No Velvet Transition

CAMBRIDGE: It is easy to idealize revolutions that happen somewhere else. Across the West, people have been celebrating the tenth anniversary of the end of communism as the war won without firing a shot. Across the former Soviet empire, genuine euphoria is tempered by ten hard years of change.

Some things happened as expected: Hungary is doing better than most, Estonia outpaced the rest of the Soviet Union, and Southern Europe is in trouble. But surprises also abound. Everybody's "basket case" of 1989, Poland, became the region's dynamo. The Czech Republic – everyone's favorite – went from Velvet revolution to muddied reformer.

Russia has been the biggest puzzle. It avoided the abyss that was widely predicted by the now unemployed Kremlinologists. But Russia also refused to become "normal." I myself thought that communism's collapse would deliver quicker social rejuvenation in Russia, although I argued from the start that Russia's road would be a hard slog, and that the country required substantial financial help from the West.

Despite the variety of transitions underway, there are some durable lessons that can probably be drawn by now from the experience of the postcommunist transitions:

• Markets work, but require a solid legal framework to function

Where the legal framework could be changed quickly, as in eliminating price controls and a myriad of subsidies, or assuring currency convertibility, market forces began to work quickly and efficiently. Reforms unleashed the beneficial forces of supply and demand, as Poland's experience made dramatically evident, and brought an end to the endemic shortages of the old regime. But when the new legal framework demanded the creation of working state institutions that took time to create, quick reforms often had less than the desired effect. Speedy privatization, for example, especially the mass voucher schemes in Czechoslovakia, Russia, and many other former Soviet countries, did not work. Transferring title from state to private hands did not create enough real ownership. What is worse, when privatization was rushed through, the result was massive corruption, managerial plunder, and paralysis at the firm level. Although some abuses could have been lessened, the main reason for failure was that reform of the state did not keep pace with economic reforms.

• Initial conditions matter in economic restructuring

Some surprises of the postcommunist transition needn't have been such, if the different starting points had been properly considered. Poland's chaos in the 1980s, for example, may have created the basis for rapid growth in the 1990s, because the dead hand of central planning had already been cut off when the reforms began. Where central planning was alive, as in Czechoslovakia, it may have made it more difficult to break the mold of loss-making state enterprises. In largely agricultural China, huge state industrial enterprises had been less important, so their reform could have been postponed, and reliance could be placed on "starting afresh." But in the more "advanced" socialist countries, such as Russia, where 90% of the population was employed in state-owned industries, restructuring the state sector – a much harder job in many ways – was a necessity, and an obstacle to quick recovery.

• Civil society is critical to successful transformation

Even when governments have good intentions, they tend to be corrupted, if power is unchecked. Constitutions provide modest checks, but private associations of professionals, religions, and regions – the heart of civil society – provide the deeper balance. Stalinist purges in Russia left no independent institutions to stop the depredations of corrupt officials, managers, and the state. In Poland, by contrast, Communism never managed to destroy the Catholic Church or prevent the rise of the Solidarity movement. (Stalin once complained that establishing party rule there was like putting a saddle on a cow.) Solidarity unionists, even if they often opposed many specific policy proposals, stopped firm managers from stealing assets; and the Church provided a force with which all governments to reckon.

• Geography is an important factor

It is fashionable today to stress the global nature of the world's problems. But geography has not ceased to matter. The closer a postcommunist country was to the European Union, the more successful and dynamic has been the transformation. Countries such as Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Croatia, and the Baltic States, have done much better at attracting foreign investment, expanding exports, and stimulating economic growth than those whose markets were at a greater remove from the European Union. Just as U.S. firms go next door to Mexico, German firms head for the immediate neighborhood to the East.

• History casts a long shadow

1989 was supposed to be a fresh start, the awakening from a nightmare. But 1989 also awakened ancient antipathies and mythologies that had been repressed in the Communist era. Who would have thought that in the late 20th century Serbian mythologies over the Battle of Kosovo of 1389 could galvanize a population behind the murderous nationalism of Slobodan Milosevic?

• Assistance from developed countries can make a big difference

Blame for failures does rest, in part, on the West, which was nonchalant in its efforts and stingy with its purse. Poland is the exception that suggests what might have been. Here the West helped with initial balance of payments funds and later with debt cancellation. Compare this with what happened in Russia, which was denied vitally needed funds and lasting debt relief. Many American politicians and citizens felt that the U.S. had no business helping a former rival nation that still had more than 10,000 nuclear warheads. What aid was given was a mere drop in the bucket when set against Russia's gargantuan financial and social needs. The final irony? The IMF actually provided most of its funds, but after reformers had been thrown out of office and Russia's kleptocracy had revealed itself!

https://www.project-syndicate.org/commentary/no-velvet-transition?referral=c50051