News | Analysis of Capitalism - Western Europe - Eastern Europe - Southeastern Europe - 30 Jahre Transformation in Osteuropa The Transformation of Central and Eastern Europe from a Global South Perspective

Fragmenting development and structural heterogeneity


[Translate to en:] Der Konzern Nexen Tire in Tschechien
Drivers of economic prosperity and social well-being? The South Korean stock market listed group Nexen Tire opens its tire plant for the European market in the Czech Republic. Zatec/Tschechien, 28.8.2019, Photo: Nexen Tire

What is “development”? For the transformation of Central and Eastern European countries since 1989, the globally dominant neoliberal conception—the so-called Washington Consensus—has been decisive. According to this perspective, global investors are the agents and drivers of economic prosperity and the well-being of societies. Their investments are supposed to bring the newest technologies and capital into a country, create jobs and buying-power, and contract with local firms for the supply of goods and services.

Stefanie Hürtgen is an assistant professor in the field of economic geography at the University of Salzburg, an associate member of the Frankfurt Institute for Social Research, and a member of the Scientific Advisory Board of the Rosa-Luxemburg-Stiftung. Translated by Marc Hiatt and Sam Langer for Gegensatz Translation Collective.

For a critical analysis of the results of this conception of development, it is useful to take a look at the Global South. Here—in what gets called the periphery—pioneering conceptual work with far-reaching implications for contemporary debates was being done as early as the 1960s. For the Global South was the first region to be confronted with the consequences of the global neoliberal turn. Measures were implemented—often through the structural adjustment programs of the IMF and the World Bank, sometimes by means of US-supported military coups (as in Chile in 1973)—that have since become known around the world as the neoliberal recipe. Besides “opening up the market”, i.e. dismantling restrictions on trade and investment, it involves first of all the privatization of state-owned corporations and public infrastructure (i.e. turning them into opportunities for private capital investment), then cuts to taxes and other contributions, especially for big business, and finally the dismantling of the welfare state, in order to give investors access to cheap, disciplined, flexible labour. In each case, the country is supposed to become an attractive host for foreign capital, even as its social interior is further deregulated, for example through the establishment of special economic zones with further tax exemptions and typically with extremely gruelling working conditions that are barely enough to secure the reproduction of the workforce. Little wonder that economic theory refers to the triad of privatization, tax cuts, and dismantling of the welfare state as “supply-side economics”: the aim is to provide “incentives” to (potential) investors, or in other words to offer capital—which in principle operates globally and in a spatially flexible way—conditions that motivate it to make (more) investments so that “development” can take place in the form of technology transfer, “clustering” of foreign capital with the local economy, and the creation of jobs and income.

But what do we find if we take a look at the Global South as a product of these neoliberal, supply-side ideas? In the broad and critical debate that took place in the 1970s over the concept of development—a debate that was variously inspired by Marxism, feminism, pacifism, and antimilitarism, and whose centrepiece was dependency theory (its best-known author is probably André Gunder Frank)—the unanimous diagnosis was: structural heterogeneity. This concept is not as obscure as it may sound. What it refers to is the systematic polarization of neoliberalized economies and societies. It would be too easy to simply reject the supply-side promise as “wrong”. Integration into transnational capitalist contexts and the political measures that correspond to and accompany them certainly do generate technologically modern sectors of production and occupational groups on good incomes (mostly managers and salaried workers, but sometimes also in the blue collar sector). These people live in “modern” ways, in well situated (often segregated) regions and city quarters. The modernizing, “developing” effects, however, remain deeply particular; they only obtain within a strictly limited social space. Economically speaking, sites of production for the world market are precisely not oriented in national or regional ways, but rather tied to the global organization of production and marketing; they therefore remain “cathedrals in the desert”, surrounded by economically weak sectors that often tend to be informal and oriented towards economies of subsistence. Socially speaking, the relatively well-situated urban occupational groups are juxtaposed with a large number of marginalized people who typically work in the informal economy. But these permanently precarious people are precisely not external to the modern sectors of production initiated from abroad; on the contrary, as a temporary, highly flexible, extremely cheap workforce, they represent a considerable advantage to the local economy. The construction of industries and production thus takes place on the basis of working conditions that are far from able to guarantee reproduction. Mainstream economics alleges that the “traditional” subsistence economy is a relic of the past, but given the rudimentary condition of the welfare state it is just this sector that offers a safety net to these occupational groups.

[Translate to en:] Wrocław 2017
Wrocław 2017 Photo: Stefanie Hürtgen

Around 1989, neoliberalism and social polarization were initially not an issue. When the people demonstrating in Leipzig and Prague or the representatives of Solidarnosc at the “round table” in Warsaw imagined the horizon of future democratic development, they were not thinking of the already Thatcherized UK. They imagined a social-democratic path of development, with a welfare state like those in (West) Germany and—even more so—Sweden. They also often idealized or gave a “utopian expansion” to these models, consisting in additional democratic rights and opportunities to live and produce in alternative ways. Nonetheless, the above-mentioned Washington Consensus was quickly pushed through by a coalition involving the EU, the IMF, and representatives of transnational capital, along with old and new “post-socialist” elites. The first result was accordingly the “opening of the market”: Central Europe and East Germany became new markets for exports from western producers who had been struggling with stagnating sales. As investors, however, these same producers showed restraint, only helping themselves to a few “prime cuts”. Together with privatizations and closures that were often achieved in (half-)criminal fashion, the results were an historically unprecedented deindustrialization of Central and Eastern Europe, hyperinflation in the wake of price liberalizations, mass unemployment, and the impoverishment of wide swathes of the population.

From about the end of the 1990s, the image changed: the neoliberal conversion—establishment of special economic areas, adaptation of investment regulations, etc.—began to take effect. Now the IMF, the EU, and the respective national boards of foreign corporations made sure that any remaining protections (such as those that concern dismissal) were finally ground down and numerous highly precarious forms of work (which had already had existed de facto during the existential crisis years of the “transformation”) were legalized. In this way, Central and Eastern Europe were to be established as a vanguard of deregulation (a position formerly held by the UK and Ireland) even before their accession to the EU. At the same time, this position had raised Central and Eastern Europe to become an attractive location for investment. Foreign capital was no longer solely interested in “prime cuts”; instead, comprehensive facilities for production and service-provision were now being established in Central and Eastern Europe or relocated there from western countries. Credit flowed, certain urban and tourist centres were renovated (not least using EU funds), and the GDP rose—even considerably more quickly than in Western Europe over the longer term. Poland, Hungary, the Czech Republic, and the Baltic countries were celebrated as Europe’s new “tigers”, and no longer styled as countries in “transition”, a phase that is officially viewed as having been completed. Mission accomplished—that was the message. Supply-side economic policy, privatization, tax cuts and the dismantling of the welfare state have succeeded! After the “vale of tears”, an economic structural adjustment with a social “dry spell”, things are starting to look up again, with the light of integration into the modern western world and its prosperity twinkling at the end of the tunnel. That is the narrative frame that has since been placed around ever more “transition countries” (for example the former Yugoslavia) as they seek to attract transnational capital, suppress unions and social protests, and de-claw existing labour laws.

However, critical voices from Central and Eastern Europe and the former East Germany, much like those from the Global South before them, are emphasizing that the growth statistics obscure the decisive dynamic of the Eastern European transformation: the blatant polarization of social space as regards the conditions of life. Rainer Land describes the economy of eastern Germany as fragmented, and other scholars, who speak of Poland, Hungary or the Czech Republic, refer to polarized development or a “dualization” of economy and society. In a nutshell: despite their past as industrial societies, structural heterogeneity has arrived in the countries of Central and Eastern Europe. As in the Global South, we now see a dramatic juxtaposition of chic urban lifestyles and, “right next door”, areas that are being infrastructurally completely neglected. As in the Global South, there are now state-of-the-art industries (automobiles, electronics, software development, etc.) that—even where they form “clusters”—stand out as “cathedrals” from a scarcely developed hinterland. And as in the Global South, so now in Central and Eastern Europe we are witnessing a form of capital accumulation that for broad sections of the wage-dependent population decouples wage labour from the conditions of their social reproduction. While better-paid workers now receive incomes comparable to those in the West, wages below the subsistence level are largely normal, especially in blue-collar sectors. In addition, massive precarity and flexibility of working conditions are now legally normalized—once again, in a way where this is not a “marginal phenomenon”, but is established at the heart of the modern foreign-owned sector, where it often affects 50 percent or more of workers. And once again, the social safety-net is so inadequate that family, subsistence-oriented, and informal economic structures become the most important way of “keeping your head above water” (alongside various forms of poverty-induced migration).

So what is neoliberal development? Following development geographer Fred Scholz, we can make a generalization: it is fragmenting development. The political orientation towards incentives and support for the profitability of capital explodes societies at both local and transregional scales—incidentally, this has long been taking hold in the West as well. In this regard, Central and Eastern Europe is no latecomer or pupil; on the contrary, the supposed periphery is proving to be an avant-garde. We should examine it very closely and in particular: finally realize the immediate relevance critical debates and movements there have for us.