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Capitalist restoration: stalled at the crossroads

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Since 1990, the capitalists have seemed to be winning hands down in Eastern Europe. However, as Martin Suchanek explains, their plans to introduce workers to the wonders of capitalist exploitation are running into trouble.

For the last two years those bourgeois commentators keen to monitor the progress of capitalist restoration in Eastern Europe have focused on three countries: Hungary, Czechoslovakia and Poland. As compared to the Balkans or even the disintegrating USSR, they were expected to blaze a trail for others to follow. Each of the three possessed advantages over other countries in the region.

Hungary had behind it a decade of developing piecemeal, pro-market legislation and infrastructures and numerous small entrepreneurs. Poland alone had a consciously counter-revolutionary, pro-capitalist leadership at the head of a mass movement during 1989-90. Czechoslovakia was one of the more industrially sophisticated and “successful” of the degenerate workers’ states.

Two to three years after the Big Bang, the Velvet and Silent Revolutions, where do these regimes stand on the road to capitalism?

One promise the governments elected in1990-91 have kept was that the transition would be painful for the masses. Prices would rise and wages would fall; unemployment and closures were inevitable. This at least has happened.

In 1990 and 1991 GDP fell between about 12% in Hungary.1 Poland, whose economy shrank more than 20% in the same period,2 now shows some signs of stabilisation. In Czechoslovakia, NMP-fall 3 is estimated to be 20.2% in 1991 alone.4 Living standards declined dramatically and unemployment rose to 15% in some countries. But most politicians suggested that by now things would improve, the sacrifices would be beginning to pay off. Not so.

The transition from a bureaucratically planned economy to capitalism is proving much more difficult than expected: making the law of value the central regulator of the economy once again is no mere technical detail.

In the degenerated (as in the healthy) workers’ state, the law of value is effectively subordinated to a variety of planning mechanisms. The allocation of the means of production and the workforce is not determined by profit maximisation. Measures are taken to ensure this: the nationalisation of banking and of industries manufacturing the means of production; their co-ordination through centralised planning and the state monopoly of foreign trade.

Because the Stalinist bureaucracy deprived the working class of any control of the formulation and supervision of planning, despite some successes, it only managed to drive the economy of the workers’ states into the sand. Stagnation in the late 1970s and early 1980s gave way to terminal crisis in the second half of the decade.5 Nevertheless, to overthrow this moribund system requires conscious political action.

The abolition of central planning ministries and the abolition of the monopoly of foreign trade are necessary but insufficient actions. In themselves they do not mean the immediate destruction of the workers’ state, nor that the law of value automatically becomes the major regulator of the economy.

The transitional period is characterised by the substitution of the central planning agencies by ad hoc arrangements directly between the main enterprise directors over supplies and finished goods. To start with they are roughly proportionate to what they inherited from the old system.

Barter, a piling up of inter-enterprise debts and borrowing money at no costs from the central banks, ensure that the law of value fails to impose itself definitively in this period. In Hungary, Czechoslovakia and Poland the impeccably bourgeois governments are having the greatest difficulty in realising their programme and bringing this transitional period to an end.

The restoration of capitalism requires a political regime and a state apparatus willing and able to transform the economy. Although minority factions of the Stalinist castes have been working consciously in this direction for years, by the 1980s the whole leading stratum had adopted policies that had the logic of preparing the ground for capitalism.

Growing foreign debt, reliance on credit, further marketising reforms and/or severe attacks on working class living standards were increasingly evident. The bureaucracy proved incapable of developing the productive forces beyond a certain point. The illegitimacy of the dictatorship was widely felt by the masses. The bureaucrats’ self-confidence ebbed away, leading to growing fragmentation and disorientation, especially after Gorbachev came to power in the Soviet Union.

The depth of this inner crisis of the bureaucracy was most sharply revealed in 1989-90, when the popular mass movements brought down the parasitic regimes with unforeseen speed and ease.6 These movements opened a revolutionary period throughout Eastern Europe, a period which posed the alternative: working class power exercised by workers’ councils and a democratically planned economy or bourgeois social counter-revolution.

The absence of a revolutionary leadership proved crucial in enabling restorationist forces of various origins to gain leadership and use the mass hatred of the Stalinist dictatorship to propel themselves into power. In 1989-90 bourgeois workers’ governments7 or popular front governments replaced the old Stalinist regimes.8

Some of them had rather brief lives 9 and were rapidly replaced by open bourgeois governments. By mid-1992 open bourgeois governments had been installed throughout Eastern Europe, with the exception of Serbia, Macedonia and Romania.

With the consolidation of open bourgeois governments the new regimes began to remove the old top ranks of the nomenklatura from power. The purges took different forms and were carried through to a different extent in various countries. They were most thoroughgoing in the former GDR, where the army was simply abolished, with 90% of the officer corps banned from entering the federal army. Generally the purges concentrated on party officials, the party and factory militias and leading officials in the state administration and security apparatus (secret police, army).

In the enterprises and the revamped economic ministries, however, many of the former bureaucrats remained in place. This reflects the fact that a more thorough-going “de-communisation” is actually dysfunctional for the restoration process itself because of a lack of personnel with adequate skills to replace them.10

The task for the newly established restorationist regimes was to transform the economies. Many of them rapidly abolished the central planning ministries and the state monopoly of foreign trade, introduced price, currency and banking reforms. The IMF and the World Bank insisted on programmes to stabilise and recapitalise the economies.

Poland became famous for its neo-liberal “Big Bang” approach, whilst Hungary tried to follow the path of a smoother transformation—from “goulash-communism” to “goulash-capitalism”. Privatisation played a key part in all these schemes. Equally importantly, the three countries differed in that Czechoslovakia under Klaus and Poland both tried to carry out an integrated programme to transform the economy, whilst Hungary never developed “any coherent overall economic policy”.11

When the restorationist regimes came to power one of their tasks was to abolish centralised planning itself. The starting point differed considerably in the various countries.

In Hungary the central plan had been effectively irrelevant since the banking reforms of 1987. The Polish restorationists dismantled the plan in 1989-90. In Czechoslovakia it was nearly one year after the Velvet Revolution—the beginning of 1991—before the central planning ministry was abolished. Planning, however, is not just one institution, the planning ministry, but a whole series of mechanisms, including taxation and control over the banking and credit system, which together co-ordinate state industry under the bureaucratic dictatorship.

Finally, in all these economies the workers occupied a role inside the factories that, while falling far short of control over production, did include a relationship with the enterprise directors which involved mutual compromises over staffing and pay. This relationship fell far short of the kind of subordination of labour to the production process that is typical and essential for capitalism and it was, therefore, a key target for the IMF reformers.

The easy part of the stabilisation programmes proved to be the price and currency reforms, progress in stabilising the budget deficits and slowing inflation. Currency reform and the dismantling of the foreign monopoly of trade have been undertaken in Poland and Hungary and are being followed by Czechoslovakia.

However, the success of these reforms should not be overestimated. The country that went fastest and furthest down this route was clearly Poland, which had already freed about 90% of all prices by the end of 1990. Other countries lay far behind this. Even Hungary maintained a large part of its subsidies and former artificial prices, especially for housing and energy.

Despite the above measures the three countries under review here were far from effective in forcing the state-owned firms and the banking and credit system to act according to profit criteria. Banking and credit reform as well as “commercialisation” 12 of the state-owned enterprises became a critical question for capitalist restoration in Eastern Europe. The abolition of the monopoly of foreign trade and the initial small-scale privatisation13 helped create some competitive pressures and explains the massive slump in output in some sectors. Currency and price reform also helped to establish market prices and a measurement of the real value of products and enterprises.

This was accompanied by legislation on ownership rights, privatisation laws,14 bankruptcy laws and new legislation on credit financing according to which credit should be extended by banks to make a profit, thus ensuring real interest rates for money borrowed by firms.

In turn this would accelerate industrial restructuring and the bankrupting of enterprises. In many countries the state bank thus had to be restructured. The credit bank and the currency bank were divided, regional banks and special banks were established. In addition, private banks and creditors were legalised, although only a few very small ones were really established, due to lack of capital.

The results, however, were far from those expected or hoped for. Enterprises usually did not go bankrupt, credit was not given on a profit basis and, last but not least, the enterprises resorted to barter. All this promoted a tremendous rise in inter-factory debts.

This even applies to the most advanced countries on the way to capitalist restoration. For example, in Hungary “inter-enterprise debts had reached 400 billion forints (approximately $5.2 billion) in the first quarter of 1992”.15 Similar results had been experienced in Poland and the other countries throughout 1991-92.

This has had a terrible effect on the ability to distinguish between profitable and unprofitable enterprises and to estimate the price of particular enterprises for privatisation. First, the high degree of centralisation and connection between the enterprises means that to close highly indebted enterprises can easily mean that a whole series of others will be forced into bankruptcy because of bad debts. This will not only drive uncompetitive enterprises out of business, but can have the same effect on potentially profitable ones which would survive if their inherited debts were eliminated or restructured.

Secondly, the established barter system between the enterprises and the monopoly position of many of the big factories means that the effect of price liberalisation is limited. A large amount of goods which are exchanged between state enterprises are still quite often paid for by “artificial prices” or by barter and by reciprocal indebtedness.

Higher “real” prices for goods which have to be bought outside the state sector (especially raw materials on the world market) are simply added to the price of the goods irrespective of market conditions (i.e. low effective demand). Capitalism is a system of production for profit to an unknown market; the transitional states seem to produce at a loss for a non-existent one.

Under these conditions it is little wonder that privatisation did not go forward as rapidly as projected in early government statements. On the contrary, apart from an initial wave of nomenklatura privatisations there had been relatively few successful privatisations of larger state enterprises. Deals like Skoda in Czechoslovakia, where Volkswagen holds 31% of the stock and exercises management control, are a rare exception and, in relation to the economy as a whole, quite insignificant.

Clearly, some countries have been quite successful in establishing a private sector with hundreds of thousands of small property holders. At the end of 1991 there were 1.2 million private enterprises in Poland, some 921,000 in Czechoslovakia and around 600,000 in Hungary.16 The number of state owned enterprises in 1991 can be estimated as follows: Hungary had about 2,300, Poland 7,500, Czechoslovakia 4,800.17

However, if we look at the weight of these enterprises in the whole economy, it soon becomes clear that the state sector is still dominant. Most of the private enterprises, be they found outside the state sector or privatised, are small and middle size firms and mainly to be found in service, trade and construction, whilst the largest part of industry remains in state hands.

In mid-1991 about 25% to 30% of the Hungarian and 40% of the Polish economies were estimated to be in private hands.18 At the same time “private businesses still account for less than 2% of GDP in Czechoslovakia.19 However, only 24.2% of Polish industry 20 and about 20% of the Hungarian21 had been privatised by the beginning of 1992 and there are no big changes expected on this front.22

Even more important the maintenance of large parts of the state sector was accompanied by an extension of the “traditional” operation of the credit and banking system in Eastern Europe: “The state banks, which continue to dominate the banking system, want to lend to the firms (and often to the managers) they know best: namely the state firms. The state banks are also under political pressure to lend to the big firms to keep them from going bankrupt.” 23

With regard to Hungary, the “financial system does not increase interest rates to reflect rising prices”. This also means that the “SOEs [state owned enterprises] exacerbated the soft budget policy by engaging in ‘queuing’ with one another, thereby an SOE does not pay its bills, and is extended credits by other SOEs, with the SOEs granting credit not having to worry if the SOE extended credit repays”.24

As long ago as the start of 1991 some realised the centrality of putting an end to this situation:

“The government in all countries have been relatively slow to enforce bankruptcy and liquidation procedures, with Yugoslavia having gone farthest. To some extent, enterprises have been operating on the basis of increasing inter-enterprise credit; in addition, banks have had little choice but to extend more credit to enterprises in financially precarious conditions, even if they do not have a clear perspective on their own restructuring and recapitalisation.” 25

But over 18 months later the situation has still not been resolved. Poland and Hungary seem to be furthest down the road to restore capitalism, and yet: “Until now, no large or medium-sized state enterprise has gone bankrupt and many are keeping going by involuntary inter-enterprise credits, built up through a chain of non-payment which has to be broken if inflation is to be reduced and the banking system kept afloat.” 26

Another study stated: “There has been a lot of selling, a lot of reconstruction, and some liquidation; but the hard core of the Hungarian industrial structure has not been affected.” 27

The function of the banking and credit system and the weakness of internal private competition mean that the statified enterprises are not obliged to function according to the law of value. The means of production in this central part of the economy does not function as capital yet.

Although some voucher schemes have been tried and some of the enterprises have gone onto the stock markets, the existing remnants of the planned economy protect the statified industries in the Eastern European states from being governed by the law of capitalist accumulation, that is from being integrated in the circulation process of capital.

Clearly, the reforms strengthen the pressure on these industries. But they have not yet succeeded in qualitatively changing the relations of production regulating state industry. Initial results of the Czechoslovak voucher scheme show that this method is not a miracle solution to the problems of the restorationists. It can even have counter-productive effects:

“Rather than the desired equity-owning democracy, however, the scheme seems likely to produce confusion. Most of those who have bought vouchers entitling them to shares have entrusted them to private investment funds promising inflated returns. These barely regulated funds are neither ready nor willing to inject the management expertise so badly needed by state enterprises; in consequence many of the old industrial bosses remain in control. And if the promised returns fail to materialise, the result could be a crisis of financial and economic confidence.” 28

When the democratic mass movements brought the restorationist forces to power two or three years ago many different social interests were merged. Necessarily, these movements fragmented, reflecting the different interests of existing or embryonic classes or layers of such classes.

The Civic Forum (Czechoslovakia) and Solidarnosc (Poland) are probably the clearest expressions of this tendency. The old Stalinist parties, whose followers remained in power for some time, went through a similar fragmentation over the speed of the restoration process.29

In Poland and Hungary we can see an extreme degree of fragmentation in the political arena. The Polish elections were probably the most clear example of what is a trend throughout Eastern Europe. No party received more than 13% of the vote and the elections, far from solving the governmental crisis, led to months of political instability. In Hungary the ruling HDF is well down in the opinion polls and lost seats in recent by-elections. The next elections will see a similar, although not so drastic, split of the vote.30

This fragmentation poses major problems for the restoration process which requires firm and conscious leadership. But that is exactly what the various restorationist forces usually do not provide. They are fragmented into different parties or fractions in parties (or a combination of both). Czechoslovakia provides a partial exception, but only due to the highly costly risk of breaking the country apart and because of the fact that at about 3%, unemployment in the Czech Lands is still very low.

The underlying problem is that these parties, although committed to capitalism, usually reflect the sectional interests of one or other stratum of society, of this or that entrepreneurial group, but not of the restoration process as a whole. Although new governments have been formed and the state apparatus is loyal to capitalist restoration, a “general” capitalist interest has not been constructed.

Parties are prepared to obstruct measures which are necessary to promote restoration but at the same time hit their social base. This was demonstrated by the Olszewski government in Poland and the failure of even the parties who supported it to agree on a budge, and by the fate of the successive Hungarian governments.

Many of the small capitalists and petit bourgeois entrepreneurs cannot cope with real competition, especially from foreign capital. Hard credit policy, necessary to commercialise the statified industries, also has a disastrous effect on private enterprises, because it makes credit expensive and, especially under the conditions of recession and high inflation, nearly unpayable. The cost of credit means that they are not able to raise productivity through investment in new processes. Many of them, especially in the agricultural sector, are opposed to many of the restorationist measures.

Furthermore, the fact that many of these enterprises rely on the state sector for distribution of their goods and sometimes also as the major buyer, means that closures in the state sector or reductions of state spending reduces their own business. There are some small success stories of private capitalism, but these are quite often based on semi-legal methods and on inherited connections with parts of the old nomenklatura, who in turn form an important layer of the new entrepreneurs.

Last but not least, the managers and high command of the statified industries, the banks and so on, themselves form probably the most well organised sector of business men and women in these countries, and this is reflected in the social composition of the open bourgeois parties, which very rarely incorporate the new small capitalists into their ranks. 31

In considering the duration and form of the restoration process, paramount emphasis has to be given to the political and economic intervention of imperialist governments, of their multilateral agencies such as the World Bank, IMF and EBR and of private multinational corporations.

Given the absence of a significant native capitalist class and the self-interest of the old economic management of the bureaucracy, imperialist assistance to the bourgeois governments is absolutely central. There have been no shortage of free market economists, taxation and accountancy consultants and armies of advisers to help shape the necessary tax legislation and market infrastructures.

But there has not been a lot of capital. A Marshall Plan for Eastern Europe, proposed by some social democrats, was and is nothing more than a utopia. The drawn out and difficult character of the structural transformation process is, in large measure, due to the weakness of imperialism. Leaving aside the effect of various conjunctural political considerations such as the US elections, the fundamental reason for this weakness is the broadening and deepening world capitalist recession. Beginning in the USA and UK in 1989 and spreading to the rest of the EC and then Japan by late 1991, it has cast a long shadow over the restoration process.

Firms in the west, with a far higher productivity than is to be found in most Eastern European enterprises, are failing. Outside of a few areas of specialised products (e.g. Hungarian consumer electronics) or industries with proven comparative advantages (e.g. Polish shipbuilding) the vast bulk of East European industry cannot compare with average western levels of productivity. With massive global over-production of capital even the development of greenfield sites utilising skilled cheap East European labour is not enough of a temptation for the imperialist corporations.

Consequently, either huge credit and loan capital has to be extended by the commercial banks (unlikely given the recent experiences with debt write-offs) or by central banks and multilateral agencies. But no neo-liberal government is going to give this for productive investment when private capital will not do it.

Moreover, the scale is simply daunting and beyond reach. What aid that can be given for currency stabilisation and project development has to be carefully monitored to make sure that it is not used by the governments for narrow political advantage.

Imperialist investment in Eastern European business since 1989 has been estimated at about $3-5 billion. It was highly concentrated in Hungary, Poland and Czechoslovakia, “focused on a narrow range of industries, mainly service, including the media and hotels, or consumer goods, including foodstuffs, tobacco, cosmetics and pharmaceuticals. Other targeted areas have been construction materials, especially glass and cement, or the automobile and component industries . . . There are few takers of the vast engineering plants which frequently are the main or sole source of income for entire communities.” 32

Hungary attracted over 50% of this investment—about $3.3 billion since 1988 33—but given the total value of the statified industries, this will not be sufficient to transform ownership structures. Furthermore, these investments are only set to increase marginally: “Even on the most optimistic assumptions, Eastern Europe will attract only $7 billion direct investment by 1995, and a total of $ 21 billion from both aid agencies and private banks.” 34

Given the inability of imperialism to take responsibility for this restoration process, the bourgeois governments of Hungary, Poland and Czechoslovakia are in a dilemma. Huge recessions are underway and massive destruction of productive capacity has occurred, already leading to low double digit unemployment and a savaging of living standards. And yet this has still not been enough to turn these countries into capitalist market economies.

Consequently the governments retreat, continuing to pursue an expansionary and inflationary budget policy to provide negative interest rates and credits to industry. The alternative seems at this stage too much to contemplate: a doubling or more of unemployment and the irrevocable loss of firms or industries which may be able to survive profitably with small capital investments outside of the semi-slump conditions of world capitalism. The restoration process remains trapped in a parallelogram of forces where the political will of the national governments runs up against the economic malaise of global capitalism.

One major advantage the restorationists could count upon when they came to office was their ability to hegemonise or at least pacify the workers’ movement. The atomisation of the proletariat by the Stalinists was of incredible value for the social counter-revolution. The false identification of the degenerated workers’ state with socialism, the supposed practical proof that any alternative form of society to capitalism was ineffective and undemocratic had a strong impact amongst the workers.

In the early phases of the stabilisation programmes a certain fatalism and passivity was evident in the masses, who believed that before the fruits of the market could be enjoyed some pain was necessary. Other factors too intervened to dampen resistance. Many people were able to use savings accumulated over years or decades as some small protection against the price rises and wage freezes. The pro-capitalist nature of many trade union leaders also ensured that many local struggles would have difficulty finding a leadership to sustain them in the short term.

But it is also true that the restorationists have not fully pressed home their attacks on all fronts and thereby provoked more resistance. The marriage of convenience established between enterprise director and works’ council or trade union has still not been fully broken up.

This is reflected by the fact that most of the unemployment in Eastern Europe has not resulted from bankruptcies or sackings in the state industries, but from young workers not being employed. At the end of June 1991 only 20% of Polish unemployment resulted from group sackings:35 “Individual layoffs represented the largest component of the stock of unemployed, but also significant were school leavers and those coming into the areas of wage labour from outside, particularly peasant farmers.” 36

In many East European countries, employee councils and the trade unions still have a lot of say with regard to redundancies, restructuring and privatisation. Sometimes these are codified rights (as in Poland); elsewhere they reflect the inability of the restorationist forces to execute their anti-working class policies against the sectional economic resistance of the workers.

By the end of 1991 signs had emerged of a growth in working class resistance against restorationist measures in many East European countries. Wage freezes, which have eaten up savings, are increasingly being understood to be a permanent and not a transitional pain. The privatisation experience is not producing great gains for the workers. The myth of “popular capitalism” is proving a minor detour along the road of concentration of capital in the hands of the great financial institutions.

In Poland energy price rises were met with a nationwide warning strike by all the major trade unions. Even more important was the strike of the Nova Huta steel workers in December 1991 and January 1992, which forced the government to withdraw their redundancy plans and to guarantee that production would continue and credits be given to enlarge steel production.37 In summer 1992 a new wave of resistance emerged in Silesia, where workers occupied the Fiat car plant and some mines. Led by the OPZZ, they threatened the government with an all out strike in the region. Strikes against the tax on wage increases are erupting once again.

In Hungary austerity measures by the government were met with resistance by the taxi drivers’ blockade in October 1990. Attempts to raise prices for electricity and heating triggered a national warning strike by the National Federation of Hungarian Trade Unions (MSZOSZ, the former state union) on 12 June 1991. Although the strike was boycotted by trade unions who support the open bourgeois parties, “the strike call was very effective and led to a number of governmental concessions (e.g. 15% of funds from privatisation to create new jobs), whereupon the union withdrew its threat”.38

During the summer of 1991 in Czechoslovakia, a wave of protests in the countryside emerged, particularly in Slovakia. Farmer workers demanded the restoration of at least 80% of the state subsidy. After they threatened to block all roads the government promised a reassessment of its policy and the protests ended.

On 23 November 1991 the Confederation of Trade Unions of the Slovak Republic held a one hour warning strike. This was a response to the government’s failure to stick to agreements with the unions to keep wages broadly in line with prices. Furthermore, the unions demanded a halt to unemployment and measures to stop real wages falling by more then 10%. This was followed by protests from air traffic controllers and transport workers in the winter and spring of this year. Threatening the new bosses with industrial action, the workers at Skoda-Volkswagen were able to gain wage rises of about 10% twice in 1992.39 But generally the Czechoslovak trade unions remain quite passive.

These examples reveal some of the strengths and weaknesses of the workers’ organisations in Eastern Europe and the problems for the development of further working class resistance. It is the successors of the ex-state trade unions which are strongest in membership (4-6 million in Poland, 1.3-2.5 million in Hungary, 6 million in Czechoslovakia) and which are central to most significant working class mobilisations.

Furthermore, the elections in Poland, in Czechoslovakia and the by-elections in Hungary revealed a growth in electoral support for the ex-Stalinist parties: the Democratic Left in Poland, the Socialist Party in Hungary, the Communist Party of Bohemia and Moravia and the Democratic Left in Slovakia. They are in the process of strengthening their links with the trade unions.

The growth of trade union resistance and the move towards the reformist parties (at least on the electoral level) led the restorationist governments to begin attacking them at a legal level.

The most dramatic example is the Czechoslovak government, which made illegal all communist activity as anti-human and threatened all potential left wing and revolutionary resistance to its policy with repression and confiscation of party property.

The Hungarian government similarly alighted upon the idea of expropriating the ex-state trade union and handing its assets over to all those unions loyal to the government’s policy, though even then not according to their membership strength but to their “support amongst the population”.40

However, the major problem for the labour movement is its political weakness, its still existing disorientation and inability to oppose the road to capitalism as whole, rather than this or that reform. Apart from small centrist groupings no current exists in the labour movement which openly wants to oppose capitalist restoration.

Whilst the growth of reformism in the working class demonstrates the elementary tendency and necessity for the working class to defend itself collectively against the attacks of the new bosses and governments, it also embodies the danger of being led into severe defeats once again by new, and often not so new, bureaucratic misleaders and their conciliatory reformist politics.

It would be false to think that the World Bank and the various imperialist advisers, such as Jeremy Sachs, approached a major historical task such as the restoration of capitalism with the naive perspective of turning around these economies within a few years. The World Bank, for example, envisaged a time-scale up to ten years for these countries.41 However, their problem is that the process as a whole slowed down alarmingly in Eastern Europe.

The fast track privatisation course has failed and is unlikely to achieve results in the major industries in the foreseeable future. Even the voucher-privatisation scheme in Czechoslovakia—which has already seen investment funds controlling 71% of the vouchers—only touches a small proportion of industry.42 Compared to even this the Polish mass privatisation scheme of Lewandowski was a failure. But he has once again become privatisation minister in Poland and is making a second attempt at a voucher system.

What is clear for the restorationists is that on the economic level capitalist restoration needs the introduction or continuation of stabilisation programmes. For the masses this means a further decline in living standards, most notably a further reduction or abolition of subsidises, social services, pensions and unemployment benefits for the growing reserve army of labour. Even now unemployment is still quite low compared with an estimated “overstaffing” of between 20% and 30% in most industries and services. But the success of these programmes, although having savage consequences for the workers, the small and middle peasants and parts of the urban petit-bourgeoisie, will only be temporary and insufficient from the standpoint of capitalist restoration if the function of the statified sector cannot be changed qualitatively.

We have outlined the key structural changes that will be necessary for capitalism to be finally imposed on these advanced transitional countries, or moribund workers’ states. How—post festum—might we recognise when this has been effectively carried through?

Through the deceptive prism of bourgeois economic indicators certain features should be observable, for example, when national production bounces back out of the depths of its present slump in Eastern Europe to the extent that a clear cycle of recovery is obvious; when this growth is non-inflationary and accompanies a reduction in budget deficits.

If all these conditions emerge together then factory output is finding a buyer at a profit without the state having to recklessly overextend the money supply and extend non-commercial credits to allow the purchase of goods.

It also presumes that banks themselves, in the process of their own commercialisation and independence, have been restructured to write off considerable swathes of their irrecoverable enterprise debts, a process that itself will involve banking closures and a centralisation of capital.

If all this occurs in the context of continued integration into the world market then we can presume that banking capital has imposed its imprint upon the cycle of industrial production, in which case we can speak of semi-colonial restorationist state capitalism having wrestled itself free from the ruins of a destructive transitional phase.

However, to carry out a strong state capitalist restructuring policy is very difficult under the present bourgeois leaderships. It will require a strengthening, unification and preparation of the restorationist forces in order to be able to defeat potential working class resistance. Therefore, we will most likely see a rise of Bonapartism or, at the very least Bonapartist measures.

The tempo of events its hard to predict. The social forces are still in a process of forming their parties, their organisations for the decisive battles which lay ahead of us. The future of Europe lies in the East—not only for imperialism, but also for the working class.

For the working class to resist these measures and prevent a historic defeat from happening in Eastern Europe the absence of revolutionary leadership must be put right immediately or it will be too late to reverse the course of events.


1 Economist Intelligence Unit (EIU) Country Report on Hungary No 2 1992, p6
2 EIU Country Report on Poland No. 2 1992, p3
3 NMP (Net Material Product) is the East European equivalent of GDP
4 EIU Country Report on Czechoslovakia No. 3 1992, p3
5 Between 1980 and 1989 GDP grew only 2.1% in Hungary, 1.4% in Poland, 0.5% in Yugoslavia and 2.0 % in Czechoslovakia.
6 This also affirms Trotsky’s analysis of the Stalinist bureaucracy as a caste. See Trotskyist International No5 for a fuller explanation.
7 Mazowiecki in Poland in 1989, Modrow in the GDR, Nyers followed by Nemeth in Hungary in 1989, National Salvation Front government in Rumania.
8 “Government of National Understanding” in Czechoslovakia in 1989, BSP/UDF coalition in Bulgaria in 1990.
9 Government of National Understanding, Modrow, Nyers/Nemeth.
10 This also explains why reactionaries like Walesa, a man with a genuine anti-communist record, refused to allow the Olszewski government to publish files of the secret police archives, which could have proved the collaboration of leading army and state officials as well as parliamentarians with the Stalinists.
11 Radio Free Europe/Radio Liberty Research Report (RF/RL RR) 17.7.92 p44
12 By “commercialisation” we mean making state owned enterprises juridically independent, self-financing and profit making public corporations, a transitional step to privatisation.
13 There are different forms of privatisation referred to in the literature and economic strategies. Small-scale privatisation is one of them: this means privatisation of small shops, housing units and other small-scale firms and property to private individuals or investors. Sometimes long term leasing of these facilities to individuals is also included. Large-scale privatisation is applied to the middle and bigger enterprises and usually means their transformation into joint stock companies and the distribution of the stock to private investors through sales at estimated market prices up to the distribution of shares. Voucher privatisation is one form of this. In all these cases the state controls the privatisation process and the estimation of the value of enterprises or shares. It does not attempt to play such a role in spontaneous privatisation, which is often one of the first forms of privatisation and frequently takes the form of nomenklatura privatisation. Quite often this form of privatisation does not have any deep impact on the functioning of the enterprises, which are often parasitic to the state sector once privatised.
14 Although this has been achieved in most countries, quite often important legislation is still missing. One aspect is the question of property expropriated by the Stalinists in the Second World War. Slovenia has no privatisation law yet and Hungary has yet to establish a legislative programme for agricultural privatisation.
15 RFE/RL RR 17.7.92 p45
16 Financial Times Survey on Privatisation in Eastern Europe, 3.7.92, p5
17 Economist Survey Business on Eastern Europe, 21.9.91, p10
18 Ibid. p14
19 Ibid. p9
20 EIU Country Report on Poland No. 2 1992, p. 11
21 J. Angresano, “Political and Economic Obstacles Inhibiting Comprehensive Reform in Hungary”, East European Quarterly, March 1992, p. 63
22 How much legal frameworks and social reality can differ is demonstrated in the case of Romania: “In spite of adoption of an ambitious law last August, the country has yet to privatise a single company in the state sector which still accounts for more than 90% of industrial production.” Financial Times Survey on Privatisation in Eastern Europe, 3.7.92, p6
23 RFE/RL RR 31.7.92, p45
24 Angresano, op. cit., p60
25 U. Thumm, “World Bank Adjustment Lending in Central and Eastern Europe”, in: Corbo et al., Reforming Central and Eastern European Economies, World Bank Washington 1991, p57
26 Financial Times “Survey on Poland”, 28.4.92, p9
27 RFE/RL RR,17.7.92, p47. Whilst the legal framework to harden enterprise credit and, if necessary, to enforce bankruptcies formally exists in these countries, other countries even have not reached this stage. Slovenia, far from finishing the restoration process through separation from the Yugoslav republic, is just trying to break the old Yugoslav structure which enabled enterprise managers to be represented on the board of the banks and thereby ensure credit was given to their firms irrespective of their state. See Financial Times “Survey on Slovenia”, 30.3.92, p3
28 Financial Times 21.8.92 p12
29 This applies also in an early phase to the Hungarian HSWP as well as to the Romanian NSF and the Bulgarian SPB. Even though the latter two could retain their unity on an organisational level, their internal divisions are clearly growing because they still incorporate the hard-line Stalinist wings of the old CPs.
30 In Slovenia too the governing DEMOS block incorporates more or less all non ex-CP forces who, standing on their own, are estimated to have a “Polish” share of the votes.
31 Concern about this is voiced by many bourgeois commentators. K. Okolicsanyi’s hopes with regard to Hungary are expressed thus: “I believe that incorporating entrepreneurs and representatives of the private sector into the party system is crucial to political progress. FIDESZ could, perhaps, be taken over by entrepreneurs.” RFE/RL RR,17.7.92, p50
32 Financial Times Survey on Privatisation in East Europe, 3.7.92, p2
33 RFE/RL RR,17.7.92 p44
34 The Economist 21.9.91, Survey on Business in Eastern Europe, p24
35 That is, according to the figures, sackings of at least 10% of the workforce or of 100 or more sackings in enterprises with more then 1000 workers.
36 A. Kilmister, Labour Focus on Eastern Europe 1, 1992, p42
37 International Viewpoint 221, p8
38 Labour Focus on Eastern Europe 1, 1992, p53
39 EIU Country Report on Czechoslovakia No 3 1992, p24
40 C.Stenner, “Gewerkschaften unter Druck”, Ost-West information, 1/92, Graz, p35
41 Issues in the Reform of Socialist Economies, p67
42 East European Markets, 7.8.92, p9