The Political Economy of Post-Communism
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THE POLITICAL ECONOMY OF POST-COMMUNISM: THE DONBAS AND UPPER SILESIA IN TRANSITION (1980S –EARLY 2000S) Vlad Mykhnenko To Aistė CONTENTS Acknowledgments vi List of Maps vii List of Figures viii List of Tables xi Introduction 1 Research Agenda 1 Purpose and Limits 4 Methodology 5 Structure 12 Part One Upper Silesia and the Donbas – Similar Regions, Varied Trajectories 1. Inherited Similarities: Upper Silesia and the Donbas at the Outset of Post-Communism 16 Geographical Profile 16 Two Borderland Cultures 20 Economic and Settlement Patterns 24 Institutions of State Socialism 31 Conclusion 32 2. Different Trajectories: the Economic Performance of the Two Regions during the 32 Transformation Growth 33 Stability: Prices, Equality, Employment 39 Transformation Time Lag? 44 Conclusion 47 3. Varied Outcomes: the Development of Upper Silesia and the Donbas under Post- 49 Communism Economic Development 50 Social Development and Environment 52 iii Human Development and Survival 56 Conclusion 60 Part One Summary: Similar Post-Communist Regions, Varied Transformation Outcomes 61 Part Two Post-Communism as Multiple Liberalisation: Examining the Orthodox Transition Paradigm 4. Assumptions and Deduced Explanations of the Transition Paradigm 65 An Unabashed Victory of Liberalism – the Basic Premise of the Orthodox Transition 66 Theory Unhindered Competition for Buyers and Voters: a Paired Book of the Liberal Transition 68 Approach The Causal Chain of the Post-Communist Transformation 76 The Orthodox Transition Model Gets Blurred 79 Conclusion 81 5. Two Post-Communist Regions and the Explanatory Model of Multiple Liberalisation 84 Problem One: the Black Box of Post-Communist Politics 85 Problem Two: Policies v. Initial Conditions 86 Problem Three: the Transition Model and Transition Outcomes 92 Problem Four: the Virtuous Circle of (Mutually Partial) Liberalisation? 93 Problem Five: Freedom, Growth, and Official Ratings 96 Is the Orthodox Transition Model Applicable? 98 Conclusion 102 Part Two Summary: the Liberal Transition Paradigm, its Explanatory Model and 102 Applicability Part Three The Political Economy of Capitalism in Transition 6. Towards an Alternative Paradigm of the Post-Communist Transformation 106 The Path Dependence of Post-Communist Transformations 107 Institutional Complementarity, Hierarchy, and Political-Economy Equilibria 111 What Institutions Matter under Capitalism? 115 iv Conclusion 122 7. Post-Communist Capitalism in Upper Silesia and the Donbas 124 Product-Market Competition 125 The Wage-Labour Nexus and Labour Market Institutions 129 The Financial Intermediation and Corporate Governance Sector 134 Social Protection and the Welfare System 142 The Education Sector 146 Alternative Capitalisms in Transition 150 A Distinctively East European Model? 156 8. Two Types of Post-Communist Capitalism in the Making 158 Political Equilibria of Institutional Change 159 Transforming Comparative Advantages 170 Conclusion 177 Part Three Summary: the Political Economy of Post-Communist Capitalism 177 Part Four The Determinants of the Transformation in Upper Silesia and the Donbas 9. Institutional Dynamics of Post-Communism 182 Inherited Liabilities and Temporal Reform Trajectories 182 Institutional Complementarity Taking Root 184 Persisting Intra-Systemic Incongruities 186 Implications of the Study 189 The Futures of Post-Communist Capitalism 193 References 196 v ACKNOWLEDGMENTS This book has been a longer time in gestation than originally expected. Its beginning would not have been possible without generous funding from the Soros Foundation and the Cambridge Overseas Trust, whose joint scholarship allowed me to read full time for my Ph.D. at the University of Cambridge, in 1999 – early 2000s. I also gratefully acknowledge hardship funding and travel grants received from Darwin College, Cambridge. Many institutions have allowed me to make numerous research trips to Ukraine and Poland: at the University of Cambridge, the Faculty of Social and Political Sciences; in Budapest (Hungary), the Central European University, the Open Society Institute, and the OSI International Policy Fellowship Programme. Furthermore, I would like to thank the Cambridge Political Economy Society Trust and the Cambridge Overseas Trust for financially assisting me with the task of preparing for and attending my viva voce examination. I feel particularly grateful to many people who have aided me in field-work research in Ukraine and Poland. Discussions with many British, Polish, and Ukrainian scholars and fellow Darwinians, as well as practical assistance received have been indispensable. My special thanks goes to Oleksandr I. Amosha, Savelii S. Aptekar, John Barber, Ihor Chychasov, Adrian Cybula, Borys Cymbrowski, Roman Didenko, Verena Fritz, Vlada Gosal, Geoffrey Ingham, Nahee Kang, Soyoung Kwon, Slobodan Marković, Oleksandr A. Minaev, Matúš Minárik, Anatolii Mykhnenko, Artem Mykhnenko, Andrii Seniv, Marek S. Szczepański, Nir Tsuk, Mychailo Wynnyckyj, and Kerstin Zimmer. I am very thankful for encouragement and constructive criticism received from the two external examiners of this study – Denis J.B. Shaw (University of Cambridge) and Adam Swain (University of Nottingham). Finally, I would like to express my profound gratitude to David Lane (Emmanuel College, Cambridge), my Ph.D. supervisor at the Faculty of Social and Political Sciences, University of Cambridge. For without his supervision, thoughtful comment, and valuable criticisms this book would be an entirely different story, if at all. My greatest debt by far is to my wife, Aistė, whose advice, support, and endurance carried us both through the five and a half years it took to complete this book. vi LIST OF MAPS Map 1.1 Upper Silesia and the Donbas in the European geographical context 17 Map 1.2 Poland: administrative divisions after the 1999 territorial reform 18 Map 1.3 Ukraine: administrative divisions 19 Map 1.4 Upper Silesia and the Donbas in the European cultural context 21 Map 1.5 The approximate distribution of ethnic minorities in Upper Silesia and 22 Poland vii LIST OF FIGURES Figure 1.1 Total employment by sector, Upper Silesia and the Donbas, 1985 24 Figure 1.2 Industrial employment by branch, Upper Silesia and the Donbas, 1985 25 Figure 2.1 Industrial production growth in Upper Silesia and the Donbas, annual 33 percentage change, 1985-2004 Figure 2.2 Post-communist industrial output trajectories, Upper Silesia and the Donbas, 34 volume indices, 1988-2004 Figure 2.3 Economic growth under post-communism, GDP per capita, Silesian 38 voivodship and Donets oblast, 1988-2003 Figure 2.4 Retail price inflation rates, Poland and Ukraine, 1985-2003, annual 39 percentage change Figure 2.5 Lorenz curves of wealth distribution, Upper Silesia and the Donbas, 1989- 40 2000 Figure 2.6 Income inequality and poverty in Upper Silesia and the Donbas under post- 42 communism, international comparison, 1999-2000 Figure 2.7 Unemployment in Upper Silesia and the Donbas, 1990-2004, annual 43 percentage rates Figure 2.8 Industrial production growth in Upper Silesia and the Donbas, annual 44 percentage change, time-lagged scale Figure 2.9 Industrial output and GDP growth trajectories in Upper Silesia and the 45 Donbas, volume indices, time-lagged scale Figure 2.10 Unemployment in Silesian voivodship and Donets oblast, annual percentage 46 rates, end of year, time-lagged scale Figure 3.1 Income growth trajectories of Upper Silesia and the Donbas, international 50 comparison, 1988-2003, current market prices Figure 3.2 Income growth trajectories of Upper Silesia and the Donbas, international 51 comparison, 1988-2003, purchasing power parity Figure 3.3 Average monthly household expenditures, percentage of disposable income 53 expenditure in Silesian voivodship and Donets oblast, international comparison, 2001-2002 Figure 3.4 Crime rates in transition, Silesian voivodship and Donets oblast, registered 56 crimes per 100,000 people Figure 3.5 Suicide and homicide rates in transition, Silesian voivodship and Donets 56 oblast, registered cases per 100,000 people viii Figure 3.6 Infant mortality, hospital beds, and active tuberculosis cases in Silesian 57 voivodship and Donets oblast, per 100,000 people, 1985-2002 Figure 3.7 Human development under post-communism, Silesian voivodship and 59 Donets oblast, 1990-2002 Figure 4.1 The phasing of reform: building blocks of the orthodox transition package 72 Figure 4.2 The conventional model of transition: three basic scenarios 77 Figure 5.1 Output decline by industrial branch, Upper Silesia (1985-1991) and the 89 Donbas (1990-1995), volume index Figure 5.2 Total foreign trade growth, Poland and Ukraine, exports and imports of 91 goods and services, volume indices, 1989-1996 Figure 5.3 Exports of goods and services in Poland and Ukraine, 1988-1995 91 Figure 5.4 Political freedom ratings by the Freedom House, Poland and Ukraine, 1980- 94 2003 Figure 5.5 Economic freedom ratings by The Heritage Foundation / Wall Street Journal, 95 Poland and Ukraine, 1995-2004 Figure 5.6 Four ratings of liberties and transition progress, Poland and Ukraine, 2003- 97 2004 scores Figure 5.7 The general government sector expenditure balance (budget deficit) as share 99 of GDP, Ukraine and Poland, annual percentages and trends,1992-2004 Figure 5.8 Economic growth and the general government sector expenditure as share of 99 GDP, Ukraine and Poland, annual percentages and trends, 1992-2003 Figure 5.9 Ownership structure, Silesian voivodship and Donets oblast, 2002-2003 100 Figure 5.10 Privatisation