Forget the clichés, learn the lessonsby / March 20, 2013 / Leave a comment
Published in April 2013 issue of Prospect Magazine
Development in Warsaw: though it once was, “Eastern Europe is no longer a single entity” © Bartello
In February 2009, the Economist ran a cartoon which featured caricature versions of Angela Merkel, Nicholas Sarkozy and Gordon Brown, then the leaders of their respective countries. The three were sitting at a luxuriously appointed dining table, their faces frozen in exaggerated horror. All were contemplating a giant bill, at the top of which was written, “for the rescue of Eastern Europe.” The accompanying article, just to drive home the point, was entitled “The bill that could break up Europe.”
Eastern Europe, the article warned in dire tones, had been financially damaged and politically weakened by the international economic crisis. Eastern Europeans had been “on a binge fuelled by foreign investment [and] the desire for western living standards,” they had botched or sidestepped reforms and they had “wasted their borrowed billions on construction and consumption booms.” Eastern Europe should of course pay the price for its own profligacy, the Economist intoned, but Western Europe might well have to step in: After all, if Eastern Europe were to go down in the flames of financial crisis, then proper Western countries like Ireland and Greece might be affected as well.
The rest, as they say, is history. Eastern Europe did not collapse, or at least not all of it, or not all at once. But Ireland and Greece did both go down in the flames of financial crisis, and Spain and Italy nearly did too. Even now, Portugal is still touch and go, Britain is likely to enter a triple-dip recession and France has soaring unemployment. To put it bluntly, the Economist was…wrong. Four years after that 2009 article, the rich Western countries are not sitting around a metaphorical dining table dispensing largesse to their poor eastern cousins. Instead, they are wrestling with one another on top of that table or begging for scraps to save themselves, while some of the unwanted guests from the east are, like Slovakia, which is a eurozone member, actually contributing to their rescue.
Now, there are a number of conclusions I could draw from the predictive failure of this cartoon. Clearly, the first and most obvious is this: beware of caricatures in the Economist, as they will soon be out of date. The second conclusion, however, is that it is now time to lay aside all of our common prejudices about Europe, and start thinking about the continent a little differently. Let me put it more strongly: after the events of the past four years, we should really toss out every stereotype, every cliché and every assumption that has ever been made about Europe’s political geography. East versus west, north versus south, none of it really makes sense of what is going on any more.
The first and sharpest economic crisis in Europe after 2008 started not in the east but in Iceland, far to the west. The deepest recession was not in the traditionally slow south, but in Ireland, until recently part of the dynamic north. The bad debts accumulated by British financial institutions exceed, by many tens of billions, the combined governmental debt of Poland and the Czech Republic, two countries that had no domestic banking failures to speak of. When it went bankrupt, the government of Latvia buckled down, carried out an austerity program, pulled through and is now back at 5 per cent growth. The Greeks, by contrast, faced with the same prospect, rioted, protested, had to institute a government of national unity and wound up having its economic policy dictated by the EU.
Slovakia, a country which had 10 per cent growth rates a few years ago, also experienced a collapse and a major recession in 2009 but has now returned to 4 per cent growth. Poland has not suffered a recession at all, and has grown, cumulatively, 20 per cent since 2008. In general, members of the former Eastern Europe pay lower rates on their bonds, reflecting the fact that international markets have confidence in them. The Czechs pay 2 per cent, the Slovaks pay 2.1 per cent and the Poles pay 3 per cent. Meanwhile, the Portuguese pay almost 6 per cent, the Italians nearly 5 per cent—and the Greeks, 10 per cent.
Instead of dragging down Europe, the eastern half of the continent is now a major contributor to growth and wealth all over Europe. Indeed, the exports of the 15 countries of “old” Europe to the 10 countries of “new” Europe doubled over the past decade. Britain’s export to the 10 countries that joined after 2004 rose from €2.2bn in 1993 to €10bn in 2011; France’s, from €2.7bn to €16bn, Germany’s from €15bn to €95bn. One occasionally hears someone grumble that EU enlargement is one of the causes of the current crisis. But the facts point to the opposite conclusion: without enlargement, economic turmoil might have come far earlier.
This is not to say that everything in Eastern Europe is going well. But then, Eastern Europe cannot really be described anymore with a single word like “well” or “badly,” because Eastern Europe is no longer a single entity.
Once upon a time, of course, it was. When correctly applied, the term “Eastern Europe” is not a geographical term but a political term. It is also an expression that belongs to particular historical period. Properly speaking, it refers to the nations that were, between 1945 and 1989, dominated by Soviet-style communism. Often, it also included the nations that were part of the Soviet Union after 1917 or 1918, at least those considered “European” and not Asian. Either way, this was not a region which was ever culturally or ethnically homogenous. Its inhabitants were Catholic, Greek-Catholic, Russian Orthodox, Romanian Orthodox, Lutheran, Baptist, Jewish and Muslim. They spoke Slavic languages, Romance languages, Finno-Ugric languages, Baltic languages and German. They lived in cosmopolitan cities like Berlin, and they lived in isolated rural communities without electricity or running water.
Between 1945 and 1989, this otherwise disparate group of European nations did, briefly, have quite a lot in common. Some of the resemblance was superficial: posters with hammers and sickles, May Day parades, identikit airlines that served poison instead of coffee, for example.
But some of the resemblance was serious. They all had to contend with a legacy of bad economic decisions. The nationalisation of industry, central planning and a state-dominated retail sector were universal. So were fixed prices, fixed exchange rates and import-export controls. It is incorrect to assume, as many do, that the fundamental nature of communist economics was so very different in Hungary, Slovakia, Armenia or Albania. It is a myth, for example, that there was no agricultural collectivisation in Poland. Larger Polish estates were converted to collective farms, as I know because I own a house that used to be part of one.
But since the fall of the Berlin wall, the nations of what we used to call Eastern Europe have taken very different directions. The economist Anders Åslund has written, accurately, that despite some of the theoretical debates which took place at the time, in practice there were really only three economic paths which individual countries could take after the break-up of the Soviet empire. They could, like the Poles, the Czechs, the Slovaks, the Hungarians and the Balts, choose the path of radical reform, leading to liberal democratic capitalism. They could, like Russia, Ukraine, Armenia, Moldova or Kazakhstan, become rent-seeking states, crony capitalist societies whose businessmen make money not through economic competition but through a symbiotic relationship with corrupt state bureaucrats. Or they could, like Turkmenistan and Belarus, re-establish state despotism and swap the language of Marx for nationalism and brand new cults of personality.
These aren’t clean divisions, of course. Romania and Bulgaria started out with crony capitalism, made more liberal reforms over time, but now are facing real opposition to the corrupt elites who remain. Russia started out with some of the most radical reforms in the region, but lapsed into crony capitalism when the reforms stopped. Yugoslavia broke up into bits, each of which took a different path, and was dragged down by civil war.
But my point is that there wasn’t, and isn’t, anything else. There is no state in the region which selected a happy path between communism and capitalism, because there was no such path. There was no Third Way. Those countries which attempted a “kinder” and more “gradualist” transition simply got stuck with more corruption. If their business elites learned how to make money from controlled prices, export controls or state sales of natural resources, and if those same business elites took over politics, then crony capitalism became permanent.
Few of the successes and few of the failures were either predictable or predicted. In 1990, nobody guessed that Estonia would become a mini-tiger, or that Russia would be ruled by a cabal of billionaires. Nobody imagined that Poland would be a more stable member of the European Union than Hungary. On the contrary, the predictions for Poland, a country with a spotty history of democracy in the past and, at that time, one of the worst-performing economies in the region, were overwhelmingly negative. One writer in Foreign Affairs predicted in 1990 that a rapid transition to capitalism would produce “instability” in Poland, largely because, he implied, Polish democracy would soon lead to the return to power of a 1930s-style right-wing mob.
As it turned out, a given country’s immediate pre-war history was not necessarily a good guide to its post-1989 success. Nor was its religion, its geography or its size. When examined closely, neither the alleged Catholic-Protestant divide nor the mythical “Asiatic” cult of the dictator stands up to scrutiny either. If religion is so important, why has Catholic-Protestant Hungary lately fallen into such a funk? If geography is so important, why has post-communist Mongolia become such a roaring economic success? The once-profound divisions between culturally identical East and West Germany cannot be explained away so simply either.
So what, then, was the source of success and failure? Why were some able to carry out radical reforms while others were not? As it turned out, there were a few historical experiences that mattered a good deal, but they weren’t necessarily the ones that anybody pointed to in 1990. It made a big difference, for example, whether a country had been dominated by Soviet-style communism for 40 years or for 70 years. A clear line divides the region into two camps: those countries which were part of the Soviet bloc from 1945, and those which joined in 1918. This line not only separates the old Warsaw pact bloc from the Soviet Union, it also puts the Baltic states and Western Ukraine on one side, Russia and Eastern Ukraine on the other. This was a line, in other words, between societies that still contained people who had been brought up with pre-Soviet values and those that did not.
There was also a difference between those countries that had an active opposition movement in the 1970s and 1980s, or at least an active and self-organising civil society, and those that did not. Slovenly and inefficient dictators like General Jaruzelski of Poland produced more active citizens than those, like Nicolae Ceausescu, who were still using terror to suppress their critics in 1988 and 1989.
If I were to isolate the single most important factor in determining whether a given post-communist country succeeded or failed in its transition to liberal capitalism, in fact, I would point to this: the existence, or absence, of an alternative elite. And by alternative elite I mean something specific. Not just a few economists, but a larger class or group of people who had worked together in the past, who had adopted an alternative set of values and who, by 1989 or 1990, were at least somewhat prepared for government.
In Poland, the alternative elite existed because memories of a pre-communist past were recent enough to be real; because of a national tradition of resistance, most recently against Nazi occupation but historically against the Russian and Prussian empires; because the Polish economy was so full of holes that black marketeers—i.e. small capitalists—could operate freely; because borders were relatively open so that these black marketeers could trade; because those relatively open borders meant that people knew how life was lived in the western half of Europe; because the Polish Catholic church was not destroyed, and thus it could provide both an alternative source of values as well as a physical space for opposition to meet; because Cardinal Wojtyla was elected Pope John Paul II, and because he came to Poland in 1979 and drew mass crowds; and so on. Similar lists could be made for Hungary, East Germany, indeed for Lithuania and Estonia. Some of these contributing factors might be connected to a country’s particular historical destiny, culture and location. But some of them were accidents.
If the existence of an alternative elite was important, however, it was even more important for that alternative elite to have a clear sense of direction. And in the case of the central Europeans, there was never any doubt about this direction. When working as a journalist in the region in 1989 and 1990, people told me again and again, “we want to be normal.” And “normal” in 1989 and 1990, meant Western Europe: Western European democracy and capitalism, a Western European welfare state, Western European political parties, Western European media. There was no desire for experimentation: the question was “do we move faster towards Europe?” or “do we move slower towards Europe?” Those who moved faster avoided being stuck halfway.
Another important ingredient of success was the lack of natural resources. And here I am not referring merely to the famously negative impact that oil and gas have on exchange rates, entrepreneurship and economic diversification. I am talking about the enormously negative impact that natural resources have on political life in new democracies. If there are no oil wells to steal, then no one will try to manipulate the political system so as to make it easier to steal them. There are one or two “oligarchs” in Poland and the Czech republic, mostly connected to the gas industry, but there isn’t a whole class of them, dedicated to corrupting the entire state in order to enrich themselves, as there are in Russia, and to some extent in Ukraine and Kazakhstan.
There are other ingredients of success, such as having a free press, or even a free-ish press, which aspired to some higher standards of reporting, and which could ensure a free flow of reliable information. But this, of course, was a by-product of the alternative elite and its samizdat publishing wing.
It was also very important that the new rulers of the new democracies had, at least to some degree, thought about what they wanted to do before they arrived. All through the 1980s, Polish, Czech and Hungarian economists had been holding informal meetings to discuss how it might be possible, someday, to privatise and decentralise their economies. At the time, these were pipe dreams: all of the conversations were theoretical, and this particular group of economists was thought to be somewhat bizarre and perhaps rather fringe. But when they suddenly and unexpectedly got the opportunity to carry out their plans, they were ready. Leszek Balcerowicz, Poland’s first finance minister, was one of them. Václav Klaus, until recently the Czech president, was another. But again, I suspect that this was once again the by-product of the fact that all of them had a clear sense of direction. Where do we want to go? Western Europe. How do we want to get there? Fast.
Much less important, as it turned out, were the precise techniques deployed. In particular, the exact method of privatisation, although this was a central topic of debate and discussion at the time wasn’t in the end nearly as important as the speed with which privatisation was conducted, and the perceived fairness of the process. Voucher privatisation, stock market privatisation, all of these could work, as long as they were conducted more or less transparently. In retrospect, no one was happy with the way privatisation went in their country. But those who were most unhappy were the ones who didn’t do it at all.
Perhaps, then, I could add one more element to the picture. Whoever took charge, in 1990, had to understand the need for a radical break with the past. Former communists, such as Ion Iliescu, president of Romania in 1990 were generally worse at understanding this than former opposition leaders, such as Tadeusz Mazowiecki, who was prime minister of Poland in that same year. It was also very good if whoever took charge did so in an atmosphere of serious crisis. Poland in 1990 seemed to be deteriorating rapidly. Hungary, by contrast, wasn’t that bad, and successive Hungarian governments have long felt that all they need to do is make a few adjustments.
In practice, this means that Hungary has never been able to shake its addiction to borrowing and budget deficits. Worse, Hungarians seem permanently sunk in perpetual gloom—though maybe they were always like that. A close Hungarian friend of mine, when confronted with the imminent eurozone crisis, metaphorically threw his hands up in the air. Why is it, he wailed, that “every club we join immediately falls apart?”
But I’m not Hungarian, I’m American, and therefore I’m more interested in the optimistic half of this story. Let’s step back for a minute: it’s now 2013. Who would have thought, in 1989, that the eastern half of Europe would survive a financial storm better than the western half?
And who would imagine that I would be able to say that there are now more lessons the west can learn from the east than vice versa? A few months ago, I made this point at a conference in Vienna, to a crowd which listened indulgently but unbelievingly, and fired mocking questions at me afterwards. I’d established the fact that Eastern Europe as a meaningful political concept had disappeared, and that the nations of what used to be Eastern Europe have gone their separate ways. Everyone nodded, but didn’t draw the obvious conclusions.
And no wonder: in Austria, as in the UK, the notion of “Eastern Europe” does live on as a kind of prejudice. When newspapers use the expression “Eastern European,” it is usually code for backward, primitive and possibly criminal. Murder suspects are often described as having “Eastern European accents”—as if speakers of a Latin language like Romanian or a Slavic language like Bulgarian all sounded alike. There is also a tendency, especially in the UK, to think of Eastern Europeans as belonging to one of two categories: Romanian and Bulgarian labourers, on the one hand—whom we want to keep out of the country because they might work harder than the natives—and on the other Russian oligarchs, for whom all doors are opened and to whom everything is for sale, and around whom are clustered dozens of British lawyers, bankers, real estate agents and other middlemen who see the possibility of profits.
That kind of prejudice makes it more difficult for the western half of the European continent to draw any lessons from what we used to call “the East.” But it’s also foolishly short-sighted: within Europe there are several countries that managed to turn around utterly disastrous economies, evade the temptations of the far-right and the far-left and which have carried out major structural and political reforms during periods of political tumult. Better still, one or two of them recently repeated this feat for a second time, during one of the worst international banking crises in recent memory.
It is worth looking closer at the very instructive comparison between Latvia and Greece. In the wake of the 2008 crash, the Latvian government slashed public spending, fired a third of its civil servants and reduced salaries of those remaining while refusing to inflate the currency. The country’s GDP declined dramatically, falling 24 per cent in two years. But as Latvia’s economy plunged in 2010 and 2011, there were no strikes, no protests, no fury: the Latvians, who have been occupied by others for so long, see economic viability as a matter of life and death, a key component of national sovereignty. Not only did the nation accept the need for a change of course, it re-elected the prime minister who imposed it. And then the recovery began. Latvian GDP is now growing at more than 5 per cent, and the budget deficit has been dramatically reduced.
In Greece, by contrast, relatively smaller budget cuts have led to a GDP decline of 18 per cent since the crisis began. They’ve also led to strikes and riots. The Greeks have voted their politicians out of office more than once, shown increased support for a fascist party to compete with the already existing far-left parties and thrown petrol bombs at banks. There are some technical explanations for the differences. Budget cuts were applied differently in Greece and Latvia. The Latvians hit bureaucrats hard, but pensioners less so. Perhaps more importantly, they also made the biggest cuts right away. As they learned in 1990, drawing out a crisis creates more pain over time.
The Greeks, by contrast, have made cuts slowly and never convinced either their public or their creditors of their commitment. Bureaucrats are protected while pensioners suffer. Uncertainty persists. People and capital continue to flee the country and although the crisis has stabilised it has not been resolved.
There are also political differences. Latvian politicians did explain to their fellow citizens the real reason for the cuts. They reminded them of the need to preserve national sovereignty. By contrast, none of the Greek parties has found a way to persuade Greek voters of the need to change their way of thinking. Instead, anti-German rhetoric is at an all-time high.
Why then don’t the Greeks instead try earnestly to learn from the Latvians, as the Latvians once tried earnestly to learn from the French or the British? I suspect the explanation lies, as I say, in the misleading term “Eastern Europe,” and in those connotations of backwardness and crime.
But the world changes in strange ways, and one of the strangest is the way in which that same exact term—“Eastern Europe”—now seems to have a completely different connotation when used in places like Tunisia or Libya. I’ve been to North Africa several times since the Arab spring, and every time I’m there I find that people there are extremely interested in me—but not because I’m American, or because I’m a journalist. They are interested in me because I have a longstanding connection to Poland, a country which they regard as a role model.
Does Eastern Europe hold insights not only for Western Europe, but for other parts of the world, North Africa in particular? The culture of Eastern Europe and the culture of North Africa are not similar. There is no alternative elite in North Africa of the kind which existed in Poland and Hungary, and the majority does not believe that “normal” means “West European” (although a minority does, as I’ve learned in both Libya and Tunisia). Although there were dissenters of many kinds in pre-revolutionary Egypt, they were largely suppressed, except for those surrounding the mosque and the football pitch. The result: the Muslim Brotherhood was the only political “party” with any organisational capacity after 2011. And Egyptian football clubs are the only organisations that can reliably be counted on to create major protests, as they have recently.
Yet neither the Muslim Brotherhood nor the football fans arrived in power with any clear ideas about Egypt’s economy. There was no political or economic equivalent to the Polish and Hungarian economists who were plotting the post-communist future in the 1980s either there or in Libya, where the economy had been largely organised for the personal benefit of the Gaddafi family, and where a new leadership—drawn from the exile community and the leaders of the armed revolution—is now starting to analyse the country, starting largely from scratch. In Tunisia, the friends and relatives of the old ruling family are still thought to pull most of the economic strings. Radical change is not in their interests. In many Arab states the opportunity to start making changes arrived only in 2011 and the alternative elite is only just now beginning to form. These revolutions, in other words, have only just begun.
And yet there are similarities, parallels and common experiences worth exploring. Certainly I’ve found, while talking with Tunisians, Egyptians and more extensively with Libyans that they are extremely interested in the Polish experience, though not because Poland’s past history resembles their own. They are interested because the issues they face are so similar. Here’s an example: in 1990 Polish journalists, like their North African counterparts, had to create newspapers and new radio stations from scratch; had to privatise the state media; had to figure out how to write libel laws that would neither penalise journalists too much nor allow newspapers to publish irresponsibly; and had to write new laws governing the airwaves as well as laws on media ownership, designed to prevent monopolies. The solutions they found were probably quite different from those that the Libyans will eventually discover, but the outlines of the various problems are the same. As a result, when I was in Libya last year, I discovered that the journalists all wanted to hear how the Poles had done it.
The Polish experience is also important in another sense. The British, the French, the Italians and above all the Americans are not necessarily the most popular nations in Egypt or Tunisia, and the World Bank is not the most beloved of institutions. Not everyone wants to be told what do by the friends of their former dictator, or by their former colonists. It is much more palatable, and indeed much more relevant, to take advice from a Czech or a Serbian who has already lived through a revolution and witnessed its aftermath. Instead of producing a stern lecture about the freedom of the press, a Slovak can tell stories about what it’s really like to be a journalist in a barren media landscape, where all of the major television stations are still controlled by members of the old regime and where freedom of information is a theory, not a practice. Instead of a theoretical harangue about the rule of law, they can explain how hard it is to get judges to think differently about their relationship with politicians, and how hard it is to find lawyers willing to relearn their trade from scratch.
Counter-intuitively, the lessons which the former Eastern Europe can bring to North Africa are specific rather than general. The Poles and the Slovaks can’t tell the Egyptians much that is relevant about, say, the place of religion in contemporary politics. Their experience is useful not as theory but as practice—here’s how we wrote our new commercial code. Here’s how we reformed our police force. Here’s how we helped teachers bring a new curriculum to schools.
Or, of course, here’s how we failed to deal adequately with the policeman of the old regime, here’s how we failed to insure that privatisation was fair, and here’s how we failed to prevent our newspaper industry from being taken over by oil and gas oligarchs who push their personal and business agendas. Learning about what didn’t work is sometimes as instructive as learning about what did.
But before you are able to learn anything, you have to be willing to listen—and this leads to a paradox. In most of the world, the transformation of Poland, Hungary, the Czech Republic, Slovakia, the Baltic States and even Romania and Bulgaria are regarded as examples of miraculous success: peaceful transitions from dictatorship to democracy, examples to be studied and copied and learned from. This is an achievement which should be placed at the centre of European foreign policy. At this time of financial uncertainty, this a sliver of hope which Europe can offer to the rest of the world: here are some paths to success.
If that doesn’t happen, and I’m afraid that it won’t, this is because in Europe, the term “Eastern European” is still in use, with all of the old connotations and all of the old prejudices attached. So let’s abolish the term, or rather confine it to history. Eastern Europe, in the old sense, no longer exists.