Colloquium 1996 Panel IV : Scenarios for Economic Development and Social Cohesion

CEE and CIS - Scenarios for Economic Development and Social Cohesion Jan K. Bielecki Executive Director for Poland/Bulgaria/Albania Board of Directors, EBRD, London Summary The question we have been asked is "Under what conditions does the population consider political democratisation and longer-term economic opportunities as an acceptable compensation for the economic hardship inevitably linked with economic transition in its early stages?" We have also been asked what economic strategies and policies should be implemented in order to counteract ambivalent public perceptions of reform, and whether probable development paths can be established on the basis of certain assumptions. This raises three related questions which we shall address in this paper: Question 1. Are countries uniform in their approach to the issue and in their likely paths of development? Question 2. Is the population uniform in its attitudes to the issue? Question 3. Is the trade-off theory underlying the question well grounded? For a comparative picture of public attitudes in the region, let us look at recent results of the Eurobarometer survey showing the main trends in public opinion in the post-communist countries of CEE and the CIS since the beginning of the decade. Different trends are observed for different countries, of which some may be taken as approaching the pure types. We shall list some of them as illustrations of the range of trends across the region. A pattern of a Central European - CIS difference emerges, and also intra-regional variations, due to specific factors. We shall then look at some economic results for the period since 1991 to see if there is a correlation between better economic performance and an improved level of public satisfaction. As we shall see, there is a similar broad general pattern, but greater economic progress does not guarantee greater public satisfaction - each country is specific, implying that assumptions cannot be drawn from the basic pattern.

Comparative Cases (1995): Russia, Hungary, Poland, Czech Republic Russia. Russians are particularly unhappy with their country's situation. Since 1991 there has been a steady decrease in support for the market economy as well as dissatisfaction with the general trends of national development, accompanied by very negative views on respect for human rights as well as on the state of democracy in the country. Sixty-seven per cent of participants in a survey from 1995 thought the country was going in the wrong direction, 86 per cent were dissatisfied with the development of democracy, and 65 per cent were unhappy with the market economy. This is the pattern of development of catastrophic total dissatisfaction. Hungary. Seventy-seven per cent of participants in the 1995 survey were dissatisfied with democracy in the country and 79 per cent thought the country was going in the wrong direction, while only 5 per cent expressed greater approval than disapproval of the market economy. Looking at the trends, one can see a decline since 1991 in approval of the market economy and, except for 1994, a steady decrease since 1990 in the perceived performance of democracy. In Hungary therefore one observes a process of relative deterioration of public morale. Poland. Although the free market economy lost its original 1990 appeal to the general public in 1991-1994, it regained support in 1995. It is noteworthy that Polish public opinion on the market economy has always showed a majority in favour. Meanwhile, the general assessment of the political situation has improved, perhaps because a stable parliamentary majority evolved that abolished the previous fragmentation and conflicts. In 1995, 7 per cent more people thought that the country was going in a good direction than in a bad one, and 12 per cent more were satisfied than dissatisfied with the development of democracy. The confidence curves here take a U-shape configuration. The Czech Republic also represents a pattern which may be depicted by a U-shape curve. With the passage of time, public appreciation for standards of performance on human rights and the free market have decreased, while their assessment of democracy has improved. By extrapolation one would predict stabilisation at a level where public opinion would be equally divided on all these major issues. Table 1 Attitudes Towards Democracy and Market Economy Satisfaction with Market Economy High Low Satisfaction with Democracy High Poland X Low Hungary CEE Russia CIS

Regional Comparisons: CIS vs. CEE Comparing the CIS with CEE makes sense, as it reveals the major difference between the overall negative assessment of both democracy and capitalism in the CIS and the overall much more positive attitudes within CEE, especially the CEE countries associated with the European Union. Nevertheless, within CEE the variation is also great. Thus, while the degree of dissatisfaction in these countries is much lower than in the CIS, there are cases within CEE of relatively high dissatisfaction as compared with observations for societies in Western Europe. In general, public opinion within CEE countries tends to be positive towards the market economy, though a majority in these countries are critical of their democracy and expect a greater degree of egalitarianism. Public opinion in the CIS countries reflects disappointment with both. In order to test the supposition that public opinion is influenced by the economic situation, we can compare public opinion and progress with economic reform in the same countries as above, as follows (Table 2): Table 2 Comparison of GDP growth and satisfaction with development of democracy     1991 1992 1993 1994 1995 Russia % satisfied with development of democracy 15 11 15 8 6 GDP growth, % change -13.0 -19.0 -12.0 -15.0 -3.0 Hungary % satisfied with development of democracy 30 22 20 23 20 GDP growth, % change -11.9 -3.0 -0.9 2.0 3.0 Poland % satisfied with development of democracy 27 32 35 23 50 GDP growth, % change -7.6 2.6 3.8 5.0 5.5 Czech Rep % satisfied with development of democracy   38 48 44 46 GDP growth, % change -14.2 -6.4 -0.9 2.6 5.2 Sources: EBRD Transition Report Update 1996, Central & Eastern Eurobarometer 1991 ff., Nos 1-5 As we can see, the difference between economic growth in the CIS and Central Europe is parallel to the difference in public opinion within the two regions. However, comparing the three Visegrad countries we can see that there is no real correlation between economic growth and public opinion, which implies that successful economic reform is not an adequate compensation, in the view of the population as a whole, for the hardships or perceived inequality that accompanies the transition. A recent study (Juchler, 1996) on global trends and regional differentiation within the transition process discusses the interplay of structural and cultural factors by drawing on comparisons of a number of quantifiable trends in 25 Central and East European countries. Alongside the Eurobarometer of public opinion, these include comparisons of the extent of reform progress, the degree of political freedom, and the intensity of the economic crisis connected with the transition. Dividing the 25 countries into six regional groups along geopolitical and cultural lines (the Central European Visegrad countries, the Baltics, South Eastern Europe, European Slavic CIS countries, European non-Slavic CIS countries and Asiatic CIS countries), the comparisons imply that a common specific pattern may be observed in the form and intensity of political and economic development processes in the post-socialist countries of Eastern Europe. Broadly speaking, on all counts the Central European countries emerge ahead, followed by the Baltics and South East Europe, with the European CIS countries lower down the scale, and the Asiatic CIS countries the lowest. However, the comparisons also reveal extensive intra-regional differences between the countries, implying that these processes show individual characteristics, influenced by country-specific historical factors. Juchler concludes that essential differences exist between the various East European countries, due mainly to cultural/historical tradition and structural conditions including the degree of political freedom and economic development existing at the outset, as well as traditional links with the West, which affect current processes of change and also imply the probability of a variety of future scenarios. Thus one should be wary of making assumptions about likely patterns of future development. Poland; A Case Study Moving on to the question of whether a population is uniform in its attitudes to the issue in question, as the point of departure we will take Poland, which, by the way, was the point of departure from Communism as early as in 1980, and then again in 1989. From this case we shall draw lessons that will enable us to develop some possible scenarios for the near future. First, the population may differ internally on the perception of transformation. Rather than referring to hundreds of studies which indicate the general pattern we shall illustrate the issues with just a few examples. In a study from 1993, when support for market reforms was at its lowest (Kurczewski, 1994), even though the economic situation had improved, 36 per cent of a nation-wide sample expressed a preference for a return to life under socialism as it was 10 to 20 years earlier (i.e. when consumption was at its highest), while 41 per cent favoured the present way of life in Poland, with 23 per cent having no opinion. More detailed responses reveal that the nostalgia of the first of the three groups was linked mostly with job security, while the positive evaluation of the present represented by the second group of people was linked with political freedom. However, nobody expressed support for the political aspects of Communism. Some supported democracy not only for its political aspects, but also for a better likelihood of individual economic achievement and consumer opportunities. Moreover, the difference in attitude towards the present was strongly class related. Table 3 Attitudes Towards Democratic Present and Socialist Past by Social Class in Poland, 1993 Nation-Wide Survey by OBOP, N- 1111 Social Classes:   A B C D E F Socialism 48 53 39 19 26 20 Present 34 28 39 47 46 50 Dont know 18 19 22 34 28 30 N=100% 180 106 334 57 186 81 Source: Kurczewski 1994: 226. Social classes defined as follows: A- farmers with elementary education, B-unskilled workers with elementary education, C- skilled workers with elementary education, D- skilled workers with high school education, E- white collars with high school education, F- white collars, managers and professionals with university degree. As Table 3 shows, direct approval of the transformation was in 1993 predominant among the better educated classes, independent of their job or profession, while direct approval of the past system was highest among unskilled workers, slightly less so among farmers, with skilled workers evenly divided on the issue. It would seem that for the majority of unskilled workers, their loss of job security had not been counterbalanced by an improvement in other dimensions. As the latter category was already the most alienated psychologically, socially and economically under socialism, the survey would appear to indicate that the classes that were most privileged under socialism are those that are most satisfied with the transformation. The better educated, whether manual workers or white collar workers, under socialism formed the middle classes of a society subordinated to the Communist Party ruling nomenklatura. Once the obstacles posed by the political regime and the command economy of shortage have been abolished, as other findings in the study abundantly show, these classes are more likely to support the new system, to master the market way of thinking, to engage in new business activities, and to support the further market-orientation of the economy. From this emerge some strategic conclusions which might be valid for the whole region. The economic value of education increases under the new economic system, and investment in education becomes more rewarding. Thus, the stability of the new democracy depends upon: the degree to which the better educated classes prevail in the political life of the country; the spread of education among the population as a whole; the ability of the better educated to find self-gratifying roles within the new system. At present the share of better educated middle classes in Polish society is 36 per cent. Their relationship to the lower classes is crucial in terms of further policies of transformation. Sharp restructuring policies may count on the support of these classes, especially if the strategic role of the educated workers is taken into consideration. But democracy, which allows equal influence on the electoral outcome, gives the potentially dissatisfied lower classes more say. The larger the share of the potentially disadvantaged, the less public support for change. These classes focus more on the negative, short-term consequences of the transformation than on the development of democratic policies. The 1993 elections in Poland were held at the moment when this discovery was made and when the anaesthetising effects of the first shock of change had evaporated. As a result, support for reforms had weakened, the post-Solidarity political camp was fragmented, and the Left alliance based on post-communism had gained in popularity. Party differences in economic policies between these camps are not significant, but the slowdown of restructuring and the distribution of budget income accumulated through the recovery of economic growth resulted in a second change in political preferences, especially among the lower classes, involving the revival of legitimacy for the Left political camp. It is interesting to note that after the 1993 elections and the assumption of power by the post-communists, support for democracy in Poland grew. In the autumn of 1994, this camp got 59 per cent of the votes, while support for socialism declined to 27 per cent. It is impossible to establish whether this resulted from (i) a softening of economic policies; (ii) the public image of the left-wing government as a protector of the social safety net; or (iii) the delay before people subjectively felt the economic improvement achieved under the first generation of transformation governments. Public Attitudes versus Economic Progress We can also make a more detailed comparison of public attitudes to the transition with economic progress. The graph (see Figure 1) shows the pattern of GDP growth in four CEE countries following the initial stages of the transformation process, introduced by right-wing governments, and the point at which elections were held which brought left-wing parties to power. In each case, the elections came at a point when significant growth (and thus greater distribution of budget income and in several cases a growth in private consumption) had been achieved. Yet public dissatisfaction is still apparent. Taking the recent Czech election result as a measure of public attitudes to the transition, Vaclav Klaus lost his parliamentary majority at a point when in spite of evidence of an improvement in the economic situation, the public opted for a softer version of reform. Table 4 shows basic indicators of transition progress in the Czech Republic since 1992, and forecasts for 1996 made before the election. Table 4 Transition indicators in the Czech Republic since 1992   1992 1993 1994 1995 1996 forecast   Percentage change GDP -6.4 -0.9 2.6 5.2 5.6 Private consumption at constant prices* 20.4 2.9 5.3 6.3 na Annual inflation rate 11.1 20.8 10.0 9.1 8.0 Unemployment rate 2.6 3.5 3.2 2.9 na Sources: Czech Statistical Office, * EBRD Transition Report Update This implies that an improved economic situation is not the only factor influencing public opinion, and casts doubt on the trade-off theory presented by the initial question. The left-wing and extremist parties were able to exploit the public sense of inequality that inevitably accompanies the transition. Under communism, there was no private ownership, but behind the concept of "social ownership of the means of production" lay a fictional egalitarianism, providing a sense of social equality. The transition brings property ownership and markets, a diversification which does not provide something for everybody. Russia provides a very specific example. Unlike the Czech Republic, or Poland, for example, where in the past four years of recovery wages have grown and public support for the transition is at a reasonable level, in Russia there has been little change, as the economic indicators in Table 5 show. Table 5 Transition indicators in the Russian Federation since 1992   1992 1993 1994 1995 GDP, % change -19 -12 -15 -3 Retail prices, % 1,354 896 302 205 Budget balance, % of GDP -6.9 -5.7     Unemployment, % of labour force 0.8 1.1 2.1 3.5 Source: EBRD Transition Report Update, 1996 The Russian first-round election result, in which Gennadi Zyuganov polled 32.1% of the vote (while Boris Yeltsin polled 34.8%), confirms that dissatisfaction can lead to a choice of an authoritarian alternative. One can hardly expect a change in attitude to the transition from a population which has only had a negative experience of the process, an economic decline instead of recovery, and rapidly rising crime. General Alexander Lebed's main campaigning tactic was to stand for "law and order", because of tremendous corruption and sky-rocketing crime which have made the man in the street feel helpless. Russians do not want to go back to communism, but many did vote for change. They certainly do not wish to return to the status quo of Stalin's, Brezhnev's, or even Gorbachev's Soviet Union, nor do they believe in the inflammatory nationalistic escapades of Vladimir Zhirinovsky, who was practically marginalised in the first round. Only a small minority of so-called "new Russians" have profited from the reforms, while most of the population cannot maintain even a modest standard of living. Most Russians cannot afford to enjoy the fruits of the free market, and their patience and ability to endure hardship is not unlimited. So the message is to focus the economic reform on social priorities. Non-economic Views: EU and NATO Membership We have seen that country-specific factors are influential on the rate and intensity of political and economic development, which in their turn affect public attitudes to the transition. However, the economic situation seems not to be the only factor playing a role in the formation of national attitudes. Above a certain level of deprivation, other factors may play an equally or an even more important role, such as the political situation of the country within the international system. This can play a role in shaping attitudes towards the European and NATO alignments. An interesting difference in opinions on these matters may be noted. According to the survey conducted in November 1995, an overwhelming majority of citizens of all 10 Europe Agreement countries would vote, in the event of a referendum, for their country to join the EU (90 per cent for, 10 per cent against) and to join NATO (82 per cent for, 18 per cent against). In both cases, Romanians and Poles are most likely to say "yes". When it comes to NATO membership opinion is most divided in the Czech Republic (59 per cent "yes", versus 41 per cent "no"), Hungary (the same), and in Bulgaria (52 per cent versus 48 per cent), while in countries like Romania (95 per cent "yes"), Poland (92 per cent), Lithuania (83 per cent) and Estonia (78 per cent) more than three-quarters of those interviewed were in favour of NATO membership. Some CEE countries are at the moment more pro-NATO, some are less so, but in all CEE countries more than three-quarters of public opinion supports EU membership. Distance from Russia as well as the memory of conflicts with Russia over independence and sovereignty may well be at the heart of these differences. The scenarios for the region differ depending on some crucial decision variables. The notable variety of responses to the present situation and to transformation may be limited in the event of a common approach taken by the West to the countries. If the desire for membership is rejected, then one may expect a significant fall in these expectations themselves. This could be most crucial in the case of nations that are high on both the NATO and EU expectation scales - acceptance into at least one of these organisations should be offered, if the frustration resulting from refusal is not to damage the country's morale. For CIS countries whose citizens link their future with Russia, and for Russia itself, such refusal is psychologically insignificant. However, in some cases it might obstruct the sovereignty efforts being undertaken by the elite in government. Here the case of Ukraine, where according to various sources the nation is divided on a West vs. East orientation, is of strategic importance. On the opposite pole of some CEE countries faith in acceptance into the Western structures may serve as an important factor in alleviating the frustrations of transformation and in helping to overcome the adjustment crisis. This amounts to saying that in some cases the perspective of joining the EU and/or NATO serves as an important trade-off balancing economic hardships against political stability, understood also as a factor that promotes economic security and growth. We are dealing here with the vital element of the mass expectations held by millions of CEE citizens, a political fact of considerable weight in itself. It is important to note that as time has passed since the very opportunity to consider membership first appeared, the EU's image has worsened. Only in Poland has its image improved in the last few years. Frustration will be greater with a selective acceptance, though the frustration felt will be greater again among those who are the most fervent partisans of membership. Views of Democracy The second variable to be taken into consideration when thinking about the future is democracy itself. However universal the commitment to democracy might seem in the region, the degree to which the general public, including the adversely affected lower classes, are able genuinely to influence public policies differs across the region. The growing disappointment apparent in some countries, above all in Russia, could be muted by a conspiracy of the political elite based on less power for the representative bodies, a fully representative as opposed to a participatory model of democracy, centralisation of decisions, reinforcement of the executive and the development of presidential or semi-presidential models. But Russians do not want "democracy for bureaucracy"; in Russia the executive branch dominates government, and Russian bureaucracy has always been notorious for its corruption and arrogance, giving no accountability to the citizens. There is a risk that a direct assault on democracy, especially on the principles of free elections, a free press, freedom of association and assembly, etc., might be the recourse taken by the modernising elite in the face of growing disappointment among the general public or strategically important sectors of the population. One may wonder if, on the other hand, an improvement in democratic performance as such would not serve as a reinforcement of confidence for important sectors of the population. Economic Reform: Shock or Soft? Coming back to the Polish case one may discuss the role of a third variable, namely the softness of economic policies as opposed to assertive and straightforward methods of restructuring of the economy and basic institutions. One cannot exclude the possibility that gradual acceleration of the transformation after an initial quick and sharp deconstruction of the socialist command economy is the best strategy to be followed, independent of the political values upheld by the government. The Polish case is more instructive than the Hungarian one. In both cases right-wing governments started the process of transformation and left-wing parties are dominant in politics today. In Poland the power change coincided with the resurgence of confidence of the general public in democracy and the free market, while in Hungary it coincided with a further decline in confidence on both crucial aspects. The Hungarian Left-Liberal coalition was forced to attempt the more aggressive social and economic policies after the deliberately soft policies of the previous government, whereas in Poland the policy evolution was just the opposite. In the Polish case, therefore, room was created for the lower classes to relax a bit and accept a new reality. In Hungary the overcoming of the inertia inherited from the past had not achieved its own momentum and will not now find it easy to do so. Overall Assessment and Recommendations In making comparisons one should also take into account the variety of starting-points. Fresh optimism demonstrated by Albanians illustrates the common wisdom that the lower the position at the beginning of the race, the greater the appreciation of gains achieved. The Czech Republic and Hungary were leading the region in terms of economic well-being before 1989, so much greater improvement in the general living standards are needed here than in other countries in order to produce a similar level of satisfaction. However, the two countries differed drastically in the degree of political freedom granted by the then communist regimes to their citizens. From the beginning this gave the Czechs a better position in the race, as their gains in freedom could off-set the substantial discomfort of changes in the economic situation. The pattern of stabilisation observed in the Czech Republic may result from the way citizens balance these various factors, while the pattern of deterioration observed in Hungary may be explained by reference to the relatively slight gains along both political and economic dimensions. Our answer to the three questions posed at the beginning of this paper is partly negative. Cross-national differences have been shown to be important. CEE and the CIS are manifestly different in their response to the transformation, and even within each of these two regions national specificities are evident. These specificities are due partly to the history of the transformation process itself, as the Polish-Hungarian comparison illustrates, and partly to much longer-term cultural and historical factors. Comparison of transition progress, including factors such as the degree of democratisation and the extent of economic reform reveal a similar broad pattern and similar specific characteristics producing wide-ranging variety within the two main regions. This makes it inadvisable to assume probable future patterns of development; moreover, economic and political progress can be seen to be unreliable as gauges of the likely trends in public opinion. The Polish case illustrates how differences can be found within a single society which cause different sectors of the population to respond differently to the challenge of sudden transformation. The lesson to be drawn is that regional or national strategies must be designed to alter the ratio between those responding positively to a desirable direction and those responding negatively. Education, investment in education and improvement of the position of the better educated layers of society seem to be the obvious instruments for this purpose. The political significance of education cannot be overestimated. The popular success of left-wing post-communist political parties also implies that even within comparatively successful transition countries a sense of egalitarianism is missing; moreover, the transition process can fuel a sense of social unfairness. As private sector growth producing an entrepreneurial class running small and medium-sized enterprises is a key factor in a successful transition, investment is needed at this level to allow for the provision of on-the-job training and more opportunities to join in with the enterprise boom. Coming back to our initial question, the very assumption of a trade-off can be challenged. The Polish data cited above show that while the share of people dissatisfied with lack of political freedom fell from 51 per cent in 1988 to 28 per cent in 1990 and remained at the latter level until 1994, the level of dissatisfaction with inequality remained basically constant at 74 per cent in 1988, 72 per cent in 1990, 75 per cent in 1992 and 73 per cent in 1994 (Kurczewski, 1995). These findings indicate that there was no trade-off between the perceived equality and individual freedom, as is often assumed. In fact, the improvement in political freedom has not been accompanied by any greater feeling of social equality. There is also no apparent correlation between improved national economic circumstances and a public sense of satisfaction. The key to social cohesion seems to be to escape the totalitarian message of equality in serfdom to the State and imbue the people with a sense of greater equality of opportunity, which is part of the message of modern market democracy. References Transition Report Update, European Bank for Reconstruction and Development, 1996. Central and Eastern Eurobarometer 1991-1995, Nos 1-5, and March 1996, No 6, European Commission. J. Kurczewski (Ed.), Demokracja po polsku, Warsaw 1995. J. Kurczewski, Summary in: J. Kurczewski & I. Jakubowska-Branicka (Eds.), Biznes i klasy srednie, Warsaw 1994. J. Juchler, The transition process; global trends and regional differentiation - the interplay of structural and cultural factors, 1996.