Ivan Szelenyi

Poverty
and Social Structure
iin Transitional
Societies

The First Decade
of Post-Communism

Plovdiv, Bulgaria

November 2013

Ivan Szelenyi

Poverty
and Social Structure
in Transitional Societies

The First Decade
of Post-Communism

ISBN 978-954-92776-9-2

Synopsis

Preface

Preface 9

Introduction: theory and data 23

Chapter 1: . Memories of socialism 66

Chapter 2:. The losers of market transition 88

Chapter 3:. Poverty under post-
communist capitalisms 107

Conclusions 130

BibliographyLiterature cited 141

Appendix 147

Acknowledgements

This book is based on data from the research project “ „Poverty, ethnicity and gender during market transition.”.“. I was principal investigator of this project, Rebecca Emigh, Eva Fodor and János Ladányi were my co-P.I’s. The project was funded by the Ford Foundation. Data were collected in 1999 and 2000 by an international team in six European post-communist countries. Members of these research teams formed “ „workgroups”,“, which met at Yale University during the 2000-2001 academic year and during the Fall Semester of 2001 in order to conduct preliminary data analysis.

I have to thank the dedicated work of Rebecca Emigh (UCLA), who played a crucial role in conceptualizing the research, coordinating the project, developing the research instruments and cleaning, organizing the survey and ethnographic data. János Ladányi (Budapest University of Economics, Hungary) and Eva Fodor (Dartmouth College) helped me in every stage of the research and they spent time at Yale duri8ng the phase of preliminary data analysis. My special thanks are also due to Gail Kligman (UCLA) who was senior research consultant to the project. She offered all along intellectual inspiration and participated in the spring 2001 workgroup. I am also grateful to all those who participated in the workgroups at Yale University and who helped to project in other ways. Members of the working groups were Adrianne Csizmady (Hungary), Henryk Domanski (Poland), Judit Durst (Hungary), Roman Dzambozovic (Slovakia), Gábor Fleck (Hungary), Joanna Jastrzebska-Szklarska (Poland), Livia Krajcovicova (Slovakia), Petar-Emil Mitev (Bulgaria), László Péter (Romania), Livia Popescu (Romania), Elzbieta Tarkowska (Poland), Ilona Tomova (Bulgaria), Gabriel Troc (Romania), Tinatin Zurabishvili (Georgia). From Yale University three graduate students (Christy Glass, Janette Kawachi and Lucia Trimbur) and one post-doctoral fellow (Eric Kostello) also worked on the project.

Ivan Szelenyi

Preface

I wrote this book in the spring of 2002 while I was on Sabbatical leave from Yale University in Max Planck institute für Bildungsforschung in Berlin from data we generated in 1999-2000 in Bulgaria, Hungary, Poland, Slovakia, Romania and Russia with a grant from Ford Foundation. Our initial plan was to use this is a raw material for a book I intended to co-author with Christy Glass and Janette Kawachi, my students at Yale and Gail Kligman my friend and former colleague at UCLA. I finished alone this text in June 2002, I never had a chance to have time together with the rest of the crew so my draft remained incomplete and was never turned into the collective work we initially planned. In the Preface to the A Critique of the Political Economy (1859) Marx mentioned The German Ideology and he wrote: „We abandoned the manuscript to the gnawing criticism of the mice“ (The German Ideology was written in 1845/46 and not published until 1932). So I left Poverty and Social Structure in Transitional Societies also to the gnawing criticism of the mice until a few months ago my old friend and collaborator Petar-Emil Mitev asked whether I still have the manuscript and whether I might be interested to see it in print both in Bulgarian and English.

Be very frank about it: Poverty and Social Structure in Transitional Societies is no German Ideology. It will not change the discipline of sociology, even not our understanding of poverty and society of post-communism but I hope the data presented in this book will be of some historical interest, it not only adds some more information to our rather incomplete understanding of the extent and social determinants of poverty during the first decade of post-communism, but to the best of my knowledge this is the only multi-national study which made an effort to reconstruct from survey data the „memoires“ of socialism a decade after the fall of communism.

A lot has changed since 2000 when the data was collected and since the summer of 2002 when I wrote the last sentences of this book (I left the text unchanged, just updated a few references, but I did not make any effort to evaluate the changes of poverty and review the relevant literature since 2000). So the purpose of the Preface is to briefly summarize the changes in the past 13 years focusing on the question of ever increasing „varieties“ of post-communist capitalism.

In the year 2000 I identified three types of post-communist capitalism: In Europe I made a distinction between a neo-liberal and neo-patrimonial way out of communism. Largely driven by the data – and my limited knowledge of the politics of the European post-communist societies – I drew the boundaries between neo-liberalism and neo-patrimonialism largely along the „religious divide“. (I called the Asian version of post-communism „capitalism from below“ and I will return to this proposition later in this Preface). The boundaries of the two European post-communist systems – so I hypothesized – were between Western and Eastern Christianity (and Islam). Hence I treated Bulgaria, Serbia, Romania – in retrospect arguably a bit cavalierly – as neo-patrimonial systems, belonging to the type of post-communist capitalism what one could observe in Russia or the Ukraine.

In the Western part of formerly communist Europe the communist parties melted down, the former communist political elite largely disappeared, or its reformers now recast themselves as social democrats and followed closely the rules of liberal political democracy. In neo-liberal post-communism the new regimes implemented rapid deregulations of the finance system, foreign trade, prices and privatized public ownership largely in market conform ways (typically auctioning former state owned enterprises on competitive auctions). As a result FDI played a crucial role in privatization. From the former elites mainly the technocratic fraction of the elite could also benefit from privatization (they had inside knowledge concerning the real value of public firms put up for auctions, they were likely to be seen to be credit-worthy given their connection and expertise by banks who gave loans to support privatization than ordinary citizens). Countries which adopted the neo-liberal route to post-communism paid a heavy price – especially if they applied „shock therapy“ – there was a massive loss of jobs (about a third of jobs disappeared), the GDP declined by up to 30 percent and poverty rates (those in extreme poverty) skyrocketed from 1-2 percent to up to 6-7 percent. Nevertheless in year 2000 it appeared that after all the neo-liberal strategy of transformation is beginning to work. By the year 2000 all Central European countries which took the neo-liberal route achieved or surpassed the level of economic development in 1988, all of these countries were on growth trajectories, they were on their way to join the European Union and there was reasonable hope the gap in terms of economic development between Western and Central Europe will narrow rapidly. Each of these countries had some political turmoil, but on the whole they had reasonably well functioning democratic polity.

In the Eastern part of formerly socialist Europe there was substantially more continuity in the political power of former political elite. The process of economic liberalization tended to be slower and paternalistic connections in the privatization process were more prominent. Russia under Yeltsin took the lead for such a neo-patrimonial type of transformation. The market institutions were slow to evolve, paternalistic relations were retained within firms, the financial system was hardly functioning, „money disappeared.“ There was widespread use of barter and in particular in the privatization process the actions of public firms were highly manipulated to benefit political clients and often those who held political office (most of them survivors from communist times). Some political bosses converted their „political capital“ into private economic wealth (Chernomyrdin, an old style communist cadre and Yeltsin’s prime minister for a while who became multibillionaire in US dollars is a prime example). There were others who benefited from the transition, young, talented men, who hanged out around the „court“ of Yeltsin. He in anticipation for their political support put them „into position“, were helped to obtain incredible wealth on highly manipulated „auctions“ (Berezovsky, Abramovich are prime examples). Arguably these people were sort of „appointed“ to be owners of gigantic wealth by the political ruler, by the new „tsar“, much like the aristocracy was appointed in feudal times by kings, queens, or tsars In 2000 I speculated that Bulgaria, Romania and Serbia was closer to the Russian model than to the Czech, Hungarian or Polish one. The first decade of neo-patrimonialism was an unmitigated disaster. The GDP in this part of formerly socialist Europe declined by up to 50 percent, their transitional crisis was reminiscent of the Great Depression of the 1930s, as of year 2000 they tended to lag behind the 1988 economic development and the increase of poverty was two-three times of the increase of poverty in Central Europe. Inequality was also reaching at least in Russia very high levels.

This book does not deal with the East Asian, especially the Chinese ways out of communism. I called this „capitalism from below“ since after 1978 China did not touch the state owned corporate sector at all, it started to dismantle the communist economic institutions by unleashing the entrepreneurial spirit of peasants (and later smallish businessmen – some of them former cadres) and it did leave the political system basically unchanged. The results were miraculous. China made the transition from a socialist redistributive economy to a capitalist market economy not only without any economic crisis, but with a sustained, often 10+ percent annual growth, with a dramatic decline of poverty and at least until the mid 1980s even with a decline of social inequalities. There has been an intense debate among economists and political scientists whether the Chinese „miracle“ has anything to do with government policies or it all can be explained by the „initial conditions“. The jury still may be out and we may not have a definite answer to this question, but in explaining the differences between the neo-liberal and neo-patrimonial regimes I insisted in the book that government policies DO matter, they are not over-determined by the initial conditions and I would retain this as a guiding hypothesis for the Chinese story as well. I believe the changes which took place in the past decade offer strong support that while initial conditions are of importance government policies do indeed matter as well.

Without going into any further detail let’s just simply summarize where I was in 2000-2002. I was persuaded that the Chinese „did the right thing“, the Chinese strategy was the least costly (it had its cost: the political one, that strategy arguably could only be followed by maintaining the political hegemony of the communist party… not a pretty way to deal with politics) and it had the best returns. I was also persuaded that neo-liberalism was a better way to proceed (in conditions when the communist party collapsed hence there was no chance to adopt the Chinese „gradualist“ way of transformation) and neo-patrimonialism proved to be the worst course of action. I would not use the term „mistake“ since I believe sufficiently in the importance of initial conditions so it would be naïve to expect Russia to behave suddenly like Sweden. Remember the Shah of Iran when he was tortured by Western journalists about the oppressive policies he followed. After a while he got irritated and responded: „Are you asking me why I am not ruling like the king of Sweden? If I were the king of Sweden I would rule like him, but I am the Shah of Iran“.

Now more than eleven years later (I am writing this preface in October 2013) it is reasonable to pose the question: did anything change? The simple answer is: a lot has changed and now we can add a few new members what appeared to me in 2002 as a three member post-communist capitalist family. Let me start with Europe and I will conclude this preface with a few observations on East Asian post-communism.

I have no doubts that the greatest political innovator since 1989-1991 in the post communist world is Vladimir Putin. Putin in his own ways is a political genius who invented a new system of post-communist capitalism. I will call this system – following the terminology of Max Weber – neo-prebendalism. The terms neo-patrimonial or neo-prebendal was used often with similar meaning in political science in the past few decades (especially in connection with Africa) but I stick to the Weberian definition which is very clear to me and hopefully will be equally clear to my readers. Under Yeltsin’s neo-patrimonial system the allocation of property was rather arbitrary, it often appeared to be „corrupt“, those who received property were called oligarchs, or Mafiosi. Incidentally even in the neo-liberal system of Central Europe there was and remains a lingering doubt about the legitimacy of acquisition of property, the political left and political right accuse each others to practice „mafia capitalism“, hence passing on property to clients under not always transparent conditions. I do not have the time and space here to engage this issue in any depth but let me just briefly claim that the „original accumulation of capital“ was never a „gentlemanly“ affair. Marx describes the „sins“ of original accumulation of capital in England in colorful ways when writing about the „enclosure movements“ in England and these chapters from the first Volume of Capital are still useful readings to understand original accumulation of capitals under post-communist – no matter which branch of the family one belongs to. Let’s also not forget that those whom first attained corporate wealth in the United States between 1860 and 1900 were also referred to as the „robber barons“ and that is what they were. So inevitably all original accumulators of capital are inevitable Mafiosi (not because they are bad guys, but became what they HAVE to do, „pocket“, or „enclose“ in relatively short time what used to be public property). The transition from communism to capitalism makes it even worse sine at t1 there is no private property at all, t2 has to come in 5-20 years hence the „enclosure“ would be inevitably more violent, will be seen by those who are left out even less legitimate, even as the result of „high way robbery“. So all post-communist capitalisms are mafia capitalisms, but the degree of how illegitimate the new property is, whether it took place simply in a legal vacuum or whether it happened in violation of laws will vary greatly. Nevertheless there is little or no doubt that the „enclosure“ movement in Russia was particularly shameless and what was also exceptional during the Yeltsin years how fast the „oligarchs“ after they satisfied their hunger for wealth were reaching out for political power. It is also important for me story however to point out that despite the doubtful legitimacy of new private property and hunger for power by the nouveau riche the property rights under Yeltsin were rather secure. Yeltsin made a few attempt to crack down on the oligarchs, but usually backed down, did not try to prosecute them for „economic crimes“, like corruption, tax evasion etc. This is important to appreciate why we can call the regime of Yeltsin neo-patrimonial in the Weberian sense. Weber defined patrimonial ownership as a limited (patrimonial property usually could not be alienated) but secure form of private ownership (it could be inherited and could not be taken away from its owners in the grounds of „not sufficient service to the ruler“).