ULI459U-GLOBAL POLITICAL ECONOMY
Chapter 6: Collapse of Socialist Bloc and Transition Economies
Introduction
This chapter focuses on;
• the reasons of underdevelopment in Eastern Europe and its effects on socialist states; • the collapse of the USSR; • main economic and political problems in transition to market economies in Eastern Europe; • the differences between China and East European examples in political economy.
History of East European Countries and Russia
While Western European countries eliminating serfdom and feodalism after the 15th century, East European countries continued with strict serfdom along with the absolute monarchy strengthening the privileges of aristocratic classes. This situation, therefore, resulted in hard working conditions and less payments. Besides, wars against Western Powers led to the late emergence of nationalism. For Western countries, 1789 French Revolution was turning point and the start for the emergence of nation states. On the other hand, Eastern countries showed the same development in the 20th century with the working class revolution in Russia led by VI. Lenin. Lenin led the workers into the political arena through vanguard party. However, turbulent times did not end for Russia until 1917 until the establishment of dual power era, in which workers and peasants gained authority. From then on, Russia became the first socialist state of the world, in which all the privileged classes were abolished and in which all ethnic groups were declared equal. Russia eventually became Soviet Union and a one party state.
Basic Features of Socialist Economies
Soviet Union started a planned economy governed and controlled by the state. This kind of economy, therefore, was called command economy as well since the State owned most of the industry, agriculture, and services. Altough this situation regulated micro level economic activities, control of the state eliminated problems such as inflation, unemployment, and poverty to a great extent and helped to overcome the difficulties of the Great Depression. However, Soviet Union and Eastern European region could not miss the difficult times in the 70s. Soviet Union could not help its allies through these hard times. This led Eastern European regimes saw modernization as a solution. At this point, let us remind that after the World War II, Europe was divided into two spheres, one under the influence of the U.S.A and the other controlled by the Soviet Union. The Soviet Union control weakened in the 80s and some countries like Hungary and Poland broke their ties up with this system.
Collapse of the USSR and Eastern Bloc
Increasing defense budget created problems for economy and industrial sectors required the adoption of a new economic growth model. In the meantime, the
appointment of Mikhail Gorbachev gave way to Glasnost and Perestroika, political and economic liberalization and transparency. But, this liberalization attempts bring out several problems along with the eruption of ethnic problems among the ethnic groups. These ethnic problems and other mishaps like Chernobyl nuclear power plant blast made the reforms urgent and led to bureaucratic decay of the Soviet state.
Perestroika meant freedom in production. Manufacturer, farmers, service industries, factories were free to decide how much they would produce. This freedom brought free enterprise and free price policy as well. This brought some problems like inflation and growing politicial uneasiness.
Reforms in the Soviet Union stirred the Eastern bloc nations; Hungary, Poland, Czechoslovakia, and Romania, and most importantly, East Germany. Collapse of the Berlin Wall was an event welcomed by the whole world. This movement resulted in its Eastern European allies abandoning the Soviet Union in 1990, which consequently led to not only problems in the country but ethnic uneasiness as well.
Economic Problems of Transition in Socialist Countries
Collapse of the USSR caused unwanted results such as economic problems, and Yeltsin and his supporters saw free market economy as a remedy in the transition period. To end the transition period, shock therapy was applied This led to the privatization of half of the state enterprises. Another result was the legalization of the agricultural land. Shock therapy and privatization led to increasing inflation, unemployment and collapse in living standards. These problems sparked protests against Yeltsin, who did not hesitate to supress these protests violently. With the aid of IMF and with the support of Western countries, a transition to market economy took place. There were severe consequences like decreasing living standards and homelessness during the last decade of the 20th century until the crisis in 1998. In 1998, moratorium was declared being unable to pay the debts. This economic mishap resulted in Yeltsin’s leaving the job. Putin took over and became the president. Putin emphasized government control over crucial sectors and left the crony capitalism created by Yeltsin.
Increasing energy needs and the increasing prices led to increased living standards leading to the welfare of Russian population. However, military challenges to Georgia, Ukrain, Crimea and intervention to Syrian conflict was disadvantage for Russian economy.
In other parts of the Eastern Europe, the beginning of the 21st century was considered as the recovery period from the last decade of the 20th century. European Union membership and financial aid helped other Eas European countries to go through the difficult patches. In the meantime, 2008 global financial crisis impeded the investments to the Eastern Europe and distorted the
export-import balances. Poland, Czech Republic and Hungary were the countries which were significantly affected from the downfall since automotive sector was badly affected from the crisis. East European countries suffered from the crisis of capitalism as well as the symptoms of collapsing socialism. These difficult periods have both political and social impacts in the region.
Political Problems of Transition in Socialist Countries
The transition process showed its impact on civic associations and civil society organizations. During socialist period, media and other organizations were under close observation while religious organizations had very little influence on people. These countries were under the single party rule. Other organizations such as Solidary in Poland, Civic forum in Czechoslovakia or Hungarian Democratic forum were considered as organizations rather than parties. In democracies, civil society does not fear the political bodies since they do not feel any political pressure from political authorities. However, in socialist countries, under single party rule, societies felt that they were under pressure.
Poland presents a significant case in terms of political developments after the collapse of Eastern European socialist regimes from two aspects. One was the democratization movement started by the Solidarity trade union and the other one was the multi-party elections in the 80s. Solidarity Trade Union was recognized as a formal opposition. Semi-presidential system provided democratic transition to Poland earlier than the other Eastern bloc countries. On the other hand, Poland had some limitations such as lack of constitution for the new regime. Besides, it was difficult to adapt the multi party system. For example, although different parties took part in the multi party system, they shared almost the same view. Lack of rival views did not fulfill the democratic function at earlier stages.
Hungary, on the other hand, resisted Soviet style economic and political regulations. That resulted in negotiations with IMF because of foreign debts. In terms of politics, Hungary entered the multi-party system with a real opposition party. In contrast with the Polish semi presidential system, President was elected by the parliament.
Czechoslavakia had a highly developed industry and democratic election tradition and literate skilled workforce in the early years. Yet, they were not experienced in multi party system, and this inexperience situation led to the collapse of the regime. Slovak politics were also problematic because of lack of experience in instutitional change.
China’s Transition to Market Economy
China was an isolated state in early 20th century.But, towards the end of the 20th century, China has transformed itself into a manufacturing workshop of the
world. China was an isolated country under Mao’s rule but after Mao’s death, new ruling party realized a series of reforms. These reforms opened China to global economy. First of all, China opened its doors to foreign investment. In rural area, farmers provided agricultural products for the markets. Private and collective enterprises were allowed to open. Small, unprofitable and non-strategic state firms were privatized. Government controlled the most important companies. Even in today’s China, private sector is very active, yet they are under the close control of the state. That is why China is considered as having a mixed economy succesfully combining the private initiative and profit motive of the state.
China still have state owned banks in the financial arena. This highly controlled banking system prioritize Chinese export firms as complained by Europe and the U.S.A. The U.S.A also complains about the copyright violations by Chinese corporations of high-tech products. China attempts to revive the silk road connections with the one belt one road project.
Despite the economic reforms, there was no political liberalization program. Chinese bureaucrats followed the same autocractic ruling. Recently, the ruling party chose a project planner as the president to attempt to fulfil future projects.