Eastern Europe: Towards a Peacetime Economy?

EASTERN EUROPE:_______________ TOWARDSAPEACETIME ECONOMY?! Mary Kaldor T,he economic challenge facing the new democratic governments of Central and Eastern Europe, including the newly independent republics of the former Soviet Union, is widely characterized as being one of managing the transition from central planning to the market. Up to now, Western aid has been tied to progress in the introduction of marketoriented reforms. There is, however, another way of describing the challenges faced by the governments of Eastern Europe. What is at stake is not merely a shift from central planning to the market, but a transition from a Cold War to apeacetime economy—from an economy geared to military confrontation with the West to a system able to meet the everyday needs of its citizens. Communism, as it was actually practiced, can be best understood as a war system. Its outlines were prefigured in the period of "war communism " (1920-22), but it came into being under Stalin during the first two five-year plans and reached its apogee in World War II. To function and to remain in power, the Communist regimes required a war atmosphere, a mood ofpermanent mobilization, as described by George Orwell in 1984. This mood imprinted itselfon every aspect ofpolitics and society, including Mary Kaldor is Senior Fellow of the Science Policy Research Unit, University of Sussex, and of the World Institute for Development Economics Research of the United Nations University. Her most recent books are The Imaginary War and Europe from Below. 11 12 SAIS REVIEW the economy. The entire economy functioned in much the same way as the military industrial complex in the West.1 In order for it to be successful, the transition from a Cold War to a peacetime economy must satisfy two conditions. First, the centralized management characteristic of war and Cold War should be dismantled, and market-oriented reforms introduced. Secondly, the economy, especially industry and technology, should move away from a structure dominated by the requirements ofthe Cold War arms race to one which is responsive to the democratically expressed needs of its citizens, including, for example, private consumption, higher levels of social security and a cleaner environment. Those who characterize the current economic challenge as a transition from central planning to the market tend to assume that the market will automatically bring about the appropriate restructuring of industry and technology. This essay will suggest that this is not necessarily true, and that while market-oriented reforms are an essential element of the transition from a Cold War economy to a peacetime economy, focusing solely on this aspect could undermine other aspects of the transition and put both prosperity and democracy at risk. In order to develop this argument, the characteristics of the Cold War economy will be briefly described. The second section will focus on current policies in Central and Eastern Europe, and consider whether they are consistent with the kind of policies required for a successful transition to a peacetime economy. Finally, the last section will discuss the implications ofthis argument for Western aid policies. Characteristics of the Cold War Economy Oskar Lange, the Polish reform economist, was the first to describe the Stalinist system as a "sut generis war economy"—a system comparable to the organization ofcapitalist economies in wartime. Lange's conception ofwar economy referred to the centralization ofeconomic management, or regulation by administrative directive. All economic decisions—the 1. Even though Western countries may have spent as much in absolute terms on defense as Warsaw Pact countries and even though defense spending undoubtedly influenced industrial and especially technological developments, Western economies cannot be described as Cold War economies for two reasons: First, the West's defense sector occupied a relatively small part of its economy. Secondly, capitalist economies are more dynamic than centrally planned ones. If we understand the Soviet-type systems as Cold War economies, or systems which could only function through war or Cold War, then the Western response to the Soviet military build-up may have legitimized the imposition of Soviet-type systems on East-Central Europe. EASTERN EUROPE 13 balance between investment and consumption, the operation of factories and the distribution oflabor—were determined centrally and implemented by...