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Post-Communist Economics

Even Stalin's regime, however, as well as all other communist regimes, balanced their horrendous operations with some positive incentives to the populace. These were generally consistent with official ideological, political and economic aims. Access to education, including higher education, and to cultural media --- especially those seen as vehicles of Party objectives --- such as libraries, theaters, cinemas and museums was amply provided. Some basic commodities, such as bread and milk, were usually subsidized by the state. Although housing was generally scarce, cramped, and of poor quality, the costs of rent and utilities were maintained at very low levels. So were the costs of local or municipal transportation. Medical care, though not of high quality, was made widely available to people, as was a system of old age and disability pensions pegged to low wages but available nevertheless.

The collapse of communism in the 1989-1991 period created new opportunities for economic development together with religious, political and intellectual freedoms. One effect of the change was to open up borders enabling people in the formerly communist enclaves to travel abroad, giving them access to jobs that were not available at home as well as valuable educational and cultural opportunities hitherto denied.

The post-communist Eastern Europe gained access to trade and membership in the prosperous and technologically advanced European Union. Millions of tourists now came to visit the formerly communist states taking advantage of attractive price differentials. The variety and quality of goods available in stores and supermarkets improved both quickly and widely. New business opportunities opened up for people who were able and willing to take advantage of them. Individuals could now buy, sell, and lease property as well as hire others to help them in entrepreneurial adventures.

Formerly isolated communist economies were now beginning to benefit by the influx of foreign investment from around the world. But as the last eighteen years have shown, the transition from communism to post-communism has been much more difficult than many people had hoped and expected.

The immediate effect of the "fall of communism" in the 1989-91 period was economic and social shock. The transition from planned economy to free markets involved rapidly increasing unemployment, inflation, and declining economic growth in virtually all the post-communist countries for a period of several years. Communist societies were not well prepared for the transition because of their characteristic infrastructures and manpower resources.

For many years, communist managers focused on developing heavy industry and neglected, both in quantity and quality, personnel employed in such areas as wholesale and retail trade, hotels, restaurants, tourism, and consumer-oriented, light industries. Moreover they skimped on equipment and facilities for the manufacture, storage, distribution, and transportation of consumer-related products, and they neglected recruitment and training of service personnel. The underdevelopment of highways and trucking in the former USSR and the paucity of retail outlets are characteristic illustrations.

In cultural terms, the damage was caused by the communists' neglect and denigration of the critically important entrepreneurial capability. Training people to make money for themselves and others, to seek and exploit profit-making opportunities, cater to the market-validated wants and needs of consumers to study consumer preferences, habits and predilections to learn how to advertise and sell. All these were neglected, even disparaged in the communist world.

There were no business schools under the rule of communism. A shrewd trader and investor was not seen as a social benefactor but as a capitalist villain and parasite. The institutional weapons of education, law, media, and even the arts were all used to denigrate and vilify the kinds of skills and capabilities which nurture and promote successful market economies.

Another impediment was an inherited communist-built bureaucratic apparatus. The communist systems created enormous state bureaucracies, precisely because "communism" had always sought to control virtually every facet of human existence. State penetration of the economy was far greater here than among the liberal democracies of the West or among most of the so-called developing countries.

Consequently, while the "fall of communism" brought about new governments based on competitive elections, or at least more competitive elections than those permitted by the pre-1989 communist system, the bureaucratic machinery of these states at virtually all levels of economy, society, and government could not be changed as easily as a cabinet or a parliamentary assembly. Old officials and old ways continued to function within these large bureaucratic establishments, and they tended to apply a significant "brake" on the processes of change and reform. Communist economies lacked the facilities and human resources for a transition that could be both quick and smooth.

Ultimately, a major obstacle to reforms in the immediate aftermath of 1989-91 was the sensitivity of large social constituencies to rapid and destabilizing economic changes. When post-communist regimes began abolishing state subsidies for basic food items, utilities, rents, or public transportation, the immediate effect was to increase the cost of living with more adverse consequences for people who were living on fixed incomes (such as old-age pensioners) or wage earners who were not able to increase their incomes.

When market profitability became the sole test of whether a factory or mine would or would not be operated, many people simply lost jobs and became destitute. For these reasons, early free market reforms frequently led to increased unemployment, rising poverty levels, social unrest, homelessness, crime and ultimately significant public opposition to the reforms themselves, either in scope or pace, or both. Many people who could do so, organized, primarily through trade unions, and clamored for wage increases and job security through strikes, lobbying, and street demonstrations, often with still more inflationary consequences.

Economic conditions in post-communist states have improved considerably since the 1990s but significant problems still remain. As late as 2007, by way of illustration, unemployment averaged over 14 percent of the labor force among eighteen European post-communist countries. (Albania, Belarus, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, and Ukraine.)

It was less than 7 percent in the group of nineteen West European democracies (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom). Similarly, the average inflation rates for the two groups of states were over 6 percent for the post-communist countries, and less than 2 percent for the Western liberal ones. Moreover, official corruption was and still is a far more serious and corrosive problem with respect to business transactions in the East than it is in the West.

The road to freedom and opportunity was clearly opened for many societies with the fall of communism, but the experience of the last nearly two decades indicates that undoing the legacy of communism is a formidable, long-term challenge.



Author Bio:

Andrzej Brzeski is Professor of Economics Emeritus at the University of California (Davis ) . He came to the United States from his native Poland in 1958 as a Ford Foundation fellow . He had first hand experience of Hitler’s murderous fascism and Stalin’s communism. His stay in the Soviet Gulag in 1944-46 was especially enlightening.

Alexander J. Groth (Ph.D. Columbia University, 1960) is Research Professor of Political Science at the University of California, Davis, where he has taught comparative politics since 1962. His major interests include Communist and post-Communist systems as well as comparative public policy. Groth is recipient of the Thomas R. Dye award in public policy studies, 2000. He has written and edited eleven books, including Comparative Politics (1971); People's Poland (1972); and Holocaust Voices (2003). He has contributed over 100 articles to scholarly outlets, including American Political Science Review; British Journal of Political Science; Slavic Review; Orbis; Studies in Comparative Communism; Communist and Post-Communist Studies, and Problems of Communism, as well as The Encyclopedia Americana; The World Book Encyclopedia; The Encyclopedia of Political Revolution; The Yearbook of International Communist Affairs; and Revolutionary Movements in World History.