INCOMES AND LIVING STANDARDS IN CENTRAL AND EASTERN EUROPE
AND THE FORMER SOVIET REPUBLICS:
RECENT DEVELOPMENTS, CURRENT SITUATION AND OUTLOOK
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NATO ECONOMIC Colloqium,
30 June, 1 and 2 July 1993,
Brussels
ECONOMIC DEVELOPMENTS IN COOPERATION PARTNER COUNTRIES
FROM A SECTORAL PERSPECTIVE
EVOLUTION DE LA SITUATION ECONOMIQUE DANS LES PAYS
PARTENAIRES DE LA COOPERATION DU POINT DE VUE SECTORIEL
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PANEL I
Living Standards, Social Welfare and Labour
Chair: Daniel George, Director, NATO Economics Directorate
Panelists: Michel Gaspard
Lulzim Hana
Vladimir Gimpelson
Silvana Malle
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INCOMES AND LIVING STANDARDS IN CENTRAL AND EASTERN EUROPE
AND THE FORMER SOVIET REPUBLICS:
RECENT DEVELOPMENTS, CURRENT SITUATION AND OUTLOOK (1)
Michel Gaspard*
I. Introduction
This paper is aimed at assessing the development of real
incomes and living standards in Central and Eastern
European countries and the Former Soviet Union during
recent years; and comparing the current living conditions
of the population to what they were at the end of the
1980s, when the communist system collapsed. The
presentation will focus on the evolution of average
incomes and living standards, as reflected by the existing
series of statistical and macroeconomic indicators. A
final section will comment on the outlook for the next few
years in different Central and Eastern European countries.
Concluding remarks will concentrate on the social,
economic and political risks which arise from the very
seriousdepression of real incomes and living conditions in
the East.
II. The Macroeconomic Background: Economic Depression,
Inflation, Unemployment
The last three to four years, which followed the fall of
communism and the collapse of centrally-planned economic
systems in the East, have been dominated by a very deep
economic depression which can only compare with the great
depression of the early 1930s in the West. Economic
depression, inflation and unemployment are the factors
which have the greatest influence on the evolution of
incomesand living conditions of the population in Central
and Eastern European countries:
- The depression of economic activity has, of course, an
enormous negative impact on the social situation of the
vast majority of people, directly by reducing real
revenues and levels of consumption, and indirectly by
triggering an important contraction of public and private
budgets earmarked for social expenditures like pensions,
healthcare, education, etc.
- The inflationary process occurring with the
liberalisation of prices results in rapid deterioration of
real revenues and patrimonies of numerous social groups
(e.g. pensioners, workers of state industries, etc.), who
are unable to obtain full indexation of their incomes, and
have no opportunity to invest so as to maintain the real
value of their assets.
- Growing unemployment, which occurs as an unavoidable
consequence of the deep depression in economic activity,
causes the living conditions of numerous groups of workers
and their families to deteriorate, especially in regions
where most workers were employed in big industrial
complexes or agricultural activities that have no chance
of surviving in the new context of market economy and
international competition.
The various impacts of the economic depression on
different countries will be shown in the next section.
Open inflation started early in Poland - 1987 and 1988 -
so that prices have multiplied by 100 since 1987.
Inflation rates remained relatively moderate in Hungary
and in the Czech and Slovak Republics, where the general
level of prices is no more than two or three times what it
was in 1987. Inflation was much faster in Romania,
Bulgaria and Albania, and it is now soaring in Russia,
where prices have multiplied by 100 within the last two
years (see Figure 1). Unemployment rates, which were
(officially) negligible until 1990, are now in the range
of 10% to 15% everywhere in Central Europe (and obviously
higher in the former Yugoslavia). They are expected to
reach 16% to 18% in Poland and Hungary this year. In the
Former Soviet Union, where economic liberalisation started
later, the rates are still much lower, but are expected to
explode this year and next year (see Figure 2).
III. The Steep Decline of National Incomes since 1989
Figure 5 shows the evolution of average levels of real GDP
per inhabitant in the former CMEA region since 1985,
calculated in constant US$ at purchase power parity rates
(PPP). The maximum annual national income levels reached
in 1988-89 were in the range of $5,300 per inhabitant in
Central Europe (including Romania, Bulgaria and Albania)
and $6,700 per inhabitant in the European part of the
Former Soviet Union. As a matter of comparison, it can be
mentioned that the average GDP per head in 1990 was
$17,000 (PPP) in OECD countries, around $21,000 in the
United States and $16,000 in the EC.
A dramatic fall in national revenues has occurred since
1989 in Eastern countries; the drop has been steeper in
the former Soviet Republics than in Central Europe, so
that according to calculations based on PlanEcon
estimates, the average GDP per head in 1993 will be about
the same, around $4,200 (1990$PPP) in both European parts
of the former CMEA region. The real national income per
head, ascompared to the maximum levels reached at the end
of the 1980s, has now dropped on average by 20% to 25% in
Central Europe, and by nearly 40% in the European part of
the Former Soviet Union. It is important to bear in mind,
however, that national incomes per head are very uneven
among countries in the same region. Throughout the period
these inequalities remained, but their structure changed
considerably because different countries were hit more or
less severely, and at different times, by the general
depression.
The relative situation of the richest countries (Czech and
Slovak Republics: around 50% above the average in Central
Europe; and Hungary: around 30% above the average) has
improved almost continually since 1985, whereas the
relative situation of the poorest countries has
deteriorated: the real national incomes per head are now
only half the regional average in Romania, and less than
one-fifth the regional average in Albania. The relative
position of the former Soviet Republics has also gone down
very quickly since 1990.
IV. The Fall in Central European Incomes and Living
Standards
Indicators of real incomes and living conditions (GDP
per head, total consumption and retail trade turnover per
inhabitant, average annual wage), were analysed country by
country for this study. The severe drop in all these
indicators since 1989-90 is very apparent for all
countries. Before making more comments on this, it is
useful to view the absolute consumption levels in Central
Europe at the beginning and at the end of the reviewed
period (1989-1993), and compare them to consumption levels
in a few Western European countries. Table I shows the
absolute levels of total consumption per inhabitant
(private and public) in 1989 and 1993 (PlanEcon initial
estimate) for Central European countries, and the
corresponding figures in 1990 for six Western European
countries.
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Table 1
TOTAL CONSUMPTION PER HAED(Government & Private)
----------------------------------------------------------
1990 US $ PPP 1989 1993 1990 US $ PPP 1990
----------------------------------------------------------
Albania 835 424 Germany 13253
Bulgaria 3034 2263 France 13661
Czechoslovakia 3718 2592 UK 13083
Hungary 4057 3597 Sweden 13312
Poland 3051 2907 Spain 9152
Romania 2181 1412 Greece 6878
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Sources of basic data: PlanEcon, OECD
The enormous gap in living standards between the Western
and Eastern parts of Europe is obvious from this table,
and it is also clear that it has dramatically widened in
the last three years, as a consequence of the severe drop
in consumption levels in the East. Not surprisingly, the
extent of the fall which has occurred since 1989 widely
reflects the differences in GDP developments among
countries. The countries which are most affected are
Albania (with a 50% drop in GDP per head and consumption)
and Romania (nearly 40%), followed by Bulgaria (with a 30%
fall in real GDP per head, consumption and wages). The
populations of the northern part of CentralEurope are
relatively better off, since the fall in living standard
indicators is limited to 15% or 20% for Hungary and the
Czech and Slovak Republics, and no more than 10% for
Poland.
It is worth noting that the fall in total consumption
levels has not followed the fall in economic activity in
the same way everywhere. According to available data, both
are of almost exactly the same magnitude in Albania,
Romania and Bulgaria. In the northern part of Central
Europe, on the contrary, the drop in consumption
indicators is significantly smaller than the drop in GDP,
especially in Poland and Hungary. The same can be said of
real wages (expressed in constant $ at Purchase Power
Parity rates), the fall in which closely followed the GDP
drop in Bulgaria and Romania, but is much smaller in
Hungary (-12%) and Czechoslovakia (-15%), whereas in
Poland real wages are now already 5% to 10% higher than
they were in 1989. The explanation for these important
differences among countries is complex. They are probably
connected, at least partly, to differences in social and
political reactions of the populations to the
deterioration of living conditions, to differences in
government policies aimed at avoiding political unrest
and, in some cases, they are aimed at sustaining incomes
and consumption in order to avoid spiralling economic
depression.Figures 3 and 4 show the development of wages
in the six Central European countries, expressed in
constant $ at current exchange rates on the one hand
(producer's point of view), and at PPP rates on the other
hand (consumer's point of view). They clearly show the
shake-up of wage structures from "before" until "after"
the 1989 revolutions, and also show the widening gap
between the "Vysegrad" countries and the southern
countries of Central Europe.
V. Incomes and Living Conditions in the Former Soviet
Republics
Figures 5 to 8 show the developments of income and
consumption per head for large countries or regions of the
former USSR compared to Central Europe. Table II shows
figures for absolute and relative levels of GDP and total
consumption per head in the same countries or regions in
1989 or 1990 and 1993 - the 1993 figures correspond to
initial PlanEcon estimates.
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Table II
GDP/inhabitant Total/consump.inhabit.
1990 $ PPP Indexes 1990 $ PPP Indexes
----------------------------------------------------------
1989 1993 '89 '93 1990 1993 '90 '93
---------------------------------------------------------
Russian Federeation 7561 4706 100 67 3913 2790 100 71
Ukraine 5737 3758 100 62 3340 2182 100 65
Baltic Republics 7850 4521 100 63 4480 2707 100 60
Transcaucasus Rep's 4892 2683 100 56 2569 1498 100 58
Central Asian Rep's 5051 3496 100 69 2313 1445 100 62
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CZ.&Sl.Rep.,Hungary 5970 5022 100 84 3159 2940 100 90
Poland
Albania, Bulgaria, 3977 2659 100 67 2364 1542 100 65
Romania
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Some changes have occurred since the second half of the
1980s in the relative levels of income and consumption
among ex-Soviet republics, as shown in Table II. However
the hierarchy remained basically the same, with Russia,
Belarus and the Baltic republics maintaining the highest
positions, followed by the Ukraine, Moldova, and the
Transcaucasus and Central Asian republics having the
lowest levels of output per head and consumption. The most
noteworthy change in this general structure, since 1989,
has been the drastic fall of production and consumption
levels in the Transcaucasus region, which probably
resulted from the effects of natural disasters
andpolitical and ethnic struggles adding to the
consequences of the general economic breakdown; the same
happened in Moldova, where the average real income per
head is not much more than half what it was in 1990.
Two elements are worth mentioning with regard to the
trends and timing of their downturn in the Former Soviet
Union. The apparent increase of incomes and consumption
from 1985 to 1990 was much faster than the increase in
output as measured by GNP indicators; secondly, the
decline of economic activity started almost everywhere in
1989, or even earlier (1988 for Georgia and Azerbaijan, as
well as for Uzbekistan and other Central Asian countries),
whereas the growth of real income and consumption
indicators continued until 1990 or even 1991, as a
consequence of policy decisions which were taken at the
central level during the last months of the Soviet
government. This appears to be very different from the
developments which occurred in Central European countries
where the trends of production, income and consumption
indicators remained roughly parallel between 1985
and 1990. The result was that during the second half of
the 1980s and until 1991, throughout the Soviet Union
there was a vast accumulation of disequilibria and
inflationary pressures which exploded in 1992, thus
accelerating and aggravating the drop in real incomes. For
this reason, as already emphasised, and as shown with more
details in Table II, the real incomes and living
standards, which were apparently higher in the Former
Soviet Union than in Central Europe, are now at the same
level or even lower, and are likely to decline further.
For example, apparent consumption levels in 1990 were 40%
higher in Russia and the Baltic republics than in northern
Central Europe, and they have now dropped to significantly
lower levels.
The fall in average real incomes and living standards, as
compared to the highest levels reached in 1990 and 1991,
is now in the range of 40% in virtually all parts of the
Former Soviet Union, and even more in some regions. It is
difficult to say how far official statistical data reflect
the reality of living conditions in the current context
characterised by growing private activities, underground
or unofficial production and consumption. The current gap
between incomes and retail trade turnover statistics, for
example, shows that private trades are quickly emerging
alongside traditional state-owned distribution. It is
clear however that the process of development of private
activities is still at a very early stage, which means
that only a small minority of the population has real
opportunities to significantly improve its revenues and
living standards through private activities: for the time
being, the dramatic slump of statistical indicators
undoubtedly reflects a terrible fall in the real living
conditions of the population.
VI. The Shake-Up of Income Distribution and Expanding
Poverty
Since no systematic effort could be made, when preparing
this short paper, to gather existing studies on the
changes of income distribution, inequalities and poverty
in Central and Eastern Europe and the CIS, only a few
words will be said here on this topic. It is well known
that the distribution of incomes in communist systems was
more egalitarian than in most Western economies, although
studies published during the 1980s demonstrated that
income inequalities in Hungary and Poland, for example,
were not very different from post-tax income inequalities
in Sweden,(2) with the communist nomenklaturas fulfilling
the role of the upper classes in the West. It must be
added that, contrary to widespread opinion, the share
of social benefits (pensions, health, education, family
benefits...) in global incomes was significantly smaller
in Eastern countries, on average, than in OECD countries.
Recent studies carried out in Hungary and Poland showed
that the wage and income structures began to change very
quickly as a consequence of economic liberalisation and
political changes - and also, of course, as a consequence
of the fierce economic depression and inflation. The
typical evolution consists of a rise in real incomes for a
minority of people who are in a position to benefit from
the new economic and political freedom, whereas the
greatest parts of the former huge middle-classes move
downwards very rapidly through declining real incomes and
living standards, with a growing number of people and
families falling below the poverty line from one year to
the next. The winners are the new entrepreneurs, members
of the former communist nomenklaturas in some cases, young
people with higher education, those living in big cities,
etc; the losers are the workers - and their families - who
live in industrial regions or smaller cities, are employed
in outdated state-owned enterprises, farmers, elderly
people, pensioners...
A Hungarian survey (T. Kolosi Institute) showed that
between 1989 and 1991, real incomes significantly
increased for 20% of the Hungarian population, remained
stable for 30%, and declined for 50% of the population.
More recent and extensive work carried out in Poland,
using surveys of the Central Statistical Office, showed
the profound change in wages and income structures which
started between 1989 and 1991:(3)
- A minority of the population of wage-earners, who found
or created opportunities to move to private activities
which were growing rapidly in big cities - especially
trade and services - enjoyed a rapid increase in their
earnings, a significant number of the new entrepreneurs
and managers being members of the former nomenklatura.
- Masses of blue-collar workers and wage-earners with
lower qualifications and education, who remained in the
state-owned sector, suffered falling real incomes and
living conditions when they lost the overvalued salaries
and various in-kind revenues they had under the communist
regime.
- Farmers and their families were the biggest losers:
their real incomes dropped by 45% in 1990 and 1991, with
the transfer of the distribution of food products to the
private sector and the phasing out of price subsidies.
However, it might be considered that the agricultural
revenues of 1989 had been significantly higher than during
previous years.
- The situation for pensioners was much better, since the
real value of pensions increased in 1990 and 1991, so that
the proportion of retired people in the three lowest
income deciles dropped from 50% to 26% between 1989 and
1991. But this positive development is not likely to
continue, since it has resulted in a soaring Social
Security Fund deficit, renewed inflationary pressures and
the impossibility of reaching the 5% Budget deficit/GDP
target which had been agreed with the IMF in 1992.
- The worst situation exists for the numerous families who
are hit by unemployment (only 5% of the labour force in
Warsaw in1992, but more than 17% in the north-east
region); long-term unemployment has already started to
develop at an alarming rate, hitting large numbers of
young people and women with lower education and
qualifications, especially in the agricultural regions.
The results of the same study show that three important
factors have to be taken into account when assessing the
real changes in consumption and living conditions during
the transition period: (i) the development of revenues of
private activities, which of course play a positive role,
but remain largely unknown as long as they are not
correctly recorded in official statistics; (ii) the change
in relative prices, which also played a positive role in
Poland between 1989 and 1992, since the relative price
decline of manufactured goods (e.g. colour televisions and
other household items) partly compensated for the loss in
household purchasing power for food and essential items;
and (iii) the fall in collective consumption and social
transfers (equivalent or larger than the drop in GDP,
except for pensions in the Polish case), which obviously
aggravated the downgrading of living conditions.
As a consequence of the drop in average real incomes and
downwards stretching of income distribution, new forms of
poverty have started to develop very quickly in all
countries of Central and Eastern Europe and the Former
Soviet Union. The above-mentioned study (Gorecki-Starzek)
states that poverty has dramatically expanded in Poland,
especially in rural regions, with 51% of farmers and 32%
of wage-earnings households living beneath the poverty
line in 1991 (compared to 22% and 14% respectively in
1989).
It must be emphasised here that Poland, as demonstrated in
the previous sections of this paper, is the country in
which the drop in average incomes and consumption levels
was by far the smallest in the region, and for which
economic recovery began in advance of other countries,
with a positive GDP growth in 1992, that is expected to
accelerate this year. This means that in all countries
that are more severely hit by the general economic
depression - southern countries of Central Europe, the
former Soviet republics in general, and especially the
southern ones - the downwards spread of income
distribution already is - or will be - much more
extensive, and the development of poverty among vulnerable
sections of the population much more destructive, than it
has been in Poland since 1989.
In the Former Soviet Union, very large population groups
(pensioners, workers from big industrial complexes in
remote regions, etc.) are already severely hit by growing
poverty, following continuing economic collapse and
soaring inflation. There is a high risk that the situation
will worsen when unemployment explodes as a consequence of
the reduction or phasing out of state subsidies to
enterprises, and the closing down of outdated plants.
VII. A Recovery in Living Standards in the Coming Years:
Where, When, How Much?
Forecasts for GDP and incomes are available for 1993 and
1994 from the OECD, and for a broader range of living
standard indicators up to 1996 from the PlanEcon Institute
of Washington. The economic recovery, which apparently
already started last year in Poland, is expected to spread
in Hungary and the Czech and Slovak Republics this year,
and could also begin in Bulgaria, Romania and Albania at
the end of 1993 or in 1994. This would result in a
positive reversal of trends for real wages, incomes and
consumption, at faster or lower rates compared to GDP
increase, depending on the respective roles of investment,
exports and consumption in the economic growth for each
country. Recent PlanEcon forecasts (Table III) assume that
the growth of the real GDP per head from 1993 to 1996
would be in the range of 4% to 6% a year in countries of
Central Northern Europe, and 4% a year in Bulgaria,
Romania and Albania. The rise in living standards would
begin at a similar pace in some countries of Central
Europe, or at slightly lower rates in countries where the
economic growth in its initial phase would be led
relatively more by investments and exports than by
domestic consumption.
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TABLE III
1993-1996 AVERAGE ANNUAL GROWTH, CONSTANT $ PER INHABITANT
(PlanEcon Forecast, Dec.1992) in %
----------------------------------------------------------
GDP Consumption GDP Cons
Albania 4.4 1.4 Central Nothern Europe 4.9 4.8
Bulgaria 5.1 3.6 Central Soutern Europe 4.3 2.7
Czechoslovak. 5.8 6.7
Hungary 5.7 5.9. Russia-Belarus-Baltics 2.3 1.4
Poland 4.1 3.8 Ukraine-MOldova -1.9 -2.6
Romania 3.7 2.2 Transcuacasus-Centrasia 0.0 -0.3
----------------------------------------------------------
The outlook remains bleaker in most republics of the
Former Soviet Union where economic growth, according to
the same forecasts, would not start on a significant scale
before 1995 or even 1996. The decline of output, real
incomes and living standards would not stop in Russia
until 1994, and perhaps later in the southern republics.
Over the 1993-96 period altogether, the real growth of
economic activity, incomes and consumption would be very
low in Russia and the northern European republics of the
CIS; it would remain flat or negative in the Ukraine,
Moldova, the Transcaucasus and the Central Asian
republics.
These forecasts are obviously highly speculative. They
will be changed this year in more or less optimistic or
pessimistic ways for different countries, taking into
account masses of new information gathered by statistical
institutes. It is interesting to compare initial estimates
and forecasts for the 1992-1994 period, which were
prepared separately by the OECD and the PlanEcon Institute
at the end of 1992. Experts of both organisations had
roughly the same prognosis about the likely timing of the
upturn of trends, except for Bulgaria - the OECD was
expecting the Bulgarian GDP to bottom-out in 1993-94,
whereas PlanEcon assumed it would significantly rise as
early as 1993. But it is evident that PlanEcon economists
have been systematically more optimistic than OECD experts
for the next two years, as shown by Table IV.
----------------------------------------------------------
Table IV
% over 2 years OECD planEcon
----------------------------------------------------------
Bulgaria -4.0 7.5
Cz. & Sl. Republics 2.0 8.2
Hungary 3.0 9.7
Poland 5.1 9.9
Romania -6.9 -0.6
----------------------------------------------------------
Expected 1993-1994 GDP growth, December 1992
VIII. Rising Hopes and Gloomy Prospects
Three years after the collapse of communist systems, real
incomes and living standards have severely dropped
throughout Central and Eastern Europe. Living conditions
have become harder for the vast majority of people: real
wages went down, various in-kind benefits which were
distributed by state-owned enterprises are being phased
out; social transfers have to be reduced as the revenues
of state budgets and social funds follow the drop in
general economic activity; unemployment is swelling,
poverty is quickly expanding among vulnerable groups such
as young people, those with low levels of education, the
elderly, inhabitants of industrial districts and
agricultural regions.
This transition crisis is not over yet; two or three very
difficult years are still to be faced by numerous
population groups, especially in the Former Soviet Union
and the southern regions of Central Europe. Three broad
situations can be distinguished:
- The countries of the northern half of Central Europe -
the Czech and Slovak Republics, Hungary, Poland, around 65
million people altogether - who led the way towards market
economy and democracy in the 1980s - are obviously in the
most favourable situation. The drop in real incomes and
consumption levels has been limited in these areas to 10%
or 15% to 20%, and there are now many signs that a
recovery is beginning. In spite of some political
uncertainty, structural reforms are advancing, large-scale
privatisation is developing and private services are
mushrooming, foreign investment is flowing in sizeable
quantities, reinforced links with EC countries create good
prospects for modernised enterprises to access Western
markets. Therefore, there are reasonable hopes that
unemployment and poverty will recede in the next few
years; and that real incomes and living standards will
rise at a rapid pace, thereby developing new consumption
and household equipment markets, and accelerating the
global economic recovery in Europe.
- The current situation and outlook are gloomier in
countries of the southern part of Central Europe -
Romania, Bulgaria, Albania - and also in the relatively
wealthier countries of the Former Soviet Union (Russia,
Belarus, the Baltic republics), in which the drop in
wages, incomes and living standards has been much sharper,
ranging from approximately 30% to 40%, in real terms,
below the highest levels which were reached three years
ago. Economic activity in most of these countries was
highly dependent on centrally planned Comecon trading
relations which collapsed in 1990 - 200 to 250 million
people live in countries faced with this situation.
Therefore, the chances of an economic upturn will remain
tiny, as long as a new and efficient system of inter-state
trading relations and currency exchange is not firmly
established in the region. As a consequence, revenues and
living conditions risk deteriorating further until 1994 or
even 1995, if progress in this direction is too slow.
Moreover, there is now huge hidden unemployment in Russia
and other former Soviet republics; unemployment will
explode with the possibility of triggering a terrible wave
of poverty and other social difficulties, as soon as
subsidies to state-owned enterprises are cancelled and
obsolete industrial complexes are forced to close down -
which has already started in Romania and Bulgaria, where
unemployment is expected to reach 15% to 20% of the labour
force this year.
- The situation, however, is even worse in some countries,
regrouping around 30 to 40 million inhabitants, which are
not only hit by the general economic depression which
followed the breakdown of the Soviet system, but are, at
the same time, suffering from the consequences of
political and ethnic struggles, and additionally, in a few
cases, from the repercussions of ecological or natural
disasters. This is especially the case for the former
Yugoslav republics - with the exception of Slovenia and
Croatia - the Transcaucasus republics (Armenia,
Azerbaijan, Georgia) and Moldova. It is not necessary to
underline the extremely harsh living conditions that
populations have to endure in these countries. No real
improvement will be possible until fighting stops and
peace settlements are agreed and respected. Some time will
then be necessary to design and implement reconstruction
programmes to restore or rebuild the infrastructures and
allow normal economic life to start again.
IX. The Fall in Living Standards and Welfare, a Threat to
Economic Transition?
The recovery of real incomes, consumption and living
standards has to happen as soon as possible, not only in
the interests of the populations who are directly
concerned, but also in the interests of Western countries
who will indirectly benefit from economic prosperity and
the growth of household demand in Central and Eastern
Europe. This recovery obviously cannot precede the global
economic upturn, since investment and exports need to grow
in order to lay down the foundations for balanced
developments. It is necessary to recognise, however, that
too long and too deep a depression of incomes and living
standards would risk triggering human and social
destruction, political reaction, and finally lead to
failure of the whole transition process.
The revolutions which swept away the communist rˇgimes in
1989 not only responded to powerful demands for political
and economic freedom from the new generations; they were
also motivated, perhaps primarily, by great aspirations
for improved living conditions, access to larger
quantities and better qualities of all kinds of goods and
services. Many people believed that democracy and the
market economy would automatically, and almost
immediately, bring affluence and the standard of welfare
they had brought to Western populations throughout the
cold war period. Unfortunately, the reality is far removed
from these naive expectations. Political freedom exists,
but market structures and efficient techniques need time
to be put in place and to function properly. A better life
has now begun for satisfied minorities, such as young
educated people, new entrepreneurs and successful
businessmen living in big cities. But for the largest
sections of the population, daily life has become more
difficult than it was during the last years of communist
rule, and it is becoming miserable for a growing number of
people now hit by unemployment and poverty.
If this kind of development continues for a long time, the
risks of social and political reactions will increase. The
result would most probably be a slowing down of the
liberalisation and privatisation programmes, or their
complete stoppage, following the emergence of new types of
authoritarian regimes. Even worse, political and ethnic
unrest could spread from peripheral regions to central
ones, hit populated areas, big cities and capitals:
historic examples are sufficiently numerous to show that
impoverishment and hardship can lead populations from
disappointment to despair, from despair to wrath, and from
wrath to violence and aggression.
This paper should not finish with this kind of black
Cassandra prophecy. There are hopes that populations that
have gone through so many painful and tragic experiences
during the past 50 to 70 years will leave enough time for
market economy, democracy and freedom to take root, grow
and bring new fruit to all of Central and Eastern Europe.
The exclusive aim of this paper was to describe the
current realities, and not to put forward any policy
recommendation. It is necessary, however, to conclude that
a variety of policies, at the national and international
level, that succeed in accelerating economic recovery in
the region and developing efficient safety nets to protect
the vulnerable groups against destructive poverty, are
essential for increasing the chances of the process of
economic transformation being successful. And we should be
aware that besides the military and ecological threat of
arms, warheads and Chernobyl-type nuclear plants, social
bombs are also ticking on the Eastern side of the former
iron curtain.
Notes
* The views expressed in this paper are those of the
author, and do not necessarily reflect the official
position of the European Bank.
(1) Some basic data which were used for this assessment
are from the OECD (latest issue of the Economic Outlook),
the EBRD (latest issues of the Quarterly Economic Review
and Annual Economic Review) and the EC (DGV Employment
Observatory). The most extensively used cross-country
standardised data, however, have been drawn from the last
edition of the Annual review and outlook of the PlanEcon
Institute (Washington, D.C.) for Central Europe and the
Former Soviet Republics. Unfortunately no methodological
work could be done, in the very short time available, to
assess the reliability of statistical data.
(2) P. Kende, Z. Strmiska, Egalites et inegalites
en Europe de l'Est, Presses de la FNSP, Paris, 1984.
(3) B. Gorecki - Universite de Varsovie, C. Starzec -
CNRS, CERC, Paris. Les conditions de vie et la repartition
des revenus des menages en periode de transition vers
l'economie de marche: le cas de la Pologne. Rapport de
recherche, 1993.
Figure 1 Consumer Price Indexes, 1987 = 1
Figure 2 Unemployment Rates %
Figure 3 Annual Wages, 1990 $
Figure 4 Annual Wages, 1990 $ PPP
Figure 5 GDP per Inhabitant, 1990 $ PPP
Figure 6 Total Consumption per Inhabitant, 1990 $ PPP
Figure 7 GDP per Head Indexes 1989-100
Figure 8 Total Consumption per Head Indexes, 1990 = 100
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Copyright 1993 NATO
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First edition 1993
ISBN 92-845-0079-6
This is the latest in a series bringing together papers
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