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Vodka and Pickled Cabbage: Eastern European Travels of a Professional Economist*

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Vodka and Pickled Cabbage: Eastern European Travels of a Professional Economist* CENTRE FOR ECONOMIC REFORM AND TRANSFORMATION School of Management and Languages, Heriot-Watt University, Edinburgh, EH14 4AS Tel: 0131 451 4202 Fax: 0131 451 3498 email: [email protected] World-Wide Web: http://www.sml.hw.ac.uk/cert (ebook) Vodka and Pickled Cabbage: Eastern European Travels of a Professional Economist* Paul G. Hare‡ September 2008 Discussion Paper 2008/08 Abstract One of the most amazing ‘events’ of the last 15 plus years has been the complete transformation of the countries of Central and Eastern Europe and the former Soviet Union, their transition from communist rule and central planning to various forms of market-type economy. Ten of the countries have now joined the EU as full members, and for them this accession marks the real end of the Cold War, the end of the postwar divide between East and West. As a professional economist - initially as a PhD student, eventually as an economics professor based in Scotland - I have worked on the region since the late 1960s, travelling to diverse places in many countries, getting to know the people, observing the economic system both under central planning and as it was transformed to a market system. Finally, in 2006, I decided to write a book about my experiences in the region. The result is not a technical academic work of the sort I normally write. It is a mix of economic history; short accounts of what I do or have done as a professional economist working in an endlessly fascinating part of the world; and travel tale, since my work has taken me to some quite obscure and not at all well known places. Everything in the book is based on my own observations and experiences, supported in places by extensive background knowledge and reading. Keywords: travel, Eastern Europe, economics of transition, EU accession, research funding JEL Classification: P30 * The views expressed in what follows are entirely those of the author and nothing said in the text should be interpreted as an official policy of any of the governments or international organisations mentioned. All errors remain the full responsibility of the author. ‡ CERT, Heriot-Watt University. Contact address: Centre for Economic Reform and Transformation, School of Management and Languages, Heriot-Watt University, Edinburgh EH14 4AS, UK. Email: P.G.Hare @hw.ac.uk. Vodka and Pickled Cabbage by Paul Hare Vodka and Pickled Cabbage: The Eastern European Travels of a Professional Economist Contents Page Preface 3 Chapter 1. How it all Began 6 Chapter 2. Starting Transition 23 Chapter 3. Borders and History 40 Chapter 4 The Early Years: Understanding and building markets 50 Chapter 5. Russia: Off the beaten track 66 Chapter 6. Services for the Visitor: Airports, Hotels and Food 89 Chapter 7. Choices, Shops and Markets 115 Chapter 8. Funding, Projects and Workshops 131 Chapter 9. Return to Europe 159 Chapter 10. What Can Economists Do? 183 2 Vodka and Pickled Cabbage by Paul Hare Preface One of the most amazing ‘events’ of the last 15 plus years has been the complete transformation of the countries of Central and Eastern Europe and the former Soviet Union, their transition from communist rule and central planning to various forms of market-type economy. Ten of the countries have now joined the EU as full members, and for them this accession marks the real end of the Cold War, the end of the postwar divide between East and West. As a professional economist - initially as a PhD student, eventually as an economics professor based in Scotland - I have worked on the region since the late 1960s, travelling to diverse places in many countries, getting to know the people, observing the economic system both under central planning and as it was transformed to a market system. Finally, in 2006, I decided to write a book about my experiences in the region. The result is not a technical academic work of the sort I normally write. It is a mix of economic history; short accounts of what I do or have done as a professional economist working in an endlessly fascinating part of the world; and travel tale, since my work has taken me to some quite obscure and not at all well known places. Everything in the book is based on my own observations and experiences, supported in places by extensive background knowledge and reading. Several factors came together in the last few years to encourage me to write this book. First, it becomes more evident every year that our undergraduate students know absolutely nothing about the postwar history of Europe, and are mostly unaware that half the continent was behind the ‘iron curtain’ from the late 1940s until at least 1989. Hence they have no idea what the transition process has involved for the countries of Central and Eastern Europe, as these countries transformed themselves from old-style central planning and comprehensive state ownership of most of the economy into modern, market-type economies. Eight former communist countries in Europe joined the EU in May 2004 (and two more in January 2007), thus completing what has been one of the most important shifts in Europe’s centre of gravity since 1945, but again, most of my students barely registered the significance of this event. 3 Vodka and Pickled Cabbage by Paul Hare And to be fair, why should they? Most are aged 19 or 20, so in 1989 they were not even in primary school; and in 2004, therefore, they had little appreciation of the significance of the EU accession process. The result, though, is that a period of recent history that my generation lived through has practically vanished, except for a residue of ‘problems’ in South Eastern Europe, also not widely or well understood other than by academic specialists. Thus there is a need for a book on Central and Eastern Europe that is not too technical or academic, rather aimed at the intelligent general reader, to bring the region ‘back to life’. Second, my students and other people do from time to time ask me, ‘what do economists do?’ Of course, people know that I teach my students, and some are also aware that I take part in various research projects and write papers and reports for different organisations. When people ask the question, though, what they are really asking concerns what I do when I visit various countries, either to do some research or to give policy advice. Much of my career has been spent studying Central and Eastern Europe, my involvement in the region extending from 1969 through to the present day, and my activities in the region have included a very wide range of interesting policy issues. Third, my visits to Eastern Europe have taken me to many little known and infrequently visited places across the region, and my travels have given rise to an amazing range of amusing and bizarre experiences; many of these, I hope, will also interest the reader. Moreover, over the years, I have seen truly massive changes in many of the countries I have visited, and sketching some of these also helps to illustrate what building a market-type economy is all about. In developed Western countries we often take for granted what a market economy ought to ‘look like’, and rarely even think about the institutions that make it work. Working on Central and Eastern Europe has helped me to understand what big gaps there are in our usual understanding of the market economy. While filling the gaps might 4 Vodka and Pickled Cabbage by Paul Hare well turn out to be a major research programme, my own experiences have at least enabled me to outline a selection of the issues that need more attention. Last but not least, right at the start (back in 1969) I was attracted to work on Eastern Europe because on my early visits I liked the people I met, and enjoyed the region’s diverse and unusual food and drink. These are not exactly sound ‘academic’ reasons for working on an area, but they are not trivial ones either, since it would otherwise have been extremely hard to work on the area for so long, and so enjoyably. In writing this book I have been helped by several friends and colleagues who read, and sometimes commented on various chapters, especially the early ones. Their efforts have helped me to avoid some mistakes, but I naturally take full responsibility for remaining errors. I particularly want to thank Susan Shaw, Conan Fischer, Richard Stoneman, Alec Wersun, Peter Wilson, Xavier Richet, ErnÅ Zalai, Mikhail Lugachyov, László Csaba, Helgard Wienert, Josef Brada and Tony O’Rourke for their encouragement. Most of all, though, my wife Cindy has supported me throughout this project, reading and commenting on everything, and providing the sort of calm, loving environment that authors need. Our numerous animals also contributed to this aspect of the ‘project’ in their very individual ways. Lasswade, Midlothian, Scotland. August 2008 5 Vodka and Pickled Cabbage by Paul Hare Chapter 1. How it all Began It all began in Vienna in August 1968. I was there for a month-long German language course, before becoming a student again. I was due to start postgraduate studies in economics at Oxford that October, following a fascinating year working in the chemicals industry in northern England as a mathematician. Vienna itself was already familiar, as two years earlier I had passed through while hitch- hiking south to meet friends in Italy. But at the language course there was no one I knew, and I found myself sharing a room in a hostel with a Czech student, Karel, a little older than me.
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