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TRANSFORMATION IN CENTRAL EUROPE

TEREZA VORLOVÁJAN HAUSER

MONASH EUROPEAN AND EU CENTRE / CHARLES UNIVERSITY, PRAGUE

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CENTRAL EUROPE

Europe before 1989 Europe today

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

CEE COUNTRIES BEFORE 1989

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“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

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40 YEARS OF COMMUNISM: RESULTS

Prague 1968

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

• 1956, 1968, 1970, 1981, 1989

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WIND OF CHANGE: 1980S

glasnost – openness

perestroika – restructuring

demokratizatsiia – democratisation

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1989

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WHAT CHANGE AFTER 1989?The Promise of 1989:

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

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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

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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

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PRIVATIZATION: WHAT HAPPENED?

Bankruptcy• D

ecreasing GDP, growing unemployment

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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

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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)

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

Czech Rep. regional elections 2012 – overall results

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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

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“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

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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

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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