Who Is Responsible for Postcommunist Successes in Eastern Europe?

By Mieczyslaw Kabaj and Tadeusz Kowalik

Professor Jeffrey Sachs ("Postcommunist Parties and the Politics of Entitlements" (Transition, Vol. 6, No. 3, March 1995) claims that the victory of the left-wing parties in Central and Eastern Europe was the result not of unduly cruel market reforms, but of the actions of postcommunist parties to bring about pensioners' power, while promising to maintain, or increase, the entitlement of the social welfare state. In his opinion the elections in Eastern Europe have become "almost exactly" like those in Western Europe and the United States: dominated by interest group politics.

We do not agree with this assessment. The economic policies of the first democratically elected Polish government and the related social responses are unlike Western norms. We believe that the constant changes in government (six cabinets have been formed since 1989), the frequent elections and negative campaigns, the derailment of the economic policy, and the absence of right-wing parties from the Parliament since 1993, all have their immediate origin in the unduly cruel reforms.

Omitting an analysis of the events that led to an explosion of social expenditures, Professor Sachs claims that the blame should be placed on populist politicians.

But these politicians were responding to the demands of pensioners and peasants, traditionally conservative and protectionist interest groups. It was not careless social policy that led to the expenditure explosion. Instead, it was the unforeseen consequences of the overall economic policy and, in particular, of the stabilization program sponsored by the IMF and vigorously recommended by Professor Sachs.

In Poland the ratio of social expenditures to GDP almost doubled between 1990 and 1992, rising from 10.7 percent to 20.1 percent:

A plunge in overall demand in 1991 and 1992-triggered by price liberalization, a simultaneous, almost total freeze on wages and other incomes, and the sudden opening of the unprepared Polish economy to foreign competition-caused unemployment to swell and led many in the work force to choose early retirement.

The initial, excessively high unemployment benefits severely drained the budget. Advocates of the "shock therapy" assumed that rapid restructuring, the dynamics of a free market economy, and a huge inflow of foreign direct investment would contribute to the rapid absorption of the "temporarily" unemployed. However, unemployment turned out to be not only massive but also permanent. As a consequence of the "shock," 5 million Poles (26 percent of the labor force) moved from the production sphere to the redistribution and social spheres. Paradoxically, our liberals, fighting against the "oversocialization" of the economy (Professor Balcerowicz's favorite expression), created a gigantic social welfare state, in which the number of people depending on income redistribution, approaches the number in the active work force that is generating the national product.

It is hard to share Professor Sachs's view that in the postcommunist countries "the living standard of the population did not really drop, if one examines actual household consumption behavior." Even if one accepted his view, the question remains as to whether the distribution of incomes and thus the living standard of various social groups, was unchanged. Numerous analyses indicate that the rapid creation of a market economy and rapid privatization caused considerable stratification-in other words, rapid enrichment of the few and impoverishment of many. The very fact that Polish unemployment reached 16 percent-or, including early retirements, more than 20 percent-resulted in the impoverishment of millions.

Professor Sachs is right in emphasizing that the real wage indices do not take into account the positive effects of the transition from the economy of shortages to a balanced consumer's market. We are not suggesting that either the 1989-93 indices in Poland of real wage dynamics (100, 68, 66, 58, and 55, respectively) or the indices of the incomes from private farming (100, 50, 41, 46, and 48, respectively) accurately reflect the magnitude of decline in these groups' standard of living. Nevertheless, in Poland as well as in all postcommunist countries, apart from the Czech Republic, impoverishment has increased so much that it could not be compensated by the benefits of a balanced market, the reduction of waste, and second economy employment, mentioned by Professor Sachs. The deep decline of monthly food consumption in Polish households, shown below, underlines our argument.

It should be noted that the postcommunist countries have already undertaken certain "reforms" in social services. The increase in social expenditures was accompanied by the opening some social services to the free market. Between 1989 and 1993 the state reduced educational and health expenditures by around 40 percent, shifting part of the costs to household budgets. Since a large part of the population is impoverished, the health and education sector is heavily underfunded and their employees are consequently underpaid. This also affects living standards.

Disappointed voters, worried about poverty and uncertain about jobs, wages, and pensions, led the postcommunist parties to victory. The left-wing parties (postcommunist and peasants' parties) captured more than three-quarters of the farmer vote; almost half the votes of white collar workers without higher education; about 40 percent of the vote of blue collar workers, intellectuals, and pensioners; and one-third of the vote of high school and university students and the self-employed. Thus, apart from the farmers (who generally voted for the peasants' party), the division of electorate did not correspond to the criterion of socio-professional groups. Although the left wing did not win the election, a large percentage of poorer and poorly educated voters have turned their backs on the parties originating from the democratic (post-Solidarity) tradition. Hence, simple analogies to elections in Western countries, where interest groups' voting patterns are well established, are largely confusing.

Professor Kabaj is at the Institute of Labor and Social Issues, Warsaw, and Professor Kowalik is at the Institute of Economics, Polish Academy of Sciences, Warsaw.