The sources and consequences of poverty and inequality in Eastern Europe and the CIS countries at th
This paper is not a comprehensive analysis of the social changes, says its author, Mihály Simai, of the Hungarian Academy of Sciences. It is dealing with certain aspects of them, which have a major influence on the human dimension of the transformation process in the Eastern European region and in the CIS, countries (on the east of the frontiers of the European Union).
This paper is not a comprehensive analysis of the social changes, says its author, Mihály Simai, of the Hungarian Academy of Sciences. It is dealing with certain aspects of them, which have a major influence on the human dimension of the transformation process in the Eastern European region and in the CIS, countries (on the east of the frontiers of the European Union).
1. Introduction
The issues of poverty and inequality which occupied an important place in the development policies of the UN in the 1950s and 1960s have been brought back into the international dialogue on the future of humankind by a great number of changes. These include changes in the distribution in income and wealth associated with globalization and with the restoration of the dominating role of the market system. The causes and consequences of the large and in many cases growing income gap between countries comprise another important justification for the dialogue. The collapse of the communist regimes in Central and Eastern Europe has been not only a new source of the increase of poverty and inequality, but added also a special ideological dimension to the discussions. These changes have been also in the background of the Millenium Program, adopted by the General Assembly of the UN in 2000 which opened a new action oriented dimensions in the debates, related mainly to some of the crucial aspects of the human condition of future global development. The debates have become more and more multi-dimensional. They included issues related to sustainable development, to the process of capital accumulation. One of the important questions which have been “emerging”: is inequality or at least certain level of it a necessary condition of sustainable capital accumulation and hence of economic growth? They were also related to the social aspects development, to the possible “humanization” of the globalization process, the feasibility of the progress toward “ethical markets”. These global debates have many region specific aspects in general and particularly in the former socialist countries. The ongoing process of change from a socio-economic system, the replacement of a centralized, totalitarian, nonmarket “egalitarian” system with a democratic market economy in this countries influences both of the main dimensions of inequality: the international, and the national, within the countries. The change in the former socialist countries is described either as a ‘transition’ or a ‘transformation’ to a modern, democratic, market-economy. The transition concept is a narrower one, while transformation implies something more comprehensive that embraces political, economic, social, psychological, institutional, national and international changes.
One of the most important issues of the transformation process, how the similar tasks will be implemented in this extremely diverse region between Western Europe and the Pacific Ocean, divided by ethnic, religious and political conflicts, cultural traditions, political interests and economic potentials. It is no accident that the two world wars started in the region, which also saw in the 1990s the longest post-war civil conflicts in Europe. The rivalry between great powers for control, furthered by policies of divide and rule, fuelled violent nationalism and chauvinism in some countries, bringing serious conflicts and tragedies.
The 27 countries of the region, most of them, new states are extremely diverse in size, development level, historical background, and social and political structure. The etatistsocialist regimes collapsed also in different ways, producing the present spectrum of regimes. 4 There are complex interactions between past and present and between the diverse political, economic and social processes, cultural values, national and external factors and institutions. The diversity extended to the degree of progress they made in marketization, liberalization, and economic and social development. At the early stage of the 21 st century, the region includes those Central European countries, which are the new members of the European Union, together with the Baltic States. These countries comprise a special case not only because they are the members of the EU, but they are well ahead in the process or marketization and regained those losses in per capita income what they suffered as the consequence of the transformation crisis. East of these region there are two countries which are the candidates for the next round of admission to the EU, and the member states of the Commonwealth of Independent States. (CIS). They share many similarities with the former members of Yugoslavia and with Albania in the Balkans. Which are outside of this region. (Mongolia, which does not belong to any of these groups is a highly special case)
The Russian Federation is still the most important power in the region, occupying 76 per cent of the territory of the former Soviet Union, with over half of its population (80 per cent Russians) and about half its natural endowments. Russia inherited about half the economic capacity and about 80 per cent of the R and D and military potential. It is a major Eurasian power of geo-strategic importance, encompassing 67 regions and 21 national republics.
Some political thinkers saw the collapse of the socialist-etatist system in Central and Eastern Europe an in the former Soviet Union as a global victory for liberal democracy.
The ideas and preferences of different schools of thoughts also emerged in the international dialogue on the concept and content of the transformation. Many Western scholars tended initially to regard the transformation as a kind of ideological training ground for testing their theories – radical, orthodox, gradualist and evolutionist models alike. Others viewed the postcommunist economies as a late and delayed imitation of their own social and economic conditions. In the countries themselves, there were few original ideas raised in the context of the goals and character of the changes. In the academic debates two alternatives arose, with little real influence on the political process: (1) joining the mainstream of the global market system and (2) a ‘third road’ that evades the problems of world capitalism, while leaving the region in the global market system. In reality the domestic and international environment left little or no leeway for countries to choose between alternatives. Also disregarded by pundits was the diversity of the capitalist system, which was to serve as a model. The one projected for the transition was more or less a textbook-capitalism, a liberal, free-market system.
It was anticipated by many experts, politicians and members of the public in the early 1990s that reintegration into global markets and the transformation process would open historic opportunities for the former socialist countries to accelerate their economic modernization, with positive welfare effects. It was generally believed that the richer world, along with the institutions and processes of forms of global cooperation from which they had been excluded or in which they had been marginalized, would help the transition countries to fulfil those expectations.
It is not easy to gauge what actually happened. The new problems and sources of risk and instability brought about by the transformation have to be weighed against positive aspects of the changes. The qualitative and quantitative aspects of the process and the differences between countries impede such judgements. There are some common characteristics however, related the theme of this paper: in the first decade of the transformation little or no attention was paid to the social implications of the process. At the same time, the social consequences of the transformation recession have been dramatic, particulaarly in the territory of the former Soviet Union. At this stage, at the early parts of the 21st century it is more or less an academic question whether the countries had a real choice at the beginning of the changes, to introduce a model, facilitating a more equitable market system? It is also an academic issue whether the transformation crisis, the radical increase of poverty, deprivation, deterioration of health, exclusion and inequalities could have been avoided?
This paper is not a comprehensive analysis of the social changes. It is dealing with certain aspects of them, which have a major influence on the human dimension of the transformation process in the Eastern European region and in the CIS, countries (on the east of the frontiers of the European Union). This includes the former Soviet Union and those countries in South Eastern Europe, which may join the European Union after 2007. This is a large region, which is partly Europe, partly Asia.
While the economic performance of these countries has been quite uneven uring the past 12- 14 years both in time an spece, it has been generally recognized that that in certain areas much has been accomplished in the process of transformation, also in these countries. Macroeconomic stability has improved, though varying degree, there has been fiscal consolidation, and most of the countries introduced important liberalization measures in their domestic economy and international economic relations. Most of the currencies in the region are convertible. The new institutions, indispensable for a market economy, though functioning with varying efficiency, are in place. Growth has been resumed in most countries. The countries became capitalist, or market economies. Many of them resemble more to the systemic hybrids of the developing countries than to the developed models of the modern market systems. There are important differences in the ownership patterns, particularly in three areas: the size of public ownership (the leftovers of the socialist era) the character of private ownership (institutional, personal, small or large scale) and the proportion and character of foreign ownership of the main assets, firms, bank, etc. The development of the legal framework of the markets, the character of the existing institutions is also quite different. There are also differences in the functioning of the markets, in the degree and character of competition, in the size and role of the informal sector, in those areas which are considered as the « dark side » of the system: crime, corruption etc. and its main role. The degree and character of the integration of these countries into the global markets is also different. All these and other factors have a major influence on the social condition of the given countries, on employment, poverty, and inequalities and on the related policies. The mentality of people and their value system is also quite diverse and mixed. It is interwoven with the ideological heritage of the past and the expectations, related to the future. All these should be taken into account when one tries to evaluate the situation and the main trends.
The countries, the statistical data for which have been selected in this paper are representing also different “types”. They differ in their development level, size of economy and population, the degree of marketization and integration with the global markets, the speed of social changes and the social costs of the transformation. The incidence of poverty for example was about 25-30 per cent in the Russian Federation aaand 70 per cent in the poorest CIS member state, Tajikistan.
Due to the level of development, the character and speed of the institutional reforms, the transition to a market-based system in Central Asian countries over the past decade has been much more difficult than in the European part of the CIS or in Central Europe, Economic contraction and the related growth in poverty and unemployment in those countries were much greater and of longer. During the first half of the 1990s, real GDP of Central Asian countries fell by more than 50 per cent and poverty and inequality increased substantially. In spite of the resumed growth since the later part of the 1990s output of most subregional economies in Central Asia in 2002 remained around 25-30 per cent below the 1989 level, poverty and unemployment remained also a major problem. It has even deteriorated in some countries.
There are five sections of this paper. The first section is an overview of the social consequences of the transformation process. This includes also the social consequences of the disintegration of the Soviet Union, the privatization process and of the liberalization of the external sector. The second section is dealing with the changes in the labor market and the consequences of unemployment. The third section is analyzing the implications of poverty, the fourth section is dealing with the changing social stratification and the fifth section is looking at certain social policy issues.
