transformation in central europe

www.monash.edu

TRANSFORMATION IN CENTRAL EUROPE

TEREZA VORLOVÁJAN HAUSER

MONASH EUROPEAN AND EU CENTRE / CHARLES UNIVERSITY, PRAGUE

www.monash.edu 2

CENTRAL EUROPE

Europe before 1989 Europe today

3www.monash.edu

Not all part of Soviet Union - communist regimes more or less aligned with USSR

CEE COUNTRIES BEFORE 1989

www.monash.edu 4

“COMMUNISM” IN CEEPolitics:

- One party rule- No division of power- No independent courts- No pluralism- No basic freedoms- No free media

Society:

- No civil society - No real trade unions- No prof. organisations- Disinformation

Result? Result? Result?

Economy:

- Centrally planned- No private property- Collective ownership

www.monash.edu 5

40 YEARS OF COMMUNISM: RESULTS

Prague 1968

• Economic underperformance• Political repressions• Social unrest• Numerous uprisings:

• 1956, 1968, 1970, 1981, 1989

www.monash.edu 6

WIND OF CHANGE: 1980S

glasnost – openness

perestroika – restructuring

demokratizatsiia – democratisation

www.monash.edu 7

1989

www.monash.edu 8

WHAT CHANGE AFTER 1989?The Promise of 1989:

- Political transition- Economic transition - Legal - Societal- Change of mindsets (“minds and hearts”)

www.monash.edu 9

WHAT CHANGE AFTER 1989?

Politics: Democratically elected governments, institutions & decision-

making, power-sharing, rule of law: human rights (freedom of speech, religion, media freedoms) government non-interferenceEconomy:

Private ownership allowed, free trade (fewer restrictions) no more economic dependence on authorities: dependence on consumers (demand – supply rule), dualism: public & private sectorsSociety:

Pluralistic society with rights & freedoms, values & rules – most difficult, taking a long time

“There is no transformation without rehabilitation, lustration and restitution.” Vojtěch Cepl, 1995

www.monash.edu 10

ECONOMIC TRANSFORMATION: MASS PRIVATIZATIONExample: Coupon privatization in Czech Republic• “Shock Therapy”

• Over 1800 state companies privatized over 4 years• Poor institutional and legal environment

• Results: decreasing GDP, bankruptcy, corruption, tunneling• Asset-stripping instead of investment

• Mass delusion vs. Economic growth and attracting large amounts of FDI

• “It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law.” Milton Friedman, 2002

www.monash.edu 11

PRIVATIZATION: WHAT HAPPENED?

Bankruptcy• D

ecreasing GDP, growing unemployment

www.monash.edu 12

INITIAL CHALLENGES• Economic recession

• Corporate governance system that had to develop simultaneously

• Corruption

• Immature banking system

• Capital flight

• Strong reliance on foreign aid and foreign direct investment (FDI) to provide missing capital, which means conditionality and fragility

www.monash.edu 13

INITIAL CHALLENGES• Rising unemployment

(especially significant considering the “absence” of unemployment during communism)

• Living standards plummet

• Poverty and mortality rates increased, fertility rates dropped (lack of funding and history of such welfare problems)

• Inequality increased (amongst the rich and the poor, but also based on age, education, and region)

• Mass emigration due to poverty and internal conflicts

• Populism in politics (playing up to the fears of people without providing strong policy proposals)

www.monash.edu 14

WHAT HAPPENED TO THE COMMUNISTS?• Renamed (Hungary, East Germany)• Dissolved/Disappeared (Poland)• Continued (Czech Rep.)

Czech Rep. regional elections 2012 – overall results

www.monash.edu 15

MID-TERM GOALSMembership in the European Union:

• Democratic• Free market-economy• Stable institutions• Not involved in conflicts• Capacity to implement EU body of law

Membership in International Organisations(thus legal changes):

• Council of Europe • WTO • OECD• NATO

Václav Havel in U.S. Congresshttp://www.youtube.com/watch?v=zplMpbZkEaM

www.monash.edu 16

“RETURN TO EUROPE”Alignment with the EU:

Requirements consistent with CEE’s chosen path

External pressure consolidates changes

All CEE states complied with EU laws by 2004

Central Europe as a power block within EU

www.monash.edu 17

RETURN TO EUROPETransition in Central and Eastern Europe has been difficult

CEE as testing ground for simultaneous introduction of democracy and a neo-liberal market economy

Exact circumstances and outcomes differ widely from country to country

Stability has proven to be a very important factor for a successful economy

The role of democracy is uncertain, though there is a moral commitment to it because of the role of CEE countries in international organisations

It is uncertain how the countries of CEE will fare in the short-term, and what their role will be in an enlarged Europe

www.monash.edu 18

MISSION ACCOMPLISHED?

Successes Challenges remainingCEE = consolidated democracies (by all standards)

- Low trust in key institutions - Politicised key institutions - Parliaments’ fragmentation - Weak political parties - Corruption still a problem

Functioning free marketRemarkable economic growth

- CEE still as Europe’s periphery- Recent crisis: affected CEE

Transition without economic chaos, ‘valley of tears’ & social upheavals

Rapid social changeCohesive citizenry

- Democratic norms still not fully ingrained / accepted

Successful EU membership - Still a catalyst for change- Declining support for EU integration