Conned by Kádár

Neil Clark’s piece in the Guardian on Eastern Europe puts the blame for the problems of unemployment and wealth inequality in the region on the reforms undertaken since 1989.

Reformers blame problems on the legacy of 40 years of communism. But could it be that the reform process itself is responsible? Far from being a panacea, as claimed by eastern Europe’s political elite, following the IMF-EU economic prescription has caused hardship for millions.

There certainly is real hardship in many areas of the countries he focuses on – Hungary, Czech Republic and Poland. The successes of market reforms are indeed most visible in the capital cities. The failures are, as Clark points out, not seen by tourists. A visit to Borsod county in Hungary, to the wretched former steel town of Ozd would show the other side of the coin. As would a visit to one of the Roma ghetto areas of Budapest.

It strikes me though that it is impossible to look at the economic problems (and successes) in the region while ignoring the conditions in which they were carried out – the foundations were the planned economies of ‘actually exisiting socialism’.

Clark provides a series of figures in comparing the communist-era economies with today’s in order to show that it is indeed the reforms that are to blame. I’m no economist so I asked a friend of mine in Budapest, who deals with these issues on a daily basis to take a look at Clark’s piece:

For starters, speaking only of Hungary, the warm and fuzzy Kadar economy was built on borrowed cash. With plenty of World Bank money on tap, the Kadar gov’t borrowed and spent like a drunken sailor, artificially raising living standards and burrying Hungary in debt.

The “prosperity” of the 70s and 80s was a potemkin village, while rot ate everything behind the pretty facade. What did Hungary make in the 80s that anyone wanted to buy — except for the food that COMECON countries bought? The years after transition represented the collapse of the Kadar non-economy when Hungary could no longer pay for it. Ask any Hungarian economist from that era — regardless of their political affiliation. The system was totally bankrupt.

Since then, living standards have steadily returned and surpassed the debt binge days of the 80s thanks to the open economy. Yes there are areas of severe poverty. Mostly among Roma and the rural population. That can be blamed squarely on discrimination against and isolation of the gypsy community and lack of education and training available in the countryside going back to the 80s and continuing now.

Hungary’s problem now is an education problem. More companies want to come here and are running out of skilled people. As for those with an education, more are coming back now and fewer are leaving. It’s the same phenomenon we’ve seen in Ireland and Spain.

As for the euro, he seems to be saying that EE has seen only deflation since the 1980s.?? I think he’s missing out on all the massive bouts with inflation. I remember when inflation here was 30%. The Maastricht criteria are very strict and keeping to 3% on budget deficits I agree doesn’t make much sense for the faster growing economies out here, but they will get a lot from the euro, like currency stability. The key will be what exchange rate they enter at.

The bottom line is the prosperity you see in Eastern Europe is real. It’s built on actually productive economies that make things (services, too) that the rest of the world wants to buy. What they offer is also becoming increasingly more sophisticated, so it’s not all going to disappear to China tomorrow. Debt levels are sustainable and economies are growing. Elderly without extra family support, rural uneducated people and Roma have gotten screwed. No question.

You can blame the first squarely on Kadar, the second partially on the lack of effort to boost education and the last on racism. But EVERYTHING would be worse if it were not for reforms, including decreasing the size of government — which did almost everything badly here, and opening the country to foreign investment.

Where else would they get the resources to development their economy? They have no natural resources — which would be a curse anyway. They need to sell their skills and brains. They are doing that with the help of the foreigners who built the factories, call centres, R&D centres, etc etc.

Finally, if neo-liberal reforms are so bad, why have the countries that have adopted more of them so much better off than the countries that have not? Compare Hungary and Poland to Romania. End of story.

Romania is finally getting its act together and growth is going to take off– in fact, it already has.

Clark doesn’t look at politics too much, which is a shame, but he does make this claim:

Throughout the region, groups and political parties who have opposed the Euro-Atlantic integration process are portrayed as extremists by the predominantly western-owned media.

Well yes, they are. And rightly so. Because the groups that have opposed the former state socialist countries integrating with the European Union come from two camps — the Stalinist-socialist-nostalgist left and the nationalist hard right. Given his political outlook Clark might not consider them extremists but it is not only the media that have taken such a position – so have the populations. The hard left and the hard right have been unable to make any breakthrough in elections.

The reason that people in the countries of the former Eastern Bloc have not supported parties that are opposed to foreign investment is remarkably simple -it has not been in their interest. Take the town of Szekesfehervar in Hungary which was home to the massive socialist-era electronics manufacturer Videoton. In the late eighties Videoton, which provided poor quality televisions to the COMECON market, was on the brink of collapse with thousands of workers facing unemployment and the town looking at an end like Ozd.

Then Phillips and IBM stepped in. Jobs were saved and the imperialists provided better wages and conditions than Videoton were ever going to be in a position to offer.

Kadar’s system in Hungary, popularly known as “ghoulash communism” was only truly successful in one area — conning western leftists into believing there was something progressive about it. As an economic system it was based upon corruption, dishonesty and debt. It was a fantasy economy and the total absence of democracy meant that workers had less rights than in western capitalist societies. There were no free trade unions for a start.

Clark was clearly one of those conned by Kadarism.

Afterthought: I realise I may sound a little harsh on Clark. After all, he does identify some real weaknesses in the reforms carried out in the region — the gross inequalities and the remaining areas of poverty.

But his idea of a solution to those problems is so mired in nostalgia for a system that (putting aside for the moment its foundation upon brutal oppression, including the crushing of the labour movement) failed on so many levels.

And Clark is a nostalgist.

In a shameful article entitled ‘Milosevic, Prisoner of Conscience’, he wrote: I always remember my first visit to Belgrade, in the summer of 1998. As an unreconstructed socialist, completely out of step with the spirit of the age, I had spent most of the Nineties trying to escape, as best I could, to a place where it was still 1948. So imagine my delight when I arrived in Belgrade and found a city that seemed miraculously to have escaped all the horrors of global grunge.

Bookshops, self-service restaurants and state-owned department stores abounded: a walk down the city boulevards reminded one of a British high street in the late Sixties. My delight turned to ecstasy when, on entering a state-owned bookshop, I saw on prominent display in the window a copy of that classic tome Arguments for Socialism by Tony Benn. What a truly wonderful place was Belgrade! “

Ecstasy in a state-owned bookshop! I met people like Clark when I lived in Eastern Europe and with each meeting my tolerance level dropped. Perhaps the worst example was an American writer in Budapest who wrote dreadful poems lamenting the arrival of fast food restaurants. There was a kind of voyeurism about such an attitude — how curious those state-owned department stores were! But of course the voyeurs didn’t have to do their shopping there every day and nor did they appear to give a hoot about those who did.

There were a large number of western leftists who saw the region as having merit in being an experiment or an alternative. But the actual needs and wants of real people didn’t seem to feature in the equation.

I suffered from such a world view myself when I first visited the region. But living there and speaking to people who spent their entire lives with no alternative to state-controlled bookshops (it wasn’t just the shops – the booklists were state controlled and were written by state-controlled authors and read by state-controlled readers) gradually woke me up to the shame of such a view.

Fifteen years after the collapse of those systems Clark still seems incurable:

In the Guardian piece he writes: Did it all have to be like this? Thirty years ago many European progressives believed that the cold war would eventually end with the western European social democracies becoming more socialist, and the eastern socialist states becoming less authoritarian. We would all, they argued, meet in the middle in the best of all possible worlds – part Kreisky’s Austria, part Kadar’s Hungary.

I don’t want to even think how long it would take to get permission for a kitchen extension in that ‘utopia’.

Can we perhaps set our sights a bit higher than ghoulash communism meets schnitzel socialism for our best of all possible worlds?