The market mirage
Introduction
THE coming to power of Boris Yeltsin in Russia after the failed coup of August 1991 marked the culmination of the collapse of the old single party political system in Eastern Europe and the Soviet Union that began with the fall of the Berlin Wall in Octo-
International Viewpoint #243 March 1993
THE 1990s opened with the arrival in power in the East European countries of leaderships aiming not to reform the existing
"socialist" system but to adapt it to the capitalist world. Whatever
The mainstream media of the day saw in these events the collapse of communism and the final victory of capitalism - the "end of history". In their eyes the future of the different forms taken by the the former Soviet bloc would be one of a flourishing of democracy on the basis of a fall of the single party and the crisis of the old regime, apart from
The reality — both of the past and the future — is not so simple.
East Germany, the general
Our dossier this months looks at what has happened in these countries in the past scenario of restoration is few years. Catherine Samary explains the domestic and international limits to capitalist restoration - among them the appalling social implications of the neo-liberal everywhere the same: new governments undertaking a plans. Russian Marxist Alexander Buzgalin outlines the state of the left in Russia confronted with the rise of the conservative "industrial party", and a text written by reform of the state with the goal former Polish dissident Jacek Kuron - now Poland's Minister of Labour - provides telling evidence of the durability of what he calls the myth of social justice".
of transforming the economy.
Root-and-branch privatization
But, if capitalism cannot be restored with a wave of a magic wand, the effort to break resistance to it leaves little room for democracy or tolerance. In two shorter articles of heavy industry has been the
Czech parliamentary deputy Vratia Votava and /V's Czech correspondent Adam chosen means for destroying the
Novak explain the motives for the dissolution of the Czechoslovak federation without previous political and economic reference to the popular will and Krystyna Politacha describes the vicious antipower of the bureaucratic women campaign in Poland, which has just resulted in the passing of an anti-abornomenklatura and subjecting the workers to market discipline. In
Thus, rather than a smooth change of "systems" following a change of government, developments in these countries are being dictated by the multi-faceted struggle of the aftermath of the failed coup in vast social forces — a struggle connected in a multitude of ways to what happens in
August 1991, Yeltsin's coming to power in Russia heralded the spread of restorationist "shock therapy" in the former Soviet republics.
But what has been the real effect of these plans?
CATHERINE SAMARY
Paris, March 1, 1993
VERALL, the neo-libe-
O ral recipes for inserting these countries into the developed capitalist world have everywhere caused the same type of damage if not everywhere on the same scale. They have exacerbated the gulf between those regions and countries that were least crisis ridden before the changes - and were thus best fitted to attract foreign investment — and the rest. This has been a key factor in the disintegration of the federal states — Yugoslavia, the USSR and Czereturn to capitalism.
tion law that has little popular support.
the world as a whole. - Colin Meade * choslovakia and a similar process is now at work in the Russian Federation.
The former German Democratic Republic (GDR) is a special case, although even here the difficulties and cost of privatization are significant. Furthermore, Western institutions have singled out Hungary, the Czech Republic and Poland from amongst the "transitional societies" as being the most apt for the restoration of capitalism. However, even the members of this sub-group are tending to drift away from each other: in Hungary protectionist and nationalist reflexes may slow down change; the Czech Republic has been drawn far more closely than the others into the German orbit and is tending to go it alone; and in Poland strong traditions of workers resistance remain a disincentive for foreign investors.
Everywhere that the economic crisis is especially severe - in particular in the former USSR and former Yugoslavia — "statist" tendencies have been replacing stumbling privatization projects. While it may be the "Korean model" that is getting the upper hand over the "Anglo-Saxon" in the rhetoric of restorationism, in practice the model for pragmatic bureaucrats is more likely to be China.
The past three years have seen a collapse in agricultural and industrial production without any compensating advance in private services. The fall in the former USSR and Bulgaria is about 40%, for Romania 30%, and 20 to 25% in Poland, the former Czechoslovakia and Hungary. The same dynamic is apparent in Slovenia. Growth forecasts for 1993 are negative except for Poland and Hungary, where stagnation or a slight upturn are awaited.
In all cases there has been a rapid growth in unemployment. This has gone from almost nothing in the 1980s to about 20% for 1993 — and this before industrial restructuring has really got underway.
Price reform has been aimed at adaptation to world market prices and the imposition of market constraints on enterprise managements — ending of subsidies, reductions in import duties and so on. But, in practice, the old planning mechanisms
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International Viewpoint #243 March 1993 have been scrapped without restructuring having taken place and without market discipline applying. This is expressed in inflation which is in double figures — between 15 and 50% - in the Czech and
Slovak Republics, Poland, Hungary and
Slovenia; in three figures in Bulgaria and
Romania — and 2000% in Russia.
The monetarist nostrums for dealing with inflation have proved counter-productive. Interest rate hikes to impose budget discipline on enterprises have only produced more inflation. Inter-enterprise credits, which are a continuation of barter relations, the addition of interest rate rises to monopoly prices, and the continuation of activity by bankrupt enterprises all show the ineffectiveness of market regulation in such societies.
The pompously unveiled stock markets have little chance of attracting the small quantities of disposable savings in a context of crisis and hyper-inflation, while the new private banks may well simply "accumulate" the prevailing tendencies to bankruptcy. Nor is there much incentive to risk buying the new Russian treasury bonds when the Central Bank of Russia has stopped paying interest on the foreign
The end of Comecon
Inflation, recession and the foreign debt have been everywhere made worse by the scrapping of the Council of Mutual Economic Assistance (Comecon). In this barter market, the former USSR was the big provider of raw materials and energy at below world market prices. Manufactured goods from the other countries also had a guaranteed market. The GDR, which had a privileged relation with West Germany, played a pivotal role as an importer of Western technology and producer of the most advanced products exported to the East.
After 1991, the end of Comecon and German unification drastically changed the terms of trade within the Soviet Bloc. Payments were theoretically to be made in hard currency at world market prices. The dislocation and breaking up of currency spheres - with new separate currencies or coupons in each of the former Soviet and Yugoslav republics and now in the Czech and Slovak republics, have worsened the decline in trade between the former Comecon countries and the crisis in
Furthermore, if payment has to be in hard currency, then everyone would prefer to buy Western goods. Finally, the political-economic decision to join the capitalist world has reinforced the tendencies for the 16 best placed in the chase after hard currency to go it alone. This further aggravates the breakdown of former trade relations and the expropriation of exportable local and regional resources by local authorities.
Even if the regions and countries concerned do not all face the world market from the same starting point, they have all collided with the narrowness of this market in crisis, where doubletalk reigns. For, the same capitalist powers who have been explaining the need for Eastern Europe to remove its trade barriers are themselves protectionist towards those countries.
### Western protectionism
The five Eastern and Central European countries who in December 1991 signed association agreements with the EEC are now licking their wounds. Their avowed desire was to become members of the
EEC and this choice was translated into a refusal to remain tied to the former brother countries. But crisis-ridden free market
Europe has been all the more swift to close doors because the East European countries produce and export goods for which world demand is stagnant or falling — steel, raw materials, agricultural products.
In these domains furthermore, they are in competition with Third World countries and in some others, such as textiles or clothing, they run up against competition from the Newly Industrialized Countries
The GATT talks are going nowhere and the world trade war has just taken a new turn around steel; exports of steel from East to West Europe rose by 24% between 1991 and 1992, with the price falling between 20 and 30%. The recent effective closure of the American market to imported steel has sharply increased steel over-capacity in the EEC, against a background of recession. Result: "The Council of Ministers of the Twelve has just decided, without any noticeable embarrassment, to limit access to the EEC's market for the East European countries" (Libération, February 26, 1993).
Overall, the first years of this decade have seen the collapse of trade between the East European countries and a growth in trade with the OECD developed capitalist countries, and especially the EEC. But this is a very uneven process. For one thing, imports have grown faster than exports — calculated in ECUs, in 1991/1992 imports into the five Eastern and Central European countries from the EEC rose by 42% while exports rose by
For another, the main trade partner is Germany. For these five countries it was the destination of 41% of their exports to the OECD countries and 40% of the imports - the figures for the former
USSR are 27 and 38% respectively. Germany is also Slovenia's main trade partner.
Faced with the costs of unification and the impact of the crisis in the East in Germany (particularly refugees), a part of the
German bourgeoisie may be tempted by a weighting of policy towards the East to the detriment of "Maastricht Europe". The latter has already suffered from the rises in
German interest rates to pay for unification. The practice of moving some aspects of production to Germany's eastern neighbours in search of lower wages and to stem immigration may develop and, finally, very costly agricultural subsidies may be abandoned in favour of cheaper food imports from the East, thus undermining the EEC's Common Agricultural Policy (CAP).
Globally, there is a widening gap between the "mark zone" in the areas surrounding Germany and the rest. Other ambitious schemes are being hatched. For example, around the Baltic with the North European countries, or with Turkey around the Black Sea, in particular in the direction of the Muslim republics of the former USSR, and finally in north-east Asia on the Chinese and North (and thereby South) Korean borders with Russia drawing in Japan.
However, in all cases economic crisis and conflicts over territory and property, and even local wars, are big obstacles to the realization of such projects. This is especially true in the eyes of potential investors: "The Russians have an obvious interest in this [north-east Asia] project" writes a South Korean expert "in order to make the Trans-Siberian railway profitable and attract investment to Siberia, the North Koreans to open up to the outside world and the Chinese to promote the development of a backward region.
"However the benefits for South Korea and Japan would be far more long term." And he adds "for political reasons we cannot ignore a project patronized by the United Nations, but we are being very cautious" (Le Monde, March 3, 1993).
Indeed, caution is in vogue after the first burst of the "rush to the East". And for a world capitalism already crippled by its own colossal debt problems this is one of the reasons why privatization is marking time.
The reality of privatization
Privatization has been envisaged in two stages: the "small privatization" and
International Viewpoint #243 March 1993 the big - the latter essential to any deep change in the system.
The former has mainly involved trade, services, and small workshops. Different methods have been used - share issues or auctions. Small privatization has been dynamically entered upon in Hungary, Poland and the Czech Republic, but has been slower elsewhere. In Russia the official aim was to privatize 50% of restaurants and 60% of shops and services by the end of 1992 but in fact in all these spheres the result is lower than 10%. The main reason is the gravity of the crisis and the hyper-inflation which means both a drop in income and a rise in every sort of uncertainty — whether over costs, supplies or political stability.
However, the real key to all the neoliberal programmes is the big privatization. This is meant to affect thousands of big enterprises in countries where the public sector includes 70 to 90% of industry. But this is not only a question of size.
Behind lies a whole system of historically produced relations of property, production and distribution, values and the specific role played by money when there was no possibility for the buying and selling of means of production, no capital market, and no banking system formed on the basis of capital accumulation.
The aim of the neo-liberal programmes is to subordinate the economy and social relations to the logic of capita-
DEN SARGAT lism; to break up monopolies while using profitability, competition and financing according to sales as a means of imposing social discipline. This means a real (and not only legal) risk of bankruptcy and redundancies.
This ambitious objective has encountered two big obstacles:
• On the one hand, the economic crises of the two systems themselves. They interact in a vicious spiral; in these circumstances capitalist restoration makes the crisis in the East worse. And the latter in its turn adds to the disorder of the world capitalist system; rather than finding in the East the means to get out of its own crisis, capitalism suffers shock waves from the collapse of the Eastern bloc. The effect of German unification on Maastricht Europe, the flows of immigrants, the war in the former Yugoslavia and the rise of fascism and racism are all examples.
• On the other, there are resistances to restoration within the system: these are related to the absence of a bourgeoisie, of capital and of market regulation of collective property. Worker resistance is a part of this. The latter draw from the past a strength that is not reducible to classical forms of independent, union, self-managing or political movements. Indeed, such movements are very weak or fragmented in these countries.
Still less can we speak of movements equipped with alternative programmes to EUp.
that of capitalist restoration. The "crisis of socialism", felt worldwide, has had a lasting effect. Nonetheless, capitalist restoration is bogged down.
While privatization is not the be-all and end-all of this process, nonetheless, a change in economic logic definitely implies the breaking up of the bureaucratic monopolies which are also sites of working class concentration. But where is the capital to come from?
Why invest?
Domestic saving (assuming that the savers are inclined to invest in shaky undertakings) has been estimated at between 10 and 20% of the value of the privatizable goods. Foreign capital is thus essential to any restorationist project. Now, in mid-1992 the total stock of invested foreign capital in the Eastern European countries and the former USSR was about $12bn. This figure includes sums involved in many dubious undertakings above all in Romania and the former USSR.
Here are some comparisons: the flow of investments realized in Latin America in 1992 alone was $36bn; the former USSR's foreign debt is estimated at around $80bn and its capital flight — hard currency payments to exporting firms in the former USSR kept in Western banks
- at between 20 and $40bn.
Hungary merits a special look since it is the leading recipient of foreign funds. Indeed, it has received as much as the whole of the former USSR, that is $4bn of the $12bn mentioned above. This sum is spread among 13,500 mixed enterprises
- or in other words, the amount per enterprise is very low. In fact, the aim of the foreign investor is often to position themselves for the future at the least cost and to get the best out of tax breaks without incurring too much risk.
Big privatization has gone further in
Hungary than anywhere else in the region, but it has still only affected 10% of the privatizable enterprises. The official goal is for this figure to reach 50% by 1994.
However, this is all the more unrealistic because it was the best enterprises that were privatized first and the tendency is for the rhythm to slow. Furthermore, 85% of these privatizations have been carried out to the benefit of a foreign buyer, not at all what the government had in mind. The private sector taken as a whole produces
30% of GDP.
More important than counting up the number of privatizations is evaluating which branches are involved and above all their weight in the economy as a whole.
This requires concrete analysis.
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International Viewpoint #243 March 1993
One of the aims of the transition is to introduce market disciplines, thus we need to consider whether we are seeing industrial restructuring - both in the private and public sectors - on the basis of these disciplines. And this is not happening - for one major reason: the application of market regulation to the industry of these countries would mean complete disindustrialization and social explosions.
There is a growing awareness that the costs and obstacles to privatization conceived as a change of system are more than merely quantitative. Debates on the "Marshall Plan for the East" are a sign of this.
In present day terms, the Marshall Plan at the end of the Second World War cost some $170bn. Russia has so far received
$1bn of the aid promised. Western experts have estimated that modernizing these countries would cost some $330bn per year for ten years.
However speculative such figures may be, it is also true that in 1945 the problem was to reconstruct countries that were already capitalist and had all the attributes and forms of behaviour needed for the rule of the market. Furthermore, the state played a major role in reconstruction in
Western Europe. The "Korean model"
also involved the state. However, the present neo-liberal nostrums are opposed to such interventionism.
In the former GDR privatization has failed as a means of renewal. Now the German state is assuming the burden of salvaging and restructuring industries that were by no means amongst the worst in Eastern Europe. It is doing this because if it does not there could be a social and political explosion.
Different means; same end
There are a number of strategic variants within the overall project of restoring capitalism. The main question is to see who profits and what social costs are attendant on pursuing this project. The main alternatives encountered are the following:
a) At what speed and at what price to privatize?
To provoke an irreversible shock at whatever price (as proposed by American economist Jeffrey Sachs); or to protect and transform the public sector and postpone privatization till later in the expectation of a more "organic" appearance of a national bourgeoisie, such as Hungarian economist János Kornai hopes for? But the latter may in practice mean perpetuating the rule of the old nomenklatura and non-capitalist methods. Then there is the question whether to start off by changing the price sys18 tem - with resulting hyper-inflation in a monopolized system — or privatize first
(but at what prices and with what capital?).
Mb) What social layers to base capitalist restoration on?
The nomenklatura or the new bourgeoisie arising from the middle layers of the intelligentsia and the shadow economy? But with what capital, what management experience and what capacity to impose market discipline on the workers?
The world bourgeoisie resting on a domestic comprador layer? But if foreigners take over the best enterprises there will a growing popular feeling that the national wealth is being sold off. And bother to refloat them?
c) How can privatization be justified in the eyes of the population and the working class?
Free distribution of share coupons to the whole population seems to be the most common answer. But the results are far from conclusive. The distribution of shares to the workers at preferential rates is not generally supported by the most enthusiastic partisans of capitalism. They see the risk that this practise might perpetuate "self-management misconceptions"
d) What balance between privatization and the public sector?
Confronted with disastrous schemes proposed by "young Turk" economists of a radical neo-liberal bent we are seeing the rise of the more pragmatic representatives of the "industrial party" - the nomenklatura of the big enterprises which wants to protect itself from the world and domestic market and also from social tensions.
The state makes a comeback
Neo-liberal policies are turning out to be more and more inefficient and counterproductive, if not straightforwardly destructive of the economic, cultural and social potential of the country - the text by Jacek Kuron published on page 26 is eloquent in this respect. Last year the Polish historian Geremek expressed his disillusionment: "We thought we would draw closer to the West, but we are heading South". The "radical democrats" promised that their proposals would yield improvements in the satisfaction of needs in gene-
The hopes placed in the automatic virtues of the market and privatization were based on what people saw in the shop windows of the West and on the predictions of "experts" and did not imply acceptance of market regulation and capitalism. At this second level the ruling liberal groups still lack a social base.
The vagueness of their formulations reflected the popular mood and illusory promises: "man, liberty and the market"
was the title of Shatalin's radical programme for Russia when he explained his plans to the Moscow media. According to him, the market would be a way of giving individual citizens back control over property despoliated by the bureaucracy and the liberty suppressed by the single party.
Furthermore, by a process of reversal, the decades of official anti-capitalist propaganda led people to dismiss criticism of
The advantages of the so-called socialist countries were closely intertwined with their deficiencies. Thus, at least at first, the workers hoped to be able to keep social rights while disposing of the bureaucracy through the market and privatization. But the latter in reality bring unemployment instead of full employment, products at inaccessible prices instead of poor quality but cheap goods, and so on.
Today, we are seeing the appearance of a more favourable view of the past, while attitudes to capitalism depend on what people and groups have got from contact with it. For some, capitalism has brought affordable and better quality goods and higher wages, there being more of such people in the Czech Republic than in Poland, the former USSR and Romania.
In general, we are seeing social resistance sufficient to block liberal advance but without the organization or programme to present a socialist alternative. Nonetheless, the coming to power in Russia of representatives of the bureaucracy who are more in touch with the workers is a sign that liberal policies are in crisis. There is a turn towards more state intervention. But with what social logic and in favour of what system?
In Germany the answer is clear, since here the former GDR is being absorbed by a powerful pre-existing bourgeois state based on a developed system of market regulation. The stagnation of privatization and the social tensions mean even in Germany an increase in the role of the state and the public sector on the basis of world capitalist criteria and prices. Germany has the means to cope with this, even if it may adversely affect the construction of Maas-
But elsewhere, where there is a lack of capital, the strengthening of the role of the state means protection from domestic and international market pressure. But it may prove difficult to protect the existing economy without allying with those who reject the market and without protecting the old system as well. This is the dilemma
International Viewpoint #243 March 1993 facing the rulers.
Even in the former GDR capitalism has not yet prevailed. The old structures continue to exist behind new forms with their own relation of social forces and mechanisms. The disintegration of the party/state has enhanced the role of the "men on the ground" at the head of the big industrial combines and local or regional authorities. Lobbies who used to bargain with the central planners to increase their resources and determine the plan's objectives have taken the central regime hostage. The latter can no longer find support in a centralized party/state apparatus that could act as a counterweight to the lobbies. Inter-enterprise credit escaping any control is accompanied by barter relations which maintain the traditional relationships between the big enterprises.
The latter have performed their productive function on the basis of definite social relations with the workers. The main attractions for workers and motives for fulfilling the plan were not monetary but such things as crèches, housing and the direct distribution of scarce goods and services. Sometimes the workers' whole life was structured by a few huge enterprises (or even just one) providing all local employment.
In all such countries —including China - these factors aggravate the social implications of introducing market regulation. In China they have made it impossible to challenge security of employment despite decisions to force up labour productivity. The same will be true of Russia despite the formal adoption of a law on bankruptcy in November 1992.
### Managers and workers
At the same time, there was a tense but real convergence of interests between workers and managers in their bargaining with the centre over plan objectives and resource allocation. This relation continues to be expressed in resistance to the abolition of subsidies and price reform. It is one of the chief factors holding back the widespread appearance of workers' strikes and unions that are genuinely independent of the
In such a context, odd politico-social alliances can appear at the centre — as in
Russia. For some resistance to liberalism means defence of social protection; for others a means of protecting their industry in the framework of a future national
"state capitalism"; and for still others — people utterly hostile to capitalism as such
- outright resistance to the very aims of
It is not enough for the ruling bureaucracies in these countries to want to become capitalists for this to happen. Pragmatism makes them aware of the dangers to their positions involved in capitalist restoration. Unemployment will not be restricted to workers, there is a political witch-hunt already underway against sections of the former rulers, and workers' revolts are another danger.
One emerging variant of "conservatism" — which does not mean a straightforward return to the past — is an alliance between nationalism and an egalitarian anti-liberal, and even workerist viewpoint. This could produce forms of national socialism or populism with clear fascist features, as in Serbia. But, above all, "privatization" in the sense of the scrapping of the old structures of centralized power does not, for all that, mean the adoption of capitalist laws. As they say in Hungary "we thought we were going from the plan to the market, but in fact we have gone from the plan to the clan". For the bureaucrats, direct personal relations with local authorities and with the workers can be more profitable and more reliable than confrontation. And it may well prove easier to feed parasitically off the market than to submit to its dictates.
Large parts of the bureaucracy see capitalism as the only solution. But capitalism does not appear at the wave of a magic wand. Capitalist restoration is credible when international capital is ready to invest and where the economic crisis is not too deep — as is true in the mark zone at present.
Pre- or post-capitalist? There is no "symmetry" between revolution and counter-revolution. As a popular East European saying has it, going from the fish to the soup poses different problems to going from the soup to the fish.
It has sometimes been said of Soviet- type societies that they are pre- rather than post-capitalist both in terms of overall economic development and social relations.
On the latter front analogies have been drawn with feudal societies on the basis of the existence of non-market relations of domination and protection between bureaucrats and workers.
Despite the existence of a wage form of payment, the big enterprises only attract and keep workers by the provision of scarce goods and services. This is the essential reason for the failure to apply instructions about making enterprises profitable. Now, so the argument goes, as in the passage from feudalism to capitalism, so in that from "socialism" to capitalism the worker must become wholly subjected to the market and the wage should be the only form of payment for his/her work.
However, unlike in pre-capitalist societies, many other "resources" are distributed in a specific money form in Soviet-type societies. An essential part of the "social wage" takes the form of subsidized distribution of transport, healthcare, basic goods and culture. This explains the especially dramatic and retrogressive impact of price changes. We are not dealing here with serfs or small artisans to be turned into a proletariat. The latter already exists massively and in big concentrations alongside an absence of a significant bourgeoisie and a sufficient accumulation of primitive capital. On the other side there is the power of world capitalism.
The workers in whose name the bureaucrats ruled for decades were told they were the only source of value. They were told they were the owners of social wealth. This is why one of the main problems for the new rulers is how to justify privatization. The free distribution of share vouchers is a favoured answer, reflecting the fact that in popular consciousness property belongs to all and to nobody - and in any case not to the bureaucracy.
Nor can the bureaucracy take ownership by decree. The "wild privatizations" grabbed by the bureaucracy in the early days have often been overruled or rende-
And this reflects post-capitalist aspects of these societies which can be summed up as: the acquired strength of the workers, despite the fact that power has been expropriated from them and they are deprived of independent organization. This state of affairs does not give this proletariat a politically coherent vision of a socialist alternative. But it does provide means of resistance to full-scale capitalism.
The proof of capitalist restoration lies in an achieved change in economic logic.
This implies changes in the social relation of forces which really make the workers subject to the labour market; make money into capital that can be invested in means of production to reap surplus value; and make profit the criterion for investment and management, even in the public sec-
It is not necessary for all the means of production to be privatized for this to be achieved nor that the only logic at work is capitalist. But capitalist logic must prevail.
Such a state of affairs does not exist in
Eastern Europe and the former Soviet
Union now and there is no inevitability that it will exist. *
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