November 9, 2019, marked thirty years since the fall of the Berlin wall. The ensuing transition to democracy and capitalism was seminal to the path Eastern Europe took in subsequent years. One of the key challenges in the transition was the privatization of state-owned enterprises. Successful privatization was a major determinant of economic progress and social cohesion.
Mass Privatizations
The transition from communism to capitalism in Eastern Europe entailed a change from state control and operation of most economic activity to private ownership. While privatization took place between 1990 and 2000, the distribution method and sales of shares in state-owned enterprises to the private sector varied for each state.
Significant program differences led to a wide range of economic and social outcomes. The best transition programs created widespread ownership and a competent management structure, the worst oligopolistic owners or outright corruption. In the more fortuitous cases, citizens received shares in the new companies, competent managers were appointed and the economy prospered. Civil society felt included in the process. In the worst cases, oligarchs siphoned off wealth, firms often failed and people felt disenfranchised.
Foreign Investment and Voucher Privatizations
One of the early goals of the privatization programs was to attract foreign capital and management. For various reasons, this was largely a failure: only Estonia (50%) and Hungary (20%) were able to sell a significant proportion of state property to foreign buyers. The public quickly became wary of losing too much of the national patrimony and the programs became politically unpopular. Foreign investment during the period did take place but it was largely for “green field” or new investments.
Because of the growing unpopularity of foreign ownership, and the perceived need to speed-up privatizations to promote growth, countries decided to sell or distribute their assets domestically rather than to foreigners. In some cases, especially Russia, Hungary and the Commonwealth of Independent States, shares in firms were assigned to workers and management. These programs, especially in Russia and the CIS, allowed managers to gain effective control; either pressuring workers to vote for management’s corporate governance boards or leveraging management’s greater number of shares to obtain low-interest bank loans and buy out a controlling interest. The Russian privatization resulted in the top 100 firms being handed over to single individuals, usually in collaboration with the banks and the state who helped them buy-out existing shares at low prices.
In the Czech and Slovak Republics, Lithuania and Poland vouchers were created and distributed allowing the public to obtain shares in individual firms – in Czech-Slovak and Lithuanian programs – or in funds which held shares in the various companies in Poland. Other countries generally followed variations of these models. The individual share model anticipated the creation of an Anglo-Saxon type stock market; the fund model anticipated continental-type holding companies. In Hungary, a state agency was created which continued to hold shares of the former state-owned enterprises. Some programs worked for a time, then ran into a variety of problems. The choice of transition program and its success had important implications for the future of civil society in Eastern Europe.
One unfortunate aspect of the politics of the transition period was the emphasis placed by the international institutions, in particular, the World Bank and IMF, on creating private management ownership rather than on social equity in the distribution of assets. While somewhat equitable distribution programs did finally take place in most of the Eastern European countries, the international institutions may have been instrumental in the very corrupt and inequitable outcome of the Russian and CIS privatizations.
Liberal Values, Democratic Society and Ownership
Political scientists have postulated a relation between the liberal values emanating from the enlightenment and a stable democracy. The idea is that a democratic society is perpetuated by its members’ practice and beliefs. Both from a Marxist perspective, where a bourgeois class anchored in the practice of free markets and civic freedoms, protects its ownership interests, or from a behavioralist-institutionalist perspective, where the habit and practice of market and civic freedoms is institutionalized.
When people are excluded economically or civically in any way, even that of perception, their support for democratic institutions weakens. The absence of experience with liberal values due to a command and control economy, monarchy or dictatorship, can weaken the appetite and support for democracy. As many countries in Eastern Europe transitioned from monarchy to communism with, at most, a brief interwar period of market economy, support for enlightenment values was shallow when the transition finally occurred.
Political Extremism
Umberto Eco provides an excellent dissection of fascism, a particular case of political extremism. Eco considers fascism more of a disease of the human spirit than a coherent political philosophy. Many of his identifiers, or symptoms of fascism, are present among Eastern European right-wing skinheads and Neo-Nazis. Racism, misogynism, nationalism, anti-intellectual, anti-democratic, propaganda and leader centrism are a few of the more notable characteristics, along with a love of violence. The major far-right political parties, though eschewing in some cases the fascist label and their support for some of these values, display clearly, nevertheless, the symptoms of fascism as outlined by Eco.
There was a noticeable rallying to the novelty of liberal democratic values after the fall of the wall. But aspirations outpaced reality. Strong growth over many years since has raised income levels, (now between 50% to 70% of those in West Germany) along with life span and general well being but it also heightened economic differences. In addition to greater class tensions growing wealth in weakened states was an invitation to corruption. The great recession of 2008 soured many on capitalism, the West and its values which had, after all, led to the collapse. Eastern European economies have been aided substantially by the inflow of EU regional funds but the assistance has often gone politically, and the West looked at with envy and resentment.
Globalization has further undermined any middle class left from the communist period along with the fragile middle class built up during the post-transition period. A threatened middle class is, according to Eco, one of the drivers of fascism. With this class no longer convinced that its future lies in globalized world markets, it becomes open to populist-nationalist solutions to its problems. Such solutions are all the more relevant in countries where the culture of folk-nationalism, except during the communist period, was the norm. The combination can be lethal to democracy, along with a disenfranchised working class
Cultural Expression and Reproduction of Value Systems
The granting of egalitarian rights in the new democracies to ethnic and religious minorities, the LGBTQ and women has threatened the traditionally dominant classes. Even middle and working classes can feel threatened, regardless of the realism of these fears.
Artists continue to hold up the torch of cosmopolitan culture, even as far-right groups march and rally around their own heavy metal music and symbols. The struggle for control of mass media is being fought out wherever liberal values have been challenged.
Successful young entrepreneurs returning from the West conversely bring their more liberal values with them. A younger demographic will also replace those who have lived all their lives under communism. Fears of economic and social loss can fall away if proven irrelevant in a newly vibrant economy.
Far-Right Movements
Challenges are both economic and social in varying measure. The strengthening of right-wing movements in the countries of the former Yugoslavia was largely due to social factors. Their economic transition was facilitated by the relatively decentralized economy under Tito.
The Kosovo war with Serbia pitted Muslims against Christians. It fostered claims being developed elsewhere of “replacement”. The idea here is that Western elites are trying to replace European populations with immigrants. Though immigration to Serbia was minuscule, the narrative of Muslim replacement was embraced in response to NATO’s participation in the war on the side of Kosovo. NATO’s advanced reasons to intervene were nationalist politics – Serbia’s desire to reclaim territory from Muslim Kosovans – and the risk of genocide.
Right-wing movements in Serbia have a life of their own. Though in the West the identitaires took inspiration from the Kosovo conflict, the two movements have not been able to meld. Local particularities and the absence of immigration in Serbia have kept the Serbian far-right in a separate, if sympathetic, constellation from their western counterparts.
In the rest of Central and Eastern Europe outright fascist and neo-Nazi, alt-right, and identitaire groups exist alongside mainstream parties with right-wing tendencies; Hungarian Prime Minister and head of Fiduz, Viktor Orbàn, speaks of his “illiberal democracy”. Indeed, Fiduz has taken steps to curtail the free press, minority rights, openness to immigrants and many of the other “values” of liberal democracy. It has forced the Central European University, founded by George Soros, to move from Budapest to Vienna.
Similarly, in Poland, PiS (Law and Justice) is putting forward a program attacking an independent judiciary, the media and another far-right boogeyman: LGBTQ rights. In the Czech Republic, a billionaire leader fosters radical “free market” solutions. Both Hungary and Poland are in violation of EU covenants because of these measures and the subject of Article 7 sanctions. In Ukraine the far-right consists of diverse fascist and neo-Nazi groups which often play host to international gatherings, concerts and recruiting. Fascist symbols and international affiliation are commonplace.
Liberal society has also reacted. In Prague, 200,000 demonstrators turned out on the anniversary of the “Velvet Revolution”. Far-right groups previously prominent in the Ukrainian parliament were voted out in the last election. In reaction to conservative rule in Slovakia a reform prime minister, the first woman, has been elected. In Romania, the street has contested the prevailing political class – 500 straight days of consecutive protests against corruption – with some success.
The die is never entirely cast as human beings struggle.
