Annual of social work, Vol. 20 No. 1, 2013.
Original scientific paper
FROM THE COLLAPSE OF SOCIALISM TO THE CRISIS OF CAPITALISM: EXPERIENCES OF CENTRAL AND EASTERN EUROPEAN COUNTRIES
Joža Mencinger
; Economic Institute of the Law School, Faculty of Law, University of Ljubljana
Abstract
“Back to capitalism” and “Back to Europe” were the slogans of the last decade of the twentieth century in all former socialist countries in Central and Eastern Europe (CEE); they declared uncompromising faith in capitalist market mechanisms and the full EU membership,which was considered a panacea for all current and future economic and socio-political problems.
Indeed, during a “golden era” CEE countries considerably outpaced the growth in the “old” EU countries and rapidly converged to the average EU level of development. However, the growth was “jobless” and “unsustainable”; it was to a great extent based on foreign savings. Large current account deficits therefore became a steady feature of CEE countries. The origin of the deficits can be traced to abrubt liberalization of foreign trade in transition while the continuation is linked to FDI. Gradually, CEE countries became fully dependent on the “old” Europe. Lisbon strategies contributed to the collapse of the manufacturing sector; while CEE countries could easily compete with the “old” Europe they could not compete with ruthless societies outside Europe.
Socially, CEE countries can be put into two groups; some have retained reasonable social cohesion; three Baltic countries are the extreme on the other side. Indeed, while social protection expenditures in old EU members exceed 30 percent of GDP, expenditure is less than 20 percent in seven out of ten CEE countries. Before transition, the EU was admired in former socialist countries for its political democracy and the social market model. When they joined, many features of the attractive European social market model were no longer there and the EU showed little interest to promote the model in transition countries. The emptiness was filled up with neoliberal ideas, which is shown by economic liberty indicators.
The global financial crisis, particularly the credit reduction, significantlyhit CEE countries with large external financing needs. Foreign banks began to withdraw their capital by shrinking balance sheets in the subsidiaries. At the same time, FDI dropped to one fourth of the pre-crisis level. CEE countries thus faced net outflow rather than urgently needed inflow of capital.
Keywords
Central and East Europe countries; transition; economic growth; social cohesion; economic crisis
Hrčak ID:
104550
URI
Publication date:
3.6.2013.
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