Eastern Europe - the imperialists close in
September 17, 1990 • #190 International Viewpoint increasingly to be found outside the CPSU.
A trend strengthened by the departure from the party of leaders of the Democratic Platform. Even during the eleven days of the congress, which ended on July 13, there were several clear manifestations of the political activities outside the frame-
USSR/EASTERN EUROPE
EAST EUROPEANS tend to overlook the fact that for the work of the CPSU. In Moscow the demo-
Western states, and most especially for the USA, the region is arranged cratic a movement of little Importance in Itself. Eastern Europe's destiny Is to be demonstration shortly following the congress (July 15) as well as a public meeting a lever for opening up the USSR. The overriding priority, on July 3.
therefore, in Western policy in the region is to achieve the swiftest and most thorough transition to capitalism possible
Miners challenge Communist and to destroy the political influence of all forces which seem
Party
But the most explicit challenge was staged by the one-day nationwide miners' strike, which took place on July 11 in spite of the congress calling on the miners to cancel it. The demands of the strike committees included a depoliticization of the army, KGB and the legal system; a nationalization of the CPSU's property; the resignation of the Ryzhkov government and a of the trade unions.
reconstruction
Demands not far from the programme put forward by the Democratic Platform. As in the strikes in the summer of 1989 this warning strike proved the extraordinary strength of the miners, and their ability to coordinate in spite of the huge distances separating the coalfields.12
Since the end of the congress the political pressure on the CPSU has been mounting - the question of the property of the party has been carried to the forefront of public debate and the new press law, put into force by August, has opened new possibilities to political forces outside the party. This tendency is also leaving its mark on the membership of the CPSU. In the first six months of 1990, 27,000 members left the party organizations in Moscow and another 19,000 - half of these workers — left in July.1 Also in July 162,750 members left the Russian Communist Party,
90,000 of them workers. 14
In spite of this exodus the CPSU is still by far the strongest political force in the
Soviet Union, as the new parties are still small and scattered. But the 28th congress was a clear sign that the party is now entering a new period of fierce political struggles. In this period the new workers movement can pose a serious challenge to the hegemony of the party in certain areas.
The party will be forced to engage in the broad struggles of society or risk the fate of its unfortunate sister parties in Eastern
Europe. *
12. There have been various estimates concerning the size of the strikes. It seems safe to assume that the strike had a massive following in the Donbass, with most pits joining, in the Kusbass, with more than 60 pits and a dozen other enterprises striking, as well as in
Vorkuta, Karaganda and some minor fields in the
Urals and the Far East.
13. Pravda, August 14, 1990.
14. Sovjetskaya Rossia, August 19, 1990.
Inclined to drag their feet on this. OLIVER MACDONALD
HE entire framework of Western policies and institutions for the privatization drive Europe is designed to result in the shortest possible transition to capitalism in these states. When that transition has taken place and is judged secure, these states will certainly be fully integrated into the institutions of the world economy. But two additional points about this process are worth stressing.
First, the planning of the integration of these states into the global and regional division of labour will largely be determined outside the borders of the states concerned. For example, one of the most vital sectors for most of these states is agriculture. The really big decisions about the future of this sector are not taken in the market but by public bodies. And the fate of this sector in Eastern Europe will be very largely be decided by such bodies as the EC and the EBRD (see following
The same pattern will be repeated in most other key branches of these economies, given the fact that institutions like the EBRD conceive their function as being to plan the shape of the private sector in the East. Planning is not finished as far as Eastern Europe is concerned. The really big strategic issues will still be decided by planning, but in new decision-making centres located in the West.
The effects on Eastern Europe have been profound. In every case where the West's policy objectives have been carried some way into domestic life, enormous strains have started to emerge Leaving aside Yugoslavia, where the IMF drive is literally fragmenting the state, the Polish case is a sombre warning of what may be in store in the rest of the region.
Here, the so-called Balcerowicz Plan has cut living standards by some 40% this year — an austerity drive of unparalleled scope in postwar international history.
The government's increasingly desperate pleas for the removal of Western financial pressure have been ignored. The new government has enjoyed immensely strong political authority but it is being undermined as its economic policy strikes at the heart of its legitimacy. Tensions within the political elite have now burst forth in a bitter struggle between Walesa and the government and parliamentary leaderships of Mazowiecki, Geremek and Michnik. There is a very real prospect of the breakdown of the new liberal democratic order itself in Poland, if the one political movement with popular roots is torn apart.
Hungarian government in
In Hungary, the newly victorious Democratic Forum has been plunged into a crisis deriving from the West's backing for the Free Democrats, the one political group in Hungary unequivocally in favour of a wrenching turn towards capitalism. The Democratic Forum contains not the slightest hint of leftism, yet it is not trusted in the West to carry through the kind of harsh programme thought necessary. This is precisely what endeared it to the Hungarian voters. The Free Democrats' poor election result brought a swift Western response — financial institutions withdrew funds and financial backing from the Hungarian
Antall's initial attempt to denounce these moves gave way to offering the Free
Democrats a coalition government and the presidency. These moves have produced a deep split in the Democratic Forum, threatening its integrity.
In Romania and Bulgaria there has been no overthrow of the Communist Parties and a prime Western or at least American objective has been to achieve just that through the spring elections.
West's means of financial and economic diplomacy have been weaker in these two countries - Romania does not have significant debts, while in March the Bulgarian government took the step, unique in the
International Viewpoint #190 • September 17, 1990
EASTERN EUROPE region, of putting a moratorium on repay-. ments of principal on its very large debt. Great efforts were made to back the opposition parties in both states, with demonstrative American funding and guidance being proffered to the Romanian liberals and the Bulgarian coalition of opposition groups. Yet this failed to produce success - the National Salvation Front overwhelmingly triumphed in Romania and the Bulgarian reformed Communist Party) won an overall majority in Bulgaria.The West has not been able to challenge the validity of the election results themselves, but in Romania there are strong attempt to destabilize and split the National Salvation Front, targeting President lon Iliescu. The EC's swift decision to cancel its aid package to Romania following the June clashes between miners and government demonstrators in Bucharest is evidence of this.
Only in Czechoslovakia does there seem to be some sort of consonance between Western diplomacy and the popular democratic will. But even here the West's policy is gener- OHMAN ating tensions. Civic Forum's election manifesto is far from Thatcherite. As in Poland, the impact of Westem diplomacy will cause disputes in the dominant political group. At the same time Western financial leverage is far weaker in credit-strong Czechoslovakia and the CP's showing as the second strongest electoral force stands as a warning against over-harsh measures. Yet the divisions in Civic Forum over how to respond to Western pressure are already out in the open and will sharpen in the coming months. When President Havel attempted to remove the West's favourite, Klaus, from the Ministry of Finance, Klaus felt strong enough to resist.
Wide enthusiasm for capitalism
The enthusiasm of Western policymakers for capitalism is, of course, widely shared by the various new political leaders in Eastern Europe, including, it should be said, many leaders of the erstwhile Communist Parties. But the unbending, coercive drive for a wrenching social transformation was not at all what the current leaders of the new regimes could have expected or wished for. There must be a genuine puzzle as to why this line has been adopted.
One part of the answer is that Western policy-makers are well aware of the real attractions to large social groups in East24 ern Europe of the social order established by the Communist Parties there in the postwar era. "Communism" was never machine standing above society oppressing all groups with totalitarian methods. These regimes were genuinely rooted in the interests of important social even if those roots increasingly rotten as the economic system failed to compete against the West. A authoritarian state is needed to force through the transition to capitalism. The fact that the new regimes, although strongly backed in the main by the intelligentsia in Poland, Czechoslovakia and entrenched, already-existing institutions and social processes means that backbone must be supplied from external diplomatic sources.
But there is also the cost to the West of Eastern Europe not going down the capitalist road to the end; in other words pursuing some variant of the Third Way. There is no technical obstacle to a successful pursuit of market socialism in these societies, provided they can operate
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• COOKIES -MILK - LEMONADE - NON-VIOLENT CONVERSATION as normal states integrated into the institutions and division of labour of world capitalist economy. The failure of attempts at market socialism in Kadar's Hungary and Jaruzelski's Poland were failures of weak regimes without political authority. But what if this course was adopted by a strong, authoritative government in, say, Czechoslovakia today?
This would pose a genuine threat to the future stability of the social systems of the West. A coupling of pluralist democracy, public ownership and social citizenship in the post-Communist states of Eastern Europe is not an acceptable option for Western policy makers. And they know very well that the current support for capitalism in Eastern Europe is no more than a policy idea backed by a professional middle class; there are no actually existing capitalists with a real stake in the circuits of capital. There is thus the risk that if the edifice of controls and exclusions from the world economy is dismantled today and the drive for capitalism in these states fails tomorrow, market socialism of some sort will be the end result of the process, while Western economic diplomacy will have been disarmed. The social democratic parties of Western Europe could not easily be immunized against the new socio-political model in a postCommunist Europe.
Supine collusion of social democrats So far, we have treated Western dip. lomatic efforts as a united force. On the main issues discussed here that unity has indeed been impressive. Particularly striking has been the supine collusion of the social democratic leaderships of Western Europe in the West's strategy over recent months. The consequences of this social democratic abasement are visible in the derisory showing of the new social democratic parties in Eastern Europe in the Spring round of elections. In countries like Czechoslovakia and Hungary these parties were indistinguishable from the
Right programmatically, while lacking all the virtues of the parties of the Right for implementing such programmes, above all the trust of Western capital. If the West's current diplomatic effort succeeds in Eastern Europe there will be little chance of a strong social democratic movement in that part of the continent; the political cleavage will far more likely pit parties of liberal capitalism against authoritarian populist and nationalist movements. But divisions have nonetheless surfaced in the West in recent months, differences of expediency and state interest. The former acquired near-panic proportions in May when strikes burst out in Poland; the IMF made a tasteless attempt to disclaim responsibility for the entire package of Polish government measures and voices were raised criticizing the folly of driving for capitalism at the expense of democracy and political stability. Equally significant have been divisions of state interests over current Western strategy. The Italian and French governments, reeling from the historical consequences of German unification, have been unhappy with continued economic warfare against the USSR, wishing to maintain the integrity of the Soviet state and ensure that it remains strong enough to counter-balance Germany in the new Europe. The French have also been far more ready to accept the existing political leaderships in Romania and Bulgaria.
In line with the perspective of building a stable Eastern Europe, including the
garia and the rest of Eastern Europe. Yet neither Bush nor Thatcher can afford to be seen as responsible for Gorbachev's
The US government's policy has been summarized by the Financial Times' Peter Riddell (March 19): "There Is a strong feeling in Washington, both in Congress and the Administration, that providing assistance which would shore up the existing economic structure would be money wasted and that the US should wait for moves towards
The word "assistance" here does not mean aid: it simply means treating the USSR as if it were a normal state doing business in normal conditions on normal terms within the world economy.
Thus the Cocom list is to be stringently maintained against exports to the USSR. The G24 package of measures for Eastern Europe specifically excludes the USSR until it adopts "the economic preconditions of democracy"
The EC has also ruled out the possibility that the USSR may be offered an Association Agreement. The agreement establishing the EBRD specifically bans the USSR from borrowing significant amounts of money from the new
On the other hand the US administration is under a great deal of pressure from those sections of US capital strongly interested in the Soviet market, and it genuinely fears losing this prize to West German business. Therefore, at the Malta summit in December 1989, Bush indicated that the USSR would probably be granted Most
Favoured Nation status (MFN) at the June meeting of the Group of Seven in Houston and would also be allowed to gain observer status at GATT. In fact in June the US rejected the granting of MN status and the trade pact signed there is of little or no economic significance to the USSR. The tariff barriers continue, involving an overall 45% tariff on Soviet exports where they are not banned outright, and sweeping embargoes on exports to the USSR have enormous consequences for Gorbachev's domestic and political options.
The Trade Pact's main provisions grant US companies the same rights in the USSR as they enjoy in Western countries: intellectual property rights, no discrimination against them, faster accreditation, rights to media access for advertising and to carry out market research, and so on. All this was one of the preconditions for the
US granting the USSR MFN status. Otherwise the Pact simply sets up an information exchange system speeding up information on US agricultural products available for Soviet purchase and on Soviet agricultural products
The Houston summit does, however, Indicate that there are growing policy differences in the West over whether this drive to destabilize the Soviet economy and thus the Gorbachev leadership should continue. Partly these differences are prudential: there is no desire, even among most of Bush' advisors, to see the break up of the core of the Soviet state, for this would jeopardize not only world political management but also possibly world peace.
Thus the US agreed at the Washington summit to end its substantial covert operation in Ukraine.
More importantly, the FRG's problems of consolidating its new power in Europe have led it to seek Soviet acquiescence in the 2 plus 4 talks on German unification by offering substantial credits. France too desires a stable Eastern Europe and USSR to counter-balance the enormous new power of Germany. Yet overall it is still the US which remains the gate-keeper over the world economy, and it can continue to successfully block the comnercial and financial integration of the USSR into the world economy. A few billions from Western Europe will no
USSR, to offset German power, Mitterrand has envisaged NATO's survival as a new, strong pan-European security framework in which the East is included as ty community including the USSR.
Therefore the collapse of the Gorbachev goverment and its replacement by a more anti-Western style of leadership in
EASTERN EUROPE downfall. friend rather than enemy.At the same time, with unification assured, the Bonn government is now eager to gain Soviet accep- change in Eastern Europe must start from tance of the new balance in Europe. For the an appreciation of the central political role of the Western states in the internal affairs USA (and Britain), however, NATO is the of the East European states. That role is key instrument through which their politi- made possible by the West's coercive cal influence in Western Europe is power to exclude the East from a world secured. It is strengthened by the existence economy managed by political instituof a possible threat in the East and weak- tions controlled by the leading capitalist ened by a pan-European collective securi- states. It is further buttressed by the
US-led blockade of Soviet Union continues
THE Gorbachev team did not set out to restore capitalism in the USSR, but rather to rebuild Soviet political influ-
Hence in the West in order to use it as a lever for gaining concessions which would enable the Soviet elite to restructure and preserve a non-capitalist state.
The Gorbachev strategy threw the leaderships of the capitalist world into confusion for a while, but at the 1987
Venice summit of the Group of Seven richest countries a Western counter-strategy was agreed which has proved astonishingly successful. The West has engaged in an orgy of rhetorical support for Gorbachev whilst continuing
Its cold war policy of blockade and economic warfare against the USSR. That this blockade could go unchallenged partly derives from the way the world economy has been politically managed in the postwar Pax Americana. No longer has such management been achieved by juridical-military control over the dominated countries. Instead, the American way has been to exercise political control over economic processes via a series of multilateral international institutions which appear as largely technical-economic bodies and seem largely autonomous of political control by any individual capitalist state: bodies like the IMF, the
World Bank, the GATT, the OECD and so on. More obviously political instruments like Cocom are provided with a the USSR would not be a disaster. The same could be said for the break-up of the USSR national tensions. These overarching political interests incline the American government (and Thatcher) towards a tough stand against any concessions to the USSR until an unequivocally restorationist government emerges there. This policy applies all the more to Romania and Bullow profile. a free-market system."
bank for the next three years.
needed for US agribusiness.
Alter overall US control.
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Any understanding of the dynamics of 25
The instruments of
International Viewpoint #190 • September 17, 1990
EASTERN EUROPE West's maintenance of the instruments of economic warfare developed in the Cold War. Insofar as the governments in the East respond obediently to Western demands, exclusions from the institutions of the world economy will be lifted and the instruments of economic blockade will be put to one side, though not abolished, just as immediate debt repayment problems may be eased but overall debt obligations maintained.
### West promotes new totalitarianism
The entire Western operation flies under the banner of political democracy and the fight to destroy totalitarian politics. Yet it is guided by precisely totalitarian efforts at grandiose social engineering. And the end result may well be, not only the destruction of the fragile new liberal democratic politics in the East, but growing civil strife.
Some commentators declare that the West is simply being realistic, seeking to establish a system that works — capitalism — rather than engaging in yet another utopian experiment - the Third Way. This is a spurious argument: capitalism works, but so do collective farms. A big problem for the present governments of Czechoslovakia and the GDR is the resistance of prosperous and productive collective farmers to privatization. Stalin's great crime lay in the methods, the path chosen towards a theoretically workable system. But blundering and coercive means for theoretically workable ends, with violent and unforeseen consequences, are far from being exclusive to Stalinism. Nor is the Third Way a utopian experiment; it is quite simply the existing situation in Eastern Europe today — democratic political systems combined with an economy dominated by the public sector, but with the mechanisms of both market competition and redistributive social policies.
More generally, this survey has implied a basic problem already familiar to those concerned with North-South relations; by what right do a handful of powerful capitalist states assert their political power over the world economy? The decisive political power of the West lies in that very "apolitical world market", with military force representing an auxiliary instrument.
Only a new internationalism, invoking such principles as self-determination, popular sovereignty and a new understanding of the relations between political and economic institutions can grasp the real significance of events in Eastern Europe from the point of view of their populations. Such an approach will highlight the role of apparently technical multinational financial organizations which are working away in the shadows, beyond the frontiers of the national political sys26 mediais restin ted. at tems to which the attention of the mass control
TO SURVIVE, the new governments of Eastern
Europe have to offer their voters a credible prospect of higher living standards In the medium term future
This requires investment resources, and the West's Instruments of control are designed to achieve one overriding objective - to make these governments turn to the political Institutions of the capitalist world market for such resources. OLIVER MACDONALD
T HESE instruments of control are
first of all the old Cold War controls on Comecon states. These have not been dismantled by the West, and indeed new barriers are being erected to deny the Comecon countries access to the resources of the multi-lateral institutions of the Western economic system.
To lower these barriers, governments in Eastern Europe must embark on a transformation of a scope not seen since the Sovietization of the region in the late 1940s.
To briefly summarize the system of
1. Cocom is still very much in place and many items remains barred export to Eastern Europe.
2. Barriers against imports from Eastern Europe into Western Europe remain high, especially in the sectors most important for East European economies, like agriculture, textiles, coal and steel. These barriers are enshrined in trade agreements already signed or currently being negotiated.
At the start of the year the EC did introduce its Generalized System of Preferences (GSP) for Poland and Hungary, but GPs make a marginal difference for most sectors and in any case are granted for one year only.
3. Debt and debt relief: Western public policy on the debt issue has been geared to both avoiding a crippling breakdown of the Polish and Hungarian economies in the short term and maintaining the full weight of the long term debt burden.
This ensures maximum political control, making East European governments desperate for rollover credits and bridging loans, which requires them to negotiate terms with the IMF and other western financial institutions.
Thus not a single dollar of debt has been written off by the West. Only Poland has so far been granted any rescheduling arrangement, and that only on public debt up to March next year. All the desperate appeals by the Polish government since February have been ignored. The Hungarian government feels itself too weak to even contemplate making a public demand for rescheduling, let alone a moratorium.
Government officials in Budapest explain that any talk of rescheduling would produce a flight of Western capital and a financial crisis — Hungary has gone furthest towards developing a free capital market and its political system is thus uniquely vulnerable to Western private capital's mood. Bulgaria, also heavily indebted to the tune of about $11 billion, is the only East European state to officially and unilaterally suspend repayments of principal on its debt.
Czechoslovakia does not face a repayments crisis as its $6 billion debt is small in relation to its economic capacity and its credit rating in the West is the highest of all the East European economies, while Romania, at enormous cost to domestic living standards, has paid off all its significant debts to the West.
4. The new drive against countertrade: High levels of debt, acute shortages of hard currency and continued barriers to free trade with the West make the search for exports all the more urgent and the bottle-necks caused by an inability to secure key imports all the more acute.
One way round this problem is countertrade, in other words barter, involving exchange of a given volume of East European exports for an agreed equivalent of imports from the West. This form of East-West trade has been quite common, reaching some 30% of East-West trade by the
But Western governments are now seeking agreement from East European govemments to end the practice.
The effect of this new remove one escape route for East European governments from complete depenpolitical institutions of Western financial management.
5. The IMF enters the scene: The IMF's preferred mode of operation is to
September 17, 1990 • #190 International Viewpoint engage in a period of negotiation with the goverment concerned over the latter's domestic economic and social strategy. The outcome of these negotiations is a letter of intent from the East European govapproval of the package by the IMF's executive board.
The IMF then gives the go-ahead for other Western institutions to offer loans and investment projects to the government concerned. This has been the pattern both in the case of Yugoslavia in autumn 1989 and of Poland in December 1989.
The IMF has been locked in debate with the Hungarian government over similar arrangements throughout the first half of 1990, and in the spring of this year began discussion with Czechoslovakia and Bulgaria about their membership, renewing dialogue with Romania, a longtime IMF member.
The terrible debt burdens, the balance of payments difficulties, the obstacles to free trade and the ban on counter-trade all tend to throw these states into the arms of the planning agencies of Western capital in order to stabilize their finances and gain new investment resources.
Since the events of 1989 the credit rating of all the East European countries has declined, with private sector Wester banks holding back from involving themselves in Eastern Europe unless they are given legal guarantees by the governments concerned that such private finance will be insured in hard currency against
Most of what these planning agencies have on offer is called aid but is in fact no such thing; it is simply the normal battery of instruments available to players in the world economy - standby credits, loans, infrastructure projects and aid. What is new is the scale of the social engineering objectives linked to these instruments in the East European case.
We can run quickly through the range of
1. The World Bank: In February 1990, the World Bank announced it would lend $5 billion to Eastern Europe (excluding Czechoslovakia, which is too advanced to qualify over the next three years.
Its President made clear that this money "will focus on restructuring all facets of market-oriented change" and he underlined that the World Bank was working for a new system in Eastern Europe "vesting economic decision-making in the individual and in pri-
(Financial Times, February 23).
2. The European Community (EC): The same bottom line for new agreements with Eastern Europe has been adopted by the EC. We should note that the EC plays three distinct but overlapping roles in current economic diplomacy towards the
On the one hand, its institutions speak for the 12 member states in the traditional
THE ECONOMIC SUMMIT WAS HAILED A SUCCESS THE LEADERS OF THe SEVeN MOST POWERFUL DEMOCRATIC NATIONS AGReeD... fields of EC competence, above all trade and economic cooperation agreements
But since the summer of 1989, the EC Commission has been made into an executive agency acting on behalf of the Group of 24, the OECD countries. The third dimension of EC involvement will be through the preponderant stake held by the twelve members in the EBRD.
In its purely EC role, the Community is credits only to back "market oriented reforms" (Commission Communication, February 1, 1990)
The European Investment Bank (EIB), an EC institution, is to be phased out of because of US hostility, but in the spring of 1990 it did lend 1 billion in ECUs (European Currency Units), initially for transport projects in Poland and telecomstressed that these must be geared to assisting the private sector's growth. Another direct EC operation is Economic Cooperation Agreements with individual East European states, usually as part of trade agreements discussed
These are aimed at structural reform (meaning privatization) and at opening up the Eastern economies to full penetration by Western business; no discrimination against EC companies in the granting of import licences, no discrimination against EC countries over the giving out of hard currency to pay for imports.
Help must be provided for EC firms wishing to establish themselves and international invitations to tender for contracts must be offered to EC firms; Western firms must be helped with investment promotion and protection, including the transfer of profits and repatriation of capital" (as article 8 of the Polish agreement
To round off its efforts the EC will be offering "vocational training" which turns out to be training for "executives, instructors, managers and students" linked to
EASTERN EUROPE ...THAT IT SHOULD BE HAILED A success. vital need for "economic reform", which is "especially urgent" in the fields of banking and finance.
3. The Group of 24 "Aid": the resources for which are drawn from the 24 OECD member states and administered through the EC Commission. But this money is only for projects which "must benefit the private sector in particular" and is limited to states committed to "economic liberalization with a view to introducing market
And the money largely takes the form of counter-part funds: in other words, to get the aid, governments must switch parts of their own budgetary resources towards projects backing the private sector of their economies. The choice of projects is in the hands of the group of 24. On May 3, the Commission decided to recommend that G24 be extended to cover Bulgaria, Czechoslovakia, the GDR, Romania and Yugoslavia. But in June, its hostility to the newly elected Romanian government led the Commission to recommend denying Romania access to this aid.
4. The projected new European Bank for Reconstruction and Development (EBRD) has been a source of bitter disputes, especially between the US and West European states. It is the first major multilateral institution within the international financial system in which the US does not exercise a controlling vote — insofar as the 12 EC members act together they can dictate the bank's policy.
But the fundamentals of that policy are not in dispute. The original document laid before the EC in December spells out that one of its central objectives is to "assist moves to market-oriented economies and structural adjustments" in Eastern Europe. This privatizing mission is enshrined in the EBRD's legal constitution: at least of the funds disbursed under the bank's aegis must be directly devoted to sector development, while the remaining funds earmarked for public sector infrastructure projects must be geared towards indirect assistance for the private 27