OP:6. The Politics of Economic reform in Central and Eastern Europe
Author(s): Dariusz K Rosati
Publication Date: February 1992

Abstract: The process of transforming the centrally planned economies into market-based democracies, which was initiated in Central and Eastern Europe in 1989 with overwhelming enthusiasm and hopes, lost much of its momentum and vigour only two years later. Economic reform programmes implemented in post-socialist countries do not deliver on much of their promises. Prolonged economic downturn, growing unemployment, persistent inflation and declining consumption gave rise to general frustration and disappointment.

This paper discusses certain aspects of the transformation process. Being a political revolution being a political evolution with far-reaching economic consequences, the transformation affects the vital interests of all social groups. While the transition from central planning to market is initiated by a large popular movement of the majority-coalition type, this coalition is likely to fall apart immediately after it has taken power. This is because its socio-political platform, built not on common future goals but on common past experience, is surprisingly narrow and essentially 'negative' (to take power away from the communist regime). The common belief that all social groups will be better off under the new system is nothing less than a big illusion, because higher efficiency can in principle be obtained only at a cost of deeper inequalities. The transformation into a market economy relies on a radical departure from egalitarianism and economic interventionism, with resulting changes in the distribution of income and wealth adversely affecting the most pivotal social groups (wage earners and farmers), at least in the short run. Emancipating themselves from the grand utopia of Marxist ideas, the societies of East European countries are thus likely to fall into another big illusion: that the market reform will benefit everybody and hurt nobody. The clash between the expectations and the economic reality, between illusions and market rules, leads necessarily to political instability, which may put the reform process in the region into jeopardy.

The 'negative' programme is perhaps attractive enough to establish a broad majority coalition, to win the first free elections and to form the first non-communist government. But it is far from sufficient to carry on with the transformation process beyond the initial power shift. Conflicts emerge already the day after the take-over, and soon as the big illusion disappears when confronted with the reality of rapidly rising prices, falling real wages and massive unemployment. The erosion of popular support for necessary reforms and the accelerated disintegration of the socio-political base of the new governments is the most dangerous challenge facing the new democracies in Central and Eastern Europe.

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