Academic journal article Demokratizatsiya

Stability vs. Volatility: Why the CIS Is Not a Shining Example for Central Europe

Academic journal article Demokratizatsiya

Stability vs. Volatility: Why the CIS Is Not a Shining Example for Central Europe

Article excerpt

Getting It Wrong

In a contribution to Demokratizatsiya's recent tenth anniversary issue, Anders Aslund tenders a forecast of the economic paths that the former communist countries are likely to take in the foreseeable future.1 Aslund, a specialist on economic transformation in the former Soviet Union and a senior economic adviser to three post-Soviet states, contrasts the member states of the Commonwealth of Independent States (CIS) with the countries of Central Europe, most of which will soon become members of the European Union (EU). In his prediction, Aslund comes to the surprising conclusion that the economic honeymoon period for Central Europe has come to an end and that the CIS economies are going to outrun their western postcommunist counterparts. His forecast rests on two complementary claims: (a) the EU imposes a regulatory regime on the Central European countries that will undermine liberal reforms and thereby stall economic growth; and (b) whereas Central Europe backtracks from liberal reforms, the CIS countries have increasingly adopted a liberal paradigm, which induces governments to ease control over the economy, thereby promoting economic growth.

As much as we hope for a quick economic recovery of the CIS countries after the financial meltdown in 1998, Aslund's prophecies embody a significant distortion of reality, making his forecast highly questionable. Two major shortcomings undermine his work. First, he relies on an unbalanced assessment of the EU and its policies. Second, as do many other neoliberal economists, Aslund underestimates the indispensable role of a strong state in economic transformation. By correcting those inadequacies, I come to the conclusion that the EU is not likely to hurt Central Europe's economies-at least, not in the manner or to the extent that Aslund foresees. Central European markets are based on solid economic and political institutions, which enable their economies to grow at a steady pace. In contrast, the CIS economies suffer from their governments' inability to establish a solid economic framework. Any economic recovery is therefore likely to be only temporary, followed by economic downturns that will especially hurt the socially vulnerable segments of society. The CIS is therefore hardly a shining example for Central Europe.

The EU's Liberal Agenda

Aslund claims that the EU embodies a "social democratic ideology of a social welfare state with extensive state regulation, high taxes, large social transfers, and substantial public expenditures," all of which are undermining economic growth.2 This is a rather peculiar interpretation of the EU. Although most of the EU's member countries are social welfare states, the EU itself has a far more deregulative than re-regulative effect on the member states' economies. For instance, the creation of the Single Market has led to the abolishment of myriad formal and informal trade barriers, including health and environmental regulations, state subsidies, and social provisions. In other words, although the 80,000 pages of European legislation (the acquis communautaire) appear to be the spawn of bureaucratic eagerness, the acquis has, in many ways, streamlined and superseded an even vaster body of national rules and regulations.

In contrast to their deregulative zeal, the EU member states' willingness to re-regulate the liberalized European market is rather underdeveloped. For instance, the EU has been unable so far to make member states agree on common tax rates. Fiscal policy, despite the Monetary Union, above all remains a national matter. Likewise, the Social Charter merely constitutes a lowest common denominator that does not require from any member state the introduction of extensive welfare provisions. In fact, the Social Charter is mainly concerned with health and safety measures at the workplace and equal pay for women and men. Labor unions have lamented that lack of a "social Europe" for years. Nevertheless, partly because of the lack of any effective cross-border union solidarity, labor representatives have so far been unable to pressure EU institutions to impose more stringent welfare and labor market provisions. …

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