Restoration tragedy in eastern Europe
5.47. nD. 85, November 19grie; du plan au marchó ou du plan au clan?", Acles de la recherche en sciences soci. 15 4. "Du socialisme au capitalisme; l'exemple de la Hongrie", Gallimard, 1990.
EASTERN EUROPE which does not take account of the fact that this latter reposes not only on automatic mechanisms, but on an increasingly complex system of rules and institutions. It is necessary moreover to point out that these rules and institutions are the product of social relations.
The Hungarian economist Janos Kornai, who situates himself within an optic of
AT THE initiative of the Hungarian review Eszmelet, a meeting was held in Budapest from April 10-12 of left intellectuals from central and eastern Europe,as well as western Europe and the
Americas. Discussions centered on the viability of the socialist alternative to capitalism following the collapse of the old Stalinist regimes in Eastern Europe. The following contribution was presented by the French revolutionary
Marxist journal Critique Communiste.
HENRI WILNO
HE collapse of the neo-Stalinist
T systems in central and eastern
Europe has revived and amplified the debate on the validity of the socialist option, and even the viability of any global alternative to the capitalist system, whatever its reference point. The theoretical and practical work necessary for a refoundation of the legitimacy of an alternative must be done.
If the possibility of building something different has yet to be demonstrated, it should not be forgotten that capitalism is far from having shown its capacity problems of
The question is a particularly burning one for central and eastern Europe; it is commonly claimed that, now that the old system has collapsed, only "the market economy" (in the favoured phrase of the international organizations, who hardly ever speak of capitalism place!. What type of capitalism?
Capitalism "with a human
For the optimists, there is no problem, at least in the medium term; we are
"Europe", this will therefore naturally be a capitalism "with a human face" of the type which exists in western Europe. Others concede the risks attached to an uncontrolled neo-liberal drift.
This article is structured around three of a "transition towards capitalism" (at least in Poland, Hungary and Czechoslovakia).
As we have said earlier, the term is rarely employed; thus the international organizations (OECD, IMF, and so on) in all their myriad missions, reports and colloquiums, never use the word "capitalism", speaking always of the "market economy".
Conflictual character of system minimized
Bernard Chavance? has underlined that these different terms conceal different approaches; he notes correctly that the free market economists who characterize the existing system in western Europe by
"market economy" minimize "the conflictual character of the system", and, so far as the transition in eastern Europe is concerned, imply that once a radical deregulation and a greatly increased flexibility is introduced, equilibrium will rapidly be achieved after an intermediate period".
The "hard" liberal approach is typified by the Czechoslovak minister of finance, Vaclav Klaus, who explains that his "conception of freedom founded on a universal system of free exchange and not on institutions fabricated by man". Behind such a remark lies an conception of capitalism capitalist restoration*, is right to underline that this implies an "embourgeoisement" of society.
How then is this "embourgeoisement" to be carried out in central and eastern Europe? The remodelling of the working class is an institutional and social affair, involving above all the establishment of a political balance of forces that permits the practical implementation of dismissals and rising unemployment.
But the recreation of a bourgeois class (composed of genuine "entrepreneurs" reinvesting a significant part of their profits in production, and not a simple group of parasitic intermediaries) poses more complex problems, as the experience of the Third World indicates.
### Privatization debate illustrates difficulties
The debate on the privatization of the public enterprises, as it appears to be taking place in several countries of central and eastern Europe and notably in HungaryS, illustrates these difficulties.
Several important points are taken up in this debate: the place of foreign capital; the place of enterprise directors currently in place and linked to the nomenklatura; [former ruling bureaucracy] restitution of the former dispossessed proprietors; and the distribution of property.
The controversies around the first point have led to a virtually universal recognition of the inevitability of a certain proportion of privatizations taking place through purchase by foreign capital. Such support is in any case necessary (above all if a rapid privatization is desired) to the extent that national savings are considered as amounting to a mere one tenth of the value of public property.
But popular acceptance of a subordination of the the most modern sectors of the economic apparatus to foreign capital cannot be taken for granted. Even in Hungarian government circles, the debate is a live one; some talk of the definition of a "strategic" sector where foreign ownership will
1. We will return later in the text to the reasons why we prefer the term "capitalism" to "market economy". Moreover, the expression "return to capitalism" employed here signifies our belief that the process currently underway
• The transition towards capitalism will constitutes a systematic rupture with something which was not capitalism. Whatever the numerous similarities be complex and difficult;
correctly stressed, in the past, in arguing against apologists for the system or certain vulgarizations of the theory of
• The capitalism which will install itself
- between the bureaucratic system and certain capitalist mechanisms or institutions, in the countries of central and eastern comparable in their breadth to May 1968 in France (the case of the USSR remains undecided).
Europe will very likely present an "inhuman face";
• This process underlies the necessity
3. Conference in London on March 25, 1991, organized by the Institute of Economic Affairs. Quotation from the and the possibility of alternative forces developing.
The process underway is certainly that the degenerate workers' state ume V, 4, Autumn 1990.
Financial Times, March 26, 1991.
ales, no. 85, November 1990.
8. We will not analyze here the gulf between the tough neo-liberalism of the Czechoslovak minister's speeches and
9. "A propos de 1'"économie socialiste de marché", le Débat, no. 62, November-December, 1990.
EASTERN EUROPE be limited.
The second series of problems centre on the role of the ex-nomenklatura. In Hungary there has been much controversy about "spontaneous privatizations", that is privatization at the initiative of the enterprise directors.
The first privatizations of this type seem to have been characterized by an underevaluation of the assets of the enterprises concerned and by the concern of the existing directors to carve out the best possible deal for themselves. Protests at this led to the creation in March 1990 of a state property agency with the job of controlling the process of privatization.
The debate on this theme has an essential political dimension; the opponents of spontaneous privatizations denounce them as a way of perpetuating the positions of the privileged of the old regime.
The problem of the survival of the former nomenklatura, and its ability to find a place in the sun of the capitalism under construction has also appeared in Poland where, in the name of pragmatism, some political leaders are ready to accommodate themselves to the trend. Most of the businessmen who appear on a list of the hundred richest Poles have had close links with the former regime and some even occupied ministerial functions.
### Problem of sidelining nomenklatura
But how can the nomenklatura be sidelined? This is especially problematic in that it would run against the desire of a part of the new political leadership for a rapid dismantling of the state sector. To deal with the problem, some have proposed the introduction of a system increasing participation; the shares floated by the state enterprises, at the time of their transformation into companies, are to be bought by the banks, the insurance compa-
The partisans of this solution see it as the way lowards the rapid privatization of the big enterprises, utilizing the competence 6 management and, finally, establishing a of the more dynamic sectors of current International Viewpoint #208 • June 10, 1991 system of integration between enterprises and the financial system analogous to that existing in the countries of the OECD. Naturally this also goes for the establishment of a financial market.
The opponents of this method point to the risk of maintaining the essential core of the old management, as well as the fact that property will remain impersonal and the directors responsible to no one.
Janos Kornai has added a far more fundamental criticism; there is no capitalism without genuine private entrepreneurs, and the development of such a social layer cannot be done by decree, but can result only from an "organic" process ("embourgeoisement is a long historic process") that can be hastened by specific measures but not jumped over.
It is better then, in his view, to privatize by extension of the existing private sector, freed from all barriers to its development. It is also necessary, moreover, to reinforce political control over the directors of the public sector in order to strug irresponsibility and waste (so long as the logic of the market is not really anchored in the economy).
Bring back the old bourgeoisie?
There is another way to approach the problem; why not recreate a bourgeoisie by bringing back the old one?
This is one dimension of the discussion over the rights of former proprietors of the property nationalized by the preceding regime. This question, which has been raised in Hungary notably in relation to agricultural land, has three aspects, equally profound in their implications.
Should the right to such reparations concern all the old proprietors or just individuals (the churches could constitute a particular case? Should this right have 6. Financial Times, March 30-31, 1991. 7. The Economist, March 30, 1991. his somewhat pragmatic practice. 10. Handelsblatt, March 28, 1991.
limits? Should it take the form of restitution, or of compensation? We will deal here only with the problem of restitution.
The supporters of restitution stress the fact that it is the most simple form of reparation for the wrong suffered, and that it would allow the rapid recreation of social layer interested in the development of the "market economy".
Apart from the arguments about the incapacity of the former proprietors (or their heirs) to manage property expropriated several decades ago (whether it is enterprises or agricultural lands) the opponents of this idea emphasize that it would deprive the state budget of the resources which could be derived from the sale of
Moreover, they underline that, if the right of restitution is not strictly limited in terms of the timescale covered, there is a possibility of disputes which would weigh on the future of economic units. This latent menace would, according to some, be enough to discourage the claimants.
The case of the GDR seems to show that such a risk exists; the treaty of unification affirmed the principle of restitution, and the responsible offices have registered 1.2 million demands for restitution, of which 10-12,000 concern enterprises. An eventual successful claimant to one of these enterprises might then not be sure for a long time of the validity of his/her rights.
This situation has led the Christian Democratic-Liberal government to take some liberties with the principle of absolute respect of the right of the proprietor, and a law, which came into force on March 29, has given precedence until the end of 1992 to the biggest investor over
Another debate centres on the distribution of property. Two main methods have been proposed by the partisans of wide property ownership through privatizations; the distribution of shares to the wage earners and the "generalized social
The partisans of the first option envisage the availability of loans permitting the workers to rebuy the shares in their firm at preferential rates. Supporters of this solution can in fact have different ideas about the type of society and economic organization they desire. For some, it is an affirmation of the rights of the workers, and thus in practice of the legitimacy of another force than that of the firm's own-
Legitimizing the process of privatization
For others, the objective is to legitimize the process of privatization in the eyes of
the workers (who were, after all, theoretically the masters of the entire productive apparatus under the old regime) by assuring them a minority share of capital, and thus guarantee the stability of the new economic system.
The opponents of this programme reply that workers shareholdings could be break on the mobility of capital and the establishment of a genuine labour market - Kornai stresses the risk of weakening the discipline of the workforce. They add that, in fact, inequality between the wage earners will be reinforced depending on the viability of the enterprise where they
Unlike the partisans of workers' shareholdings, supporters of the "generalized social endowment" are not ambiguous on the return of capitalism; they propose implementing privatization by distributing to every citizen titles representing their right to a fraction of state property. These titles could then be converted into shares in different companies. The advantage would be twofold; it would give political legitimacy to privatization by appearing egalitarian, and would create the beginnings of a capital market.
Besides doubts about the feasibility of such a scheme, its critics also argue that it would result in a wide dispersal of property which could in fact result in the consolidation of control by the current directors and their methods of management.
Finally, given that privatization will take time, the problem of the management and restructuring of those enterprises not yet privatized but judged potentially viable, has to be addressed.
This brings up the controversies on the best way to manage state participation (should it be confined to a holding?), and the criteria to use to decide whether an enterprise is viable.
Slow progress in east Germany
In the ex-GDR a management organ, the Treuhandanstalt, has been created to control the state's holdings in the enterprises. This body has been subjected to much criticism from West German leaders owing to the slow progress of privatization (a thousand enterprises out of eight thousand have been privatized). More recently, things have taken another tur and the workers of the ex-GDR have begun to denounce the Treuhand as an organ of liquidation and of the development of unemployment.
Meanwhile, Vaclav Klaus has denounced the very principle of introducing such a body in Czechoslovakia as risking the development of a new interventionist states. Similar problems may appear in other forms in the other states of the region when the process of transfer of the public enterprises is really set in motion.
The true test for the privatization of eastern Europe's economies will not be the speed with which the state sector is
— we will return below to the hypothesis of the introduction of a "state capitalism" — but the growth of private activities, not only in services, as is principally the case today, but in the production of goods, and, in the last analysis, the reversal of the form of economic regula-
All the elements summarized above show that, even leaving aside the reaction of the workers, this process will not be free of contradictions.
One of the fundamental factors in the discontent which has brought the current regimes in central and eastern Europe to power is the feeling of growing poverty compared to the rest of the continent. Things could certainly be nuanced; after the Second World War, Bulgaria and Poland did not figure amongst the richer European countries, but a comparison between Austria and Czechoslovakia shows the reality behind the feeling.
This argument is used by the Polish minister Leszek Balcerowicz? to reject any non-capitalist reform of the economies of the East; although he recognizes the "social cost" of the capitalist economy, particularly in terms of unemploy"Social cost" in countries of
It is clear that this "social cost" exists even in the countries of western Europe, where the balance of forces between the classes immediately after the war permitted the establishment of developed systems of social protection which have softened the impact of unemployment, sickness and old age.
In the European OECD, the rate of unemployment was 8.5% of the active population in 1989, or 15.2 million persons, and the slowdown in the growth of the capitalist economies since the second quarter of 1990 will lead to a worsening of these figures. Moreover, inequalities, and urban and ecological problems are tending to grow.
EASTERN EUROPE
However this fact is hardly a deterrent for the peoples of eastern Europe. Knowledge of racism and exploitation does not stop many north Africans from coming to seek work in France, just as consciousness of western realities hardly shakes the conviction of Poles or Hungarians that it is more worthwhile to follow this model than to go through some new experiment. Given the past it is hard to tell them they are
The real problem concerns the future, however; whether the adoption of a capitalist road will result in a way of life similar to that of the EC. And the answer to
Firstly, the transition will be very costly, both socially and economically. All western economists make this quite clear, saying that the adjustment will mean in the first place a degradation of the living conditions of large sectors of the population whilst the productive fabric is taken to
But many think that this will only be an unpleasant short term experience. Is this really the case? The world economy is not an empty or infinitely flexible space, which, like the ideal "market" of neoclassical theory, will open itself up each time there are new actors who want to enter it.
Moreover, the countries of central and eastern Europe (with the exception of Bulgaria) were already inserted into the world market through foreign trade; one could even advance the idea that their real involvement was greater than that shown by official figures, given that these were calculated on the basis of an overvaluation of the transferable rouble (the unit of measurement used to calculate interComecon exchanges).
This participation in the world economy was (and is) of the kind proper to economies specializing in the production of goods at a low or limited technological intensity. Old bureaucratic mechanisms softened impact
The essential difference between the
17
EASTERN EUROPE past and what is to come is that the old mechanisms of bureaucratic planning softened the domestic impact of this subordinate role.
It will be difficult for the countries of central and eastern Europe to significantly increase their exports of low grade agricultural or industrial products. Indeed, it is significant that the issue of the opening up of the EC to such products has been the main problem in the negotiations over association between Poland and the EC, with the latter demanding a greater access to the Polish market, although the average custom tariff is only 8%.
The question then is whether the central and eastern European countries are capable of entering into world exchange at a more sophisticated technical level. For a number of reasons this seems highly
First, the mechanisms of privatization, largely based on an appeal to foreign capital, and the lack of resources (or of the will of states to provide such resources) to promote the means for a (partial) technological independence will mean that the centres of industrial decision and research in the most up-to-date branches will be located abroad.
Moreover, observation shows that foreign industrial investment takes place for three reasons; lower labour costs, access to raw materials and the objective of penetrating a market which is protected from direct imports from abroad. It is the third determinant which generates fruitful investments from the point of view of the host country. A myriad of
Thus, it was the almost total closing of the Spanish market by the Franco regime explained the development of production capacity in that country by the main US and European car manufacturers. The desire of US firms to profit fully from the European Community market has often been the reason behind the implantation of units of partially autonomous production (such as IBM in France or Ford and General Motors in Germany).
Finally, a recent survey (March 1991) of Japanese enterprises with productive — and in some cases research and design — capacities in western Europe (EC and the European Association of Free Exchange) shows that one of their main motivations is the fear of protective measures10
Neo-liberal zeal risks negative effects
Inversely, if a market is not protected, only the first two reasons apply and the technological level of investments tends to be limited. The neo-liberal zeal which certain eastern European governments are showing in bringing down customs bareffect on industrial developmer International Viewpoint #208 • June 10, 1991
One could infer from the foregoing that the "solution" resides in the emergence of "national" capitalisms with voluntarist economic policies impelled by the state and capable, in the style of Taiwan or South Korea, of "forcing the door" of the world market.
"state capitalist" solution would, moreover, be a logical response to a situation where private national capital is weak and foreign capital cautious in the face of an uncertain outlook for profitability, and where foreign capital's input is, in any case, not enough to meet the needs of the productive sector - a good proportion of the mixed companies are involved in the hotel or service sectors.
"State capitalist" projects thus suggest themselves as the form of transition to capitalism". But is success assured?
A study shows that the growth of the newly industrialized countries of Asia!? has initially depended on considerable outside support; in 1956-57, foreign aid, almost totally from the United financed 70% of investment in South Korea and Taiwan.
There followed a largely state-directed export-orientated economic policy relying on low unitary wage costs. This allowed the initiation of sustained growth with strong gains in productivity permitting the maintenance of price competitiveness but also a limited raising of wages. The process of development was fuelled at the same time by external and internal demand, with profits remaining
Cold War context for economic growth
This dynamic of growth depended on the political context of the Cold War where, in the face of the Soviet (and Chinese) adversary, the United States felt obliged to support the growth of the "good Korea" and the "good China". Moreover, the regimes in these countries were far from being democratic, repres sion of the trade union movement being an essential part of their economic strate-
In concluding their study, the economists of the CEPII considered the possibility that this model could be copied in eastern Europe; their response was rather negative mainly because they considered wages there too high in relation to produc
To summarize in a somewhat simplified fashion, this model can work only if the Hungarian or Polish worker agrees to live and work like a Taiwanese or South Korean worker! To illustrate what this implies; in 1987 the annual duration of work in industry was 2,802 hours in South Korea and 2,508 in Taiwan, against 1,586 in
Everything seems to indicate then that
"with a human face" is not on the order of the day in central and eastern Europe. But does an alternative exist; is there a place for a left (in the sense in which the term is used in western Europe in the east? Very many people doubt it and advance arguments against it.
Efficiency is one of the first arguments used by the proponents of the "market economy". As Vaclav Klaus says, "the third road is the shortest road to the Third
The reality of many countries of the "South", like the Ivory Coast, Zaire, Brazil or the Philippines show that the "Third World" — with all the negative connotations attached to that term - and capitalcategories and, as we have just seen, nothing guarantees that the countries of central and eastern Europe will be integrated into the capitalist world market on terms which would guarantee their inhabitants in the medium or even long term the standard of living of West Germany or France.
But in view of the situation of the economies of the East, Klaus' comment cannot be lightly dismissed; indeed he does not hesitate to explicitly designate "the reformers of 1968" as "the most dangerous enemies".
Jacek Kuron, founder of the KOR [Workers' Defence Committee] and Minister of Labour under Mazowiecki - and who has the merit of having genuinely fought against Stalinism - uses another
15. "'Creating a market economy in Eastern Europe; the case of Poland", Brookings Papers on Economic Activity, argument to reject the feasibility of any left perspective: "I would be of the left, the moderate left, in a capitalist system. First, however, I am going to build this capitalist system"14.
### Challenging capitalism
In other words, there is a time for everything and one can only challenge the capitalist system when it exists. The underlying assumption here is that this passage to capitalism will result overall in the best possible outcome in these countries, and that any global obstruction or questioning could jeopardize such an outcome. Others refuse to take seriously an alternative which has no support except in limited circles in the west as much as the east. That is for the moment incontestable.
David Lipton and Jeffrey Sachs, whose role in the elaboration of the Balcerowicz plan is well known, note with reason that the degree of support in eastern Europe for the introduction of a "market economy" of the western type exceeds the level of consensus existing in Latin America's
In fact, however, none of these arguments prove that there is no basis for opposing what is happening, and will happen, in central and eastern Europe. It is indeed already possible to affirm the contrary.
On the basis of the reality summarized above, one can be sure not only that movements of revolt will appcar (as is already the case in the ex-GDR) but that a political recomposition will follow. Central and castern Europe will sooner or later see the development of a "new left" radically critical of Stalinism, while the Stalinist parties, if they survive, will try to profit from the first signs of disillusionment.
There is then the possibility of alternative forces developing; but this is also a necessity, for, even if there is no living example of another economic model, the evolution of western Europe shows that an unchallenged capitalism and a capitalism subject to the pressure of popular movements are two different things.
Social protection result of social struggles
Thus, even if the system has been able to integrate the mechanisms of workers' social protection developed after the war into a mode of regulation which has permitted a long period of expansion, these mechanisms are nonetheless essentially the result of social struggles. If they had not taken place, more retrograde solutions would undoubtedly have been found.
Such a left will be necessary to give a perspective back to people who, in view of the concrete results of the transition back towards capitalism, may oscillate between the idea that in the end they were better off under the old regime, and pure and simple disillusionment leading to apathy or to support for populist or nationalist adventures.
One could add that the appearance of critical currents in the east would have a major impact in the west, changing a situation where Stalinism has discredited the idea of radical change.
What do we want to build? Beyond the terms used to characterize it, we want an efjicient society based on solidarity
These two words, efficiency and solidarity, are amongst the most misused in one (solidarity) being employed by Pharisaic preachers of austerity to the workers, the other (efficiency) by the "managers" who wish to appear modern. The first however was rehabilitated by Solidarnosc in 1981 — whatever the ultimate destiny of that organization — and well characterizes a state of affairs where "the development of each" is a precondition for "the development of all".
The second is also fundamental; the economical use of labour time to give people the time to live is a characteristic of a truly free society.
Capitalist efficiency in service of profit
The neo-Stalinist societies waste the time of workers and consumers, but everybody also knows that capitalist efficiency works unilaterally in the service of the growth of profits.
Neo-liberal theoreticians explain that optimal solutions are thus arrived at, but concrete experience — of the growth of inequalities, high unemployment, degradation of the environment, the situation in the third world - shows this argument to be fallacious. It is necessary to begin to work, and if possible work in common in east and west, to flesh out the content of a global alternative to existing capitalism. This alternative will flow from the examination of the reality of different forms of democracy, the role of the market, and so on.
In the definition of such a project, the contribution of the east, which has been through the concrete experience of Stalinism in power, and of the west, which has been through that of existing capitalism, can be brought together. *
EASTERN EUROPE / FRANCE