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Transformation in central europe

Transformation in central europe. Tereza VorlovÁ Jan Hauser Monash European and EU Centre / Charles university, Prague. Central Europe. Europe b efore 1989. Europe t oday. CEE countries before 1989. Not all part of Soviet Union - communist regimes more or less aligned with USSR.

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Transformation in central europe

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  1. Transformation in central europe TerezaVorlovÁ Jan Hauser Monash European and EU Centre / Charles university, Prague

  2. Central Europe Europe before 1989 Europe today

  3. CEE countries before 1989 Not all part of Soviet Union - communist regimesmore or less aligned with USSR

  4. “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 Economy: - Centrally planned - No private property - Collective ownership Result? Result? Result?

  5. 40 years of communism: results Economic underperformance Political repressions Social unrest Numerous uprisings: • 1956, 1968, 1970, 1981, 1989 Prague 1968

  6. Wind of change: 1980s glasnost – openness perestroika– restructuringdemokratizatsiia – democratisation

  7. 1989

  8. What change after 1989? The Promise of 1989: - Political transition - Economic transition - Legal - Societal - Change of mindsets (“minds and hearts”)

  9. 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-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.” VojtěchCepl, 1995

  10. 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, 2002

  11. Privatization: What happened?

  12. 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

  13. 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)

  14. What happened to the communists? • Renamed (Hungary, East Germany) • Dissolved/Disappeared (Poland) • Continued (Czech Rep.) Czech Rep. regional elections 2012 – overall results

  15. mid-term goals 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 http://www.youtube.com/watch?v=zplMpbZkEaM

  16. “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

  17. Return to Europe 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 Stabilityhas 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

  18. Mission accomplished?

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