The New Political Economy of Emerging Europe Class
The theoretical debates of various scholars about the processes, tendencies and strategies of globalisation have been enriched, to a significant degree, by the research undertaken over the last nineteen years on the post-communist transformation. Following the collapse of state socialism, there were many questions about how – and to what extent – the emerging societies of Central and Eastern Europe (CEE) and of the former Soviet Union would integrate into the wider context of international capitalism, from which they were more or less isolated from the late 1940s to 1990. There is an intense discussion within political economy and other social sciences about the successfulness and results of multiple institutional, social and political reforms intended to establish a valid path of transition from socialism towards the market capitalism for those countries. Numerous authors, who have been working within the scope of post-socialist transition, focus on the different aspects of this transformation, such as: the theoretical analysis of spread and development of neo-liberal economic ideas in shaping Eastern European capitalism (see, for example: Aligica, Paul Dragos 2009); the compatibility between the Washington Consensus and the shock therapy policies, implemented in the countries of CEE and of the former Soviet Union (see, for example Marangos J. 2007); the overview of the institutional and policy strategies in the emerging Europe (see, for example Csaba L. 2007); the study of transformation efficiency (see, for example Kolodko 2009, 2010) and the social consequences of privatisation (see, for example Adam 1999).
In his work John Pickles aims at presenting a more extended approach for understanding the great phenomena of transformation in post-socialist economies. The author sets an ambitious goal in presenting examination of a range of state-society relations in post-socialism, i.e. to demonstrate how various elements of communism in the state and society have been removed and replaced by the new institutions and practices of the open-market economy and democratic governance. This paper deals with the ‘fourth wave’ of transition ensued after the Eastern enlargement of the European Union and the entrance of some of the former socialist states to this ‘elite’ capitalist club, an event which has in turn revealed and aggravated the regionally dissimilar nature of economic and political transformations.
State and Society in Post-Socialist Economies is composed of several articles written by different authors from Europe, Asia and the United States, who raise in their essays the debates on various topics: the economic governance, the labour market and the various roles played by the state in the transformation of post-socialist economies. For the purpose of discussion, the chapters are divided on two parts; the first of them – Economic Governance, the State and Varieties of Capitalism – addresses the economic issues of transformation, such as governance regimes and the impacts of the reforms on the capitalist development. The second part – Social Mobilization and Economic Transformation – deals more with the social dimension of transformation, particularly by focusing on the role of state institutions and its measures in shaping labour relations, rural development and informal practices.
In his essay, Béla Greskovits presents the concept of capitalism diversity in Eastern Central Europe (ECE) shaped by the dominant form of export industry inherited from socialist state and following integration with Western Europe. He argues that, despite socialist system was considered successful in erasing any cultural, economic and political differences of initially different societies and creating single institutions and political and economic structures in all communist countries, it is indeed surprising why then have emerged ‘varieties of capitalism’ instead of general post-socialist economy. This difference of capitalism could be better understood through the particular leading type of export, which he defines as “major industry groups that share factor intensity, product character, and significantly contribute to exports”. The leading type of export industry reflects patterns of integration of a particular country into the global and European systems of production and thus influences on shaping the capitalism type. Basing on the dominance of either human or physical capital he defines four types of post-socialist capitalist economies: 1) ‘heavy-basic’ (only physical) – characterised by the dominance of large firms and large plants, transnational production is less advanced and less sophisticated; 2) ‘heavy-complex’ (both human and physical) – this type is characterised by the equity-based control of leading transnational corporations (TNC) and domestic producer may only occupy a “peripheral tiers of the chain”; 3) ‘light-complex’(only human capital) – is also controlled by TNCs, but local business can enter the production system ; and 4) ‘light-basic’ (unskilled labour) –high cross-border mobility with non-equity based transnational control. Depending on their export profile, countries are being divided into semi-core with complex manufacturing economy (Visegrád states); peripheral with resource-intensive economy (ex-Soviet Union) and semi-peripheral (Baltic and Southeastern European states).
However, a variety of capitalism approach (VOC) is not shared by all scholars. Based on the example of corporate governance evolution in Czech Republic in the face of EU integration Arjan Vliegenthart argues the specific emerging capitalism in Eastern and Central Europe can not be limited to the national level. It can only be understood through the legacy of socialism and the process of the transnationalisation of state by the penetration of foreign capital, which is the consequence of privatisation and the following foreign investments inflow. Vliegenthart demonstrates how corporate governance model evolved in Czech Republic from an initial Anglo-Saxon form of capitalism, followed by the voucher privatization, to the similarity of German or Rhineland model, only with more concentrated ownership. Using comparative analysis of the main corporate governance features of the ECE countries (Czech Republic, Poland, Hungary, Slovakia, Slovenia), the author shows great similarities throughout the region despite of the different starting points,- all these share the tendencies of concentrating ownership, insider control, two-tier system. Nevertheless, such resemblance to the continental type of market capitalism (Rhineland model) seems for Vliegenthart a superficial one because the practical functioning of corporate governance system in ECE is principally different due to the full foreign ownership of the strategic economic sectors. New established emerging institutions were subordinated to the inflow of foreign investments and served to protect foreign capital. In Czech Republic this process of transnationalisation of the state was largely advocated by the EU, which represented the interests of the large European companies in the face of Czech accession into the Union. The European Commission has supported and promoted those institutional policies and development which were favouring the internationalisation of the state, in particular, the restructuring of companies and privatisation of banking sector. However, the author insists that following the same kind of practices of Rhineland capitalist model in ECE did not lead to the establishment of Western European welfare state and from that point of view the type of capitalism in Visegrád states is clearly different.
Nevertheless, one may reasonably argue that the process of the establishment of European welfare state took a long time, and for that reason it would be naïve to believe that this goal could be achieved by the former communist states promptly, even undertaking the necessary reforms and following the German capitalist model. Nevertheless, the successful economic performance of some of the Visegrád states (for example, Poland and Slovakia) gives hope for the establishment of a welfare state in a long term perspective.
The emerged model of Russian corporate governance shaped by the mass voucher privatization is the subject of the next research within the frames of post-socialist transformation. Tatiana Dolgopyatova shows the evolution of the Russian corporate ownership and the type of corporate governance. The privatization has led to the formation of the model with disperse employee share ownership and insider corporate governance, which is characterised by weak shareholders and strong managers. The financial crisis of 1998 and the following economic growth resulted in the transfer of ownership from managers to outside private business. The further property redistribution and concentration, emergence of powerful business group have determined the establishment of highly concentrated corporative ownership. The author sees in the consolidated insider ownership a valid solution in the absence of effective institutions of legal protection; however, this prevents companies from restructuring and development. Among the main specific features of the Russian corporate governance, Dolgopyatova points out the following: constant property redistribution and corporate control exercised by ‘red directors’; lack of transparency – Russian companies are characterized by the use of cross-ownership, which makes it hard to identify the real owner, in order to protect a company from the state authorities and other companies; inadequacy of information about a company as a tax evasion measure; only those companies dealing with foreign investors tend to follow international standards in accounting. Russian companies remain much closed to new shareholders and the practice of paying dividends exists only in large companies with consolidated ownership. The last singularity of the Russian corporate governance consists of low rates of investments return and use of private sources of financing from partner companies. However, here the author surprisingly ignores an important fact – that Russian companies actively borrowed money from the international market, which resulted in a high level of external indebtedness of the Russian corporate sector, reaching USD500 billion in 2008. Unfortunately, Dolgopyatova also did not mention another important tendency in corporate sector specific to Russia: the growing informal relationship with the government, because no large enterprise can survive on Russian market without state endorsement, which became obvious after YUKOS affair.
The harmonization and normalization of Russian corporate governance and the influence of the European Union on these processes have been analysed by Satoshi Mizobata. Despite the superficial similarity between Russian and US/European model of corporate governance, “practical forms of governance have shaped a distinctive national model”. To explain its particularity, the author uncovers the patterns in which corporate governance must function in Russia. First of all, he argues that privatisation did not lead to the establishment of the shiftable security market and the enterprises have to operate under the conditions of underdeveloped capital market. Shareholders rights, especially those of the minority, are not properly protected due to lack of adequate enforcement of law on the ownership protection. Informal mechanisms and laundered capitals have substituted comprehensive and transparent institutional norms and market relations. Most of all, Mizobata points out the strong political influence and interference in the business affairs and the weak legal system, which undermine the efficiency of anti-monopolistic and anti-oligopolistic regulations. Further on, Mizobata switches to the discussion on the pace of normalization in the corporate governance in Russia. Despite the weaknesses of legal system, companies themselves undertake measures designed to improve corporate governance, for example ‘The Charter of Corporate Business Ethics’ initiated by the Russian Union of Industrialists and Entrepreneurs, which highlights some important features of corporate governance, such as the need in ownership protection, compliance with rule of law and dispute resolution through negotiation. The role of corporate social responsibility has also increased since government started to push on this issue, in particular, after the YUKOS affair, which delivered a clear message to the companies to intensify social programmes. In that light, the European Union, on the author’s opinion, could play a positive role in the normalization of corporate governance in Russia, particularly, in strengthening shareholders rights and third party protection. The author positively assesses EU enlargement, as good incentive for the harmonization of company law between both systems. The formation of Common European Economic Space with the EU as well as negotiation for membership in WTO may bring about important positive changes in corporate governance in Russia. However, the main challenges for the future of corporate governance in Russia are: the inadequacy of legal institutions; the incompatibility with the development level of the corporate control market; the poor and inefficient financial infrastructure; the incapability to play a stakeholder role in corporate governance, as well as a general non-transparency of Russian business.
Referring to the role of the YUKOS case as of social responsibility and a legal compliance accelerator, the author did not mention the concerns this affair has raised in business society about the possible ownership redistribution and governmental endorsement as the only secure way to operate on Russian market.
In the second part of the book, the authors focus more on the social drivers and processes of the economic transformation by addressing them to the different issues of labour market, problems of rural development and informal practices.
Focusing on “the role of state institutions and social practices in shaping the labour relations and reforms in Belarus”, Kiryl Hayduk argues that labour is one of the main impetuses of economic reforms. Belarusian authoritarian state managed to generate welfare increases and has been gaining its support through the regular wage-increases policy. The author draws a parallel between the so-called “Belarusian-style state corporatism” and the model of Southern European authoritarian state, existing prior to the membership of Southern European countries to the EU. Contrary to the Keynesian model of welfare state in Western Europe, the Southern European authoritarian model is characterized by less established mechanisms of social compromise on the one hand, and strong inequality in wealth distribution on the other hand. These characteristics mean that social confrontation is always a threat and can lead to strikes and to other forms of social protest. In the macroeconomic regulation this system has taken the form of a model of state-corporatism, the way of interaction between state and society in the labour sphere, which allows the state to intervene in the labor market and thus, control the possible economic conflicts between workers and employers by interest mediation and manipulation. Hayduk illustrates further this model in Belarus, - where the state policies were designed to decrease the initial wage inequalities produced after the collapse of the Soviet Union. It has been made by using the monetary and fiscal tools, such as financing of the problematic enterprises (to satisfy employers) instead of their restructuring, and the economy-wide average wage increases (to address the workers). However, these policies were implemented without consideration of the real improvements in productivity, which in turn has led to wages growing faster than productivity, contrary to the situation in the countries of Central and Eastern Europe. As a consequence of this authoritarian corporate model is that important economic actors, - labour and employers “have turned into consumers of politically driven economic decisions”.
The tendencies of labour market in Belarus described by Haiduk, such as financing of problematic enterprises and divergence of wages growth with the real productivity are not unique but indeed common to the countries of the former Soviet Union, especially Russia. However, the author does not present any comparison analysis between them, in spite of some obvious similar tendencies.
In his article, Massimo Congiu scrutinizes the transformation of the labour market and trade unions in the Visegrád states (Poland, Slovakia, Czech Republic and Hungary) following the collapse of socialism to the EU accession. At first, he compares the labour market of these countries with that of old Member States (EU15) and some considerable differences are coming to the front: while agricultural sector in the new Member States employs 13% against 4% in the EU15, there are more people employed in the service sector in the EU15. The most significant difference is in female unemployment rate, which is twice as higher in the Visegrád societies than within the EU15, and also in part-time employment: 10.3% against 33.5% in ‘Old Europe’. Among the common characteristics of the labour market of the Visegrád countries, the author highlights the following: varying unemployment rate from 5% to 10% against 7.9% in the EU15; in most countries of this region the unemployment rate hides some uneven patterns, - the unemployment among minorities, especially Roma, in many times exceeds the average in a country. These countries of Eastern and Central Europe also continue the adjustment of the 90s reforms, like a shock therapy. Further on, Congiu analyzes each country in particular uncovering the peculiar issues of labour market of these countries, as well as common traits among them. The result of detrimental effects of governmental policies, as well as the restructuring of large companies in the 90s, was the decrease of members of the trade unions in all these countries. Governmental agencies failed to provide adequate protection to the workers, especially in small firms, against businesses, empowered by laws during the governmental reforms. Frequently, the workers had to accept any conditions of employment, regardless of the respect of the labour code (Poland, Slovakia). Joining the EU has played a positive role in this process as new government, for example in Slovakia, pushed by the EU labour law, has committed to ensure the protection of workers and recognized trade union as an equal party in the social dialogue. The number of workers attending vocational training remains very low in comparison to the Western Europe. Despite the strong demand of qualified workers in the conditions of economic growth and widespread introduction of new technologies, the investment in vocational training is very poor, which presents a threat for future investments. Nevertheless, the “increase in GDP in all the Visegrád states and their integration into the EU opens for them new opportunities and institutional tools for labour organizations”.
Although the author actively compares the new Member States with the EU15, he does not fully demonstrate the influence and impact of the EU on the labour and trade unions, which would be indeed useful for adequate analysis of the current situation on labour market in this region.
The next work examines the changes in economical and environmental policies in Lithuania, and their influence on urban and rural development. The Soviet industrialization and collectivization have completely changed the formerly agricultural country. The factories and objects of infrastructure were built without proper environmental concerns and for that reason, following the USSR dissolution, Lithuania faced multiple environmental problems such as: fabric air-pollution, obsolete water use and management, inadequate waste-management and radioactive waste dump. Collective farming with its methods of mechanization, specialization and centralized production completely ignored environmental effects; sovhozs and kolhozs were often built near the city, which caused groundwater and air pollution. The large scale projects within the restructuring of rural areas have led to soil erosion and to radical modification of the farming landscape. The processes caused massive migration of rural population into towns; but this also can be explained as the consequence of the late urbanization in Lithuania. After the country had gained its independency, several decollectivization policies have been implemented. Besides, legal standards and institutional framework of environmental protection were strengthened to meet the European level. However, the ‘deliverance’ from the Soviet legacy has also widened the gap between rural and urban areas: a much higher unemployment rate and deterioration in living conditions for habitants of rural area. The accession of Lithuania to the EU allowed using EU funds to modernize the wastewater treatment plants and water supply system in the cities. The EU strengthened the decentralization process and stimulated the elaboration of new plan for rural development. The new strategy emphasizes “comprehensive rural development”, which implies a much more rigorous attention to the protection of environment. The countryside in this plan has to take “not only the economic function of agricultural production but also environmental, social and territorial functions“and any investments in rural area must meet the EU standards for environmental protection. However, the implementation of this plan has faced some difficulties such as: low administrative capacities and the poverty of farmers, despite the EU compensations, resulted in the ignorance of environmental issues; the slow pace of administrative decentralization and territorial reform; the limited citizens’ participation in the management of local affairs due to the use of old Soviet system of larger administrative units. The author also highlights low civil society participation in reforms, though earlier she claimed that it is the civil society who was one of the main drivers of the environmental reforms. Thus, the socioeconomic transition had different impacts in the cities and rural areas. The ecological and economic situation, the author concludes, has improved in the urban areas whereas rural areas continue to suffer from the underdeveloped infrastructure and environmental problems inherited from the Soviet Union, which present significant challenges for the future of any rural development project.
State and Society in Post-Socialist Economies represent a set of articles which covers a wide scope: besides introduction by the editor, there are twelve chapters, five of which focus directly on the economy, while the other seven consider ‘social mobilization and economic transformation’. According to the editor, there are four consecutive waves of transformation: political and economic liberalization followed by the economic recession; a rapid increase in foreign direct investment and unbalanced regional development with its ‘successes’ and ‘laggards’; and the ‘fourth wave’ characterized by the emergence of different governance regimes. Thus, the various authors in twelve original essays examine this ‘fourth wave’ and describe the various ‘recombinant and hybrid forms of regional, national and transnational’ governance systems which emerged and continue to shape now. The first chapters presented by John Pickles, Bela Greskovits, Arjan Vliegenthart contribute to our comprehension of the new form of capitalism emerging during the post-socialist transformation in the countries of ‘Eastern Central Europe’ (ECE) and introduce many important and critical insights and features.
John Pickles gives some original ideas on how Max Weber and Karl Polanyi imagined the ‘spirit’ of capitalism which he considers to be an important component of the transformational process. Among his other contributions, we should point out the limitations of ‘national’ model of capitalism, as well as the recognition of the role of transnational interests in the formation of capitalism in the Central and Eastern European states (this thought is further developed by Vliegenthart). Béla Greskovits develops the concept of ‘varieties of capitalism’ and points out four types of political economy: heavy basic, heavy complex, light complex and light basic. His comparison of development trajectories between post-socialist states and non-post-socialist societies in Europe, Latin and Central America, and Africa is indeed very interesting and readers may find them useful, however perhaps more explanation and details could have been given.
Vliegenhart, contrary to Greskovits, states the similarity of transformational outcomes for Central and Eastern European states. He draws particular attention to the contribution of global and transnational forces (such as transnational corporations and the European Union) in the transformational pace of those countries, which already for a long time are worth of a research. He emphasizes the negative role of institutional structure of the EU in the new member states as it caused the restriction of their spheres of operation. On the example of Czech Republic he points out the importance of the penetration of foreign capital and its dominance in strategic sectors of economies.
The further chapters by Tatiana Dolgopyatova and Satoshi Mizobata examine the crucial economic problems involved in economic governance. They both follow the same goal – to clarify the complex and distinctive nature of ownership and control of Russian companies. The authors uncover the structure of dominant actors of Russian corporate governance compromised of private owners, management and state agencies. While Dolgopyatova pays more attention to the evolution of Russian corporate model and its specific features, Mizobata scrutinizes the particular conditions for functioning of companies, as well as patterns for normalization and harmonization of the Russian corporate sector. Nevertheless, as long as the present structures of ownership remain non-transparent and we are not able to establish the real concentration of control, we can only suppose how different interests exercise their dominance in different types of capitalism. Without valid research in the area of the strategic decision-making in Russian companies, our understanding of them will be limited.
It is a pity, however, but the second part of the book is much less well focused. No doubts all of these articles are really interesting in themselves but as chapters they are diffuse, miss uniting themes, despite the best efforts of the editor to link them to one another, and are less theoretically relevant. The reader is left with little sense of coherence in the collection. The chapters cover labour and trade unions in Belarus and the Visegrád states; female factor in tourism in Bulgaria, environmental concerns and rural development in Lithuania; and the rise of informal networks in the Czech Republic, Slovenia, Bulgaria and Romania. What could have been done here is perhaps more proactive editing, which could foster the authors to follow the patterns of some of the earlier chapters. For example, the essay on environmental regulation and rural development in Lithuania states some important environmental problems in the Soviet and Post-Soviet period; however, here we could have seen an analysis of the different types of pollution in the Soviet period compared to the period after independency of Lithuania and the ways the market economy and democratic rule recognized and addressed (or ignored) the issues. In the light of accession to the EU it is indeed interesting to research how ‘good governance’ does promote the environmental sustainability and what kind of state policies, aimed at environment protection, are being ignored. Despite some comparisons are made with other countries (Lithuania and France), these need to be presented in the context of GDP and level of industrialization .The common disadvantage is the data used in the book, which relate to the early years of the 2000s or even earlier, and could have been updated for this publication. Overall, this is a worthwhile collection, which contains some very informative, interesting and useful chapters. Although very few authors tell about their contributions, this book can be very useful for readers interested in the lessons and the various scenarios from the more than 17-year-old transformation as well as in the cross-country comparison of initial start-points and conditions, and the consequences of capitalist transition to the market in the former socialist countries.
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