>     Le Monde diplomatique
>     -----------------------------------------------------
>     November 1999
>                     Eastern Europe heads into the unknown
>       _________________________________________________________________
>      After selecting five Eastern European countries (the Czech Republic,
>     Estonia, Hungary, Poland and Slovenia) as "first-wave" candidates for
>     accession to the EU, the European Commission decided in mid-October to
>        begin negotiations with all the candidates. While this apparent
>     raising of the barrier could delay accession for some of the original
>     five, it does not necessarily involve a commitment to the others. The
>          sudden change of policy is explained in part by the problems
>     enlargement is creating for the Fifteen, but it also reflects growing
>        concern about the outcome of transition in the East. Despite the
>        undoubted gains in democracy, the peoples of Eastern Europe are
>       experiencing a social crisis of unprecedented proportions. And as
>            disillusionment grows, enthusiasm for Europe is waning.
>                                                      by CATHERINE SAMARY *
>       _________________________________________________________________
>     Russia and the other countries of the former communist bloc are said
>     to be in transition to a market economy. But what is "market" supposed
>     to mean? The consumer market, where Polish housewives can now choose
>     from a range of fancy cheeses? The labour market, which has to be
>     "downsized" if it gets too expensive? Or the stock market, which in
>     Russia is growing by leaps and bounds while the majority of the
>     population sinks deeper and deeper into poverty? It's easy to see why
>     people prefer to talk about "the market" in general, as if it were a
>     socially neutral mechanism.
>     In the Stalinist empire the word "socialism" served as a cover for
>     oppression and bureaucratic privilege. Now the absence of a defining
>     concept is being used to camouflage reality. The term "capitalism" is
>     never used. Instead, the process is described as transition to the
>     "market economy".
>     Clearly, Eastern Europe has gained by the introduction of a
>     multi-party system and the fall of the Berlin Wall. But walls made of
>     money are harder to demolish. And the real issues, i.e. the ethical
>     choices and alternatives (1), are not discussed at all because the
>     free market gospel requires the economy to be taken out of the
>     political arena. As if there is nothing political about replacing
>     collectivisation by privatisation, or the dogmas of "scientific
>     socialism" by the laws of a capitalist market that are supposed to be
>     universally beneficial but are in fact causing social disintegration.
>     Or replacing state bureaucracy by the privatisation of a state in
>     thrall to mafia-run monopolies.
>     Trotsky saw the Soviet Union as a hybrid society, neither capitalist
>     nor socialist. "Thinking people," he emphasised, "saw plainly that a
>     revolution in the forms of property does not solve the problem of
>     socialism, but only raises it" (2). And in response to the barrage of
>     official statistics, he postulated "a unique law of Soviet industry"
>     that stated that "commodities are as a general rule worse the nearer
>     they stand to the mass consumer" (3). So the issues of democracy and
>     the consumer market (and hence also the money market) were already at
>     the core of his criticism of Soviet planning.
>     It was Rosa Luxembourg who, while supporting the October Revolution,
>     most clearly identified the risks involved in the Bolshevik attack on
>     the multi-party system. Writing from prison in 1918, she warned that
>     the suppression of political pluralism was likely to stifle, rather
>     than preserve, the progressive potential of the revolution: "Freedom
>     only for the supporters of the government, only for the members of a
>     party, however numerous they may be, is not freedom. Without general
>     elections, without unrestricted freedom of press and assembly, without
>     a free struggle of opinion, life dies out in every public institution,
>     becomes a mere semblance of life, in which the bureaucracy remains the
>     only active element" (4).
>     For Bolsheviks in the 1920s, the term "socialism" denoted a political
>     project. It did not apply to the actual situation in the Soviet Union,
>     which they considered to be a society in transition to socialism.
>     After the "physical liquidation of the bourgeoisie as a class" and the
>     forced collectivisation of the late 1920s, Stalin proclaimed that
>     socialism had been achieved. The state and party bureaucracy, of which
>     there was no mention in the official statistics, ruled in the name of
>     the workers, imposing its will on them and promising them a bright
>     tomorrow. And for a few decades, despite considerable human and
>     environmental damage, it did indeed provide them with real increases
>     in living standards and real, if economically unsound, full employment
>     - always on condition they held their peace.
>     The huge state and party apparatus was in the grip of bureaucratic
>     conservatism. Individuals and groups, both social and national, were
>     oppressed and disempowered in the alleged interests of society as a
>     whole. In the space of a few decades the social relations thus created
>     became an insurmountable obstacle to the development of productive
>     forces.
>     The whole range of suppressed ideas and social issues was subsumed,
>     for better or for worse, in the single party. But the new revolution,
>     when it came, was not based on social movements actively pursuing
>     coherent projects. The real significance of this historical
>     peculiarity is only now beginning to be appreciated. It has often been
>     explained by the alleged passivity of people in the "socialist"
>     countries. They were supposed to have become so used to having things
>     done for them that they were unable to rebel. Not so. There had been
>     many unforeseen developments over the previous decades when revolts
>     opened up new prospects and possibilities. But the social and
>     political movements that fought bureaucracy and dictatorship in the
>     name of socialism were all suppressed, likewise in the name of
>     socialism.
>     Such was the fate of the struggle against the "red bureaucracy" in
>     Yugoslavia, the 1956 workers' councils movement in Hungary and Poland,
>     and the Prague Spring of 1968. And it was a Polish communist general,
>     Wojciech Jaruzelski, who, in the name of the working class, suppressed
>     an independent trade union representing millions of workers. That
>     union, Solidarity, was composed of many different ideological strands
>     but in 1981 it was still calling for workers' self-management, not
>     privatisation. Of course, Poland was then and still is a key component
>     of a strategy designed to tip the balance towards privatisation. That
>     is why it received help with its national debt and a fund for
>     stabilising the zloty.
>     But the fact remains that repression by "communist" regimes confused
>     political concepts and projects to such an extent that in the 1980s in
>     Poland most people claiming to be on the side of progress described
>     themselves as rightwing. Similarly, in Czechoslovakia in 1968
>     "imperialism" was a term applied to the troops of the Warsaw Pact, not
>     Nato. Yet the Warsaw Pact has ceased to exist, while the Atlantic
>     Alliance is being enlarged to the east.
>     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 RTforme et ouverture des systFmes Tconomiques (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 PagT, "Panorama Tconomique", 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 frantaise, Paris, 1999, and Roberte Bertoni-Hogge and
>     Marie AgnFs Crosnier (coord.), Les pays de la CEI, Etudes de la
>     Documentation frantaise, 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-europTen aprFs 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-europTens. Dilemnes et
>     dTfis - L'Europe mTdiane en question, La DTcouverte, 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'InquiTtant creusement des dTficits
>     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
> <http://www.monde-diplomatique.fr/en/1999/11/?c=04samary>

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