as Shlapentokh has maintained, "organized crime is the dominant segment" of current Russia.
22. Here, we should realize that the Czech experiment in privatization (especially its mass-voucher scheme) has been unprecedented, particularly in its several first years; it had not been done on such a scale and with such a speed of privatization of the former state assets anywhere in the world before. (In terms of the volume of privatization, perhaps, with the exception of the former East Germany by the Treuhandanstalt.)
23. Cf. Kristian Palda, "Czech Privatization and Corporate Governance," in Communist and Post-Communist Studies, Vol. 30, No. 1, 1997, pp. 83-93;
24. and Jiťí Pehe, "Czechs Fall From Their Ivory Tower," in Transitions, Vol. 4, No. 3, (August 1997), pp. 22-27.
25. Pavel Mertlík of the economics institute of the National Czech Bank has pointed out that so-called "corporatization" - or the state-owned enterprises' transfer to the National Property Fund (a state organization) and transformation into joint-stock companies - "is, in contemporary Czech economics, also considered a form of privatization. That means that everything that is called 'privatized property' in...statistics in reality presents a heterogeneous plurality of manifold proprietary organizations, where the owners could be both private and public." (Here quoted from Aurelius M. Pedziwol, "The Great Game of Privatization," in Transition, Vol. 3, No. 1, 10 January 1997, pp. 36-40, esp. 39.)
26. "Tunelování" has been the most popular new term in the Czech language in the past two years. More then 10 banks collapsed in such schemes in the last 3 years. The trick has been, in principle, the same as that described by Andrei Kortunov in his comments on similar practices in Russia: "The director of a large plant just starts a small private venture and then signs a preferential contract with the part of the state enterprise which he controls and - just gradually - transfers all the goodies from the state to his enterprise. The higher position you have, the greater the opportunity." (Here quoted from Anne Williamson, Transition, op. cit., p. 4.)
27. The insufficiently controlled transfers of property, cash and ownership have raised the suspicion that corruption may be a systemic one. Also, because of the resulting non-transparent capital market, investment in the region has been far below what is needed. Regardless that after Hungary and Slovenia, the Czech Republic has received the highest investment per capita, the Czech economy has suffered from the lack of investment. Associated with the problem of the lack of transparency in property ownership and business dealings has been the poor performance of the Prague Stock Exchange, resulting in that fresh capital is rarely raised in the Czech Republic through the stock exchange, and foreign portfolio investors have left the country.
28. See in Urban, Igrunov, and S. Mitrokhin, Transition op. cit., p. 295.
29. Urban, Igrunov, and S. Mitrokhin, Transition Ibid., 305.
30. Also, in both countries, identifiable have been some aspects of the mechanism, which some have called "crony" or "rent seeking" capitalism. (Cf., e.g., Goble; also Holmes, both Transition op. cit. 305 ) In this respect, the problematic of Eastern Europe is not as much distant from the dynamics we have seen in Latin America: In both cases, there have been: (1) flawed democratic process; (2) oscillation between the weak and strong state (often it takes a form of shifts between authoritarianism and liberalism); (3) a higher Gini coefficient, i.e., a raising gap between the rich and the poor; and (4) seemingly perpetual lagging behind advanced industrial countries.
31. "Thus, a chief priority in the transition process is to design effective bureaucratic institutions. In order to improve bureaucratic performance, a continuous process of formal and informal control and pressures must be institutionalized." (Paul Aligica, "The Institutionalists' Take on Transition," in Transition, Vol. 3, No. 7, March 1997, p. 48).
32. Aligica, Transition, op. cit., pp. 46-49;
33. also Michael McFaul, "State Power, Institutional Change, and the Politics of Privatization in Russia," in World Politics, 47, January 1995, esp. pp. 214-15.
34. Cf. Ha-Joon Chang and Peter Nolan: "Europe versus Asia: Contrasting Paths to the Reform of Centrally Planned Systems of Political Economy," in Ha-Joon Chang and Peter Nolan eds., The Transformation of the Communist Economies: Against the Mainstream (New York: St. Martin's Press, 1995), p. 39.
35. According to David Satter, the Russian economy has been fatally criminalized; as he explains, Russian businessmen "go into business not in order to create business, not to create the enterprises, but to destroy those enterprises, to live off them as long as they can and to send the money out of the country until the day comes when they will follow that money." Here quoted from David Satter, "Criminalizing Russia," an interview with David Satter, Voice of America, 9 November 1998 (a transcript).
36. David Satter, "Criminalizing Russia," an interview with David Satter, Voice of America, 1998 Ibid.
37. Cf. Vaclav Klusoň, "Vlastní zájem nade vše" [Own Interest Above All], Listy, Vol. XXVII, No. 6, (1997), pp. 6-10.
38. Kazimierz Z. Poznanski, "Introduction," in K. Poznanski, ed., The Evolutionary Transition to Capitalism (Boulder: Westview Press, 1995), esp. pp. 10-11.
39. Chang and Nolan, The Evolutionary Transition to Capitalism op. cit., p. 39.
40. Hans Aage, "Transition and Transplantation of Economic Systems," in Anne Lorentzen and Marianne Rostgaard, eds., The Aftermath of 'Real Existing Socialism' in Eastern Europe (London: Macmillan Press Ltd., 1997), p. 31.
41. Leszek Balcerowicz, "Understanding Postcommunist Transition," in Larry Diamond and Marc F. Plattner, eds.. Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 91.
42. Robert Dahl has noted that transition to democracy (i.e., polyarchy) is the most successful when the transition was taken slowly, initially limiting political contestation to a small stratum of the population. Cf. Robert Dahl, Polyarchy: Participation and Opposition (New Haven: Yale University Press, 1971), esp. Chapter 3.
43. Anders Aslund, "The Case for Radical Reform," in Larry Diamond and Marc F. Plattner, eds., Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 84.
44. Lieven has listed them as: (1) an aridly monolinear view of the development of human societies, excluding the great majority of possibilities; (2) an attitude to history which combines indifference, simplification and demonisation; (3) a tendency to speak in slogans and cliches ("Russia's Bold Young Reformers"); (4) a concentration on decisions at the expense of political context and the realities of political power; (5) a profound contempt for ordinary people lacking in the necessary characteristics; and linked to this, (6) a complete indifference to individual psychology or human needs and behaviour outside the confines of the ideological paradigm. Adapted from: Anatol Lieven, "History is Not Bunk," excerpts from Anatol Lieven, The West's defence of Russian crime in the name of the free market (1998); received at: lieven@iiss.org.uk, (8 November 1998).
45. "Strategies...," The West's defence of Russian crime in the name of the free market (ibid., p. 6. When advocates of "market fundamentalism" refer to "institutions" and the necessity of "institution building" in order to foster capitalism, they have in mind a strictly limited agenda: the definition of property rights, contract law enforcement, and the removal of impediments to private enterprise. Such a notion has been shown to be clearly insufficient and myopic (not to mention that it has been rarely fully implemented). Not only it does not take sufficiently into account the legacies of the past, but it has also overestimated the positive aspects of the liberal project itself. Mere price liberalization and privatization (particularly the "Russian-style") have appeared to be too simplistic tools to attain a genuine market, one embedded in the sustained web of entrepreneurial responsibility and society's expectations. Unfortunately, both practitioners and theoreticians have focused on this kind of naive ready-made "end" models, in which their promoters have often pretended "as if" - i.e., as if we faced standard conditions - instead of focusing on transitory "custom-made" and, at the same time, dynamic models. The issue of incompatibility of models and theory with the post-communist reality have been recognized by Stark and others as the problem of "cookbook capitalism" or "capitalism by design.
46. " Cf. David Stark, "Path Dependence and Privatization Strategies in East Central Europe," in J.M. Kovacs, ed. Transition to Capitalism? (London: Transaction Publishers, 1994);
47. cf. also Bunce, Transition to Capitalism? op. cit. Especially Stark has suggested that the poor performance and the ensuing political instability of the post-communist countries have stemmed from copying the wrong capitalist model voluntarily or otherwise.
48. In Stark's notion of "path dependence," the problem of transition in EE cannot be "solved by the rationalist design of economic institutions," for three reasons: (1) capitalism as such has not been created by design, (2) capitalist institutions are not easily transplantable, and (3) institutional legacy of the old state socialism "shape the possibilities of transformation in the subsequent stage." He believes that the East European countries must leam from both their own past and the experience of successful late-industrializers and work out their own sensible policies, specifically geared to their current status, otherwise their efforts to restructure and to make a transition to a market economy will continue to fail (Stark, Transition to Capitalism? ibid., pp. 63-66).
49. Cf. Dietrich Rueschemeyer, Evelyne H. Stephens, and John D. Stephens, eds., Capitalist Development and Democracy (Chicago: University of Chicago Press, 1992), esp. p. 63.
50. David Beetham, "The Limits of Democratization," in David Held, ed., Prospects For Democracy: North, South, East, West (Cambridge: Polity Press, 1993), p. 67.
51. Adam Przeworski et al., eds., Sustainable Democracy (Cambridge, Mass: Cambridge University Press, 1995), esp. pp. 95-98;
52. also Jan Prybyla: "Out of Socialism: Easier Said than Done," in Joan Serafin, ed., East-Central Europe in the 1990s (Boulder: Westview Press 1994).
53. Cf. also: Vladimir Shlapentokh, "The Four Faces of Mother Russia," in Transitions, Vol. 4, No. 3, October 1997, pp. 59-65;
54. and Stephen Holmes, "When Less State Means Less Freedom," in Transitions, Vol. 4, No. 4, September 1997, pp. 66-75.
55. Cf. Michael Landesmann and Istvan Abel, "The Transition in Eastern Europe: The Case for Industrial Policy," in Chang and Nolan, eds., in Transitions, op. cit. What seems indisputable is that many East European countries still have significant comparative advantage in its human potential which could assert itself in the international division of labour.
56. D. Rueschemeyer, in Transitions, op. cit., pp. 76-7.
57. Perhaps, further thought should be given to the argument that even in its introductory phase, capitalism does not have to play the role of an all-pervasive force and domineering dimension in society, to a degree that its logic would dictate all the other relationships and subject them to its hegemonizing power-field, thus reducing all values to profit-making and putting natural instincts of unprepared society permanently on defence. This sort of argument might find support with those who have become increasingly aware that the post-communist troubles may have "re-discovered" inherent weaknesses in the capitalist system itself.
58. North, Douglass, Structure and Change in Economic History (New York: Norton, 1981), esp. p. 17.
59. A. Przeworski, Structure and Change in Economic History ibid., p. 107.
60. Adam Przeworski, Democracy and the Market (Cambridge University Press, 1991), p. x.
61. One can agree with Charles Gati's observation that "under conditions of economic decay, democracy cannot take root." (Charles Gati, Democracy and the Market op. cit., pp. 6-12).
62. Nevertheless, in the long-run, we may expect that a real and effective challenge to the current interpretations of the (neo-) liberal model will come from established democracies first.