Features of Post-Communist Transformation since 1989 - Essay Example

The Key Features of Post-Communist Transformation since 1989 Introduction The fall of communism, as signified by the dramatic fall of the Berlin Wall (the old symbol of the cold war schism in Europe) on December, 1989, and the disintegration of the once feared Soviet Union (the largest country in the world in terms of land area) on December, 1991, has brought profound changes to the world, specifically Europe. The once seemingly indestructible ideological divide between the democratic capitalist west and the authoritarian communist east has finally come to a close. No longer is the international system polarized. No longer are the communist countries forced to be controlled by the once formidable Soviet empire – described by Strayer (1998, p. 5) as “the prison of nations”. With their new found independence, the former communist countries have become free to change the course of their own development, highly expectant of the promised prosperity by the West which confidently proclaimed this event as the triumph of capitalism over socialism. However, this unusual landmark in world history has likewise proven difficult to handle, much more to define its development. As McFaul and Stoner-Weiss (2004, p. 3) described: “the post-Soviet world has gone through the twist and turns of tumultuous political, economic, and social change.” As “one of the defining features of the second half of the twentieth century” (Edwards 1999, p. vii), understanding this crucial event becomes imperative not only in terms of socio-economic historical development but even in terms of human resource management, especially so that the fallen communist bloc had hundreds of millions of subjects (Rose 2009). Perhaps, characterising this historical period is a good start. As such, this essay seeks to explore the key features of post-communist transformation since 1989, understanding these by comparing and contrasting Poland and Bulgaria’s transformations. This will be achieved through a review of relevant literatures and studies. Ultimately, it is also hoped that this study will provide lessons useful for human resource management. Rose (2009) correctly stated: “The collapse of the Berlin Wall was an event, while transformation and its aftermath is a process of learning.” Similarly, understanding the key features of post-communist transformation since 1989 is a learning process. The Key Features of Post-communist Transformation since 1989 The collapse of communism has triggered widespread debate, speculations, assumptions and the like, bringing forth various studies, write-ups and researches. The high interest in understanding this unexpected event persists until today. Unsurprisingly so, various literatures and studies have described the key features of post-communist transformation since 1989 in many ways. Of these, the following key features appear most relevant to human resource management. Most post-socialist economies are transformed into various models of market economies to progress, but not all attained the desired economic progress. Immediately, one can observe that one of the key features of post-communist transformation is the framing of post-communist European countries within the various economic models of market economy (Upchurch and Marinković 2011), believing that this will lead them to economic progress. Except for the three members (Belarus,Turkmenistan, and Uzbekistan) of the twelve-member Commonwealth of Independent States (CIS), which maintained their state-dominated, Soviet-style system, most socialist economies have instantly become ordinary market economies of varying models after 1989. The economies of Central Europe (Poland, the Czech Republic, Slovakia and Hungary) were immediately changed into normal market economies and privatised following the West European social welfare systems, characterised by high taxes, big spending on social welfare and services, and an extremely regulated labour market. On the other hand, nine members of the 12-member CIS (Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyztan, Moldova, Russia, Tajikistan, and Ukraine) developed their market economies following the East Asian type, characterised by low taxes, limited spending on social services, and a liberalised labour market – the exact opposite of the West European type. Whereas the Baltics (Latvia, Lithuania, and Estonia) adopted what they saw best in both types of market economies. Thus they implemented full-grown market economies with regulated public sectors and high economic growth. (Åslund 2007) While, that of South Eastern Europe (Albania, Bosnia, Bulgaria, Croatia, Herzegovina, Romania and Serbia) adopted a “state-influenced market economies characterised by a mix of influencing state actions and neo-liberal laissez-faire” (Cerami and Stubbs 2011, p. 15). Why the diverse market models? Understandably, this must have been due to the past legacy and existing conditions distinct to each country. Comparing and contrasting the successful case of Poland and the less successful case of Bulgaria may help explain this development. Compared with other post-socialist economies, Poland and Bulgaria both started their post-communist economic transformation at a disadvantaged position. Both were engulfed with macroeconomic disaster. Poland was confronted with a socio-politically well-entrenched labour, was laden with a huge foreign debt (44 per cent of its GDP), and was suffering from very high inflation and enormous shortages (Balcerowicz 1994). Similarly, Bulgaria was confronted with an explosive foreign debt, a declining trade with the Soviet Union, non-performing government enterprises, and a rigid economic system (Jackson 1991). However, unlike Bulgaria which market was highly dependent on the Soviet Union and which population was more displeased of the post-communist transformation than that of communism, Poland was less dependent on the Soviet Union due to shorter socialist rule; its older generation was no stranger to market economy; it had lesser structural disruptions; its economy was less-dependent on the military-industrial complex; and it had greater privatised agriculture (Balcerowicz 1994; Conley & Cipoletti 2009) – factors positive to Poland’s transformation. Nonetheless, both had an ailing economy. But despite this, they differed in their economic policy choices. Poland which immediate concern was to abate inflation opted for the radical reform or the “shock therapy” approach – “involved immediate and widespread economic system changes, including removal of price controls, elimination of most regulations and significant privatization of resources” (Giannaros 2008, p. 35); whereas, Bulgaria which fear that radical reform may further weaken its steadily weakening economy opted for the gradual approach – restructuring of the economy gradually over the years (Jackson 1991). As a result, Poland has successfully transformed from a command type economy to market type economy. Poland’s relative success can be attributed to its rapid, radical, comprehensive and consistent reform programme because it was able to break down the structures and forces of counter-reform, to lessen the opportunities for opportunism and chances for economic disruption, to create a transparent legal framework that helped improve efficiency, and to withstand criticisms and pressures. (Balcerowicz 1994) On the other hand, Bulgaria’s economic transformation has not become of a success. Its economic reform was disrupted and delayed; its output in a substantial decline; its financial condition instable, being in a series of crisis. (Mihov 1999, p. 1) The post-communist transformation process after 1989 has not been easy and has not produced the expected progress highly expected. Evidently, its outcomes, as can be gleaned from Poland and Bulgaria’s experiences, greatly depended on the post-socialist economies’ policy choices which were conversely influenced by their past legacy and prevailing conditions. (Åslund 2007) The post-communist transformation has created great opportunities for rent-seeking that impedes reform. One of the striking features of post-communist transformation after 1989 is the emergence of great opportunities for rent-seeking. And, the most common barriers to post-socialist economies’ transformation, Hellman (1998) argued, are the rent seekers found in the person of the state-favoured managers, who have become owners of the newly privatised state enterprises simply to enrich themselves; the commercial bankers, who have opposed macroeconomic stabilization in order to exploit to their full advantage the rent-seeking opportunities arising from market distortions; the local bureaucracies, who have resisted market economy in their localities to be able to perpetuate their local monopoly; and the so-called ‘mafiosi’, who have challenged the establishment of the rule of law because this would threaten their special advantages. Since rent-seeking was financed through the state budget either in the form of direct subsidies, for example, price subsidies, or in the form of indirect subsidies, for example subsidised credits or exchange rate subsidies, it was the main cause of inflation in post-socialist economies that greatly impeded their economic transformation. In fact, one way to achieve post-communist transformation is to end rent-seeking, because to do so entails the establishment of liberal democracy and the rule of law – the pillars of market economy. Thus the main problem in post-communist transformation after 1989 has been the intense struggle between radical reformers, who want to minimize rent-seeking in order to promote profit-seeking in a competitive market and the rent-seekers, who want to maximize it in order to enrich themselves. (Åslund 1999). So, it is unsurprising to know that rent-seeking has flourished in less developed post-socialist economies, because rent-seeking is a defining characteristic of less developed economies where corruption and bureaucracy are highly apparent (Georgiev 2010). It is under these unpleasant political conditions that rent seekers can thrive because there is no transparency and accountability. Furthermore, the nature of rent-seeking also varies depending on the political structure of the country. For example, in Bulgaria, where a weak non-socialist government ruled and political reforms were stalled, rent-seeking abounds even until today. Something expected because political competition is too weak that the old ruling elite has the free-hand to manipulate the state to pursue its rent-seeking activities (Vachudova 2005). Worst, rent seekers are shameless. With strong backing at the highest office of the government, rent seekers directly target the national and EU funds by looting, using criminal schemes and brazen corruption. For example, public procurement projects are given to politically connected firms without public bidding; national budget funds are spent without transparency and accountability; publicly funded projects are observably too expensive compared with the value of the project results; the privatization process method, popularly known as the ‘worker-management buy-outs’ has greatly favoured the preferred managers to whom government enterprises are sold; even in privatised enterprises, sipping and looting happen through the manipulative method of insider control and bullying of minority shareholders. Evidently, rent-seekers have not only gained political influence but in one way or another have also influenced policy-making to ensure that the bases for their rent-seeking activity remain and protected. (Rusinova 2010) On the other hand, Poland, where the old-ruling elites had been immediately taken over by the post-opposition elites after communism fell and political reforms were instituted, the rent-seeking activities were minimised. This is not surprising because after communism fell, Poland immediately instituted a competitive government. Thus it was able to limit rent-seeking, which activity during that time was predominated by state enterprise managers – the strongest organised group. With partial exception in its workers’ councils, Poland relieved state enterprises managers from their posts. Essentially so, these rent-seekers were disempowered and became no longer influential to policy decision-making. Furthermore, Poland has established the rule of law and thus was able to put in place transparency and accountability – the safeguard against rent-seeking. (Åslund, Boone, and Johnson1996) The building of democracy and the establishment of the rule of law in post-communist countries since 1989 vary across countries and has not been much of a success. After the fall of communism in 1989, hopes and expectations for the full democratisation of the European post-communist countries were all high. However, such was only partly realised. Studies (Jerre 2001; Ekiert et al. 2007; Havrylyshyn 2007) of post-communist transformation show that only a small number of European post-communist countries have achieved and sustained their democratic states; unfortunately majority either lost their impetus to fully democratise and have only become partial democratic states or simply reversed to new authoritarian states. Evidently fifteen years after 1989, post-communist European countries have transformed into a wide range of political systems that can be categorised into democratic, semi-democratic, and autocratic (Ekiert et al. 2007). These studies furthered that Central Europe (Slovakia excluded) is seen most successful in its political, economic and social transformation; whereas South Eastern Europe, specifically Albania, Bulgaria and Romania, is seen the least successful. On the other hand the transformation of the former Soviet bloc is differentiated by two distinct groups: One group illustrates more advance democratisation when compared with any other region that underwent the third wave of democratisation; the other group, composed of the semi-democratised and authoritarian states, trails behind all other regions. Thus, Ekiert et al. (2007, p. 9) correctly noted that the former communist countries in Europe “can claim both the best and the worst record of transition from authoritarianism to democracy,” as illustrated by Poland and Bulgaria. In understanding the democratisation of the post-communist European countries, assertions were made. One, “Countries that had less oppressive regimes, more liberalized cultures, and strong dissident movements are more successful in instituting democratic systems and market economies, while countries that endured the most repressive communist party rule face the greatest stumbling blocks” (Ekiert et al 2007, p. 14). For example, Poland, which democratisation process has been successful, entered the transformation process with less étatization – “has to do with the penetration of the social and economic systems by political authority, i.e. the scope and intrusiveness of political authority” (Jerre 2001, p. 10). Furthermore, Jerre explained that the historical development and circumstances of Poland has been closer to that of the so-called western European tradition which upheld the rule of law, political democracy and market economy. Actually when communist take overs occurred in Europe, the idea of a legal and limited state was already well-ingrained in this post-communist state. Meaning, long before they underwent communist rule, the seeds of democratic systems had already been planted here. On the other hand, Bulgaria was the most loyal to communism (Akgun 2001). Totalitarianism, characterized basically as “the complete suppression and destruction of civil society and its institutions” (Giatzidis 2002, p. 21), had taken its deep roots in Bulgaria’s institutions and people’s daily life. In fact, even the church was denied of autonomy that it was unable to function like that of the Catholic Church in Poland. Despite this, communism became appealing to Bulgarians due to “guaranteed full employment, free medical services, controlled prices, social benefits, even slackened work discipline, and corresponded to a primarily egalitarian outlook” (Giatzidis 2002, p. 35). So unsurprisingly, instituting political reforms have been delayed and highly challenged. In fact, since post-communist transformation has been difficult and chaotic, Bulgarians become more dissatisfied than before. Added to this was its problem of border disputes and internal ethnic conflict. Also, it is worthy to note that the fall of communism In Bulgaria was due to shift in regional policy and not due to the people’s strong opposition against communism. In fact, not a single uprising, revolt, or even a student demonstration occurred here. Being highly-dependent on the Soviet Union, Bulgaria was then forced by Moscow to push for reforms. Bulgaria’s reform started when Zhivkov, a native communist, was overthrown through a carefully staged coup. However, since the change of leadership was not done democratically and it was resulted from a rift within the Bulgarian Communist Party (BCP), the transformation process remained at the hand of the BCP and managed to stay in power by pre-empting reforms. (Giatzidis 2002) Another assertion made was that immediate and “rapid reforms were on the whole better than gradual reforms” (Havrylyshyn 2007, p. 2). In fact, post-communist countries that implemented rapid reforms had fully transformed into democratic states, for example Poland; while many of those that have chosen to implement reforms gradually had failed to fully democratise, for example Bulgaria. Until today, the BCP though with eroded influence and supporters remains the oldest communist party in Europe. (Giatzidis 2002) This Havrylyshyn (2007) explained as to how they view reforms. For rapid reformers, delaying stabilization and liberalization would just give counter-reformers more time and opportunities to hinder reforms; whereas, for gradual reformers, an abrupt transformation would bring much pain and difficulty to the people. Thus, rapid reformers wisely considered shutting-off their enemies, knowing too well that unless these counter-reformists were not pinned-down, transformation may not be possible. As in Bulgaria’s case wherein small groups of the old-elite that had been favoured by the state were able to capture the state and dominate economic decision-making to their own advantage. Conclusion Evidently, the aim of post-communist transformation in Europe centres on building capitalism by depoliticising the economy, privatising state enterprises, and liberalising and deregulating the market. Since the state plays an important role in perpetuating the market system, this was also meant democratising the post-communist states. However, the post-communist transformation treats market economy and liberal democracy not only as goals; these were also used to assess the success or failure of the transformation. Thus, post-communism can be generally characterised as political change and economic restructuring. Post-communist transformations as illustrated by their diverse outcomes in Poland and Bulgaria have proven more complex than originally expected. Poland’s post-communist transformation has been fragile and uneasy; while that of Bulgaria has been filled with crossroads and bottlenecks. The complexity of transformation can be seen on various factors and common obstacles affecting the process. Evidently, the results of transformation were greatly determined by policy choices, which conversely were influenced by the past legacies and the existing conditions of each country. Thus various issues distinct to each country and common to both must be considered. For example, the successful transformation of Poland can be attributed to its adoption of the “shock therapy” approach, which choice is greatly influenced by its close experience with the Western Europe tradition, and its immediate need to hyperinflation; whereas, the slow reform in Bulgaria can be attributed to its adoption of gradual reform approach, which choice is greatly affected by its deeply-rooted authoritarian upbringing and weak state. The post-communist transformation provides rich experiences and lessons useful to human resource management, most especially in times of radical change. Most relevant of which are: (1) know yourself, your friend, and your enemy to know where you stand, who you can trust, and who you must deal with; (2) clearly set your direction to better organise your resources towards the attainment of your vision and goals; (3) build your capacity for strong, transparent and accountable leadership, and depoliticised management; and (4) formulate policies that will respond to your need for effectiveness and efficiency. Reference List Akgün, B. 2001. Perceptions: democratization and minority rights in the post-communist Balkan states. Journal of International Affairs [online]. 6 (2), June-July, pp. 1-8. Available at: http://sam.gov.tr/wp-content/uploads/2012/02/BirolAkgun.pdf [Accessed January 13, 2013]. Åslund, A. 1999. The end of rent-seeking: the end of postcommunist transformation. In: Brown, A. N. ed. When is transition over? Michigan: W.E. Upjohn Institute for Employment Research, pp. 51-68. Åslund, A. 2007. 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