From Socialist to Capitalist Walls

Gabor Scheiring

Architects of socialism built the Berlin Wall, symbolizing political unfreedom. When it fell, new walls emerged. Architects of neoliberal capitalism have built walls made of precarity and inequality, limiting what Eastern Europeans could do with their newly gained freedom. Scholarly walls separating disciplines inhibit us from correctly gauging the post-socialist landscape. Ghodsee and Orenstein’s new book, Taking Stock of Shock (Oxford University Press, 2021) breaks down these disciplinary walls and presents the most comprehensive assessment of the post-socialist transformation yet.

The fall of the Berlin Wall heralded an era of unprecedented liberal optimism. Liberal elites in the West and the East celebrated the newly gained political freedoms of 400 million ex-socialist citizens. The transition to capitalism — always in the singular — was supposed to be quick and relatively painless. Neoliberal architects knew it would be challenging, but they believed the gains would overwhelm the pains. The new freedoms indeed brought gains for some. However, the pains of the transformation overwhelmed many. Illiberal regimes stabilized even in countries celebrated as the most successful transition cases, casting doubt on the foundations of liberal optimism. Taking a balance sheet of the transition, Branko Milanovic concluded that “the Wall fell only for some,” a provocative essay that inspired Ghodsee and Orenstein’s new book project.

Ghodsee and Orenstein’s starting point is that “despite the massive scale of its world-historic implosion, evaluations of the transition have been sharply divided” (p. 3). Economists, liberal elites, and international financial institutions still consider the post-socialist transformation a historical success, although they acknowledge the unforeseen pains. However, not only illiberal politicians doubt the liberal success narrative, but a growing camp of social scientists and a fledgling new left scene are equally critical of liberalism. How could the perceptions of the post-socialist story become so divergent? What are the social impacts of three decades of neoliberalism in Eastern Europe and Central Asia? Answering these questions is a massive scholarly project, requiring interdisciplinary dialogue and listening to local experience. Ghodsee and Orenstein’s book is a major contribution to this broad and important endeavor.

Both authors are professors at the University of Pennsylvania’s Eastern European Studies Program. As an ethnographer, Kristen Ghodsee has been conducting fieldwork and research in Eastern Europe for 25 years. As a political scientist, Mitchell Orenstein has specialized in the political economy of Eastern Europe for a similarly long period. Together, they have published 15 books and over 90 journal articles and essays about Eastern Europe and the transition process. Their divergent responses to Milanovic’s essay — Ghodsee agreed but thought it was an understatement, while Orenstein thought it was too harsh — engendered a productive dialogue spanning the whole array of the social sciences. Combining quantitative and qualitative data, Taking Stock of Shock offers an encompassing picture of how the transition worked and provides a synthesis of the bifurcated narratives by foregrounding inequality.

The economics of shock

In a nutshell, Ghodsee and Orenstein find evidence for both the success and the disaster narrative through reviewing a broad array of data. They begin by reviewing the economic evidence. The success narrative of the transition rests on what the authors call “the J-curve perspective.” Economic growth and household consumption would dip at first, followed by long-term gains in the shape of a J-curve. International organizations such as the European Bank for Reconstruction and Development (EBRD) and the World Bank, the winners of the transition process, and neoliberal economists advocated for this perspective.

The authors present a concise overview of the economics debate between advocates of shock therapy, who promoted the J-curve perspective, and gradualism. Shock therapists advocated rapid monetary stabilization, economic liberalization, and privatization. They expected that the more radical and thorough the economic reforms, the faster the return to growth. Gradualists warned that the social and economic institutions needed for social cohesion and functioning markets do not spring up automatically just by destroying old socialist institutions. They advocated for learning from the successful developmental states of East Asia that introduced markets, carefully paying attention to maintaining social cohesion. The divergence between China, which escaped shock therapy, and Russia, which followed it, settles the debate between the two camps, making it hard to maintain the shock therapy argument.

According to Ghodsee and Orenstein, the Visegrad countries — Poland, Hungary, Czechia, and Slovakia — and Slovenia and Estonia best illustrate the workings of the J-curve transition. For the sake of brevity, this group of countries works well as an example of relative successes. However, the authors know that even these countries experienced a significant recession in the early transition years, combined with prolonged suffering in many dimensions. According to the economic dataset published online accompanying the book, the transitional recession in the most successful economies was comparable to the Great Depression of the 1930s in the U.S., although somewhat less severe. Almost 100 years later, Western social scientists still consider the Great Depression one of the most traumatic events that profoundly reshaped the United States.

However, a recession of comparable magnitude in Eastern Europe is considered a major achievement by advocates of the post-socialist success narrative.

To contextualize this “success”, in terms of real GDP per capita (in 2011 USD), it took 12 years for Hungary to grow back to its 1989 level. Czechia and Poland were quicker – they lost “only” seven years.

The hardest-hit post-socialist countries have not recovered their level of economic development of the late socialist period. In 2016, the real GDP per capita (in 2011 USD) of Ukraine, Moldova, Serbia, Montenegro, Tajikistan, and Georgia was still below the 1989 level. In the middle, we find countries that regained their 1989 levels sometime around the mid-2000s. Confronted with these massive drops, some economists questioned the reliability of economic statistics in Eastern Europe. Ghodsee and Orenstein review the efforts that re-evaluated the economic transition by going beyond official GDP statistics. However, they find that those studies also point to a deep economic contraction. The most complete dataset imputing GDP growth suggests that the extent of the recession was somewhat lower, but comes very close to what official economic statistics show.

Some countries are doing relatively better than others. However, inequality distorts the social distribution of these gains even in the most successful cases. In several countries, including Poland, average household income grew at only half the pace of GDP per capita between 1992 and 2010. In Hungary, GDP per capita grew by 1.92% between 1991 and 2012. However, real household incomes shrank by an average of 0.22% per year at the same time.

Measures of income inequality also show that the top 10% captured almost two-thirds of post-communist economic growth in the post-socialist region.

Behind the growth averages lurks a massive increase in poverty, with 191 million people — 47% of the the post-socialist population— living on less than $5.50 a day in the region in 1999, at the peak of the post-socialist poverty crisis.

The lived experience of shock

Official assessments usually stop with the economic evidence. The most fascinating part of Ghodsee and Orenstein’s book starts here. Reviewing the demographic research, they find evidence for suffering of epic proportions. As the authors note, “we became fascinated by the ways these data had been elided or ignored by others proclaiming transition success, especially given that the transition coincided with the worst recorded peacetime population declines in history” (p. 86).

In one of the most disturbing chapters of the book, Ghodsee and Orenstein review the post-socialist mortality crisis. As I have summarized elsewhere, an unprecedented mortality crisis hit Eastern Europe as ex-socialist countries transitioned to capitalism. The number of excess deaths could have been around seven million in Eastern Europe in 1991-1999, with five million alone in Russia. Even though life expectancy has improved after the tumultuous years of the early 1990s, the mortality crisis has left lasting wounds on post-socialist countries, contributing to deep health inequalities that continue to exist today.

This represents one of the largest demographic catastrophes seen outside famine or war in recent history.

As Ghodsee and Orenstein also summarize, building on a much-debated 2009 The Lancet article on mass privatization and mortality by David Stuckler, Lawrence King and Martin McKee, our research shows that neoliberal reforms, privatization, and deindustrialization were likely among the most important causes of this unprecedented wave of excess deaths. People’s pre-disposition to use alcohol as a stress reliever is another critical factor. People in post-socialist Central Asia experienced a significant economic shock but did not experience a mortality crisis. Muslim societies restrict drinking; thus, when economic chaos ensued, fewer people drank themselves to death as a way out of despair and prolonged stress.

Of equal importance is the related shrinking of post-socialist populations. According to the 2018 estimates of the U.N., the top ten of the world’s fastest-contracting populations are all in Eastern Europe. An IMF discussion paper claimed that the outmigration in post-socialist countries reached a level that is “unprecedented in speed, scale, and persistence compared with emigration experiences elsewhere” (p. 6). Some countries with shrinking populations managed to balance emigration with immigration from the surrounding countries, e.g., Hungary attracted ethnic Hungarians, and Russia attracted ethnic Russians.

As Orenstein and Ghodsee review the outmigration story, they point out that Romanian migrants are today the largest foreign national population in Italy, and Polish is the second most spoken language after English in the UK. Western populations tend to be hostile towards Eastern European migrants. Racism is not only about skin color but a symbolic hierarchy where “Polaks” occupy the same position as more distant immigrants. Research has shown that the levels of East European migration correlate with public distrust of the EU in Western Europe.

In addition to elevated death rates and outmigration, low fertility is the third crucial component behind the shrinking of post-socialist populations. The transition from socialism to capitalism had profound effects on families and childbirth. The total fertility rate in Eastern Europe reached its lowest point around the early 2000s, dropping below 1.3 in several countries. Most dramatically, the number of live births in East Germany (GDR) fell by 46% between 1989-1991. Like the mortality crisis, such a dramatic drop in fertility is also unprecedented for industrialized societies in peacetime. It usually only happens during war or famine.

Some studies connect both the fertility decline and the mortality crisis to the post-socialist economic dislocations, pointing to the role of privatization, unemployment, declining incomes, inflation, and welfare state retrenchment. Others propose that they resulted from the dysfunctional health behavior inherited from the socialist past or the adoption of Western values prioritizing autonomy, individualism, and consumerism, which weaken the family. Keeping the focus squarely on reviewing the empirical patterns, Ghodsee and Orenstein insist that it is impossible to understand the post-socialist demographic crisis without the political-economic context. They suggest that neoliberal reforms played a central role. Indeed, in one of our studies, we also find robust evidence that privatization likely contributed to the fertility decline by shifting the costs of social reproduction onto families (i.e., primarily women).

Understanding the divergence between the lived experience of the neoliberal transition and the narratives of its architects allows us to grasp why the masses grew politically disillusioned.

The EBRD’s Life in Transition Survey detected this disenchantment already in 2006, even though the pre-crisis years of the early 2000s brought economic successes. The Life in Transition Survey was not the first to ask people their opinion about the regime change, but it was the first that yielded comparable data across the entire post-socialist region. The surveys showed that only 30% of the respondents believed that the economic situation in their country in 2006 was better when compared to around 1989.

Another widely cited comparative survey by Pew Research showed a massive decline in support for capitalism from 1991 to 2009, with the highest 34 percentage-point drop in Hungary, followed by Lithuania (26%) and Bulgaria (20%). Pew Research confirmed that 72% of Hungarians claimed that “most people” were worse off in 2009 than 1989. The second installment of the Life in Transition surveys, conducted in 2010 amid the global financial crisis, showed even more widespread dislocations.

Asking people their opinion on how the transition affected society on the whole yields different results when compared to asking people about their individual situation. The latter shows a better picture. Most surveys have found that individual well-being and happiness in Eastern Europe increased after 1989. The perception of exploding inequalities is again key to understanding why individual and social-level assessments diverge. Post-socialist citizens wanted a fair market economy that worked for them and others. The experience of low inequality and security under state socialism instilled a value system resembling Nordic social democracy. However, the architects of the transition have built systems that differ significantly from the Nordic model. In their 2018 book, Hilary Appel and Mitchel Orenstein used the expression “competitive signaling” to describe how policymakers competed for foreign attention and investment through neoliberal virtue signaling. This was the ideological foundation of the region’s competition states that prioritized attracting foreign investment over any other policy.

The result was successful manufacturing export economies plagued by fast-growing income inequality, labor market precarity and economic dualism.

This has fed the widespread disenchantment with the transition, as I also show in my recent article on neoliberalism and the populist counter-movements in East-Central Europe.

The final empirical section of the book highlights some of the most crucial findings of the ethnographic research. Of all the disciplines surveyed in the book, anthropologists tend to be the most critical of the effects of post-socialist transformation. Economists prioritize aggregate statistics on economic growth, marginalizing or entirely neglecting inequality, precarity, and personal experiences. Ethnographers submerge themselves in local cultures and are thus sensitive to the dynamics of personal suffering. As Fabio Mattioli’s Dark Finance, an ethnography of illiberalism’s political economy in Macedonia, shows powerfully, anthropologists of Eastern Europe had been prescient about the region’s predicament. They presented the first in-depth analyses of the contradictions of post-socialist neoliberalism. While most analysts concentrating on macro trends celebrated the expansion of markets, ethnographers have shown the deeply felt dislocations that this process brought. They were also among the first to recognize how this post-socialist marketization could kick-start a Polanyian double movement towards nationalist forms of self-protection. Ghodsee and Orenstein’s book already provides a summary of the immensely rich empirical material ethnographers have produced over three decades. It is impossible to do justice to this profuse scholarship here – I highly recommend looking at the relevant chapters in Taking Stock of Shock and the books and articles cited there and reviewed thoroughly on the website accompanying the book.

Ethnographers found many similarities, from Uzbekistan to Lithuania, Romania to Russia, and Bulgaria to Hungary. The loss of communities, the decline of working-class culture, the utter disorientation, the pre-modern forms of coping with financial hardship, the re-feudalization of society after the collapse of state socialism, the resurgence of nationalism, and the vast discrepancies between the pro-market discourses of the winners of the transition, emphasizing the new opportunities, and everyday narratives of people reveal a shared experience that unites a historically and geographically diverse set of post-socialist countries. As Mitchell Orenstein has recently emphasized in a RevDem conversation about the book: “What they said was that we are offering you a market paradise, everything is going to get better, you are going to be living great. You just have to do all these things we tell you perfectly and then everything is going to work out amazingly well. And if you ended up more like Rwanda, that is really your own fault.”

Beyond the walls

One of the undoubted strengths of the book is its breadth. With such breath comes a limitation, as the authors are well aware. The book is not about the causes: Ghodsee and Orenstein keep the focus firmly on the outcomes of the transition. They are right in foregrounding inequality. It is evident that they think this scarred post-socialist landscape is what neoliberal capitalism looks like.

However, the literature on the political-economic causes of the widespread suffering takes a back seat compared to the demographic, sociological, survey, and ethnographic data the authors synthesize.

You cannot write two books simultaneously. The authors indeed frame Taking Stock of Shock as the first step towards re-evaluating post-socialism.

The juxtaposition of the success and the disaster stories works well at the political level. On the one hand, the winners of the transition – economists, liberal elites, and international financial institutions – prefer the success narrative. On the other, national populists sell the disaster narrative to their voters. Radical right populists despise liberalism as such, i.e., not just its in-built preference for unfettered markets but the liberal system of political institutions, rights, and cultural codes. The inequality narrative cleverly cuts across these stories. It also resembles the often marginalized but growing new left narrative of the transition, which is preferred by staunch social democrats and a new generation of Eastern European scholars and activists and which is equally critical of neoliberalism and right-wing populism.

However, the framing of going beyond the opposites of the success and disaster narratives fits the scholarly debate less tightly. The authors deliver their heftiest punches against neoliberal economists. The book does not really go beyond the disaster narrative but instead integrates it into the mainstream scholarly discourse. Even the most critical ethnographers, such as Michael Burawoy, would agree with the authors’ summary of post-socialism about success for some, suffering for many. In this sense, both the success and the disaster narratives are right. However, critiques of the transition rarely argued that there are no gains. Few deny the benefits of open borders, expanding political freedoms, the contribution of transnational corporations to the export platforms of the Visegrad countries, or the new opportunities for the educated.

Thus, the inequality narrative does not sit midway between two opposing academic camps. Instead, it reads like the disaster narrative recast to integrate the evident successes better.

Taking Stock of Shock results from a massive interdisciplinary endeavor, and it is a timely and crucial contribution to the debate on postsocialism. Knocking down disciplinary walls, Ghodsee and Orenstein provide a uniquely broad insight into the post-socialist landscape. This is more than merely a scholarly achievement. Building a compelling new narrative is crucial to help break down the walls of inequality and precarity that limit the actual exercise of the freedoms post-socialist citizens nominally gained when the Berlin Wall fell.

In collaboration with Ferenc Laczo and Oliver Garner

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