Globalisation in Central and Eastern Europe: Responses to the Ecological, Economic and Social Consequences

26. 10. 2004 - Tony Addy and Jiří Silný




Introduction

















In June 2001 the first significant consultation for representatives of the churches of Central and Eastern Europe on the theme of globalisation and its economic, social and environmental impacts was organised in Budapest. The geographical diversity of the region was well represented, as were the different church traditions. There were many expert resource persons from intergovernmental organisations and NGO's from the region as well as persons from other world regions and international civil and ecumenical organisations. We draw your attention to the documentation of the consultation, where you will find the results and recommendations.[1] 











The follow up to the consultation was entrusted to the Ecumenical Academy, Prague and the Work and Economy Research Network in the European Churches, which is also based in Prague. One of the key findings of the consultation was that there is a need to develop new theological and educational tools to work on the issues of work, economy and social and environmental issues in the region. It is important to support work on this in partnership with colleagues engaged in grass roots action and lay education and training. Consequently the project `theology-factory.net' was developed. This paper was produced as the first working paper for the project. The aim is to produce ideas for emancipatory theology and pedagogy for the ecumenical church working with civil society.[2] In the paper we have summarised the main themes from the 2001 consultation and included further analysis and more detailed reflection as a background to the project `theology-factory.net'.



















































































The Impressions











The impressions of Central and Eastern Europe gained from a visit to some of the capital cities in the region can be very misleading. The proliferation of images familiar to western visitors can mislead the visitor as to the nature and outcomes of the process of transition. Hidden from view are the daily realities of economic and political life. Furthermore, very different impressions are gained from closer attention to the impact of `transition' on the areas where heavy and extractive industries predominated or from many rural areas.











It also has to be remembered that the different countries had very different starting points and have experienced different trajectories in the past 10 years. A quick examination of the statistical evidence reveals, in the case of some countries, present-day conditions that are similar to some poorer countries of the `south'. At the Budapest consultation, there was a very strong discussion about the relationship between the processes of `transition' and `globalisation'. Certainly the changes around 1989 coincided with the recognition of the process which we now understand as globalisation and therefore transition has been strongly influenced by this development and the accompanying ideological framework.[3]

















Historical Background











Going back to the late 1980's, its clear that at least one major pressure for the changes in the region of Central and Eastern Europe (CEE) was the seeming inability of the previous system to satisfy people's demands for consumer goods. Images from western media showed a world of astonishing lifestyle based on consumer choice in front of monotonous lives often spent queuing to meet basic survival needs. This is a striking reminder of the priorities of the planned economy, which were essentially geared to the production priorities of a fast receding age. In fact these systems had been developed in the period of the dominance of heavy engineering and classical mass production. It was noticeable that they could not respond to the emergence of discerning consumer markets.











Western economies had been adjusting gradually, albeit with certain `economic shocks' to the fact that we were experiencing one of those periods where the then dominant industries were becoming less profitable.[4] It was clear that new technologies would revolutionise the way things are made and what is made. It was also clear that the main question was shifting from the need to produce goods to meet basic needs to a much more differentiated consumer driven market. It happened that the technology, which was applied to solving this problem of declining profitability and market change, was based on computers. Information and communication technologies changed the way things were made, where they were made and indeed redefined which goods and services were most profitable. This was the technological base of globalisation. There is no doubt that the technologies existed in the CEE region but they were not systematically applied to the development of consumer products and markets.[5] The impact of economic globalisation on both production and consumption was to greatly affect the transition process.





As well as this basic economic background, it also has to be remembered that there was political control over almost every aspect of life - including economic life and that freedom of speech, religion and freedom of movement were very severely curtailed. There was little room for manoeuvre because of the high expenditures associated with the arms race, which reduced resources available for other developments. Some countries in the region, notably Poland and Hungary also had significant debts to western creditors, which also affected the course of transition. Even so, there were some small experiments with aspects of market reform in some countries of the region, but like perestroika, they were mostly too little, too late and not very effective. Because of emphasis on production at all costs and the low price level of energy, the region also had very many problems with the environment and with over-consumption (waste) of energy. If the early reforms had been pursued with more commitment at the time, they might have been more successful in underpinning a gradual process of transition. But attempting transition under the conditions of a globalising economy and with the accompanying ideology was a severe limitation on reforms in the 1990's. The discussion of alternative economic futures for very quickly collapsed in the face of the pressures from outside and within the region.

















The effects of globalisation on CEE countries











The basic paradigm represented by globalisation produced an incredibly difficult situation in the late 1980's. There was a huge demand for all things western - and not only consumer goods but also packaged and highly marketed food products - which contributed to the collapse of a part of the productive capacity in the region.[6] But the main point is that technological change speeds up industrial change and the region was given no time, no breathing space to adapt its systems during transformation. The productive systems were geared to trade inside the COMECON group (CEE countries and the former Soviet Union) and to supply chains that worked across the different countries. So the agricultural or industrial production of one country was geared to supplying needs of another. It meant that there was huge pressure from more technologically advanced western firms at the very moment when economic relations inside COMECON were disrupted and especially the Russian economy all but collapsed. Over time the situation has changed and the idea that `west is best' has given way to a more discerning approach but the destructive effect of the early transition years continues to be felt.[7]











Secondly, this situation was exacerbated by the rapid opening of markets to western imports - a policy which was advised by western experts who felt that market competition from technologically advanced countries would speed up restructuring. In fact trade openness, because of the starting conditions previously described, led to even more closures of production. In some cases, such as agriculture, markets were opened but it was also clear that the countries urging openness were protecting their markets and subsidising their producers. This led to further downward pressures on agricultural and food production. Trade openness is a basic feature of the globalising economy but, as in many other cases, the openness was often unequally applied in a way that protects stronger interests. Where the CEE countries' exports had a price advantage because of lower wage costs they were often accused of `social dumping' and restrictions were applied.











Thirdly, the trend from the early 1980's was towards the deregulation of capital markets and the free flow of finance capital in the world financial system. This means it is very difficult for governments to have effective control over their economies. In fact there were examples of very strong speculative pressure being brought to bear on currencies such as the Russian Rouble (which disastrously collapsed). Currency deregulation was supposed to impose market discipline and aid restructuring but it had other more perverse effects. Furthermore, the countries were supposed to privatise their industries but they had no effective capital markets. No mechanisms had been built up over a long period of time to accumulate savings that could be invested and no means created to stop new owners from asset stripping and exporting the capital gain. Of course there are successful examples of privatisation and of foreign direct investment which has led to an increase of productive capacity, but the destructiveness of this process is far more significant.











These three factors: the change in technology and the shift to consumer markets as the economic driving force, allied to the opening up of the countries' economy to imports and the deregulation of financial markets, all of which are tenets of economic globalisation, had a decisive impact on the process of transformation. How did this come about?

















The difficulties of the transition process











At the beginning of the nineties the political changes in CEE were accompanied by a rise in the domination of the belief in the market economy as the most advantageous model. Furthermore people were ready to make sacrifices and had a desire to be entrepreneurial. The understanding of the market economy was not so developed and apart from in the early stages there was little discussion of alternatives or new ways forward. The return to `normality' was what was desired. At the time the discussion in the international financial institutions [8] and the advice given to client economies, such as those of CEE, was dominated by the so-called `Washington consensus'. These policy prescriptions were first developed as tools to deal with the problems of Latin American political economy. The basic ideas found political resonance with the then leaders of the United States and Great Britain. This collection of policies were bundled together and applied as a policy prescription to the CEE region . [9]











The CEE advisors, who came largely from the USA, were tagged `market Bolsheviks'. It was as if they needed to celebrate the end of the cold war epoch by ensuring that a set of policies from `the west' were applied to `the east', without first having to examine the situation to see what was really happening `on the ground'. The term Bolshevik was used because many of these advisors advocated moving to a market economy in one jump (shock therapy). Literally this was to be a leap into the unknown, a journey no one had undertaken before. But the journey into uncharted territory was to be undertaken without rudimentary safety equipment and with little respect for indigenous knowledge and practice. This was a `utopian' project because it assumed that by adopting some very simple policy prescriptions all else would fall into place.[10]











The elements, which combined to form the Washington consensus, show a remarkable lack of understanding of how markets actually operate. There is now a huge amount of literature that analyses the inadequacies and shortcomings of this approach.[11] Yet the policy prescriptions were to be accepted in `blind faith'. There was not time or space to evaluate the different frameworks within which market economies operate, more or less successfully, in other world regions. Even if some of the tenets of this `consensus' had little in the way of empirical validation the prescription had to be applied. The basis of the consensus came to be known as `neo-liberalism' and the application of this set of dogmas led to catastrophic results in many cases, storing up problems for the future and not addressing real problems of the economies.[12] It has to be stated that the proponents of neo-liberalism also found ready hearers amongst a new elite group in the countries who were willing to realise the utopian vision. This effectively killed any profound discussion of the possible alternative routes and goals for transition.











Of course, countries differed in their application of the prescription and some countries hardly implemented any change, usually with disastrous outcomes (including continuing lacks of civil rights). We can evaluate the different outcomes and would argue strongly against `shock therapy' in favour of a sequential `learning by doing approach',[13] but in general we can see that:








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<li value="0">


The rapid opening up of domestic markets led to a fierce competition which domestic markets for the most part could not resist.


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Privatisation is a key tenet of the consensus. Under the prevailing conditions this meant that many enterprises did not get responsible new owners nor did the state secure an adequate return. Very often profitable assets were stripped and the capital gains exported. The new owners often had no interest in the fate of the enterprise or its workers. The transfer of property gave many opportunities for the enrichment of the few at the expense of the many. The destruction of economic assets in Russia was so severe that it has largely become an extractive economy supplying minerals and oil to third countries. This process of privatisation was unprecedented, being the biggest ever in history. It is not possible to compare this process to that of the privatisation of a state enterprise in a functioning market economy.


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The application of rigid criteria of profitability from the west to east European enterprises which were structured on a very different model (Low wage/high employment/many services provided for employees) led to many firms being declared unviable and closing. Of course, in any economy there has to be structural economic change but it is difficult to manage even with many resources. In the CEE region, to destroy so much employment made little sense because there were no actual or potential new industries to take up the workforce. In extreme cases such economic collapse leads not only to suffering and poverty but also to civil conflict and even war.[14]


<li value="3">


The lack of rules for the operation of capital markets and the weak overall legislation (see below), coupled with ineffective courts led to a situation where there was not trust that accounts would be settled and no adequate enforcement of payment. This process indebted many companies to the point where they collapsed even though they were technically viable.


<li value="4">


The Washington consensus advocates a minimal state and ignores the fact that some of the most successful economies are allied with substantial states and that in the west there is almost no evidence that the state is shrinking. Conversely in some transition countries, the state has shrunk to a level where it cannot provide the legal enforcement a market economy needs or the education, health and welfare which are essential for a productive workforce.


</ul>


The different possibilities for the state to have an economic role were also ignored because of the doctrinaire assumption that the state should be curtailed as far as possible (the so-called `night watchman' state). In fact it can be shown that there are many different possibilities for state involvement in economic life and that a modern economy requires that the state is highly involved. What was missing from this approach was any discussion of different kinds of property and the many different kinds of ownership enterprises have in the west.











Privatisation, carried out in countries with little or no domestic capital formation for investment leads to speculation with assets. On top of this there is the competition (incentives and tax holidays for example) to attract foreign capital which is highly selective, cherry picking assets and investing in areas with the most potential created by past (state) investment. Such potential includes a well-educated and healthy workforce and an efficient transport infrastructure. This means that some areas remain almost completely without investment - particularly rural areas where the agricultural market has all but collapsed. Many workers implicitly recognise this as they work in their factories for many months and in some cases years with little or no pay in order to keep the productive asset in being.











In this often ideologically driven process there was a faith that once the process of privatisation had been carried out (as fast as possible) the different institutions and laws needed to make a market economy function could be built up. Some even advocated a period post-transition when the laws would deliberately not be in place. The point is that in the vacuum of `no law' a criminal economy can take root. This is especially dangerous in situations where a new class of financially rich people can control the political process for their own ends. It needs to be remembered that virtually every law had to be rewritten and in some cases, the law has to be changed to incorporate the legislation required by the European Union.











But, as well as the immediate economic problems faced by CEE economies, there is a huge problem that has been created by the way in which transformation has been carried out. The destruction of human and social capital has been enormous. Every time a firm is destroyed the relationships within it are destroyed and the acids of long-term unemployment eat away at self-confidence and rapidly erode skills. There has been a breakdown in many cases of relationships based on workplaces and related associations and little has been put in its place. There has been a rise of violence and criminality. In some cases the rise was of the order of 400% over the ten years after the change. If at the same time as such a massive disjunction in economic life takes place, the capacity of the state is reduced then there are real problems in reversing decline. One of the most important assets, a skilled workforce, is very quickly eroded and there is little future in pursuing cheap labour as the only asset a region has to offer. The resultant emigration of the brightest workers and researches constitutes a `brain-drain' which further constrains the capacity for innovation, research and development.











Furthermore the rapid privatisation was carried out in a way which did not respect positive cultural and ethical values within the region. Under conditions of globalisation, it tended to block creative responses. The application of rigid market rules meant that many cultural industries were closed down. For example rich traditions of filmmaking or historic theatres and orchestras and other artistic companies were virtually decimated. It will take a great deal of time and money to rebuild such industries and cultural assets. The possibilities, opened up in theory by the changes, which open free spaces for people's creativity, are also only partly used. There is little finance for ambitious projects because of financial constraints. Voluntary initiatives are also limited because there are too few people with the security of livelihood to enable them to contribute long-term to civil society activities.











Perhaps one of the most disturbing long-term effects of the way in which transition was handled is the impact it has had on people's trust in the democratic process. At the start, there was a hope that as well as economic freedom, the restoration of democratic structures would create new possibilities for trustworthy political institutions and good governance to emerge. One of the dangers of the present situation is that the manner of transition has left people distrustful of politics and the political process. The lack of adequate supervision and controls in the privatisation process enabled many former managers to gain control of key assets, often with the assent of politicians. This has created a new class of persons who benefited greatly from the transition and who have an undue influence on the political process. Furthermore the hope that after the collapse of the previous system there would be a welcoming of the contribution of civil society have not been fulfilled. To rebuild civil society is a long-term task that requires continuing external financial resources to develop and sustain it. There is no `quick - fix' in this area.

















The consequences of `transition under globalisation'











The transition process, as it is usually called was not the orderly process that the phrase implies. In this section we want to highlight some of the most important impacts of economic and political change on the quality of life of the people caught up in it. The extent of the collapse of economic output and the historically unprecedented levels of inflation across the region have had catastrophic results for many people, plunging over 100 million people into poverty, with many more eking out a living barely above subsistence level. The most dramatic impact on this process was the combined effect of the collapse of the Russian economy and the disintegration of the former Yugoslavia. In 15 countries, inflation exceeded 1,000 percent at its peak and in Georgia it reached 18,000 percent at one point! A collapse in investment, `negative growth' and huge insecurity in people's lives accompanied this process, as these seemingly irrational forces impacted on them. As more and more enterprises were collapsing and government revenues were declining, many governments decided to cover losses of state enterprises (which did not aid restructuring) and this created pressure on public finances which have still not been entirely overcome. This factor explains the simultaneous occurance of rapid inflation and a contraction of demand.[15] As if this was not enough, the outbreak of violent conflict in parts of the region compounded the problems, disrupting the supply of vital goods and services for many people. What, then are the major consequences of this type of `transition under globalisation'?




















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Decline and Rebound?


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Using the latest figures from official sources, we can see that the minimum economic decline in the region was by around 20% of measured output (central Europe) but for the CIS and the Caucasus, the fall back was between 40 and 55%. Furthermore, the official figures do not include the informal economic activities by which many people survive in the region. Estimates vary between 10 and 60% of GDP (for Hungary the estimate is around 35%).[16] However, we can now see across the region a small recovery in the official figures, but the low level of the starting point should be borne in mind when interpreting these figures. In very few situations has output reached 1989 levels and then only for countries in central Europe. The connection between GDP growth and the incidence of poverty also has to be evaluated since, with rising inequality, lack of state guarantees of social rights and population changes, a rising GDP does not necessarily imply the diminution of poverty.[17] So we must ask the question about the beneficiaries of transition, even in countries where the statistics look promising.








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Rising Unemployment, Low Pay and Poverty


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When we turn to unemployment, we can also see that it has continued to rise, even when GDP has also been rising and that unemployment and low pay have had a considerable impact on increasing poverty levels in the region. A very large gap exists between present day totals in poverty and those of 1989. It should also be remembered that there is a great deal of hidden unemployment because many people do not register with the authorities. In addition to those counted as unemployed, there are many people who are on forced `holiday' or who work and receive payment in kind, payment in arrears or a nominal wage from the state.[18] The real wage levels maybe increasing but they are still way below 1989 levels in many cases. The situation is worsened by the fact that quite often people are paid in arrears and that health, education and other social services now increasingly have to be paid for. The purchasing power in some countries is back to the levels of thirty or fifty years ago, times of full social protection, low-cost housing and holiday entitlements etc.





The dramatic increase in poverty in the region is well known, but the consequences in ill health and malnutrition deserve close attention. In some cases the percentage of the population in poverty is relatively small, but along with rising inequality, poverty has also risen in most countries. If a basic definition of poverty is taken, then it can be seen that 60% of children in a relatively advantaged country like Poland suffer from some form of malnutrition and 10% are permanently malnourished. The problem in Poland, as in many other countries, is worse in rural areas where state owned farms have collapsed or shed much labour. Severe protein and calorie malnutrition also affects children in some parts of the region. In countries such as Belarus, Ukraine and the Russian Federation there is an increased prevalence of stunting among children. (Stunting is lack of growth that is never regained and it affected over 15% of Russian children in 1994).








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Rising Criminality & Corruption


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One of the most disturbing by-products of `transition' has been the dramatic rise in crime and people's feeling of personal insecurity. Sometimes the rise in criminality has been a direct result of the process of transition, as in the cases where there is collusion between criminal elements or organised criminal groups and corrupt officials. The prevalence of criminality affects people's well being but it also affects the economy as it corrodes the integrity of public administration and erodes confidence in democratic institutions. President Vaclav Havel called this development the rise of `mafia capitalism'. In some cases there was a catastrophic rise in illegal activity related to drugs and the trade in illegal weapons. In some countries the network of organised crime forms a `state within a state' and this together with high incidence of white-collar crime related to state activity undermines efforts at economic reconstruction and renewal.[19]








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Impacts on Health and Education


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The scale and impact of `transition' on daily life has been such that it has led to what has been termed a `mortality crisis' in some parts of the region. UNICEF estimates that over the period 1990-99 there were 3.26 million deaths of people who would not have been expected to die had mortality rates stayed at their 1989 levels (adjusted for the age structure of the population). Nearly three-quarters of these deaths were to males and of these the majority were in the 25 - 60 year age bracket. This was a crisis that impacted on working age men. If we take this is an indicator, it is fair to assume that behind the headline figure, there is a great deal of ill-health since mortality and morbidity are closely connected. The bulk of these deaths occurred in countries such as Ukraine and Russia whereas in Central Europe there was, over the decade, a gradual improvement in life expectancy. Nevertheless, ill health and mortality have had a severe effect on many households - the loss of male wage earner coupled with the massive decline in female employment has plunged many into poverty. What could be termed the `psycho-social stress' of the economic insecurity translated into a major cause of premature death to which should be added an equally disturbing growth in the incidence of death due to external causes - accidents, murder and suicide. Whilst the biggest impact has been detected in men it should be noted that there was also considerable impact on women along with other threats to women's health due to the lack of appropriate services. The impact of poverty on women's health and infant mortality is very disturbing. The infant mortality rate in CIS countries is on average five times that of the E.U. average and for Central Europe it is twice the E.U. average.





There has also been a rise in infectious diseases which are often linked to poverty - for example the incidence of tuberculosis is up by 50% across the region and the problem is in many cases still worsening. A recent study of 50 countries world-wide showed that Estonia had the highest incidence of drug-resistant tuberculosis of any country studied.





Until the mid 1990's the incidence of HIV/AIDS was less widespread than in Western Europe but in recent years the situation has been reversed, but mainly in Russia which accounts for the biggest majority (90%) of the 700,000 sufferers.[20]





All these changes have to be seen in the context of a growth in inequality of `health outcomes' related to the introduction of health care charges on patients for drugs and treatments, or the impact of informal payments for medical care, which is widespread in the region. These elements taken together are a severe limit on poor people and families who need health care and cannot make the payments.





When we turn to education, it should be remembered that education levels were relatively high in most countries of the region and it seems that education has fared better than health during the transition. However, after 1989 there was a huge reduction in pre-school education and kindergartens, related to changes in the structure of enterprises. There has been a decrease in numbers achieving graduation from basic level schooling in the CIS to an average of 83% of children (compared to 96% in 1989) but more disturbing is the large rise in number of 15 - 18 year olds who do not attend school. This now affects one-third of all children in the region and is closely correlated with family poverty and is concentrated in those countries that have suffered the biggest declines in national income. The exception to this trend is Central Europe, which maintained or increased the percentage of children in post 15 schooling. However, across the region education in rural areas has suffered most serious consequences of transition partly because parents cannot afford the basics (transport, clothing, books etc.)








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Migration & Displaced People


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Migration in the region increased rapidly in the first years of transition. This was not mainly related to the fact that people could move but rather to the search for security, primarily economic security. This has had a huge impact on population structures of some countries and has led to a form of `brain-drain' of highly educated people to the west. About 870,000 people left the region for the west in the early 1990's but the totals are falling especially for countries that can offer some hope of a more secure future. Nevertheless, migration is still a serious issue as people move from east to west within the region and who `transit' the region hoping to get to Western Europe. There is a great deal of `seasonal' migration for work, especially to Western Europe and a growth of what has been termed `labour tourism'. On top of this the region has experienced major movements of people because of wars or environmental disasters. It is reckoned that there were 2.2 million registered as internally displaced within their own countries and nearly 1 million living as refugees in foreign countries in the year 2000. This represents a huge loss of human potential and a destruction of livelihoods for many people. Displacement usually means stress, poverty, discrimination, loss of schooling and the effects of the trauma of war. Environmental factors such as nuclear contamination of the Chernobyl region or the Aral Sea Basin disaster have caused about three-quarters of a million people to move and over one million people have moved because of conflicts in the former Russian Republics. On top of this we have to count the internal migrations and resettlement of people forced to move in the former Soviet Union. Estimates are that this affected a further four million people.








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Impact on Women


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Transition has been marked by an increase in gender inequality in economic life and in decision making. For instance, even though women were very prominent in the initial changes around 1989, the incidence of women in government has declined markedly. This has led to a growing movement by women in civil society to work to redress the situation.





It is important, however, to recognise the fact that the closure of many pre-school facilities, the introduction of charges for social care and the loss of many other female working places have decreased household income and pressurised women to substitute for the losses. For instance many women have become involved in farming small plots to help the household survive. So they often combine a full time job, part time work for additional income, or some farming and a heavier burden of household work to enable the family to survive. Within the region, the qualification levels of women and men a re more or less equal, yet women are more likely to be unemployed or in low paying jobs and when they become unemployed it is difficult to find a new position. The question of low pay is partly related to the fact that women are very often employed in state organisations such as schools where relative pay has markedly declined and late payment is often the norm. Many women in the region are involved in different forms of informal economic activity as a means of increasing family income security. They work in trade, personal services, tourism, catering and handicrafts as well as farming. The growth of prostitution and trafficking is also related to the economic insecurity in parts of the region and is related to the growing criminal networks, which play on women's desire for a `better life'. As in other regions, there is a clear correlation of economic insecurity, male unemployment and rising violence against women.

















Ways forward











At the time of `the change' people were ready to engage in hard work for the creation of a market economy. Much of the social capital represented by that energy has been used up. People have had to deal with many cultural threats and challenges to identity and survival posed by the processes of globalisation and transition. Ways forward have to be found which build on the existing social and economic situation and create new social capital so recreating the possibilities for addressing the `real economy' and the economic viability of local communities. Many of the policies that should be introduced are well known and have been the basis of successful development models in other regions. Examples would include:


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protecting certain sectors of the economy to allow restructuring and the development of a domestic market


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regulating capital flows to allow the building up of domestic capital


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seeking more possibilities for regional co-operation


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Pushing for international regulation of financial markets and the democratisation and accountability of international financial institutions


</ul>


Some require more fundamental changes in the international economic order that affects the globalising economy in its entirety, but others are a question of local, national and regional strategy.











First, there needs to be an emphasis on building up local economies in the broad sense and not only a strategy of offering inducements for foreign direct investment. This has been shown to be very successful in many regions but it demands capacity building and `learning by doing' with the people.[21] It also involves a different role for the local state in providing resources and enabling groups to develop their own potential. There are many examples in the region of groups developing their communities in new ways when the resources are available.





Gradually the links between economic and social development on a local level are being understood but there is a tremendous need for resources. However, it is important to recognise that the potential for local social and economic development, for building sustainable communities is hampered by the operation of the main economic system.





For instance in rural areas, economic survival depends on inputs of energy and the maintenance of a secure, clean water supply system. Rural communities are linked to national energy systems, which have in many cases been privatised and this means that as energy prices approach `world-price' levels, poor people cannot afford gas and electricity. This can be even worse in the situation where villages and small towns have paid for their connection to supply networks and the installation of new technologies using loans. Given that people cannot afford such energy sources, they then start to burn firewood and rubbish which causes environmental damage.





Because more people have animals (to supplement their family income) and more chemicals are used on farms, local wells and water supplies become polluted. People have to buy expensive drinking water in bottles, which are also then burnt also causing further watercourse pollution. Safe water can often be supplied on a village-based system but there is no finance for this available. The only option is for the village to borrow much larger amounts of money to connect to the (private) national system.





The outcome is that more and more of the (indebted) village's income goes directly to multi-national energy and water companies and local development is inhibited. Local systems of water supply and the use of alternative energy (wind, water, bio-mass) cost less and create local employment. But it is difficult and in some cases impossible to finance these schemes through loans. Thus local job creation and economic development potential is lost and the `winners' are the finance houses and utility companies which, as it were, pump resources out of the local economy.





From this type of example we can see that there is a direct link between local community health and well being and the need to change the way financial and business systems operate. The link between local conditions and the wider system is clearly visible and the `profit' leaves, usually never to be reinvested locally.[22]











Second, there needs to be a re-emphasis on the positive role of the state in promoting the health, education and welfare of the people and recognition of the need for intervention for the common good of all. One of the further consequences of the transition is the arising of new exclusions from economic life. Of course, high priority should be given to the protection and support of the weak but policies that only target specific groups are costly and tend to `miss' many or most of those for whom they are intended. In this area we can also include the need to guarantee a minimum, liveable income, promote better working conditions and to address new problems arising from low pay, long hours of work and bad working conditions. The state should also protect and enhance the education and health care systems, in order to ensure equitable access and to address the decline in participation by poorer and more vulnerable groups. Furthermore, states with civil society should be vigilant in opposing the rise of racism that has arisen at the time of growing social and economic exclusion and which affect minorities, especially Roma families in many countries. What has been called the `state desertion' of the last decade should be reversed. However, it should also be remembered that there is a problem in some parts of the region of having a state that is weak for economic or other reasons and is therefore unable to fulfil these functions. This is a problem unknown in western countries and countries should be supported in restoring state functions and democratic institutions.











Third, there needs to be a strong emphasis on the role of the state in environmental protection and promotion that would act as a check on certain types of development. Whilst it has to recognised that in many cases there have been environmental improvements due to the need to meet European Union guidelines (and due to the closure of many industries), there have been spectacular instances of industrial pollution sometimes created by western owned companies. The pressure to create jobs also tends to limit the capacity of regulatory authorities to control development. Here the role of international financial institutions in financing projects that are detrimental to the environment is an important factor.











Fourth, the pressure to increase exports and for the repayment of foreign debt is a contributing factor to human suffering in the region. For example, in the case of Moldova, the debt of 1.5 billion US$ (105% of GDP) results in interest repayments amounting to 70% of the state budget. (In 2000 it was 10% and in 2001 it was already 42%). In January the government announced that its revenues were 15% down on estimates and in February that there was no money to pay public sector employees like teachers. The IMF suspended co-operation because of the failure to liberalise and privatise the economy. The GDP is 30% of what it was in 1989 and a continuing exodus has led to over 30% of the workforce living outside the country who sent home 170 million US$ in 2000, which enables many to survive.[23] This is not to say that we can condone the Moldovan government, which is noted for restricting civil society, stifling critical journalism and which was so split for many years that it could hardly agree on policies.[24] However, pressures on countries to repay debts and liberalise their economies can lead, as in the case of Moldova, to human suffering and in other cases to short term `fixes' such as the over exploitation of irreplaceable natural resources such as diverse natural forest. Once destroyed such an asset cannot be recreated.











Fifth, there is a continuing need to develop civil society throughout the region. There has been a large but uneven growth of NGO's and social movements but there is still need to support training, networking and development in this area. It is important to see the positive role of civil society, but to avoid the `dumping' of state obligations on to the voluntary sector. Space should be created for such organisations to flourish and to secure proper funding in order to build capacity. The state should maintain its central role in social protection and security in the interests of equity and the combating of poverty and growing inequality. The role of civil society in environmental issues is already well developed in many countries should be enhanced. Given the history of the region, the building up of civil society and the opening of `free spaces' is a high priority.











Attention should be given to the support of organisations working to create new links with the (global) south and to those organisations working critically on the impacts of transition, addressing policies of the international institutions. In terms of these wider policy questions, the experience of CEE shows how important it is to reassert the ideas of more regulation of the financial economy and more emphasis on local economies. We do not advocate autarky but emphasise the need to overcome the problems caused by the application of policies that favour the economically stronger producers. This is a very important element in the negotiations for the membership of the European Union, which could lead to a further round of job losses and restructuring, notably in agriculture.

















The task of the churches











The task of addressing the urgent problems and long term needs of CEE is a challenge for the churches.











1.The churches of the CEE region.





In many cases the churches have made impressive steps in establishing different kinds of welfare or diaconal initiatives. These have been important in demonstrating new models of caring for and working with very disadvantaged people and marginal groups. There are also many examples of small-scale ecological projects initiated by churches.











Now there is a need to understand the challenges to and from faith implied by the current development model. Confessing our faith that God intends people to enjoy fullness of life, that burdens should not be shifted to the poorest and that the economy should serve the building up of the `household' should alert the churches to their prophetic task in the region.











The churches have the potential to be significantly involved in the political economy of the countries and the region. However, it is also important to emphasise the need for the churches to work in close connection with civil society - groups, associations, movements and trade unions - as well as with different faith communities, where values are shared. It is critical to reverse the dangerous trends in the region and to work with others for solutions, promoting democratic control and participation by the people in the decisions that affect their lives and well being. As we have discussed the process of transition, it will be clear that one element which was neglected in the transition process was local experience. Consequently, the churches ecumenically can make an important difference by supporting long-term development on the local level, engaging with people who are most affected. This local work needs to be linked to the struggle for the renewal of democracy and for appropriate national and international policies.











It is also important not to lose sight of the global perspective, not least because the CEE countries also had and have relationships with economies in the majority world. There is a need to develop more understanding of and engagement with this issue. For example some countries in the CEE region have inherited debts owed to them by countries in the majority world, such as the foreign debt owed by Cuba to the Czech Republic. It is still the case that regional NGO's are hardly represented in international gatherings, such as the NGO caucus at the U.N. Finance for Development conference in Mexico.











The challenges to the churches in the region are enormous and there are very few resources for the building up of a solid engagement with the issues of political economy. It is an important challenge to work strategies for the development of the capacity of the churches to work ecumenically in this field. This process of training, capacity building, analysis and theological reflection is best carried out as a collaborative effort, which will strengthen the work of the churches and civil society together. The project `theology-factory.net', which has received support from the European Union Grundtvig programme in the year-2002 - 2003, is the first step in developing the analytic, theological and pedagogical tools for the task. At the time of writing the authors, together with their organisations and others are attempting to create a basis for the organisation of the support for the process in the medium term. This process is, in any case, actively underway and it includes this and other projects and initiatives. [25] 











2. The Churches of Western Europe





The transition process creates a new challenge to the churches of the west. There is a basic question of justice and sustainability that arises from engagement with people and communities negatively affected by the transition process. That is a challenge to all the churches to work relentlessly for justice in the ordering of public life and the economy. It is based on the recognition that the policies that have been at the heart of the experiment called transition were developed in the west. But it is also based on the recognition that in many cases the main beneficiaries of the process have been organisations also based in the west. From the above analysis, we could list these as:





- banks and financial institutions which have profited from the debts of the region;





- foreign investors who benefit from cheap labour (including highly qualified labour) and in some cases from a lax environmental framework;





- beneficiaries of the `brain drains' and of trafficking in people (including children).











The ecumenical and church groups working on the issues raised by the impact of transition under globalisation need support from the west in order to develop the responses to the negative impacts of transition under globalisation. Church representatives from the region have elaborated the programme of work and it has been agreed that there is an urgent need for networking and training, research and development. The building up of `horizontal' communication between groups within the region is a very important element in this programme and was emphasised at the Budapest consultation. Furthermore, it has to be recognised that there is a need to build up new relationships between active groups in the east and in the countries of the global South, which ecumenical organisations in the region are increasingly asked to support.











The question of spirituality and discernment is central. The evaluation of the process of transition has to take seriously the position of the majority of people in the CEE region, Russia and the former Russian republics. Although there have been undoubted gains from the process, in terms of mobility and human rights - and improved living standards for some, the majority have lost out in terms of economic security. We have to question the model that has informed the priorities of western advisors and given shape to the accompanying financial flows. As we have already pointed out, countries were given no space to work out their own way forward in the transition process. There are important priorities of life which are in danger of being lost in the transition process under the dominant values of a globalising economy - such as living with simplicity, a strong family life.[26] The `marketising' and `commodification' of basic life elements such as health, social care, education and water runs counter to deeply held values. These changes are part and parcel of transition under globalisation and western interests and advisors in many cases set the conditions. One diaconal leader put it in this way - the churches in the west and the nations of the west have to change their way of life if, the churches and people of the east are to be enabled to survive. It is a call to all the churches for a change of life and priority, in order to take responsibility for pressing, in the west, for the changes that are needed.











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Notes





1

















23























[1] Full documentation on the consultation is available from the World Alliance of Reformed Churches and the Work and Economy Network in the European Churches. See especially the final statement of the Consultation `Serve God, Not Mammon' and The Ecumenical Review, Vol. 53 No. 4 October 2001 which features papers in the impact of globalisation on Central/Eastern Europe. This paper is an elaborated version of a paper which first appeared in that edition of the Ecumenical Review.





[2] The partners in the project are The Ecumenical Academy, Prague, The Work and Economy Research Network in the European Churches, Kairos Europa, The Latvian Contact Group of the ECG and the Centro Ecumenico, Agape, Italy. Details of the project are available from the Ecumenical Academy or on the web site www.theology-factory.net





[3] In fact in the past decade there have been several processes existing at the same time within the region. The first, transition or transformation implies the change from the previous centrally planned economy and one-party system to a market economy and liberal democracy. The second is the process, in some countries, of preparing to become members of the European Union. At the same time the disintegration of the COMECON and the of the Warsaw pact re-orientated economic and security relationships. Some countries already became NATO members. All these processes were taking place at the same time as the world economy was globalising and being subjected to intense competitive pressure. It is impossible to completely disentangle these processes since many things changed simultaneously. Economic transition was surely differently under conditions of globalisation than it would have been otherwise.





[4] Peter Dicken, Global Shift Paul Chapman, London 3rd edition 1998 p 147 - 151





Economists have observed that economic change occurs in long waves or cycles of about 50 years, related to the need to change technology to address declining profitability. This does not imply that technology determines change. It is rather the proposition that new technologies are developed to deal with the lack of profitability of `mature' industries and to create new products and markets. In this case new communication technologies were brought into play and these technologies also provided the infrastructure for global capital markets to develop. For a discussion of the concept of `long waves' see Andrew Tylecote, The Long Wave in the World Economy, Routledge, London, 1991





[5] Resources were over-concentrated in heavy investment in weapons systems, which was part of the cold-war competition for armed superiority. This demanded too much capital and research capacity compared with the size and needs of the economy.





[6] For example, Estonia had a trade deficit of 24% of GDP and Croatia of 19% in 1998 and whole sectors have suffered dramatic decline because of imports from Western Europe and Asia. This has affected such branches as textiles and footwear. See “Breaking Barriers” in Business Central Europe, Vienna, October 1999 p 14 - 19





On the other hand it should not been forgotten that, especially in the earlier stages of transition governments withdrew from trade with certain countries for ethical reasons. For instance the major Czech export market to China was ended for the reason that the Chinese government did not respect human rights.





[7] In some cases there have also been increases in exports to western countries. This has only partially compensated for the loss of the traditional markets of the former Soviet Union. There has been a tendency for the region to be viewed as a source of raw materials rather than finished goods with value added. The former Soviet Union is largely now an extractive economy and other countries export such diverse raw materials as timber and chalk. In terms of manufacturing investment and export potential, it is interesting that Volkswagen, which is the largest exporter of both the Czech Republic and Slovakia, argued for the protection of the domestic Czech car market for a period after its initial investment in Skoda Auto.





[8] The World Bank, The International Monetary Fund and the World Trade Organisation. In the CEE region it is also important to note the impact of the European Bank for Reconstruction and Development and the European Investment Bank. For commentary on and monitoring of these institutions in the region see the various reports of the CEE Bankwatch Network. (www.bankwatch.org)





[9] The `Washington Consensus' includes prescriptive approaches to privatisation, trade and financial liberalisation, budgetary austerity and price stability. It failed to recognise the importance of the institutional infrastructure needed to make markets work and the positive role of government in market economies. There is an extensive literature on the subject but the essays of Joseph E. Stiglitz give an important overview from his former position as Chief Economist of the World Bank.





`More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus' WIDER Lecture, Helsinki, 1998





`Towards a New Pardigm for Development: Strategies, Policies and Processes' Prebisch Lecture, UNCTAD, Geneva 1998





[10] The adoption of an ideologically driven approach to transformation rather than an incremental and adaptive approach was justified because it was argued that it was necessary to act quickly and decisively in the period after `the change'. It is ironic that the long tradition of the critique of utopian social engineering arose as a result of the Bolshevik revolution and yet such a utopian approach was urged on the transition economies. It is understandable that the anti-state rhetoric found a ready audience in a context where state power had been so abused.





See Peter Murell, “Conservative Political Philosophy and the Strategy of Economic Transition” in Eastern European Politics and Societies University of California, 1992, Vol.6 No. 1 p3 - p16





[11] See Stiglitz, note v above





[12] `Neo-liberal' dogma assumes that the state should have a minimal role in protecting workers from bad working conditions, in the interests of flexibility and freedom and that there should be as little involvement as possible in education, social welfare, health care and education. As many matters as possible should be left to the market.





[13] See Human Development Report for CEE and the CIS, 1999, UNDP, New York 1999 p 27 - 37





[14] See Michel Chossudovsky, The Globalisation of Poverty Zed Books, London 1997 p 225 - 258 for a chilling account of reforms in Russian and former Yugoslavia and





Joseph E. Stiglitz, `Whither Reform' Paper prepared for Annual World Bank Conference on Development Economics, Washington DC, 1999





[15] See UNDP 1999, op.cit., p.15





[16] World Bank figures from policy research paper No.1,691 published in 1996.





[17] `A Decade of Transition' Regional Monitoring Report, No. 8, Florence, UNICEF Innocenti Research Centre 2001, Chapter 1





[18] In Russia, in 1996, over 4% of the workforce in work received a minimum payment from the state of $25 per month, which is one third of the minimum wage.





[19] See, for example the United Nations Human Development Reports for Krygyzstan (1997, p.48); Tajikistan (1997, p.83); Estonia (1997, p54,5).





[20] UNICEF, 2001, op.cit., p48ff.





[21] Examples include the Mondragon co-operatives in Spain, which have since the 1950's evolved into a network of 150 local co-operatives, 90 of which are industrial producer co-operatives, and Emilia-Romagna, north Italy where government at local and regional level has promoted small and medium sized firms to develop in industrial districts. This previously poor area has 1,800 co-operatives employing 60,000 workers.





[22] The authors acknowledge the contribution of the Orthodox Academy, Vilemov, Czech Republic in the field of ecology and energy. These paragraphs are drawn from conversations with Roman Juriga, the director of the academy.





[23] World Bank Transition Newsletter March/April 2002; New Internationalist No.332, March 2001 Country Profile, Moldova. The country profile points out that the richest fifth of the population 50% and the poorest fifth 3.4% of the disposable income.





[24] The communist party was returned to power in the most recent elections.





[25] The authors are working, together with their respective organisations, to build up the CEE Ecumenical Programme for Economic and Social Initiatives from their base in Prague. As part of the follow up to the 2001 Budapest consultation on Globalisation and CEE Churches, the programme will develop opportunities for networking, training, research and development. It is intended to eventually locate the programme in a common facility with a number of other church related bodies in the field and with several organisations of civil society.





[26] See `Serve God - Not Mammon' Final statement of the Budapest consultation











Authors











Tony Addy is a Minister of The United Reformed Church in the UK, living in the Czech Republic and working for the European Contact Group, the network of urban, industrial and rural mission. He is also secretary of the Work and Economy Research Network in the European Churches.





Email: <a href="mailto:tony.ecg@ecn.cz">tony.ecg@ecn.cz</a>











Jiří Silný is a Minister of The Czechoslovak Hussite Church. He is Director of the Ecumenical Academy in Prague and former President of the European Forum of Christian Men. He is a member of the Executive Committee of the Work and Economy Research Network in the European Churches.





Email: <a href="mailto:ekumakad@volny.cz">ekumakad@volny.cz</a>











Web site











www.theology-factory.net