Eastern Europe

...Such a coalition could formulate and oversee a more gradual transition to a market economy, preserving multiple forms of enterprise ownership and control, limiting the pace and degree of integration into the world capitalist economy, and spreading the gains and the losses from economic change more evenly throughout the population...

...In Poland and Czechoslovakia these people are currently in power...

...Their appeal is largely to rural areas and small towns, to peasants and the petty bourgeoisie, and of course to the more devout Catholics...

...It is clear that the left will not become a force to be reckoned with in any of these countries unless it can somehow unite its disparate elements, develop a stronger base among workers, and project a plausible vision of the society of the future...

...Since there are also very few potential domestic purchasers of privatized state assets, a limited number of large holding companies— along with a few foreign capitalists—are likely to play the major role in taking over those public enterprises that are salvageable...

...Relatively free trade could provide some competition for potential monopolists in the form of imports, but balance-of-payments problems—and the need to nurture domestic industries—are likely to limit such competition...

...And there are corresponding opportunities for loss on the part of the majority of the people...

...At the moment this prospect appears to be exceedingly dim...

...In all three countries—but especially in Poland and Hungary—there is also another group of prominent WINTER • 1991 • 25 Reports from Abroad people, including some intellectuals as well as politicians and religious leaders, who are much less liberal and Western oriented...

...Qualitative problems seem even more serious—the poor quality of many of the goods produced, the lack of maintenance and service facilities, generally poor working conditions, overstaffing (where there is not outright unemployment), neglect of public services, environmental deterioration, and so on...

...but surely East Germany, Poland, Czechoslovakia, and Hungary could be counted upon to join the international capitalist order...

...26 • DISSENT...

...they have managed nonetheless to have a very strong influence on the direction of the postcommunist societies because they were prominently associated with the popular revolutions against the old regimes and because the average person in the street has been quite prepared to believe that the best—if not the only—alternative is the capitalist economics that appears to have worked so much better in the West...

...Czechoslovakia is probably better placed than Hungary or Poland to achieve a successful transition to capitalism because it begins with the strongest of the three economies, it does not have a major debt problem, and its government is proceeding more cautiously—but even in this best case there is much doubt as to whether the economic transformation can survive the social and political tensions to which it is bound to give rise...

...in Hungary their main party (the Federation of Free Democrats) is not in power, but they still represent the kind of people who will be most closely involved in the processes of marketization and privatization...

...The most critical factor is the direction that the great majority of workers will take...

...They will be dependent on international financial institutions for management of chronic trade and debt problems, they will be dependent on foreign governments for economic and technical assistance, and they will be dependent on foreign capitalists for investment resources and managerial know-how...

...Given such obstacles, the optimism exhibited by many market-oriented economists about the transformation process in East Central Europe seems naïve...

...This question was raised at a conference of left-leaning social scientists in Warsaw in the summer of 1990, and to many observers it does seem that the answer is yes...

...There are numerous parties, as well as groups within Solidarity in Poland and Civic Forum in Czechoslovakia, that reflect currents all the way from the remnants of the old communist parties to reincarnated social democratic parties...

...A theoretical possibility, at least, is the development of a new coalition of left-wing forces— grouping everyone from reform communists through socialists, social democrats, and left liberals—with a strong base of support among workers and their trade unions...

...But there are real grounds for doubt that the processes of marketization and privatization will be able to proceed to the point where the East Central European economies become absorbed into the world capitalist order...

...Some doubts remained about Romania and Bulgaria...

...This remains the biggest unknown, for workers in East Central Europe have yet to articulate their interests in a politically coherent way...

...In sum, authoritarianism of one kind or another—whether on the part of opponents or proponents of capitalist transformation— may be in the cards...

...It is partly a matter of becoming aware of how deep the crisis is...

...The prevailing view in the West was that, once liberated from the oppressive communist yoke, these countries could and would soon develop into economically dynamic democratic market-capitalist societies...

...And if this weren't enough, the Middle East crisis will make energy more costly for these oil-importing nations...

...Obstacles to Economic Success One cannot study the economic situation of the East European countries without being overwhelmed by the difficulties they face in overcoming economic stagnation...

...The great irony here is that the institutional reforms well underway in Poland and Hungary, and beginning in Czechoslovakia as well, constitute an enormous socioeconomic experiment with a highly uncertain outcome...

...some are also in the right wings of Solidarity and Civic Forum...

...These countries will also be characterized by growing inequalities of income and wealth— though they are not likely to have as highly skewed a distribution of land ownership as most Latin American nations...

...Current international trends offer little hope for significant debt relief...

...The institutional infrastructure for a successful capitalist market economy is woefully weak: banking, accounting, and legal services remain very poorly developed, and there are few people with the kind of experience to make such services work...

...Tired of social and economic experiments, increasingly aware of the huge gap in standards of living between Western and Eastern Europe, they are eager to embrace the "tried and true" institutions of Western market capitalism.** It is not only the old ruling communist parties and their hierarchical, bureaucratic economies that have been discredited...

...On the left there was a quite different hope...

...Popov foresees increasing contradictions between the new democratic environment in the USSR and the economic policies of marketization and privatization that he favors...

...Quantitative indicators of economic stagnation are only a small part of the story, and have misled analysts into underestimating the extent of the crisis...

...WINTER • 1991 • 23 Reports from Abroad enterprise along explicitly capitalist lines...

...These unions are now becoming more independent, but their demands are largely defensive in nature, seeking to protect workers from the effects of economic transformation without having much to say about an alternative path of reform...

...and they are also somewhat less enamored of the market and of integration into an international capitalist system...

...As the economic transformation begins to take its toll on a growing number of losers, there is bound to be mounting public disaffection with the proWestern liberal leadership that ushered in the changes...

...And there will be, high levels of unemployment and an extensive urban "lumpenproletariat" (which even Spain, the most recent European capitalist success story, has been unable to avoid...

...In these countries the left is divided and weak...

...The United States is itself a major debtor, Germany will devote most of its resources to the East German economy, Japan has no special interest in Eastern Europe, and the rest of the major capitalist countries do not have enough to spare...

...How long people will accept such a squeeze—in an environment in which some of their compatriots are becoming conspicuously wealthy—is a question...

...But there are additional reasons why the economic strategy underway now in East Central Europe—rapid marketization and privatization—will prove especially hard to turn into a success: • Foreign investors—upon whom much reliance is placed—are very wary of making major commitments in Eastern Europe...

...The only safe bet is that political conditions are bound to change in dramatic ways in the coming years...

...Socialist and social democratic parties have fared poorly in elections in East Germany, Poland, Hungary, and Czechoslovakia...

...One year later, the ground for optimism on the left has been severely undermined.* The great majority * My observations in this article are based largely on of people in Eastern Europe want nothing more than to become part of the "common European home" as soon as possible...

...Other, less savory, characters have already emerged and will no doubt gain strength in Poland and Hungary, perhaps even in Czechoslovakia...

...The need to balance government budgets to maintain monetary stability and currency convertibility, and to raise domestic resources for investment without harming profit incentives, will require a squeeze on most people's private incomes and on public services—thus continuing the downward trend in living standards that began ten years ago...

...There are very few potentially viable enterprises in any given line of production, with the result that the transition to a capitalist market economy will provide great scope for monopoly power and corruption...

...There are tremendous opportunities for personal gain by those who, through political power, connections, or specialized knowledge of the institutional transformations, are able to position themselves well in the new economic arena...

...Such dismal conditions would make any kind of economic revitalization difficult...

...Proponents of a rapid transformation to capitalism assume that people will agree to accept economic sacrifice in exchange for political freedoms and the prospect of greater prosperity sometime in the future...

...The progressive left has only the most tenuous relations with the majority of workers, who are represented mainly by unions with close links to the previous regimes...

...Skepticism is warranted not only because of the economic obstacles but also because of the social and political tensions that are bound to accompany the economic transformation...

...In Poland and Hungary, the need to service huge international debts will continue indefinitely to reduce the resources available for economic development and to squeeze the average citizen's standard of living...

...Such tensions have already become visible in Poland, within the year that has elapsed since the introduction of capitalist "shock therapy" treatment in January 1990, in the form of strikes by railway workers, vociferous protests by farmers, and other disturbances...

...Moreover, the economic collapse of the Soviet Union—and the related decision by the Soviets to insist on a hard-currency basis for trade with Comecon countries—will reduce the quantities and (real) prices of Eastern European industrialgood exports to the USSR, which are important especially for Czechoslovakia and Hungary...

...In particular, he is worried about the growth of a new populism that would feed on the growing economic inequality inevitably accompanying such a transformation, and he therefore advocates "new and different political mechanisms" as an alternative to the "purely democratic model...

...Does all this mean th4t the countries of East Central Europe are launched irreversibly toward Western-style market capitalism...

...In Eastern Europe almost everything is up for grabs...

...Does the success of the peaceful revolutions against communist rule and the holding of free elections mean that Poland, Czechoslovakia, and Hungary have indeed been transformed into durable Western-style political democracies...

...This will put great pressure on the liberal reformers (such as the Mazowiecki government has already been feeling in Poland), and it will generate a political climate in which opposition politicians can gain a great deal of support...

...Threats to Political Democracy Will the Oder-Neisse become the Rio Grande of Europe...

...Poland, Czechoslovakia, and Hungary have elected governments committed to dismantling the old state-dominated structures and to promoting the spread of markets and the growth of private discussions I had with numerous East European social scientists during a trip to Poland, Czechoslovakia, and Hungary in the summer of 1990...

...Lech Walesa, who has become increasingly vocal in his criticism of both the Mazowiecki government and leading Polish liberal intellectuals (such as Adam Michnik), is discovering how well a populist/nationalist rhetoric plays in Eastern Europe...

...even much more benign forms of public enterprise are viewed with suspicion...

...It appeared to many of us that workers, students, and intellectuals, having played a prominent role in most of the revolutionary movements of the 1980s, might be able to combine a new democratic politics with the ideological legacy of socialist commitment to egalitarianism and economic security in constructing a democratic socialist order that would avoid the worst features of both bureaucratic collectivism and market capitalism...

...Calls for a "strong man" to take over and protect the "little people" from economic adversity associated with the machinations of the Western-oriented leadership and their foreign capitalist allies may not be too far away...

...this level of unemployment had reportedly already been surpassed by the fall of 1990...

...These people are really very much of a minority in all three countries...

...But there is every reason to doubt that they will continue to do so as and when the economic burden is perceived to be highly unequally distributed...

...A privatization process that leads to monopolistic or foreign control of many industries seems likely not only to limit efficiency gains but to generate serious social tensions...

...Is there no more optimistic scenario for the nations of East Central Europe...

...they cultivate suspicion of "cosmopolitan" urban elites (often a euphemism for people of Jewish origin, who— although few in number after the Holocaust—are disproportionately represented among liberal and leftist intellectuals in each country...

...Record-keeping and communications technologies are inadequate for a modern economy of the Western capitalist type, as the computer age is barely dawning in Eastern Europe...

...Insofar as marketization and privatization proceed, with a gradual integration of the East Central European economies into the world capitalist system, these countries will enter as very weak players...

...These people are much more nationalist and Catholic than the pro-Western professionals...

...They are to be found in the Christian Democratic and Peasant/Farmers' parties, as well as in the Hungarian Democratic Forum...

...When they do, we may be in for a surprise...

...The drive to transform the East Central European economies along market capitalist lines has been spearheaded largely by intellectuals, professionals, and politicians who are liberal (in both the political and economic senses) and secular and Western oriented in attitudes...

...With many other countries that have much more hospitable business climates bidding for multinational corporate investment, it is hardly surprising that Western firms have yet to make substantial investments in Poland, Czechoslovakia, and Hungary...

...It is hard to predict whether such trends would be more likely to lead to the emergence of a Peronist figure, with strong roots in an aggrieved and defiant labor movement, or a right-wing form of authoritarianism rooted in the peasantry and petty bourgeoisie...

...Yet another possibility is suggested by an alarm recently sounded by Soviet liberal reformer and Moscow mayor Gavriil Popov, who warns of the "dangers of democracy...

...In Poland the government expects to be able to support at most 800,000 unemployed at the current modest rate of unemployment compensation...

...q * See Gavriil Popov, "Dangers of Democracy," Neu, York Review of Books, August 16, 1990...

...Whether or not it is successful in its own terms, the processes of marketization and privatization will lead to tremendous inequalities—between budding capitalists who strike it rich and workers whose wages and job security will decline, and between people with scarce skills in high demand and people whose skills become redundant as their former inefficient enterprises go broke...

...The new governments will simply not be able to mobilize enough financial and organizational resources to provide an 24 • DISSENT Reports from Abroad adequate "social safety net" for all the workers who are expected to become unemployed...