Presentation at the Conference "Actual Crisis in Central and Eastern Europe" in Prague (13-14 June 2009)
Space:
Dealing with the term “Eastern Europe” we mean those regions between respectively on the edges of the three historic centres Moscow (Russia), Constantinople (Ottoman Empire) and Vienna (Habsburg monarchy). Today these regions correspond to the new member-states of the European Union of 2004 (except Malta) and of 2007, the Western Balkan states, and – with a small question mark – Moldova. Belarus und Ukraine also belong to our definition of “Eastern Europe”, although we will not concentrate on them during this discussion.
Historical remark:
Eastern Europe is and was a part of the capitalist world system since at least the 16th century. Historically we find three different structures of economic and social development in this region being the basis of the fact that Eastern Europe was no homogenous block in the past and is no one today.
a) North-East: under the dominance of the “Deutscher Orden” some regions belonged to what is called “second serfdom” namely in the Baltics and Poland. Under the total control of landlords, non-free “peasants” grew cash-crops for England, feeding their proletarized colleagues in the early period of Industrial Revolution.?
b) South-East: under the dominance of the Ottoman “Sublime Porte” some regions belonged to a tributarian economic system delivering parts of their harvest and male children to the Ottoman administrators. This happened under the direct rule of Constantinople with centralized tax-collection (like in the central part of Hungary, Bulgaria, Serbia/Bosnia, Greece, Albania ...) or through the reign of sovereign princes (like in the three parts of today’s Romania).?
c) Centre-East: under the dominance of the Habsburg Empire some regions represent the east-central type of feudalism where peasants contributed harvest, money and work force (robot) to the local nobility. Between the two main authorities, the Emperor in Vienna and the Pope in Rome there developed a new class – the bourgeoisie – in towns that managed to get economic and political freedom. Bohemia and Moravia belonged to this sphere of interest as well as parts of Hungary. ?
d) Politically we could name a forth structure which was important during the long lasting fight between Habsburg interests and Ottoman interests in Eastern Europe. We speak of the so-called “Military border” / Confin. This was a zone of more than 1500 kilometres length, reaching from the Croatian coast to the north-east of Transylvania. The Habsburg Empire colonized these territories with so called “military peasants”. These peasants found themselves under direct control of the Viennese authorities exempted from further feudal burdens. They were given economic and religious/cultural privileges. These military peasants fought not only against the Ottomans, but – if needed like in the middle of the 18th century – also against the Prussians. The “Military border” existed from the 1520ies to 1881. In the southern part its Serbian orthodox population was exiled only in 1995 with the ethnic cleansing of Croatia.
We will not discuss another main historical gap that constitutes different forms of economic and social development, but we have to mention it. Since the “Great Schisma” of 1054, Europe is divided into an Eastern and a Western sphere. The pope in Constantinople and his counterpart in Rome stand for two different religious/cultural concepts for the continent (not to speak of the installation of a “Third Rome” in Moscow). For Eastern Europe as we define it this is important because the first round of EU-enlargement only took place in regions belonging to the Western cultural sphere (with the exception of Cyprus), whereas the enlargement in 2007 including Bulgaria and Romania was a take-over of orthodox societies.
Before 1998, when the first “screenings” of the “acquis communautaire” with Eastern European candidate states to the EU began on a bilateral level (Brussels versus each candidate state), the three multi-ethnic entities were already dissolved: Soviet Union and Yugoslavia during 1991, Czechoslovakia at end of 1992. Brussels only took small national units with nationalist elites to integrate them peripherally into the Union. Six out of ten candidates – and later member states – had been newly created: Estonia, Latvia, Lithuania, Czechia, Slovakia, Slovenia. This is important to show the socially and politically national character of the enlargement of the supra-national institution of the “European Union”.
Methodological remark:
We reject any concept of stages of progress, whether liberal or Marxist, which hold that modern economic growth, set up in core regions, spreads gradually to less developed areas. On the contrary, in our analytic framework, the existence and permanent reproduction of regional disparities represent – in line with social differences – the main driving force of capital accumulation.
As we can see again during the so-called transition period in Eastern Europe (1989 – 2004/07) and now after the appearing of the “new” global economic crisis, capital accumulation polarizes the continent along the lines of a centre-periphery structure. Being integrated and therefore forced to compete within the world-market, historical traditional differences between regions and societies assume the character of disparities. This links the progress of the centres (in the West) to their capacity to gain profits out of regions and societies in the periphery (in the East), which, by the pressure of higher and cheaper productivity, had become structurally dependent. We can see this phenomenon in the actual statistics later on.
Once having lost their capacity of regional self-reliance and reproductivity, peripheries supply the core regions with the needed products. This can be agricultural products in the past, or raw materials and labour force or manufactured goods like textiles in the 1960ies or cars in the 2000ies taking advantage of the lower costs of labour and landed property in the periphery.
To summarize: capitalism (as we face it, also in its quite aggressive form since 1989/91), is constituted by the simultaneousness of non-simultaneous means of production (Gleichzeitigkeit des Ungleichzeitigen) how it is specified philosophically by Ernst Bloch and historically/ socially by Immanuel Wallerstein. Besides the commodification and alienation of work leads to a well-related dichotomy of capital and labour on a world level.
Together with this theoretical framework the observation of the Russian economist Nikolai Kondratieff may be helpful to understand the actual crisis. Kondratieff’s economic cycles last 50 to 60 years following more or less the needs of the construction industry. The so-called A-phase contains 30 years of upswing whereas the B-phase is characterized by a down-turn or decline. Historically the last B-phase in Kondratieff’s theory of cycles started in the middle of the 1970ies and should come to its peak (which is in economic terms the bottom) in the 2010s. This “prediction” would go together with the actual reality.
Economic backgrounds of the crisis:
What happens in Eastern Europe since the break-down of the Soviet Union and the Comecon in 1991 can be defined by a shift of the primacy of politics to the primacy of economy. Because capital accumulation did not take place in private hands on a high level in Eastern Europe the take-over of Eastern economies by Western capital was a logic consequence. Different to the Soviet sphere where Boris Jelzin guaranteed enormous private accumulation in a few local hands (oligarchs), Eastern Europe fought with a lack of capital throughout the 1990ies. So we have to look at the Western core countries and its global economic players to understand the driving force of the take-over (named “integration”) of Eastern regions and societies. The whole enlargement-process is rooted in the needs of Western capital to accumulate. In capitalist terms, this is “natural”, nevertheless EU-enlargement often was seen even by the left as “giving helping hands” to sisters and brothers in the East.
Realisation of profits is the starting point. Let’s have a look at how this process came into being after World War II. The period of rebuilding Europe after the destructions of World War II ended around the late 1960ies/ beginning 1970ies. Since then we face three capitalist attempts to overcome the structural crisis of over-production:
First answer to face the crisis of over-production was made by restructuring enterprises and whole branches. Related to operational economy this happened by lowering costs and a concentration process. Multinationals came into being at almost all levels and branches. Within the “international division of labour” entrepreneurs in the late 1960ies began to outsorce and transfer industrial mass-production into low-cost countries with cheap labour and – at the same time with the help of state-institutions in the core countries – to import cheap labour into the centres. Eastern Europe saw its first “world market factories” with textiles in Hungary in the 1970ies (e.g. state-run factories for “Triumph International”), whereas the imported workers came from the southern and eastern parts of Yugoslavia.
Technologically the answer to overcome the crisis focused on new technologies with the result of digitalization. Eastern Europe was cut from any of these developments in the West because of the Cocom-embargo (of the Coordinating Committee). These laws were put into practice by the USA in 1948 together with the introduction of the Marshall-Plan. Marshall-Plan for the Western countries and Cocom-Embargo for the East were to sides of one medal. Cocom embargo hindered the export of high-technology commodities to communist countries. This embargo first was lifted in 1998 (!) with Hungary.
Second answer to overcome the structural capitalist crisis was the shift of capital from the sphere of production to the sphere of speculation. Because the income and profitability in industrial production declined, capital moved to the financial sector. Low interest rates in the USA during the 1970ies led to relatively cheap money that was credited to peripheral countries. Apart from Latin America, Eastern European countries like Hungary, Poland and Romania (beside Yugoslavia for more political reasons) took up credits. To control these countries financially they were put under the umbrella of IMF in 1972 (Romania), 1982 (Hungary) and 1986 (Poland). Ronald Reagan raised the interest rates to repatriate U$ from the Arab oil exporting countries. He used these repatriated dollars to start a huge program of military Keynesianism (with the development of new aggressive weapons like Cruise Missiles and the deployment of new atomic weapons in Western Europe to provoke the arms race in which the Warsaw Pact soon later found itself trapped). Eastern European countries saw themselves caught in a debt-trap. This debt-trap later turned out to be useful for IMF and World Bank to dictate their conditions for further credits (especially in Poland and Hungary, not in Romania).
Third answer to face the crisis of profit realisation lies in the expansion of spheres of interest and markets (sales markets and labour markets). In Eastern Europe this takes place only after a strong economic and military integration of 12/ 15 core countries into the European Union. Economically this was done in Maastricht 1992, militarily in Amsterdam 1997. The concept of economic convergence with the domination of big capital throughout Europe and the military background was finished before the first Eastern European countries asked for membership.
One could explain the whole process of EU-enlargement as a reaction to the US-strategy to enlarge its influence in the Middle East beginning with the first war on Iraq in 1991 which in a sense was itself a reaction to the productivity of East Asian societies, especially in China.
Transition period continued and deepened towards peripheralization:
The transition period in Eastern Europe since 1989 led to an enlargement of the European Union. 10 countries in 2004 and 2 countries in 2007 got integrated into the regulations of the Acquis communautaire following the four capitalist freedoms (freedom of the movement of capital, commodity, services and work-force). This enlargement process is not finished. Croatia and Macedonia are on the waiting list. At the same time the EU-Commission invites new countries into the so-called process of integration by defining conditions of accession. It exercises economic and political pressure on governments in Serbia, Bosnia-Hercegovina, Montenegro, Albania, Kosovo. All this pressure aims at the liberalisation of the flow of capital, commodity, services and work-force.
How did this transition function? What were the different steps to transform Eastern European regions and societies into European Union’s periphery? We see the following elements:
Capital flow:
Since the very start of transition, capital and income flows constantly from East to West. Starting with the regular payment of interest rates for credited money, Eastern European countries also immediately faced an outflow of black money. Foreign investment served as a quick means to repatriate profits towards the Western headquarters of banks, services and industries. The “Vienna Institute for International Economic Studies” came out with the latest figures in June 2009 showing that an average of 70% of profits realized by foreign investors in the new EU-member states is being repatriated. The main macro-economic figure proving the squeezing-out of an economy, the current account, gives an idea of the peripheral status of Eastern Europe within the European Union. In 2008 the current account (calculated in % of the GDP) within the EU-15 was more or less balanced with – 0,04%. At the same time in Eastern Europe the deficit of the current account figure was enormous: –7,4% average within the NMS-10, with the negative record of – 24,5% for Bulgaria.
Inflation:
Right from the beginning of the transition period the question was put how to insure foreign investment into economies without hard currencies. This problem was solved through hyperinflation between 1990 and 1993/4. Inflation rates accelerated up to 600% per anno (in Poland 1990), 300% in Bulgaria and Romania and 1500% in Ukraine. Even in Hungary and Czechoslovakia inflation rates reached 40% and 25% per anno. High inflation rates are a means to deprive all people who have nothing more than work force and a savings booklet. In this respect hyperinflation took away the communist promises for consumption and cleared the markets for new investors and sellers.
De-industrialization:
Under these circumstances it was not astonishing that the rate of industrial production in Eastern Europe declined massively after 1989. Within five years industrial production fell by 40% in Hungary and in the Czech republic, by 50% in Poland and Slovakia, and by 60% in Romania and Bulgaria. After this massive de-industrialization, industry was rebuilt along the interest of new, mainly Western European investors. This can be seen perfectly for instance in the car producing industry, where a whole car-cluster emerged stretching from Bohemia to Silesia, Slovakia and Hungary. It supplies the markets in the West with cars.
Privatisation:
With the exception of Slovenia all Eastern European countries faced a total change of ownership throughout the transition period which was finished before the respective states became members of the EU. In the banking sector (like in other sectors) foreign capital holds between 75% and 100% of the local entities. Privatization (which means “robbery” when we think of the Latin root of the term) took place in four different forms: +) direct selling out by a state institution (Treuhand), +) auctions, +) privatization through coupons following the idea of a “people’s capitalism”, +) restitution to former owners or their heirs.
The exception of Slovenia can be explained by the fact that there the formal ownership of workers was capitalized by a system of “workers buy-out”, giving workers and pensioners a chance to become new owners of their former enterprises.
Cheap labour:
The basis of the displacement of industrial capacities from Western Europe to Eastern Europe was and still is cheap labour. In the middle of the 1990ies, when new investments in Eastern Europe took place on a large scale, the average Hungarian worker was 10 times cheaper then the German one, the Slovak worker was 13 times cheaper and the Ukrainian one 34 times (!). In the year 2000 the average wage mounted to 150.- U$ in Romania, 350.- U$ in Slovakia, 500.- U$ in Czechia, Poland and Hungary. Only in Slovenia with a totally different development concerning the whole transformation process a worker earned 1000.- U$ average in the year 2000. In 2006, after the peripheral integration of 10 new member states into the EU, the average wage in Hungary, Czechia and Poland was 5 times lower than in Germany, in Slovakia more than 6 times, in Bulgaria 20 times. This simultaneousness of non-simultaneous means of production was translated into huge profits.
Orientation towards European Union markets:
Foreign trade of Eastern European countries shifted towards the core countries in the European Union. This totally one-sided orientation accelerates economic problems in the moment of today’s crisis when the demand for Eastern European products is declining sharply.
Transition mortality & loss of people:
During the first 5 years of the transition period (1989 – 1994) a UNICEF-Study found out a huge dropping of life expectancy especially for men in their 50ies. Only in 1993 there was an increase of 670.000 deaths in whole Eastern Europe including Russia and Ukraine compared with the year 1989. This loss of human beings is running under the term of “transition mortality”. It only stopped in the second half of the 1990ies.
Other social figures show a reduction of population. Between 1990 und 2006 the Baltic states, Czechia, Hungary, Romania and Bulgaria lost parts of their citizens. In Bulgaria this loss was 12% (!). The decline of population was (and is) due to “transition mortality”, migration, and refused reproductivity.
The new crisis is not new:
After the 10 ex-communist countries became members of the European Union the neoliberal attacks come from the east. National elites take the cheap labour as an advantage to attract foreign investors. Parallel to this many countries introduced a neoliberal anti-social form of tax regime. With flat tax rates (f. ex. of 19% in Slovakia) progressive taxation in Western Europe is under attack. Austria for example reacted by lowering taxes for profits of enterprises from 35% to 25%, Germany reacted by increasing the VAT up to 19%.
Although Eastern European people are accustomed to economic crisis since at least 20 years and longer (middle of the 1970ies) and later under the pressures of IMF and the promises of European Union, the new economic crisis touches peoples and regions heavily. Nowadays nobody speak of “emerging markets” any more, since decline of industrial production reached Eastern Europe again in 2008. The “Vienna Institute for International Economic Studies” (WIIW) found out that industry production went down by 10% to 20% compared with 2007.
Foreign debts keep Eastern Europe in a trap. At the end of 2008 the debts of the 10 new ex-communist EU-member-states reached 636 billion Euro. This is far more than the cumulated foreign direct investments of 454 billion Euro.
Weak states with almost no financial possibilities to face the economic crisis not only depend on transfer-money from Brussels, but also invent new anti-social programs to fulfil Maastricht’s restrictive criteria. The Hungarian government actually is on the way to take peak position in this sense: cutting pensions and increasing mass-taxes like VAT.
The idea of catching-up under liberal conditions failed. If we take the figures of industrial production (as they are published by the WIIW) and index the year 1990 with 100, the following countries did not even reach this figure in 2007: Bulgaria, Romania, Latvia, Lithuania, Croatia, Macedonia (no figures for Albania, Serbia and Bosnia are given). Only Hungary and Slovakia (due to their car-cluster-industry) caught up to some extent compared with the average of the EU-15. And only Hungary reaches the catching-up figure of Turkey if you compare it with the EU-15.
The European Union with its concept of economic convergence and social and regional divergence cannot be seen other than an imperialistic project towards its Eastern periphery. Differentiations within the states do not contradict this point of view but underline the form of development.
Literature:
Hannes Hofbauer/ Andrea Komlosy, Restructuring (Eastern) Europe. In: Eszmélet – First International Conference of Social Critical Reviews. Budapest 1991
Hannes Hofbauer, EU-Osterweiterung. Historische Basis – ökonomische Triebkräfte – soziale Folgen. Wien 2007
Alice Teichova, Central Europe in the Twentieth Century. An Economic History Perspective. Aldershot 1997
UNICEF, Crisis and Mortality, Health and Nutrition. Florence 1994
Vienna Institute for International Economic Studies (Handbook of Statistics 1995 – 2008)
The World Bank, Reports 2002 - 2008
