When the iron curtain fell twenty years ago, hope bubbled to the surface in Central and Eastern Europe. And five years ago, the Czechs and their kin joined the EU with great expectations. Now, given the current woes of global capitalism, the promise of free market integration is muted at best. The world has gone crazy as the East privatizes and the West socializes. The nature of the relationship between capitalism and democracy has been brought into focus. The conventional wisdom that economic growth brings individual liberties is at issue. To put the current state of affairs in context, let's first take a look back.
POST-COMMUNIST PRIVATIZATION AND INTEGRATION INTO THE GLOBAL ECONOMY
When the Berlin Wall came down and the promising winds of freedom blew East, it was predictable that the "transition societies" in the East would embrace capitalism. After all, Comecon had not fulfilled peoples' desires. Privatization was the way forward in the East, and in Czechoslovakia that meant the issuance of privatization vouchers, which were eagerly gobbled-up by ownership-starved Czechs. But the garden path to prosperity was laden with thorns. The Harvard Funds is the best-known example of naive post-communist consumer-investors being lured with empty promises and deceitful practices.
In 1992 the Czech government launched the first of two large scale privatization waves designed to return state-owned enterprises to private ownership. The privatization strategy designed by Vaclav Klaus was marred by allegations of rampant corruption. Vaclav Havel described it as "gangster capitalism." A voucher scheme enabled any Czech over eighteen years of age to purchase vouchers. Of the six million Czechs who participated, 70 percent of them invested their vouchers in investment privatization funds.
If it sounds too good to be true, think fraud. The essential reality of finance is that the greater the return the greater the risk. In 1991, Viktor Kozeny's Harvard Capital and Consulting promised a tenfold return within a year and a day on Czech privatization vouchers entrusted to them. Czech investors were doubly defrauded as Kozeny made incredible promises and then stripped some sixteen billion Czech Koruna of investors' money away by "tunneling" the assets to the Bahamas where he fled as Czech investigators closed in. Kozeny, who has since fled to Azerbaijan, used his Harvard degree in economics to instill confidence in unsophisticated Czech investors, who to date have not seen any of their money returned.
ECONOMIC INTEGRATION ELSEWHERE
The global "South" has a longer history of grievances with its integration into the world economy than does the "East." In the 1970s, less developed countries gave voice to their dissatisfaction with global capitalism by calling for a New International Economic Order. NIEO grew out of the non-aligned movement, a large grouping of developing states which rejected aligning themselves with US-led capitalism or Soviet-led centrally planned economies. In 1994, criticism of the IMF and World Bank achieved widespread coordination in the Fifty Years is Enough Campaign, marking the 50th anniversary of these institutions. Developing economies found that IMF Structural Adjustments Programs, World Bank conditionality, and the terms of trade imposed upon them by the "North" simply entrenched them in a weak and dependent relationship with the industrialized world.
In Asia, the 1997 financial crisis came to be known as the IMF crisis due to the role it played in forcing the governments of Indonesia, South Korea and Thailand to adopt strict monetary and fiscal policies which led to social upheaval. Latin American countries have had similar long-standing criticisms of IMF policy, which in part explains the rise of leftist politicians with socialist-oriented economic platforms from Bolivia to Mexico. This year, Africa, Asia and Latin America have been hit by …