Capitalist restoration in Eastern Europe?

From revolution to counter-revolution

Is it possible to re-establish capitalism in a "cold" way? Trotsky did not think so. Yet, in Eastern Europe, this appears to be happening. Marxists must never be afraid to say what is. Lenin pointed out that "history knows transformations of all sorts". And that is certainly the case. The first European who saw a giraffe is supposed to have exclaimed "I don't believe it!" But, as materialists, we are compelled to believe the evidence of our senses, even where this contradicts preconceived ideas.

In 1989, there were mass protest movements all over Eastern Europe. The potential was present for a political revolution, but in the absence of mass revolutionary parties, the movement was diverted onto other lines. In Czechoslovakia, Havel had a pro-bourgeois position from the beginning. In East Germany, the leaders of the protest movement originally did not want to go back to capitalism. In Hungary, it was the ex-Stalinists themselves who started the slide towards counter-revolution even earlier. But, despite the differences, in all these countries the bourgeois tendency got the upper hand. There were a number of reasons for this. First, the absolute impasse of the bureaucratic system; second, the temporary boom in the West, and the pressure of German capitalism; third, the fact that, unlike Russia, "communism" was imposed from without and widely identified with foreign oppression and rule from Moscow; last, and most importantly, the absence of a revolutionary party and leadership, which could have posed an alternative.

With the exception of Rumania, there was no uprising. The decrepit bureaucracy collapsed without a fight, or collaborated with the capitalist counter-revolution. Rumania was an indication of the revolutionary potential of the proletariat. The West was seriously alarmed, as shown by their appeals to Gorbachov to intervene. Elements of dual power existed in Rumania in the workers' committees and factory militias, but once again, in the absence of the party, the movement was derailed, this time by the Stalinist faction. The same thing would have undoubtedly happened to the Soviets in 1917, had the Bolshevik Party been absent.

The decisive factor was the impasse of the economy under the bureaucratic regime. If they had been able to maintain the rate of growth, the bureaucracy would not have changed anything at all. Just across the border, in capitalist Germany and Austria, the economy appeared to be booming. In the last analysis, there was not much to choose between the bourgeois and Stalinist gangsters, once the growth rate reached zero. Despite everything, the prevailing mood of the working class was to maintain state ownership, but with democracy and reform, even in East Germany.

The situation in Eastern Europe is not uniform. There are differences between the different countries, which make precise comparisons difficult. The Baltic states are too close to Russia, and have the problem of large Russian minorities within their borders, a potentially explosive issue for the future. A Stalinist regime in Moscow, or an aggressive imperialist one, could swallow them up with a single mouthful. The West could do nothing to prevent it. The economies of Rumania, Bulgaria, Serbia, Bosnia and Macedonia are too backward to make them attractive to Western investors. Privatisation here has not gone very far. Even Slovakia, despite being part of the original "Vysegrad group", is an uncertain case. Slovakia began the process of privatisation whilst still part of Czechoslovakia, but has since gone back:

"But now Slovakia is going backwards on privatisation: it has halted the use of vouchers and is selling off state companies mostly to those who run them: ex-apparatchiks chummy with Mr Meciar." (The Economist, 18/11/95.)

It is necessary to distinguish between different cases, as the bourgeois certainly do. East Germany is a special case, because here the restoration of capitalism is a product of absorption into the most powerful capitalist state in Europe. It can be taken for granted that the process has already passed the point of no return, although even here it is not free from contradictions. As shown by the high level of unemployment and the undercurrent of discontent, mirrored, as in other Eastern European countries, in increased support for the ex-Stalinist party, the PDS, which scored a big electoral success in East Berlin. In the future, the radicalised working class of East Germany can play a big role in fertilising the German working class with socialist ideas. It will not be an easy morsel to digest, especially now that German capitalism is entering into crisis.

If we leave out of account the special case of East Germany, we can distinguish broadly between two blocks—the so-called Vysegrad Group (the Czech Republic, Slovakia, Poland, Slovenia and Hungary), and the rest. The process of privatisation in the Czech Republic, and its integration with the German economy has gone very far. It is possible, but by no means certain, that the point of no return has been reached. The case of Poland is still more doubtful. Slovenia's economy is small enough to make its absorption by Germany, together with Austria and Italy, a viable proposition.

The case of Hungary also has peculiarities. Faced with the impasse of Stalinism, the Hungarian bureaucracy decided, even before Gorbachov's reforms, to start the movement towards capitalism. This is in the Hungarian tradition. Let us recall that in 1918, the Hungarian bourgeoisie handed over power to the Communists without a fight. Capitalism in Hungary was only restored then, as a result of the bungling of Bela Kun and the CP leaders, by armed intervention of the Rumanians, backed by France. Now the Hungarian ex-Stalinists have openly gone over to the capitalist counter-revolution, and are doing the dirty work of restoration like their Polish equivalents. Along with the Czech Republic, it is the country in Eastern Europe where the process has gone furthest.

As before the war, Italy has designs on Albania, a small and backward country, which could end up as an Italian colony in the Balkans. The same may be true, at a later stage, of Croatia in relation to Germany. The prospects for capitalism in all the other states of Eastern Europe and the Balkans are far from hopeful. Romania, Serbia, Bulgaria, Macedonia and Bosnia are poor and backward economies with unstable regimes. Privatisation has not made much progress, and there is very little foreign investment. Slovakia is a border-line case. What happens in these states depends upon events outside their borders, above all, in Russia and China.

Commenting on the differences between these states, The Economist (18/11/95) pointed out:

"Each country has gone its own way. The Czech Republic has concentrated on vouchers in order to move fast. Hungary has focused on sell-offs in hopes of encouraging efficient management, but this has gone badly wrong in places. Poland started with sell-offs, but found the process slow and is now moving to vouchers. Somehow it all comes down to the same thing: because there is virtually no accumulated capital in private hands, the state ends up paying for most privatisations. Since it is all new, the rules are often imprecise or simply lacking altogether.

"This disturbs foreign investors, the ones with real money. And although Central European countries desperately need foreign capital, their revived sense of identity arouses nationalist qualms about being bought out by foreigners. Poland and Slovenia in effect ban outsiders from owning land. The Czech Republic and Slovakia restore property to owners dispossessed under communist rule; Hungary does not. Only large foreign companies with real clout, such as Volkswagen, Siemens and General Electric, have been able to move through this thicket with any ease.

"By and large, the energy and telecoms sectors remain state domains with, at most, only minority stakes being sold off. Older heavy industry is still in state ownership in most places, even if foreign buyers are attracted by it (which on the whole they are not). 'Private owners cannot be invented,' says Joze Mencinger, a former economics minister in Slovenia. 'New capital must come from profits it will take the private economy years to build up'."

According to some estimates, up to 80 per cent of the economy of the Czech Republic is now in private hands. If this is the case then it would suggest that the process here has also reached the point where quantity becomes transformed into quality. However, the claim that up to 80 per cent of the economy of the Czech Republic is privatised is not accepted by serious Western analysts. The Financial Times (2/6/95), in a survey of the Czech Republic, had this to say on the subject:

"The government's boast that 80 per cent of the economy is in private hands is, however, an exaggeration. The National Property Fund still holds big stakes in many partly privatised companies and sits in corporate boardrooms alongside private shareholders, who wield most influence."

The same point was made by The Economist (18/11/95):

"It is when it comes to privatisation that the Czechs tend to exaggerate. Mr Klaus's motto is 'Any private owner is better than the state.' But the quick privatisation method he adopted—the distribution of share vouchers among the population—can easily create an illusion of private ownership in place of the real thing. The government's claim that 80 per cent of Czech GDP already comes from the private sector is debatable. Responsibility for 'privatised' factories is often simply shifted from the state to local authorities. The Czechs hail their privatisation effort as brisk and clear, but plenty of obscure corners remain.

"For example, the stable, market-minded Czech Republic might be expected to prove irresistibly attractive to foreign investors. Yet total foreign investment since 1990, at under $4 billion, has been relatively disappointing. 'You can't buy what you want in this country,' German businessmen can be heard lamenting. Volkswagen runs Skoda, the Czech carmaker; but a famous distillery at Karlovy Vary (Karlsbad to Germans) lost its lure for German buyers when the government in Prague, reluctant to let go of a 'national treasure,' decided to limit the sale to a minority holding. In one way or another, the government still controls much of basic industry. The remarkably low unemployment rate, below 5 per cent, suggests that so far it has failed to undertake much of the essential industrial restructuring the country needs."

And again:

"At first sight, the scale of the transfer has been phenomenal. In the space of five years, the private sector's share of the economy has jumped from near zero to 60 per cent-plus (crowing Czechs claim 80 per cent). Much of this, however, is voodoo privatisation. It gets industry off the state's books, but for the most part 'private' industry in Central Europe is still short of real money and real owners. Moreover, the process has brought deep corruption, some of it so ingenious that one cannot help admiring the entrepreneurial flair behind it. The whole thing is aptly summed up by Lech Walesa's old line: 'It is easy to turn an aquarium into fish soup, but not so easy to turn fish soup back into an aquarium'."

Foreign investment

There are 70 million people in Eastern Europe. On the face of it, a tempting market. But living standards are low—only one-third of the EU average. Germany's interest in Poland and the other states on its eastern borders is both economic and strategic. It would like to take advantage of the raw materials and cheap labour, and also to create a buffer zone separating Germany from Russia. The best way to ensure German domination of these countries is by incorporating them in the EU. In practice, they are already German satellites. Well over half the region's trade is now done with Western Europe, and Germany has the lion's share. Germany provides the bulk of the foreign investment there, followed by the US and Italy. In practice, Eastern Europe has become part of the D-Mark zone. From Slovenia to Poland, ask anyone what their car cost, and the answer is likely to be in D-Marks.

However, the growth of German power and influence is being watched with anxiety by Britain and France, as well as the poorer EU members like Spain whose interests lie, not in the East, but in the Mediterranean. Britain, while formally in favour of allowing the new states to join, in practice is blocking them by insisting on maintaining the right to veto. There are many other contradictions which will make it difficult for Germany to get her Eastern European satellites into the EU. Some 58 per cent of the land area of Central Europe is dedicated to farming, as opposed to 43 per cent in the EU. The sector accounts for 5.5 per cent of regional GDP, over twice its share in the EU. Its agriculture poses a direct threat to France, which has opposed the eastward expansion of the EU. Already about half the EU's budget is taken up by the Common Agricultural Policy (CAP). The entry of Germany's eastern satellites would signify an increase in Europe's farm expenditure of one-third. This would mean the collapse of the CAP, something which France would fight tooth and nail.

The calculations of Germany are transparent. What is now the Czech Republic is based on the former German colony of Bohemia-Moravia. Its proximity to Germany, developed industry and skilled labour force make it a useful adjunct for the German economy and source of cheap labour. The re-establishment of capitalism in the Czech Republic is thus a product of its semi-absorption by Germany. "The shadow over Central Europe is not only Russia's," writes The Economist (18/11/95), "Germany casts a bigger one, and for once the region is happy to see it there...However, since worries about German domination are never far from the surface in this region, Germany tactfully refers to itself as the Central Europeans' 'tutor' or 'advocate.' In the same vein, Germans refrain from talking about Mitteleuropa, a handy term but one fraught with history. It harks back to a time when the German Reich made precious little distinction between its economic and its military ambitions there. It is better for Germany not to overplay its new hand. After all, everyone knows that Berlin, its reinstated capital, is part of what one might call greater Central Europe—of which Berlin will in all probability emerge as the metropolis."

The national question is still important in Eastern Europe, where the historical memory of foreign domination is still a powerful factor. Initially, the domination of Germany seemed to many to be preferable to subordination to Moscow, particularly if it meant the entry of large amounts of German investment and German living standards. For the great majority, however, this is an unattainable dream. Investment has been patchy, and accompanied by mass layoffs and closures, even in the Czech Republic, as the Financial Times (2/6/95) points out:

"But foreign investment has developed a bad image among many ordinary Czechs. Disillusion set in after Volkswagen curtailed its big investment in Skoda Auto in 1993, expensively hired American managers failed to pull round the ailing Tatra truck plant and Air France pulled out of Czechoslovak Airlines last year."

The promise of big foreign investment, with one or two exceptions, has not met expectations:

"Poland bemoans a disappointingly slow rate of foreign investment. In Warsaw you will be told that the $4 billion or so of foreign capital invested in Poland since it turned democratic is roughly what the Germans are spending on doing up a single street in east Berlin, Friedrichstrasse." (The Economist, 18/11/95.)

The Hungarians and Czechs have done better, because they are seen as more "stable". But the attitude towards foreign capital was illustrated in the following remarks by Vaclav Brom, spokesman of the big Czech company CKD Praha Holding:

"Many foreign companies came to the Czech Republic with one aim: to take part in our companies, to control the business, cancel R&D (research and development) and transfer work to themselves and to use us as cheap labour." (Financial Times, 2/6/95.)

The inner stability of these regimes will ultimately be determined by the attitude of the masses to it. Here the most important question is their ability to achieve higher living standards and better conditions than the previous regimes. In fact, the movement towards capitalism has been accompanied by a catastrophic fall in living standards. In the first nine months of 1990 alone, there was a fall in production of 18%, including a drop of 4% in Czechoslovakia and a staggering 27% in Poland. Half the population of Bulgaria was unemployed and the other half looking for food. There were 24 hour power cuts. This is a picture of chaos unparalleled in peacetime. While there has been some improvement since, it has been extremely uneven. Unemployment, falling living standards, extreme inequality and collapsing social services are the norm in most of these countries. By comparison, the masses look back to the period of Brezhnev as a "golden age". What is true for Russia is also true, in greater or lesser measure, for the other countries of Eastern Europe.

The bourgeois press is recently full of glowing reports about the "economic recovery" in Poland. There has indeed been an upturn in Poland over the last three years. According to figures recently published by the General Statistics Office (GUS) the Polish economy grew by 7 per cent in 1995. They speak of shops lined with high quality imported goods, new stores, restaurants and banks, and a boom in private car ownership. Dorota Warakomska, a Polish economist, has invented an extremely elegant definition of freedom, which adequately conveys the mentality of the nouveaux riches of Eastern Europe: "Freedom is walking into a shop to admire what you cannot yet afford." Since there are very many things in the shops that ordinary Poles cannot afford, this definition of freedom is not particularly popular at the moment. That the economy has picked up is not surprising. No economy can continue to fall forever. But what they call a "recovery" means, in practice, that Poland's industrial production only just reached the level of 1989 in 1995. And what did this feat signify for living standards? The Financial Times (5/2/96) reported:

"But the gains have not been equally spread. GUS show that GDP was 3 per cent higher than in 1989, but this has been accompanied by massive job cuts. While the loss of jobs has contributed to higher productivity, it has also left a total of 2.6 m. people registered as unemployed.

"Also, for millions of Poles improved macro-economic performance has meant cuts in real incomes after the 1990 'shock therapy' market reforms and the collapse of the Soviet market. The purchasing power of the average wage is only 75 per cent of 1989 levels as a 38-fold increase in prices has outpaced income growth. But the rich have grown richer." (My emphasis.)

Moreover, the fall in living standards is reflected in a dramatic drop in the birth rate. This, in spite of the violent hostility of the Roman Catholic hierarchy to abortion and birth control:

"At home, many families have adapted to lower real incomes by having fewer children. Despite a recent virtual church ban on abortion. Last year saw the smallest population increase in Poland since the war. This is partly a reflection of the acute housing shortage. Housing completions are down to 1940s levels with only 58,400 dwellings finished last year compared to 150,200 in 1989 and an annual peak of over 250,000 in the late 1970s."

Private house building in Poland now accounts for 50 per cent of the total, against 37 per cent in 1989. Unlike other Eastern European countries, Poland had a large private agriculture and co-operative sector even before 1989. Thus, even at that time, 47 per cent was recorded as working in the private sector. That figure increased to 63 per cent in 1995, which is not as much as it seems, if we take into consideration the starting point, plus the fact that, in the same period, 40 per cent of state sector enterprises disappeared. There are still nearly 4,360 state-owned companies in Poland. "The others collapsed under the weight of their own debts, were taken over by private investors or were bought out by management and employees. At the same time the number of private joint stock companies has grown six fold to 95,017." (Financial Times, 5/2/96.)

Attack on living standards

The Hungarian economy has experienced a growth in real terms, although more slowly than the 6 per cent which represents the average for Poland, the Czech Republic and Slovakia in the recent period. But there is a question mark over the future. For all these countries, the economic perspective for the EU is the fundamental question. The present slowdown does not bode well for them. Despite the growth, living standards have continued to decline for the majority. Real income in Hungary fell by 10-12 per cent in 1995, and are expected to fall by a further 2 per cent in 1996. Inflation remains high. This causes the strategists of capital to fear an outbreak of strikes which could undermine the "reform". And their conclusion, typically, is—a further attack on living standards. Social expenditure in Hungary still accounts for a third of GDP must cut the size of the public sector through privatisation. Scandalously, the ex-Stalinists in the Budapest government have pushed through savage cuts in public spending which even the courts opposed.

Even in the Czech Republic, the movement towards capitalism has been accompanied by a rapid rise in unemployment and a fall in living standards. The collapse of Comecon, the former trading block linking Eastern Europe and the USSR, deprived the industries of Czechoslovakia, Poland and the rest of their "natural" markets. Even now, half of the foreign sales of the big CKD holding company and engineering group traditionally at the heart of Czech industry, whose workforce has been cut from 25,000 to 12,000 in the past five years are with Russia and other former parts of the Soviet Union.

"Employment in the biggest 20 companies has been cut by between 30 and 40 per cent over the past five years," Karel Dyba, the Czech minister of economy is quoted as saying. "The Ostrava coalmines have cut back by 50-60 per cent." At the same time, the parasitic finance sector has quadrupled. The public optimism in the future of the Czech economy is contradicted by the words of Vladimir Dlouhy, the minister of trade:

"Over 3,000 state owned enterprises are waiting for liquidation. In the meantime, they keep sucking up subsidies and keeping people inefficiently employed." Here is the authentic voice of the bourgeois counter-revolution! Up till now, says Dlouhy, "we have been comparing ourselves favourably with the other former communist countries in the region. From now on we should adopt a tougher yardstick and compare our productivity with that of the EU countries we aspire to join".

The article adds:

"The signs are that with mass privatisations now formally over, managers of the newly privatised companies will act more determinedly in future to cut costs and raise productivity. They are expected to shed excess labour, invest in new plant and attract foreign partners." (Financial Times, 2/6/95, my emphasis.)

This is a finished recipe for class struggle in the Czech Republic.

The position of the rural population is no better. Paradoxically, even in Eastern Europe the peasants do not provide a mass base for capitalist restoration, as Trotsky had thought. The movement towards capitalism has brought no relief to the peasantry, but quite the opposite. For the small peasant farmers in Poland and Hungary, it spells disaster. Living on small, unproductive plots of land, from which they can barely scratch a living, they have quickly realised that the market economy offers them nothing except insecurity, high prices and ruin. The attitude of the majority of peasants to the new regime is accurately portrayed in the following example:

"Jan Kalinski farms a few of those strips, a morning's walk from Lukow, a small market town halfway between Warsaw and Poland's border with Belarus. His aim in life is to keep the wolf from the door. He, his wife, his five children and his ailing mother live in a two-room wooden shack put up around 1900, down a mud lane off the Lukow road. Nothing much has changed here in a century. The wiry Mr Kalinski has just turned 40, but looks 20 years older. He has two cows, some pigs, chickens, a strip for potatoes and a strip for barley. His farm is six-and-a-half hectares (16 acres), close to the Polish average of seven. The EU average is 16.

"On a green and peaceful autumn morning, Mr Kalinski grumbles that prices are too low to make it worth selling anything. He was much better off before communism ended. The Russians took what he produced at a decent price. 'Before, you could sell anything. Now you have to sell twice as much to get the same bag of fertiliser. The Russians still want our stuff, but they have no money to pay. The Germans have enough of their own stuff, and all they want to do is sell to us.' On the radio, Mr Kalinski hears all the time that Poland is preparing to enter the EU, but he is not counting on manna from heaven. 'Roll up your sleeves and help yourself, that's all we hear. The only way for a farmer here to make money is to open a shop. Soon there'll be more shops than farmers'." (The Economist, 18/11/95.)

The growing discontent of the masses is reflected in increased support for the Communist Parties all over Eastern Europe. What happened in Poland was particularly significant. After all that had happened, the CP won, not only the elections but ousted Walesa from the Presidency. This shows an important shift in the attitude of the masses. However, the corrupt and degenerate Polish ex-Stalinists have continued down the road of capitalism. The decisive section of the bureaucratic elite are transforming themselves into private capitalists. In this way, they will prepare the ground for a ferocious reaction at a later date, and the coming to power of a vicious bourgeois Bonapartist regime which will make the old Pilsudski dictatorship look tame.

Such a regime, however, would not even have the kind of relative stability that Pilsudski enjoyed. After all, he based himself on the support of the peasants, whereas the Polish peasants today understand that they have no future under the capitalist regime, and are hostile to it. This phenomenon, which is not peculiar to Poland, is a striking indication of how the class balance of forces has changed to the detriment of the bourgeoisie since Trotsky's time. The strength of the working class and the weak mass base of reaction rules out stable and long-lasting bourgeois regimes in Eastern Europe. There will be a whole period of social and political crises, as they try in vain to find a way out of the impasse. The working class will have many opportunities to transform society, and the Marxist tendency will have many opportunities to establish itself as the dominant current in the working class.

The fate of Eastern Europe is bound up with events in Russia and Western Europe. Since the late Middle Ages, the destiny of these small states was entirely dictated by the actions of Russia, Germany (the Teutonic Order, Prussia) and, until 1918, Austria. For centuries, Poland originally did not exist as an independent state, being divided at different times between Russia, Prussia and Austria. Hungary only became independent in 1918, before which it was part of the Austro-Hungarian empire, as were Slovenia, Croatia and Bosnia. The other Balkan states were dependent on one or another of the imperialist powers, especially Germany, but to some extent, France, Russia and Britain also. The Baltic states were either under Poland, or Russia, or German colonies. The Ukraine was divided between Russia and Poland up to 1939, and was occupied by Germany in 1918 and in the second world war. Up to 1945, with the exception of Czechoslovakia, all were weak, semi-feudal economies, overwhelmingly agrarian, dominated by foreign capital, with corrupt, dictatorial Bonapartist regimes.

With the possible exception of the Czech Republic, which is now a satellite of German imperialism, the basis of capitalism in most of Eastern Europe is still quite fragile. In Poland, where the ex-Stalinists in government are attempting to pursue the capitalist road, carrying out a vicious policy of cuts and factory closures, the road is being prepared for Bonapartist reaction. But, as Trotsky explained, in a modern industrial society, the army and the police are too narrow a base to keep the working class down for long. A regime of bourgeois Bonapartism in Russia or Poland would not be a stable regime. It would be shaken by crises in the rest of the world. Sooner or later, there would be new movements of the masses which would prepare the way for revolution.

Above all, what happens in Russia will be decisive. If Zyuganov moves to renationalise industry, that will have a dramatic effect. The whole of Eastern Europe would go the same way. The ex-Stalinist leaders would do yet another somersault, and get enthusiastic support from the working class. It is even possible that the workers of Poland and Hungary would move to take the control of society into their own hands, leading to the establishment of healthy workers' states. The Polish workers have the tradition of 1956, 1970, 1976 and 1980. The Hungarian workers have the tradition of 1919 and, above all, the glorious Hungarian Commune of 1956. These traditions will be rediscovered in the course of struggle. But the central problem remains the building of the subjective factor, the absence of which has led to the derailing of the great movements of the past.