TRANSFORMATION IN CENTRAL EUROPE TEREZA VORLOVÁ JAN HAUSER MONASH EUROPEAN AND EU CENTRE / CHARLES UNIVERSITY, PRAGUE

CENTRAL EUROPE Europe before 1989Europe today 2

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

“COMMUNISM” IN CEE Politics: - 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? Economy: - Centrally planned - No private property - Collective ownership 4

40 YEARS OF COMMUNISM: RESULTS Prague 1968 Economic underperformance Political repressions Social unrest Numerous uprisings: 1956, 1968, 1970, 1981,

WIND OF CHANGE: 1980S 6 glasnost – openness perestroi ka – restructuring demokrat izatsiia – democratisation

WHAT CHANGE AFTER 1989? 8 The Promise of 1989: - Political transition - Economic transition - Legal - Societal - Change of mindsets (“minds and hearts”)

WHAT CHANGE AFTER 1989? 9 Politics: Democratically elected governments, institutions & decision- making, power-sharing, rule of law: human rights (freedom of speech, religion, media freedoms) government non-interference Economy: Private ownership allowed, free trade (fewer restrictions) no more economic dependence on authorities: dependence on consumers (demand – supply rule), dualism: public & private sectors Society: 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

ECONOMIC TRANSFORMATION: MASS PRIVATIZATION Example: 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,

PRIVATIZATION: WHAT HAPPENED? Privatization Coupons – all citizens Used for large companies Investment Funds and/or direct investment COMPANY New management of companies Asset stripping / tunneling / no repayment of loans Bankruptcy Decreasing GDP, growing unemployment 11

INITIAL CHALLENGES 12 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

INITIAL CHALLENGES 13 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)

WHAT HAPPENED TO THE COMMUNISTS? 14 Renamed (Hungary, East Germany) Dissolved/Disappeared (Poland) Continued (Czech Rep.) Czech Rep. regional elections 2012 – overall results

MID-TERM GOALS 15 Membership 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. Congress =zplMpbZkEaM

“RETURN TO EUROPE” 16 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

RETURN TO EUROPE 17 Transition 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

MISSION ACCOMPLISHED? 18 SuccessesChallenges remaining CEE = consolidated democracies (by all standards) -Low trust in key institutions -Politicised key institutions -Parliaments’ fragmentation -Weak political parties -Corruption still a problem Functioning free market Remarkable economic growth -CEE still as Europe’s periphery -Recent crisis: affected CEE Transition without economic chaos, ‘valley of tears’ & social upheavals Rapid social change Cohesive citizenry -Democratic norms still not fully ingrained / accepted Successful EU membership-Still a catalyst for change -Declining support for EU integration