Five years on:
Economic reform in the East
International Viewpoint #264 MARCH 1995
Reforms since the 1950s have prioritised the broadening of market mechanisms and the sphere of private production. But the current reforms are not just the same thing on a bigger scale. Today's Kremlin leaders want not just a greater use of "market mechanisms," but the capitalist market, covering all the means of production. Timid reformers in Poland and Hungary once experimented with the "privatisation" of small commodity production, artisanry, or commerce - the new governments in Warsaw and Budapest have placed massive parts of industry on open sale, and in the meantime are trying to establish capitalist relations of production within all the country's enterprises. From the Czech Republic to the Albania or pre-war Chechnya, "post-socialist"
societies are in transition. In this comprehensive and ambitious survey of the region, Catherine
Samary of Paris University analyses these transformation at three levels: the goals of the new governments, the reform of the state apparatus, and the transformation of the economy.
by Catherine Samary
The first objective of the new elite, and their bourgeois governments, is to modify the legislative and repressive framework of society - the state apparatus.
This structure can then be put to the service of the newly-forming bourgeois ruling class, and the world bourgeoisie, in order to assure a fundamental socio-economic transformation. This last stage has so far proved more difficult than the new rulers and their foreign creditors expected..
There is no simple definition of capitalist restoration at the socio-economic level, just as there is no universal "model"
of capitalism which can be addopted. It is already clear that the new capitalism in the
East will be very different from one country to another. In the same way, no percentage of privatisation marks a
"qualitative threshold" or an irreversible transition". The question to ask ourselves is whether a capitalist logic (property rights, relations of production orientated towards profit) dominate. It seems clear
18 that in this sense the building blocks of the capitalist projects are clearly in place in the countries of the East. The goal of the elite
The goal of the new elites is a new, market discipline and class relations which can impose the closure of those enterprises which are unviable (from the point of view of the criteria of profit) - and impose a constant search for the reduction of costs in all other enterprises. New capital markets will allow the rifh to buy and sell these companies according to their own, private interest. The economic transformation
Between 1989 and 1992, all the 'postCommunist' economies of Eastern Europe and the ex-USSR did not just stagnate: they shrank in size! The collapse in production over this period was 20% in Hungary, 30% in the Czech Republic, 40% in Russia and 50% in Poland. The economic decline in most of the newly independent countries created from the decomposition of the USSR is even worse.
Germanyis the sole case of absorption into a capitalist framework. Hardly a model the other countries can follow, since the astronomical cost of restructuring was met by western taxpayers*1,. Only a few countries (Poland, Hungary, Slovenia) are emerging from this crisis. The other countries of eastern Europe and the Community of Independent States are sinking into "under-development," fragmentation (ex-USSR) or even war for the division of resources and territories (ex-Yugoslavia).
All these countries suffer persistant inflation. The lowest rate in 1994 was 12%, in the Czech Republic. In Russia, inflation devalued the rouble from 200 per 1 USD in June 1992 to 2,000 the following summer, and over 4,000 in July 1994.
Unemployment is generally higher than 15%, while the restructuring of the big
International Viewpoint #264 MARCH 1995 enterprises has not started anywhere. The "destructive" aspect of the upheavals underway has affected the price system and the former circuits of production Five years and exchange. The on: interruption of Economic traditional circuits of reform in supply, and the the East obligation to make payments in hard currency have led to the collapse of entire branches, regions and newly independent countries, and generated pressures for the reestablishment of east-east links. The reorientation of exchanges towards the countries of the OECD has increased the foreign deficits of each of the countries in the region.
Discrepancies have grown between regions of each state, and between countries. The degrees of advancement of the transition towards capitalism are extremely unequal.
Bulgaria, Rumania, Albania and Slovakia are still emerging from changes in the price system and the destruction of the COMECON trading block. Hungary, Poland and Slovenia have gone further, and embarked on a profound restructuring of their productive and financial system. This is reflected in their privatisation programmes, by the real increase in the productivity of labour and a lowering of real wages. And since increased productivity has allowed a contraction of the workforce, unemployment has risen in all the "successful" countries.
Behind all the ambitious claims of the new governments, the reality in all these countries is that the major form of privatisation so far has been a small-scale privatisation in commerce and tourism. In Hungary for example, only 20% of large enterprises have been privatised. But foreign capital, which provided 80% of the income from privatisations in 1991, has been scared away by new legal measures to favour Hungarian "national" capitalists Five years over foreigners. on: Moreover, the best Economic enterprises have reform in already been privatised. In Poland, the East
80% of commerce is private, but only 1/10 of productive enterprises in the former public sector.*2 In other words, even in those countries where the transition is the most advanced, insufficiency of capital and fear of the social (and political cost of the restructuring of the big enterprises, is slowing up the rhythm.
The other country sometimes presented as a success story is the Czech Republic. According to official statistics, over 80% of industrial and agricultural enterprises have undergone a "transfer of ownership". However, "privatisation by coupons and the appearancee of investment funds... have in fact prolonged the agony of the enterprises and delayed their restructuring. proceed to restructurings whose social effects are predictable" (Courrier des Pays de l'Est, 1994). The relatively macroeconomic stablity of the Czech Republic is also due to favourable circumstances; a low level of debt, a relatively good economic situation even before the changes of 1989, strong growth of tourism, people in eastern
Europe believed that they had nothing to lose. Their hope was that the market and privatisation would signify a general elevation of the standard of living frontier work in Austria, favourable real rate of exchange; but there is added to this an extremely prudent social policy, in spite
But inter enterprise credit remains very developed. The law on bankruptcies, introduced in April 1993, has still not really been applied. Real wages are rising two times faster than wholesale prices. All this illustrates the weak discipline of the market. After 2 billion USD of foreign investments in 1990-1993, there was a squeeze in 1994. The Czech government is criticised for "favouring the arrival of capital whose goal is the liquidation of a competitor or to reserve to local industry the subordinate role of sub-contractor or better assembler".
In Russia, in spite of Yeltsin's coups d'etat to accelerate the liberal shock therapy, the "privatisations" underway reflect above all the total loss of power of the central state to the benefit of a multiplicity of feudal power groups.
"the wage-earners and the former directors of the vast majority of enterprises have kept control by becoming "proprietors." Thus in most cases, the change of ownership has not modified fundamentally the behaviour of the actors of the enterprise. Many enterprises have maintained a monopoly situation, subject neither to the discipline of the market, nor that of strong financial constraint" (Courrier des Pays de l'Est, 1994). Foreign private investments in the Russian Federation since 1989 are only around $2 billion: the same as the Czech Republic, and four times less than Hungary).
The situation differs according to the market position of the branches and regions of the federation. Light industry and enterprises making equipment goods and transport material are confronted with a collapse of demand (and what remains relies on imported goods, above all in food production). These enterprises survive by barter agreements and inter enterprise loans.
The military-industrial complex is experiencing the beginning of a difficult reconversion. This powerful lobby draws its strength from its links with the state apparatus.
The energy monopolies or the enterprises making basic industrial products capable of being exported are the only sectors of Russian industry in a good market position and the most attractive prospects for privatisation. The share of the OECD in oil exports went from 47.8% on 1988 to 72.5% on 1992. But the ownership of these sectors is disputed by different forces and state powers; the local regimes, ready for example to proclaim a "sovereign republic" of the Russian Far East, confront the "muscular" interventionism of the Russian central powers. Will the workers stand for it ?
Given the deterioration of the 1980s, people in eastern Europe believed that they had nothing to lose. Their hope was that the market and privatisation would signify a general elevation of the standard of living.
Popular disillusion accross the region is expressed through massive "nostalgia" which provides dangerously fertile ground for the neo-Stalinist currents. After all, there is no credible socialist alternative.
Having said this, the "gains of the past" (social security, the right to work, "egalitarianism" of cultural needs, and women's rights - even if all these rights were perverted by the bureaucracy have kept their weight in the minds of the lossers in the transition. This is reflected by the systematic return of the "ex-communists" to government, or by their improved
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International Viewpoint #264 MARCH 1995 electoral scores, including in Poland and Hungary, the trailblazers of the "transition".
Back in power, these ex-communists seek to combine the largely contradictory: partial responses to the concerns of their electorate, and the pursuit of the policies demanded by their creditors. As a result, the majority of these parties are dividing into two principal wings:
* The first is more aware of the social degradations caused by the transition. Its social base is found among the trades unionists, the peasants and the workers hit hardest by the transition. On the political level this could be reflected by alliances between the "neo-stalinist" currents and the nationalists (including the far right), passing through, as in Slovakia, "workercommunist" currents explicitly hostile to privatisation. Their starting point can be protection against "those who wish to sell the country to the foreigners" and to the IMF; the logic of this can lead to a fascist variant of "state capitalism" or a "strong hybrid state" inspired by the "Chinese model". All this necessarily implies conflict with the IMF and a search for alliances with similar currents in other countries of the region.
* The second current seeks on the contrary to ally itself with the explicitly "liberal democratic" currents and render itself "acceptable" to foreign capital and the European Union. It warns the workers of the "limits" of its "responsible" social policy. These ex-communists constitute the "liberal" wing of the new "social democracy" ; they seek recognition as democrats ready to leave power if they loose the next election, and keen to assure integration with the European Union.
The relative strenght of these two currents varies from country to country. In Poland it is the populist wing (originating from the Peasant party which seems to dominate (in an increasingly conflictual relationship with the social democratic ex-communists); their objective is to slowdown if not block the "mass" privatisation. The "liberal" wing of the ex-communists is seeking, it seems, to ally itself with the liberal currents originating from Solidarity. In Hungary the second variant (alliance of the ex-communists and the liberals) dominates the new government, which has announced a project of acceleration of industrial privatisations, open to foreign capital in the hope of reducing the foreign debt.
No real political stablisation has been echeived in any of these countries -because the economic processes of submission to a capitalist logic still demand great social costs. 20
At the same time, the main forms of social resistance remain fragmented and limmitted to the enterprise itself. the relations of conflictual connivance between workers and directors in the big enterprises not already snapped up by foreign capital limit the development of independent class resistance. "Collective property" is the bearer of a double dynamic; where market mechanisms and a tougher credit policy are imposed, the workers will be trapped, and a class polarisation will occur between managers and workers; elsewhere the conflicts will be deferred.
The organised left is polarised between parties of the nationalist-Stalinist type and diverse parties characterising
The alternative left will only emerge from its marginality when a new trade union left and the anti-capitalist resistance in western Europe start proposing an alternative to the plans of the European Union and the IMF. In other words, the struggle in the east is no longer in the same framework which defined the dynamic of the Polish and
Hungarian workers' councils in 1956, the socialist oppositional currents in
Czechoslovakia and Yugoslavia in 1968, or the Polish self-management themselves as social democratic. Alternative anti-Stalinist and anti-capitalist currents remain marginalised. Some militants put their energy into marginal groupuscules, while others try to participate as a democratic socialist tendency in the dominant neo-Stalinist or social democratic currents. Generational cleavages are powerful - many youth in their 20s turn with enthusiasm to the new values of individual enrichment (although those younger can link up with the anarcho-communist traditions); the older generations reflect all the currents of the past but in a context of profound disarray.
The alternative left will only emerge from its marginality when a new trade union left and the anti-capitalist
Five years resistance in western Europe start proposing on: an alternative to the Economic plans of the European reform in Union and the IMF. In the East other words, the struggle in the east is no longer in the same framework which defined the dynamic of the Polish and Hungarian workers' councils in 1956, the socialist oppositional currents in Czechoslovakia and Yugoslavia in 1968, or the Polish self-management movement of 1980. Defence of what remains of the old system, or worse, support for "red-brown" alliances which could eventually emerge from the current rottenness, is not a progressive alternative.
There had been market reforms before. What was new in 1989-90? And why wasn't the failure of these regimes marked by an upsurge in radical socialist activity, as many Trotskyists expected?
Here are some of the key factors which shapped the relation of forces in the east, which created a different context than that of the 1950s, and which made the conditions of the working class in 1989 different from that in 1968 or 1980.
* The system of bureaucratic planning was in a long term structural crisis. Incapable of passing to a dynamic of intensive rather than extensive growth, having exhausted and wasted its resources and its capacities of reform, the economic situation generated, notably among the new generations, a moral and political crisis, aggrevated by corruption, bureaucratic conservatism, and the absence of liberties.
* the debt crisis in several countries of eastern and central Europe after a wave of imports and loans during the 1970s. It signalled the death of "socialist" reforms and introduced the pressures of the IMF. In short these regimes could no longer assure the semblance of that limitted well being and security which had legitimated them. The USSR benefited from the increase in the price of oil during the 1970s, but the oil countershock of 1986 came after a decade of stagnation. The weight of the arms race, in the new phase of Cold War marked by the arrival of Reagan in power meant that for several years equipment investment fell drastically.
* whereas for several decades the gap
International Viewpoint #264 MARCH 1995 between the developed capitalist countries and the countries of eastern Europe had narrowed, it began drastically widen. Unlike the bureaucracy, Five years capitalism was able to innovate and addapt on: during its periods of Economic reform in The bureaucracy the East could only solve thoroughgoing antiworker offensive. But this was not possible on the basis of the existing (non-capitalist) rules of the game. Faced with this historic blockage, a substantial part of the leadership turned towards the world bourgeoisie and made itself an agent of capitalist restoration. No longer able to protect its privileges and its power through economic growth and the security of the workers, it attempted to re-consolidate itself through privatisation.
No illusions ! there was nothing "ideological" about the opposition of some bureaucrats to capitalist restoration. Yesterday or today, the bureaucrat defends his interests pragmatically. What stands in the way of the bureaucrat of yesterday selling himself to foreign capital or transforming himself into a bourgeois is very concrete; either foreign capital holds back (generally because the investment is not necessarily profitable or secure), or the bureaucrat lacks the "market" position, political-economic support, relations of force in the enterprise) to assure the juridical-economic transformation of the property.
The failure of the reforms in the east (notably self-management in Yugoslavia), and the crisis of the welfare state in the west endowed liberal market ideologies with a considerable provisional strength among the intelligentsia. The various "radical" responses to the impasse of the bureaucratic reforms proposed by groups of intellectuals were usually, based on the identification of an appropriate efficient and democratic "model" in the west, which it would suffice to reproduce.
If the scenario for the counterrevolution had been, as in earlier times, the invasion of foreign troops, patriotic reflexes would have come into play. Indeed, this scenario occurs Cuba, one could expect an "anti-imperialist" resistance. But "economic" scenario of capitalist restoration -the overwhelming hope of the population that they will live better and under greater freedom under the market -is much more pernicious.
The dominant attitude of the workers in the east is marked by pragmatism and high expectations; one is for privatisation "in general", but against the privatisation of one's own enterprise, if one realises that this is likely to result in the loss of one's job. Foreign capital is not rejected a priori -if it brings material investments, and promises to maintain employment and/or increase wages. Altogether different is the sensation of being tricked when trade union rights are suppressed, the enterprise sold off indeed bought to be sold - or when the entire country seems once again dominated.
The hope at last of exerting more control over one's workplace through decentralisation of ownership and the market can make the workers more open to this process. The market also divides those
The worker in the east is pragmatic: for privatisation in general, but against the privatisation of his own enterprise... who find themselves in a good market position (export enterprises, rich regions) from the others.
The quasi-general growth of foreign deficits with countries with strong currencies (after the break up of the USSR and COMECON reinforced the external pressures for "structural adjustments" turned towards an insertion in world capitalism and privatisation. The essential vector of the capitalist restoration is the power of interference of the institutions of the world bourgeoisie (IMF, World Bank, European Union. This imperialist intervention isrelayed by local regimes which could more or less assume the function of comprador bourgeoisies. A new form of colonisation is being
After all, for the bureaucracy to sell itself, a buyer must exist, someone who judges the "market value" of the country (or the strong branches of its economy) and the political stability of the state. Currently, Hungary, Poland, the Czech Republic and Slovenia are the most attractive prospects.
On the other hand. federal states which are in the process of breaking up, often in the context of war, are obviously less attractive from this point of view The potential investor does not know who is the owner of the country's natural resources?
The question is both internal (what "national" bourgeoisie will appropriate them - protected by what state?) and external (with what interlocutor can the foreign capitalist negotiate solid contracts?)
The chances of integration in the European Union weigh obviously on the dynamic underway in the countries of central and eastern Europe and the three Baltic Republics of the ex-USSR. All these countries have signed an Association ("Europe") Agreement with the EU, and received numerous promises from Brussels. Not that this has stopped protectionist barriers being reintroduced against east European agricultural, iron and steel products.
Their chances of integration of the various countries concerned are very unequal. But the perspective of future membership is in any case for the moment sufficiently credible to be a central axis of foreign policy in all these states.
But the colossal cost of the "adjustment policies" demanded, the unequal credibility of the transformations in the various countries - and thus the capital received under the form of credit or investments - will accentuate a divergence of dynamics between those who remain fundamentally oriented towards the European Union and the others, who begin to recognise the need to deal with their crisis through forms of barter and regional economic reintegration. This process is moreover encouraged by European institutions and experts concerned by the economic disaggregation of these countries, and convinced that few of them will be capable of being "integrated" into the European Union, even by the year
Meanwhile, insertion into the "new world order" is also taking place on the political and military planes; the existing regimes in eastern Europe, concerned by mounting disorder and the revival of Russian influence, seek integration into NATO. They have been disappointed by (but nonetheless obliged to accept) the propositions for "partnership" and United States overtures to Yeltsin. The Russian leader has sought to reconcile proposals for "partnership" with NATO with the demand for recognition of Russia as a great power and guarantor of "regional order".
As compensation for internal social and economic upheavals, the chances of a new "Great Russian" regime (or more simply the evolution of the existing regime in a "great Russian" direction as shown by the intervention in Chechenya) are multiplied, as is the reinforcement of currents hostile to what is denounced as a political and economic subordination to the U.S.
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International Viewpoint #264 MARCH 1995
Globally, apart from the Yugoslav crisis, the "partnership" demanded by the countries of eastern Europe and Russia has enlarged Nato's functions in Europe - not without conflicts of view between the European powers and the United States. Faced with the dismantling of the Warsaw Pact, the progressive option would have been a powerful anti-militarist mobilisation against NATO. The contrary has happened; the growing penetration of an interventionist ideology, even in supposedly left circles.
The weight of the world institutions of the bourgeoisie is not accompanied by the capital means which would allow the absorption of the countries of eastern Europe and the USSR analogous to what happened with East Germany. The world bourgeoisie, confronted with its own crisis, has not the means for a "Marshall plan" for eastern Europe and the ex-USSR. The breadth and the nature of the problems to be resolved are without precedent.
Internally the first source of instability is that the restorationist process lacks a social base of legitimation, because it is destructive. It can only gain a social base by ameliorating the material situation of a significant part of the population - which has allowed some room for manoeuvre in the Czech Republic.
The colossal loss of social protection is accompanied by a previously unknown phenomenon; the shops are full but access to the merchandise (and, increasingly, to medical services and cultural goods) is forbidden to a growing part of the population. There is also exclusion, marginalisation, and the degradation of the social status of the majority.
There is at this level an essential dyssymettry between a rupture of the Stalinist type with capitalism and the current restorationist programmes; the forced collectivisation and the suppression of market mechanisms (whatever their economic, ecological, human and political costs) were accompanied by a social and cultural elevation and massive social protection.
The "system" resistances are then stronger where the market has penetrated least as a regulator; in the ex-USSR, more than in China; in Bulgaria and Rumania more than in Hungary; in the big enterprises and the regions structured by them rather than the sectors open to petty commodity production. Agriculture itself shows very different configurations - and an attachment to the social protection of 22 the collective farms where the chances of improvement via the market privatisation are not obvious (in Poland, Hungary and Rumania the peasants have tended to vote for the ex-Communists).
Globally, the restorationist process lacks capital for it lacks a bourgeoisie. It is not enough to proclaim oneself a bourgeois, or to wish to become one to have the traits of one - that is to say the class strength, backed up by the funds. The introduction of market reforms has always enlarged the possibilties (legal or not) of self-enrichment. The black market existed before. But nowhere has there been a "primitive accumulation of capital to the extent required. This could only really happen after 1989. The money (savings) available at the beginning of the 1990s represented only 10 and 20% of the value It is easier to organise to combat fascism and capitalism in a reunited Germany than in a chaotic Russia of the goods earmarked for privatisation. And not everyone was ready to swap their savings books for shares!
There are two principal internal sources for the emergence of a new bourgeoisie; the nomenklatura and the intermediate social layers (the "middle classes") born principally from the small-scale privatisation of services and commerce. The mafia straddles both categories.
The nomenklatura aspires to transform its privileges of function into the privileges of property and money. It is hampered by the purges of the old apparatus, on the one hand; but also its own limitations faced with the needs of the capitalist restoration. Some members of the old nomenklatura have competencies and knowledge of society and can play the role of a "comprador" bourgeoisie in the service of foreign capital; those who, after the purges, still occupied posts of responsibility in the economy are in very different situations, according to the "market" position and the size of the units that they control, and according to their relation with the state. Confronted with the criteria of the world market, most big manufacturing enterprises in eastern Europe and the ex-USSR will eventually disappear. Many are already virtually bankrupt. Even if they aspire to become a national bourgeoisie, the directors of the big enterprises or the military -industrial complex in Russia have neither the capital means nor the technology to restructure industry in a framework of competition with foreign capital and the relations of social forces in the big enterprises. As a result, we can still expect conflictual alliances of managers and collectives of workers to block the Five years process of industrial on: dismantling in some
Economic
The dynamic will reform in then be that of a "state the East capitalism" endowed with a strong public sector. Protection from the world market would offer some protection to the workers, and maintain the old relations of force inside the enterprises. It is precisely the major ambiguity of such a configuration which impels "experts" like Jeffrey Sachs to advocate the most rapid possible transformation of property relations, so as to break the old managerworker relations at the level of the enterprises and destroy any ambiguity of "collective property," either by a privatisation in favour of a real investor, or by temporary state ownership, provided the adminstrators are capable of imposing capitalist-style management discipline.
Globally, changes in the system of credit and the development of a market logic (with the closure of enterprises in a situation of bankruptcy) can only lead to a modification of the internal relations in the enterprise. The breadth of the social upheavals underway panics those political leaders who do not have the financial means to assure reconversions. This is the principle source of the blockages we see in many countries of the region. Having said this, in those - mainly large industrial -enterprises where mechanisms and social relations persist, they exist in a "degenerated" form - in crisis - without coherence, and without the emergence of a credible socialist alternative.
This resistance then in no way implies a "better " situation for the workers, nor for the conditions of independent struggles. It will without doubt be easier to organise to combat fascism and capitalism in a reunited Germany than in a chaotic Russia. *
1. See Le Monde, 13/1/1995. The Trehand, the agency for privatisation created in 1990, closed down in December 1994 having fulfilled its programme, at the cost of some hundred billion DM and several million unemployed.
2. Central Office of Statistics and Institute of Political Studies. Reproduced in "Employee-owned companies in Poland", Maria Jerosz (ed.), Warsaw 1994
3. The case of Vietnam seems to be the most dramatic example of this tendency.
- BOSNIA-HERZEGOVINA •