VARIATIONS OF MARKET ECONOMY
COMPARATIVE STUDY 16 COUNTRIES OF THE REGION
Prepared by Centre for Europe Warsaw University
Edited by
Prof. Krzysztof Jasiecki
Acknowledgments
This book contains the results of research carried out as part of the project “Variations of market economy in Central and Eastern Europe. Achievements and challenges”, which was implemented in 2019 by the Centre for Europe at the University of Warsaw (CE UW) and the Centre for International Relations (CSM) in Warsaw. It was necessary, among other things, to create an international consortium of institutional partners, which included (apart from Poland) representatives of research centres and experts from Hungary, Serbia and Lithuania. The research was commissioned and funded as the Research Project Tender (RPT) by the China-CEE Institute in Budapest as part of the “30 Years of Transition of Central European Countries: Reflection and Prospect” program. It covered sixteen CEE states participating in the “16 + 1” format1, officially referred to as “Cooperation between China and Central and Eastern European Countries”.
The concept of the research project prepared by the CE UW and the CSM was presented to the consortium’s foreign partners and was the subject of many consultations via e-mail and WhatsApp. Between 24 and 25 of April, 2019, a kick-off workshop was held in Warsaw to discuss and agree on the main directions of analyses, including their theoretical framework, the structure of national reports and methods of consulting and modifying the prepared articles to develop their final versions.
In this context, on behalf of the CE UW and the CSM, we express special thanks to all those who participated in the preparation and implementation of the research regarding both the selected states and the specifics of the selected CEE subregions: the Visegrad Group countries, the Baltic Republics and the states of Southeast Europe, including the Western Balkans. They were: Professor Miklós Szanyi from the Institute of World 1 In May 2019, the “16+1” format was transformed into a “17+1” platform enlarged with Greece’s entry. Since the project already started earlier, the Greek case is not presented in this publication.
Economics at the Centre for Economic and Regional Studies of the Hungarian Academy of Sciences; Miklós Somai, PhD, from the Institute of World Economics, Hungary; Fruzsina Sigér, PhD, from Debrecen University, Hungary; Mihailo Gajić, Director of the Libertarian club LIBEK in Belgrade, Serbia; Małgorzata Bonikowska, PhD, from the Centre for International Relations, Poland; Bruno Surdel, PhD, from the Centre for International Relations, Poland; Andrzej Turkowski, PhD, from the Centre for International Relations and the Robert B. Zajonc Institute for Social Studies at the University of Warsaw, Poland; and Simonas Algirdas Spurga from the University of Vilnius, the Chief Economist at the Economic Policy Analysis Division, the International Relations Department, the Bank of Lithuania.
The project was implemented under the supervision of prof. Bogdan Góralczyk, Director of the CE UW, Kamil Zajączkowski, PhD, Deputy Director of the CE UW and Małgorzata Bonikowska, PhD, President of the Centre for International Relations. The Chinese translation of the Report was provided by Hang Yuan, PhD, from Sechuan University. Special thanks go to Chen Xin, PhD, director of the China-CEE Institute in Budapest and other colleagues from the Institute for their suggestions and comments.
Preface
This book presents the results of the project, which main goal was to identify the key directions, institutional distinguishing features and results of economic and social development of selected Central and Eastern European (CEE) countries, which for the three decades have been carrying out systemic changes after the collapse of the command and distribution economy. The results are also characterised by the key issues and challenges facing both individual countries and subregions of this part of Europe.
The book consists of four chapters. The first two are theoretical, the third one contains empirically oriented national reports, and the fourth one summarises the work carried out. Annexes and a bibliography complete the publication. The first chapter analyses the diversity of the contemporary variants of European capitalism in the perspective of research devoted to these issues in neo-institutionalism, comparative economics and economic sociology (in the categories of Comparative Capitalism, Varieties of Capitalism and Diversity of Capitalism). It presents the debate on models of capitalism in the West after World War II, taking into account the controversy surrounding the tendency towards institutional convergence or divergence of its variants. A special catalyst was first the neoliberal Washington Consensus, and then the financial and economic crisis of Western countries, symbolically initiated by the collapse of the Lehman Brothers in 2008.
This chapter characterises the main threads of the discussion on the definition of market economy diversity, as outlined by the most frequently cited creators (and their successors) of competing concepts of “ideal types” of capitalism. It presents the advantages and disadvantages of these approaches, especially when applied to the CEE states in the period of systemic transformation, European integration and the structural crisis of capitalism. It puts forward standard and non-standard approaches to this issue in discussions on various typologies of capitalism variants in European post-socialist countries (“transnational capitalism”, “liberal capitalism”, “dependent market economy”, “foreign led capitalism” etc.) together with the criteria for their separation. Political and economic crises in the EU further strengthen the centrifugal, disintegrating and differentiating tendencies in the form of various concepts of the “multi- speed European Union”, which overlaps with the transition to the next phase of civilisation development (Digital Capitalism, 4.0. Industry, etc.). Each of these phenomena significantly modifies the institutional shape of the market economy.
The second chapter presents the concept, methodology and data sources used in the project. The conceptual framework is outlined by the perspective of “comparative capitalism”, rooted in the debate on variants of the modern market economy after the collapse of the Soviet Union in 1991. The use of such new terms as “emerging markets” or “transition economies” drew attention to the importance of different levels of development, and the institutional shape of many economies involved in globalisation processes. The principles of Anglo-Saxon capitalism, which at the time reached its apogee of political significance, exerted a particularly great influence on the direction of the development of the CEE states in the 1990s, particularly that this variant was largely supported by the EU. The countries of this region, however, have their specificity of development, which differs from other “emerging markets”, which from the perspective of economics and economic sociology is conducive to the study of their institutional and economic shape. This section sets out some of the common CEE features of the development of new capitalism. They combine – in different ways in individual countries – elements of historical heritage from before World War II, a centrally planned economy, as well as rules and institutions adopted from different variants of modern Western capitalism, which has resulted in hybrid varieties of “patchwork capitalism” or “mixed type capitalism”. Most often (with a few exceptions) they take the direction of evolution institutionally approaching the variants of capitalism in Southern Europe. These similarities are particularly visible in the form of the large role of the state, imitative economic development, as well as the weakness of the knowledge sector and relatively low level of innovation of enterprises. Despite liberal labour relations in most states of the region, the variants of capitalism in the CEE countries diverge from the Anglo-Saxon model due to the weakness of the capital market.
What has been specified are the key research dimensions that create the basic methodological structure of economic and social profiles in the countries concerned in nearly three decades of economic changes: the political context and quality of institutions, the general economic outlook, the quality of entrepreneurship, modernisation based on FDI, the knowledge sector and the public opinion attitude towards transformations. The structure of each of these areas consists of characteristics of particularly significant processes and trends, indicators and statistical data embedded in international comparative rankings, including those of the World Bank, the International Monetary Fund and Eurostat. The analysis of the economic profiles of individual countries is an attempt to capture the most typical and characteristic elements, as well as to show the divergent and specific factors in their development. The differences in the level of economic development in various periods of the transformation in individual countries with reference to the EU average have been presented, as well as the justification for the analytical separation and division of CEE into several subregions with their different cultural and institutional features.
The third chapter contains sixteen case studies of CEE economies considered in four sub-regional groups: 1) the Visegrad Countries (the Czech Republic, Hungary, Poland, Slovakia); 2) the Baltic states (Estonia, Latvia, Lithuania); 3) the Southeast European states (Bulgaria, Croatia, Romania, Slovenia) and 4) the Western Balkans (Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, Serbia). Motivated by theoretical findings, the choice of common dimensions and development indicators for individual states enables them to be compared with both other CEE countries and other European countries, including EU Member States. (However, detailed comparisons of CEE with other EU countries are beyond the scope of this study.) In the context of the issues presented, the main hypothesis of this publication has been formulated. It reads as follows: the CEE countries create different variants of the market economy that lead to different economic and social effects. However, the 2008-2009 financial crisis in the EU and its course and consequences in the countries of the region have shown that the existing institutional solutions require significant system adjustments in all the countries studied.
The successes and challenges of economic and social policy in the countries of the region are characterised, which largely determine the possibilities of their development in the coming years. One of the catalysts for the new situation are also changes in social expectations, which find political expression in many CEE countries in the form of radical changes of leaders and elites. Political and institutional changes in Hungary since 2010 and those in Poland since 2015 are clear signs of such tendencies. At the same time, in other countries, including in the Baltic states, the continuation of reforms initiated in the 1990s prevails. In this context, the thesis on the special role of foreign direct investment (FDI) in the processes of modernising the economies of the region and the structural consequences of this phenomenon is being discussed. This role is subject to re- verification in connection with the financial and economic crises in the EU. Against this background, the criteria and manifestations of differences between the CEE countries are being considered.
In the political dimension, various “symbiotic” connections of economic liberalism with statism, paternalism, the oligarchic rule, the crony model of capitalism or elements of authoritarianism (“illiberal democracy”) are relatively common. These phenomena occurred with great force at the beginning of the post-socialist transformation. In some countries of the region, they significantly weakened during the accession negotiations and joining the EU due to institutional and regulatory adjustments; especially the introduction of EU law (aqui communitaire). They began to intensify again after the global financial crisis in 2008, and the accumulation in the EU of financial, economic, security and migration crises.
Chapter four presents the main findings generalising the results of national case studies in four separate CEE subregions, and a comprehensive summary of the project results. The characteristics of the subregions, however, to a large extent go beyond the content of country reports due to the need to outline a slightly broader reference system for the analysis of the processes and trends considered. Hence, this part contains synthetic historical introduction regarding all the discussed subregions, and it examines similarities and differences between the countries that make them up (e.g. in terms of the quality of institutions or achieved economic results). Generally, the subregions are represented by a structure similar to the parts referring to individual countries, but with greater emphasis on comparative aspects regarding different subregions or the whole of CEE. In turn, the summary of the study is a synthetic review of the most important project results, taking into account both the shaping and evolution of variants of capitalism in CEE, and the main causative factors in the region, including economic, cultural and security connections.
What is also discussed are the factors working for seeking new economic development strategies in many countries of the region, such as the depletion of the existing sources of growth, fears of falling into the “middle income trap”, crisis and centrifugal trends in the EU, whose manifestation have become such phenomena as Brexit and the concepts of “Europe of many speeds”, changes in the geopolitical situation (the militarisation of the Russian Federation’s foreign policy, tensions in transatlantic relations between the US and the EU, trade and technological wars initiated by the administration of President Trump, etc.). Certain new environmental, civilisation and cultural challenges, including the demographic factors resulting from the aging of societies have recently also intensified in the CEE countries. The latter are all the more significant because after 1990 the countries of the region recorded the largest decline in the fertility rate in the world and large economic emigration to Western countries.
Work on the book was completed at the beginning of 2020. The coronavirus pandemic caused radical changes and diversifications of the economic situation in the Central and Eastern European countries. As in other regions of the world, a new phase of economic development has begun. Therefore, the book could be considered a synthetic summary of the evolution of economic systems in the region in 1989-2019, and a potential starting point for further research.
Krzysztof Jasiecki