The Debate on Post-Socialist Transformation in the Perspective of Baltic Integration.

Jan Henrik Nilsson

1. Background.

The transformation of the East-Central European countries, from communist planned economies to democracies developing towards market economy, are without doubt the most important process in Europe since the Second World War. Such a process inevitably trigger debate. The restructuring of the economies have been central to the debate since this process of restructuring is to a certain degree unique, a development away from socialism "back" to market economy has never happened before. There are primarily two sides to this debate. One is policy-oriented and deals mostly with the measures that ought to be implemented in order to achieve the best possible development. The other one tend to deal more with principal questions, grounded in economic theory. Of course, it is impossible to draw a clear line between the two, and the connection of political and economic development also becomes important in the discussions.

The post-socialist transformation has also meant that the post-socialist countries have changed their relations towards other countries. As a part, it is a result of the disintegration of the former Soviet block, that involved close economic and political cooperation. The collapse of the former relations forced the countries involved to find new partners. But, the new relations are also a result of a determination, on part of the post-socialist countries, to break the isolation that previously had a suffocating effect on society, and to loose dominating ties. The changing relations are clearly visible in the statistics of tradeand in patterns of transportation and communications. A series of new international and bilateral fora have been founded in order to promote cooperation. The (political) aim of these structures could be explained as to increase integration in the Baltic Sea Area.

Theoretically, the connection between the transformation within the post-socialist states and the process of integration in the Baltic Sea Area is very interesting. This does not only include the changes in systems and in connections over former borders, but also the meaning of and the qualitative content of these new forms of interaction.

This leads to the aims of this paper, which are:

  • To discuss the meaning of the concept of integration, especially in connection to the situation in the Baltic Sea Area.
  • To summarise some theoretical perspectives in the debate on post-socialist transformation.
  • To discuss how the debate on post-socialist transformation in general (and the different perspectives involved) might improve the understanding of the concept of integration, and thus for the actual process of integration in the Baltic Sea Area. The paper is purely theoretical and does not present any empirical findings what so ever.

2. Integration.

Before continuing it might be appropriate to define integration. The concept stands for a deepening of contacts and exchange between two or more partners. In the case of the Baltic Sea Area it is most appropriate to speak of integration between geographical areas. One could then simply define the concept as a change of interaction or exchange in a positive direction. There can be different kinds of exchange, of human contacts, information, money or different kinds of goods. The most simple definitions of integration, used mainly in economic theory, describe it above all as extended interaction. This contains only one aspect of the truth. One have to add a qualitative difference between various sorts of interaction, between what is delivered and what impact it has on the surrounding reality. The qualitatively higher forms of exchange contain interagency between humans, then it is not enough with passive delivery and reception of goods or information. The concept interagency is chosen because it presumes an agent that acts and it must contain active communication and talking together. Giving a real meaning to integration between countries and people demand a lot of interagency between individuals in various different contexts. These kinds of interagency may develop in different types of formal structures, in the forms of political, economic, scientific or cultural cooperation. Integration can also be promoted by tieing the economies of the respective countries closer together through trade or through companies acting in both countries. Together with or as a part of the integration there might develop a greater sense of community and understanding among the people that in different ways interact with one another. The concept of interaction thus includes a whole spectrum of occurrences all the way from interaction to community. The terms interaction and community should however not be interpreted as contradictory, integration involves both aspects to various degrees. Close integration, containing a large ingredience of community-forming aspects, may even create a sense of common identity. But then the cultural aspects have become at least as important as the economic interaction.

It lies at the heart of Baltic integration that cooperation within different fields will be beneficial to the cooperating partners. Economic cooperation, for instance through trade-promoting measures, does in the long run lead to increased welfare. Political cooperation strengthens the security of not least the small countries. Similar advantages could be foreseen within a wide range of fields, like environment and science. An important aspect of Baltic cooperation is that also the countries that are acting as financial contributers, for instance Denmark and Germany, also will gain from the cooperation in the long run. There are however a few aspects that may counteract integration in the Baltic Sea Area.

Countries within the Baltic Sea Area have close connections to countries outside of the area. A minor excurse about Poland could illustrate this. Two thirds of Poland´s trade goes to countries within the EU, Germany alone accounts for about 30%. After Germany follow Italy, Russia, France, Great Britain and The Netherlands, in that order. The most important Nordic country, Sweden accounts for 2.5% of the trade. Lithuania accounts for one percent of Poland´s export and a mere two per mille of its import. The two other Baltic states are not even included in the Polish statistics. Poland´s most important centres of population and industry are located in the southern and western parts of the country. All taken together, this must inevitably mean that Poland´s economic interests in the Baltic Sea Area are of secundary importance, which probably affect the political side of Baltic integration as well.

Those Baltic states that are members of the EU may come into situations where the common interests of the EU do not promote Baltic integration. This can for instance be seen in the preparations for the extension of the Union. On the other hand, it is almost unevitable to compare the Baltic cooperation with the integration within the EU. The differences are of course tremendous, but there is a profound similarity in the ambition to amalgamate differing interests in order to achieve common results. The experiences from the EU-cooperation do show that it is possible to achieve great deeds through stubbern political work, but it does also show how singular states efficiently can be a hindrance for the rest.

3. Perspectives on Post-socialist Transformation.


There is a mutual dependence between domestic transformation and the processes of integration over the old borders in Europe, for instance in the Baltic Sea Area. The systemic transformation in the post-socialist states are of course in focus here. The transformation can be analysed from various perspectives. The debate has been very vivid, different views and perspectives stand out against one another. In this chapter I will tentatively divide the different perspectives into three 'theories' or points of view: Liberal, institutional and the perspective of modern human geography. Such a division can of course be criticized. Some writers on the subject do not fall neatly into these categories. It may, however, be useful to try to sum up the various perspectives and try to evaluate how they can add to the understanding of Baltic integration. I will in this chapter discuss these three perspectives and their respective views on the post-socialist transformation. The aim of the chapter is to try to evaluate how these perspectives can be used in relation to the previous chapter on integration, most specifically in relation to the model on page two.

The use of the concepts transition and transformation should be put into this context. Transition is often used as a part of a linear thinking. The concept linear stands for a perspective where the development goes from a certain starting-point towards an ending-point, in this case from state socialism towards market capitalism. This line of thinking has been criticized: "The very language of transition assumes an outcome which in reality is far from guaranteed. As Stark says, seemingly descriptive notions like 'transition to capitalism' and 'transition to a market economy' hide 'teleological constructs in which concepts are driven by hypothesized end-states.' " There is thus a futurological perspective added to the concept of transition. Transformation, on the other hand, implies more of variation in the forms of development, often in a dialectic relationship with past systems and institutions. However, it should be made clear that the word transition has, more or less, become a specific noun meaning the transformation process in post-socialist countries. It can then be used without any hidden ideological or conceptual meanings.

Liberal Theory.

The lines of thinking that I here refer to as liberal theory are closely related to neoclassical economics. Economic liberalism, including individual choice, laissez-faire and market mechanisms, can be viewed as a necessary precondition for the neoclassical economic laws to work. Liberals tend to favour a minimum of state involvment in the economy, the more freely the market-mechanisms are allowed to work the better. For (neo-)liberals the primary task for the state is to guarantee stable monetary conditions and free market relations. The influence from neo-liberal thinking was very large at the time when East European transformation began. Liberal policy had proven to be succesful in restructuring economic policy in Western Europe and the U.S. in the 1980´s. Some of the leading politicians in the post-socialist countries were greatly influenced by this liberal policy. Maybe more importantly, the moneylending and advisory organisations, IMF, the World Bank and the European Development Bank, were all heavily influenced by market oriented development theories. The policies of these organisations was that access to the funds were dependent on proper political measures taken by the receiving governments. This policy had, at least partly, proven succesful in Third World countries. So, the same recipes could be used ones more.

The liberal debate on the post-socialist transformation has often been oriented towards policy issues. Parker et al. (1997) summarize the most important points on the liberal policy agenda: "… economic liberalization in transition economies involves implementation of a reform package that includes four components: (1) macroeconomic stabilization; (2) price liberalization; (3) easing trade and investment barriers and rationalization of the exchange rate; and (4) reform of the property ownership regimes, including legalization of private enterprises and privatization of state-owned enterprises." So, it all aims at creating as perfect market conditions as possible, which in their view is the most important precondition for growth and increased welfare.

Liberal economists do also acknowledge the importance of institutional reform in a wider sense than the purely economic. But, what seems to be the dividing point, compared to for instance institutionalist economists, is the relative importance that are attributed to different types of economic-political measures. To liberals, market reforms are of primary concern. Other institutional factors are recognized but put into the background. This opens up for critics who believe that liberals are too much concerned with theory and disregard the actual circumstances; as David M Smith (1994) puts it: "While market mechanisms do have the capacity to improve economic efficiency in certain circumstances, their adoption in both West and East is often a matter of political ideology and faith rather than the outcome of careful understanding. In the enthusiasm of free-market fanatics to implement their favored panacea, the very specific conditions required for markets to work in reality as they are supposed to in theory are all too frequently overlooked."

Because the economic policies in most post-socialist countries have been influenced by liberal thinking (maybe more in theory than in practice), liberal thinking has been a target for those criticizing the developments in post-socialist countries. The liberal views are thus often reported by their opponents. Stark (1994) summarizes the criticism of the liberal, 'standard-model', as used in the post-socialist context, very well in three points. First, the thought that the post-socialist economies should be developed into market economies of Western model "suffer from an inadequate comparison of socialist and capitalist economic systems". Since simplified comparisons should not be made it is a mistake to think that "these institutions can be replicated acording to instructions." Second, the system designers lack knowledge of the societies in which the system should be applied. The most important aspect of this is that the models are abstracted from their institutional contexts. Third, "they often take the 'collapse of communism' to indicate the existence of an institutional void." This latter argument is more or less the same as Hedlund and Sundström calls tabula rasa, meaning a notion that systemic transition can begin from scratch.

The developmental process in Russia has attracted great interest from social and economic scientists. The main reasons for this are that Russia is the most important country in the region and that its transformation process have been rather insecure and full of contradictions. Since the Russian case is unclear it leaves room for interpretations and can thus serve as an example of different views on transformation in general. Liberals are focusing on the economic reforms that have been carried out in the country and do generally have an optimistic opinion of the Russian development and its future prospects. A citation by Boone and Fedorov (1997) can exemplify their view: "The first absolutely clear point is that the Russian people and economy have responded to the introduction of market reforms in exactly the way that economic theory predicted. … Early fears that unemployment would explode and labour markets would not function have also been proven wrong." This view on the situation is categorically rejected by Hedlund and Sundström (1996). From a theoretical point of view they criticize the advisors working with Russia for being to policy oriented and for their lack of understanding of the actual situation; "the discussion´s heavy focus on policy, i.e. shock-therapy or gradualism, have almost entirely come to squeeze out analysis of condition and possibilities.". In their argument the analysis of the institutional reality in Russia has been neglected. "One has simply assumed that Russia in no fundamental way was different from the societies in the West. Today we can establish that this was wrong, that the Russian society to a great degree lacked the institutions - formal and informal - that are required for a functioning market economy to be possible." From this clearly institutional perspective Hedlund and Sundström describe the development in Russia as a gigantic failure. They emphasize the proceedures of the privatisation, the development of the real economy (production) and the social conditions. Analytically, they put forward the importance of the political process for the failures. Obviously, this little comparison of views does not make the reader any wiser concerning Russia, but it might illuminate the theoretical side of things.

If one compares the liberal thinking on transformation with the model of integration presented in the beginning of this paper, it seems like liberals tend to focus on interaction more than on community. The emphasis on macroeconomics make their research on cooperation between countries to lean on quantitative flows such as trade, mobility etc. Other researchers emphazise the growth of western investments and business activities in the post-socialist states; studies of locational patterns and the institutional aspects of the business climate could be included in this category too. Stabilization is viewed as the most important domestic precondition for growth and thus for increased interaction. Institutional aspects of community building are recognised but put in the background. The 'softer' sides of the community concept such as historical development and identity formation are mostly overlooked.

Institutional Theory.

Institutionalist economists are interested in how historical development in a broad sense affect economic development. A central question here is why the economic development has been so uneven. This perspective was develop in economic history and made its way from there into more traditional economic research. In focus for their interest have been formal institutions such av legal structures, governance etc. Added to this has been a recognition of informal structures, such as honesty, trust and innovation, and of course the connections between the two types of institutions. The works of institutionalists often fall into the middlelong perspective. This means that the heritage from the communist system, and the formal and informal institutions created and developed then, are central for an institutionalist analysis of the transformation process.

An important aspect of institutional analysis is the notion of the economy as part of social structures. Instead of individuals, the primary subjects of liberal theory, networks och social interaction are focused. The analysis "examines the embeddedness of actors in social ties, whether official or informal … The relational approach adopted … starts not with the personal attributes of actors but with the networks of interaction that link actors … From this perspective, very strong and dense social networks facilitate the development of uniform subcultures and strong collective identities." Grabner and Stark (1998) discuss the post-socialist transformation from this perspective. They focus on legacies, linkages and localities. Linkages are the essential part of the network approach. Localities in this respect is the arenas (not necessarily territorial) where change take place and where social forms are reproduced. Legacies concern the necessary reliance on, and struggle with, old institutional forms. Organisational legacies do have large influence on network (re-)formation. Organisations, and certainly not the people working in them, do not change over night. In their opinion this is not necessarily an evil thing, some institutional friction may instead be good since it preserves old forms at the same time as new ones emerge. This leads to their main argument. With the help of evolutionary theory they conclude that pluralism is very important. It opens up for a larger variety of possibilities which will in the long run improve adaption to new situations. The organisational forms (for instance of firms) most suitable for todays situation may not be the best for tomorrows. Grabner and Stark´s view is critical to the argument that rapid change of organisational forms is necessary for a succesful transformation (shock-therapy). They thus take a gradualist position.

Paul Aligica (1997) explains the institutionalist perspective as a widening of the perspectives in economic theory, which include an "awareness of the limits of orthodox social and economic theory, and a deep concern for the policy relevance of their theories." Theoretically the focus is not primarily on resources, in monetary or material terms. The emphasis is instead on how these resources are made by people. The societal use of resources are channeled or led through institutions. Institutional structures are seen as central "to enable efficient use of resources and tap the entrepreneural energy of the population." The criticism of the policy measures taken concerns primarily the order in which measures are taken. Of course institutional reform is considered to be of vital importance. Another strong point in Aligica´s text is that orthodox development models lack a historical and contextual dimension.

The empirical work by researchers influenced by institutionalist thinking differ from the liberal work most of all by their choice of empirical sources. Liberals are mostly concerned with statistical data of economic performance. Institutionalists are more interested in how the 'real' economy and politics work. Following institutionalist studies on western economies that emphazise the role of legal structures. Property rights and privatization have become importants aspects of transformation studies. Privatization of industrial companies have attracted more interest than other kinds of privatization. The importance of how these privatizations really have been managed and how the privatized companies really work are stressed. There have been ambitions to challange the official picture of succesful privatization. The models of industrial privatization have varied between countries. Russian mass-privatization on the one hand stands out against the more gradualist Central European models. Stark (1994) shows that, in Central Europe, already in the beginning af the transformation process several different strategies were applied. In his investigation of procedures in the former GDR, Czechoslovakia, Hungary and Poland he shows that the policies differ in three important ways: Who would acquire assets? (private persons or corporations), With what should assets be acquired? (through position in relation to the company or through financial resources) and how should the assets be valued (through bargaining, administrative decision or through the market). This resulted in four different models. A related discussion concerns the speed of privatizations, shock-therapy vs. gradualism. Poland has often been mentioned as a show-case of shock-therapy. However, Balcerowicz et al. show that in fact privatization of the major state-owned enterprises has become a very gradual process. In the end of 1994 only 19% of the companies were actually privatized, while another 70% were undergoing some sort of ownership transformation. Hedlund and Sundström (1996) have made a critical investigation of the Russian case, where different types of insider-privatization have been dominating methods. In the single most popular method the employees of the privatizing company received the majority of shares. Inflation eroded the nominal prices of shares; Hedlund and Sundström concludes that the companies were in practice given away. They also conclude that this method, in reality, gave managers opportunity to gain power over the companies. In 1995 these methods were abolished; new ones were introduced where the property should be sold through cash auctions and investment tenders. The connections between the state, companies and the banks have become very tight. This is a situation that we recognize also in other post-communist countries like Hungary and Slovakia. It may sometimes be difficult to know who is the real owner of a company, as an example from the Czech republic shows -"the Czech voucher privatization program was hailed as a great succes. But, since the shares are controlled by investment funds, which are owned by banks, which are owned by the state, the newly privatized companies may not be so private after all." An individual person may in such a context represent multiple interests simultaniously.

Other institutionally oriented researchers have been more interested in how the privatized companies function. The point, then, is not the methods and rate of privatization as much as what privatization actually means for the businesses involved. An explicit reason for privatizing was to make production more efficient. But Boone and Federov (1997), refering empirical evidence by other researchers, conclude "that [in Russia] privatized companies do not perform or behave differently from state-owned enterprises. This is a common finding in other Eastern European countries also, and it appears that only the de novo private sector really acts and operates as we would expect market-based private enterprise to operate." This type of enterprises function neither as socialist enteprises in the old sense nor as market-oriented firms; Ickes and Ryterman (1994) call them survival-oriented enterprises. This concept has close connections to what Stark (1997) calls recombinant property. It possible to see this kind of company formation as a way of coping with a very insecure environment where the institutional preconditions for business are in a flux. Relations to other firms and to the public authorities seem to rely on networks that go back to the old economic system. To be able to understand how this kind of companies work, the networks have to be focused.

If compared to the model on page two it is obvious that the institutional thinking on transformation can cover more aspects of integration than the liberal theory. The mental aspects can be more explicitly analysed through the emphasis on networks and human adaption to institutional change. A report on transports in the Baltic Sea Area written by researchers from Kiel can anyway show an example on how institutional matters can be taken into consideration in matters of integration, although the theoretical base of the report is not explicitly institutional. When evaluating the transport situation in the Baltic Sea Area the researchers come to the conclusion that the infrastructure itself (ports, railways etc.) are relatively well supplied for; although there are some problems with the quality of the hardware, mainly due to lacking maintainance. Their main conclusion is however that: "the various software obstacles clearly are more relevant than the hardware obstacles in transport networks though the latter are still present and perceptible, too. In addition, it appears that the most pressing impediments stem from outside the transport sector itself, viz. the complementary fields of customs procedure, taxes and fee policy, and security."

Modern human geography.

The term modern human geography is problematic. It is not a school of thought with a shared philosophical view. Its common perspective lies more in its criticism of the previous hegemonic thinking in human geography based on positivism and quantitative spatial science, with its alleged normative and political neutrality. These critical views emerged in the late 1960´s and are to a part associated with the radicalism of that time. Very simplistically, the modern human geographers have been emphasizing two perspectives: A radical emancipatorical perspective (critical geography) and a humanistic perspective on the constitution of 'reality'. A common feature for the two perspectives is a high awareness of theory and an open mind to influences from other social sciences.

The tradition based on political economy have influenced studies on the recent changes in the capitalist production-system,stressing the importance of different aspects of power and power-relations. The change in the mode of regulation from fordism to post-fordism, as well as its consequenses for the international division of labour (e.g. the debate on globalization), are central to the analyses. The geographical work within this tradition focus on how the systemic changes influence regional restructuring (industrial decline, the role of world cities etc.). The emancipatory perspective have been important for the focus on powerless people (women, ethnic minorities, third world people etc.) The concept of power has been widened. Not least the connection between political and economic power and the different forms in which these powers are articulated are important. In this way, symbolic power in the forms of language and images (maps, pictures etc.), are added to the traditional forms of political and economic power.

The humanistic perspective in human geography give a central role to human awareness and human agency. In this respect it is confronting the structural thinking in which structures 'above' humans play a supreme role. Contrary to the objectivity of spatial science the humanistic theory "came to insist upon the essential subjectivity of both the investigator and the investigated". Subjectivity should not be misunderstood as individualism; collective subjects have also attracted interest. This perspective often focus on how society and values in society are articulated, how understandings are created and recreated and it is "concerned with the social construction of place, space and landscape rather than the spatial confinement of people and society". A concept within humanistic geography that is of special interest in the Baltic context, with its newborn nation-states, is identity. The creation of identities, e.g. national identities, is central for the understanding of the political geography in this area and at the same time for the possibilities for integration between neighbouring countries.

The literature on post-socialist transformation has become extensive, also that with a critical perspective. Economic and political restructuring is the central object for research. Here, the perspective sometimes come rather close to that of institutional economists. The dependence on earlier development is emphazised, words like "legacies" and "path-dependencies" are used extensively. Geographers influenced by structural thinking tend however to emphasize the structural influences from western capitalism. The edited book 'Theorising Transition' from 1998 gives a rather good impression on how modern human geographers look upon East European transformation. Apart from texts on political economy and industrial restructuring, social issues are taken into consideration. There are articles on minorities, gender questions and on construction of identities. An article by Tim Unwin on 'Rurality and the construction of nation in Estonia' is particulary interesting. In this article, radical geography is mixed with a humanistic approach concerned with identity. Unwin sees, however, identity too much as a construction made by elites, and too little as resistance, in this case to foreign domination.

A central theme for geographers with a radical perspective is of course to criticize the liberal theory as well as the practice of transformation. However, while criticizing liberals for their simplified view on policy and development (justified criticism), some of the critical geographers show an equally simplistic and negative view on the developments in East-Central Europe since 1989. For example:

"such a critical economy is necessary now more than ever. In the face of the 'neo-evangelistic rhetoric' (Derrida 1994) of neo-liberalism, Eastern and Central Europe and other post-communist societies are being fundamentally transformed by globalised systems of capital accumulation. The experience of 'transition' after seven or eight years has been, in part, one of economic collapse, an onslaught on labour, and social and political disorientation (collapsing birth-rates and increasing death-rates suggesting a deep-seated social and psychological crises), while at the same time enabling some to prosper while others fall into abject poverty. The result has been a profound increase in poverty and inequality. Milanovic (1994), for example, argues that poverty now affects some 58 million people in ECE, or 18 per cent of the region´s population. Similarly, real wages have dropped dramatically and wage differentiation increased. Alongside increased inequality, homelessness has risen, health levels have declined and other social problems associated with polarization have emerged."

An interesting point here, not just in the citation but in the whole text, is not what is said; One can not try to escape the negative aspects of transitions although there are actually some positive sides to it. The point is what is not said. The quotation show some dubious perspectives. Neither is the introduction of democratic rights such as freedom of speach and freedom to travel considered, nor the actual removal of foreign occupation. This could be read as an implicit rehabilitation of the old system. Democratic liberties seem to be unimportant to British and American marxists. Other points that might be criticized are that they see the whole region as an object for global capitalism in a structuralist way and that East-Central Europe far to often is viewed as a homogenous entity.

The question of modern human geography and integration are complex. Structurally influenced geographers focus a lot on the connections between countries and regions within the capitalist system as a whole, and on how this system reach out further and further into the peripheries. This is of course an aspect that affects the discussion on integration, but it does so in about the same way as liberal theory does. The main difference is that the power-perspective is much more explicit in the critical thinking, otherwise the main similarity is the supremacy of theory at the expense of specific contextual conditions. Thus, this side of the modern geographical thinking do not add much to my model, it does illuminate discussion on interaction but hardly on community. The humanistic approach, on the other hand, does very much involve itself with community aspects. Especially the concepts of identity and construction of identities are very interesting when fluctuating political circumstances are studied.

4. Concluding remarks.

This paper has shown that different theoretical perspectives emphasize different aspects of political and economic change. This is particulary true in the case of integration and post-socialist transformation. Liberal theory, with its close links to neoclassical economics, are mostly concerned with the interaction side of integration. Institutional thinking are covering wider aspects of integration. With its special interest in networks it emphasizes connections between interaction and community. Modern human geography in itself cover many different aspects of social change. Structural change has gained the interest of radical geographers. This aspect have links to both liberal theory, through interest in division of labour etc. and to institutional thinking. Power relations is a common field for radical geographers and institutional economists. Questions concerning community, identity and their construction lie in the focus of more humanistic approaches. By this, the humanistic geographers cover aspects on the community side of the concept of integration. A conclusion based on this is that the debate on integration has a lot to gain from using several theoretical influences. One single theory can not cover all aspects of such a complex concept.


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