The Changed Goal of Transition

October 6, 2015 12:15 PM

In a recent paper, "On the Lost Purpose of Transition,"1 Igor Luksic—an economist and policymaker from Montenegro—argues that the early focus of economic transition on achieving free markets has been substituted by "reconstructing paternalism in different forms."

Indeed, various attitudinal surveys show that the majority of the population in most postcommunist economies wants to see more stability and a bigger role of the state in providing this stability.2 The interest in reforms, and change more generally, has waned. This change of heart is illustrated by the advent of law-and-order conservative parties in Eastern Europe, for example, in the Czech Republic and Poland. And by the success of political leaders who preach nationalism and a return to traditional values—for example, Prime Minister Viktor Orbán in Hungary and President Vladimir Putin in Russia. Orbán is quite open about his stand on liberalism and European democracy. "I don't think that our European Union membership precludes us from building an illiberal new state based on national foundations," he said in a July 2014 speech. "While breaking with the dogmas and ideologies that have been adopted by the West, we are trying to find the form of community organization, the new Hungarian state, which is capable of making our community competitive in the great global race for decades to come. Among the rising "stars" of the new world order being built are Russia, Turkey, and China. None of which is liberal and some of which aren't even democracies."

The drive to stability has taken different forms, however. In the majority of postcommunist countries, the main path to stability is integration into the European Union. This path is currently pursued at different speeds. The most advanced reformers have entered the eurozone—the three Baltic countries, Slovakia, and Slovenia. The next group of countries—Bulgaria, Croatia, the Czech Republic, Poland, and Romania—are already in the European Union but do not meet all eurozone criteria yet. For them the next step is utilization of the EU structural funds to the fullest, to build much-needed infrastructure and improve labor markets. Only after a few years can they think of eurozone entry. A third group of countries is pursuing accession talks with Brussels and hopes to enter the European Union in the next five years. This group includes all of former Yugoslavia (bar Croatia and Slovenia, which are already in), plus Albania and Georgia. A fourth group—Moldova and Ukraine—are finding it difficult to decide which path of European integration to follow.

The remaining countries of the former Soviet Union have sought stability in limiting free markets. Some countries embraced a more authoritarian approach to the economy from the very beginning, for example, Belarus or Turkmenistan. But even countries that in the early transition period made significant advances in economic freedom, for example Armenia, the Kyrgyz Republic, and Russia, have recently chosen state capitalism as the prevailing economic model .

As new sources of external instability arise in the region—the Greek financial crisis, asylum seekers from the Middle East, for example—the population of postcommunist countries looks for lives without significant domestic change. Reformist politicians are not in fashion, leading to "the lost purpose of transition."

Such a period of reform fatigue is not specific to postcommunist countries. Economies have coined the term middle-income trap to identify countries that have undergone significant economic transformation to go from poor to middle-income status, only to suddenly stall. After a time, most start reforming and growing again, suggesting that the remaining needed reforms in Eastern Europe and the former Soviet Union will eventually be done.

Notes

1. Igor Luksic, "On the Lost Purpose of Transition," September 2015.

2. Simeon Djankov, Elena Nikolova, and Jan Zilinsky, "The Happiness Gap in Eastern Europe," Journal of Comparative Economics (forthcoming).

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