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East Europe: Why Some Worked and Others Didn't

Author: Mark F. Brzezinski, Associate, Hogan & Hartson, LLP
September 13, 1999
Wall Street Journal Europe


Ten years ago yesterday, a coalition in Poland's newly elected parliament formed a government around Tadeusz Mazowiecki, a long-time advisor to the opposition Solidarity Party leader Lech Walesa. That act marked the end of Communist rule in Poland and spearheaded revolutionary transitions to democracy in countries throughout Eastern and Central Europe. Out of the rubble of the Soviet bloc, 26 nations would eventually attempt to construct free markets and democratic systems.

The experiences of these nations, however, have been highly mixed. Poland, along with the Czech Republic, Estonia and Hungary have been very successful. Their economies consistently register positive growth rates, their constitutions underpin pluralist (if fractious) political systems, and power is transferred on the basis of free and fair elections. By contrast, transition in other countries of the former Soviet bloc has been more difficult. Reform in Bulgaria and Romania remains problematic. Russia and many of the other nations that used to make up the Soviet Union are in a state of continuing crisis. Their economies, rife with corruption, continue to nosedive (Ukraine has not had a single year of growth since gaining independence in 1992).

How can these discrepancies be explained? In part, a nation's success or failure simply depends on its starting point. Central Europe's pre-World War II experience with democracy, free media and relatively liberal economic policies provided the region with a foundation. Some of the states within the former Soviet Union, by contrast, last tasted independence centuries ago, and suffered the harshest repression during the Soviet era. Building a culture of participatory democracy in Ukraine and Belarus, where the state systematically tried to crush the human spirit for centuries, was going to be difficult under any circumstances.

Yet, the past decade has shown us that the varying degrees of success in Central and Eastern Europe are not merely accidents of history. While there are no rigid lessons, it is possible to draw certain broad conclusions.

The first is that lasting reform is not possible without the rule of law. While free elections have been held in almost all of the former Soviet states, it has become clear that democratization is not only about elections. Rather, sustainable democracies and complex market economies depend on legal clarity and the assurance that laws are above politics.

Central Europe has excelled on this front. Particularly important is the fact that the region has implemented effective laws protecting the right to hold private property. That is why Central Europe has been so successful in attracting foreign investment. While Russia and, to a much lesser extent, the other newly independent states (NIS) have also attracted foreign investment, property rights are far from solid. An example is seen in the recent predicament of BP Amoco PLC, a major oil concern that spent $600 million for a stake in a Russian oil company only to struggle in Russian courts to gain even a role in the company's bankruptcy proceedings.

A second lesson is that non-democratic leaders are ill-suited to building democracies. The leaders who came to power in Central Europe were committed to democracy and were thus predisposed to building necessary institutions. Czech President Vaclav Havel, former Polish President Lech Walesa, and Hungarian President Arpad Goncz were not corrupt holdovers from the Communist era, but men who truly hoped to lead their nations toward democracy and freedom. Even in cases where these leaders were succeeded by former Communists, it was too late to undo their democratic and free market reforms.

In the NIS, by contrast, former oppressors became the new leadership. Belarusian President Alex-ander Lukashenko and Russia's former prime minister, Yevgeny Primakov, were opposed to dismantling the Communist system and never fully believed in limited government and the free market. Some NIS leaders reaped significant personal profits under the new circumstances of confusion and quasi-reform, reinforcing their reluctance to pursue true reform.

A lesson that follows from this is that corruption cannot be stamped out unless the state's administration is modernized and its bureaucrats are re-trained. A culture of accountability and transparency has to emerge to replace the old, Soviet order, where corruption and the hunt for bribes pervaded bureaucracies. Early on, the Czech Republic, Estonia and Hungary established their own versions of France's School of National Administration to train a new generation of professional and mostly clean bureaucrats. The first graduating classes of these schools are now occupying senior administration posts. Foreign investors and local businesses have been the first to notice the difference. Transparency International's Corruption Perceptions Index, based on a survey of business people, ranks countries according to how corrupt they are perceived to be. Estonia ranks at roughly the level of Japan and Spain, and Russia at roughly the level of Uganda and Pakistan.

The fourth and final lesson that has been learned in Central and Eastern Europe is that money alone does not fuel the creation of democracies and functioning market economies. Russia alone is estimated to have received over $110 billion in financial aid from the G-7 group of industrialized nations over the last seven years, but it remains in crisis. Poland, Hungary and the Baltic states, which together received less than 10% of that, are politically and economically stable. In some cases, the raw injection of money made things worse. A recent PricewaterhouseCoopers audit report finds that Russian politicians and bureaucrats have used companies incorporated in distant tax havens to misappropriate literally billions of dollars worth of foreign loans -- money that the international community had meant to aid Russian reforms.

From these four lessons, two policy implications may be drawn. First, nations lacking the rule of law will have no incentive to make changes unless the West makes assistance conditional on implementation of juridical guarantees and constitutional structures that institutionalize the rule of law and respect for human rights. The U.S. Congress's recent move to make assistance to Ukraine and Russia conditional on proof of genuine reform efforts is a step in the right direction.

Second, direct injections of cash to the coffers of corrupt elites only perpetuates the worst characteristics of these post-Communist systems. Instead, Western assistance should focus on "bottom up reform," teaching the next generation of leaders how democratic governments and market economies work. Inviting young Germans to the United States after World War II was decisive in building a new democratic Germany. The Library of Congress's recent program to host 2000 local and national officials from Russia to show them how American society works is a good start, but it must be done on a broader scale, encompassing other newly independent states and Central Asia.

At the beginning of this decade, many analysts predicted that it would be possible to build sustainable democracies and free markets in the former Soviet bloc within 10 years. We have passed this benchmark with some spectacular successes and dismal failures. While it is true that the failures occurred in states that lacked a historical democratic experience, it is also true that those nations were given opportunities to embrace the basic elements of sustainable democracy and free markets, but simply chose not to. Instead, they have muddled along from crisis to crisis. If this is allowed to continue, social discontent will increase, memories of the past will become rosier, and parties that advocate government paternalism and centralized power will become even more dominant forces. That, in turn, will ensure that the gulf dividing the successes and failures in Central and Eastern Europe will continue to widen.

Mr. Brzezinski , an international affairs fellow at the Council on Foreign Relations, is the author of "The Struggle for Constitutionalism in Poland" (St. Martin's Press, 1998).

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