By Peter Annear
PRAGUE — British Prime Minister John Major's tour of central Europe in May served not only to improve the electoral chances of the Czech-based Civic Democratic Party. It also drew attention to economic and political developments in the three countries grouped in the so-called "Visegrad troika" — Hungary, Poland and Czechoslovakia.
Major's message to the troika was that he wanted them in the EC as soon as possible, that they had made significant strides in reform, but that great difficulties were still to be surmounted.
Having last year signed association agreements that could pave the way for full EC membership by the end of the decade, Hungary, Poland and Czechoslovakia are increasingly looked on in the west as potentially successful cases of the transition to market economy, despite their current problems.
So, in a region where the strongest parts now languish in depression, just what sort of successes have been evident in the early stages of reintroducing capitalism?
In Poland, the mushrooming of the domestic retail sector has been held up as an example of what can be achieved by the private market. A flood of consumer items filled previously empty shelves following the elimination of the former government's monopoly of foreign trade and the liberalisation of prices and currency exchange.
Between 1989 and 1991, imports rose from 14% to 23% of national output, while exports rose from 9% to 15%. Having gunned exports with a 30% devaluation of the zloty, the government hopes further export growth will fuel economic recovery. While a third of trade was once with the Comecon countries, this proportion has now halved; the EC share of Polish trade has soared to well over half the total.
Private traders handled more than half of last year's imports and 20% of exports. Now it is thought imports from western Europe may drop this year as substitutes are produced locally on imported, privately owned machinery.
The optimism could be misplaced. The further expansion of exports, like steel (which rose 43% last year), textiles and agricultural output will very soon run into restrictive EC trade policies. The trade results have failed to stimulate production, and unemployment remains chronically high.
Hungary is the major cause of western hopes, being described in one case as a "modest but robust export machine in the heart of depressed central Europe" following a rise in exports to developed western markets by 31% last year and a further 13% in the first quarter this year compared to last. The hard currency exports — now earning more than US$10 billion annually — have exceeded expectation and, it is argued, point to a deeper transformation of the economy.
On most other counts, however, the "deeper transformation" is bogged down, and increased exports to the west are more the result of necessity than of virtue, following as they do the collapse of former Comecon markets, which now accept only 40% of previous export volumes.
Many Hungarian economists say problems in industry make the further growth of exports unsustainable. Moreover, where Hungary stands the biggest trade advantage — in food, textiles and steel — the affect of restrictions under EC Association Agreements could make the situation worse not better.
Reform theoreticians say Hungary has benefited by attracting the greatest volume of foreign investment in the region — now a total of $3.5 billion — in response to liberalisation and rapidly improving industrial competitiveness. But the penetration of new investment into the economy as a whole remains very slight.
High hopes have been expressed for Czechoslovakia's scheme of mass privatisation through the issue of coupons to the public. About 8.5 million coupon holders began in May to "bid" for shares in 2000 state enterprises, worth US$7 billion. Five hundred investment funds have sprung up to accept coupons from those who have no real idea which enterprises to choose — in fact, a majority of coupon holders.
From every angle, the process looks fraught with dangers. To begin with, it is nearly impossible to get information on listed companies, so most coupon holders are flying blind. In any case, the valuation of and financial prospects for many enterprises are unknown factors.
The scheme is a nursery for corrupt practices: insider knowledge is available to ministry officials and enterprise managers, while outright bribery has already begun to surface.
Once privatised, up to half of all enterprises could quickly be declared bankrupt, leaving the coupon holders penniless and thousands of workers on the scrap heap.
Scant attention is paid to the social costs of economic transformation in any of the central European countries, though a warning is often signalled of the likely political backlash when these costs become unbearable. It is this that leads to the belief that authoritarian governments could be around the corner.
In this regard, British Tory backbencher Sir Peter Horden has raised the example of Japanese investment in Thailand. The model of rightist, authoritarian governments ruthlessly applying free market economic policies with the support of foreign capital is commonly associated with Asian economies known as the tigers. Is this the model the central European reformers have in mind?
"Some preference is expressed for these three countries by western governments, the G7, the European Commission and the IMF, even though Poland recently somewhat lost that position due to both economic and political failures. But I think that the parallel with the tigers of Asia is certainly exaggerated", says Jan Klacek, director of the Institute of Economics of the Czechoslovak Academy of Sciences.
"I believe Hungary and Czechoslovakia, in that order, could manage the transition to a market economy, even though it will be very painful for them. I think it will take at least a decade, and probably more than a decade, to transform these economies. It will be very costly and very painful, but both these countries have some better conditions compared to the countries of eastern Europe, especially Bulgaria and Romania, not to speak of the countries of the former Soviet Union", he told Green Left.
Economic success could well elude even the better-off troika. But one feature that currently helps to excite foreign investors in particular will remain for some time to come, no matter what the other developments.
As in the rest of eastern Europe, the prime source of competitiveness of the troika economies is the exceptionally low wage structure, which remains only a fraction — on average 10% — of the wage levels of western Germany. That much, at least, they hold in common with the Tigers.
The prospect of cheap imports from the east and growing markets for their own output may warm the hearts of many western politicians and investors, but the reputed benefits of the economic transition so far are cold comfort to most people in central Europe.