Economic Crisis: Eastern Europe: New Markets were Still-Born

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As the Stalinist regimes collapsed, the bourgeoisie conducted a vast ideological campaign against the working class on the "superiority of capitalism" and the "impossibility of communism". It announced the arrival of a "New World Order": the end of armed blocs, falling arms spending, and the opening of new markets in Eastern Europe were going to lead to an era of peace and prosperity. Since then, the famous "peace dividend" has become massacres and ever-bloodier conflicts, while the hope of "prosperity" has been transformed into a deepening crisis and a severer austerity than ever. As for the "new markets" in the East, here too reality has revealed the truth: during the 1990s, these countries' economic and social collapse has given the lie to the bourgeoisie's campaign.

This is why today, there is a proliferation of "expert" reports and articles in the media, trying to revive those vacillating illusions. We are supposed to believe that "a difficult period was necessary to restore the economy to health", that the difficulty of the transition itself being due to the "heritage of the past", and that "there is a bright future ahead for the new market economy". The countries of the one-time Eastern bloc are supposed to be on the road to stability and economic recovery. The growth rate has risen from -10% in 1994 to -2.1 % in 1995, and is forecast to rise to + 2.6 % for the region as a whole. Except for a few provinces of the ex-USSR, growth rates in 1996 will be positive. "Fine weather follows a storm" is the message that the bourgeois media is trying to put over on us, which handily complements the story we've been told since 1989 on "capitalism's victory over communism".

The collapse of Stalinism: an expression of capitalism's historical bankruptcy

Democrats and Stalinists always agreed in identifying Stalinism with communism, in order to make the working class believe that the Eastern regimes were communist. This made it possible for the bourgeoisie to identify the collapse of Stalinism with the death of communism, and the bankruptcy of marxism. In reality, communism means the end of the exploitation of man by man, the end of wage labour and the division of society into opposing classes; it is the realm of abundance, where "the government of men is replaced by the administration of things" , and it is only possible on a world scale. The totalitarian state, generalised scarcity, the rule of the commodity and wage labour and the consequent workers' revolts, all bore witness to the utterly capitalist and exploitative nature of these countries' regimes. In fact, the Stalinist form of state capitalism was the heir, not of the October revolution, but of the counter-revolution that drowned it in blood. It foundered in the complete ruin of forms of capitalist economy that it had built in the so-called "socialist" countries. It was not communism that collapsed in the East, but a particularly fragile and militarized variety of state capitalism.

The internal collapse of an imperialist bloc, under the weight of the crisis and its own contradictions, without firing a shot, is a situation without precedent in the history of capitalism. The disappearance of an imperialist bloc as a result of the crisis, rather than of military defeat or revolution, is due to capitalism's entry into its terminal phase: the phase of decomposition. This phase is characterised by a situation where the two fundamental classes in society are confronting each other, without either being able to impose its own response to capitalism's insuperable contradictions: all-out war for the bourgeoisie, the development of a dynamic leading to revolution for the proletariat. The contradictions of a crisis-ridden capitalism are only getting worse, and meanwhile the bourgeoisie's inability to offer society the least perspective for society, and the proletariat's difficulty in openly asserting its own, can only lead to phenomenon of general decomposition, where society is rotting on its feet. These new and unprecedented historic conditions - society's temporary blockage - explain why the effects of the capitalist crisis have been (and will be) have been so extensive and devastating.

The fall in production since 1989 in the East European countries has been the worst ever recorded in capitalism's history, far worse than the great crisis of the 1930s, or the beginning of the second world imperialist conflict. In most of these countries, production fell more than the 30 % experienced by the USA between 1929 and 1933. After 1989, production fell by 40 % in Russia, and by almost 60% in ex-Soviet Republics like Ukraine, Kazakhstan, or Lithuania, far worse than during the USSR's rout following the German invasion in 1942 (-25%). In Romania, production fell by 30 %, in Poland and Hungary by 20 %. This gigantic destruction of productive forces, the brutal and sudden decline in the living conditions of whole sectors of the world population, is above all the product of the capitalist system's world historic crisis. Such phenomena, whose importance and extent are analogous with the decadence of previous social forms, are unparalleled in their violence. They give us the measure of what a social system in its last throes can do: reduce tens, even hundreds of millions of human beings into utter poverty from one day to the next.

Towards a radiant future, or Third World status?

After such a drop in production, such a decline in living conditions for a large part of the planet, it is somewhat indecent to talk about positive growth. When you start from zero, growth is mathematically infinite! In fact, the lower the starting point, the higher the growth rate: an increase of one from a starting point of two (building one extra truck, for example) corresponds to a growth rate of 50 %, whereas an increase of 10 from a base of 100 gives a weaker growth rate of 10%. Keeping things in proportion, in this context the positive growth rates do not mean much.

Any talk of a "radiant future" is a sinister swindle. Whether at the level of the evolution of production, income, or the capitalist system's general dynamic, everything indicates that all these regions are moving towards Third World status. The massive use of credit and budget deficits, as in the case of German reunification, or the brutal and widespread impoverishment in other countries, provide no solid basis for any improvement in the economic and social situation.

The example of German reunification is significant in many respects. The German bourgeoisie had to assume a reunification that was forced on it politically, and to have recourse to exceptional methods to avoid being submerged by an exodus of the East German population, and a powerful wave of social discontent. In fact, this reunification was only possible thanks to a massive transfer of capital from West to East to finance investment and social programmes: about DM200 billion per year, the equivalent of 7% of West German GDP - but 60% of East Germany's. The reintegration of the GDR into the great German family is presented to us as an example of successful transition: in 1994, growth rates in the ex-GDR had risen to almost 20 %!

But "facts are stubborn" as Lenin once said: in 1995, the ex-GDR produced DM382 billion ... with DM83 billion of exports, and DM311 billion of imports, in other words a trade deficit of DM228 billion, equivalent to 60 % of the ex-GDR's GDP! This is the explanation for the "fantastic" growth rates that we are presented with. This formidable support for East Germany's economic activity has only been possible by mortgaging the future, in other words by an equally formidable in Germany's national debt,

which has grown from 43 % of GDP in 1989, to 55 % in 1994: an increase of 12 percentage points in five years. This strategy of increasing the national debt in order to support the economy has only succeeded in putting the problem off for later: a certain economic activity has been maintained in the East, the infrastructure has been modernized, the transfer of revenue has allowed consumer goods to be purchased from Western manufacturers. However, this support for the Eastern economy has been concentrated above all on the building and public works sector in order to renew the infrastructure, which is an essential strategic objective for the German bourgeoisie. But in reality, this sector is unable to fuel a lasting take-off for the East German economy. Hardly were the torches extinguished after the celebration of the 7th anniversary of Reunification, than a sombre perspective presented itself: the source of activity in the building industry is running out with the progressive reduction in the massive transfers of funds from West to East under the pressure of financial austerity, while the faltering new industries will have difficulty surviving in a period of general recession and worldwide market saturation. In fact, since 1993 the German state has presented the working class with the bill for reunification, first with a heavy increase in taxes, followed by an implacable austerity programme: increased working hours in the public sector, closures, brutal increases in the prices of public services, massive reductions in civil service personnel.

Given the strategic importance for Germany of stabilising the ex-GDR, the situation there can still keep up appearances. However, if we look a little further afield, and ignore all the mystifying speeches, the economic and social situation in all the other East European countries remains catastrophic. With the exception of Croatia, Slovenia and the Czech Republic, the countries whose growth rates have returned to the black - and we have seen just how much importance we should attach to such figures - are once again stagnating or in decline. Growth in Albania has fallen to 6 % in 1995 from 11 % in 1993, in Bulgaria (3 %) and Armenia (7 %) it has flattened out since last year, growth has fallen in Hungary from 2.5% in 1994 to 2% in 1996, in Poland from 7% in 1995 to 6% in 1996, in Slovakia from 7 % in 1995 to 6 % in 1996, , in Romania from 7% in 1995 to 4% in 1996, in the Baltic countries from 5 % in 1994 to 3.2% in 1996. Other economic indicators are no better. True, hyper-inflation has been throttled, but only thanks to prescriptions worthy of Third World countries. Drastic austerity plans, redundancies, and swathes cut through the state's social budget have reduced inflation to levels considered "acceptable", though still very higher, and for most countries still higher than they were five years previously.

Inflation (%)







Czech Republic





















More and more economic behaviour in these regions reveals features characteristic of the Third World. Almost all economic activity is orientated towards short-term profit, capital is either placed abroad or engaged in mainly speculative enterprises, with only a marginal involvement in the productive sector. When the situation is so bad that "legal" profit no longer suffices, criminal income grows. Despite being widely underestimated, they are thought to represent 5% of Russia's GDP, which is a large increase on the 1 % of 1993, and are well above the world average of 2 %.

Towards absolute pauperisation

Equally typical of under-developed countries is the spectacular growth of the informal economy and private consumption, to make up somewhat for the drastic decline in official income. This can be observed in the gap between the enormous fall in wage income, and the lesser fall in consumption. The latter is kept up on the one hand by the 5-15 % of the population which has benefited from the "transition", and on the other, increasingly, by non-monetary goods (private agricultural activity). Thus in Bulgaria, where real wages fell by 42 % in 1991 and by 15% in 1993, we can see that the proportion of official income as part of family income has fallen by 10 % in 2 years (from 44.8% in 1990 to 35.3% in 1992), while the proportion of non-monetary agricultural revenue has increased by 16% (from 21.3 % t037.3 %). To survive, workers in these countries must find extra income to supplement more and more meagre wages, paid for work which is more and more difficult, and in worsening conditions. The result is an explosion in the pauperisation of the vast majority of the population. UNICEF has established a poverty line corresponding to a level 40-50 % below the real average wage of 1989 (before the "reforms"). The data needs no comment! The number of households living in poverty has been multiplied by 2 to 6 times. More than half Bulgaria's households live below the poverty line, 44 % in Romania, and a third in Slovakia and Poland.

Percentage of households living below the poverty line (estimate)









































The table on the following page illustrates how East European countries have plummeted to the level of the Third World, and makes it possible to evaluate the decline in their populations' living conditions: the figures in the second column indicate the average purchasing power relative to that of the USA ( = 100) in 1994, while the third column expresses the 1994 figure as a percentage of that for 1987. The calculation still under -estimates the real deterioration in working-class living conditions, since it measures the evolution of average purchasing power. However, it gives an idea of how far the decline has gone - a decline which has been all the more painful in that the starting point was already very low: in many of the ex-USSR's republics, living standards were already three times lower than in the USA; in Russia, they were almost two times lower, and 30% lower in the other countries. When we compare the present levels of Eastern European countries with others, we can see that they really are part of the Third World: Russia (17.8) has been reduced to the rank of a country like Tunisia (19.4) or Algeria, even below that of Brazil (21). Most of the ex -Soviet Republics are at the same level as Bolivia (9.3), or at best, of Mexico (27.2). How vain is all the talk of the perspective of development and the "radiant future"!

As the reality becomes better known, the last hopes and theories for a possible improvement in the situation are falling to pieces. The facts speak for themselves: it is impossible for these countries' economies to recover. There is no more hope for the countries of the ex-Eastern bloc than there has been during the last 100 years for the countries of the Third World. Neither a reform of the old order, nor the "liberal" variant of Western capitalism, which is nothing less than a much more sophisticated version of state capitalism, can offer a solution. It is the whole capitalist system worldwide which is in crisis. The lack of markets, austerity, etc is not unique to a ruined Eastern Europe, or an agonizing Third World. These mechanisms lie at the heart of the most developed capitalism, and strike at every country in the world.

Estimate of GNP per inhabitant, expressed in equivalent purchasing power (USA = 100)




87 as













Kirgiz Republic




































































Czech Republic









- L 'economie mondiale en 1997, CEPII, Editions La Decouverte, collection Reperes no 200.


- "Transition economique a l'Est", La documentation francaise no 5023


- Rapport sur le developpement dans le monde 1996: "De l'economie planifiee a l'economie de marche", World Bank

- Le Monde Diplomatique


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