Social Justice and the Welfare State in Central and Eastern Europe: The Impact of Privatization

Social Justice and the Welfare State in Central and Eastern Europe: The Impact of Privatization

Demetrius S. Iatridis

PRAEGER

Social Justice and the Welfare State in Central and Eastern Europe

Social Justice and the Welfare State in Central and Eastern Europe The Impact of Privatization EDITED BY

Demetrius S. Iatridis

Library of Congress Cataloging-in-Publication Data Social justice and the welfare state in Central and Eastern Europe : the impact of privatization / edited by Demetrius S. Iatridis. p. cm. Includes bibliographical references (p. ) and index. ISBN 0–275–96791–3 (alk. paper) 1. Social justice—Europe, Eastern Congresses. 2. Privatization— Social aspects—Europe, Eastern Congresses. 3. Europe, Eastern— Social conditions—1989– Congresses. I. Iatridis, Demetrius S. HN380.7.Z9S64 2000 303.3'72'0947—dc21 99–16062 British Library Cataloguing in Publication Data is available. Copyright
2000 by Demetrius S. Iatridis All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 99–16062 ISBN: 0–275–96791–3 First published in 2000 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America TM

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

Contents

Illustrations Preface Acknowledgments I.

Social Justice Frameworks

1.

The Social Justice and Equality Contexts of Privatization Demetrius S. Iatridis

II.

Social Justice and Equality

2.

Distributive Institutions, Markets, and Private Governance in Transitional Economies Stavros B. Thomadakis

vii ix xiii

3

23

3.

Social Justice and Privatization Dimitri Plionis and Elizabeth M. Plionis

4.

The Social Toll of Unemployment: A Call for Evaluation and Prevention Marcia Greenberg

51

The Effects of Privatization on Employment in Bulgaria, Romania, and Albania Theodore Katsanevas

70

Informal Privatization: The Changing Foundation of Socioeconomic Inequality in Bulgaria Tanya Chavdarova

82

5.

6.

35

vi

III. 7.

8.

9. 10.

Contents

Policies for Families and Women Changes in the Social Status of Bulgarian Women and Their Organizations during the Transition to a Market Economy Zlatka Russinova

91

Marginal Women at Risk: Working Toward Economic Equity Within the Context of Privatization Robbie Tourse and Pauline Collins

100

The Impact of Privatization on the Female Workforce in Poland Jacqueline Heinen Family-Related Economic and Employment Policies and Programs in Central and Eastern European Countries Charles B. Hennon and Allen R. Jones

IV.

Implications for the Welfare State

11.

The Social Costs of the Transition in Poland: 1990–1994 Branko Milanovic

12.

The Social Consequences of the Transition in Hungary and Methods for the Early Recognition of Social Tensions Otto Czu´cz

13.

14.

15.

The Development of Welfare Systems in Central and Eastern Europe That Are Compatible with the Demands of a Market Economy Howard Jacob Karger

118

132

153

168

179

Reforming Social Services in Central and Eastern Europe: Meso-Level Institutional Changes and Shifts in the Welfare Mix Victor A. Pestoff

192

The Privatization of Crime Control and Social Discipline in Central and Eastern Europe Jon Spencer and Bill Hebenton

208

16.

New Child Protection Structures in Romania Maria Roth

V.

Impact on Health Care

17.

The Health Care System in Bulgaria during the Transition to a Market Economy Dimitar Roussinov

Conclusions Index About the Contributors

220

235

243 247 251

Illustrations

FIGURE 1.1

Global Characteristics of Privatization: An Institutional Model for Social Reconstruction

5

TABLES 1.1 1.2 1.3 1.4 1.5 3.1 3.2 5.1 5.2 5.3 10.1

The Market and Fairness Models Demographics of Selected Central and Eastern European Countries, 1996 Economic Indicators for Selected Central and Eastern European Countries, 1996 Participation of the Private Sector in the GDP, Central and Eastern European Countries, 1996 Social Indicators of Selected Central and Eastern European Countries, 1996 Theories of Distributive Social Justice Assessment of Privatization Modalities Economic Indicators for Bulgaria, 1991–1996 Economic Indicators for Romania, 1991–1994 Economic Indicators for Albania, 1991–1994 Rank Ordering (R) of Salient Substantive Considerations, by Central and Eastern Europe, All IYF Nations, and Nations with Moderate Human Suffering (MHS) and High Levels of Human Development (HHD) (Percent)

10 13 14 15 16 42 45 73 75 76

139

viii

11.1 11.2 11.3 11.4

Illustrations

The Determinants of Poverty, 1978–1993 (Dependent Variable: Percentage of the Poor) Poverty Gap in Real Terms Income Distribution: Gini Coefficients, 1989–1993

157 158 160

Relative Wages, by Occupation in the State Sector, 1986–1990 (Average Wage for All State Sector Workers ⫽ 1)

161

Preface

The contributions to this book are revised versions of papers presented at three international conferences on privatization in Central and Eastern European (CEE) countries, organized by the Boston College Graduate School of Social Work Privatization Project, headed by Professor Demetrius Iatridis. The project focuses on the potential of privatization to produce crucial and just social changes. Privatization, as conceived by the project, consists of integrated processes of societal restructuring that can affect sociopolitical, economic, and ideological constructs, as well as human and physical capital development, transformation of family structures, stabilization of the market, organization of social care, and more. It includes managerial and technological innovations in the workplace; international cooperation and competition; and patterns of financing, producing, and distributing goods and services. The international conferences are designed to give the participants and others who are interested in the privatization process, such as business professionals, academicians, and governmental officials, the opportunity to meet in a collaborative environment that provides a forum for the exchange of ideas and research findings. So far, the conferences have proved to be an effective source of primary information and informal interaction for businesspersons who are making investment decisions and researchers who are studying privatization in the CEE countries. Their programs have included invited and contributed papers and workshop presentations that explore the economic and social implications of privatization. The international conferences began in 1991. They have included ‘‘The Welfare State: Transition from Central Planning to Market Approaches,’’ held in Budapest, Hungary, in 1991, in cooperation with Eovtos Lorand University, Institute of Sociology and Social Policy; ‘‘Privatization and Socioeconomic Pol-

x

Preface

icy in Central and Eastern Europe,’’ held in Krakow, Poland, in 1993, in cooperation with Jagiellonian University, the Krakow Academy of Economics, and the government of the Krakow region; and ‘‘Transition to What? The Implications of Privatization in Eastern Europe, the European Union, and the Balkans and Beyond,’’ held in Komotini and Alexandroupolis, Thrace, Greece, in cooperation with the Demokritos University of Thrace and under the auspices of the Ministry of National Economy of Greece, which provided a grant to help defray the costs. The purpose of this book is to increase understanding of the challenges that face the CEE countries as they move from centrally planned to market-oriented societies. So far, many of the CEE countries that are in transition from a command to a market-based system have experienced rapid deterioration of socioeconomic conditions and standards of living. Although there have been successes in certain areas, such as greater political and consumer choices, the overall situation has reached crisis proportions, as evidenced by increased unemployment, crime, and family disorganization. The nature, scale, and implications of the transformation of these countries is without precedent in world history. No other countries have had to face the dual challenges of radical societal change and the need to reverse the decline of economic activities. These challenges have involved the redressing of major societal imbalances through crucial and rapid reforms, such as the establishment of new political, democratic institutions and constitutional changes to enhance the introduction of free economic markets; the replacement of the Communist value system with the capitalist framework and the incorporation of capitalism into individual and social behavior; the redefinition of social relations, including rewriting the social contract between the state and the individual; the restructuring of the social protection system; and the introduction of extensive new legislation to permit and regulate private ownership of land and assets. The lack of an adequate body of knowledge and a set of blueprints from which to draw guidance has increased the formidable complexity and unique challenges of societal changes in Central and Eastern Europe. In these countries, the conditions of human and socioeconomic distress associated with the first phase of the transition (1990–1995) make societal reform all the more crucial and urgent. Euphoria over escaping Communist rule has been dissipated in the harsh realities of socioeconomic insecurity caused by layoffs, inadequate or unpaid wages, strikes, and inflation. Although it is necessary for these countries to balance public and private ownership, it is also crucial for them to select privatization methods that promote the fair and just distribution of income, wealth, and power; high standards of living; and social and economic well-being. The lack of comprehensive and reliable information, systematic monitoring, and analyses of developments in CEE countries makes it more difficult to acquire an overarching understanding of the reforms introduced so far, their im-

Preface

xi

plications, and the lessons that can be learned to help inform major institutional changes. On the basis of our experience and data, we believe that privatization is necessary to bridge the gap between public and private markets that existed in the Communist societies of the CEE countries. The methods and timing of privatization, however, must be carefully designed to promote social justice, social protection, social security, and well-being. Otherwise, it is doubtful that privatization will succeed.

Acknowledgments

The activities of the privatization project and the editing of this book and another book on privatization, Privatization in Central and Eastern Europe: Perspectives and Approaches (Praeger, 1998), would not have been possible without the collaboration of so many people that it is difficult to mention them all here. At Boston College, the faculty and staff of the Graduate School of Social Work supported and encouraged the work. In addition, I wish to express my appreciation to Frank Campanella, the executive vice president of Boston College, who not only supported the project and its conferences but participated in the activities; William Neenan, S. J., the academic vice president, who created the research environment that facilitated international dialogue; and Joe Quinn, then chair of the Department of Economics, and Louis Corsini, dean of the Caroll School of Management, who gave freely of their time to help in organizing the conferences and in reviewing papers for the conferences and manuscripts for this book. The contributors to this volume, who worked so hard to conform to editorial requests, are to be especially commended. Many more persons played a valuable and decisive part in the organization of each of the three international conferences in Budapest, Hungary; Komotini, Greece; and Krakow, Poland. Among them are Zsuzsa Ferger, Institute of Sociology and Social Policy, Eotvos Lorand University, Budapest; Pjerzy Mikulowski-Pomorski, rector, Krakow Academy of Economics; Andrzej Pelczar, rector, Jagiellonian University, Krakow; George Romeos, alternate minister of the national economy of Greece; and Yannis Panoussis, rector, Demokritos University of Thrace. In addition, chairpersons and discussion leaders contributed their valuable time and knowledge to guide workshops and discussions and to formulate the recommendations at each conference. To all, I am indebted and grateful.

Part I

Social Justice Frameworks

Chapter 1

The Social Justice and Equality Contexts of Privatization DEMETRIUS S. IATRIDIS

In some Central and Eastern European (CEE) countries, privatization has so far produced certain economic benefits, including the reduction of budgetary deficits, control of the money supply, and the freeing of prices from administrative control (Jackson, 1994; Marer, 1994; Nestor & Thomas, 1994). At the same time, the transition to a free-market economy has also caused severe dislocations in the social market, including greater inequality between the poor and the rich and between women and men and increased unemployment, poverty, social insecurity, and discrimination (Ceska, 1993; Myant, 1993). These severe social dislocations have occurred mainly because CEE economic policies relate the economic market (particularly capital and investment) only peripherally to the social market (especially patterns of human organization and the values of equality and social justice). In short, inadequate social accountability and social market policies are responsible for several challenges that the CEE economies are facing—hence, the debate about the relationship between social and economic markets (Frydman, 1993; Samonis, 1993).

EFFECTS OF ECONOMIC MARKETS ON SOCIAL MARKETS Does the reform of economic markets automatically produce positive changes in social markets? Although there are positive and negative connections between social and economic markets, the dominant perspective is that there is a negative connection between income equality (a social-market concern) and economic growth (an economic-market concern). The view that income equality is a drag on economic growth reflects tensions between the social and economic markets;

4

Social Justice Frameworks

it represents the conflict between equality and efficiency and between social accountability and economic planning. Marketization and privatization in the CEE countries are necessary to improve the balance between the public and private sectors and to bring about the transition to a free-market economy. The way to achieve this balance, however, has been the subject of controversy. It has been debated since Plato’s time and is still discussed in the context of contemporary social and economic markets throughout the world. Is privatization fair and just when it scales back the public sector, increases reliance on private markets only for managerial outcomes, and promotes income inequality? Does privatization bring about a fairer distribution of income and wealth to individuals and social classes? Does economic reform automatically promote success in the social market, or does it also necessitate effective social policies to offset free-market distortions? In a rapidly changing world, in which power relations are precarious, who should gain or lose power? (Iatridis & Hopps, 1998). Moreover, can businesses always do better than the government in providing the best services and products at the best prices to benefit the entire country? The experiences of the CEE countries lead to three major observations. First, privatization alters the institution of property and ownership and thus changes distributive incomes. Since privatization is a function of society’s institutional structure, it involves the integrated reform of all the major societal institutions— social, political, cultural, ideological, legal, and psychological. The model presented in Figure 1.1 emphasizes privatization’s institutional environment as a system of society’s organizational links (Iatridis & Hopps, 1998). Second, major social policies were not enacted in CEE countries when economic reforms removed the three pillars on which the former Soviet system had been legitimated and on which the majority of the population had come to rely and value: guaranteed employment and social inclusion, social protection via subsidized prices, and enterprise-based social welfare benefits. Third, the rapid establishment of and the almost exclusive emphasis on free economic markets in CEE countries undermined social-market functions (particularly social justice and equality, income security, social inclusion, and citizenship) in areas where previous Soviet social policies performed relatively well. Marketization and privatization increased income inequality and undermined public welfare. During the first years of major economic reforms, Russia’s households at the lower end of the income distribution incurred the largest drop in income. In 1992, the income of the lowest decile relative to the median declined by 20 percent, which indicates a considerable widening in the distribution of income. The share of income going to those whose incomes were above the mean rose appreciably. As a consequence, there was an increase in measured income inequality. The Gini coefficient, estimated at around 27 percent between the late 1960s and early 1990s, had increased to 32.2 percent by the end of 1992. The widening of the income distribution in Russia in one year—1992—was equiv-

The Social Justice and Equality Contexts of Privatization

5

Figure 1.1 Global Characteristics of Privatization: An Institutional Model for Social Reconstruction

Source: Adapted from Iatridis (1994), p. 43.

alent in scale to the widening that occurred in the United Kingdom over a 10year period (Doyle, 1996). In Russia, the proportion of the population who lived in poverty rose from 5 percent in 1990 to 9.9 percent in 1991. In 1992, that proportion increased sharply, reaching a maximum of 31.5 percent of the population in August. From 1989 to December 1992, poverty increased 370 percent (Doyle, 1996). In short, equality was sacrificed for greater efficiency. Russia’s economic crisis has hit women especially hard: In 1996, women made up 75 percent of the country’s unemployed (Kishkovsky & Williamson, 1997). Pensioners were also hurt. In brief, between 1985 and 1992, the absolute income of all groups fell, inequality widened, and poverty increased. Thus, so far, the CEE countries have experienced improved economic restructuring (the promotion of labor mobility and productivity) but at great human costs, including growing inequality, low-level security, social exclusion, inadequate public social welfare, and reduced governmental support for groups who are vulnerable to rapid privatization based solely on economic reform (particu-

6

Social Justice Frameworks

larly the unemployed, the poor, women, children, the elderly, ethnic minorities, and the handicapped). At the heart of the expectation that privatization and economic success automatically promote human success are questions about the proportionate distribution of common goods; about fairness in the distribution of resources, benefits, and costs and the justice of claims and demands made for them; and about the viability of economic reform without just social relations. Hence the question is this: Should privatization bring about equality, efficiency, or both? Equality versus Efficiency Income inequality in the marketplace has rarely been considered a problem by the business world. Successful societies existed for millennia with enormous inequalities of wealth and income—ancient Egypt, imperial Rome, classical China, the Incas, and the Aztecs. Both Adam Smith (1776/1937) and David Ricardo (1817/1963) recognized that capitalism’s unrestrained competition would lead to the generation of wealth and income inequality. And Ricardo’s ‘‘iron law of wages’’ predicted that wages would necessarily stabilize at just above subsistence level. But neither Smith nor Ricardo considered it important to examine the implications of or alternatives to income inequality. Furthermore, in no country, including the CEE countries, have policy makers believed that income inequality is also an economic issue—other than perhaps viewing it as necessary for economic growth. Recently, however, modern economies and democracies have recognized the problem of rising economic inequality. First, there is increasing evidence that income inequality is a drag on economic growth and that many of the most equitable societies are now in East and Southeast Asia, where economic growth has been the fastest but the division of national wealth has been the fairest (United Nations Development Programme, 1996). Thus, in countries like South Korea that have less income inequality, there is greater economic growth (‘‘The Poor Get Poorer,’’ 1996). This is surprising news in the business world. Second, inequality undermines the democratic political canon of one person–one vote and defies the moral principle that the economically strong should not drive the economically weak into extinction—rejecting Spencer’s (1896) idea of survivalof-the-fittest capitalism. In 1995, both Business Week and The Economist, among others, showed a sudden interest in income inequality in the United States and Great Britain in the context of economic stagnation. In both countries, the gap between the rich and poor widened, which again pointed to the crucial indicator that income inequality can be detrimental to economic growth. This situation introduces a new dimension in the debate about income inequality. For the past 50 years, two important economic arguments have constrained discussions of equality in the distribution of income. The first proclaimed that economic growth is more important than anything else and that

The Social Justice and Equality Contexts of Privatization

7

it will, in and of itself, later stimulate equality. Why, then, should the CEE countries worry about income equality when it will follow economic growth? The second prevailing argument, popularized by Okun (1975) in the 1970s, stated that economic growth and more efficient production come at the expense of and are more important than income equality. If this view is accepted, why would CEE policy makers not be tempted to trade off income equality for economic growth? Today there are important economic reasons to believe that income inequality can play a significantly negative role in directing countries on the path toward stable growth (Albelda & Tilly, 1995). Far from being a trade-off or follower of economic growth, greater income equality is now seen as leading to economic growth. As was mentioned earlier, countries that have more income equality also have higher rates of economic growth. By the same token, countries that have less income equality also have lower growth rates (Glyn & Miliband, 1994). These developments call into question the economic logic of the two traditional economic arguments against less income inequality. They also question the Republicans’ Contract with America, which calls for the reduction of social spending to revitalize a stagnant economy. In the Republicans’ view, and in the view of Western economic advisers to CEE countries, social spending means the redistribution of income, which reduces income inequality at the expense of economic growth. In contrast, the positive connection between income equality and economic growth suggests that cuts in social spending for the poor, tax cuts for the wealthy, and the construction of prisons instead of child care centers are likely to impede economic growth rather than promote it. It also suggests that economic growth in the CEE countries is likely to be enhanced when income inequality is decreased. Moreover, policies that increase income equality in these countries will not benefit just the obvious victims of income inequality. Everyone will be better off in the long term if economic resources are distributed more fairly in the marketplace. Democratic and Social Justice Considerations The arguments against income inequality also include considerations of democracy and a just society in a direct moral and political sense. They also question the viability of economic growth if there are no commitments to social justice and morality. There is evidence that modern democracies can be undermined if economically strong persons (or countries) drive the economically weak into extinction. In survival-of-the-fittest capitalism, democracy will eventually be discredited if democratic political processes cannot reverse the trends toward income inequality and decreases in the real incomes of the majority of the population. These trends offend the egalitarian principle of one person–one vote in the political arena, violate the canon of public responsibility and morality in the

8

Social Justice Frameworks

social arena, and question the viability of economic growth. Social justice determines relationships among people, the organization of societal institutions for production, and the distribution of society’s resources on the basis of valid claims (distributive justice). The nature of a just society, however, can be defined on the basis of different legal, moral, ideological, and cultural principles. People who opt for a just society can define it in various ways. DEFINITIONS OF A JUST SOCIETY Although the goal of achieving a just society receives wide support, its proponents do not agree on what social justice is and what would constitute a just society. Differential concepts of justice are the main reason for the acceptance or rejection of the survival-of-the-fittest doctrine, of power and income redistribution, and of the welfare state, both in the United States and elsewhere. Historically, those who have debated the issues of social justice and equality have taken different philosophical positions on divine law (principles conceived in the mind of God), natural law (the order of being that is inherent in the nature of things), reason (rational, mathematical processes of the human brain), and the social contract (principles centered on political authority and the contract between the citizenry and their sovereign—a king, parliament, or congress). Recently, however, the market model, based on Smith’s (1776/1937) concepts of utilitarianism and the incorporation of economic individualism into capitalism (see Friedman & Friedman, 1979; Nozick, 1974), and the Rawlsian fairness model (Rawls, 1980), based on social contract theory, have come to occupy the central position in the debate about social justice. For the purposes of this chapter, other models, including the utilitarian position and socialist-Marxist theory, remain only peripheral. The utilitarian model, based on the early classical liberalism of Bentham (1824/1962) and Mill (1861/1979), can be effectively incorporated into the capitalist market model, while the socialist-Marxist alternative, based on Marxist theory, has been deemphasized as a result of the crucial shift from central planning to a market system in the CEE countries (Iatridis, 1994). The market model (market outcomes are just income distributions) views the free economic market as a just system for distributing goods and services. It calls for a minimal welfare state and opposes the redistribution of goods and services among countries and groups because such a redistribution would entail taking away a group’s or country’s legitimate holdings to increase equality of income and wealth. In this view, justice is a process whereby individuals and countries receive what they are entitled to in the marketplace according to their efforts and skills. One group’s economic superiority should be accepted in a just society because its gain was not made at another’s expense. If ownership is achieved in the market within proper guidelines, then it is just. The fairness model defines justice as involving principles of fairness that

The Social Justice and Equality Contexts of Privatization

9

should permeate the institutional structure of society. These principles include the way socioeconomic institutions distribute fundamental rights and duties and the manner in which the advantages arising from social cooperation are distributed. If any institution is unjust, it should be altered or abolished. Rawls (1980) advocated two basic canons of a just society. First, equal rights to basic liberties should be shared by all citizens. Second, if social and economic inequalities are to exist, they must benefit the least advantaged. The model promotes the redistribution of goods and services and the implementation of welfare state programs in favor of the poor and powerless. Each model has competing implications for a just society (see Table 1.1). If the market model prevails in the CEE countries, it is likely that inequality will increase steadily, governmental interventions will be limited, and collective aid for social development under public auspices will be constrained. Public social policy will probably focus on efficiency and ‘‘merit’’ (to each according to his or her work and contributions in the marketplace) rather than on equity and ‘‘need’’ (to each according to her or his needs). Economic efficiency will arrest efforts to decrease inequality because it is assumed that income inequality enhances economic growth. In contrast, if the fairness model prevails in the CEE countries, the just-society system is more likely to decrease inequality, promote governmental interventions and the redistribution of goods and services, and encourage collective mutual aid for social development under public auspices. In addition, aid will probably focus on equity and need rather than on efficiency and merit, and public responsibility is likely to ensure that claims to resources based on the need for social development will have priority over claims based on merit or worth. The positive connection between equality and efficiency will be emphasized because it is assumed that equality enhances economic development. Which social justice model would be the centerpiece of the just societies of CEE countries? In these countries, just societies will probably evolve from new structures of decision making and interactions of new institutions, most of which do not yet exist. Approaches to social justice, or variations of contemporary models, will respond to these countries’ new realities and development needs. This process is already in place in the West but not yet in CEE. It is exemplified by the current communitarian debates about social justice and the Maastricht Treaty of the European Union. Communitarians try to articulate a synthesis of views that, in their perspective, will improve and go beyond the fairness model. Their views are responses partly to critiques of the fairness model and partly to the contemporary problems of traditional welfare states and the attacks against these states by conservatives in the United States and Europe. Communitarians appreciate the fairness model’s focus on the rights of individuals (that is, individualism and individual rights without a corresponding emphasis on individual responsibilities), but they also stress the individual’s responsibilities to society and collective concerns (Barber, 1989; Etzioni, 1993; Walker, 1993). Their policy proposals, which stem from

10

Social Justice Frameworks

Table 1.1 The Market and Fairness Models

this basic perception, include the reciprocity of rights and the responsibilities of both individuals and the community (Barber, 1989; Bellah, Madsen, Sullivan, Swidler, & Tipton, 1985; Etzioni, 1993; McNutt, 1994; Ostrom, 1993). The relatively slow evolution of the Maastricht Treaty, which created the European Union, illustrates the same process. Signed on February 7, 1992, the treaty has been the subject of prolonged debates and dialectic controversies. Transnational structures and canons of fairness superseding national boundaries

The Social Justice and Equality Contexts of Privatization

11

and authority develop slowly from regional consensus, democratic participation, and trade-offs. After the many radical changes in the CEE countries since 1990, the evolution of social justice and equality is still embryonic. The elite in these countries expected that free markets would almost automatically solve most socioeconomic problems, including issues of justice, equality, and fairness. Therefore, they accelerated their economies’ efforts to restructure the utilization of resources toward higher efficiency and retarded the development of an agenda of social justice and equality. In so doing, they created severe problems for distributive justice that will have long-term consequences for the vitality both of their countries’ economies and of democracy. One wonders why the CEE countries did not establish short-term social policies even in the interim period to ameliorate the immediate needs of the millions of people who became unemployed and were plunged into dire poverty. Such short-term policies could have led to the evolution of long-term and more innovative social protection systems. The central question is whether this situation is a short-term reflection of the upheavals of transition in CEE or a long-term source of concern. Since the CEE countries’ approaches to privatization and socioeconomic conditions vary, answers to this question may depend on each country’s orientation (Iatridis & Hopps, 1998). DIFFERENTIAL DEVELOPMENTS IN CEE COUNTRIES Since 1989, the former Soviet-bloc regimes of CEE have been experimenting with privatization as one of the main vehicles of shifting from a centrally planned economy to a market economy. Privatization is any public measure that results in the transfer of the ownership, control, or management of assets or economic activities. It basically includes a system of economic and legal reforms that set the foundation for a viable market economy. The CEE countries are similar in that they were part of the same political and economic bloc; are using privatization to transform their economies; have accepted the ideological orientations of the Western world; and are becoming part of a global economy, so that foreigners can now invest directly in most CEE markets and take their winnings home in hard currency (Green, 1996). Despite these similarities, these countries differ in their approaches to privatization (Ernst & Young, 1994; Iatridis & Hopps, 1998). From the big bang of mass coupon privatization in the former Czechoslovakia to Hungary’s cautious piecemeal selloff, a myriad of approaches have been tried. They may be grouped into four methods: small-scale privatization (the transfer of small businesses to individual owners); mass privatization (the broad distribution of the state’s equity in stateowned enterprises among the population); case-by-case (or capital) privatization (the sale of selected state-owned enterprises to individual investors through competitive bidding); and initial public offerings (the issuance of stocks in stock

12

Social Justice Frameworks

markets). The first two methods predominate in the CEE counties, and the last two are practiced throughout the world (Ernst & Young, 1994; Vuylsteke, 1988). The CEE countries also vary widely in their socioeconomic conditions. They range from the affluent Slovenia to the impoverished nuclear military states of Ukraine, Belarus, and the Russian Federation. The populations of these countries range from 1.4 million in Estonia to 148.1 million in Russia (see Table 1.2), with Ukraine and Russia being by far the most populated, with over 200 million people. The gross domestic product (GDP) of these countries ranges from $12.3 billion in Estonia to $796 billion in Russia (see Table 1.3), and the participation of the private sectors in the GDPs varies from 80 percent in the Czech Republic to 30 percent in Kazakstan and 20 percent in Azerbaijan (see Table 1.4). In addition, the infant mortality rates range from 7.3 deaths per 1,000 live births in Slovenia to 24.7 deaths per 1,000 live births in Russia, and the migration rates range from ⫺9.6 migrants per 1,000 population in Romania to 9.81 migrants per 1,000 population in Bulgaria (see Table 1.5). The countries of Eastern Europe are in much worse structural crisis than the main countries of Central Europe, led by the Czech Republic, which by 1995 had minimal open unemployment and considerable economic dynamism, and Hungary and Poland, which had experienced high levels of open unemployment and considerable poverty but had dynamic private economies. In between are the large economies of Romania, Slovakia, and Bulgaria, all of which have experienced chronic stagflation, and a few small countries that have found it difficult to develop or sustain any independent social policy (Standing, 1996). In Bulgaria, there are long lines at shops and little money; hyperinflation, which means that Bulgarians without hard-currency savings can barely afford to eat, further racks the economy (Milligan, 1997). In contrast, Poland’s denationalization and deregulation policies to free the market’s power for selfdevelopment have been more successful. By creating half a million jobs since early 1994 and bringing down inflation by 20 percentage points and unemployment by 3.3 percentage points, Poland, which had the ‘‘shock’’ without the ‘‘therapy’’ (suggesting that shock therapy was unnecessary), is now having the therapy without the shock (Kolodko, 1996). Other CEE countries, for example, Bulgaria, are still in the phase of shock without therapy measures. Since the CEE countries are so diverse, they will probably develop different concepts of social justice. Globalization and the emerging global economy will also differentially affect developments in each CEE country. Worldwide, privatization is also on the rise, focusing mainly on economic considerations (Iatridis & Hopps, 1998). Analysts have estimated that $300 billion in privatization issues will be added to world stock markets over the next five years through the sale of government-owned industries and that at least two-thirds of these privatizations will take place in Europe (Wall, 1996). The most important force at work in the coming years will be the drive of the United States and its allies to incorporate the CEE and Third World countries into the globalized economy (Pfaff, 1997).

Table 1.2 Demographics of Selected Central and Eastern European Countries, 1996

Table 1.3 Economic Indicators for Selected Central and Eastern European Countries, 1996

14

Table 1.4 Participation of the Private Sector in the GDP, Central and Eastern European Countries, 1996

15

Table 1.5 Social Indicators of Selected Central and Eastern European Countries, 1996

The Social Justice and Equality Contexts of Privatization

17

In this sense, privatization in CEE is an integral part of the global economy (an economic efficiency concern) and of social development (a social justice concern). Thus, worldwide economic trends will also influence the relationship of social and economic markets in CEE. At this point, income inequality has increased throughout the world (World Social Situation, 1994). About 25 percent of the world’s population (or 1.6 billion people) live in worse conditions today than they did in 1980, and the worth of the 358 richest individuals equals the income of 2.3 billion people in the world and is greater than the national incomes of countries that have 45 percent of the world’s population (‘‘The Poor Get Poorer,’’ 1996; United Nations Development Programme, 1996). More than half the people on the planet (or more than 3 billion people) have incomes of less than $2 a day (Crossette, 1996). In 1981, the developed market economies, with 17 percent of the world’s population, generated 72 percent of the world’s output (and thus income). Therefore, the average per capita output in the developed countries was 20 times higher than in the developing countries. Since both the proportion of the output of the developed market economies and the proportion of the population in the developing countries had increased from 1981 to 1993, the ratio of the average per capita output in developed countries to that in developing countries had risen during this period to 22. From 1972 to 1991, the rate of growth in the per capita output of developing countries was about half that of developed countries (World Social Situation, 1994). Income inequality means lower human capital investments in health, education, and training of the labor force. POLICY CHALLENGES FOR MERGING SOCIAL AND ECONOMIC MARKETS The challenge is to integrate systems of social and economic markets that link human-social and economic factors in balanced ways. The balanced relation of social and economic markets is crucial if transformations to free economies are to succeed. In this sense, income inequality is a central issue in balancing equality (a social-market concern) and efficiency (an economic-market concern) and in securing the viability of economic growth in the CEE countries. Whether the CEE countries equated economic success with adequate social protection and social inclusion policies or assumed that equality hinders economic growth, they significantly understated valid social policy alternatives to humanize the free-market materialism and political values of the modern West or of international financing organizations, including the World Bank and the International Monetary Fund. What is a realistic framework for developing strategies that are compatible with distributive justice and long-term socioeconomic development? Although excessive income inequality is relatively new and no one yet knows how much

18

Social Justice Frameworks

inequality democracies can take, at least four basic guiding principles can be derived from what countries have experienced at the national and local levels. First, excessive income inequality is a threat to democracy, social development, and economic growth. The existence of a large group of poor people (or underdeveloped and least developed countries) who gain no benefits from the global social and economic system and do not think the community cares enough is not a particularly promising recipe for democratic success, economic growth, and peace. Second, the structuring of a just society cannot be ignored or postponed in the expectation that free markets can automatically solve most societal development problems, including issues of distributive justice and equality, and guarantee economic growth. Third, a just society cannot be founded on only economic or managerial efficiency considerations. Rather, it must be based on the combined frameworks of equality, efficiency, and active democratic participation. If equality enhances economic growth, both must be combined to form an integral part of a just society. A democratized economic market is essential for socioeconomic growth. Fourth, the evolution of appropriate mechanisms for reducing inequality and promoting distributive justice must be systematically enhanced. However, such efforts must be within the realistic socioeconomic capabilities of democratic development, or they will risk losing both social support and democratic political credibility. Global efforts may help focus attention on income inequality (Iatridis, 1996). For example, in July 1996, the Club of Paris addressed the need to help the poor and debt-ridden countries of the world in response to suggestions by the International Monetary Fund, the World Bank, and the leaders of the ‘‘Seven’’ developed countries (‘‘The Debt to the Poor,’’ 1996). The goal is to reduce the debt of poor countries by 20 percent. The Organization for Economic Cooperation and Development, anticipating little improvement in unemployment over the next two years, also warned against the widening gap in wages. It called for governments to change tax and benefit rules because widening income inequality can lead to greater marginalization, increased poverty, and the exacerbation of budgetary pressures on existing social safety nets (AFX News, 1996). These are uncharted waters for democracy and economic development. No one can know what will happen if income inequality continues to rise and the large majority of people and countries experience falling real incomes. No one can know how much inequality democracies can take. But if economic development in the CEE countries does not produce rising real wages and less income inequality in a period when democracy and the total economic pie are expanding, the leaders’ hold on the people’s political allegiance will be threatened and economic growth will be undermined. If the democratic political process cannot reverse the trend toward inequality and if the income gap between the poor and the rich widens, democracy and free markets will eventually be discredited in the CEE countries and elsewhere.

The Social Justice and Equality Contexts of Privatization

19

REFERENCES AFX News. (1996, July 16). OECD report sees weak job growth. International Herald Tribune, p. 11. Albelda, R., & Tilly, C. (1995, March–April). Unnecessary evil: Why inequality is bad for business. Dollars and Sense, pp. 18–21. Barber, B. (1989). Public talk and civic action: Education for participation in a strong democracy. Social Education, 53, pp. 355–356. Bellah, R., Madsen, R., Sullivan, R., Swidler, A., & Tipton, S. (1985). Habits of the heart: Individualism and commitment in American life. Berkeley: University of California Press. Bentham, J. (1962). The handbook of political fallacies (rev. ed.) (H. A. Larrabee, Ed.). New York: Harper & Row. (Original work published in 1824.) Ceska, R. (1993, June–July). Three years of privatization in the Czech and Slovak Republics. Privatization Newsletter of the Czech and Slovak Republics. Prague: Institute for Economic Studies, Faculty of Social Sciences, Charles University. Crossette, B. (1996, July 15). U.N. survey finds world rich-poor gap. New York Times, p. A3. The debt to the poor. (1996, July 17). E Kathimerini, p. 22. Doyle, C. (1996, December). The distributional consequences during the early stages of Russia’s transition. Review of Income and Wealth (Series 42, No. 4), pp. 493– 505. Ernst & Young. (1994). Privatization: Investing in state-owned enterprises around the world. New York: John Wiley & Sons. Etzioni, A. (1993). Is Bill Clinton a communitarian? National Civic Review, 83, pp. 221– 225. Friedman, M., & Friedman, R. (1979). Free to choose. New York: Harcourt, Brace, Jovanovich. Frydman, R. (1993). Privatization process in Central Europe. Budapest: Central European University Press. Glyn, A., & Miliband, D. (1994). Paying for inequality: The economic cost of social injustice. London: Institute of Public Policy. Green, P. (1996, November 30). Privatization finds a home in Eastern Europe. International Herald Tribune, p. 15. Iatridis, D. (1994). Social policy: Institutional context of social development and human services. Pacific Grove, CA: Brooks/Cole. Iatridis, D. (1996, July 12–15). How much inequality can global democracy take? Paper presented at the 8th International Conference on Socio-Economics, University of Geneva, Switzerland. Iatridis D., & Hopps, J. G. (Eds.). (1998). Privatization in Central and Eastern Europe: Perspectives and approaches. Wesport, CT: Praeger. Jackson, M. (1994). Political incredibility and bureaucratic transition in Romania. In East-central European economies in transition (pp. 552–578). Washington, DC: Joint Economic Committee of the U.S. Congress. Kastriotis, D. (1996, July 16). Rich and poor. E Kathimerini, p. 3. Kishkovsky, S., & Williamson, E. (1997, January 30). Second-class comrades no more: Women stock Russia’s start-up boom. Wall Street Journal, p. A12.

20

Social Justice Frameworks

Kolodko, G. (1996, October 17). First the shock, then the therapy. International Herald Tribune, p. 13. Marer, P. (1994), Hungary during 1988–1994: A political economy assessment. In EastCentral European economies in transition (pp. 480–505). Washington, DC: Joint Economic Committee of the U.S. Congress. McNutt, J. (1994, November 2–4). Liberal and communitarian views of social justice: Implications and dilemmas for policy and program evaluators in the Clinton era. Paper presented at the 1994 Annual Conference of the American Evaluation Association, Boston. Mill, J. S. (1979). Utilitarianism (G. Sher, Ed.). Indianapolis, IN: Hackett. (Original work published in 1861.) Milligan, S. (1997, February 16). Bulgaria: Long lines, short money. Boston Globe, p. 7. Myant, M. (1993). Transforming socialist economies: The case of Poland and Czechoslovakia. Hamns, England: Edward Elgar Publishing. Nestor, S., & Thomas, S. (1994). Systemic privatization and restructuring in East-Central Europe. In East-Central European economies in transition (pp. 64–86). Washington, DC: Joint Economic Committee of the U.S. Congress. Nozick, R. (1974). Anarchy, state, and utopia. New York: Basic Books. Okun, A. (1975). Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution. Ostrom, E. (1993). A communitarian approach to local governance. National Civic Review, 83, pp. 226–233. Paratiritis, (1996, July 5). Internationalization. E Kathimerini, p. 16. Pfaff, W. (1997, January 6). A reckless rush to global market. Boston Globe, p. A11. The poor get poorer. (1996, July 21). To Vima, p. A16. Rawls, J. (1980). A theory of justice. Cambridge, MA: Harvard University Press. Ricardo, D. (1963). Principles of political economy and taxation. Homewood, IL: Richard D. Irwin. (Original work published in 1817.) Samonis, V. (1993). One step forward and two steps back: The impact of Sovietization on the Lithuanian economy. Toronto: University of Toronto Press. Smith, A. (1937). An inquiry into the nature and causes of the wealth of nations. New York: Modern Library. (Original work published in 1776.) Spencer, H. (1896). Principles of sociology. New York: Appleton. Standing, G. (1996). Social protection in Central and Eastern Europe: A tale of slipping anchors and torn safety nets. In Costa Esping-Andersen (Ed.), Welfare states in transition. London: Sage. Thurow, L. (1995, November 19). Why their world might crumble. New York Times Magazine, pp. 78, 79. United Nations Development Programme. (1996). Human development report, 1996. New York: Oxford University Press. Vuylsteke, C. (1988). Techniques of privatization of state-owned enterprises. Volume 1: Methods and implementation (World Bank Technical Paper No. 88). Washington, DC: International Bank for Reconstruction and Development. Walker, S. (1993). The communitarian cop-out. National Civic Review, 83, pp. 246–254. Wall, B. (1996, November 30). Deluge of new issues: How best to buy in? International Herald Tribune, p. 15. World Fact Book, 1996. (1996). Washington, DC: U.S. Central Intelligence Agency. World social situation in the 1990s. New York: United Nations.

Part II

Social Justice and Equality

Chapter 2

Distributive Institutions, Markets, and Private Governance in Transitional Economies STAVROS B. THOMADAKIS

This chapter consists of reflections on the process of transition in the Central and Eastern European (CEE), ex-socialist countries up to 1995, based on the author’s broad but mostly casual observations. The main observation is that an almost primitive ‘‘market optimism’’ permeates the political and economic behavior of elites in these countries. The core of this market optimism is founded on the belief that free markets can solve most problems of economic organization in the new situation that emerged after the liquidation of centrally directed economic management. The obverse of this primitive market optimism is the initial disregard for issues and problems of social and economic justice and the assumption that the emerging market economy, by itself, will somehow sort these problems out. Therefore, it is useful to reflect on the trade-off between efficiency and equity in emerging capitalist societies in Europe (Okun, 1975). TRANSITION The transition from centrally planned to market economies in the CEE countries has continuously engulfed the region since 1989. This process is not yet complete, and many aspects of the social and economic functions in these countries have not ‘‘normalized,’’ that is, have not attained a modicum of political consensus and institutional equilibrium. Nevertheless, the early commitment of virtually all the governments in the region to pursue economic reform in the direction of market-oriented processes has brought about visible results at several levels. At the macroeconomic level, the wide liberalization of prices caused spurts of inflation that were subsequently controlled in some countries. International trade was also decontrolled to a great degree, causing significant shifts in the

24

Social Justice and Equality

content and geographic patterns of both imports and exports. The major trend in this respect has been the reorientation of trade from the former republics of the Soviet Union to the West. The level of output declined drastically in all countries, however, and virtually collapsed in some, although since 1994, there have been signs that output is recovering in some countries. With regard to the region as a whole (bearing in mind the great differences between the Czech Republic and Romania or Poland and Bulgaria, for example), the patterns of macroeconomic performance have not yet stabilized in nominal or real economic terms. Some economies offer solid evidence of having come out of the macroeconomic shock and have begun to stabilize, whereas others are still mired in the tangled consequences and conflicts of macroeconomic disorder. At the microeconomic level, there have been two fundamental developments in the CEE economies. The first development relates to what could be called ‘‘structural gaps’’ in the erstwhile planned economies; that is, many sectors and activities either did not exist or were suppressed. Since 1989, a private sector has come into existence in these areas of economic activity. A telling example is the growth of private enterprise in trading and in a variety of service, construction, and financial areas. For example, pretransition Poland, whose economy was about the size of Spain’s, had a service sector whose contribution to the gross domestic product was traditionally about half that of the Spanish economy (Przeworski, 1993; World Bank, 1994). The private sector, which arose more or less spontaneously in areas of relative backwardness, has come to consist primarily of small and medium-sized enterprises (SMEs). Thus, the growing number and share of SMEs in economic activity can be taken as a measure of the genesis of private activity ‘‘from below,’’ from the level of individual choice as it were, and has filled the structural gaps in Poland’s former centrally planned economy. The second development has been the privatization of state-owned enterprises. Again, the size, complexity, and political difficulty of mass-privatization experiments have led to a great variety of methods and experiences in different countries of the region. These methods, individually and in combination, have included direct sales to foreign investors, direct sales to domestic entrepreneurs, passage of control to workers and managers, mass privatization by the distribution of coupons, sales to financial institutions, and sales of shares in open markets. The outcome of all these methods of privatization was that by the end of 1994, the private sectors of the CEE economies were responsible for a growing share of the output and the contributions of the public sectors were shrinking in output, employment, and intervention in the central parameters of the economic process. However, the influence of the public sectors in these economies was not eliminated, nor could it be. In sum, within a few years, economic transformation has changed fundamental aspects of decision making, production, and the allocation of production throughout the CEE region. However, many of the processes are incomplete, and the limits of the private and public sectors have not been clearly delineated

Distributive Institutions, Markets, and Private Governance

25

and the sectors have not assumed ‘‘normal’’ or ‘‘permanent’’ positions. Therefore, the question of what the balanced position of institutions and economic structures will be in these societies remains to be seen. The argument set forth in the following sections is that the delimitation of public and private in the economies in transition will not be simply the outcome of the requirements posed by economic efficiency and growth, as many seem to believe. Rather, it will be the outcome of a complex interplay between efficiency and equity, as reflected in emerging economic and social arrangements and formalized in emerging institutions. Arguments about the new role of the state in ex-socialist societies are often one sided, since they focus on efficiency. The whole theory and rationale of privatization, for example, is driven by this focus. However, the state, in its optimal role and democratic version, is inevitably the underwriter of both efficiency and equity goals. How should goals of equity be formulated and pursued in economies in transition? The answer to this question must take into account the real economic, as well as the ideological, parameters of transition. In addition, it must be couched in terms of the ongoing process of building new institutions in these societies; and it must consider the political necessities and requirements for broad political legitimacy that are fundamental to the success of the transition process itself. EFFICIENCY VERSUS DISTRIBUTIONAL JUSTICE In all market economies, there is a well-known dilemma between efficiency and distributional equity. On the one hand, it has been argued that inasmuch as equity and distributional justice are pursued by policies that seek to equalize incomes, wealth, and general access to resources for personal use, they presumably withhold resources from those who are best able to invest in them. In fact, social need and entrepreneurial ability are not distributed even in rough symmetry to each other in any society. It follows that any redistributive policy that is directed toward the gains of entrepreneurship will reduce social efficiency below its theoretically highest level, since it will take away resources from those who can put them to best use. On the other hand, a long line of arguments have been made in support of equity and justice, within the theoretical context of political economy. First, fundamental ethical considerations imply that there should be constraints on inequality and requirements for safeguarding minimal living standards for all. Second, to abstain from distributive policies may sanction the ownership of wealth, not by those who can most efficiently use it, but by those who, through privilege or historical circumstances, have come to control it. Inasmuch as any status quo situation is not driven by efficiency, redistribution could theoretically enhance efficiency by placing wealth in the hands of those who can use it more effectively. Finally, a long line of thinkers in political economy have cultivated the notion

26

Social Justice and Equality

that the viability of social systems must be founded not only on their productive capability, but on their ability to maintain cohesion, contain internal antagonisms, and continue to work as unified systems in the face of centrifugal forces. Even the father of much the conservative economic doctrine of our time, Hayek (1960), echoed this view when he stated that ‘‘in the Western world some provision for those threatened by the extremes of indigence or starvation due to circumstances beyond their control has long been accepted as a duty of the community. . . . The necessity of some such arrangement in an industrial society is unquestioned, be it only in the interest of those who require protection against acts of desperation on the part of the needy’’ (p. 38). Indeed, distributional equity is a fundamental element that supports social cohesion in democracies. Naturally, it does not mean that extreme economic equalization will be imposed. Rather, it is a fuzzy concept that relates to perceptions of collective well-being and to cultural-political notions of what is an acceptable level of inequality in particular societies and at particular times. The terms of the dilemma between efficiency and distributional equity in transitional economies are specific and appear to be radically different from the typical ones that arise in market economies with long-standing traditions of markets and social institutions. There are three reasons for the specificity of these terms in the CEE transitional economies. First, in many market economies, the terms of the dilemma and the attendant social-political struggles have been traditionally cast against a background in which the drive for productivity (and profits) has dominated economic events and shaped social realities. Under these conditions, it was easy and logical for perceptions of inequality to take root and for the deficit of distributive equity to become a central political issue. In the nineteenth and twentieth centuries, great waves of social legislation took place in the West in intensely militant political cultures, which underscored the need to inject justice into socioeconomic systems that seemed to give primacy to the immediate attainment of productivity. Thus, the evolution of capitalist democracies has been a story of continual tension and rebalancing between efficiency and equity in the workings of each particular socioeconomic system. In the CEE transitional economies, it appears prima facie that the starting point is the reverse of what occurred in the West. A cursory look at the political rhetoric and culture that have emerged since the collapse of the socialist regimes shows that these countries have been stating persistently that efficiency must be rapidly injected into systems that were immobilized by too much emphasis on (or, according to some commentators, lip service to) distributional equity. Hence, primacy has been placed on the economy, economic liberalization, and privatization. It seems that the focus on the quest for efficiency has, at least temporarily, eclipsed concerns for distributional equity in open political debate and in the economic thinking of governments. Second, in market economies, the various institutions that carry out the social mandate of distributional equity are embedded in a culture and social climate

Distributive Institutions, Markets, and Private Governance

27

in which the role of the state is, by and large, settled. This point is underscored (rather than negated) by the fact that since 1980, the conservative attacks on the ‘‘welfare state’’ have actually been attacks on the role and limits of the capitalist state as a whole. In the CEE transitional economies, the role of the state is in existential limbo. Heavily influenced by the need to distance themselves from the failed institutions and practices of central planning, the CEE governments have followed strategies of destatification and denationalization at a time when they face economic and social crises that require strong state intervention. These governments have eagerly sought to privatize large state-owned enterprises, only to find that such plans have often not been feasible. Therefore, they have been stuck with the job of actively providing guidance to these enterprises, matching in form, if not in intent, their socialist predecessors. They have also eagerly attempted to concede whole areas of economic coordination to the market, only to discover that Mafia-like networks have rushed in to fill the coordinative void created by the state’s abstention. Thus, these governments have had strong incentives to reregulate or recontrol what they originally ceded to the market. In this context, in which the CEE countries appear to be learning their new role by successive conflicts between ideological precepts and the reality of their situations, the issue of distributional equity has barely been given its proper conceptual due or the strategic weight that it deserves in any new social design. Rather, it surfaces again and again as a result of crises, as the need to avert disasters, or as a hot issue at elections. Third, the need for new institutional arrangements that will provide for equity, the demand for institutions as it were, is still not well specified in the CEE societies. Many hardships are perceived as transitory costs of the radical reorientation to a new social order. Rather than being tackled with broad-based and permanent mechanisms for controlling inequality, these hardships are considered to necessitate temporary policies of the safety-net variety—policies to ensure the bare survival of the hardest-hit social groups. Social reality is complex, and what forms people’s perceptions and transforms them into political action is not necessarily representative of social requirements. For example, excitement about new opportunities for political and social mobility can befuddle political perceptions of the urgency of economic protection and security, although an increasing segment of the populace may objectively experience more economic insecurity and a greater need for such protections. In summary, it is a reasonable contention that the classic dilemma between efficiency and distributional equity has not yet emerged as forcefully as it deserves in political debates in the CEE countries. However, it will inevitably become a major issue as economic transformation proceeds. People understand what markets can and cannot do; and the projected role of the state is distanced, in the mind of political elites, from ideological precepts of simplistic free marketeerism.

28

Social Justice and Equality

PRIVATIZATION AND DISTRIBUTIVE EQUITY As was stated earlier, the CEE countries are actively pursuing policies of privatization on the basis of efficiency. Privatization has distributive consequences as well. From the viewpoint of these consequences, it must be considered a process that enforces changes in the sources, mechanisms, time patterns, and risk profiles of income generation in transitional economies. What were, in the earlier era of socialist central planning, incomes that were directly or indirectly controlled by decisions of the state have been rapidly shifting to incomes formed from, and dependent on, market actions. Privatization has created a large, new class of income claimants, who depend on private firms rather than the public sector. Furthermore, general economic liberalization has enabled activities that were carried out privately under the previous social system, but that had been forced to remain underground for a variety of reasons, to surface to some degree. One peculiarity of transitional economies is what can be called an interlude of surfacing. Whereas former incentives to seek cover from state intervention and controls have been eradicated by the collapse of socialist regimes, newer incentives to become part of the underground economy have not yet taken hold, given the still weak tax-enforcement capabilities of the postsocialist states. Hence, private incomes are rapidly becoming an ever-larger share of national incomes in the region, not only because true private activities are expanding, but because those that were operating underground in the socialist system are rising to the surface of the economy and can be counted. Private incomes, especially those formed in the SME sector, have two characteristics that arise from the evolutionary potential of a prototypical private sector that is populated by a multitude of small enterprises. The first characteristic is cyclical instability. All over the world, SMEs are more sensitive to fluctuations in demand and, because of their less formal labor arrangements, pass on the cyclical nature of demand to employment in their sector. Thus, private incomes that are based on SMEs are especially vulnerable to cycles. The second characteristic is that in growing economies, differences among firms arise quickly. These differences may be the outcome of good luck but are frequently also the result of higher attained efficiency vis-a`-vis other producers in the same market. Usually, a minority of firms become successful by these means and rapidly gain more commanding positions in the market and the economy. However, many SMEs face hardships and retrench or go bankrupt. This is the nature of SME sectors and of the uneven distribution of efficiency differentials among a population of starters. This phenomenon also implies that job security, or even a modicum of employment stability, may be difficult to attain in such sectors. Therefore, besides their sensitivity to cycles of demand, private incomes based on SMEs are also structurally unstable and are not likely to lead to stable upward mobility. Thus, the type of distributive arrangement that may arise from income makers

Distributive Institutions, Markets, and Private Governance

29

in the SME sector can be quite varied. The main type is some sort of insurance arrangement that provides support during times of cyclical unemployment. This is by far the simplest form of income protection that can be implemented. It also entails a second arrangement—some type of structural assistance to retrain or reorient skills from failing SMEs to those needed by growing SMEs. Naturally, the second type of distributive arrangement involves an investment in human capital, so it is potentially of higher social value. However, it is also one whose need is perceived more slowly than the first type and whose implementation requires more sophisticated planning. The final type of arrangement is some form of funding for pensions. Pension schemes in emerging private sectors are a tenuous proposition in the sense that incomes are still too low to allow for the voluntary or quasi-voluntary withholding of funds for pensions. Furthermore, the need to establish early profitability and to acquire financial means for expansion when there is a shortage of capital prevents employers from agreeing to pension contributions. These factors act with special force in the case of SMEs all over the world. After all, it is in these firms where the employment relationship is more informal and flexible and less subject to rules, even in institutional environments where social legislation is passed and rules are available. In short, the creation of a private sector through the development of SMEs generates incomes with a risky profile and fosters an entrepreneurial environment that is resistant to the imposition of social fees and social rules related to employment. Hence, a deficit in social protection is an obvious outcome in that sector. The other facet of the creation of the private sector is represented by the privatization of large state-owned enterprises (SOEs). In the era of socialist central planning, many of these enterprises were the organizational foci of social protection. Health and recreational benefits, some types of reeducation and training, and some pension schemes were enterprise based, and the costs of these services were charged directly to the revenues of the enterprises. Inasmuch as the profits of SOEs were a form of public revenue, enterprisebased benefits were equivalent to a system of earmarked taxes that were collected and used at the enterprise level. In effect, the claims for social services were a liability of the SOEs, and this liability has been the natural first candidate to be written off upon privatization. New private owners have no desire or need to inherit the social contract that was designed by the previous regime but is not part of the practices of most capitalist democracies. Indeed the state, rather than the firm, has been the provider of welfare in capitalist regimes, whereas the opposite appeared to be the pattern in the erstwhile socialist regimes. The transformation of SOEs into capitalist enterprises enabled the enterprises to shed social functions that they previously carried out. Under these circumstances, the demand for social protection shifted to the state, whose role, as was mentioned earlier, has not yet been clearly delineated. One implication of privatization, then, is that a new and explicit social contract must be designed. Probably one of the strong incentives for workers and

30

Social Justice and Equality

managers to become owners of SOEs is their desire to maintain at least part of the value of social claims on the future profits of their firms—claims that were based on the previous regime. Thus, privatization by insiders contains this element of the conservation of prior claims on the firms, claims that now take on the mantle of ‘‘ownership.’’ The viability of SOEs that are privatized in this way and of the ambitions of worker-manager owners naturally depends on the success of these privatized enterprises in the market. But such success is not guaranteed. Some enterprises will succeed and others will not; the market as the regulator of social services will regenerate the inequality and unevenness that social contracts are supposed to alleviate. Therefore, even when privatized firms are taken over by their employees, the pressures of competition usually do not allow for the survival of previous social norms. In a competitive economy, the less productive firms feel tremendous pressure to cut costs, and the costs of employment are normally the most easily reduced. Thus, theoretically, even in a world of worker-managed firms that compete with each other and are not of equal productive efficiency, the provision of social services by the firms themselves would not be an obvious or automatic outcome. States intervene in the specification of social programs because the costs of these programs must be taken out of the field of competition among firms by being imposed uniformly on them all. Underground economies flourish in many places because some firms can easily avoid these state-imposed costs by transferring their operations underground. The quest for efficiency and monetary surpluses is a permanent threat to distributive equity. RENEWING INSTITUTIONS OF SOCIAL PROTECTION The major feature of the microeconomics of transition is that firms are normally under great pressure to compete in a new market environment, prospects of success are uneven, and therefore no stable social net of minimal social protection can be founded on the enterprise level. The economies of most CEE countries, however, are facing a double burden. They are under pressure to distance themselves from failed institutional arrangements of central planning and are struggling to build up, sometimes from scratch, the basic tools of economic statehood in a market economy—the passage and enforcement of tax laws, the establishment of controls on budgeting and expenditures, and the development of domestic institutions that are compatible with international cooperation. These tasks are undertaken in a context of tight macroeconomic balances, low output, and severely low incomes. Under these conditions, both the state and enterprises seem to find it difficult to make and implement arrangements for social protection. That they find it difficult does not mean, however, that social protection should be ignored. On the contrary, social protection and distributive justice should become explicit goals in political platforms and social agendas. The formulation of social goals in the direction of distributive justice cannot

Distributive Institutions, Markets, and Private Governance

31

be constrained within the boundaries of the present capabilities of the CEE countries’ economies and governments. After all, transition is supposed to be an intermediate stage in a process that, in the end, will produce a desired social structure. That desired social structure must include goals and mechanisms of distributive justice. Therefore, it is necessary to incorporate these goals into the vision of the new order while the transition process is still in its early stages. In fact, the issue of how to tackle the hardships of the process itself should not be considered in isolation, as a temporary problem of a small population group. It should be viewed as an essential part of a broader policy that will gradually emerge as economic capabilities develop into a system of distributive justice. The incorporation of social equity goals into the political agendas of transitional democracies will also have an important ideological role. Its contribution will be to enrich the naive market optimism that has permeated early political debates with elements of social and humanistic concerns, without which no democracy and no free society can ultimately function. Furthermore, the incorporation of the goals of social justice into political agendas must be coordinated with core economic policies. Social agendas with no hope of being (or becoming) economically feasible always run the risk of being discredited and achieving no goals. The experiences of other developing economies, such as Greece, provide ample justification for this assertion (Thomadakis & Seremetis, 1992). Therefore, it is imperative to construct social policies within available capabilities, endow even limited social policies with credibility, and thereby reinforce the goals of distributive justice for the long term. Given the tremendous economic constraints faced by the CEE governments in all economies in transition, it would seem that the intervention of some type of intermediate institutions could furnish a solution during the current stage that can later be used as a building block for a more permanent policy. Regional or local governments, trade unions, business alliances, and even nongovernmental organizations and voluntary associations can offer a variety of social services. The weakness of the state and the inability of privatized firms to provide these services would appear to make this a solution of last resort. Although solutions of last resort are normally thought of as the least desirable, in this instance, the involvement of intermediate institutions may be desirable and have positive, purposive outcomes. One positive outcome is that when social services are provided at the micro level rather than at the national level, they can maintain a nonbureaucratic organization and, in principle, be grounded on local information that permits a more accurate assessment of needs and fewer opportunities for defrauding than would an impersonal and bureaucratic system. Given the bureaucratic past of the ex-socialist societies and all the forms of institutionalized fraud that these bureaucracies spawned, it may be sensible to seek institutional solutions that are decentralized, more transparent, and more open to the control and requirements of local social forces.

32

Social Justice and Equality

In addition, the provision of social services at the micro level can be realized in ways that encompass partly monetary and partly nonmonetary forms of solidarity. The use of nonmonetary components of social protection offers at least two advantages. First, it relieves the pressure on budgets and taxes, especially at a time when taxes are difficult to collect. Second, it reduces the grounds for the perception that needs can simply be tackled with money and enhances the perception that solidarity represents a value that must be maintained even in the new capitalist economies that most citizens seem to envision for these societies. Inasmuch as another goal of transition is to bring about an active and selfregenerating democracy, the decentralization and localization of social services may directly promote and legitimate democratic processes as citizens experience the benefits and multiplicative effects of collective action. The solidification of intermediate institutions, which is a possible outcome of the process, can indirectly benefit the reconstruction of democracy. Intermediate institutions, whether local governments or citizens’ groups, can interpose themselves among the individual, the state, and national political parties in ways that promote the pluralism of opinion and multiple channels for aggregating interests and that restrain the growth of populism, which is a constant threat in societies that experience impoverishment and crises. An additional point must be brought to bear in this argument. The CEE countries suffer from a great shortage of usable collective goods and services or, to use a more modern phrase, of ‘‘hard’’ and ‘‘soft’’ infrastructures. Collective goods and services that are necessary for the operation of enterprises, social organizations, the government, and the economy in general encompass a huge variety of items, from the construction of roads to training workers and from environmental protection to public health. In economies in transition, the supply of many social services overlaps with collective goods that are essential for the functioning of private enterprises. That collective goods have multiple uses implies that there may be a large overlap between the efficiency requirements of enterprises and the equity requirements of social services. It also implies that in some areas of action, efficiency and distributive equity are not antagonistic, as is the usual case when resources are well organized, but complementary objectives that can be achieved by producing a higher level of collective goods and services. Therefore, it is possible and desirable to mobilize mixed private and public initiatives to procure these collective goods and services. Thus, for example, groups of firms—interfirm networks as it were—could invest in some collective goods and services, whereas each individual firm could not, especially in the case of SMEs. Local governments could coordinate and provide some material support for such projects. This process could essentially be one of discovery—of areas and combinations of interests and resources over which efficiency and distributive equity are synergistic. The creation of networks of locally mediated social goods and services could also be a major disadvantage: It may generate inequalities and differences among

Distributive Institutions, Markets, and Private Governance

33

various areas of a country and hence may contribute to interregional tensions. This is a problem that national politics and national governments must resolve as time goes on. Locally mediated networks do not have to be seen as independent entities. They can be viewed as nuclei of a future system that will be eventually unified as states become stronger, more flexible, and better able, both ideologically and economically, to cope with distributive equity. In any event, if and when synergies between efficiency and distributive equity can be discovered, the incentives of all participants in the system will be the same, the development and stabilization of economies and societies will be attained more successfully, and transition will come closer to its rightful target. CONCLUSION The ideologies and policies that have emerged in CEE economies in transition have not included the systematic articulation of goals and practices of equity and social justice. Rather, they appear to reflect a predominantly naive market optimism, with expectations that the development of free markets will solve all the societies’ problems. Given the overarching need of these economies to restructure the use of resources toward higher efficiency, the lack of social agendas and the absence of explicit policies for equity is a serious problem that will have long-term consequences for the viability both of these economies and of democracy. Therefore, it is necessary, as this chapter has argued, to articulate goals and to design institutions of social justice early in the transition process. At the same time, the immediate pursuit of the goals of social justice must remain within present-day economic capabilities; otherwise, its social support and its political credibility will be lost. A realistic strategy that is compatible with long-term political goals and democratic development may be to reconstruct mechanisms of social protection from the bottom up, using local initiatives, intermediate institutions, and local governments to coordinate services. Inasmuch as the general lack of collective goods and services in these societies hampers both economic efficiency and the provision of social equity, there may actually be a large area of economic initiatives that will serve both goals simultaneously. A systemic view of economic restructuring cannot be founded simply on considerations of efficiency. It must seek a vision of how efficiency and equity will be balanced and combined in the new social design toward which transition policies presumably will lead. REFERENCES Hayek, F. A. (1960). The constitution of liberty. London: Routledge & Kegan Paul. Okun, A. (1975). Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution. Przeworski, A. (1993). Economic reforms, public opinion, and political institutions: Po-

34

Social Justice and Equality

land in the Eastern European perspective. In L. C. B. Pereira, J. M. Maraval, & A. Przeworski (Eds.), Economic reforms in new democracies (pp. 7–54). New York: Cambridge University Press. Thomadakis, S. B., & Seremetis, D. (1992). Fiscal management, social agenda, and structural deficits. In T. Kariotis (Ed.), The Greek Socialist Experiment (p. 45). New York: Pella. World Bank. (1994). Poland: Policies for growth and equity. Washington, DC: Author.

Chapter 3

Social Justice and Privatization DIMITRI PLIONIS AND ELIZABETH M. PLIONIS

As a system of values, social justice is prescriptive. It is concerned with means and ends that are consistent with definitions of good in philosophy and theology. The idea of justice as a personal virtue (Socrates) has been all but lost to the concept of justice as a grand abstraction (Solomon, 1990). As a grand abstraction, justice seems to refer to an ideal system of world government or economic distribution—a utopian state. An important implication of this conceptualization is the concern with social conditions and social injustice. A keen sense of injustice and the urge to do something about it are essential ingredients of any definition of the ‘‘good’’ life. BACKGROUND In the mid-nineteenth century, the idea of justice was viewed almost singlemindedly with the distribution of wealth in society (Solomon, 1990). Poverty was considered the fundamental expression of injustice and oppression. Becoming secular and economic in focus, justice prescribed governmental intervention in the economy to ensure a semblance of equity, if not equality (Solomon, 1990). Some proponents of this view thought that the economic inequalities of the capitalist system were the fundamental social injustice and advocated an alternative. In some countries, partly in reaction to this view, communism became the established political and economic system. The economies of Central and Eastern Europe (CEE) are now in transition because of the collapse of communism. Communism has been discredited as an economic model for a number of reasons. First, economic growth failed to occur under models of administrative price setting and state ownership of the means of production. Second, equality of benefits, regardless of input, depressed in-

36

Social Justice and Equality

dividual incentives and efficiency. Third, economic equality for the masses (a good consistent with social justice) was achieved at the price of a shrinking and failing economy (a negative from an economic perspective); that is, the masses were equally poor. The pattern of distribution can be a significant determinant of how much is produced and therefore how much can be distributed. In contrast to societal policies of distribution based on value-driven concepts of prescriptive social justice, economic policies fall within the province of science. Furthermore, economic actions are guided by empirical evidence of what is and what works. The simultaneous application of economics and normative values to social problems is difficult and complex. Thus, efforts to subject policy to both scientific and justice analyses require the development of new multidisciplinary analytic models. According to economic theory, growth is promoted by a change from state to private ownership of property and the establishment of a free market (Savas, 1987; Vickers & Yarrow, 1995). Economic efficiency occurs only when private owners control and manage enterprises in a relatively free market. When the market is free, a consumer-based mechanism regulates prices and production. Lacking such a mechanism, former Communist countries experienced overstocks of many useless or poor-quality goods and shortages of needed items. Private ownership also leads to the creation of wealth and the opportunity for internal capital investment and economic growth—all positives, according to economic theory. Privatization is the transference of state-owned property to private owners and the establishment of an open market. It is a method used in the transition from a socialist to a market economy and hence is a prerequisite to the building of capitalist economies in the CEE countries. Though high on economic revival and growth, capitalism, as an economic system based on private property rights, does not directly concern itself with one of its principal side effects: the social inequity created by the uneven distribution of wealth. As a model, capitalism produces an economic good (growth) at the price of distributive inequity, unstable prices, unequal wages, and unemployment. Finding a just solution to a problem involves finding a way out of conflicting claims. Views about individual rights, the rights of special-interest groups, and the public good often collide (Etzioni, 1993). Determining what is both desirable (justice) and feasible (economics) is complex and difficult. The idea of free enterprise has won the intellectual battle among most serious economists in CEE and elsewhere (European Bank, 1994, 1995), but its achievement in formerly Communist countries faces many obstacles, one of which is the deep-seated egalitarianism rooted in decades of Marxist assumptions. Although many people in the CEE countries hate communism, they have not rejected socialist ideas. The willingness to see capitalism as an engine of material progress coexists with the belief that capitalism is not a morally superior or politically attractive way of organizing human affairs (Pilon, 1990). Many do not understand or are not ready to accept the significance of guaranteeing prop-

Social Justice and Privatization

37

erty rights. Others are uneasy with the inequalities of capitalism and resent the prosperity associated with private ownership. Still others fear that removing price controls and reducing subsidies may lead to inflation and unacceptable losses to many state-owned enterprises. In an attempt to deal with this unease and fear, free enterprise is often mixed with requests for governmental controls that interfere with and hobble free enterprise. As Davidow (1992) predicted, the introduction of capitalism without a sufficient safety net has brought on a political backlash. Economic reformers have been turned out of office in Bulgaria, Estonia, Hungary, Lithuania, and Poland. In the Russian elections, the balance of power in parliament swung against the reformers as electorates voted leaders out of office who did not temper economic reforms with some level of social benefits. It is clear that economic reform is accompanied by hardship for major segments of the population (European Bank, 1994, 1995). Too great a loss of social protections and mass unemployment will undermine economic reform. Therefore, the methods chosen to implement economic transformations and privatization must address issues of equity as well as economic efficiency if the transition is to be successful. This chapter summarizes the four major theories of distributive justice—egalitarianism, utilitarianism, contractarianism, and libertarianism; presents a grid for analyzing models of privatization; and uses the grid to examine the effectiveness of several models of privatization in promoting a market economy that balances economic efficiency and growth with definitions of equity derived from competing normative theories of distributive social justice. THEORIES OF DISTRIBUTIVE SOCIAL JUSTICE Together, the four major theories, or worldviews, of distributive justice— egalitarianism, utilitarianism, contractarianism, and libertarianism—address the issue of society’s obligation to the individual, and vice versa, to bring order to a society in a way that is rational, universal, and protective of some definition of the rights of the individual and of the community. In addition, the communitarian movement has begun to address the problem of how to balance the ‘‘I’’ of individual rights with the ‘‘we’’ of community needs (Etzioni, 1993; Winkler, 1993). Egalitarianism The goals of egalitarianism, such as to reduce poverty, expand economic opportunities for the less well-off, promote equality of opportunity, and improve the quality of public services for all, have been the source of its popular support (Winkler, 1994). Many persons, including the authors, subscribe to these goals but often disagree with the means for achieving them. To accomplish the goals, some egalitarians advocate equal access to the means of production and equal distribution of the fruits of production. Since egalitarians deem the market an

38

Social Justice and Equality

imperfect framework for organizing society, their policies favor public, not private, ownership, with the aim of obliterating class distinctions. It has been noted that systems that distribute income equally generally do not provide the most incentives for production and hence the greatest chance for increasing the goods available to all. Unintended as it may be, the equal distribution of income results in a static or diminishing quantity. Geared toward the structures (political and economic) of society, egalitarianism deals with social justice on the macro level (Lebacqz, 1986). It envisions economic equality (a classless society) as the ultimate goal of social justice. However, the experiment with communism showed that this goal is not practical. Utilitarianism In contrast to egalitarianism, utilitarianism deals with social justice on the micro level (Lebacqz, 1986). It focuses on individual actions, not structures or systems. Two subschools (hedonistic and ideal) are associated with the goal of utilitarianism (happiness), and two subschools (act and rule) are associated with the means of determining the rightness of behavior. In any case, the theory’s basic principle is captured in the concept of social utility: The right thing to do is what produces the greatest good for the greatest number. Although notions of equal treatment and of claims on society are incorporated, the concept of social utility permits some to have more than others, even though their claims may be equal, in order to create incentives so that more goods can be produced and the life chances of more people can be enhanced. Utilitarianism seeks to maximize welfare by accepting some inequality if that inequality results in the greatest good for the greatest number. Unlike the egalitarians, utilitarians acknowledge that the pattern of distribution affects what is available to be distributed. In this sense, utilitarian justice is consistent with the notion of growth and efficiency, as found in a market economy. Yet the idea of the greatest good for the greatest number does not provide justice for all. On the one hand, it leaves the individual vulnerable to the demands of the greater good of others. On the other hand, when overall economic well-being is calculated as an average, economic wealth can be increased even as the gap between the wealthiest and the poorest widens. Utilitarianism does not take into account differences in marginal utility. It regards a dollar as a dollar, whether that dollar goes to a millionaire, for whom it would have no marginal utility, or to an indigent person, for whom it would have greater utility. Contractarianism The idea of the social contract recognizes that political, economic, and social institutions determine, to a large extent, what an individual’s life chances will be. Like egalitarianism, then, contractarianism deals on the macro level with the basic structure of society. According to Rawls (1983), issues of justice arise

Social Justice and Privatization

39

when persons put forward conflicting claims to the division of social advantages under conditions of moderate scarcity. Two principles are central to the social contract: equal liberty and difference. Under the principle of equal liberty, basic human liberties are secured against any unequal division; under the principle of difference, some inequality is allowed. Like utilitarianism, contractarianism recognizes that some social and economic inequality is necessary if the overall economic well-being of a society is to be increased. In its full sense, justice seems to require some accounting for the amount of good, as well as for its allocation; in this regard, the social contract is compatible with a market framework. Contractarianism differs from utilitarianism in that it insists that inequality in income, power, and status is just only to the extent that it benefits the least advantaged in society (Lebacqz, 1986). Distributive inequality cannot be used to widen the gap between the rich and poor. Rather, it must be used to reduce poverty and expand economic opportunities for the less well-off—a strategy referred to as the strategy of ‘‘maximin.’’ Furthermore, the theory stipulates that social and economic inequalities must be attached to offices and positions that are open to all under conditions of fair equality of opportunity. However, inequalities of position and power should not be locked in for all time but should be subject to fair competition. Criticized for its methodology of deriving principles and for the serial ordering of its principles, this theory nonetheless has had a strong intuitive appeal to many. Some writers (see, for example, Iatridis, 1994) refer to it as the fairness model. If justice requires that the basic structures of society must be arranged to benefit the least advantaged, then a strong state is implied, something akin to a modern democratic welfare state (Lebacqz, 1986). Libertarianism The libertarian view holds that justice is not ‘‘distributive.’’ Any attempt to redistribute goods according to some end goal or pattern (equality, maximizing welfare on the basis of need or merit, or providing for the least advantaged) intrudes on the free decisions of individuals (Lebacqz, 1986). Belonging more to commutative social justice than to distributive social justice, libertarianism deals with interpersonal equity using the concept of justice in holdings, comprised of the justice of the original acquisition and the justice of the transfers made. Fundamental to this theory is the individual’s right to acquire and transfer property. Because of this right, people’s past circumstances or actions create differentials among individuals to which they and their heirs are entitled. If an original distribution and all subsequent exchanges are fair, then there is a prima facie case for thinking that the final distribution is also fair. Justice is determined by how the distribution came about, not by what the distribution is (neither its amount or its allocation). Libertarians advocate private ownership and a market framework, believing

40

Social Justice and Equality

that both are just and that neither violates the Lockean proviso to do no harm. Yet there is extensive evidence that conditions of fair acquisition do not always exist in today’s complex world and that market failures prevent a significant number of people from fulfilling their basic needs. Exchange, if left to itself, generates phenomena (monopolies) that destroy free exchange. The theory holds that no grounds have been established by which the state may take from some persons to assist others (Lebacqz, 1986). The minimal state (the legitimation of some redistribution to protect everyone) is not redistributive. TYPOLOGY OF THE FOUR MODELS OF SOCIAL JUSTICE Table 3.1 presents a typology of the four models of social justice that identifies and compares the conceptual characteristics of the four major theories of distributive social justice. The table also points to distinctions among the theories that are relevant in assessing social equity and economic well-being. As can be seen, there is no perfect balance between equity and economics in any of the models. On the extremes are libertarianism, which advocates all market intervention and no state intervention, and egalitarianism, which advocates major state intervention to achieve equity despite economic inefficiency, stagnation, and decline. In the middle are utilitarianism, which tries to balance market and equity at the micro level (noninstitutional), and contractarianism, which tries to balance market and equity at the macro level (institutional). Because contractarianism is still at the principle level of development, it has little practical value at the level of implementation. A grand theory of justice that can balance economic growth, efficiency, and equity is still in the making and is beyond the scope of this chapter. However, it is clear that none of the four models is able to achieve the basic requirements for both economic efficiency and equity. From this typology, the authors developed the following framework of economic and equity impact. Equity Assessment

Economic Assessment

Reduction of poverty

Growth

Reduction of the gap between the haves and have-nots

Efficiency; incentive

Provision of an economic floor or minimum safety net

Private property

Universal provision of services to meet basic human needs

Employment; openness and transparency

Combining goal-based economic and equity criteria into a single analytic framework against which public policy decisions (such as privatization) can be assessed is a small, practical step toward answering the question: Transition to what? Avoiding both the economic-only and equity-only arguments perpetuated

Social Justice and Privatization

41

in other frameworks, this framework is based on the premise that neither economics alone nor equity alone is sufficient to achieve a sense of long-term, sustainable social well-being. It accepts the reality that no single strategy can simultaneously maximize both economic well-being and social equity. In fact, a given strategy can produce different results under various circumstances. ECONOMICS: DISTRIBUTION AND REDISTRIBUTION According to economic theory, redistribution (making someone better off by making someone else worse off) does not create additional wealth (an economic concept) and, therefore, does not benefit the economy as a whole (Ferguson, 1969). However, redistribution may increase the well-being (a social concept) of society as a whole if the benefit to the less well-off exceeds the loss to the well-off. The marginal utility for any good (including money) decreases with its quantity (Ferguson, 1969), and even though economists are loath to make interpersonal comparisons of utility, it is generally understood that an extra dollar to a poor person is worth more than an extra dollar to a wealthy person. The transition from socialist to capitalist-based economies presents a unique opportunity in the CEE countries and elsewhere. Unlike the capitalist-based economies of Western countries, the economies of the CEE countries can attempt, at least initially, to equalize wealth by redistributing the ownership of the means of production from the state to individuals. In Western countries, the ‘‘forced’’ redistribution of private property is in conflict with individual rights and civil liberties. However, in the CEE and other liberalizing economies, a broad distribution of the means of production may achieve greater equity of benefits. The transfer of public ownership to the private sector can be accomplished without the arguments associated in other countries with the forced redistribution of personal wealth. MODALITIES OF PRIVATIZATION Virtually all the CEE countries have adopted privatization as one of the main vehicles of the transition from a centrally planned to a market economy (Bohm & Kreacic, 1991). In its broadest sense, privatization includes a system of economic and legal reforms that set the foundation for the functioning of a market economy (Ernst & Young, 1994). In a narrower sense, it consists of the adoption and implementation of a system of policies and procedures for converting stateowned assets into privately owned assets. The policies relate to the way the new private enterprises will be formed out of the old state-owned enterprises, the way the new owners will be determined, and the method by which the transfer itself will be accomplished (Ernst & Young, 1994). With respect to how a new enterprise is to be formed, it may consist either of an old one in its entirety or it may result from the segmentation or consolidation of old ones. Options to determine new owners range from unrestricted

Table 3.1 Theories of Distributive Social Justice

42

43

44

Social Justice and Equality

competition to reservations and preferences for certain groups. Transfer methods range from auction to the highest bidder to issuing stock in the stock market to negotiations with private buyers (Ernst & Young, 1994; Vuylsteke, 1988). The combinations and permutations of these choices result in a bewildering array of models of privatization. However, the totality of these models can be grouped into four principal modalities: small-scale privatization, mass privatization, capital privatization (also known as case-by-case privatization, or privatization by private placement), and initial public offering (IPO). The first two modalities were developed primarily in the CEE countries to deal with the vast number of state-owned enterprises that had to be privatized and the need to achieve rapid privatization under conditions of limited or nonexistent indigenous capital. The latter two modalities are the principal methods used in all other countries to privatize state-owned enterprises, but they have also been used in the CEE countries, most of which have used the first three of the four principal modalities in some form or other. IPOs have been used infrequently and primarily in the more advanced Eastern European countries (the Czech Republic, Poland, and Hungary) because of the need for a sophisticated financial-market infrastructure. Table 3.2 compares privatization modalities graphically across economic and equity criteria. Small-Scale Privatization Small-scale privatization (International Finance Corporation, 1992) is the sale or transfer of small business units (like small factories; stores; restaurants; and other service establishments, such as barber shops, repair shops, and warehouses) and small assets (such as trucks and cranes) to individual owners, groups, or private companies. Although many of these businesses operated independently under state ownership, others were split off from larger state-owned enterprises or became freestanding assets from the liquidation or downsizing of state-owned enterprises. The principal method of transfer for small-scale privatization is the auction, in which former employees of the enterprises being privatized often receive preferential treatment in the bidding. When the government has issued privatization coupons or vouchers to citizens as part of a massprivatization program, these coupons and vouchers can usually be used in partial payment, thus lessening the need for capital. Small-scale privatization has been the most widely used method in the CEE countries, easily accounting for the vast majority of privatizations that have taken place. Although it has not received a lot of attention because of the relatively small importance of the assets involved, it nevertheless can be credited with rapidly introducing the market economy into most people’s day-to-day transactions and thus easing the way for the privatization of more important assets. Small-scale privatization has a number of economic advantages. It achieves privatization relatively quickly and, properly structured, allows for the broad

Table 3.2 Assessment of Privatization Modalities

46

Social Justice and Equality

distribution of property and the creation of a class of small entrepreneursowners. In most cases, the owners are the operators who provide full-time, committed management with the incentive to succeed and grow. Preliminary results of the Asian Development Bank’s (1994) Economic Report on Kazakhstan indicate that these small private enterprises are more responsive to market forces and provide better services than do the large enterprises (public or private). Also, consistent with findings in the West, they tend to create relatively more employment. The weakness of this privatization method is that the resulting companies are often undercapitalized to begin with and hence are unstable. Furthermore, the new owners frequently lack managerial and business expertise and thus have difficulty achieving and sustaining their companies’ profitability and growth. From the viewpoint of social justice, small-scale privatization scores high, allowing for the broad distribution of the means of production and economic opportunities for individuals who may not otherwise have a chance to be significant actors in the economy. This benefit may be illusory, however, since it may not lead to a long-term increase in the equitable distribution of wealth unless the new enterprises and the new entrepreneurs are given appropriate assistance by their governments and the donor community. Because of the uncertain future of many of the newly privatized small-scale enterprises, the long-term contribution to a socially just economy of small-scale privatization is less secure than it may appear to be at first. Mass Privatization Mass privatization is the generic name for a multiplicity of schemes whose principal characteristic is the broad distribution of the state’s equity in stateowned enterprises among the population of a country (McLindon, 1996). It is a uniquely post-Communist creation that was designed primarily to address the lack of capital among the population at large to acquire state-owned assets and the need to transfer ownership quickly and on a mass scale. Since the first such scheme was introduced in the Czech Republic, this method quickly spread to most other CEE countries, propelled by the political attractiveness of the concept, owing, in large measure, to its socially just character: State-owned assets belong to everyone, so it is only fair that they be distributed to everyone. In all the mass-privatization schemes, rights to ownership are distributed by privatization coupons or vouchers that are offered free or at a nominal price to all citizens (or all adult citizens). These coupons or vouchers (which may or may not be transferable to others, depending on the program) can be used to acquire shares in state-owned enterprises directly or through investment funds that were set up for the purpose of buying shares in state-owned enterprises. The introduction of investment funds as intermediary vehicles, which are presumably operated by financially knowledgeable individuals or companies, was designed to respond to criticisms that most ordinary citizens do not have the

Social Justice and Privatization

47

financial acumen to invest their vouchers wisely and, hence, that the whole concept might backfire owing to an outcry by legions of disappointed small investors. Since without proper regulation, private investment funds might turn out to be even more disappointing in the hands of unsophisticated or unscrupulous financiers, most governments impose a regulatory regime or, as in the case of Poland, closely control the investment funds. From the perspective of economic efficiency, the advantage of massprivatization schemes is that they quickly and transparently transfer assets from the state to the private sector. However, the resulting private enterprises may be transformed in name only (as occurred with many ‘‘privatized’’ enterprises in Russia, which retained their old managers and bad habits after mass privatization). At the worst, they may still be controlled by the same apparatchiks who were in control before but who now have a legitimate claim to that control in the name of the many small stockholders. Furthermore, since no new capital is available to the new private company, it may face a difficult period of survival in the new, tough, and highly competitive environment. At best, one or more competent investment funds acquire control of the privatized enterprise and provide managerial know-how and perhaps capital. Some countries, such as Poland and Kazakhstan, designed their programs to ensure that the investment funds exercise effective managerial control. An economic side benefit of mass privatization is that it creates a class of small stockholders, thus promoting economic sophistication among the population that should yield future benefits in terms of the development of the financial infrastructure. From the standpoint of social justice, mass privatization, when properly structured to avert the criticisms just cited, wins the prize for the most socially just transformation. No other method distributes the means of production as broadly or as equitably. And if the companies that are privatized in this way manage to survive and grow, mass privatization should also ensure a more equitable distribution of the resulting economic returns. However, the record is too incomplete to justify any predictions, and there are enough inherent risks to warrant at least some skepticism about the long-term equity benefits. Capital Privatization Capital privatization is the term used here as a collective rubric for the sale of state-owned enterprises to individual investors or companies through competitive bidding or negotiation of the terms of sale (Ernst & Young, 1994; Vuylsteke, 1988). Properly structured, this form of privatization allows a government to extract the best possible deal not only for itself, but for the longterm success of the privatized company by ensuring (as part of the process) that a well-qualified owner will take over the company and that the necessary resources (including investment in the new company) will be made available. From an economic perspective, this method of privatization can assure strong ownership and management, with capital, know-how, technological transfer, and

48

Social Justice and Equality

market access provided by the investor to maximize the chances of the company’s survival in a competitive environment. From a social justice viewpoint, this method tends to lead to concentration of the means of production and the perpetuation, if not the widening, of the gap between the haves and have-nots. It also has a higher potential for corruption and abuse. The main positive characteristic is that the companies so privatized have a more secure future and thus are more likely to contribute to the longterm creation of jobs and sustained economic benefits to their employees and communities through long-term growth. IPOs An IPO is the issuance of a stock in a stock market (Vuylsteke, 1988). As was mentioned earlier, IPOs have been of limited importance in the former Communist countries because of the lack of appropriate financial infrastructures (including stock markets, securities regulatory structures, and the adequate availability and flow of financial information). When possible, they tend to combine some of the advantages (and avoid some of the disadvantages) of mass and capital privatization. Although not as broadly or as freely distributive as the mass-privatization schemes, they nevertheless allow for the broad distribution of shares in an open and transparent way and the sufficient accumulation of equity stakes to exercise effective managerial control. Publicly traded companies also have easier access to the markets for capital than do mass-privatized companies. From a social justice perspective, they fall somewhere between massprivatized and capital-privatized enterprises. Other Methods Three other methods are worth mentioning here, although they are not widely implemented. Privatization by sale or transfer to the employees has occurred in some countries (Organization for Economic Co-operation and Development, 1994). Such privatizations are obviously higher on the social justice scale but suffer from the same disadvantages as small-scale privatizations, compounded by a more diffuse managerial structure and conflicts of interest among the shareholders. Employee stock-ownership plans (ESOPs) have been moderately successful in the United States and certain other Western countries, but their success is largely attributable to the tax advantages they confer (which clouds both their economic efficiency and their equity). Management buyouts (OECD, 1994) have been allowed in some countries but have not been popular because they are perceived as perpetuating the rule by the nomenclature without the benefits of privatized capital (especially when the buyout is on a leveraged basis). Finally, some countries (such as Bulgaria, Hungary, and Slovenia) have practiced partial or total restitution (restoring ownership or providing compensation to pre-Communist owners or their descen-

Social Justice and Privatization

49

dants). This libertarian type of privatization has met with a mixture of approbation and opprobrium. When it has been successful, it has had positive economic results, but, predictably, it has led to accusations of social inequity. CONCLUSION The discussion in the preceding sections (summarized in Table 3.1) shows that no privatization method scores high on both the economic and social justice scales. It is perhaps not surprising that those methods that score high on the economic scale tend to score low on the social justice scale, and vice versa. This situation justifies the approach taken by most countries of using a variety of different methods, tailoring each privatization to the individual circumstances of each enterprise, or even combining several methods in the same privatization (for instance, the Czech Republic’s combining of mass privatization and capital privatization for many enterprises). Another important conclusion is that economic success and social justice in privatization are more closely intertwined than one may think. For example, the long-term social justice benefit of small-scale and mass privatization depends directly on the economic success of the enterprises that are privatized. Conversely, the more economically successful privatization methods (such as capital privatization), as well as economic reform in general, can be carried out only within the limits of the tolerance of the population at large. These limits depend directly on the level of social well-being that the public (and the communities affected by privatization) feel. Although a good social safety net (missing in most transforming economies) can be helpful, it cannot replace the social wellbeing felt when the total economic benefits are sufficiently large and sufficiently shared by all. This well-being, of course, can be achieved only through longterm, sustained economic growth and development. REFERENCES Asian Development Bank. (1994). Report on Kazakhstan. Washington, DC: Author. Bohm, A., & Kreacic, V. G. (Eds.). (1991). Privatization in Eastern Europe: Current implementation issues. Ljubljana, Yugoslavia: International Center for Public Enterprises in Developing Countries. Davidow, M. (1992, April). Socialism would strengthen the republics’ economies. Political Affairs, pp. 162–167. Ernst & Young. (1994). Privatization: Investing in state-owned enterprises around the world. New York: John Wiley & Sons. Etzioni, A. (1993). The spirit of community. New York: Crown. European Bank for Reconstruction and Development. (1994). Transition report. London: Author. European Bank for Reconstruction and Development. (1995). Transition report. London: Author. Ferguson, C. E. (1969). Microeconomic theory. Homewood, IL: Richard D. Irwin.

50

Social Justice and Equality

Iatridis, D. (1994). Social policy: Institutional context of social development and human services. Pacific Grove, CA: Brooks/Cole. International Finance Corporation. (1992). Small-scale privatization in Russia: The Nizhny Novgorod model. Washington, DC: Author. Lebacqz, K. (1986). Six theories of justice: Perspectives from philosophical and theological ethics. Minneapolis: Augsburg. McLindon, M. (1996). Privatization and capital markets. Westport, CT: Praeger. Organization for Economic Co-operation and Development. (1994). Trends and policies in privatization (Vol. 1, No. 3). Paris: Author. Pilon, J. G. (1990, March). Eastern Europe should adopt capitalism. Reason, pp. 110– 116. Rawls, J. (1983). A contractarian theory of justice. In T. L. Beauchamp & T. P. Pinkard (Eds.), Ethics and public policy (pp. 148–171). Englewood Cliffs, NJ: PrenticeHall. Savas, E. S. (1987). Privatization: The key to better government. Chatham, NJ: Chatham House. Solomon, R. C. (1990). A passion for justice. Reading, MA: Addison-Wesley. Vickers, J., & Yarrow, G. (1995). Privatization: An economic analysis. Cambridge, MA: MIT Press. Vuylsteke, C. (1988). Techniques of privatization of state-owned enterprises. Vol 1: Methods and Implementation (World Bank Technical Paper No. 88). Washington, DC: International Bank for Reconstruction and Development. Winkler, K. J. (1993, April 21). The driving force of ‘‘communitarianism’’ seeks the middle ground between ‘‘I’’ and ‘‘we.’’ Chronicle of Higher Education, p. A12. Winkler, K. J. (1994, June 11). The Left’s new start. The Economist, pp. 11–12.

Chapter 4

The Social Toll of Unemployment: A Call for Evaluation and Prevention MARCIA GREENBERG

While the political and economic reforms of the last four years have generated many fundamental improvements, it is evident that early hopes for a rapid move to prosperity have dissipated, that the process of transition will take much longer than anticipated, and that considerable social costs have been and will be incurred. —UNICEF, 1993

Since the fall of the Berlin Wall, there has been little dissent about the need for centrally controlled economies to develop into free markets. Toward that end, the governments of most Central and Eastern European (CEE) countries in transition agree in principle that they must privatize government-owned-andoperated businesses, banks, and industries. Yet the methods, pace, and success of privatization have varied, ranging from Polish shock therapy and Czech coupon privatization to foot-dragging in Bulgaria and political changes in Slovakia. When experts are asked to assess an economy’s privatization, most focus on one of two topics: technical measures of how much or which parts of state industries have thus far been privatized, or efficacy issues of whether privatization has been accompanied by corporate governance that has been duly engaged in restructuring and increasing productivity (‘‘Banking Survey,’’ 1996). This chapter addresses a less common basis for evaluation: the extent to which privatization and restructuring have caused unemployment that threatens certain populations with permanent marginalization and poverty. Early in the transition process, many experts admitted that economic transformation would cause substantial dislocation and discomfort. Yet combined doses of denial and wishful thinking nurtured hopes that although the transition

52

Social Justice and Equality

period would be rough, people would weather the temporary problems to achieve widespread prosperity. However, the hardships have tended to fall disproportionately on certain sectors of society—particularly those without jobs. For a substantial portion of this population, conditions are more chronic than temporary. Prospects for the employed and unemployed increasingly correlate with the growing gap between the rich and the poor and between those who are happily moving up the economic ladder and those who are sinking into despair. Thus, this chapter rests on two premises: First, rather than lead to relatively innocuous and temporary sorts of unemployment, such as frictional or structural unemployment, privatization has created a growing pool of long-term or chronically unemployed workers. Second, entrenched unemployment is leading to further socioeconomic consequences, including alcoholism, drug abuse, domestic violence, prostitution, homelessness, and criminality. The author’s concern for the long-term unemployed in the CEE countries dates back to 1992, when the European Studies Center of the Institute for EastWest Studies launched the Working Group on Unemployment (hereafter, the Working Group), composed of economists, sociologists, and representatives of the Ministries of Labor of Czechoslovakia, Hungary, and Poland. From the outset, the Working Group’s experts postulated that the pain of unemployment in their countries would reach beyond the transitional problems of individuals and groups of workers who were changing jobs or industries. They noted early indications that while some people were losing their jobs, suffering some temporary discomfort, and then moving back into the workforce, others seemed to flow out of the workforce and get stuck. At the same time, the Central Europeans were anxiously watching the levels and duration of long-term unemployment rise in Western Europe. The Working Group chose to focus its study on the plight of these long-term unemployed persons, including the circumstances that might keep some people out of the workforce, a search for effective programs to prevent or end longterm unemployment, and recommendations for their governments. The study’s results were reported in Greenberg and Heintz (1994). Although this chapter draws on that study, it goes one step further. The study shifted attention from the macroeconomic indicators of unemployment to the human aspects of long-term unemployment. Yet Eke (1994) noted that although statistics that show an increase in the number and rate of unemployed persons in Hungary are significant, ‘‘they reveal very little about the plight of people behind them’’ (Eke 1994, p. 1). This chapter focuses on that plight by suggesting that for some, privatization and restructuring trigger three stages of socioeconomic loss: from gainful employment and social integration to unemployment, from the uncertainty and disorientation of unemployment to long-term unemployment, and from the financial crises and stress of long-term unemployment to poverty and marginalization. The first section discusses the first phase—the relationship between privatization and unemployment. The second section describes the long-term unem-

The Social Toll of Unemployment

53

ployed—those whom social and economic barriers exclude from the workforce. The third posits the probable financial, psychological, and social consequences of long-term unemployment. The final section suggests that while it is understandable that macroeconomic issues and crisis management have demanded the region’s attention and resources, there must be no further delay in allocating resources to stem the social tolls of economic transition. Furthermore, because foreign donors are withdrawing critical resources before local sources are prepared to carry on, there is a risk of reduced responses. Thus, unless foreign donors slow their withdrawal while governments increase their commitment, the losers in the transition will suffer permanent damage.

DYNAMICS OF UNEMPLOYMENT IN CEE COUNTRIES Before one considers the plight of the unemployed, one must understand the process that is eliminating the jobs. The process stems from assumptions about how to achieve economic prosperity: that a prosperous economy must trade; that trade requires competitive products; that competitive quality and prices depend on efficient production; and that productive industries must eliminate excess and costly inputs, the major one being redundant labor.1 Privatization is supposed to catalyze the drive to competitive efficiency by holding managers accountable to profit-motivated owners (Brada, 1993). In the early years of the transition, governments and managers tried to follow that canon. They closed obsolete facilities and shed redundant labor. Yet the consequences were soon apparent: Whenever restructuring proceeded apace, unemployment quickly rose to painful levels. By the end of 1992, unemployment was reported to have already reached 17 percent in Bulgaria, 13.6 percent in Poland, 13.5 percent in the New Lander of Germany, 11.4 percent in Slovakia, 10.7 percent in Hungary, and 9.1 percent in Romania (Greenberg & Heintz, 1994). But worse was yet to come. By the third quarter of 1994, unemployment stood at around 16.6 percent in Poland and 14.4 percent in Slovakia. Moreover, behind the national averages, unemployment in local areas was as high as 20 to 25 percent. Therefore, it was not surprising that the initial rush to privatize slowed or that privatization continued but without shedding labor. This trend caused the growing realization that corporate governance and accountability, more than ownership, determine policies on layoffs. Regardless of whether control is exercised by new owners or the state, only managers who are responsible for ensuring that revenues exceed expenses feel compelled to deal with redundant labor. Once managers must balance their books, payrolls are one of the first inefficiencies they address. Yet many managers try to avoid layoffs because it is difficult to lay off their longtime friends, colleagues, and neighbors, especially since new opportunities have developed so slowly in recent years. Lacking the political will, managers frequently look for ways to forestall the inevitable, including the

54

Social Justice and Equality

accumulation of mounting debts to the state, banks, creditors, or employees themselves. In some cases, however, plants were either so inefficient or manufactured such inferior products that they had to close down. Those that were located far from an effective infrastructure or whose antiquated machinery precluded competitive production could survive only with heavy subsidies. Once governments could no longer maintain such subsidies, managers were forced to close up shop and send their workers home. Still, governments, from the Czech Republic to Bulgaria and Russia, have recognized the political and human implications of mass layoffs and have finagled means to postpone the inevitable. Sometimes people retain both their jobs and wages; at other times they remain employed but accept promises that they will be paid later. While economists deplore these tactics, managers and politicians use them to keep a large number of workers on the job, off public assistance or pensions and out of trouble, and to bide their time until new, private employers have the capacity to absorb the excess labor. Meanwhile, despite the hope that unemployment rates of 10 to 12 percent would be a necessary but temporary evil, three problems emerged. First, when there was genuine restructuring, unemployment rates soared, frequently reaching 15 to 20 percent nationally and 20 to 30 percent in depressed regions. From the governments’ perspective, such unemployment has posed serious political and fiscal problems. The CEE governments must work within severe budgetary constraints because, among other reasons, revenues are weakened by ineffective tax-collection procedures and dynamic informal markets and transition costs include expenditures to build and repair systems that have long been neglected, such as the transportation and communications infrastructures, and environmental cleanup (UNICEF, 1993). Moreover, after a brief honeymoon, embittered constituencies became more and more difficult to please. In the initial euphoria of transition, people had high expectations; they assumed that the pain of transition would be either temporary or someone else’s problem. Those whose lives have gotten worse tend to blame the current governments rather than the former governments that caused the problems in the first place (Ford, 1995).2 Second, it is difficult to bring down unemployment rates quickly because to counteract the closure of one large, unproductive state-owned company in which thousands of workers are released, it takes hundreds of small and medium-sized enterprises to create enough new jobs (‘‘Plock, Poland,’’ 1994; ‘‘Unemployed Slovaks,’’ 1994). In many CEE countries, it will be years before the demand for labor can match the current supply. Moreover, job creation is hampered by the inadequate infrastructure, lack of distribution networks, loss of trading partners, and inexperience with marketing and exports. Third, even if unemployment rates were to fall to ‘‘normal’’ levels of 7 to 8 percent, those rates still represent many individuals and families who are at risk. No matter how high or low unemployment rates may be, the important factor for assessing the social impact of unemployment is how long an individual is unemployed (Nagy, Sik, & Tardos, 1993). For example, 15 percent unemploy-

The Social Toll of Unemployment

55

ment would not be so bad if all workers rotated in and out of the workforce. Then everyone would live with hope, share the pain, and remain socially integrated. In the CEE countries, however, a portion of the workers find themselves locked out of the workforce, and their lives are shattered. These long-term or chronically unemployed workers constitute the population that is the most severely at risk. Moreover, these unemployed workers are at greater risk than their counterparts in the West for two reasons. First, there are major differences in the experience and expectations of the unemployed. For example, people in the CEE countries are not accustomed to ‘‘hustling’’—to marketing themselves and competing in the labor market—and to taking responsibility for their economic wellbeing. Although some of the unemployed in the West may exhibit similar characteristics, in the CEE countries, these handicaps were officially and systematically encouraged, cultivated, and imposed for four decades (‘‘Unemployed Slovaks,’’ 1994). Second, the institutional and societal supports are weak. Not only is the number of newly unemployed persons massive, but because unemployment hardly existed from World War II to the beginning of the transition, no system or culture was in place to help them (Sirovatka & Reznicek, 1994). Established only in 1989–1990, formal institutions and systems lack experienced staff and sufficient resources.3 Moreover, whereas nongovernmental organizations (NGOs) in the West provide some of the most effective services, such organizations either do not yet exist or were only recently established and are struggling in the CEE countries. PROFILES OF THE LONG-TERM UNEMPLOYED This section focuses on the long-term chronically or repeatedly unemployed, as well as those who eventually drop out of the workforce entirely, rather than the unemployed in general, because the unemployed in general include many persons who endure only short-term discomfort before they move on to new jobs. Those who are proving to be the most vulnerable to long-term unemployment in the transition are women, new school leavers without work experience, the Roma (gypsies), and unskilled workers like farmers and older workers (Potucek, 1993). Three factors account for a worker’s chances of staying in or reentering the workforce: (1) perceived productivity, (2) subjective decisions and discrimination, and (3) isolation. When assigning pink slips or choosing new hires, managers are looking for good, reliable, industrious workers. They assume that workers who are inexperienced, older, disabled, or women will not meet that standard. In terms of skills, unskilled farmers, young people without work experience, and older workers with obsolete skills may actually be less productive than others. It should be remembered, however, that because entire plants and sectors have to become globally competitive, there is a pervasive need for new work habits, on-

56

Social Justice and Equality

the-job training, and new production processes. But employers expect that workers with lower education or fewer vocational skills, veterans of agricultural cooperatives, and older workers will have difficulty changing their work habits and learning new skills. When it is necessary to retrain a workforce for new machinery and procedures, it is assumed that older workers will be less flexible and trainable than will younger workers.4 According to a study commissioned by the Polish Center for the Advancement of Women (CAW), state-owned enterprises were discharging workers ‘‘either regardless of age or people over the age of 45’’ (Institute for Opinion and Market Research, 1993). The productivity factor applies differently to women and the disabled. Faced with a surplus of labor, employers are at liberty to eliminate any workers for whom they may need to make special allowances. Thus, they prefer not to retain or hire workers who may need special attention, who may not stay with the company for long, or from whom they expect problems. Thus, they may avoid employees who have difficulty getting to work regularly or need time for doctors’ visits or to care for children or elderly relatives. To identify such cases, employers tend to ask women additional questions about their family situations and personal statuses in job interviews (IOMR, 1993). They expect former coal or uranium miners to be less reliable because they often suffer from job-related health problems. Frequently, however, purported concerns about productivity simply mask biases and discrimination. The managers who decide which workers to lay off first have usually lived in the community and know their workers as neighbors. Therefore, when they are at liberty to exercise discretion, they try to protect their friends and eliminate those they do not like. For example, claiming that they are considering family status, managers tend to keep men who support families and to lay off women whom they expect to stay at home and be supported by their husbands.5 When hiring, employers are both discriminating and discriminatory, hiring those whom they like and trust first. This situation leads to easy and frequent discrimination against the disabled, women who are responsible for children or elderly relatives, older workers, and minorities (Center for the Advancement of Women, 1996; Eke, 1994; IOMR, 1993). Discrimination against women also takes into account how attractive they are, and age discrimination seems to apply to job seekers over age 40 (Eke, 1994; IOMR, 1993). The most sensitive and widespread job discrimination is against the Roma. Feared and openly scorned, the Roma have few opportunities to keep or obtain jobs (Burke, 1995; Homola, 1993). Without laws and enforcement mechanisms—and there is currently a climate of little or no regulation—these unemployed workers will be the last to move back into the workforce (Kamm, 1993). There is also a growing bias in the CEE countries against job applicants who are unemployed (Eke, 1994). Even when a community is remote and unemployment is near 20 percent, employers are quick to conclude that workers are unemployed for a reason (Greenberg & Heintz, 1994; ‘‘Unemployed Slovaks,’’

The Social Toll of Unemployment

57

1994). As time passes, those who have had the misfortune to lose their jobs and have not found new ones quickly are increasingly at risk. Thus, the third factor for long-term unemployment is related to a worker’s ability to get a new job. Many of the long-term unemployed are handicapped by isolation (‘‘Unemployed Slovaks,’’ 1994). Workers in communities that are far from the infrastructure and metropolitan areas are particularly hampered by their geographic locations. In Poland, for example, unemployment is about 5 percent in Warsaw but nearly 27 percent in the northern city of Slupsk (CAW, 1996). Unskilled workers in cities are better off than rural farmers in two ways: They have greater access to training, and there is a greater demand for labor. In the Czech Republic, for example, with an extraordinarily low national rate of unemployment, unskilled workers in cities may find unskilled jobs, jobs with training, or training programs; the unskilled in the microregions of Bruntal or Breclav, however, are stuck. Recognizing this phenomenon and not wanting to see their communities collapse as all able-bodied residents migrate to the cities, the local authorities and labor offices are struggling to encourage investment and job creation. Yet both investment and job creation take time, skill, and some luck; in the meantime, the local unemployed must combat rising anger and despair. Others are at a disadvantage because of informational isolation from the needs and practices of the new labor market. In the new system, employers are most likely to hire applicants who present themselves well: those who are dressed well, articulate their interests and skills well, and project a sense that they are conscientious and hardworking (IOMR, 1993). Yet presenting oneself well requires knowledge of or skills in how to market oneself, which the unemployed often lack. The discouraged unemployed, especially those who do not live in cities, lose the benefits of social contacts and networks (Tardos, 1996); they usually do not have access to networks, information, training, and support. For this reason, several Czech programs prepare women for the workforce whose maternity leave coincided with years of dramatic changes in workplace practices and expectations, and job clubs focus group assistance on providing information about the job market and gaining job-searching skills (CAW, 1996; Greenberg, 1996).

CONSEQUENCES OF PROLONGED UNEMPLOYMENT Financial The most obvious immediate consequences of prolonged unemployment are financial. Many families have been impoverished since 1989. In Poland, the population with 45 percent or less of the 1989 average wage rose from 20.5 percent in 1989 to 42.5 percent in 1992. In Romania, the percentage of households below that level rose from 27.3 percent to 51.1 percent. Even in the success story of Central Europe, the Czech Republic, the number of households

58

Social Justice and Equality

with 35 percent or less of the 1989 average wage increased from 5.7 percent to 18.2 percent between 1989 and 1992. Having lost their wage incomes, the unemployed rely on several other sources: income from activities in the informal sector (some more illegal than others); home production, such as kitchen gardens, canning, and carpentry; barter with neighbors; savings; and help from relatives (Sirovatka & Reznicek, 1994). In addition, two sorts of governmental support payments are commonly available: (1) unemployment benefits, which are pegged either to average wages or to the unemployed workers’ former wages, but last only 6 to 18 months, depending on the country, and (2) social welfare payments, which are means tested (Greenberg, 1994).6 Admittedly, these payments have both positive and negative aspects. For workers at the lower end of the pay scale, they may be disincentives for finding work (Eke, 1994; Sirovatka & Reznicek, 1994). However, because of inflation and fiscal pressures on governments, governmental payments are often insufficient to cover a single person’s or a family’s needs (Tardos, 1996). Furthermore, nearly everywhere the criteria for receiving benefits are becoming more stringent, durations are shorter, and levels are lower. Emotional Beyond the financial consequences, unemployment has emotional ramifications. Some psychological impacts vary according to age. Older workers. At first, older workers who qualified for early retirement seemed to enjoy easy solutions. But early retirement can be stressful; some people are simply not ready to retire and miss the activity, and others miss the social aspects of employment. In addition, those who were not prepared for inflation to erode the value of their retirement payments are among the pensioners now facing impoverishment (Federal Broadcasting Information Service, 1994; ‘‘Old Folk in Slovakia,’’ 1994). Prime-age workers. Unemployment has also been stressful for prime-age workers who lost jobs at coal mines or with large companies like Videoton in Hungary, where they worked their whole lives. After working 15 or even 30 years at the same state-run enterprises, their sense of identity and self-worth is inextricably intertwined with their jobs. They have derived their sense of productivity, usefulness, and community from their work. Thus, men feel that their role as providers has been threatened and that their futures have been undermined (Sirovatka & Reznicek, 1994). Faced suddenly with looking for work for the first time in their lives, people do not know where or how to look. If they cannot do the same jobs that they are accustomed to doing, many do not know what else to do. Since they have rarely given any thought to what they like to do or do well, having to think this way can be daunting and frightening. Of course, much of their experience parallels that in the West. But the situation is different because the job market in a CEE country is newly competitive and unfamiliar for an entire society. Al-

The Social Toll of Unemployment

59

though people left their jobs in the past, they rarely left one job until they had found another, and although they might have moved from one employer to another, they tended to remain in the same industry. Now, however, whole industries are dying. Coming from sectors that frequently froze in the 1950s and 1960s, workers who considered themselves skilled and experienced find that they are unprepared for modern production. Suddenly, their jobs are being eliminated across the board, domestic producers are not globally competitive, and the workers’ skills are not valued. Bewildered by such changes, they find that friends, family members, and staffs of employment offices rarely have personal experience with which to understand, empathize, or counsel them. Moreover, if they finally find available positions, they are often humiliated by the wages. Miners, for example, earned high wages because they worked under unhealthy and unsafe working conditions and were responsible for strategically important sources of energy and exports. Or in many large plants, unions cooperated with managers and exercised political clout to increase wages. When these workers are now offered lower pay and respect, they feel a ‘‘substantial loss of social prestige’’ (Sirovatka & Reznicek, 1994). Young workers. Meanwhile, although the young enjoy the advantages of freedom and flexibility, they face other issues. For new school leavers, especially young men, it is psychologically difficult to leave the support of school only to find that no jobs are available. They wonder what to do each morning and worry about impressing their friends. The most unfortunate are recent graduates who are still products of the old system. Typically, they had little guidance or choice regarding their specialization in school and what they might like or want to do and are now saddled with fresh but obsolete skills (‘‘Unemployed Slovaks,’’ 1994). What often hits these unemployed young people the hardest is that their lack of employment prevents them from thinking about marrying and having children. For example, a young Hungarian engineer found that foreign companies were unimpressed by his qualifications. In the meantime, he had a girlfriend but thought that he lacked the money to get married; to support children; or, he said, to pay for contraception. Without education or jobs, the possibilities of starting a family are limited. From 1980 to 1993, the crude marriage rate fell from 7.9 percent to 4.6 percent in Bulgaria, from 7.5 percent to 4.4 percent in Hungary, from 8.6 percent to 5.2 percent in Poland, and from 10.6 percent to 6.8 percent in Russia (UNICEF, 1993). For young men who have completed their education and want to start families, their inability to find jobs blocks their future in many different ways. Women. For women, the stresses of unemployment are different. The message about their role in society is new and confusing in several ways. First, the removal of the egalitarian slogans and practices of a socialist society has shaken old expectations. Second, the revival of religion has enabled the church to preach a traditional, family-based role for women. In Poland, women’s situation is

60

Social Justice and Equality

growing worse each year (CAW, 1996). Third, travel and telecommunications are exposing them to more open and diverse discussions of women’s role in society. At the same time, employers are now free to select employees at will. In Poland, job announcements clearly state preferences for young, attractive women; in the Ukraine, female job applicants are to be ‘‘without complexes,’’ which means that they do not object to sleeping with their bosses. Although women’s self-esteem and identity may be as linked to their employment as that of men, it is humiliating, confusing, and a further blow to their self-esteem when their rejection is based on gender, age, or physical appearance. Some women also face severe financial consequences. Not all women have husbands to support them, and some support children. Although female applicants may need the wages of employment as badly as do male applicants, prospective employers do not see them that way. Women may dispel such assumptions by explaining their circumstances, but they are trapped: The same facts that combat the bias toward hiring breadwinners may feed employers’ other bias about family duties competing for workers’ time and energy.7 Finally, women who want to work outside the home are under a great deal of strain because the workplace has become more competitive and keeping one’s job requires working longer, harder hours. Although women have had primary responsibility for caring for their husbands and children and doing household chores all along, the relatively light workloads of the past allowed them the time (and energy) to shop, clean, and cook. Now it is difficult to work longer and harder in the workplace and keep up with household tasks (Sirovatka & Reznicek, 1994). Communities. Aside from individuals who are at risk, whole communities that are isolated and remote are feeling the consequences of prolonged unemployment. When there are few local job opportunities, families must decide whether to move. But housing is a problem because they often have good, cheap housing in their villages, whereas housing in areas where there are jobs is scarce and expensive. Frequently, the only real option is for one adult to leave his or her home and family to work elsewhere. Although the migration of young, single workers may not break up families, these young people still must leave families and communities from which they have drawn strength and support to new places, primarily big cities, where they are alone. Housing is still an issue. If they can rely on friends or family members, the time needed to find jobs or housing may cause them to exceed their welcome; others are completely on their own. Meanwhile, from the perspective of those who remain behind, children may be left without one or both parents, and one parent may be raising the children alone. At the same time, the villages are threatened with economic depression. When families are unable to pay for local products and services, then local businesses fail. Public services also decline as municipal coffers suffer from lower tax receipts.8

The Social Toll of Unemployment

61

Finally, while unemployment is nearly always stressful, it grows worse over time. When the unemployed do not know exactly what they are capable of doing or want to do, they find the process disorienting and demoralizing. Others find it hard to organize themselves and to muster the courage to knock on doors, make telephone calls, and attend interviews. Furthermore, after repeated rejections—over the course of months, if not years—it seems more and more impossible to reenter the workforce. Again, while such trends resemble those in the West, they are compounded by their novelty in the CEE countries. Indirect Consequences Beyond such direct results of unemployment, there is a vast and unknown range of indirect consequences. If extended unemployment causes stress and anxiety, demoralizes and demotivates, lowers self-esteem and self-confidence, marginalizes, and financially undermines a large number of workers in the CEE countries, it must be taking additional tolls.9 It is the rare and lucky individual who, with strong family and community support, is able to respond with strength, confidence, and resilience. For many, a number of destructive responses are laying the foundations for the long-term legacies of unemployment. For example, although alcoholism has been a long-standing problem in Eastern Europe and Russia, there has been a ‘‘sharp increase’’ in the sale and consumption of alcohol in recent years (UNICEF, 1993). While the corner pub has typically been a source of camaraderie and social support for men in the CEE countries, some of those who now face the empty hours and emotional stress of unemployment are in danger of increased alcoholism. Moreover, criminality has escalated throughout the region. As a UNICEF (1993) report concluded, ‘‘Most of this increase in crimes against property is motivated by material gain and can, to a considerable extent, be related to the deteriorating employment and income situation, to the perception of growing income differentials among social groups and to the diffusion of alcohol consumption’’ (UNICEF 1993, p. 44). Although organized crime is certainly behind much of these crimes, desperate or marginalized unemployed workers are more open to engaging in such activities. For young people, the consequences of long-term unemployment are intergenerational because their families’ immediate financial concerns may undermine their educational and vocational prospects. UNICEF (1993) attributed the drop in enrollment in secondary schools to three factors: families’ inability to pay for the growing costs of education; the opportunity cost of a child’s time in school in families in which ‘‘the child or adolescent can be easily employed, including farm families and families with small businesses’’; and ‘‘soaring unemployment among school leavers . . . [which means] a considerable ‘loss of relevance’ of the school system, particularly for those branches providing industrial or vocational training’’ (UNICEF 1993, p. 45). Then what do young people with no apparent future do? Again, there is

62

Social Justice and Equality

alcohol—and for others, drugs. Drug abuse is rising rapidly in the CEE countries. And although panhandling and homelessness are not yet as extensive in these countries as in the West, they have certainly increased in the past several years. Finally, one of the most terrible, heart-rending developments that is already painfully noticeable in all the large cities of CEE, as well as along several major highways, is prostitution (International Organization for Migration, 1995). In some cases, women who need jobs think they are going to other countries to work as nannies or dancers. After handing over their passports and leaving their home countries, they find themselves forced into prostitution and unable to escape. In other cases, they may knowingly engage in prostitution, lured by the prospects of earning as much in one night as they might otherwise earn in several months. ‘‘Naively, the Poles—laid off from regular jobs and trying to support families—hope to cash in quickly and return home in a few months’’ (‘‘The Skin Trade,’’ 1993, p. 28). Although it is reasonable to anticipate such consequences of unemployment, unfortunately, there has not yet been much research about them. According to Sirovatka and Reznicek (1994), ‘‘the most relevant experiences from the West suggest that prolonged joblessness is closely associated with personal and social decline, psychological and physical problems, and a wide variety of potential and actual difficulties that may eventually result in . . . maladaptive coping strategies among the long-term unemployed’’ (p. 3). But while the decline and problems are noticeable on the streets, little is known about what is occurring in the privacy of peoples’ homes—that is, how the stress of unemployment may be fueling destructive behavior such as domestic violence and other types of abuse.

A CALL FOR SUSTAINED SUPPORT The economic transition was bound to have its winners and losers. In fact, because the free markets of capitalism compensate workers according to their productivity and reward entrepreneurs for their initiative and risk taking, there should be differentiation. Yet too many people are losing through no fault of their own. Some are losing because the system excludes them or because they are not given a fair chance. At the same time, others are ‘‘cleaning up’’ because they were able to start with special advantages—such as money secreted away (lawfully or not) and foreign connections—or because they exploit corruption (Moffett, 1995). In many ways, playing the economic game in the CEE countries in transition is like playing Monopoly. When some players start with five times more cash and with key properties on each side of the board, those who have minimal stakes begin to lose quickly. What is worse, some players make the rules work to their advantage while others play fair. Similarly, when workers struggle to play by the new free-market rules but are rejected and become dejected, they begin to drop out of the economic game. Even when the system properly rewards the industrious and enterprising, it

The Social Toll of Unemployment

63

need not leave those who are unfamiliar with the rules of the game to fail. But to prevent the weak from falling through the bottom, it is imperative that these societies strengthen them immediately. Although governmental officials agree in principle, they frequently excuse themselves by stating that their governments do not have the financial resources. Actually, having committed themselves to new unemployment benefits, expanded pension payments through early retirement programs, and the continuation of means-tested supports, most governments face terrible fiscal crises. In 1992, the income support payments and active employment measures in Poland, Hungary, and the New Lander represented 7.8 percent, 8.6 percent, and 10.5 percent of their national budgets, respectively (Greenberg, 1994). That year, pensions in Poland and Hungary required 14.7 percent and 11.6 percent, respectively, of the countries’ gross domestic product (UNICEF, 1993). Thus, it is not surprising that governmental officials are under pressure to cut funding for social programs and to push the responsibility for such programs onto the private sector. The privatization process extends beyond business and industry to social services (Potucek, 1993). In some cases, the privatization of industry implicates social services directly. In Russia, for example, state-owned companies frequently provided not only jobs, but day care, health care, and other social services. When such plants closed, the services ended as well. In other cases, ministries of health or the interior have simply eliminated funding for social services on fiscal and philosophical grounds. Yet, if governments will not support good employment services and social services, where is the private sector to find the requisite resources? Although there is a growing need for public service entrepreneurs, these entrepreneurs lack financial sources. If they were in the United States, they would have access to both governmental and philanthropic funding, and in Europe, the social welfare state would play a major role. But without such support in the CEE countries, social service providers must function as entrepreneurs. Unlike their profit-making counterparts, however, public service entrepreneurs cannot obtain start-up capital and know-how from banks. The day of reckoning has not yet arrived because thus far programs that help at-risk populations, such as the unemployed, drug addicts, and the disabled, have been able to rely on two sources—yet-to-be-cut governmental support and foreign aid. In the earliest years of the transition, major American foundations, including the Ford Foundation, the Rockefeller Brothers Foundation, the Open Society Fund, and the Charles Stewart Mott Foundation, provided critical support to new nongovernmental organizations (NGOs). Bilateral donors have also been instrumental in giving technical assistance. While foreign assistance has been able to support only a select group of organizations, it has made a tremendous contribution. Yet those sources are now problematic for two reasons: They cannot support these NGOs indefinitely, and NGOs are proliferating. Anticipating such limits to their support, foreign donors have shifted from direct support to fostering self-sustainable institutions. Their efforts have ranged from technical assistance

64

Social Justice and Equality

and funding for projects by the U.S. Agency for International Development’s (AID’s) Democracy Network in Poland to efforts by the specially formed Donors’ Forum in Prague to encourage greater corporate giving.10 Although such approaches are exemplary, two intractable problems remain: First, just as a wellcrafted re´sume´ and polished interviewing skills are useless when there are no job vacancies, solid proposals for projects and fund-raising skills assume that funds are available. Second, learning will take time on both sides—as the NGOs learn how to ask and as corporate and individual donors develop the necessary capital and culture.11 In the meantime, however, American foundations are shifting their support from Eastern Europe to Central Asia and Russia.12 One rationale for decreasing American funding is that the European Union (EU) has a closer and more immediate interest in helping its near neighbors and future members. However, most service providers in nonmember countries cannot gain access to the EU’s Structural Funds. Although there are special programs, such as PHARE, TACIS, and Cross Border Cooperation, many cannot meet the requirements for cofunding and partnering with EU-based organizations. Thus, at just this critical time, when unemployed populations are most at risk, there is a dangerous gap between resources and the financial needs of nonprofit public service initiatives. Therefore, the region’s governments must either address the social impact of privatization directly with their own programs or indirectly by supporting nongovernmental programs. Although it is difficult to set aside such resources, it will be more cost-effective to deal with these issues early, in a preventive manner, than later. The first step is for governments to recognize these needs—which would be encouraged if groups of unemployed persons and supporting organizations would raise the governments’ awareness of populations who are at risk.13 Another step is for national governments and municipalities and independent community groups to work as partners. After decades of centralization, this is truly a challenge. Yet one program in the Czech Republic anticipated this problem and has had remarkable success in overcoming it. Through the PALMIF program, the EU gave the Ministry of Labor funds with which to finance employment-related projects at the local level. The ministry had to establish a selection committee and clear procedures by which to choose the most innovative, effective, and critical projects. PALMIF has directed funds to projects that help young mothers and school dropouts reenter the workforce, develop private training centers, and offer specialized on-the-job training.14 Moreover, it has demonstrated that it is more cost-effective to target limited funds. The ministry now bases some funding allocations on project proposals rather than on population or unemployment rates.15 Of course, the Czech Republic’s extraordinarily low unemployment rates have enabled it to focus on prevention while other CEE countries react to crises. But when these governments respond to immediate macroeconomic exigencies and there is little, if any, ‘‘third sector’’ to respond to the social pain of the transition,

The Social Toll of Unemployment

65

the social consequences of unemployment in CEE promise costly long-term legacies. At the least, these governments should shift some funds that are generally spread around to governmental offices to targeted groups or organizations that have well-designed programs to respond to local problems.16 Meanwhile, the West should continue to support two types of related technical assistance and training. First, whereas most labor offices focus on job matching or general skills training, unemployed workers need high-quality counseling services. After 40 years of a system that encouraged social workers to ‘‘institutionalize, medicalize or bureaucratize,’’ counselors need training to work in labor offices, lead job clubs, or run clinics (Greenberg & Heintz, 1994). Although many know that the unemployed whom they serve need more than just jobs or that they will not find or keep suitable employment until they resolve other issues, these counselors yearn for the tools with which to support their clients more effectively. Second, because the pain of unemployment is new in these societies, there must be greater public awareness and education. People who do not directly address unemployment must understand its impact and how it relates to other problems. For example, hospital staff should be prepared to detect victims of abuse, to counsel battered women, and to recognize when unemployment may be at the root of a perpetrator’s rage and frustration. Teachers and parents must be able to advise young people that failures in school lead to failures in the workforce. Public education should take place in several arenas. Most broadly, the media should discuss the stress of unemployment and possible ways to cope. In the workplace, employers and labor offices should offer assistance before people are laid off and begin to stray further and further from peer support and services. Schools must reach out to students before they graduate and find themselves isolated and confused. CONCLUSION During communism, Marxist ideology touted laudable goals like egalitarianism and the rights of workers. Governments justified limits on free speech and association as a means to an end: to ensure economic rights.17 Even if early leaders did not intend the infringement of political rights to be permanent, they consciously sacrificed political freedoms in the name of economic and social protection. During this anxious and confusing period of transition, governments exalt the virtues of self-reliance and free markets. They explain that limits on economic well-being and diminishing social welfare are unavoidable sacrifices on the road to a free and prosperous future. Whether or not they intend the social costs to be permanent, they are sacrificing social welfare in the name of economic freedom. And despite the rhetoric of economic freedom, the gap between the rich and poor is growing larger every day and the marginalized populace is sinking ever deeper (FBIS, 1993).

66

Social Justice and Equality

Whereas one insidious practice of communism was secrecy and the denial of social problems, an unfortunate contribution of burgeoning democratic capitalism is an increase in social problems. But instead of a marriage of the egalitarian ideals of socialism with the economic prosperity of capitalism, it is possible that the worst of both systems will prevail—and there will be tragic consequences throughout the region for generations to come. If the people of CEE are to enjoy the best, rather than the worst, of both systems, then the critical attention aimed at economic changes and growth must be focused but not exclusive. If the political agenda focuses first on economics and only afterward on people, then four decades of political deprivations may be capped by years of economic pain and suffering. Although privatization and corporate governance are to cure ailing state-run systems, complementary preventive measures must address the side effects of fatal social consequences.

NOTES 1. These circumstances are different from those in the West because although Western industries may downsize to improve productivity, excess labor in the West pales in comparison with that in the CEE countries. In Communist countries, central planning and the lack of competition caused the endemic misallocation of resources, aging equipment, reliance on massive plants, and production of goods without demand. Therefore, the number of large and simultaneous plant closings or technology-based layoffs in the CEE countries in transition have eclipsed the closures and downsizing in the West. 2. The results of elections in Bulgaria, Hungary, Lithuania, Poland, and Slovakia, in which neo-Communists were returned to power, illustrate this point. 3. They have had a maximum of eight years if the directors and staffs of labor offices started at the beginning and stayed. But two forces work against building experienced staff: Salaries in the private sector lure good people away, or politicians appoint new directors. At the same time, the greater the demands for passive benefits, the fewer the resources for active labor market policies. 4. Yet older workers may sometimes enjoy an advantage because their old friends and colleagues in management try to protect them and keep them on until they qualify for retirement. 5. Young, single people may be treated similarly because employers assume that they live with their parents and are not responsible for families (Sirovatka & Reznicek, 1994). 6. In some countries, however, such as in Bulgaria or Russia, many thousands receive neither wages nor unemployment benefits because they are working without receiving wages or because they are placed on ‘‘unpaid leave.’’ 7. Although there is a higher incidence of long-term unemployment among married than among unmarried women in the Czech Republic, ‘‘the category of divorced women is the highest—sometimes [these divorced women] are single mothers facing child-care difficulties’’ (Cuhlova, Mickova, & Sirovatka, 1996, p. 22). 8. The tax impact may be somewhat less than it would be in the West because so much taxation remains centralized and municipalities receive allocations from the center. 9. ‘‘Boredom and an unclear purpose of life [are] complementary to [unemployment]

The Social Toll of Unemployment

67

in the younger age groups, while higher age groups and particularly women specify depression, anxiety, vanity, the feeling of being useless as well as a lack of finance that significantly influences [their] psychological discomfort’’ (Cuhlova et al., 1996, p. 55). 10. The implementing contractor for U.S. AID’s Poland project is AED (Academy for Educational Development) in Washington, DC. Members of the Donors’ Forum include the Charles Stewart Mott Foundation and U.S. AID. 11. Furthermore, even when programs obtain funding, they need time to establish themselves and to learn from experience. Promising programs must struggle in their early years and may have difficulty showing immediate successes that ensure further funding. For example, in the Czech Republic, a school obtained funding from the Ministry of Labor’s PALMIF program to provide preeducation motivational support for the most atrisk young people, particularly Roma. Although the Ministry of Education had not funded the program initially, the school hoped it would pick up the funding once PALMIF’s support ended. However, the managers had difficulty promoting their program’s success, and no one at the Ministry of Education had the will to push for funding. Thus, a good program was discontinued. 12. At the same time, a select number of public service entrepreneurs have recently gained some financial support from a relative newcomer to the region, Ashoka: Innovators for the Public (which itself receives funding from the Ford Foundation and other foundations). As of November 1994 in Poland and Hungary and spring 1995 in the Czech Republic and Slovakia, Ashoka was supporting public service entrepreneurs who were helping drug addicts, the homeless, unemployed women, prostitutes, and the disabled. Although Ashoka provides the entrepreneurs with basic stipends, it does not support their organizations and activities. 13. It is also important to invest in research because without information, governmental decision makers cannot set priorities, anticipate problems, make policies, and work on behalf of their constituencies. Again, the main obstacle is money. In the West, research funds typically come from grants from governments or large foundations. In the CEE countries, however, governments are in the process of ‘‘privatizing’’ research institutes and expecting them to become financially independent. Much of the current research is already being funded by American foundations, EU money and institutes, or bilateral grants. Until local sources, both governmental and philanthropic, develop, the continuation of such funding is essential. Yet, because the region’s governments need bases for their decision making, they must recognize that research is neither extraneous nor expendable. 14. The Czech Ministry of Education also has an ‘‘Understanding’’ program that supports nongovernmental programs that address issues like criminality, drug abuse, alcoholism, and the integration of disabled youths. 15. It should be noted, however, that PALMIF enjoyed total EU funding for several years. The issue as of 1996 was whether the Czech government would contribute some portion of funding for its continuation. 16. One of the greatest difficulties is to allocate funding in an objective fashion, based on the projects’ design, competence, and need, rather than on friendships and corruption. 17. Work was considered such an important right that its denial was used as political punishment. The Party deprived dissidents of their right to work—either at all or in the places and professions of their choice. It was common policy to exile individuals with doctorates from the main cities and to send them to border towns to do manual work.

68

Social Justice and Equality

REFERENCES Banking Survey. (1996, October). Business Central Europe, pp. 49–62. Brada, J. (1993, May–June). Take two: The Czech Republic. International Economic Insights, p. 15. Burke, J. (1995, August 31). Anti-gypsy fervor sweeps East Europe. Christian Science Monitor, pp. 1, 9. Center for the Advancement of Women. (1996). Kobiety a Rynek Pracy z Uwzglednieniem Perspektywy Centrum Promocji Kobiet. Warsaw: Author. Cuhlova, J., Edwards, T., Mickova, E., & Sirovatka, T. (1996). Long-term and repeated unemployment in the Czech Republic. Ostrava, Czech Republic: Business Development Institute. Defiling the children. (1993, June 21). Time, pp. 38, 40. Eke, J. (1994). Job hunters and the work-shy according to the distribution of people permanently out of work by their willingness to take up work. Debrecen, Hungary: Kossuth University. Federal Broadcasting Information Service. (1993, July 21). Number living below subsistence level increases. Washington, DC: U.S. Information Service. Federal Broadcasting Information Service. (1994, April 19). Pensioner’s movement becomes political party. Washington, DC: U.S. Information Service. Ford, P. (1995, December 6). Russians vote for their wallet, national identity in campaign. Christian Science Monitor, p. 8. Greenberg, M. (1994). Collection of data and information relating to governmentprovided unemployment benefits and services in the Visegrad Four and the New Lander of Germany (Report No. 53). Prague: European Studies Center. Greenberg, M. (1996). OECD Evaluation of PALMIF, the pro-active labor market intervention fund. Paris: LEED Program, Organization for Economic Co-operation and Development. Greenberg, M., with Heintz, S. (1994). Removing the barriers: Strategies to assist the long-term unemployed, Report of an expert working group in Central and Eastern Europe. New York: Institute for East-West Studies. Homola, A. (1993). Country report on the situation of ethnic minorities in the national labor market of the Slovak Republic. Budapest: International Labor Office. Institute for Opinion and Market Research. (1993). The Warsaw women’s labor market: A final report on the enterprises survey ordered by the Center for the Advancement of Women (CAW). Warsaw: Center for the Advancement of Women. International Organization for Migration. (1995). Trafficking and prostitution: The growing exploitation of migrant women from Central and Eastern Europe. Budapest: Migration Information Program. Kamm, H. (1993, November 28). In a gypsy ghetto in Slovakia, a plea for jobs. New York Times, p. 10. Moffett, G. (1995, December 6). A cold-war reality check: Didn’t communism die? Christian Science Monitor, pp. 1, 9. Nagy, G., Sik, E., & Tardos, K. (1993). Long-term unemployment in Hungary. Unpublished manuscript, Budapest. Old folk in Slovakia want a return to good old days. (1994, September 17). Prague Post, p. 6.

The Social Toll of Unemployment

69

Plock, Poland: For better or for worse. (1994, November 5). Los Angeles Times, p. 9. Potucek, M. (1993). Current social policy developments in the Czech and Slovak Republics. Journal of European Social Policy, 3, pp. 216, 219–220. Sirovatka, T., & Reznicek, I. (1994). Long-term unemployment and social safety net: Comparative study of three counties in the Czech Republic. Prague: Central European University. The skin trade. (1993, June 21). Time, p. 28. Tardos, K. (1996). Social problems related to unemployment. Budapest: Institute of Sociology. Unemployed Slovaks put little faith in politicians. (1994, September 21). Prague Post, p. 6. UNICEF. (1993). Public policy and social conditions (Regional monitoring report, No. 1). Florence: UNICEF International Child Development Center.

Chapter 5

The Effects of Privatization on Employment in Bulgaria, Romania, and Albania THEODORE KATSANEVAS

The transition of the Balkan countries—Albania, Bulgaria, and Romania—into multiparty democracies with market economies has been traumatic. The economies of these countries have been fluctuating between governmental and private ownership without clear direction. Most companies are still under the authority of their old administrators and workers, since a new order of stockholders has not been created. Furthermore, it has been impossible for a new and specially trained ruling class to take over the reins of the economy after over 50 years of Communist rule. Much time is needed for the creation of a new order and for the rise of new middle and ruling classes—but how much time, no one knows. Some analysts believe that a whole generation will pass before equilibrium is reached. Generally, it is thought that the road to transition will curve downward at first but will turn upward later in the transitional period (Blejer et al., 1993; McKinnon, 1994). Today, given the poor economic indicators, poverty, high unemployment, the increasing economic and political roles and illegal activities of the Mafia, and the expansion of the underground economies, these countries have poor economic and sociopolitical images. In the areas of employment and income, the situation has been deteriorating as the transition progresses. The Communist establishments provided opportunities for full employment, even though full employment was neither productive nor competitive. Although incomes were low compared with those of Western Europe, the state furnished, through governmental enterprises, a broad array of social and other services, including social security, public health care, education, and transportation. There were lines of people waiting to purchase consumer goods in stores, but no one had to wait for or be deprived of health care, education, and public transportation. Nor were there unemployment offices be-

The Effects of Privatization on Employment

71

cause there simply was no unemployment. Today, all this has changed. The philosophy of a free private economy requires an end to all unproductive activities; the immediate improvement in each country’s competitiveness in world markets; and the establishment of strict monetary, credit, and income policies. The entire philosophy, structure, and direction of these countries’ centrally controlled economies changed drastically with the sudden shift to market economies. Government-sponsored enterprises closed or were severely cut in size. The public health care, education, transportation, security, and defense systems were disbanded. International trade and exchange, which had been consolidated for nearly a century, crumbled and were not replaced. Free-market values replaced the collective ideology and social justice. The overthrow of the central philosophy of these countries’ systems began a chain reaction that resulted in the destruction of the adjacent links—a phenomenon called the ‘‘domino effect.’’ As Jackman (1994) pointed out, ‘‘inflexibilities in the linkages between enterprises can create domino effects whereby production problems in one sector can reduce production both of its supplies and in the enterprises using its product as an intermediate input’’ (p. 327). This crumbling, by chain reaction, of systems with years of historical, political, and economic roots has had many negative consequences for labor and income. Not only have millions of jobs been lost, but the concurrent collapse of the countries’ social security systems has plunged hundreds of thousands of people into poverty. At the same time, organized crime and social exclusion have become rampant. Official statistics on unemployment in the transitional countries cannot be trusted. Since these countries never recorded statistics on unemployment before the transition because there was none, it is difficult to believe that they could have created the infrastructure and become credible enough to be able to record such statistics precisely (Katsanevas et al., 1994). According to the highly disputable statistics, the percentage of unemployment in Bulgaria and Romania fluctuated widely from December 1991 to September 1993 (no figures are available for Albania), ranging from 11.5 percent to 16.0 percent in Bulgaria and from 3.1 percent to 9.3 percent in Romania (United Nations, 1994). But the real level of unemployment, or hidden unemployment, reported by the International Labour Organization (ILO, 1995), was much higher. Examples of the unpleasant reality that prevails include the shrunken gross national product (GNP), the trend toward mass immigration, and the downgrading of a large portion of the populations of these countries to ghettos, poverty, malnutrition, and violence. According to governmental statistics, in mid-1992, about 73 percent of the Bulgarian population had incomes that were below the official poverty level. Two years earlier, the proportion was only 42 percent, which obviously means that poverty became rampant (ILO, 1994). This situation has not changed significantly since then. Although there are no satisfactory statistical data, the same situation occurred

72

Social Justice and Equality

in Romania and in Albania, which reported a sharp increase in its GNP. If the information provided by the authoritarian regime of Albanian President Sali Berisha is true, this increase certainly occurred at a great cost to employment and income. The rapid growth of poverty, unemployment, social exclusion, and starvation in these countries threatens their political stability, and political instability usually undermines democratic institutions and the economy per se. Historically, high rates of unemployment, social injustice, inequality, and poverty have led to the rise of political populism, nationalism, and fascism. It is not accidental that in many countries of the former Eastern Bloc, especially Russia, Romania, Albania, and, to a lesser extent, Bulgaria, populism and nationalism are gaining ground. Those who hastily supported the total, rapid transition to market economies ignore this danger. Instead, they insist on extreme monetary solutions that are similar to those tried in Chile, which resulted in the simultaneous upsurge of unemployment and inflation. It is also not accidental that a large proportion of the populations of the former Eastern Bloc countries, though rejecting the Stalinist extremes and methods of the old regimes, have stated in public opinion polls that they lived much better in the past (see, for example, Greek Centre, of European Studies, 1994). As a result, most of the Central and Eastern European countries voted socialist parties, which evolved from the old Communist parties, into power. Thus, regardless of the theoretical debates on rapid transitions, it is the harsh reality of life in these countries that determines the rate of change. Given that the road to transition is a new experience, there are ‘‘no general theory of the transformation, no optimal paths or well-defined endpoints’’ (Portes, 1993, p. 1183). On the economic front, Albania, Bulgaria, and Romania have been undergoing rapid transformations, as is discussed in the next sections.

ECONOMIC CONDITIONS IN THE BALKANS Bulgaria Bulgaria has the highest per capita income of the three Balkan countries and an economy that matches the developmental model of the Greek economy. Its land area is 43,000 square miles (about 111,000 square kilometers), and its population of 8.6 million (as of 1996) is mainly Bulgarian, with small proportions of Turks, gypsies, and other minorities (Information Please Almanac, 1997). In the post–World War II period, Bulgaria developed one of the most centralized economies of Eastern Europe. Almost all the means of production were under governmental control, and two-thirds of foreign trade was with the thenCommunist countries, especially the Soviet Union (Greek Centre, 1995). The disappearance of most foreign markets for Bulgarian products signaled the decline of the Bulgarian economy (see Table 5.1).

The Effects of Privatization on Employment

73

Table 5.1 Economic Indicators for Bulgaria, 1991–1996

The decrease in Bulgaria’s GNP was calculated at 2.5 percent in 1994, 4.5 percent in 1993, 7.4 percent in 1992, and 11.7 percent in 1991 (the first year of economic reforms). For 1995 and 1996, the Deutsche Bank forecast a drop of 1 percent (European Bank of Reconstruction and Development, 1994). As for the makeup of the GNP, in 1994, it was valued at agriculture, 9 percent; services, 49 percent; and industry, 42 percent. In 1994, the private sector was valued at 23 percent. According to statistics from the Bulgarian statistical agency, unemployment was 13 percent at the end of 1994. The constant reduction of the GNP also reduced the amount of jobs; as a result, the ratio of those looking for work and available positions was 44:1. The rate of real unemployment was probably much higher. In 1994 and 1995, the rates of inflation were over 80 percent. In addition, more than 2.5 million Bulgarians were receiving unemployment or other types of social benefits or pensions or otherwise had extremely low incomes. From 1990 to 1994, real wages fell 50 percent (EBRD, 1994). Foreign trade accounts for 8.3 percent of Bulgaria’s GNP. Business has been constantly improving in the past few years and is showing signs of reaching an equilibrium. Of course, the collapse of the larger businesses of the past led to a reorientation of foreign businesses. Thus, although 80 percent of Bulgaria’s exports were to the former Eastern Bloc countries in 1991, they were just 26 percent in 1993, whereas the country’s exports to member countries of the Organization for European Co-operation and Development (OECD) increased from 9 percent to 43 percent. The same can be said for imports. The embargo on trade with the former countries of Yugoslavia had cata-

74

Social Justice and Equality

strophic consequences for Bulgaria’s economy. Damages were calculated at U.S. $3 billion, while aid from the European Union was only 440 million ECU (EBRD, 1994). From 1990 to 1995, investments totaled U.S. $750 million. The most attractive sector is the industrial sector, followed by moving and construction. In terms of the monetary value of investments, Germany is the primary investor in Bulgaria, whereas in the number of investments, Greece ranks first, followed by Russia and the United States. According to the local representative of the World Bank, Bulgaria was at the worst starting point of any other country in Eastern Europe. The road to reform for Bulgaria will be long and hard. Inequality, poverty, violence, and starvation are acute. Romania The problems of the Romanian economy seem more like those that plague the countries of the former Soviet Union than the Visegrad countries (the Czech Republic, Hungary, Poland, and the Slovak Republic). Romania is a country with large, heavy industries and a high concentration of workers. For example, in 1989, two-thirds of the workers were employed in businesses with more than 2,000 employees (Greek Centre, 1994). With a land area of 92,000 square miles (about 238,000 square kilometers), Romania has a population of 21.7 million (as of 1996), the majority of whom are Romanians, with small proportions of Hungarians and gypsies. From 1990 to 1993, the problem of survival was an everyday event; because of the lack of basic necessities, the average life span fell to 69, from 71 in 1980. The country’s problems started in 1989, when its GNP dropped 5.8 percent (‘‘Investment,’’ 1995). Romania had boarded the economic train of its Western European counterparts. In 1994, the private sector accounted for one-third of production, including 85 percent of the agricultural sector and 52 percent of the service sector, and employed about 1.5 million people. In 1990, inflation was at an exemplary 4 percent, but it jumped to 210 percent in 1992 and 300 percent in 1993 before it fell to 70 percent in 1994 (the OECD forecast a further decrease in inflation to 50 percent in 1995) (see Table 5.2). According to official statistics, the unemployment rate rose from 2.7 percent in 1991 to 15 percent in 1994, mainly in the industrial sector, but dropped in the agricultural sector. Workers from the industrial sector are being employed in the service sector, which is showing signs of developing. Of course, real unemployment is at a much higher level. Some of the problems in Romania’s economy are due to external factors. The collapse of Romania’s most important trading partners—the countries of the former Soviet Union and Iraq and Serbia (because of the embargoes against them)—had negative effects on the country’s foreign trade. From 1988 to 1993, the value of Romanian exports fell 50 percent. Today, Romania’s largest business partner is Germany, and the majority of Romanian exports go to China. Romania’s foreign debt essentially started at zero and slowly rose to U.S. $5

The Effects of Privatization on Employment

75

Table 5.2 Economic Indicators for Romania, 1991–1994

billion in 1994, and it has been difficult to reduce. Privatization is slowly being promoted. So far, 30 percent of the businesses have been shifted to private hands, and all the former agricultural cooperatives are in the hands of 5.3 million farmers. As for foreign investments, the top three countries, according to their net-worth investments, are the United States, Germany, and France. The largest single investor is Coca-Cola, with investments totaling U.S. $80 million. Greece has 1,130 businesses in Romania and ranks fourteenth in the number of investments.

Albania The collapse of the old system led to the total collapse of Albania’s primitive economy in 1996. The result has been a huge unemployment rate and mass immigration. As of 1996, about 600,000 Albanians had left the country on foot or by sea. Albania is a small country, with a population of 3.2 million (as of 1996), that spans 11,100 square miles (28,748 square kilometers) (Information Please Almanac, 1997). It has deposits of chromium, iron, copper, nickel, bauxite, pyrite, oil, and coal and considerable hydrodynamic capabilities. Among 180 countries, Albania is fortieth in the per capita production of minerals. It is second in the production of asphalt and third in the production of chromium. In addition, it could become self-sufficient from its oil reserves and could even export oil (Greek Centre, 1995). Furthermore, Albania’s beautiful scenery and coastlines could be used to develop tourism. Also, even though Albania is labeled a Third World country, the educational level of the population is relatively high.

76

Social Justice and Equality

Table 5.3 Economic Indicators for Albania, 1991–1994

As Table 5.3 shows, the industrial sector was hit the hardest by the transformation. Industrial production reached its lowest level in 1992 (falling 60 percent) after a decrease of 37 percent in 1991. After 1992, productivity in the agricultural and construction sectors rose consistently in 1993 and 1994 because of the apportioning of farmland, machines, and houses to private citizens. According to the Berisha regime, the increases in the GNP in Albania in 1993 and 1994 were the highest in Europe. However, this positive development should be tempered by the fact that Albania’s economy was at a very low starting point in 1991. With regard to the makeup of the GNP from 1991 to 1993, industry decreased from 36.4 percent in 1991 to 13.8 percent in 1993, agriculture rose from 39.3 percent to 55.9 percent, construction fell dramatically from 63 percent to 9 percent, and transportation dropped slightly from 3.1 percent to 3 percent. The rest of the sectors increased from 14.9 percent in 1991 to 18.3 percent in 1993. Inflation, which rose from 104 percent in 1991 to 237 percent in 1992, dropped to 31 percent in 1993 and 24 percent in 1994 (see Table 5.3). Official statistics put unemployment at 25 percent in 1994, down from 50 percent in 1992. Naturally, these statistics do not portray the tragic reality that persists in this sector. The especially low wages that predominate are one of the basic reasons that foreign investors are attracted to Albania. As of March 1994, the average monthly salary was the equivalent of U.S. $60, while raises were well below inflation rates. With regard to the balance of payments, the remittances that immigrants sent to Albania more than doubled from 1992 (U.S. $150 billion) to 1993 (U.S. $304

The Effects of Privatization on Employment

77

billion); the value of that capital was three times that of Albanian exports (U.S. $70 billion in 1992 and U.S. $112 billion in 1992). According to an unofficial source, U.S. $700–$800 million are being sent back to Albania every year. Furthermore, imports decreased U.S. $575 billion in 1992 and U.S. $621 billion in 1993, the balance of trade dropped U.S. $505 billion in 1992 and U.S. $509 billion in 1993, and foreign aid was U.S. $374 billion in 1992 and U.S. $303 billion in 1993. As for privatization, there has been a delay in privatizing large industries and commercial centers. Of the total number of privatizations (until 1994), 33.4 percent was given to Albanian investors, 41 percent to workers, 25.4 percent to the owners of the surrounding land, and 0.2 percent to small foreign investors. These statistics lead to the conclusions that the goal of the policy has been to protect the Albanian investor class and that foreign investors have not yet become interested in the country’s rich natural resources, key geographic position, and cheap labor (Greek Centre, 1994, 1995). Italy is first among foreign investors (53 percent of foreign or mixed businesses), and Italian businessmen have almost total control of the Albanian coastlines. Next are Greek investors (20 percent of foreign or mixed businesses, mainly shoes, clothing, and food), and third are German investors (6 percent of foreign or mixed businesses). Even with the positive results and achievements in the economic sector, the economic situation remains fragile, especially if the poor infrastructure and production basis are factored in.

INCREASED UNEMPLOYMENT, INEQUALITY, AND POVERTY The three Balkan countries discussed here are at a very low starting point. Bulgaria, a country with average industrial development, was directly dependent on the Soviet Union for economic transactions—a market that crumbled with the collapse of the Soviet Union. Romania had developed large industrial units with a huge concentration of workers but low productivity. Albania had a primitive and closed agricultural economy, with low indicators at all levels except for its relatively satisfactory level of public education. The new requirements for globalization of their economies and competition created severe problems for these countries that, for many years, were outside central systems of international transactions and economic alliances. In Bulgaria and Albania, the new, inexperienced governments established monetary policies that abruptly ended the old policies and created a vacuum in social policies. In both countries, unemployment, social exclusion, and poverty inflated exponentially. In Bulgaria, the development of democratic infrastructures without protective controls led to the huge growth of a Mafia economy, prostitution, and violence. In Albania, the regime created a Mafia environment in high governmental positions. In Romania, a smoother political transition provided some

78

Social Justice and Equality

support against unemployment and poverty, and the Mafia economy was kept relatively in check. In Albania, Bulgaria, and Romania, as in all the CEE countries, the size of the economically active population shrunk significantly when hundreds of thousands of women and older people became unemployed after many businesses closed as a result of the transition. Vulnerable groups, including people with special needs, women, older people, young people, and ethnic minorities, were immediately affected. Young people could not find work and thus were attracted to illegal activities or prostitution or immigrated to other countries. Long-term unemployment is now a major characteristic of these countries’ job markets (Greenberg & Heintz, 1994). The social security systems partly crumbled, and various benefits that businesses provided for families, children, and the unemployed, either shrank or were eliminated (ILO, 1995). In Romania and to a lesser extent in Bulgaria, some businesses devised systems of long-term leaves without pay, and the governments promoted mass immigration to Greece and Italy. Similar to the conditions that existed in Europe during the Industrial Revolution, many people are living in poverty, while a small caste of individuals is reaping unheard-of riches. However, in contrast to the Industrial Revolution, when part of the financial gains were spent in the development of the countries in which they were made, a large portion of the increased capital is going to foreign banks. Swiss banks, for example, have found new monetary resources to fill their treasuries, while the ‘‘new capitalists’’ of the CEE countries are buying up entire blocks of real estate in Paris, Berlin, London, and New York. The initial euphoria over the large amounts of foreign investments in Albania, Bulgaria, and Romania quickly faded (United Nations Economic Commission for Europe, 1994). Western economic help proved inadequate, and international trade by the transitional countries collapsed (EBRD, 1994). ‘‘None of the three Balkan countries can be considered as a first choice for western investors’’ (Hassid, 1994, p. 12). The International Monetary Fund insists on harsh economic policies that do not take the human factor into consideration. In Albania, social security has been disbanded. Gangs of small-time Mafia organizations abduct children and export them to Greece to beg or become involved in prostitution. Over 250,000 Albanians are now in Greece, looking for work; a day’s wages in Greece range from $16 to $24 compared to the average monthly salary in Albania of $60 for the few jobs that exist. Since 1990, the Ministry of Public Order has deported 500,000 Albanians, most of whom have returned after giving $400–$480 to the various border cartels (Katsanevas, 1995; Katsanevas et al., 1994). The situation is similar in Bulgaria and Romania, although fewer persons have left these countries to find work abroad (mainly in Greece) and both countries still have a semblance of social security (less in Bulgaria than in Romania). In all three countries, prostitution is one of the most profitable businesses. For almost every possible transaction, there is a ‘‘broker’’ who must be paid,

The Effects of Privatization on Employment

79

otherwise known as a common bribe, which unfortunately is unofficially legislated by the new order. These mediatory and parasitic activities are the sources of power that make up the growing political and economic influence of a caste of people. The sudden establishment of free markets in the three Balkan countries created a climate of freedom—for the poor to become poorer and the rich to become richer. The problem is further exacerbated by the fact that the capital that is accumulated is not invested in productive domestic activities but is usually shipped outside the country. RECOMMENDATIONS BY INTERNATIONAL AGENCIES Guidelines from the European Union and international organizations urge these countries to focus on vocational education and reeducation. However, various observers have questioned the quality and implementation of vocational education. In the past, vocational education was conducted by businesses that have since downsized or closed. Furthermore, it is difficult to determine the type and extent of vocational education that are needed because the direction in which these countries’ economies will be reorganized is still uncertain (Katsanevas, 1995; Katsanevas et al., 1994). Generally, contrary to initial assertions, vocational education actually decreased (Katsanevas, 1995). Another policy that has been recommended for the short-term support of employment is the financing of public works. In Bulgaria and Romania, this policy has somewhat eased the unemployment-ridden labor market. It is ironic that in countries with a long tradition of centrally designed economies, there are no large public works programs that could help in the development process. Another policy that has been recommended is the encouragement of maternity leave for women and early retirement for older workers. But because of the closing of day care centers that were based in businesses and the decline or destruction of the social security and health care systems, this recommendation is not viable. CONCLUSION The transition to market economies in Albania, Bulgaria, and Romania proved to be much more difficult than was expected, and the people in these three countries who rejected their bureaucratic and inadequate Communist regimes have faced innumerable hardships. The poverty, inequality, unemployment, and social injustice that the majority of the people are experiencing are in sharp contrast to the fast and usually illegally gained wealth of the few. The problem has been proved to be political and not necessarily economic. After going through the meat grinder of harsh monetary policies, unemployment, and inadequate governments, the people of Bulgaria and Romania chose the middle path by voting for democratic socialist governments and socioeconomic

80

Social Justice and Equality

justice. In Albania, the government of President Berisha is expected to fall in the next elections if the next elections are not rigged. It seems that the people of these countries are ignoring the harsh monetary policies and are slowly and cautiously moving toward a sensible transition to free-market economies. This transition presumes the creation of multiple institutions associated with parliamentary governments. Special emphasis must be placed on the development of decentralized systems of employment relations; the establishment of institutions of trilateral cooperation; and the growth of public services for employment, health care, education, and equality. The former Communist regimes of the CEE countries collapsed not only because of economic inefficiencies, but because of their disregard for basic human rights. Since their collapse, a dangerous vacuum has developed in the protection of social and economic justice because these countries have failed to understand that establishing free markets is not more important than guaranteeing socioeconomic justice. In civilized societies, freedom from need is as important as freedom of speech and worship, assembly, and association. Freedom from poverty and inequality and the establishment of social and economic justice are essential for improving the quality of life, governmental responsibility, and social services. Social security is the cardinal precondition, especially during the transition, which has generated widespread poverty, inequality, and unemployment. Vocational education and reeducation and a flexible frame of reference for each transitional phase are also essential. Each government must consider all policy alternatives and select a course of action that is suitable to its country’s national aspirations. That is, during the transition, each government must develop democratic institutions and socioeconomic justice while maintaining the country’s national identity and independence. These goals are possible even in the context of increasing productivity and international competition. Although the closing of unproductive units is necessary, new, adequate social security policies must be established to ease the burden on society’s victims. Political stability is a major prerequisite for the inflow of foreign capital and investments, which are needed to develop the economy and to reduce unemployment, inequality, and social exclusion. However, political stability can be based only on responsible governments that work to improve employment, equality, and social justice. A balanced socioeconomic transition is the most effective solution. The European Union and the United States must play strong roles in Albania, Bulgaria, and Romania. These countries are natural allies for maintaining the new global balance. The soil is fertile for political and economic development and cooperation. The Balkans should not be viewed as an Eldorado, a place of quick and easy prosperity, but as a region in which economic and businessoriented cooperation can thrive. Social justice is the stepping stone for economic growth and employment.

The Effects of Privatization on Employment

81

REFERENCES Blejer, M. I. et al. (Eds.). (1993). Eastern Europe in transition: From recession to growth (Discussion Paper No. 196). Washington, DC: World Bank. European Bank for Reconstruction and Development. (1994). Economic transition in Eastern Europe and the former Soviet Union. London: Author. Greek Centre of European Studies for Balkan Developments. (1994, December). Biannual report on the Balkans, Bulgaria, Romania, Albania (No. 4). Athens: Author. Greek Centre of European Studies for Balkan Developments. (1995, February). Monthly Balkan Review (No. 26). Athens: Author. Greenberg, M., & Heintz, S. (1994). Removing the barriers: Strategies to assist the longterm unemployed, report of an expert working group in Central and Eastern Europe. New York: Institute for East-West Studies. Hassid, J. (1994, November). Research on the conditions for penetration of Greek industrial businesses to Balkan markets. Unpublished manuscript, Athens. International Labour Organization. (1995). World employment. Geneva: Author. Jackman, R. (1994, May–June). Economic policy and employment in the transition economies of Central and Eastern Europe. What have we learned? International Labour Review. 33(3), p. 327. Katsanevas, T. (1995, April). The impact of changing emigration and immigration in Greece. Unpublished manuscript, University of Piraeus, Greece. Katsanevas, T. et al. (1994). Employment relationships. Piraeus, Greece: Stamoulis. McKinnon, R. (1994). Gradual versus liberalization in social economies: financial policies in China and Russia compared. San Francisco: Institute for Contemporary Studies Press. Portes, R. (1993). Transformation traps. Economic Journal, 104, p. 1183. United Nations Economic Commission for Europe. (1994). Economic survey of Europe in 1993–1994. New York: United Nations.

Chapter 6

Informal Privatization: The Changing Foundation of Socioeconomic Inequality in Bulgaria TANYA CHAVDAROVA

This chapter is theoretically oriented to path-dependence theory, which, according to North (1990, p. 98), states

that history matters. We cannot understand today’s choices without tracing the incremental evolution of institutions. If, however, the foregoing story sounds like an inevitable foreordained account, it should not. At every step along the way, there were choices— political and economic—that provided real alternatives.

The analysis is based on the assumption that the reshaping of old organizational forms in the economy and politics, the culturally determined practices of the economic actors, and these actors’ social ties will bring about a new economic order and a new type of socioeconomic inequality in post-Communist societies. The path-dependence model presupposes the implementation of the ‘‘agnostic approach,’’ which is not committed to the end point of the transition from state socialism (Pickvance, 1994) but assumes that one has to study the starting point to understand the dynamics of certain processes. Following the agnostic approach, the author conceives of the post-Communist transformation as a process in which ‘‘the introduction of new elements most typically combines with adaptation, rearrangements, permutations, and reconfigurations of existing organizational forms’’ (Stark, 1992, p. 300). From this viewpoint, she discusses how hidden privatization functions are a complex mechanism for creating a new type of socioeconomic inequality in Bulgaria today.

Socioeconomic Inequality in Bulgaria

83

PRIVATIZATION IN BULGARIA: THE ECONOMIC VIEW Since the beginning of the transition in 1989, there have been only two small waves of privatization, mainly in the trade sector, and these waves have not substantially influenced economic conditions in Bulgaria. Although the Law for the Transformation and Privatization of State Enterprises was passed in 1992, the property sold in auctions until 1993 accounted for only 12 billion levs. This amount is negligible since, according to the Program for Privatization through Investment Funds, property worth another 200 billion levs will have to be privatized (Samphirova, 1995). The Law for Mass Privatization required the establishment of a Czech-type voucher-selling system. It was not until the voucher selling ended on May 8, 1996, that actual privatization began. Experts in Bulgaria agree that although the government’s privatization program has been slow, unofficial, hidden privatization is occurring through the unprecedented redistribution of the nation’s capital. From an economic viewpoint, there are two ways to redistribute this capital: by transferring financial, material, and nonmaterial assets legally or illegally and by changing real incomes through irregular price changes (Agenzija SA, hereafter AIRP, 1994). According to official statistics of the National Statistics Institute (Statistics Annual, 1996), at the beginning of 1996, the private sector had produced about 30 percent of the gross domestic product (GDP). But estimates by the World Bank (1995) indicated that when unregistered, untaxed economic activities are taken into account, the private sector has produced about 50 percent of the GDP, although it constitutes only 5 percent of the assets, 22 to 26 percent of the jobs, and 10 to 12 percent of the wages.

Informal Transfer of Capital The discrepancy in the figures can be explained by the informal transfer of income and capital from state enterprises and banks to the private sector. There are numerous ways to handle such transfers. Probably the most important one is the establishment of private firms that are managed by associates of the managers of state firms. Although these state managers are forbidden by the Trade Law from owning private firms that are in the same businesses as the state firms, they get around this restriction by establishing firms in the names of friends or relatives. Furthermore, the amendments to the Trade Law have given the state managers the freedom to transfer information and contacts with suppliers to private hands, to take orders for the state firms and execute them through the private firms, and to transfer capital by playing with the differences between internal and world prices. Another way is to reorganize and convert the old state firms into joint stock companies or new firms that do not carry the burden of debts. This process is

84

Social Justice and Equality

complemented by selling ‘‘reassessed’’ shares, that is, artificially lowering the value of the stocks of state firms and then buying them up. Another way of transferring capital directly to the private sector is for private firms to obtain loans using the state firms as security and to obtain unwarranted loans. As a result, the number of uncollectible loans and overdue installments is increasing, and the entire banking system is on the verge of bankruptcy. In short, by preserving the legal shell of state enterprises, the state managers have been gradually draining the capital of these enterprises into private hands. The capital from these enterprises is privatized, but the losses stay with the state enterprises and banks and are covered by the state. Transfer of Losses Much of the losses incurred by the state enterprises are transferred to the state budgets, then to the banks, and finally to the entire population. According to AIRP (1994), only 30 percent of the state enterprises have adapted to the new economic conditions, but 70 percent have continuously generated losses: 15.3 percent of the GDP in 1992, 17.6 percent in 1993, and 5.6 percent in 1994. The state firms’ refusal to pay their debts has proved to be the main reason why the losses are transferred to the society at large. In spite of these losses, none of the state enterprises was closed down until May 1996. The losses of the state enterprises are first covered by the state budget because many of these firms do not pay turnover and profit taxes and then by the banks. The state budget and the banks transfer the losses to the population by raising inflation rates and by keeping negative real interest rates on deposits, which amounted to 18.4 percent in 1994, 7.3 percent in 1993, and 11.7 percent in 1992 (AIRP, 1994). Weak Production Process The economic collapse of the state sector is illustrated by sharp decreases in all indicators of production. In addition, the private sector is oriented primarily toward trade, not production, which requires much heavier and long-lasting investments. Because of the legislative chaos, the instability of the political and economic infrastructures, the extremely high taxation of profits, the high interest rates on loans, and the lack of preference given to small and medium-size private businesses, private entrepreneurs prefer trade, a sector in which profits are much more immediate. The main reason for this situation is that privatization is a declared goal, not a tool of economic policy, and social and political logic determines economic logic, not vice versa. The Informal Economy Another result of the weak economic policy has been the establishment of a new type of informal economy, based on the resources of informal social net-

Socioeconomic Inequality in Bulgaria

85

works, that is filling the gap caused by the collapse of the command economy. This informal economy is at the core of Bulgarian society today, as is typical in less developed countries (Portes, Castells, & Benton, 1989). The old official socialist economy and second economy that were prevalent before the transition have gradually become the official economy and informal economy (Sik, 1992). During Communist rule, the two economies needed each other to survive (see, for example, Alessandrini & Dallago, 1987; Dallago, Gianmaria, & Granacelli, 1992; Gabor, 1979, 1989; Grossman, 1988; Los, 1990; Schopflin, 1985). The informal economy has been compensating for the deficits of the redistributive socialist economy and has even lubricated it. In turn, the endless bureaucratic obstacles to production in the official economy have made the informal economy flourish. On the structural level, no clear border exists between the state and private economies, and the private sector has penetrated the state economy. In terms of social stratification, there is a particular social group—those who work officially in the state sector and unofficially in the private one—whose social status is vague. On the individual level, there has been a fusion between private firms and households—between productive and personal consumption. The effort to avoid paying taxes prevents private entrepreneurs from using the double entry, which is regarded as the main impetus for developing capitalism. DECAPITALIZATION: NEW FOUNDATION FOR SOCIOECONOMIC INEQUALITY The redistribution of the nation’s wealth through underground privatization has created a vicious circle: The private sector is getting stronger at the expense of the state, the state is transferring its losses to the public, and the public does its best to minimize the losses and maximize the profits. From this view, mass privatization, which began in 1996, will have the character of secondary redistribution. A new definition of the transition as an inequality process could be extracted from this economic analysis. On the institutional level, the transition can be viewed as a redistributing process, accompanied by weak production. Thus, only a small part of the population is getting richer at the expense of the majority, which is getting poorer. In this scheme, there is no place for the middle class. Two opposing economic actors can be distinguished in this process: the decapitalizers, who use hidden redistribution to extract capital from the state, and the capitalizers, who produce goods and services and hence the market exchange itself. Since redistribution and market exchange are basic forms of economic integration (Polanyi, 1992), socioeconomic inequality is a result of the commitment of social actors to one or another form of economic integration. The major decapitalizers of the state are the former political and economic nomenclature. Since the mid-1970s, Party functionaries have transformed their

86

Social Justice and Equality

political power into economic power and transferred state capital to themselves. During the transition, they have had even greater access to powerful resources: social ties, information networks, and mechanisms for pressuring competitors and suppliers. Thus, the managers and other functionaries have become the real owners of the state enterprises and, because of legislative chaos and the unclear boundaries between the state and private property, are not fully responsible for capital losses, which they have transferred to the society at large, which is the major loser. Employees are also decapitalizers of the state because they conduct hidden transfers by appropriating working hours and material resources. Such behavior is considered morally acceptable because it is seen as compensation for their constant impoverishment (decapitalization) since 1989. Still another group of decapitalizers are criminals: those who decapitalize others in a broad array of activities, from street thefts to corruption at the highest levels of state administration. This form of decapitalization embraces all the underground economic activities that are part of the informal economy. Decapitalization is a relevant criterion for accessing economic inequality and the stratification process through different moral choices that strongly depend on access to the resources of old social networks. However, it cannot be used to determine the incomes and economic power of socioeconomic groups because the informal economy cannot be measured and economic actors can participate in all three spheres of decapitalization: of the state, of themselves, and of others. DECAPITALIZATION AND ECONOMIC RATIONALITY Under these circumstances, the main issue regarding socioeconomic stratification is ‘‘whether [economic actors] behave as authentic market subjects’’ (AIRP, 1994, p. 3). Another issue is the manifestation of inequality through the new rationality of the actors’ economic behavior. The reason for this new rationality is that the informal economy does not create conditions for replacing personal trust between contracting parties with systemic trust (Luhmann, 1982) or faceless commitments (Giddens, 1990). Thus, special measures need to be taken to regulate the implementation of contracts and to prohibit fraud. This new rationality also has led to community-like groupings of the decapitalizers of the state and of others, who use their social connections and common cultural identity as social capital to establish norms of cooperation, trust, and loyalty and to exchange information about the identities of potential trade partners. Therefore, competition takes the form of group competition (Hirschleifer, 1982; Landa, 1991), and groups carry out reciprocal transactions to lower the costs of transactions. The behavior of those who have limited access to the power resources of social networks and hence live in poverty and constant insecurity is governed by a logic of survival, or a ‘‘subsistence ethic’’ (Scott, 1976). They calculate not what has been taken away from them but what is left. The vast majority of

Socioeconomic Inequality in Bulgaria

87

Bulgarians follow this subsistence rationality, which turns them into decapitalizers of themselves. This rationality is deeply ingrained in the collective memory of Bulgarian society, which was a peasant society until about 50 years ago. CONCLUSION The type of privatization discussed here is immoral, since the trend toward the growth of the informal economy reflects the political and economic interests of the most powerful social actors and it has not been possible to legitimate ethically the great redistribution of national wealth. In this respect, what is good for the economy (the legitimation of ‘‘dirty’’ capital as a way of normalizing the society) does not further morality. The flourishing of the immoral economy takes various forms: criminal privatization, the widespread avoidance of paying taxes, the lack of social responsible entrepreneurs, the spread of corruption, and so forth. In addition, because social capital, concentrated in the hands of the old nomenclature, is still the main resource of privatization, the gap between the newly rich and the poor is widening. All this necessitates a reassessment of the popular thesis that the transition is from a state economy to a market economy. It seems that a more realistic view would be that the transition is actually from a state economy to a clan economy (Stark, 1990). This transition has developed in two ways: as a symmetrical exchange (1) between the different groups of decapitalizers of the state and (2) between them and the decapitalizers of others. Because of the lack of regulations, the private sector and the economic actors are dependent on the political administration and bureaucracy, which increases corruption and the dependence on ‘‘dirty’’ capital (Dallago, Gianmaria, & Granacelli, 1992)—practices that are common in Latin America. Whether the clan economy will flourish or diminish depends on whether the new bureaucracy and new political elite will be able to preserve their status and power. It also depends on whether a civil society will evolve in Bulgaria. The developments so far indicate that a civil society will evolve after the distribution of forces in the economic arena becomes stable and the absence of regulations becomes more expensive than their presence (AIRP, 1994). REFERENCES Agenzija SA Ikonomichesko Rasvitie i Programirane [Agency for Economic Programming and Development]. (1994). The rebirth of capitalism in Bulgaria: A bulletin [in Bulgarian]. Sofia, Bulgaria: Author. Alessandrini, S., & Dallago, B. (Eds.). (1987). The unofficial economy: Consequences and perspectives in different economic systems. Aldershot, England: Gower Press. Dallago, B., Gianmaria, A., & Granacelli, B. (Eds.). (1992). Privatization and entrepreneurship in post-socialist countries: Economy, law, and society. New York: St. Martin’s Press.

88

Social Justice and Equality

Gabor, I. (1979). The second (secondary) economy. Acta Oeconomica, 22, pp. 291–311. Gabor, I. (1989). Second economy and socialism: The Hungarian experience. In E. Feige (Ed.), The underground economies: Tax evasion and information distortion (pp. 57–83). Cambridge, England: Cambridge University Press. Giddens, A. (1990). The consequences of modernity. Cambridge, England: Polity Press. Grossman, G. (Ed.). (1988). Studies in the second economy of Communist countries. Berkeley: University of California Press. Hirschleifer, J. (1982). Evolutionary models in economics and law: Cooperation versus conflict strategies. Research in Law and Economics, 4, pp. 1–60. Landa, J. (1991). Culture and entrepreneurship in the developing countries. In B. Berger (Ed.), The culture of entrepreneurship (pp. 7–25). San Francisco: Institute for Contemporary Studies. Los, M. (Ed.). (1990). The second economy in Marxist states. London: Collier Macmillan. Luhmann, N. (1982). The differentiation of society. New York: Columbia University Press. North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge, England: Cambridge University Press. Pickvance, C. G. (1994, July 18–23). System, transition, legacy and bricolage: Thinking about change in Eastern Europe. Paper presented at the 13th World Congress of Sociology, Bielefeld, Germany. Polanyi, K. (1992). The economy as instituted process. In K. Polanyi, C. Arensberg, & H. Pearson (Eds.), Trade and market in early empires. New York: Free Press. Portes, A., Castells, M., & Benton, L. (Eds.). (1989). Informal economy: Studies in advanced and less developed countries. Baltimore, MD: Johns Hopkins University Press. Schopflin, G. (1985). Corruption, information and irregularity in Eastern Europe: A political analysis. Suedosteuropa, 34, pp. 4–210. Scott, J. (1976). The moral economy of the peasant. New Haven, CT: Yale University Press. Sik, E. (1992). From second economy to informal economy. In G. Ekiert (Ed.), New CES Working Papers. Cambridge, MA: Center for European Studies, Harvard University. Stark, D. (1990). Privatization in Hungary: From plan to market or from plan to clan. East European Politics and Society, 4, pp. 351–392. Stark, D. (1992). From system identity to organizational diversity—Analyzing social change in Eastern Europe. Contemporary Sociology, 21, pp. 299–304. Statistics annual, 1996. (1996). Sofia: National Statistics Institute. World Bank. (1995). Transition. Washington, DC: Author.

Part III

Policies for Families and Women

Chapter 7

Changes in the Social Status of Bulgarian Women and Their Organizations during the Transition to a Market Economy ZLATKA RUSSINOVA

Political democratization and the transition toward a free market through privatization of the economy have had a double impact on the position and roles of women in Bulgaria. On the one hand, these political and economic processes have created legal, economic, and ideological opportunities for women to become more active, assertive, and creative in the various forms of their social realization, as well as to organize and build independent democratic organizations, institutions, and movements for the protection of their rights and for the achievement of equality with men. On the other hand, the same social processes have contributed to increased sexism and hostility toward women (Valentich & Gripton, 1991). Because privatization has been the major catalyst for both trends, the promotion of the women’s movement has become both a necessity and an opportunity for Bulgarian women to strengthen their societal rights. This chapter discusses the social status of Bulgarian women and the development of women’s organizations since the transition and presents the findings of the author’s study of the attitudes of women toward the transition and the role of women’s organizations in protecting women’s rights. CHANGES IN THE SOCIAL STATUS OF BULGARIAN WOMEN During the Communist regime, the societal status of women was determined primarily by Communist ideology, which had both positive and negative influences on women’s attitudes toward feminism. On the one hand, there was legal recognition of the equality of men and women, so that women officially had equal opportunities with men in the areas of education, employment, professional careers, and social benefits (Kostova, 1993), although they bore the quad-

92

Policies for Families and Women

ruple burden of their roles as wives, mothers, workers, and often public activists (Valentich & Gripton, 1991). These attitudes generated the conviction among many women that there was no need to establish independent women’s organizations for the protection of women’s rights and interests (Ferge, 1990). On the other hand, on the basis of the Communist ideology of a centralized democracy, autonomous women’s organizations, politically independent from the policy of the ruling Communist Party, were not allowed. These two contradictory tendencies had a similar effect: They decreased the feminist consciousness of Bulgarian women and inhibited the development of a feminist movement (Wolchik, 1985). For this reason, the necessity of introducing and promoting Western feminist ideas as a way of increasing Bulgarian women’s awareness of their social rights is still controversial (Kabaktchieva, 1996). The transition of Bulgarian society to a market economy initiated significant changes in the status and roles of women in the labor market, the family, and political life (For Equal Rights, 1994). However, at the beginning of societal reform, those changes tended to be negative, creating additional pressures and psychological demands on Bulgarian women and tending to place women in a more disadvantageous position than men. At present, unemployment is the most serious socioeconomic problem that Bulgarian women are confronting. The majority of unemployed people in Bulgaria are women, who outnumber unemployed men 109:100 (Kabaktchieva, 1996; Kotzeva, 1996). Women made up 60 to 67 percent of the officially registered unemployed population in 1990–1991; 54.3 percent in 1992; and 52.3 percent in 1993 (For Equal Rights, 1994). Furthermore, 56.2 percent of unemployed women are unemployed for longer than one year (Kotzeva, 1996), and about 44 percent of the unemployed women are under age 35. Hence, many of the unemployed women, together with young people, make up the group of long-term unemployed people who no longer collect unemployment benefits and are subject to professional disqualification because they are not working in the fields for which they were trained. Long-term unemployment undermines the stability of family income and contributes to the decrease in the birth rate (Kostova, 1993; Nikolova, 1992a, 1992b). The economic insecurity of the family has increased the demand for Bulgarian women to combine the roles of worker, wife, mother, and active citizen. It has put women in a more vulnerable and stressful position and hence has negatively influenced their self-esteem and psychological well-being. Under these changing socioeconomic conditions, Bulgarian women have become actively involved in independent feminist organizations to protect their societal rights and to achieve mutual support and empowerment during the years of economic hardship in the country. THE WOMEN’S MOVEMENT IN BULGARIA Before the transition, the only organization of women was the Committee of Bulgarian Women, a formal organization with a strong political orientation. The

Changes in the Social Status of Bulgarian Women

93

committee’s main goal was to disseminate the official ideology to women through its publication, The Woman Today, and a limited number of mass activities. This organization did not have an open membership and functioned with only a small staff. Soon after the transition began in Bulgaria in late 1989, the Committee of Bulgarian Women disbanded and new organizations that united various groups of Bulgarian women were formed. At that time, the women’s movement in Bulgaria was characterized by a limited number of organizations with small memberships and restrictions on membership to specific strata of women. Most of these organizations were not popular with the majority of Bulgarian women, and although officially independent from any political party, the larger organizations were indirectly affiliated with the leading political parties in the country. Furthermore, the various women’s organizations had no interest in cooperating with each other or eventually in uniting to defend women’s rights and interests more successfully. Today, although most of these organizations are still not well recognized or popular among women, more organizations have been formed, the quality and the quantity of their initiatives have increased, and the organizations have begun to cooperate with each other. Furthermore, the women’s organizations now have more contact with international women’s organizations and have engaged in joint activities with them. The main women’s organizations that were functioning in Bulgaria in the mid-1990s are as follows (Survey, 1996): The Democratic Union of Women. Shortly after the Committee of Bulgarian Women disbanded, some of the former members, together with new women activists who were affiliated primarily with the Bulgarian Socialist Party, formed the Democratic Union of Women, currently the largest women’s organization in Bulgaria. The Democratic Union states that it is a nonpartisan, voluntary organization of women of all ages, educational levels, and political and religious affiliations who accept and support its platform and statutes. Structurally, it is organized on both professional and regional principles (Report for the State, 1992). The Bulgarian Women’s Union. Reestablished in 1990, this organization is the successor to a women’s organization with the same name that existed before the socialist regime was established in 1944. The Bulgarian Women’s Union is informally affiliated with the Union of the Democratic Forces—one of the main political coalitions in the country—and has 50 sections in Sofia and other parts of the country. The main focus of its program is the development of charitable activities and the support and protection of women with temporary or long-term physical or mental disabilities. The Christian Women’s Movement. This organization, based on the principles and values of Christianity, works to develop a better understanding of Christianity among women and to increase the influence of strong Christian values in the education of children and in everyday interactions. The Women’s Union-Bulgarian Agricultural Popular Union. This organiza-

94

Policies for Families and Women

tion is for women who are politically affiliated with the Bulgarian Agricultural Popular Union, an agrarian political party, and/or share its political program. The Women’s Business Club—Eterna. Membership in this organization, which is working to develop a feminist lobby in the country’s business circles, is open to all women who are starting and maintaining their own businesses. It is organized on a regional basis and already has sections in a number of cities in the country. The Zonta Club. Founded in Bulgaria in 1995, this club is one of the 1,300 clubs of the Zonta International organization of women in 70 countries. Its main focus is to develop charitable activities for children, the elderly, and other socially vulnerable groups. The National Women’s Forum. This organization was established in 1994 to unite the representatives of various women’s organizations who share its program to establish contemporary standards for Bulgarian women that could help them develop a more realistic awareness of the role women could play in various social domains. Its declared goal is to integrate the intellectual potential of Bulgarian women at the national level. The National Women’s League. Founded in 1994 by representatives of the Christian Women’s Movement and the Women’s Business Club-Eterna, this is another broad organization whose aim is to unite nongovernmental women’s organizations in the country. Its goal is to have its representatives advocate the ideas of its program through their participation in other women’s organizations. THE STUDY In 1996, the author conducted a survey in Sofia to determine the attitudes of two groups of Bulgarian women—members and nonmembers of women’s organizations—toward the impact of the transition on their social status and toward the role that women’s organizations could play in protecting women’s rights and interests in Bulgarian society. It was hypothesized that the attitudes of organizational members would differ from those of nonmembers and that differences in attitudes would be one of the main determinants of women’s active involvement in such organizations. The sample consisted of 24 members of a women’s organization and 56 women of various educational, professional, and political backgrounds who were not formally affiliated with any women’s organization in the country. Results and Discussion Although the transition has had primarily a negative impact on women’s lives, the respondents presented their views of both the positive and negative influences of the current economic processes on the major areas of their lives: education, profession, political involvement, relationships, and family. The women stated that the most positive influence has been the opportunities it has presented

Changes in the Social Status of Bulgarian Women

95

to be more assertive and entrepreneurial in their professional activities. These attitudes were not influenced by membership in a feminist organization, since similar percentages of nonmembers and members evaluated the change in their status as high (54.2 percent versus 55.3 percent) or low (31.7 percent versus 35.7 percent) or thought that there was no change (4.2 percent versus 8.9 percent). The respondents identified women’s increased opportunities to participate in the political life of the country as another positive change. Although there was no statistically significant evidence of the influence of membership in a feminist organization on women’s attitudes toward their potential for political involvement, an examination of the frequency distributions of the scores of the two groups of women indicated some differences between the two samples. That is, 50 percent of the respondents who were members of a feminist organization but only 39.4 percent of the respondents who were nonmembers believed that they had greater opportunities for political participation. Obviously, women who are actively involved in various political organizations, particularly feminist ones, have more positive attitudes and seem to be more optimistic about women’s potential to make a real contribution in the political life of the country than are those who are not active in such organizations. Other positive changes in the lives of Bulgarian women that the respondents identified were increased opportunities for international professional contacts, financial prosperity, better and more satisfying jobs, and higher levels of education. Although both groups of women had similar perceptions of these changes, women aged 20–29 felt they had greater opportunities to find better jobs and maintain satisfying careers than did women aged 40–59. Their more optimistic stance and higher level of assertiveness seem to reflect younger women’s objective position in the life cycle as well as the fact that some positive changes may be already occurring in Bulgarian women’s attitudes toward taking initiatives and being assertive in defining the content of their lives. Age, level of education, marital status, political orientation, and membership in a feminist organization did not seem to differentiate significantly the respondents’ attitudes toward the current social status of Bulgarian women. However, an analysis of the frequency distributions of the respondents’ attitudes toward the positive changes in their social status showed stronger within-group individual differences, while the means for some of the categories were relatively low. Such within-group differences were found in perceptions of Bulgarian women’s opportunities for living independently without relying on the support of husbands, for fast professional development, and for personal growth. For instance, although the majority of the respondents were skeptical about the presence of such positive changes in their status, 35 percent believed that women now have better opportunities for independent living, 27.6 percent thought that women have a greater chance for rapid professional and career development, and 28.8 percent stated that the current socioeconomic changes are promoting the personal growth of women. These results suggest that there is a growing

96

Policies for Families and Women

differentiation in the professional and personal experiences of Bulgarian women but that this differentiation has not yet crystallized on the basis of these women’s various demographic characteristics. The respondents also emphasized the negative consequences of the transition on women’s lives. The main negative effect was the situation of older women who have to continue to work after retirement because the small pensions they receive do not allow them to meet their basic living needs. This finding seems to be an accurate reflection of the increasing difficulties that both retired men and retired women are facing. The second most-expressed negative consequence was related to the growing need for women to have more than one job or to work extra hours to earn incomes that will meet their basic living expenses and to undergo vocational retraining. Although there was no statistically significant difference between the attitudes of the two groups of women, the nonmembers of feminist organizations appeared to be slightly more concerned about this change than were the members. Women’s greater insecurity about losing their jobs and potential for becoming unemployed were two other strong concerns that the respondents related to the socioeconomic changes in the country. The respondents with higher levels of education felt significantly more insecure about being able to keep their jobs than did those with a general high school education and those with special certificate education. This result suggests that women with high professional qualifications may feel more vulnerable and dependent on the fluctuations of the job market. The decrease in the financial independence of Bulgarian women and the need for them to rely on the financial support of husbands were yet other negative changes in women’s social status that the respondents identified. They seem to be a direct consequence of the increased threat of unemployment that all Bulgarians have been facing in the past eight years. Another set of concerns that the respondents identified were related to the increased potential for violations of the labor rights guaranteed to Bulgarian women by the Bulgarian constitution, for discrimination of women when applying for jobs, and for diminished possibilities to pursue desired professional careers. The respondents’ attitudes appeared to be consistent across the levels of factors addressed in the study. The respondents seemed to be least concerned about the transition’s effects on Bulgarian women’s opportunities for obtaining leading professional and political positions, as well as on the equality of men and women. However, those who were members of feminist organizations had stronger beliefs than the nonmembers that the transition has limited women’s options for more advanced positions in society. The respondents believed that the positive effects of the transition were related primarily to some of the psychological and sociopsychological aspects of women’s status in Bulgarian society (opportunities for taking initiatives, for

Changes in the Social Status of Bulgarian Women

97

maintaining a relative equality with men, and for establishing wider professional contacts with the international community). They also viewed the negative aspects of these changes as being more concrete and related to women’s participation in the labor force and the resulting financial security women experience for independent living, within the family system, and particularly after retirement. The respondents evaluated the level of protection that the society affords women as being extremely low. With regard to the protection of women’s right to work, the respondents thought that there is a relatively high danger of women being unemployed because there are not enough full- and part-time jobs for those who want to work. They also believed that Bulgarian women have slightly better opportunities to start and maintain private businesses than to work in home-based jobs or to rely on the government to provide jobs. Furthermore, the respondents were moderately confident about the provision of annual paid vacations for working women and were the most concerned about the Bulgarian women’s standard of living after retirement. With regard to the financial protection that the society is able to provide for both individual women and their families, the respondents thought that the Bulgarian government provides only limited welfare support and protection for women who are unemployed, poor, physically disabled, and mentally ill. A related concern was the increasingly lower quality of medical and dental care and fewer opportunities for women to obtain early retirement because of disabilities, to pay for medications, and to receive free medications in the case of chronic illnesses. The respondents also believed that the society has been moderately successful in providing housing for women, based on the ownership of a house or an apartment or on renting an apartment. However, they thought that the availability of shelters for homeless women is still limited while the presence of homeless women is a growing societal problem. The members of a feminist organization expressed stronger concerns than did the nonmembers about the government’s inability to address the problem of homelessness efficiently. The respondents stated that the society is able to provide the strongest protection for women with regard to education. Women have better opportunities to obtain a general or specialized high school education but limited opportunities to obtain higher education, continuing education, and professional requalification. The respondents with higher educational levels were more optimistic than those with lower educational levels about the level of general and specialized high school education that young people can obtain. The respondents believed that the society has a differentiated ability to protect women’s various social rights. They felt that women’s religious freedom is the most strongly protected and that women are relatively protected from political violence and from discrimination based on their gender and ethnic backgrounds. They stated that they are much less protected from the dissemination of drugs, from the rise in prostitution, and from the increase in alcoholism and crime.

98

Policies for Families and Women

Furthermore, they evaluated the society’s legal protection of women’s rights as mothers and women’s equality with men as low. The respondents strongly believed that it is necessary to develop independent democratic women’s organizations that can promote feminist ideas and work to protect the rights and interests of Bulgarian women and children during the transition. However, they were all quite skeptical about the influence that the organized women’s movement can exercise in promoting Bulgarian women’s well-being in the next few years in the areas of labor, legal, educational, social, health, financial, and housing protections.

CONCLUSION Review of the factors and conditions determining the development of the current democratic women’s movement in Bulgaria and the results of the empirical study lead to the following conclusions: 1. The current socioeconomic changes in Bulgaria, especially the privatization of the economy, have had a strong influence on women’s position and roles in the society and psychological stability. Women have a clear perspective on the negative impact of societal and economic changes on their professional, family, and personal well-being. However, they also recognize that these changes are creating opportunities for women to develop initiative and assertiveness and thus further their psychological growth. 2. The development of the women’s movement needs to be examined in the context of the current socioeconomic changes in the country. These changes have led to two opposite tendencies that influence the level of functioning of the various feminist organizations and the extent to which the public is interested in their activities: the need for a feminist lobby to protect and defend women’s rights and interests and the frustration and preoccupation of millions of Bulgarian women with their own and their families’ physical and emotional survival during times of increased economic instability and crime. 3. Women recognize the need to establish independent women’s organizations to protect their human rights and equality with men. However, they have low expectations about the effects that their organized efforts could have in these directions, particularly in counteracting the negative impact of the current socioeconomic changes in the country. 4. The development of the women’s movement in Bulgaria appears to be entering a new stage of development, characterized by the existence of a growing number of different types of women’s organizations. These organizations are promoting women’s broader contacts with representatives of foreign and international women’s organizations, the further integration of Bulgarian women’s organizations at the national level, and a new identity among women about their roles and strengths as members of the society who can pursue leading positions in the sociopolitical life of the country.

Changes in the Social Status of Bulgarian Women

99

NOTE This chapter was based on a research project sponsored by the NATO Fellowship Program, Democratic Institutions.

REFERENCES Ferge, Z. (1990). Women’s interests and socialist social policy. In B. Deacon & J. Szalai (Eds.), Social policy in the new Eastern Europe (pp. 41–48). Brookfield, VT: Gower. For equal rights and opportunities of women in Bulgaria. (1994). Sofia: MT Studio. Kabaktchieva, P. (1996). The Bulgarian woman—Always everywhere, sometimes at the summit. Kultura, 10, pp. 9–11. Katzeva, T. (1996). Amazons, Sleeping Beauties or What Else. Kultura, 10, p. 10. Kostova, D. (1993). The transition to democracy in Bulgaria: Challenges and risks for women. In V. Moghadam (Ed.), Democratic reform and the position of women in transitional economies (pp. 92–109). Oxford, England: Clarendon Press. Nikolova, I. (1992a). The Bulgarian woman neither can nor wants to stay at home. Duma, 149, p. 7. Nikolova, I. (1992b). The chance of the unemployed is one in thirty-seven now. Duma, 115, p. 6. Report for the state and the perspectives of the Democratic Union of Women. (1992, March). Paper presented at the Conference of the Democratic Union of Women, Sofia. Survey (Anketa). (1996). Kultura, 10, pp. 1–12. Valentich, M., & Gripton, J. (1991). Social work and feminism: An alliance for women’s rights. Paper presented at the International Conference on The Welfare State: Transition from Central Planning toward a Free Market Economy, Budapest. Wolchik, S. L. (1985). Introduction. In S. L. Wolchik & A. G. Meyer (Eds.), Women, state, and party in Eastern Europe. Durham, NC: Duke University Press.

Chapter 8

Marginal Women at Risk: Working Toward Economic Equity Within the Context of Privatization ROBBIE TOURSE AND PAULINE COLLINS

INTRODUCTION It is an historical fact that privatization is an integral part of the economic foundation of the United States. Since the demise of communism in Central and Eastern Europe (CEE), the CEE countries have begun to privatize governmentowned and run businesses and industries (Bolton & Roland, 1992; Kaikati, 1992; Peng, 1993; Roland & Verdier, 1994). The Czech and Slovak Republics are two such CEE countries that have embraced and been quickly moving toward such privatization. As some countries have found, the transition to privatization can result in fewer jobs and higher rates of unemployment (Bolton & Roland, 1992; Kaikati, 1992; Peng, 1993). In what economic position do the various stages of privatization leave women, particularly racial or ethnic minority women? The position of women in society has historically been secondary to that of men. With the emergence of the women’s movement, some notable changes have occurred in how women are treated and considered in Western society. That is, although women are still subjected to socioeconomic biases, they have made strides in the pursuit of positional and economic equality in the workplace. Women who come from minority groups, such as African-American and Roma (Gypsy) women, however, are subjected to dual biases related to gender and race-ethnicity that keep them on the fringe of socioeconomic changes. This marginalization still remains an issue in Western democratic capitalist countries and appears to be occurring for women from marginal groups, such as the Roma, in the former Eastern Bloc countries (Gheorghe, 1994; Helsinki Watch, 1992). This chapter first addresses women’s unequal socioeconomic and political positions relative to men’s. It then examines and compares the economic status

Marginal Women at Risk

101

of African-American women in the United States and Roma women in the Czech and Slovak Republics. With regard to Roma women, it analyzes the economic position of Roma people prior to and since the establishment of a free-market economy, but with a focus on the marginal position of Roma women, and explores economic equity for the two groups of women within the context of privatization. OVERVIEW OF MARGINALITY OF WOMEN IN THE WORKFORCE It is indisputable that we live in a rapidly changing world. The process of economic and social change in the global marketplace has accelerated sharply and is becoming ever more pervasive. These changes are also being reflected in the gender composition of the workforce. Figures show that the distribution of women in the labor force in most European and North American countries varies from 30 percent to over 50 percent (Davidson & Cooper, 1983; Forbes, 1989; Kanawaty, 1985; Rai, Pilkington, & Phizacklea, 1992). Even though this proportion has been increasing, many of the fundamental problems that working women confront in North America and Western Europe parallel those that working women in the CEE countries face. Although it is difficult to compare conditions among European and North American countries because data tend to be available only in the general or the specific sense, it can be said that, overall, women’s participation in economic life is marked by segregation in a narrow range of jobs and skills and the persistence of a two-track labor market based on gender (Rai et al., 1992; Vogel-Polsky, 1985b). Rationalistic theories of the workplace, predicated on Weber’s (1978) theories, and the claims typically made by organizations stress that an individual’s access to the resources and advantages of an organization are determined by his or her qualifications and contributions to the collective enterprise and that the payoff for efforts is essentially the same for all who do similar work. However, negotiating for workplace rewards is actually far more complicated than these theories allow (Miller, 1986). In actuality, in both CEE (see Coirrin, 1992) and in North America and Western Europe (see Lopez 1995; Miller, 1986), equitable access to resources and rewards, to vital forms of communication, and to formal bases of power and decision making is fundamentally influenced by gender. Overall, women continue to cope with marginality and alienation in the workplace. A group such as women, particularly women of racial minority groups, confront alienation in the global marketplace because their economic plight is inextricably enmeshed with existing social and political systems (Oommen, 1994; United Nations, 1990). There are two dimensions of marginality within the context of social systems—marginality related to reference groups and marginality connoting social conditions. The first type of marginality involves groups who traverse two or more cultures, maintaining the significant rituals, traditions, mores, and customs of their culture of origin but also accepting, operating in,

102

Policies for Families and Women

or assimilating somewhat within the mainstream culture of the region in which they live. One’s culture is important because it provides a sense of identity, a source and reason for belonging, and a focus of reality for one’s existence (Pinderhughes, 1989). The second type of marginality exists as a result of social conditions within a social system and is described as the state of those who have limited rights and responsibilities (Henricks, 1982). In the political context, members of a marginal group, such as women, find political unity a necessity for survival and a mechanism for positive change. However, the dominant culture keeps the group not identified as the dominant group on the fringe and out of the mainstream socioeconomic sphere (Brod, 1987). Thus, individuals who are the most likely to be marginalized and alienated in a political system or any system are those who differ in some way from the dominant members of that system. The economic plight of socially and politically marginalized groups, such as women and racial and cultural minorities, is often manifested through stereotypes. Collective stereotypical attitudes obscure the tremendous variability in the actual aptitudes, skills, personalities, intellectual capacities, and self-concepts of members of these groups. These stereotypes, which help the dominant group to rationalize the status quo, are often reflected in the discriminatory treatment of individual members of marginal groups. For example, a dominant group stereotype in the United States is that African Americans are lazy, do not want to work, and do not take advantage of the educational system that can assist them to become employable. A paradox in this stereotype arises when members of the marginal group begin to attain higher educational levels, find jobs, gain economic stability, and enter new economic environments. They are then perceived as taking away jobs from members of the dominant culture. The Roma in CEE countries are subject to a similar stereotype and paradox. They, too, are viewed as lazy, not wanting to work, and not taking advantage of the educational system, but when they work, and work for themselves, their enterprises are perceived to be part of the black market. These stereotypes and paradoxical views pave the way for socioeconomic practices that prevent marginal groups, such as African-American and Roma women, from receiving equitable treatment and equal opportunities in the workplace. Marginality, along with the attendant risk of alienation, is detrimental to the careers of both men and women. However, it has more pervasive effects among women because of the imposition of inequities in the labor market. THE JUST PRINCIPLE OF EQUAL OPPORTUNITY Approaches to overcoming marginality used by the authorities and institutions that are set up to promote the equality of women in the workforce are changing. Equal rights for men and women in employment is a principle that is widely recognized in the legislation of Western countries and the newly emerging employment laws of CEE countries (Helsinki Watch, 1992). The banning of dis-

Marginal Women at Risk

103

crimination and the active promotion of equal opportunities for working women are crucial developments, since they represent changes in the rules of the game in the labor market (Vogel-Polsky, 1985a, 1985b). As Forbes (1989, p. 19) noted, ‘‘As a general principle, equality of opportunity attracts considerable support. However, such agreement does not extend to definitions of equal opportunity policies or to the need and manner for their implementation.’’ A case in point is the implementation of positive action programs in European countries or affirmative action programs in the United States. Positive action programs include a range of promotional measures aimed at achieving equality of opportunity for women, particularly by eliminating de facto inequalities that have restricted women’s opportunities for education and training and working conditions in the private and public sectors. Following the United Nations Decade for Women, some progress in achieving equal pay and equal treatment for women in employment was noted. Employment of women in the public sector expanded, which is noteworthy because prior to the 1950s, most public service jobs in many European countries remained closed to women. However, although the proportion of women in the public sector has increased rapidly in Europe, women are overrepresented in these positions, and their advancement is limited mainly to lower-level jobs (Volgel-Polsky, 1985b). This gender dynamic also remains evident in the United States, where public service positions are staffed by women but controlled predominantly by men (Faver, Fox, & Shannon, 1983; Miller, 1986; York, Henley, & Gamble, 1988). Even fewer women hold positions of responsibility in the private sector than in the public sector (Vogel-Polsky, 1985b). Still the prospect of implementing positive action programs to improve economic equity for women remains a highly sensitive political issue under privatization. In many European countries, there were no laws that require private employers to adopt positive action programs (Vogel-Polsky, 1985b). Even in the United States, the federal laws governing affirmative action programs place fewer obligations on private employers than those in the public sector. This lack of support for working women sustains the existence of ‘‘glass walls’’ and the occupational segregation that limits women’s lateral movement to higher-paying jobs. It also maintains a ‘‘glass ceiling’’ of prejudice that hinders women’s climb up the corporate ladder. Thus, fewer than 5 percent of the senior management positions in the largest companies in the United States are held by women (Lopez, 1995), and the relatively few women who manage to advance to the upper echelons of the corporate world are often relegated to ‘‘token’’ status, operating alone in the midst of their male counterparts (Kanter, 1993). Some analysts agree with Kanawaty (1985, p. 402) that there is no doubt that pressure to employ more women will continue as the world becomes more committed to the just principle of equal opportunity, which means opening more doors to women on an equal footing with men and not simply expanding opportunities in areas that have traditionally been their domain. However, there is

104

Policies for Families and Women

a lack of empirical evidence that this pressure will be exerted for women in CEE countries that are undergoing the transition to privatization. Indeed, given the marginal position of women in political life and the weakness of the newly emerging feminist movements in these countries, social and economic changes present women with threats as well as opportunities. Unless the ‘‘Woman Question’’ (which brings to the fore the realization that working women have specific problems that require specific solutions) is effectively integrated into the discourse about economic reform in CEE, employment opportunities for women and women’s actual presence in productive enterprises may decrease (Ashwin, 1993; Pearson, 1991; Rai et al., 1992). For women in the East and West, a banning of discrimination and shift to actively promoting equal opportunities for working women is a crucial development since it represents a change in the rules of the game in the labor market (Vogel-Polsky, 1985a, 1985b). ‘‘A positive action program for women is not a matter of special advantages or privileges for anybody; it merely reflects a determination to eradicate prejudices that have hitherto favored men’’ (VogelPolsky, 1985a, p. 263). Continued progress in this direction is essential if economic equity for women in the East and West, particularly women who are at risk because of the added burden of racial or ethnic discrimination, is to be achieved. THE ECONOMIC PLIGHT OF AFRICAN-AMERICAN AND ROMA WOMEN African-American and Roma women are women at risk because both face the dual biases of gender and racial or ethnic prejudices that place them in a more tenuous economic position than women of the dominant culture in their respective homelands. Both groups have historically been socially and politically marginalized through overt and covert discrimination, which has affected their positions in the workplace. Although living worlds apart, their experiences related to the privatized job market have been similar. African-American women, however, live in a country that has had an ongoing privatized economy, whereas Roma women are living in countries that are in transition to privatized economies. The U.S. government’s response to the economic inequity of racial and other minorities, including African-American women, should help the governments of the Czech and Slovak Republics formulate their responses to the economic inequity for Roma people, especially the women of this group. African-American Women in the United States Women of African-American descent, as previously noted, are an at-risk population because of the dual bias of gender and racial prejudice. As women and as African Americans, they share a history of oppression and economic exploitation. The history of African-American people is inextricably linked to the

Marginal Women at Risk

105

history of the slave trade in the United States. Following the Civil War, 4 million slaves were emancipated in 1865 with the ratification of the Thirteenth Amendment to the U.S. Constitution, which outlawed the owning of slaves. However, as a black abolitionist noted, ‘‘The freeman was free from the individual master but a slave of society’’ (Martin, Roberts, Mintz, McMurry, & Jones, 1989, p. 480). The former slaves were technically free, but whites expected them to work and live much as they did before emancipation. As a means of racial control, the state governments enacted a series of Black Codes that restricted African-American participation in the workforce to domestic service and agricultural jobs and fashioned a labor system as close to slavery as possible (Du Bois, 1995; Martin et al., 1989). For the next 100 years, many states passed Jim Crow laws that maintained white supremacy and subjected African Americans to daily bouts of degradation and humiliation. By dictating the separation of whites and blacks in public and private facilities, these laws perpetuated widespread socioeconomic and political inequity (Plano & Greenberg, 1976; Wright, 1995). Finally, in 1964, after years of advocacy by African-American and white activists and lawyers, the U.S. Congress passed the Civil Rights Act, which struck down the discriminatory state laws, prohibiting discrimination in voting, employment, and public facilities, and established the Equal Employment Opportunity Commission (EEOC) to prevent discrimination in employment on the basis of race, religion, or sex. Ironically, the provision barring sex discrimination was added by opponents of the Civil Rights Act in an attempt to use prejudice against women to defeat passage of the bill (Martin et al., 1989). From 1964 to 1974, the federal government enforced the Civil Rights Act by filing over 900 legal suits on the basis of complaints of racial discrimination. Throughout the stages of this sometimes reluctant process, the liberalizations were often honored more in print than in practice for African-American women (Hopps, 1988). Hereafter in this chapter, African-American and other black women presently residing in the United States will be noted collectively as African-American women. Of the women who reside in the United States, 11 percent are categorized as African Americans (both those who are descended from slaves and other black women who later came to the country) (U.S. Bureau of the Census, 1993b). African-American women have always been active participants in the labor force because they have had to work to survive. As of 1992, a larger proportion of African-American women (62.6 percent) than other women (57.8 percent) were working outside the home (U.S. Bureau of the Census, 1992a). Regardless of childbearing, caregiving, and other domestic responsibilities, the labor force participation of African-American women does not fluctuate as it does for other women (Ozawa, 1993). In the United States, low educational attainment tends to be correlated with marginality in the labor force. However, despite women’s increasing educational attainment, the economic payoff has not been as high for white women as for

106

Policies for Families and Women

white men or, with few exceptions, for African-American women as for white women. Although employment opportunities continue to expand for AfricanAmerican women, as well as women in general, as they attain educational levels comparable to men, women’s economic viability continues to be marginal (U.S. Bureau of the Census, 1993a). For instance, rates of high school graduation for whites and African Americans are comparable, but the average annual earnings of white male and female high school graduates are disparate ($25,074 for white men versus $15,000 for white women. African-American women earn even less, averaging only $14,585. Similarly, the average annual earnings for white male and female college graduates vary widely ($42,538 for white men versus $24,864 for white women). However, college-educated African-American women average $25,363 per year, or $499 more than college-educated white women but still only 59.6 percent of the annual earnings of college-educated white men. The greater earnings of college-educated African-American women than of college-educated white women must be tempered by the fact that a substantial racial disparity exists between the two groups’ rates of completing college. Whereas 20 percent of white women obtain college degrees, only 11 percent of African American women do so (U.S. Bureau of the Census, 1992a). Since the mid-1960s, federal antidiscrimination efforts, such as affirmative action programs, have helped narrow the disparity in men’s and women’s earnings, although there are still unexplained differences in the occupations held by African-American and white women (Cunningham & Zalokar, 1992). Despite the recent gains by college-educated African-American women, in toto, AfricanAmerican women earn considerably less over the course of their work lives than do white women (Ozawa, 1993). In a capitalist democracy, this gap in income has major implications for putting marginal women at further risk, since there is a link between low income and poor health (Brenner, 1984). Women’s marginality affects their ability to obtain needed income security and medical-social service benefits in their later years—benefits that are especially crucial to women because they tend to live longer than do men. Data from the U.S. Bureau of the Census (1992b) confirmed the at-risk status of elderly women, especially African-American women, aged 65 and over. Whereas the median income of elderly men was $13,107, the median income of elderly women was $7,635, or 58 percent that of men and that of elderly African-American women was $5,617 (below the poverty level). After a lifetime of hard work and a long work history, African-American women may remain at risk, even when they receive social security benefits, because of their marginal status and lower earnings while in the workforce. Overall, it appears that with the support of federal mandates and the implementation of affirmative action programs, African-American women have made gradual progress, but equal opportunity remains elusive and economic equity has not yet been achieved under the U.S. system of free enterprise and privatization.

Marginal Women at Risk

107

Roma Women in the Czech and Slovak Republics As with African-American women in the United States, Roma women in the Czech and Slovak Republics are from an oppressed marginal group seeking equal opportunity in the workplace. Since scant demographic data were attainable from the United States on Roma people, especially Roma women, this section briefly discusses the economic existence of Roma people and the women of the Czech and Slovak Republics during communism and since the emergence of a free-market system. Roma people migrated from northern India to the region known as the Balkans sometime around the tenth and eleventh centuries (Helsinki Watch, 1991a, 1991b; Yoors, 1967). They have continued to migrate from the Balkans throughout the world but especially within CEE. However, no matter where Roma people settle or travel, they experience oppression, discrimination, and economic limitations. The Czech and Slovak Republics are no exceptions, even though they have instituted integration and equal opportunity policies (Kostelancik, 1989). Communist regime. Romanies seeking better economic opportunities migrated to Czechoslovakia in the 1930s (Helsinki Watch, 1992; Kostelancik, 1989). During World War II, they were virtually exterminated in the Czech region of Czechoslovakia, reduced from a population of 10,000 before the war to 1,000 afterward (Kostelancik, 1989). Since Romanies in the Slovak region did not suffer the same fate during World War II, their population increased to 100,000 after the war (Kostelancik, 1989). To help reestablish the Czech economic and industrial standing following the war, Romanies were forcefully relocated from the Slovak region to the Czech region (Kostelancik, 1989; Turgeon, 1990). By 1948, the Czechoslovak government was controlled by the Communist Party. By 1958, as part of the Communist assimilation doctrine and process, Roma groups who were nomadic or seminomadic were forced to remain in certain areas (Helsinki Watch, 1991a, 1992; Kostelancik, 1989) and were encouraged to deny their ethnic identity by becoming integrated into the Czechoslovak culture. The doctrine of assimilation appeared to be an effort to eradicate social marginality. Those who chose to assimilate totally were accepted as part of the dominant culture; however, not all Romanies made this choice. Furthermore, policies and practices related to housing, jobs, and education continued to distinguish the Roma population from the Czechoslovak population and thus contradicted the concept of assimilation (Helsinki Watch, 1992). Hence, assimilation was honored more as a principle than in reality. As recently as 1980, it was not clear how many Roma people were in Czechoslovakia because assimilation practices skewed the actual number. According to data from the 1980 census of Czechoslovakia, there were 288,440 Roma people out of the overall population of 15,277,000. In 1980 the Slovak region still had the largest Roma population. For instance, in Rimavska Sobata, half the town’s population were Romanies (Ułc, 1991).

108

Policies for Families and Women

One factor that affected employment during the Communist era, as it does now, is education. On the basis of 1980 data, Ułc (1991) estimated that onethird of the Roma population did not complete the eighth grade and only 4 percent who did continued to high school. This phenomenon was fostered by language barriers. Romanies were unable to speak Czech or Slovak but were prevented from using their native Romani language in school (Gheorghe, 1991; Ułc, 1991). Thus, the government placed most Roma students in special schools, which were designed for slow learners and the intellectually deficient and where the levels of attainment and expectation were usually limited (Helsinki Watch, 1992; Ułc, 1991). In 1981, out of those who did continue their education, only 25.6 percent completed the ninth grade, and 28.7 percent who completed their basic education entered vocational schools. Furthermore, of the 191 Roma students who entered institutions of higher education, 97 were women (Kostelancik, 1989). Hence, a few Roma people were highly educated and worked as physicians, lawyers, teachers, and politicians. Most Romanies were uneducated (Helsinki Watch, 1992; Ułc, 1991), and most of the traditional Roma jobs, such as working as musicians, blacksmiths, tinsmiths, brick makers, and wood carvers, were prohibited. Skilled in traditional jobs but unskilled in the areas of governmentapproved employment, Roma individuals had to take the least desired menial jobs in agricultural cooperatives, factories, seasonal construction, and sanitation (Helsinki Watch, 1992). Their employment situation seemed to have been partially related to and influenced by the social discrimination to which they were subject in education. The thrust of communism was collective self-interest (Longres, 1995), with a centrally planned economic base that included all people (Ułc, 1991; United Nations, 1990). Employment for the masses existed, but the collective concept in the marketplace was void of equal opportunity because equal opportunity in education did not exist. During the Communist era, women generally were important in implementing the industrialized centrally planned Communist system. More and more women entered the labor force over the decades, and thus the social environment of the country was changed, since women were not at home but in the workforce (Paukert, 1991). Roma women were included in this work system. In 1981, the Czechoslovak government indicated that 75 percent of the Roma population of employable age, including women, were employed (Kostelancik, 1989). Since the dissolution of communism. Based on Helsinki Watch (1992) information, since 1989, the Czech and Slovak Republics have passed laws indicating that Roma people can be identified as a national ethnic group and that discrimination is unconstitutional. In addition, discrimination in the workplace, based ‘‘on race, skin color, language, sex, social origins, age, religion, political or other opinions, political membership, trade union activities, membership in a nation or ethnic group, or other position,’’ was outlawed in 1991 in Article III of the Basic Principles of the Employment Law, No. 297 (p. 76). The employment law is an important step toward making employment op-

Marginal Women at Risk

109

portunities equitable; however, as of 1992 (Helsinki Watch, 1992), it had not yet been enforced. The Romany Civic Initiative Party, one of several Roma organizations, and the Civic Forum Party, a federation organization, have been working toward this goal without much success. Furthermore, discrimination is on the rise in every aspect of life. This discrimination leads to inter- and intragroup conflicts (Gheorghe, 1991), alienation, and avoidance, both socially and in the marketplace. Romanies are considered the second largest minority in the Czech and Slovak Republics, with unofficial estimates ranging from 700,000 to 800,000 (Helsinki Watch, 1992; Ułc, 1991), or 3 to 5 percent of the Czech Republic’s population and 10 percent of the Slovak Republic’s (Bollag, 1994). As of 1990–1991, most Roma children were still attending special schools from grades 1 to 9 because, according to the Czech Ministry of Education (Bollag, 1994), of language problems. For instance, almost 30 percent of the children in such schools in the Czech Republic and two-thirds in the Slovak Republic are Romanies. And as in the Communist era, most Roma children do not graduate from high school and fewer enroll in institutions of higher learning (Bollag, 1994). In the Slovak Republic, where an estimated 10 percent of the 5.5 million people are Roma (Bollag, 1994), two out of three, or 11,682 of 17,901 students in special schools are Romanies (Helsinki Watch, 1992). Gheorghe the Romanian sociologist, in Bollag (1994), indicates that most do not graduate from high school and fewer enroll in institutions of higher learning. A quote that was noted by Helsinki Watch (1992) from the Charter 77 Document of 1979 is still applicable today: The indiscriminate transfer of Romany children to these special schools reinforces the exclusion of Romanies from skilled and professional work. Children who have been through special schools, like those who have not finished primary education, are not able to get apprenticeships in the majority of trades. (p. 37)

A factor during the Communist era that still contributes to students attending special schools is language (Gheorghe, 1991; Helsinki Watch, 1992). The Czech Ministry of Education indicates that because of language problems, 40 percent of Roma children attend such schools (Bollag, 1994). The United Nations (1990) iterates a well-known fact, that a better-educated people correlates with better societal contributions and more economic production. Thus, the Republics and especially the Roma population would benefit from Romanies being better educated. There would be, from an educational perspective, a more equal chance for Romanies to find employment. There has been a general state of unemployment in CEE since the early 1980s because of the slowdown of the global economy (United Nations, 1990). In the Czech and Slovak Republics, unemployment is a serious problem because of the transition to privatization and democracy—one to which Roma people appear to be particularly affected. For example, in Rimavska Sobota in the Slovak

110

Policies for Families and Women

Republic, of the 6,530 known unemployed persons in 1991, 4,289 were Romanies (Helsinki Watch, 1992). The severe unemployment of Romanies extends beyond the borders of the Czech and Slovak Republics. In Ozd, Hungary, for instance, more than 90 percent of the 8,000 Roma were unemployed in 1993 because the steel mill cut back operations and the coal mine closed—a direct result of the demise of Communist commitment and the birth of the free market (Kamm, 1993). The causes of the disproportionate number of unemployed Romanies since the transition include fewer job openings (even for menial positions), open job discrimination, and lack of funds and governmental support to begin traditional forms of Roma employment. Some Romanies, especially in the Czech Republic, have started and operate private enterprises, such as hotels, construction companies, and car rental services. Many Roma women own or operate small enterprises (Gheorghe, 1991; Helsinki Watch, 1992), but they face barriers from local people and authorities that make it difficult for them to keep these and other enterprises going (Helsinki Watch, 1992). Even when Romanies operate small-scale enterprises, such as street vending, small shops, or businesses out of the home, the majority population tends to consider these businesses black-market endeavors (Gheorghe, 1991). This type of thinking and the accompanying biased attitudes and behaviors maintain the status quo. Thus, with fewer marketable skills, most Romanies have been negatively affected by the emerging free-market economy. In the Czech Republic, there are some Romanies who are doing well in the capitalist system, although most are not (Helsinki Watch, 1992). In the Slovak Republic they are doing less well (Helsinki Watch, 1992). Women are one of the marginal groups that is severely impacted when the economy is in a downturn (United Nations, 1990). In these republics this certainly appears to be the case, which places Roma women more at risk. In 1991, women made up 47 percent of the labor force. Since the transition to a democratic market economy, most women in the republics of Czech and Slovakia indicate they work not only out of economic necessity, but also because they desire to maintain a professional identity (Paukert, 1991). Since the change to a free-market economy, unemployment is on the rise for men and women. For example, in June of 1991 unemployment for men in the Czech and Slovak Republics was 3.6 percent, and for women 4.0 percent. By December of 1991, unemployment for men was at a high of 6.0 percent, and for women 7.3 percent. The variance between men and women in June was .4 percent, and by December 1.3 percent. It is evident here that women are impacted by unemployment more than men. This is a consequence of jobs once held by women now being held by men. This phenomenon therefore increased women’s unemployment, and more than likely depressed the wages women receive (Paukert, 1991). If this is occurring for the majority population, employment for Roma women must be even worse. In fact, based on Helsinki Watch (1992) information, most Roma women’s work experiences in the Czech and Slovak Republics mirror that of Roma men—high unemployment. ‘‘Economic gender discrimination exists, to

Marginal Women at Risk

111

a greater or lesser extent, in all societies, even the most progressive. But its effects are most devastating the closer its victims live to the survival threshold’’ (United Nations, 1990, p. 77). The principle of equal opportunity was legislated into law through the Basic Principles of Employment Law. However, the enactment of equal opportunity is not evident. A positive action type system is in place in the government by means of job clearing houses. Government job clearing houses, which are responsible for enforcing the employment law, are open to all. The system does not work for Romanies, however, who find discrimination instead of applications when applying or jobs (Helsinki Watch, 1992). Even though Roma organizations are working diligently to better the social, political, and economic position of Roma people, many Romanies are still not apprised of the current laws; hence, their ability to appropriately address employment and other issues is limited (Helsinki Watch, 1992). The lack of equal opportunity in employment exacerbates the economic plight of Roma people, especially Roma women. This group of women is therefore finding it difficult to obtain economic equity in the transition to privatization. In summary, with the global economic downturn, limited employment opportunities in the transition to privatization in these republics, and their dual biased position, Roma women remain marginalized and alienated from the marketplace. SOCIOECONOMIC COMPARISONS OF AFRICANAMERICAN AND ROMA WOMEN The life experiences of Roma people and African Americans are similar. Both groups have been historically alienated, marginalized, and discriminated against, by constitutional law, mores, and cultural differences—discrimination that has led to their impoverishment. The Roma are cognizant of and have even compared their plight to that of African Americans (Von Bretzel, 1995). Prior to the Communist era, most Roma groups were nomadic or seminomadic, and mobility was an intricate part of their cultural heritage and job structure. During the Communist regime, laws were passed to eliminate the nomadic existence in an effort to assimilate the Roma population and integrate them into the workforce. The post-Communist era has seen the reinstatement of Roma people as an ethnic group but the disappearance of work (Helsenki Watch, 1992) for Roma men and women. In contrast, African Americans historically were perceived as slaves, and deliberate assimilation was never considered. They were kept stationary by slavery unless the slave masters chose to sell them. After they were emancipated, African Americans migrated to and settled in different regions of the United States in pursuit of economic viability. Only a few lived or still live a nomadic existence (those who are migrant workers), going from one farm harvest to another to eke out a living. Thus, it is probable that in the future, most Roma people will remain stationary in their quest for economic survival and equity.

112

Policies for Families and Women

Currently, the fact that Roma women’s work experiences are reflective of Roma men’s suggests that there is a need for them to work in order to survive. In this respect, Roma people’s socioeconomic experiences are similar to African Americans, for most African-American women also have to work in order to assist the family in attaining a basic existence (Pinderhughes, 1986). In the Republics, as in the United States, unemployment is a general problem that affects all populations. However, Romanies, as African Americans, are more heavily impacted because of socioeconomic disadvantages and biases they encounter as a racial or ethnic minority group. In the post-Communist republics, many of the jobs available for Roma women appear to be similar kinds of menial jobs that were available during the Communist era. Some of these jobs consist of being kitchen help, waitresses, cleaning women, maids, and kindergarten/day care workers. Until a critical mass of African Americans attained college degrees, accompanied by the emergence of the black middle-class, most African-American women were and many still are relegated to the same level of work (Ploski & Williams, 1989). Even with education and requisite qualifications, Roma women find it difficult to attain better types of employment (Helsinki Watch, 1992), and reseachers still find that there is an unexplained disparity in the occupations held by AfricanAmerican and white women (Cunningham & Zalokar, 1992). In the Czech Republic some thought has been given to the plight of Roma people, and a few Roma women have been trained, for example, as social curators to advise city authorities in understanding Roma citizens and their needs (Helsinki Watch, 1992). Is this another similarity to African Americans? Pinderhughes (1986) suggests that African-American women have been able to find employment when African-American men have not, and that this phenomenon has contributed to the breakdown of African-American families. The example of the social curator jobs, which appear targeted for Roma women, is suggestive of the beginning of such a phenomenon (women getting jobs when men cannot). However, whether the outcome will be as it has been for African-American families is yet to be determined. The political process of marginality as well as the existence of alienation still shape the economic parameters for women, especially African-American women in the United States and Roma women in the Czech and Slovak Republics. The federal implementation and enforcement of affirmative action assisted in bringing about some change in African-American women’s marginal socioeconomic position. The implementation and enforcement of a similar program has the capability of doing so for Romanies. CONCLUSIONS AND RECOMMENDATIONS: WORKING TOWARD ECONOMIC EQUITY WITHIN THE CONTEXT OF PRIVATIZATION The United States was built on the principles of capitalism and the sanctity of a free-market economy. The Czech and Slovak Republics, however, have not

Marginal Women at Risk

113

always operated under such economic principles. For 45 years, Czechoslovakia functioned under the principle of the collective good whereby industries and businesses were state owned and operated. In the post-Communist era, the Czech and Slovak Republics have embraced privatization, selling state-owned properties to private individuals and entities (Kaikati, 1992; Peng, 1993). They have been in the forefront in the move toward privatization, beginning a comprehensive transformation plan on January 1, 1991 (Peng, 1993). During the transition, high unemployment and further job losses can be severe problems when businesses change hands (Kaikati, 1992). Therefore, the free-market concept and privatization exacerbate the economic plight of alienated and marginalized groups, such as African-American and Roma women. Without institutionalized governmental supports, these groups are left out of the mainstream economic system. The sociopsychological structure or attitude of a country tends to translate into the socioeconomic strata for the various people of that country. Hence, how an ethnic or racial group is perceived and the stereotypes which develop dictate, in a free-market society, the inclusion or exclusion of that group in the economic system. This phenomenon maintains the status quo, keeping nonmainstream groups marginal in all spheres. Although a few members of a marginal group may be able to overcome the prejudice and discrimination that keep the group from becoming economically viable, the majority of the members remain poverty stricken. Women in marginal groups experience double biases—as women and as members of the marginal groups—so it is even more difficult for them to become economically viable. As information in this chapter suggests, African-American women’s move toward economic equity has improved, but it still has not been achieved. Roma women, however, are finding it difficult in the Czech and Slovak Republics’ transition to privatization to obtain economic equity. Women generally are finding it difficult to obtain work (Paukert, 1991), making Roma women more aggrieved because of discrimination toward the Roma ethnic group. This discrimination engulfs all aspects of Roma life, including the newly privatized marketplace from which they seek employment (Helsinki Watch, 1992). Therefore, the movement toward equity in the marketplace for racial and ethnic minority women in these two countries is uneven. This unevenness exists because of the length of time in which privatization has been a part of each country’s political and economic structure and, to reiterate, because of the social and cultural dynamics and dimensions in each country which influence these women’s ability to work in the marketplace. A conclusion can be drawn from information already presented in this chapter, which is, although equity in the marketplace is more probable for African-American women than for Roma women at this point in time, equity still eludes both groups. In the transition to privatization the market model of social justice is applicable, allowing for people to receive, based on their efforts and skills, that to which they are entitled. Contemporary liberal economist believe, as do the authors, that such just action must also include the government’s involvement in

114

Policies for Families and Women

reducing extreme social and economic distributive inequalities of the least well off that is a result of market functions (Iatridis, 1992). This will encourage the employment of a people that essentially has been dismissed in the public and private labor force, and will provide a more productive workforce, ‘‘an alternative to the least productive white males who had formerly been employed without question’’ (Turgeon, 1990). Free-market countries need to attack the issue of economic inequity through social reforms. The concepts of social justice and freedom (Iatridis, 1992) for all, regardless of gender, race, or cultural heritage, must be at the core of any reforms. Those countries that are embracing privatization and are in the throes of developing free-market economies have a better opportunity to redress and reduce distributive inequalities by means of social reforms. As they build toward the future, such countries also have a better opportunity to develop, implement, and actively pursue and ensure the incorporation of market model social justice concepts into the socioeconomic system. There are lessons to be learned from comparing the plight of Roma women of the Czech and Slovak Republics with African-American women of the United States. As with the reforms that began to redress the oppression of AfricanAmerican women in the United States, reforms undertaken by countries moving toward privatization must first embrace the principle of Equal Opportunity. This principle embraces the concept of equitable justice. It sends a message to governmental entities and private enterprise the need for job opportunities in the marketplace for all members of society, inclusive of women at risk because of racial and ethnic prejudices. Second, countries must plan (or reconstruct) and implement positive action models and programs. Planning (or reconstruction) and implementation of positive action programs in the marketplace provide a response to the Equal Opportunity concept. These models construct and programs provide access to educational and economic opportunities for women, racial, ethnic, and other cultural minorities, and support diversity in the workforce. Third, countries in transition must enact and enforce policies and laws that are created by Equal Opportunity legislation. Such legislation undergirds and reinforces employment equity in the governmental arena and spurs the implementation of positive action programs in the private sector. If governments are sincere about equitable justice, then those representing governmental entities must understand the critical need to monitor and to ensure enforcement of policies and laws that are legislated. This may mean developing appropriate preventive measures as well as sanctions for violators in the private economic arena and for those in governmental positions that ignore the established laws. For example, a positive action type system exists in the Czech and Slovak Republics, but the current system is not enforced (Helsinki Watch, 1992). In the United States, it is a well-known fact that positive action type criteria must be adhered to by companies and businesses, or federal funding for them is denied. An affirmative action approach such as this would provide a means for the Republics

Marginal Women at Risk

115

and other Central and Eastern European governments to begin to ensure equitable justice in the marketplace. Reforms will ultimately assist in the release of economic chains that are the result of racial and ethnic discrimination as well as uplift the social existence of marginal groups. The transition to privatization need not exacerbate the devaluation and marginalization of women, particularly women with racial and ethnic backgrounds such as African-American and Roma women. Instead, equality of opportunity and positive action models that adhere to social justice in the marketplace could assist in empowering women who are at risk to be full participants in free-market economies. Free-market countries must begin to recognize and acknowledge that the lack of access of marginal groups to economic stability will ultimately impact negatively on all members of their society. Positioning women in the marketplace must be a priority. ‘‘It is social justice that demands that public policy ranks the allocation of resources in a particular way, rather than leave it up to a random selection, to the needs of those in power, or to mechanisms that offend moral commitments’’ (Iatridis, 1992, p. 87).

REFERENCES Ashwin, S. (1993). Women and the transition from communism: Between a rock and a hard place. Slavonic and East European Review, 71, pp. 712–716. Bollag, B. (1994, August 3). Gypsy studies on the move. Chronicle of Higher Education, pp. A37, A38. Bolton, P., & Roland, G. (1992, October). Privatization in Central and Eastern Europe. Economic Policy, pp. 275–309. Brod, H. (1987). Cross-culture, cross-gender. American Behavioral Scientist, 31, pp. 5– 11. Brenner, M. H. (1984). Estimating the effects of economic change on national health and social well-being. Washington, DC: U.S. Government Printing Office. Coirrin, C. (Ed.). (1992). Superwomen and the double burden: Women’s experience of change in Central and Eastern Europe and the former Soviet Union. London: Scarlet Press. Cunningham, J. S., & Zalokar, N. (1992). Economic progress of black women: 1940– 1980. Industrial and Labor Relations Review, 45, pp. 540–555. Davidson, M. J., & Cooper, C. L. (1983). Working women in the European Community: The future prospect. Long Range Planning, 16, pp. 49–54. Du Bois, E. B. (1995). The black codes. In P. S. Rothenberg (Ed.), Race, class and gender in the United States (3rd ed., pp. 329–335). New York: St. Martin’s Press. Faver, K., Fox, M. F., & Shannon, J. C. (1983). The educational process and job equity for the sexes in social work. Journal of Education for Social Work, 19, pp. 78– 87. Forbes, I. (1989). Unequal partners: The implementation of equal opportunities policies in Western Europe. Public Administration, 67, pp. 19–38. Gheorghe, N. (1991). Roma-gypsy ethnicity in Eastern Europe. Social Research, 58, pp. 829–844.

116

Policies for Families and Women

Helsinki Watch. (1991a). Destroying ethnic identity: The Gypsies of Bulgaria. New York: Human Rights Watch. Helsinki Watch. (1991b). Destroying ethnic identity: The persecution of Gypsies in Romania. New York: Human Rights Watch. Helsinki Watch. (1992). Struggling for ethnic identity: Czechoslovakia’s endangered Gypsies. New York: Human Rights Watch. Henricks, T. (1982). Toward a general theory of alienation. Sociological Inquiry, 52, pp. 200–221. Hopps, J. G. (Ed.). (1988). We the people? 1788–1988. Social Work, 33, pp. 3–4. Iatridis, D. (1992). Social policy: Institutional context of social development and human services. Chestnut Hill, MA: Boston College Press. Kaikati, J. (1992). Privatization in Eastern Europe: Lessons from the Hungarian experience. Mid-Atlantic Journal of Business, 28, pp. 213–229. Kamm, H. (1993, November 7). Gypsies suffering in Hungary’s shift. New York Times, p. 9. Kanawaty, G. (1985). Training for a changing world: Some general reflections. International Labour Review, 124, pp. 401–409. Kanter, R. M. (1993). Men and women of the corporation. New York: Basic Books. Kostelancik, D. J. (1989). The Gypsies of Czechoslovakia: Political and ideological considerations in the development of policy. Studies in Comparative Communism, 22, pp. 307–321. Longres, J. F. (1995). Human behavior in the social environment (3rd ed.). Itasca, IL: Peacock Publishers. Lopez, J. A. (1995). Women face glass walls as well as glass ceilings. In P. S. Rothenberg (Ed.), Race, class and gender in the United States (3rd ed., pp. 151–152). New York: St. Martin’s Press. Martin, J. K., Roberts, R., Mintz, S., McMurry, & Jones, J. H. (1989). America and its people (Vol. 2). Glenville, IL: Scott, Foresman. Miller, J. (1986). Pathways in the workplace: The effects of gender and race on access to organizational resources. Cambridge, England: Cambridge University Press. Oommen, T. K. (1994). Race, ethnicity and class: An analysis of interrelations. International Social Science Journal, 46, pp. 83–93. Ozawa, M. N. (1993). The effects of children and education on women’s earnings history. Social Work Research and Abstracts, 29, pp. 17–26. Paukert, L. (1991). The economic status of women in the transition to a market system: The case of Czechoslovakia. International Labour Review, 130, pp. 613–633. Pearson, R. (1991). Questioning perestroika: A socialist feminist interrogation. Feminist Review, 39, pp. 91–96. Peng, Y. (1993). Privatization in Eastern European countries. East European Quarterly, 26, pp. 471–484. Pinderhughes, E. (1986). Minority women: A nodal position in the functioning of the social system. In M. Ault-Riche (Ed.), Women and family therapy (pp. 51–63). Rockville, MD: Aspla Systems. Pinderhughes, E. (1989). Understanding race, ethnicity, and power: The key to efficacy in clinical practice. New York: Free Press. Plano, J. C., & Greenberg, M. (1976). The American political dictionary (4th ed.). Hinsdale, IL: Dryden Press.

Marginal Women at Risk

117

Ploski, H. A., & Williams, J. (Eds.). (1989). The Negro almanac: A reference work on the African American (5th ed.). New York: Gale Research. Rai, S., Pilkington, H., & Phizacklea, A. (Eds.). (1992). Women in the face of change: The Soviet Union, Eastern Europe and China. London: Routledge. Roland, G., & Verdier, T. (1994). Privatization in Eastern Europe: Irreversibility and critical mass effects. Journal of Public Economics, 54, pp. 161–183. Turgeon, L. (1990). Discrimination against and affirmative action for Gypsies in Eastern Europe. In M. Wyzan (Ed.), The political economy of ethnic discrimination and affirmative action: A comparative perspective. Westport, CT: Greenwood Press. Ułc, O. (1991). Integration of the Gypsies in Czechoslovakia. Ethnic Groups, 9, pp. 107– 117. United Nations, Department of Public Information. (1990). The world economy: A global challenge. New York: Author. U.S. Bureau of the Census. (1992a). Money income of households and persons in the United States: 1992 (Current Population Reports, Series P60–184). Washington, DC: U.S. Government Printing Office. U.S. Bureau of the Census. (1992b). Statistical abstract of the United States. Washington, DC: U.S. Government Printing Office. U.S. Bureau of the Census. (1993a). Studies in the distribution of income (Current Population Reports, Series P60–183). Washington, DC: U.S. Government Printing Office. U.S. Bureau of the Census. (1993b). United States population estimates, by age, sex, race, and Hispanic origin: 1980 to 1991 (Current Population Reports, Series P25–1095). Washington, DC: U.S. Government Printing Office. Vogel-Polsky, E. (1985a). Positive action programmes for women: A theoretical analysis. International Labour Review, 124, pp. 253–265. Vogel-Polsky, E. (1985b). Positive action programmes for women: Practical considerations. International Labour Review, 124, pp. 385–399. Von Bretzel, N. C. (1995). Report to IREX on the completion of the first two stages of IREX special project ‘‘Problems of the Bulgarian Gypsy Population and the Delivery of Social Services’’: A project to sensitize service providers. Sofia, Bulgaria: Author. Weber, M. (1978). Economy and society. Berkeley: University of California Press. Wright, R. (1995). The ethics of living Jim Crow: An autobiographical sketch. In P. S. Rothenberg (Ed.), Race, class and gender in the United States (3rd ed., pp. 23– 32). New York: St. Martin’s Press. Yoors, J. (1967). The Gypsies. New York: Touchstone. York, R. O., Henley, H. C., & Gamble, D. N. (1988). The power of positive mentors: Variables associated with women’s interest in social work administration. Journal of Social Work Education, 24, pp. 242–250.

Chapter 9

The Impact of Privatization on the Female Workforce in Poland JACQUELINE HEINEN

The major changes in social and economic relations and the quick rise of unemployment in Poland, linked to the introduction of a market economy, have led to new divisions and greater inequality among social groups, particularly between men and women. Because of their roles in their families, women have been the hardest hit by unemployment and the most affected by impoverishment. The information presented in this chapter is based on the results of a qualitative study, conducted in 1992–1994, of the workforce in 12 light-industry plants in Lodz and Warsaw. In the study, a continuation of a survey done in 1986–1988 (Heinen, 1995), interviews were held with 20 representatives of national and local trade unions and 60 male and female workers and former workers of the plants in these two towns. The chapter examines how the interactions among the privatization process, the government’s socioeconomic policies, and the heritage of women’s status in the former Communist system have affected women’s economic position and men’s and women’s behavior in the transitional phase. BACKGROUND As had happened shortly before in Lithuania and was to be repeated afterward in Hungary, the legislative elections in Poland in 1993 marked a change in the relationship of forces established in 1989. The Polish former Communists and their peasant allies substantially overtook the right-wing and center parties that had emerged from the Solidarity movement. The presidential elections in 1995 confirmed this trend with the defeat of Lech Walesa and the election of Aleksander Kwasniewski, a leader of the former Polish Communist Party. The results of the Polish elections indicated the Polish people’s general discontent with the

The Impact of Privatization in Poland

119

social and economic policies of the various governments that had been in power in Poland since the collapse of communism. These policies had been ineffective in reducing unemployment and poverty among significant sections of the population. Thus, the Poles placed their hopes in those who promised to address their most pressing social needs. The challenge to the social protection function of the state has provoked lively fears, given the people’s uncertainty about the future. The many strikes that took place in 1993 and 1994 testify to the deterioration of the social climate. With the decline of real wages and the drop in the quality of services (particularly in health and education), unemployment obviously represents one of the main costs of the transformation of the Polish economy. In 1995, about 3 million persons were unemployed in Poland, representing about 15 percent of the entire active population (and about 24 percent if private agriculture is excluded). This number marked a slight improvement in the proportion of all unemployed persons over 1994 (16 percent and 26 percent of the population, respectively) but an increase in the percentage of unemployed women. However, in several single-industry zones in which the main plants went bankrupt, the percentage of unemployed persons was as high as 35 percent. Furthermore, there was a sharp rise in the number of long-term unemployed persons and those who were not receiving benefits. At the end of 1994, more than 45 percent of the workforce and 53 percent of the female workforce had been unemployed for over a year (one of the highest rates in Europe), and the majority of the jobless were not receiving benefits. A survey conducted by the Social Policy Institute of Warsaw University in 1993 (Szylko-Skoczny, 1994) demonstrated the urgent need for measures designed to help the worst off. In the regions most affected by economic restructuring, the majority of the unemployed rated their chances of finding another job at zero, and the incomes of 65 percent of them were under the poverty line. Among the hardest hit have been young people; so-called older people (aged 40–45 and sometimes even younger); unskilled workers; and, above all, women, who are the clear majority in each of these categories. GENDER BIAS IN EMPLOYMENT AND UNEMPLOYMENT The collapse of the Communist system in the Central and Eastern European (CEE) countries and the transition to a market economy have brought about all kinds of upheavals that have had severe social consequences and have generated new social inequalities, specifically between men and women. In most cases, women have been the losers in the transitional phase—a situation that was more immediately noticeable in Poland because the privatization process was quicker than in other CEE countries and led to a huge increase in unemployment. The various industries and governmental organizations promptly laid off a large proportion of their predominantly female workforces. The textile and clothing industries, whose workforces were overwhelmingly female, were the first to suffer

120

Policies for Families and Women

from the suppression of the market with the former Soviet Union. Confronted with the influx of East Asian products, these textile and clothing factories could survive only through drastic changes in production and working conditions, and many of them were obliged to close down. Thus, women have been the majority of the unemployed, and their proportion increased, from 53 percent in 1994 to 56 percent in 1995, because of their weaker situation on the job market, their lower level of education, and their greater difficulty in getting hired. In addition, women are more numerous among the long-term unemployed (particularly those unemployed for more than two years). The gap between both sexes is about 10 points; in the towns, they represent two-thirds of the long-term unemployed. Furthermore, the number of men is beginning to increase in certain ‘‘female’’ jobs in the tertiary sector (particularly in commerce, health, and education), where there were previously few men. In addition, the severe cuts in social programs since 1989 that were made mainly in areas related to measures protecting women’s employment and in care institutions (cre`ches, kindergartens, and hospitals) that were thought to be too costly affected women as mothers and caretakers of their families. The rationale for such unpopular decisions—the need to break with the former legal and institutional framework—limited the expression of discontent, at least in the beginning. Nevertheless, the ease with which these changes have occurred illustrates women’s lack of visibility and power in the political arena. This situation was obvious in the victory of the Catholic Church and conservative forces in the banning of abortion in Poland in February 1993. This ban deprived women of a right they had exercised for decades, despite the broad opposition to it expressed in public opinion polls, especially by women. To grasp how such changes could be imposed without provoking much reaction among women, one must understand some aspects of the political and economical frameworks in which they occurred. Over and above cultural and religious factors, public policies implemented since 1945 have played a determining role in the continuation or accentuation of the sexual division of labor in Poland—horizontal and vertical job segregation, the gap between men’s and women’s wages, and the unequal division of labor in the family—despite the egalitarian laws adopted almost 50 years ago. The continuing allocation of women to domestic labor, as well as the many changes in social policies that directly concern women (such as child care for young children and social services linked to family tasks), have affected women’s attitudes toward wage labor. These inconsistencies explain the tendency of young women to withdraw into the family universe at the end of the 1980s. In the 1970s and 1980s, several social measures (including maternity leaves and leaves to care for sick children) were adopted to encourage women to become mothers. In the 1980s, researchers were continually struck by the tendency of many young women to say that they would like to stop working and stay at home to care for their young children full time (Heinen, 1989; Markowska,

The Impact of Privatization in Poland

121

1987). Although this was purely wishful thinking, because most women considered their financial contributions to their households to be indispensable, the force with which many young working women expressed the desire to stay at home was undeniable. This view had much to do with the strengthening of the Catholic Church’s influence and the people’s distrust of the Communist Party and its satellite organizations, including the Women’s League, that had been preaching sexual equality for decades without any concrete results. As in all the CEE countries, although 46 percent of the Polish women were in the labor force in 1995, women worked mainly in the nonproductive sector, where they constituted 70 percent of the workforce, compared to 37.4 percent in the material-production sector. Job segregation has been both vertical and horizontal. In 1995, women constituted 65 percent of all unskilled workers but less than 10 percent of managerial staffs, and in the typically female tertiary sectors of the economy (education, health, insurance, and finance), they made up about 25 percent of the managers, primarily low and middle managers. A direct consequence of this situation is the 30 percent gap between men’s and women’s wages and the fact that women receive lower wages than men for the same jobs (14 percent less for teachers, 22 percent less for office workers, and 28 percent less for physicians and social workers). One reason for this gender discrimination in employment is related to the general belief that women’s primary responsibility is to care for their families, and surveys in both the 1980s and 1990s found that women performed three-quarters of all domestic tasks. POLICIES AND PRACTICES TOWARD WOMEN In general, the state has not passed laws, other than the ban on abortion, that have directly undermined women’s right to work. Rather, the state has implemented indirect measures in areas in which social provision was already especially deficient. Child care. The legislative reform transferring responsibility for funding the care of young children to local authorities (previously borne by the central government) has led to the deterioration of the whole structure of such care. There were never cre`che places for more than 5 percent of children under age 3 in Poland, but because of decentralization measures and budgetary restrictions, that proportion fell to 2.2 percent in 1993 through the closure of many local cre`ches and the abolition of virtually all enterprise cre`ches. The capacity of nursery schools, which had risen to slightly over 50 percent in the 1980s, dropped to 33.2 percent in 1993 (Balcerzak-Paradowska, 1994; Balcerzak-Paradowska & Staszewska, 1992). Private cre`ches and nursery schools, aimed at partly filling these gaps, are expensive and beyond the reach of those with the lowest incomes (among them single mothers, who have the greatest need of such establishments). Maternity leaves. Laws passed in the 1970s aimed at allowing women to

122

Policies for Families and Women

‘‘reconcile work and maternity’’ (paid parental leave of three years and time off of 60 days a year to care for sick children) remain on the statute books but have been the target of attack. In particular, the guarantee of a job at the end of parental leave was abolished in 1990 in cases of collective redundancies or the closure of the enterprise and was replaced by compensation payments for six months that are equal to a quarter of a woman worker’s average wage. In addition, the duration of leave for the care of sick children has been criticized by many members of Parliament and employers. And even if this law remains in force, it is feared that it will serve only as a pretext for the directors of privatized enterprises to discriminate against female workers. For example, a privatized food-processing plant signed an agreement with the union not to lay off workers for the first year. Instead, it reduced its workforce by not giving jobs back to the hundred or so women who were on parental leave. Marital status. Marital status also plays a significant role in women’s unemployment rate. Young married women have the greatest difficulty finding jobs because all employers (particularly in the private sector) consider them a risky workforce: they have a higher absentee rate because of their familial roles, may become pregnant, and are not reliable. Some directors of private enterprises have even demanded—illegally—that female applicants for jobs sign agreements not to get pregnant during a specified period following their employment. However, the sharpness of the economic crisis is decreasing women’s propensity to leave their jobs to look after young children. According to the Institute for Labor and Social Affairs, a third of the female respondents to a survey on the effects of unemployment on large families said that they had decided not to take parental leaves for fear that their jobs would be abolished when they were ready to return to work (Balcerzak-Paradowska & Staszewska, 1992). Income. In addition to the rise in unemployment, there has been an increase in the feminization of poverty (Kotowska, 1993), for several reasons. Not only have women’s wages always been at least a third lower than men’s, but this gap in income will probably widen because women have much less opportunity to earn extra income from secondary jobs than do men. In addition, there are fewer women than men in the private sector, where incomes are higher. And, above all, women make up only a quarter of the self-employed, who have a greater chance of accumulating wealth. Lack of training programs. The fact that the few retraining programs that have been set up to help the unemployed reenter the labor market do not take women’s specific situation into consideration inevitably works to women’s detriment. Undoubtedly, the lack of financial resources and adequately trained staff greatly restricts the ability of the employment offices to take the initiative, and the sums devoted to combating unemployment represent a minimal proportion of overall public spending, as is the case in other CEE countries (Scarpetta & Reuterswand, 1994). Therefore, it is not surprising that most unemployed people have negative attitudes toward the effectiveness of unemployment offices. Most people who have been interviewed have stated that they do not rely on them

The Impact of Privatization in Poland

123

for help in finding jobs, and women have said that they have far greater confidence in referrals from family members and friends and in their own efforts. Training policies could reduce gender discrimination in employment by encouraging women to take courses and otherwise acquire the knowledge and skills to obtain higher-status and better-paying jobs. To do so, however, they would have to take account of the family responsibilities of working mothers, including the need for infant-care facilities. However, little has been done on the local level to gather the required data on the needs of the job market, especially with regard to the skills that employers are looking for. This situation does little to encourage unemployed women (especially those with the least skills) to acquire new knowledge and skills in the hope of finding jobs. Temporary and self-employment. The resources for providing temporary employment to unemployed workers by enterprises (‘‘intervention works’’) or by public agencies (‘‘public works’’) are also extremely limited. If the first formula concerns as many women as men, the second one is much less open to the female workforce. Not only have such jobs been offered mainly to unskilled male workers, but local authorities have rarely advocated that similar jobs be created in certain essential services (education, health, care for preschool children or the elderly, for example) where there is a great need for workers, primarily women. Creating such jobs would open up numerous opportunities for women and would be a relatively inexpensive policy to pursue. Incentives for self-employment are another instrument of the fight against unemployment. However, in all the CEE countries, the lack of funds is a major obstacle. Therefore, it would be unwise at this stage to conclude that these incentives are having a major impact. In addition, experience shows that it is far more difficult for women to gain access to loans to start and run small businesses. In light of women’s high unemployment and the feminization of poverty, the author conducted a survey in 1993 to determine if women’s attitudes toward wage labor and career expectations had changed since the transition to a market economy. The major findings are presented next.

FINDINGS OF THE SURVEY Importance of the Family The results of the survey indicated that the family—in its broad sense—is as important in the transitional phase as it was in the Communist period for both economic and social reasons. First, housing is so scarce that several generations usually live together in cramped quarters (the number of people is greater than the number of rooms). Second, the closing of many child care centers since 1990 has reinforced the tradition of maintaining close ties with grandparents, who care for young children while the parents work. Third, the financial difficulties that occur when one spouse is unemployed

124

Policies for Families and Women

also contribute to strong family ties. In Lodz, in particular, three-quarters of the adults interviewed said that they received regular financial help from their parents (or that they helped their parents if the parents’ pensions were insufficient). Furthermore, young unemployed adults, aged 18–20, are entirely dependent on their elders, who are often out of work as well. Fourth, support from the family network is also often decisive in finding a job because the services of the employment office are considered useless in most cases and it is only by working for a relative that a person manages to get some extra income (usually under the table). Family solidarity is often crucial in difficult times. As one 20-yearold young woman said: ‘‘During a meal together, one Sunday, we realized that there were four unemployed for one still with a job in the family. In a situation like that everybody helps each other; that goes without saying.’’ In addition to help with finances and child care, family relations are close from an emotional point of view. When asked about the use of their free time, most of the respondents said that they spent Sundays with family members. Thus, the model of family in Poland is the extended family rather than the nuclear family, which is the norm in most Western European countries. This situation is reflected in the discourse of Polish women, whatever their professional status, who see themselves primarily as wives and mothers. This finding corroborates the results of other recent surveys (Raport z Badania, 1994). The importance of family relations should not be confused with the value of domestic labor, which is more frequently considered an inescapable burden rather than a source of fulfillment. Many of the unemployed women who were interviewed complained of being enclosed in a private universe in which they perform meaningless tasks. As one woman put it: ‘‘I stay at home; I do almost nothing, clean, cook, all the things that nobody notices. The family is used to me being at home, and nobody helps me any longer.’’ Another woman who had started her own business described her time spent at home: ‘‘I didn’t take advantage of the time to read, I didn’t educate myself, I didn’t learn anything; it didn’t give me any satisfaction.’’ For these women the halt in their professional activity causes considerable disarray and structures their identity. Value of Work The young women (in Lodz and Warsaw, as well as those who participated in other surveys) clearly articulated their positive attitudes toward paid work. Most of the women, both the highly skilled and the unskilled, said that they appreciated or liked their work a lot. For those who had lost their jobs, this may have been an idealized vision of a mythical ‘‘before.’’ However, most of those who were still working expressed the same view and did not confuse their feelings about working with any grievances they may have had about their employers’ inadequacies in management, wage policies, and relations with employees. In any case, none of the respondents shared the sentiments of the young women in the 1980s who wanted to give up their jobs if their husbands’ financial

The Impact of Privatization in Poland

125

situations improved. Rather, they all expressed the strong desire to work. Therefore, the upheaval in economic and social relations caused by the shift to a market economy, the fear of not having jobs and thus no means of subsistence, and the competition for jobs all affected these women’s aspirations and attitudes. This difference in attitudes toward work spans the entire generation of young women, whatever their marital status or level of education. They were more willing than their elders to get responsible jobs that would ensure better wages and prospects for promotion (see Heinen, 1994a; Perlez, 1998; Pine, 1994). Although many of these young women did not have children (which undoubtedly influenced their conviction that the two genders had equal opportunities in the labor market), this change in attitude should be noted because their optimism even in the face of unemployment is the opposite of the older women’s gloomy vision of the future of women’s employment—and of the future in general. Dismal Future Despite the optimism of the young respondents, most of the respondents expressed defeatism—a view that is in marked contrast to the reassuring tone of the economic press, in both Poland and the West. In Lodz, in particular, the following statements were frequently heard: ‘‘There is too much unemployment, people are going to revolt, this is going to end badly.’’ Although the reactions noted in 1989–1990 (Heinen & Matuchniak-Krasuska, 1992) after the collapse of the Communist regime indicated an open attitude toward change, if not great confidence in the future, the respondents to the 1993 survey on the results of privatization were usually negative. It was not the mass downsizings and the closings of plants that provoked this attitude, for all the respondents seemed to accept the need to reduce waste and overstaffing (at least when such measures did not harm their own or their families’ immediate interests). Rather, the respondents objected to the harshness of the methods used to downsize, as this comment indicates: ‘‘They decided to close the nursery school using the pretext that the owner wanted to take back his property, and we were sacked on the spot.’’ Moreover, most of the interviewees condemned the employment conditions that predominate in the private sector (particularly in small commercial and service firms that quickly appear and disappear. The increase in ‘‘little jobs’’ and informal hirings also provoked general indignation. As one respondent noted: ‘‘They take on someone for four weeks maximum to avoid paying the social costs, the person is not covered for accident or sickness insurance, and they use this system for as long as people don’t protest. It’s exploitation pure and simple.’’ Another respondent commented: ‘‘I know a woman who worked like that for six months and who was sacked on the spot when she dared to ask for a written contract.’’ Given these conditions, it is not surprising that such comments were accompanied with nostalgic remarks about the situation ‘‘before’’: ‘‘It was better under

126

Policies for Families and Women

the commune; we had work. It is true that we had to stand in long lines, but we could pay for what we found.’’ Such statements came from both middleaged and young people. But the young people’s attitudes differed from those of the older adults with regard to their personal situation, at least on one point: Almost all those who were not yet working said that they did not really feel they were unemployed: ‘‘Since I finished my education, I have never had a stable job. I don’t know what it means to lose my job,’’ said a young pilot who was learning computer science, conscious that his experience was different from that of his relatives who were also unemployed. For all the others who found themselves suddenly inactive (and it was always brutal even when it was announced beforehand), unemployment usually provoked frustration and anguish. They felt frustrated because of their lack of contact with the larger society, loss of self-confidence, and feeling that others thought of them as not valuable and sometimes because of their families’ and friends’ lack of understanding. The prospect of no longer receiving benefits brought only anguish, especially when their spouses had also lost their jobs or received wages that were lower than the national average. Most of the unemployed respondents (men and women) in both Warsaw and Lodz felt the lack of money and the fear of not managing most painfully. The finding that these feelings were just as strong in Warsaw as in Lodz was contrary to the first hypothesis—that such feelings would be stronger in Lodz because of the higher unemployment rate in the region (22.5 percent versus 7.5 percent in Warsaw in 1993). The city of Lodz and the surrounding towns were therefore declared a ‘‘priority zone’’ that would receive extra state aid to extend unemployment benefits from 12 to 18 months. Feelings of despair were much greater among the women in Warsaw than among the men who were unemployed, most of whom had subsidiary and undeclared work. ‘‘Don’t Admit That You Have Children’’ The unemployed women in Warsaw stated that the situation of men was undoubtedly easier in the capital than elsewhere, if only because there were so many possibilities for working illegally, particularly in construction. Women, they emphasized, did not have similar opportunities; most women tried in vain to find undeclared work to make up for the inadequacy of their unemployment benefits, but apparently in vain. As a 44-year-old woman in Warsaw put it: ‘‘For women, these sorts of jobs don’t exist. Moreover now, even for housework, they ask for all sorts of references.’’ Although the economic situation of people was better in Warsaw than in Lodz, given the supplementary income they could earn and the fact that there were few households in the capital in which both spouses were unemployed, women in Warsaw felt as trapped in their professional lives as those in Lodz. Whereas many unemployed men accepted the idea of taking ‘‘any old job’’ once their unemployment benefits ran out, for them, such jobs usually meant manual or other types of unskilled work; for women, they could

The Impact of Privatization in Poland

127

mean having to resort to prostitution, as is demonstrated by many small advertisements in newspapers. As one woman said: ‘‘To get a job these days, you have to know how to dance, ski, ride a horse, and be available 24 hours a day.’’ In both Lodz and Warsaw, the unemployed women interviewed were pessimistic about the future, emphasizing the lack of possibilities. All sides agreed that higher levels of education no longer improved employment opportunities, even though national data showed that unemployment was three to four times lower among those with a higher education and that it had dropped for this group in 1993. The age barrier was viewed as crippling, particularly for women 35 to 40 and for men, 40 to 45. Particularly in Lodz, a number of skilled woman workers over age 40 stated that they were too old to get any job. As a skilled 38-year-old female technician said: ‘‘Go in for computer training? I don’t know if that would be of much use. When I looked for work in my sector, I was told that at my age it was no longer possible.’’ Both women and men over age 40 widely felt it would not be useful to try to find another job. With regard to the varying difficulties that men and women encounter in looking for jobs, only some men thought that it was easier for women to get jobs. A male hydraulic worker from Lodz commented: ‘‘They’re looking for seamstresses everywhere. You only have to open a newspaper; that’s the only sort of ads there are.’’ But as several unemployed women emphasized, knowing how to sew and being young, were not enough; one also had to be experienced: ‘‘What they want is someone who can keep up the pace and productivity.’’ Furthermore, all the women interviewed recognized the handicap implied by their dual roles as mothers and workers in the eyes of employers, even in the predominantly feminine sectors. A young unemployed woman who had just finished a training course in a bank and had a good chance of being hired in the near future recognized that if she was successful, it was because she was not yet a mother: ‘‘They prefer to hire women, but they want young women who are still free. If I had a child (God save me from that!), I wouldn’t have a chance.’’ The conviction that ‘‘women who take parental leave are sure to be sacked as soon as they return to work’’ predominated, and several women who were interviewed told of friends who had this experience. The organizations that provide training courses for women who want to work for themselves or reenter the labor market, like the International Women’s Foundation in Lodz or the Center for Women’s Promotion in Warsaw, advise their trainees not to ‘‘admit that you have children because that will be the end.’’ In Lodz, many men and women knew young women who had to agree not to have any children for a certain period to get jobs. One young man whose girlfriend ‘‘earns a lot in a private company’’ (almost 5 million zlotys, compared to the national average of 2.5 million zlotys) said that she had to make such a commitment. ‘‘They demand that they make a commitment for at least a year because they don’t want to have to pay for maternity leave.’’ In summary, differences in the perceptions of the future and of women’s chances of finding jobs were stronger between younger and older persons than

128

Policies for Families and Women

between unemployed women of Lodz and Warsaw, although the situation was a lot better in the capital. On the question of women’s place in society, however, all the respondents had similar views. To Know One’s Place In general, discrimination against women with children provoked only limited reactions. However, one 45-year-old woman engineer did show her exasperation with the system’s preference for men: ‘‘The advertisements say that the job is open to men and women without discrimination. But it’s not true! In reality they want men. I tried four times; I was the best qualified, and each time a man got the job.’’ But she was pretty much the exception. Even if women are not indifferent to this problem, most of them remain silent about it. Based on various surveys it conducted, the CBOS (Raport z Badania, 1994) concluded that they are silent ‘‘because most women do not have great expectations in terms of professional success or promotion. Most Polish women (62 percent), even if it was offered to them, would not accept a management post, mainly for fear of responsibility, lack of confidence in themselves, or conviction that their qualifications are insufficient.’’ On the other hand, most of the respondents, especially the women, were appalled by the job advertisements specifying that applicants for jobs as saleswomen, secretaries, or even account clerks should be not only young but pretty—‘‘of good appearance, as they say.’’ They were especially revolted by explicit references to the female body and pornographic references in the mass media (including the increase in the number of sex shops and propositions of semiprostitution made to young, attractive women) more than by the sexist dimensions of this advertising. Similarly, the hiring of many men as sales assistants in shops or in jobs previously occupied by women, particularly in the textile industry, more frequently provoked acerbic remarks, such as ‘‘It’s not their place’’ than comments about the implications of such changes for women’s employment. Some young women indicated that the ideas of which jobs are suitable for men or women remain strongly conventional. One 21-year-old woman who was trying to find a job objected strongly to the idea that men could become pharmacists (a feminized sector for decades), but the spectacle of a woman driving a bus shocked her. She supported the idea of male and female staff in children’s camps ‘‘because you have to have women to look after the little girls and men to discipline the boys.’’ The division of labor within the home is widely accepted—to such an extent that a 39-year-old unemployed woman, a qualified technician with no hope of finding a job, lamented the fate of unemployed men for whom ‘‘the situation is much more difficult than for women, who at least have got something to do at home; . . . the poor guys feel useless and don’t know how to pass the time.’’ This view of the different experiences of men and women reflects the strength

The Impact of Privatization in Poland

129

of tradition in Poland and is related to the concepts of the Polish mother (Matka Polka), the maternity ethos, and the family haven that pervade Polish history and literature (particularly in patriotic writing). The constraints imposed on individuals by the Communist system bolstered the idea that the family is a haven from the ‘‘enemy.’’ Finally, the Polish family of today preserves certain features of the emotional and social relationships of the extended family of the past. These features were strengthened by the economic and political crises of the 1980s and 1990s (see Perlez, 1998).

CONCLUSION All this has not helped women become independent social actors in defense of their own interests. The Catholic Church’s pressure on women to accept the role of mother has been effective, especially after the Solidarity movement, which had a mass audience in the early 1980s, took this position. Although women were as active in the independent trade union as men, they were never fully represented in its leadership bodies (Siemienska, 1990). Furthermore, subtle pressure was exerted to make women accept their different, if not secondary, status. Therefore, in the hunger marches of the summer of 1991, they mobilized primarily as mothers who were concerned about the survival of their families. Polish women were hardly prepared to advocate for their needs or to defend their rights. This perspective helps account for the reticence of many women to question the notion that men are the heads of their families and hence have priority for jobs and thus explains the obstacles that women encounter in finding jobs and even maintaining their position in the labor market. The massive strikes in the predominantly feminine sectors of public administration, such as health and education, in 1993, resulted in significant increases in wages. Even so, they did not challenge the segregation of men’s and women’s work or the discrimination against women in employment. Neither the politicization of trade unions nor the strike by Solidarity in the spring of 1994 in the mining sector contributed to a movement in this direction, since men form the traditional base of Polish trade unions and little attention is given to the sectors in which the majority of workers are women. Within the Solidarity movement, in particular, the interventions for improving the situation of women in employment, promoted by the women’s commissions, have been treated with skepticism by local and national organizers. Given these conditions, one might feel pessimistic about women’s current and future positions in Poland. First, because of the political difficulties and CEE’s cloudy economic and social future, it is not easy to imagine how firm steps could be taken to overcome discrimination against women in employment and the society. Second, such steps are unlikely, since women are expected to perform all the household and family care tasks in their households; the official discourses often suggest that women should remain at home to decrease the

130

Policies for Families and Women

unemployment rate, even though most families need the salaries of both husbands and wives to survive. Despite these barriers, some private associations have continued to fight against the marginalization of the female workforce and in support of unemployed women who want to reenter the workforce. For example, the Center for Promoting Women in Warsaw, which works with foreign organizations, has both telephone information service and an employment service. During the summer, it organizes training programs in office work addressed particularly to single mothers, and it has published a directory of all the initiatives and organizations that help women find jobs. Another example is the International Women’s Foundation in Lodz, which helps unemployed women set up their own businesses. The foundation offers free courses by researchers and teachers at the University of Lodz and by managers of local companies on marketing, economics, and law, as well as psychology. In comparison with the activities of the governmental employment offices, those of the Center for Promoting Women and the International Women’s Foundation are appreciable, and the women interviewed who found work—whether as employees or as independent workers—have considered them extremely beneficial. Of course, these private organizations could not train as many women as public employment agencies could, but given the inadequacies of the governmental training program, their importance cannot be underestimated. Not only can they help individual women develop skills and find jobs, but they can encourage women to work for changes in policies that will help all Polish women break out of the vicious circle in which they are caught.

REFERENCES Balcerzak-Paradowska, B. (1994). Zlobki i przedszkola w okresie transformacji. Polityka spoleczna, 10, pp. 10–13. Balcerzak-Paradowska, B., & Staszewska, D. (1992). Rodziny wielodzietne a bezrobocie. Warsaw: IPiS. Heinen, J. (1989). Femmes en re´serve—Les travailleuses polonaises entre famille et emploi. Unpublished doctoral thesis, IRESCO/CNRS, Paris. Heinen, J. (1994a). Employment policy and the female workforce in Poland yesterday and today. In S. Ringen & C. Wallace (Eds.), Societies in transition: East-Central Europe today (pp. 60–71). London: Avebury. Heinen, J. (1994b). The re-integration into work of unemployed women. In Unemployment in transition countries: Transient or persistent? Paris: Organization for Economic Co-operation and Development, pp. 311–333. Heinen, J. (1995). Choˆmage et devenir de la main-d’oeuvre fe´minine dans une Pologne en transition. Unpublished research report. Heinen, J., & Matuchniak-Krasuska, A. (1992). L’avortement en Pologne—La croix et la bannie`re. Paris: L’Harmattan. Kotowska, I. (1993). Nierownosc kobiet na rynku pracy w Polsce w latach 1990–1992. Praca i Zabezpieczenie Spoleczne, 3.

The Impact of Privatization in Poland

131

Markowska, D. (1987). Partnerstwo w malzenstwie mlodych kobiet kozrystajacych z urlopow wychowawczych. Nasza Praca, 7–8, pp. 40–45. Perlez, J. (1998, January 1). Decidedly un-Communist goals for the young of Central Europe. New York Times, pp. A1, A6. Pine, F. (1994). Privatisation in post-socialist Poland, peasant women, work, and the restructuring of the public sphere. Paper presented at the ESRC Research Seminar on Gender, Class and Ethnicity in Post Communist States, Birkbeck College, London. Raport z badania—‘‘Kobiety ’93.’’ (1994). Warsaw: CBOS. Scarpetta, S., & Reuterswand, A. (1994). Unemployment benefit systems and active labour market policies in Central and Eastern Europe: An overview. In Organization for Economic Co-operation and Development (Ed.), Unemployment in transition countries: Transient or persistent? (pp. 255–305). Paris: Organization for Economic Co-operation and Development. Siemienska, R. (1990). Plec, zawod, polityka—Kobiety w zyciu publicznym w Polsce. Warsaw: Institute of Sociology, University of Warsaw. Szylko-Skoczny, M. (1994). Pomoc spoleczna wobec bezrobocia. Polityka Spoleczna, 3, pp. 15–18.

Chapter 10

Family-Related Economic and Employment Policies and Programs in Central and Eastern European Countries CHARLES B. HENNON AND ALLEN R. JONES

At about the same time that the Central and Eastern European (CEE) countries were emerging from communism and Soviet control, the United Nations (UN) was instituting the International Year of the Family (IYF) as part of its ongoing social development agenda. IYF was a grassroots and nationally based series of initiatives, grounded as much as possible in the needs and realities of families and nations (Hennon, Jones, Hooper-Briar, & Kopcanova´, 1996; Hennon, Jones, Hooper-Briar, Lawson, & Schmenk, 1995; Hennon et al., 1996; Hennon & Kopcanova´, 1996). Four regional planning meetings were convened while the UN was developing its IYF agenda. Representatives from 28 nations, including Poland, Romania, the Russian Federation, and Slovakia, attended the United Nations Europe and North America Preparatory Meeting for the International year of the Family (Valetta, April 26–30, 1993), to coordinate national IYF efforts. The delegates considered the situations of families and their place in the national social agendas of the CEE countries. According to the Report (1993, p. 8) of the meeting: The situation of [CEE] families . . . was outlined in terms of issues relating to the transition to a market economy and the dissolution of State socialism, including high rates of unemployment, reform of institutionalized support systems, scarcity of resources, poverty, ethnic conflict and war, notably in the States of the territory of the former Yugoslavia. The specific manifestations of secularization, privatization and individualization were described as offering particular insights into the situation of families and the associated policy challenges. The development of effective measures and mechanisms to alleviate immediate distress and basic needs was cited as a priority issue.

The representatives also noted that the impacts of privatization, the transition to a market economy, and the threat of instability have been profound. Couples

Family-Related Policies and Programs

133

are marrying later in life, childbearing is being delayed, and fewer children are being born. The unemployment of parents and increasingly limited employment opportunities for young adults are creating significant problems, including the extended dependence on parents. Furthermore, the rapid pace of social, economic, and political change has contributed to tensions in families. The representatives stressed the importance of concrete actions at all levels of government and society to institute an integrated, synergistic social policy. They also emphasized the need to empower families to overcome the common challenges by developing their decision-making potential, managerial skills, entrepreneurship, and mediation and communication skills. Yet another concern was the need to develop family-related policies in the context of sociohistorical change and to create interministerial commissions on family-related matters emphasizing the cross-sectoral nature of family issues. EXAMPLES OF CEE COUNTRIES Because of space limitations, only a sample of illustrations highlighting the CEE context for developing family-linked policies can be presented in this chapter. (For additional information, see Hennon et al., 1995; Hennon, Jones, Schmenk et al., 1996.) Bulgaria At the 1995 Bratislava meeting of IYF national coordinators, the representative of Bulgaria recounted how unprepared Bulgaria is socioeconomically for the transition. The consequence has been chaos in the social sphere and devastation of the economy: Mass unemployment, unprecedented in the past 50 years, crime, drug addiction, the disappearance or change of ideals, the absence of incentives for spiritual development, the drastic destruction of the feeling of national affiliation, all have occurred against the background of changing governments and frequent parliamentary elections. National accord is lacking in Bulgaria at present on the most important issue of how to preserve the nation. I realize that a similar process has been observed in the other former socialist countries as well, but in Bulgaria the rejection of everything achieved so far has reached such dimensions as to become both an insult to and a defacing factor for the whole nation. . . . The disruption of industry has thrown out in the street over half a million well-qualified people under the retirement age while the gradual elimination of the social benefits has now created the impression of chaos in the social sphere. There is as yet no clear strategy of such an economic approach that would not lead to drastic social stress. (National Paper of Bulgaria, p. 1)

In Bulgaria, the demographic situation is unstable. A drop in the birth rate to 10 per 1,000, combined with an increase in the death rate to 12.9 per 1,000 (1993), has led to negative population growth. The number of marriages has

134

Policies for Families and Women

dropped by 50 percent, and the child mortality rate has increased (to about 15 per 1,000). Given this situation, a team of experts worked on basic issues, such as family forms and problems, family policy, legislative initiatives, and governing authorities. The Family and the Changing World Conference (October 1994) united experts in various spheres of public life for the purpose of preserving the nation, by building a strategy that ensures the adoption of a family policy not readily affected by political change in Bulgaria. During this meeting, the experts focused on nongovernmental organizations (NGOs) and their more active involvement in the elaboration of a family strategy. The IYF representative made several observations:

We have arrived at the conclusion that family policy must strengthen the traditional Bulgarian family which has proved its viability and importance for the preservation of our nation. If we can create optimum conditions for the existence of the family as an independent institution in society through our family policy, we can expect a harmonizing of the demographic situation in the country. The requirements placed by market relations and the traditions in the Bulgarian family should be combined in a flexible manner, since the central issue is not whether we should or should not interfere in family matters, but rather why, how, when and at what level to help the family as an independent social unit. We would thus finally be able to differentiate between the two requirements of social family policy . . . solidarity and responsibility. Our experience has demonstrated that at this stage policy should be both global and selective. Global, because it should affect all sectors of the family as a whole, and selective, because it should help families [precisely] when they need such assistance. . . . We would mainly demand from the ruling party to change the structure of family policy by placing in the focus the family as an independent actually existing and legal entity. The implementation of this idea would enable the families to adopt a responsible attitude toward having children, but only if the relationship between society and the family is finally clarified and legalized. These are measures for reducing unemployment, for providing social security to families who have children and are willing to take care of them by observing society’s requirements for growing a healthy, high quality and responsible population. . . . Family, if it really wants to stand in the focus of social policy, should be aware of its obligations, responsibilities, but also rights.

This representative, noting the idea that assisting the family to become a powerful and independent social unit would help restore confidence in the state, also argued that clarifying strategically the objectives and responsibilities of the family, the society, and the nation would help elaborate a family policy that was not limited to the attainment of short-term objectives and not plagued by chaos. One requirement is the adoption of a new structure at both the executive and legislative levels because there is no independent institution to deal with the family. The new cabinet was presented with proposals for establishing an interdepartmental family council to help synchronize efforts and avoid the splitting up of family policy by individual departments and public organizations.

Family-Related Policies and Programs

135

At this time the family in Bulgaria needs a comprehensive but also a synthesized approach of study which could provide us with a more accurate reflection of the potential and weaknesses of the state social system. Thus, an efficient social policy would react more easily within the framework of the economic capabilities and requirements of the family for conflict-free development and the provision of guarantees for the fulfilment of its most important social function—to have children. (National Paper of Bulgaria, 1995, p. 2)

It was hoped that the momentum generated by the work of numerous experts would not go to waste and that the government would listen to the proposals that were made. According to this representative, IYF was timely and the UN should expand it to a ‘‘Decade of the Family.’’ The report further emphasized: Those who wish to deal with politics, and particularly with social policy, should focus their policies on the family. At the time of applying their policies to real life, they should quickly determine the policies’ effect on the family as a whole, on its stabilization and prosperity. This would mean to place the family in the center of Bulgaria’s social and economic development, rather than the individual [emphasis added]. (National Paper of Bulgaria, 1995, p. 4)

Poland Poland’s report to the IYF national coordinators (National Paper of Poland, 1995) noted that the Government is obliged to act with deliberation, to ensure that the negative social effects of economic reforms are mitigated as far as possible but the main direction of change and reform is being pursued. (p. 2) It is particularly important in the difficult period of structural transformations, when the social safety of citizens was reduced due to unemployment growth, the drop in real income, and lower accessibility of many goods and services. (p. 3)

Increasing social safety requires the flexibility of social assistance services and help to citizens in gaining economic independence. Unemployment is one of the most serious problems in Poland (about 17 percent of the economically active population is unemployed), and a program to counteract it and its negative effects has been developed. Two keys of the Governmental Socio-Economic Programme (1994–1997) are (1) the government’s guarantees of maintaining an adequate level of education, health services, social benefits, and benefits connected with an employment relationship and (2) decentralization of policies and a growing role for institutions not connected with the central administration (local governments and NGOs). The National Paper of Poland (1995, p. 5) stated that ‘‘deep political, social and economic changes in the contemporary world bring about changes in family

136

Policies for Families and Women

functioning. However, the role and social importance of the family cannot be impaired.’’ These reports and others stress the need for decisive actions to support CEE families, especially the establishment of coordinated programs. Different ministries and sectors with different conceptualizations of problems often take independent, uncoordinated actions on the same problem, while ignoring the voices of families. Thus, many challenges and threats to the family are not resolved.

Attitudes Toward the Transition Despite the many problems that have occurred during the transition, most people in the CEE countries are optimistic. One opinion poll (‘‘Feeling Perkier,’’ 1996, p. 48) indicated that Western ways are winning in Eastern Europe. . . . A steadily rising number of Eastern Europeans are happy to live under the rigours of the free market and amid the rough and tumble of political pluralism. In Russia, on the other hand, people sound far more gloomy and, if anything, are getting gloomier still. About half the people there still think things were better in the past, though . . . the minority group of hopeful Russians may slowly start growing again.

Results from two public opinion surveys suggest that within the context of privatization and other socioeconomic changes, the people of CEE are optimistic about their struggles and the impact of changes on their families. The proportion of the population longing for a return to a Communist economic and political system varies from about 29 percent in Bulgaria to 8 percent in Poland. In the Czech Republic and Poland, the proportion of the population who prefer the new system is now over 75 percent, up from about 25 percent in 1990. In Hungary and Bulgaria, where families are experiencing a good deal of reforminflicted pain, the proportions favoring change are around 20 to 30 percent. In Bulgaria and Romania, a minority (15 percent and 12 percent, respectively) would like a government run by generals. In Russia, there is ‘‘a gloomy half, a puzzled fifth, and a quarter keen on the changes’’ (‘‘Feeling Perkier,’’ 1996, p. 48). The proportion of the Russian population favoring a return to a Communist type of economic and political system has risen to about a third (12 percent would like army rule, and 10 percent would prefer a return to tsardom). Throughout CEE, there is a generational difference in attitudes toward the reforms, with those under age 30 favoring the new ways of government and economies. Elsewhere (Hennon, Jones, Hooper-Briar, & Kopcanova´, 1996), the authors distinguished how more traditional approaches to family policy focus on spheres for intervention. How the CEE family-linked policy considerations fit within traditional policy frameworks can be understood by the use of such concepts as

Family-Related Policies and Programs

137

policy, service sector, services and programs, vulnerable groups, and problem domain, defined as follows: Policy: a series of ideologies, values, goals, or ideals giving major direction for problem solving and change and guidelines for implementing a course of action designed to achieve broad directives established by policy makers. Service sector: a system (such as education) of theories, professions, and disciplines focusing on and laying claims to a series of problems and the approaches to these problems. Single-sector strategies or approaches involve proscribed and delimited interventions. Sectors typically draw on a set of institutionalized and codified perspectives and ideologies for naming problems and framing solutions, even though most, if not all, issues (like AIDS) can be seen as multisectoral. Services and programs: implementation of policies. Services plan assistance strategies in support of basic indicators of well-being (such as the immunization of infants and low population growth), whereas programs structure delivery mechanisms within a problem domain (like family planning). Vulnerable groups (‘‘at risk’’ or target populations): people who, because of identifiable characteristics, are viewed as being at risk of not having their needs met or are vulnerable to having their rights violated (for example, women). Problem domain: a single issue or need or a cluster of needs representing an identifiable social problem (such as adoption or parenting). Although the authors make analytical distinctions between groups and problems, societies may identify problems conjointly with vulnerable groups, so that people become identified as problems (for instance, people with AIDS or abandoned children).

FAMILY-LINKED POLICIES AND PROGRAMS IN CEE Content Analysis Many countries conducted needs assessments, sponsored research, reviewed legislation on families and their members, and initiated family-linked policies and programs as part of their participation in IYF. Much of this information for 139 nations (including CEE nations) is published in the Inventory of National Action (Secretariat, 1994). This book is a comprehensive source of information on what various countries have identified as important substantive considerations and should be considered as a global snapshot with a focus limited to priority issues and family-linked social policies. This section presents the results of the authors’ content analysis (through reading and notation (coding) of substantive considerations noted in the Inventory of National Action by 12 of the 14 CEE countries for which information was complete: Albania, Azerbaijan, Belarus, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, the Russian Federation, the Slovak Republic, and the Ukraine. The research consisted of grouping family initiatives, unmet needs, and priorities into 90 emergent categories, of which 52 were identified

138

Policies for Families and Women

for 12 CEE countries. Additional information about the analysis is found in Hennon et al. (1995) and Hennon, Jones, Schmenk et al. (1996). Salient Policy Considerations The CEE nations suggested a variety of family-linked policies and programs to encourage economic growth and social development. They indicated specific problems facing families and acknowledged the importance of families and how they must be supported. The authors’ content analysis and review of other documents for these countries noted the specific mention of secularization, privatization, and individualization, offering insights into the situations of families and the associated policy challenges. Table 10.1 presents a ranked listing of the most common substantive considerations identified for these 12 CEE countries and compares them to those of the other 122 countries for which IYF data were available. Among these countries there is little apparent agreement about the most important substantive considerations. Only five considerations were listed by at least 50 percent of them: health and safety, family rights legal protection, family support strengthening, families members at risk, and youths. Ten more considerations were found in the materials for at least one-third of the countries: education, employment, family planning, women, financial aid to families, adoption, children’s rights, importance of the family as a unit of society, family welfare, and parenting. Elsewhere (Hennon, Jones, Schmenk et al., 1996), the authors defined a substantive consideration as salient when at least 30 percent of the countries identified it as some aspect of their national plans of action. Therefore, together, the 15 substantive considerations just noted can be considered the substantive considerations that are salient for the 12 CEE countries a whole. References to privatization and the transition to a market economy, as well as to specific topics, such as inflation, unemployment, and economic issues, are not as prevalent in the Inventory materials for the CEE countries as might be thought. One possible explanation is that the transformation to privatization is so prevalent and taken for granted that the representatives saw no need to mention it. Another possible explanation is that economic issues are not defined or perceived as family issues; thus they are not widely considered in family policy circles. Furthermore, some countries focused on one or only a few substantive problems in a narrow area or defined a wide variety of problems through an agenda on individual rights (such as Albania’s focus on human rights). Topics like health, family members at risk, or family planning may reflect how countries perceive the link between the transition and family-related issues and solutions. CEE Countries versus Most Other Countries Of the 20 considerations that were salient for one or both of the two groups of countries listed in Table 10.1, only 8 were similarly ranked. For example,

Table 10.1 Rank Ordering (R) of Salient Substantive Considerations, by Central and Eastern Europe, All IYF Nations, and Nations with Moderate Human Suffering (MHS) and High Levels of Human Development (HHD) (Percent)

140

Policies for Families and Women

health was ranked first among the CEE countries and second among all other countries. Thus, it seems that although some considerations are global in importance, the priorities of the CEE countries as a group may differ from those of the other countries. Using a difference of 10 percentage points or greater as an indicator of distinctive differences, the authors found 13 situations in which the CEE countries’ Inventory materials contained a specific substantive consideration that was different from those of the other countries (among those that were salient in one or the other group). For example, employment was a substantive consideration for 42 percent of the CEE countries but only 29 percent of the other countries. Other distinctive considerations for the CEE nations were families and/or family members at risk, employment, family planning, adoption, and financial aid to families. These salient considerations seem to be more distinctive, and thus perhaps more important, among countries like those in CEE that are experiencing socioeconomic transitions. The following considerations appear to be less distinctive for the CEE countries than for the other countries and did not fit the authors’ definition of salience: the elderly, people with disabilities, economic issues, housing, and rural families. In addition, there were three cases—women, families as important units of society, and family welfare—in which the CEE nations were proportionally less likely to indicate a substantive consideration. In all three cases, these considerations were relatively more prevalent in the group of other nations. CEE versus Countries with Similar Levels of Human Suffering The 1992 International Human Suffering Index (HSI) (Population Action International, 1992) statistically rated living conditions in 141 countries throughout the world. The single measure, with a hypothetical range of 0 (least suffering) to 100 (greatest suffering; actual scores: 1–93), can be used to compare the relationship between increases in population and the living conditions among countries. For each country, an index is derived by adding 10 measures of human welfare: life expectancy, daily calorie supply, clean drinking water, immunization of infants, secondary school enrollment, per capita gross national product (GNP), rate of inflation, communication technology, political freedom, and civil rights. Countries rated with the HSI were grouped into quadrants (Population Action International, 1992). All the 12 CEE countries were in the moderate human suffering (MHS) quadrant (scores ranging from 25 to 47). This quadrant included 34 countries, with about 12 percent of the world’s population (636 million)—13 in Asia, 9 in Europe, 8 in the Western Hemisphere, 2 in Oceana, and 2 in Africa. As Table 10.1 indicates, there is a close agreement (in the relative ranking of substantive considerations) among the CEE nations and others in this quadrant. Of the 21 considerations that were salient in one or both groups of countries in the MHS quadrant, those with about the same rank in each (simi-

Family-Related Policies and Programs

141

larity of priorities) included health and safety, family rights legal protection, family support strengthening, youths, education, and family as an important unit of society. There was a coalescence around several considerations—that is, considerations that were salient in both groups of countries and had the same relative priority, regardless of other factors, such as the state of the economy of a political system. However, three considerations were salient among the CEE countries but not among the other countries in the MHS quadrant—adoption, children’s rights, and financial aid to families—and six considerations were not salient among the CEE countries but were salient among the other countries: the elderly, poverty, disabilities, economic issues, housing, and child care. Furthermore, nine considerations were more divergent between CEE countries and other MHS countries: adoption, financial aid to families (both more salient in the CEE countries), women, family welfare, the elderly, disabilities, economic issues, housing, and child care. Thus, adoption and financial aid to families are policy and program considerations that appear to be more distinctive to CEE nations than to other countries with a similar level of human suffering. CEE Countries versus Countries with Similar Levels of Human Development The Human Development Index (HDI) is a more comprehensive measure of the relative socioeconomic progress of nations than the GNP (General Assembly, 1994; Human Development Report, 1994). The HDI has three components— longevity (life expectancy), knowledge (adult literacy and mean years of schooling), and standard of living (per capita GNP, adjusted for the local cost of living). The Inventory contains materials for 132 of the countries (including 12 of the CEE countries) for which HDI information is also available. Of the 12 CEE countries, 9 are in the high stratum of human development (HHD) and 3 (Albania, Azerbaijan, and Romania) are in the medium stratum. For the purposes of group comparisons, the CEE countries are compared with other HHD countries. There appears to be more divergence concerning the salience and ranking of substantive considerations between the CEE and other HHD countries (see Table 10.1) than other comparisons reported in this chapter. Of the 22 considerations that were salient in any one group, only 5 were similarly ranked: family rights, family supports, youths, education, and parenting. Of the 18 cases in which different proportions of countries reported a particular substantive consideration that was equal to or exceeded a 10 percentage-point difference between the two groups, the proportion was higher among the CEE countries for 5: health and safety, family or family members at risk, family planning, adoption, and financial aid to families. None of these 5 was ranked similar to the priorities in the other HHD countries. Therefore, these 5 considerations seem to be policy and program considerations that are distinctive when CEE countries are compared to other countries with similar levels of human development.

142

Policies for Families and Women

Discussion Given the range of substantive considerations in the CEE countries, it may be that all the CEE countries, like all countries with similar levels of human suffering or human development, do not have the same priorities of needs or identify the same approaches to solving problems. Or the divergence may point to differences in ways of naming (labeling) and framing (providing a structure for crafting appropriate solutions to) problems (see Hennon, Jones, Schmenk et al., 1996; Briar-Lawson, Hooper-Lawson, Hennon, & Jones, in press). For example, one government’s environmental problem may be another’s health problem, or one nation’s health issue may be environmental pollution, whereas another’s may be the immunization of children. Thus, health may have two meanings for different countries, and the use of similar terms may give a sense that countries’ concerns are similar when they are actually different. That the abstract substantive consideration of health subsumes many different issues, approaches, and policy strategies points to limitations in the ability to transfer programs and policies from one part of the world to another (for example, adoption programs in Argentina may not address the needs of adoption practices in Slovakia) or even from or to countries in the same region. Therefore, technology transfer needs to take into account the resources and semanticlinguistic and cultural differences among countries. These limitations call for the need to understand contexts from which intervention programs emerge, including demographic and socioeconomic factors, as well as technological implications. Every time a program is transferred, the receiving country’s culture changes. Therefore, blanket technological transfers from a country such as the United States may not provide answers to questions that arise in a CEE government. For technology transfer to work, recipient nations or localities must take necessary and sufficient (cultural) factors into account so that participants will ‘‘own’’ the program but still retain the strength, effectiveness, meaningfulness, and intention of the original policy or program. The relatively few substantive considerations that were found to be salient illustrates how CEE countries, most other countries, and those with similar levels of human development or suffering show some convergence about what are considered family priorities. Despite the commonality in substantive areas of concern, the meaning of the considerations may be different for each country. The relatively modest number of considerations (15, 14, 18, and 18, respectively; see Table 10.1) that were considered salient (and the even smaller number found for the majority of nations: 3, 7, 5, 5, respectively) also demonstrates the specificity that countries show in selecting family priorities, even when they are characterized by similar socioeconomic and sociopolitical trends or human development levels.

Family-Related Policies and Programs

143

Four Distinguishing Substantive Considerations From the analysis of differences in priorities and distinctive differences reported here, four distinguishing substantive considerations emerge for CEE countries: adoption, financial aid to families, families or family members at risk, and family planning. The following are some examples of the aspects of these four considerations that are mentioned in the Inventory. Adoption. Actions included new or amended legislation on family policy, including supplements to the Code of Marriage and the Family concerning arrangements for adoptions (Russian Federation), and planning a seminar on international adoption, in cooperation with the Center for the International Legal Defense of Children (Slovakia). Financial aid to families. Provisions included a draft bill to provide social insurance for women before, during, and after childbirth, together with paid leave for child care until children reach three years (Azerbaijan); the government’s introduction of a system of allowances to assist families with children, including birth grants, maternity benefits, children’s allowances, and family allowances (Latvia); the government’s allocation of financial assistance to vulnerable and large families, as well as for orphans (Lithuania); and proposals to establish a fund to assist poor families in both budgetary (financial) and social insurance terms (Ukraine). Families—family members at risk. Provisions included the support of legislation to provide social assistance to families at risk of poverty (Albania); appropriate social protections for the family, with special attention to high-risk families (Poland); and the strengthening of the national institution’s potential in forming and implementing policies, including measures to support vulnerable families and a number of measures regarding the social support of the most socially unprotected families with children (Ukraine). Family planning. This area included the encouragement of family planning in ways that take into account the educational and cultural backgrounds of the population (Belarus); plans for family planning to improve the health prospects of newborn children and to reduce the number of abortions (Latvia); a booklet on family policy and family planning, distributed widely and free of charge (Romania); the establishment of welfare centers beneficial to families, including family planning centers; and the holding of a congress on family planning (Russian Federation). These examples provide evidence of specificity in the identification of policy items and interventions, even within broad categories like family planning and adoption. Although there is some coalescence (both among CEE and other subsets of nations, or all nations) around certain identified substantive considerations, there is a divergence in substantive considerations between the CEE and other nations. In addition, this analysis demonstrated contextual specificity in both the identification of individual substantive considerations and in how particular issues in these broader categories are identified and approached.

144

Policies for Families and Women

POLICY AGENDAS IN THE CEE CONTEXT The recent changes in CEE have been profound and have directly or indirectly influenced the quality of family life in a number of interrelated ways. Governments are in the process of developing and implementing policies and programs to strengthen families through the judicial use of resources, supports, and services linked to a variety of substantive areas. On the one hand, each country is apparently focusing on how best to strengthen families in ways that reflect the way issues are locally named and framed. On the other hand, among these countries there are some more widely shared (by one-third or more) substantive considerations identifying possible interventions. These 15 substantive considerations represent the salient family-linked policy considerations for CEE countries taken as a whole. Earlier, the authors noted the more traditional or conventional approach to family-linked policy development and implementation. The concepts of policy, sector, problem, and group represent the choices and positions that policy makers and planners have used in determining which course of action and which level of analysis and intervention to pursue. Among the 15 most salient CEE substantive considerations, 5 reflect policies (providing supports to and strengthening families, children’s rights, establishing and protecting the legal rights of families, family welfare, and the family as an important unit of society), 3 are sectorial (education, employment, health, and safety), 4 are identified problem domains (family planning, financial aid to families, adoption, and parenting), and 3 refer to vulnerable groups (families and family members at risk, women, and youths). Other countries are focusing on these concerns, including those with relatively similar levels of human suffering and human development. Although there is some coalescence among the priorities of the CEE countries and other countries, some family-linked substantive considerations seem distinctive to the CEE countries. These four distinctive considerations represent problem domains (adoption, financial aid to families, and family planning) and a vulnerable group (families and family members at risk). Within these more generally shared parameters, nations identify strategies for establishing priorities of the development of policies and programs. As the content and comparative analyses show, nations disagree on how and where to intervene in support of families, who, despite the appearance of ‘‘spheres of privacy,’’ have become a public issue (see Schiel, 1984). Some interventions focus on policy goals, while others concentrate on sectors, on eradication of problems, and on populations; some interventions simultaneously focus on all four spheres. Whether one approach is more strategic or maximally effective over time remains to be evaluated. Suffice it to say that, a number of contextual factors figure into a program’s success or failure.

Family-Related Policies and Programs

145

FAMILY CENTRISM AS AN APPROACH TO CEE FAMILY POLICY The goals of socioeconomic development schemes may be to eradicate the root causes of the identified social problems. These causes and the ‘‘best’’ ways to eradicate them are typically identified by professional experts. Seeking solutions in single or limited root causes implies linear thinking and causality models that overlook the wholeness and interdependence of systems, not to mention the meaning or reasons for the patterns’ existence. Similarly, viewing people as problems or unable to define their own problems or solutions ignores or provides no way to address resources and strengths that could be mobilized. In addition, this linear thinking denies families their own autonomy and freedom to define their own realities, for it says, ‘‘Contrary to your experience, ‘we’ [the experts] know the ‘real’ problem.’’ Socioeconomic policy is interpreted here to include consideration of societies and their families in complex, holistic ways, appreciating the interrelatedness of political, health, education, economic, religious, justice, environmental, kinship, and other ‘‘spheres.’’ Socioeconomic development is more akin to human development or comprehensive social advancement that recognizes the mutually influencing and interdependent aspects of society. It is essential for families to be perceived as partners and investment sites during policy making. As families in all their diverse forms become more active agents in defining and constructing conditions that support and facilitate family functioning, nations can take steps to build family-centric policy paradigms. The use of such paradigms may help governments, NGOs, and others synchronize their investments in and with families, thus establishing a mechanism for improving human development outcomes. Such a family-centric approach may enhance the development of policies and the delivery of services in support of families in CEE countries. The concept of subsidiarity (the view that the source of problem solving should be at the level of families, the most basic units of society; see Kolbe, 1994) is an important component of family centrism. It reflects the interdependent relationships among families and broader governmental and nongovernmental infrastructures, and it promotes communication between the most basic levels of social structure and national-level policy makers. Policy makers, scholars, and families can view families as capable and appropriate problem solvers, with the support of the government as needed and requested. This thinking helps move governments and others toward a more responsive family-centric paradigm that can sustain a dialogue between policy makers and researchers as ‘‘outsider experts’’ and families and individual family members as ‘‘insider experts.’’ Rather than blame families for failing to respond to policies, as is sometimes the way failures of policies are accounted for, in family-centric approaches, families become necessary in the articulation of policies, practices, and evaluation.

146

Policies for Families and Women

Policy work of this kind requires new ways of thinking. It means moving from benign neglect to recognizing that families are important; from doing to families to working with families; from professionals defining problems and solutions to collaborating with families to view functioning and the socioeconomic environment through the perceptions and lived realities of diverse family forms; from sectoral thinking and action to holistic thinking resulting in familysensitive or family-focused policy, to multisectoral policy that truly considers the needs of families, and to family-centric policies that involve families centrally in all phases of implementing policies. Family-centric paradigms begin with the resources and needs of families, as defined by families, and encourage a collaborative spirit among professionals and families to give families more effective and responsive use of their own resources. In addition, community and national resources are integrated into the implementation of policies to help families address their problems and situations. Rather than see families as the cause of social ills, family-centric approaches attempt to help families respond to their situations through integrative solutions. Thus, family centrism is an empowering and democratizing process and perspective, using language that invites inclusion and collaboration. Although family-centric perspectives are holistic, they start with the premise that families are basic units of society that influence social behavior in many important ways. Consistent with family systems theory (Anderson & Sabatelli, 1995), social ecology (Trzcinski, 1995), research on household strategies (Clay & Schwarzweller, 1991), and substantive institutional analysis of household bargaining approaches (Wheelock, 1993), family-centric thinking situates the individual within a larger context or system. An important system is the family (or, in some cases, the household). The system, multilayered, is the appropriate level of analysis because of the interrelatedness of influences and actions that affect others. The ‘‘self’’ does not live in a social vacuum. To examine individuals alone is to entertain a worldview in which individuals are motivated strictly out of self-interest to maximize economic or other benefits. As Wheelock (1993) demonstrated, this reductionistic perspective overlooks the cooperative efforts and expressions of care that individuals may perform in the pursuit of ‘‘human flourishing.’’ The socioeconomic environment, such as privatized and nascent market economies, and families’ transactions with this environment influence the functioning of families. In turn, families’ capacities affect socioeconomic outcomes for individual families and society more generally. The authors believe that an integrative approach that considers families’ perceptions of their strengths, desires, and needs is mandatory for the development of good policies. The drafting and evaluation of policies must consider more aspects of the experiences of families or run the risk of neglecting or harming families. Contrary to policy frameworks in which families are worked on, policy makers can obtain continuous evaluative feedback that will allow them to fine-tune and change policies, rather than snapshot data that allow them to make educated predictions.

Family-Related Policies and Programs

147

In contrast to the divided and fragmented picture of families that emerges from the multitude of sectoral approaches, families do not necessarily compartmentalize their lives. Instead, they often integrate different systems into a personalized social ecology. This understanding of how families live brings researchers and policy makers closer to understanding the ‘‘life worlds’’ of families. In other words, through dialogues with the families themselves, policy makers can design policies that are more responsive to families’ everyday lives and their individual-familial ‘‘stocks of knowledge’’ (the collections of meanings that families construct to explain how the world works and their place in the world; see Berger & Luckmann, 1966). This integration can be better understood and dealt with by policies, sectors, programs, and services that integrate holistic views from a wide array of perspectives and consider the needs of families from the inside out—that is, from the perspectives of families who are concurrently managing, for better or worse, a wide variety of issues daily. In comparison, single-sector approaches can both marginalize other sectors that could be resources for intervention and foster the lack of cooperation among helpers in different service systems who focus solely on one aspect of the problem or solution as the root cause or concern, so that the full range of needed supports is not addressed (Day, 1991). For example, the substantive consideration of family planning to help control population growth, empower women, or improve health highlights the interrelationships among the religious, legal, medical, educational, economic, and private and public social service sectors or interest groups. A one-sector, one-problem approach may be damaging to the intended recipients of the intervention because of the lack of coordination or communication with helpers in other sectors who may have additional resources or perspectives. Defining issues sector-specifically, such as naming family planning a health issue, may preempt comprehensive problem-solving involving economics, political rights, family dynamics, gender inequality, cohort differences, social injustice, and family morality (see Sachs, 1994). Interventionists who operate under the assumption that people need substitutions for familial supports and functioning may send an unintentional message of family weakness and incompetence. In essence, governments perpetuate and legitimate their existence by solving families’ moral, economic, and other dilemmas for them. Doing so not only conveys an implicit model of helplessness, but it furthers the cultural narrative of and belief in dependence and weakness, a self-fulfilling prophecy that legitimates the fragmented, bureaucratic professions and institutions of service providers. Furthermore, use of a medical model of assistance, which includes the premise that experts exist who know answers, fixes, or cures for families, denies a family’s agency to deal with its own situation. Such models may foster an attitude of dependence on governments or other providers of services to handle the coordination and distribution of basic resources, from education and health services to finances and parenting. In a family-centric paradigm, family participation is important for processing and establishing criteria that are used in planning, approving, implementing, and

148

Policies for Families and Women

evaluating policies. Whose voice is heard is equally as important as how problems are named because how issues are named and framed, by whom and why, is essential for the identification of social problems and acceptable solutions. Who is not heard is of critical import as well. In effect, two questions regarding family accountability are asked: To what extent are families included in decision making about their services and support, and to what extent are families included in implementing and evaluating programs? In a sense, the authors are advocating for considerations of ‘‘ethnopolicy’’: solutions to challenges that are known or considered by those who are most affected by them—the CEE families themselves. This view builds on the assumption that if heard and involved, families and policy makers can codevelop different strategies that use current and future resources that are best for families in response to or in avoidance of their problems and situations. CEE families can be more effectively supported if they are seen contextually in their totality and wholeness, embedded in an intricate social matrix of different meanings and significance, as economic participants; as potential safe havens in a cold, harsh world; or as educators. Such a family-centric approach may offer CEE nations more effective and supportive ways to strengthen families as natural problem solvers who can build on their own strengths, capabilities, and knowledge. Family-centric approaches require novel thinking, revisionism, and political will for innovative problem solving and supports. CEE and other governments can both assess families’ needs and develop a policy agenda (with families), based on a cohesive view of problem solving through subsidiarity and sociation (Couch, 1992). Governments may need to redefine their own and families’ responsibilities in promoting human welfare. This process involves creating a new language depicting families as active agents in society rather than as passive beneficiaries of social welfare programs. CEE governments have an opportunity to implement policies with and for families rather than to families. In other words, CEE nations may move to a policy structure in which families are seen as making culture, not just receiving it. CONCLUSION During the transition of the CEE countries to new political, social, and economic systems, families, though in many ways better off, have also been undergoing severe hardships. Leaders and policy makers in these countries have identified priorities to be dealt with in the face of democratization, privatization, capitalization, and the development of demand economies. Some of these priorities appear distinctive to the CEE countries: adoption, financial aid to families, families and their members at risk, and family planning. In each country, these and other substantive considerations are named and framed in specific ways. All the CEE countries will continue to write and implement policies in support of their families. Certain phases of policy and program development may be more appropriate

Family-Related Policies and Programs

149

at different times for various nations’ identified needs, available resources, and political readiness for change. In many countries throughout the world, including CEE, there now appears to be an interest in family-linked, perhaps familyfocused, policies. As families become more empowered in defining the necessary conditions for social ecologies that support and facilitate good family functioning, nations can move toward more family-centric paradigms. Mapping out this and CEE transformations systematically and learning from the experiences of other nations can be fertile soil for investigation. At about the same time as the IYF, the CEE countries were experiencing inordinate social transformations. In this context, the work of these countries can be seen as part of the ongoing worldwide initiatives to build better functioning systems in support of those being served. The human side of privatization and other types of social change must be given privileged status. The policy considerations and work conducted in conjunction with the IYF can be viewed as a major shift away from single-population, single-problem, singlesector approaches to more cohesive, comprehensive, holistic policies and programs. Considerable effort is necessary to reconcile and integrate visions of family-centric socioeconomic development strategies with the emergent familylinked support strategies reflected in CEE policy agendas. The experiences of the CEE countries may serve as the first example of some of these changes.

REFERENCES Anderson, S. A., & Sabatelli, R. M. (1995). Family interaction: A multigenerational developmental perspective. Boston: Allyn & Bacon. Berger, P. L., & Luckmann, T. (1966). The social construction of reality: A treatise in the sociology of knowledge. Garden City, NY: Doubleday. Briar-Lawson, K., Hooper-Lawson, K., Hennon, C. B., & Jones, A. (in press). Supportive practices: International implications. Thousand Oaks, CA: Sage. Clay, D. C., & Schwarzweller, H. K. (Eds.). (1991). Household strategies. Research in Rural Sociology and Development, 5. Couch, C. J. (1992). Toward a formal theory of social process. Symbolic Interaction, 15, pp. 117–134. Day, G. (1991). The regeneration of rural Wales: Prospects for the 1990s. In G. Day & G. Rees (Eds.), Regions, nations and European integration: Rethinking the Celtic periphery (pp. 211–231). Cardiff: University of Wales Press. Feeling perkier. (1996, March 28). The Economist, pp. 48–49. General Assembly. (1994, October 19). Official records (agenda item 95, A/49/PV.38). New York: United Nations. Hennon, C. B., Jones, A., Hooper-Briar, K., & Kopcanova´, D. (1996). A snapshot in time: Family policy and the United Nations International Year of the Family. Journal of Family and Economic Issues, 17, pp. 9–46. Hennon, C. B., Jones, A., Hooper-Briar, K., Lawson, H., & Schmenk, E. (1995, June– July). Family related economic-employment policy and programmes among Eastern European states. Paper presented at Transition to What? The Implications of

150

Policies for Families and Women

Privatization in Eastern Europe, the European Union, the Balkans and Beyond, Komotini, Greece. Hennon, C. B., Jones, A., Schmenk, E. R., Roth, M., Popescu, L., & Kopcanova´, D. (1996, November). Families, change, and employment: Pressing issues and policy implications for Eastern and Central Europe. Roundtable presentation at the national conference, Agenda for the 21st Century Labor Force: Implications of Changing Family Structure, Diversity and Jobs, Cincinnati, OH. Hennon, C. B., & Kopcanova´, D. (1996). The International Year of the Family: Global efforts and a national initiative. In K. Hooper-Briar & H. A. Lawson (Eds.), Expanding partnerships for vulnerable children, youth, and families (pp. 362–390). Alexandria, VA: Council on Social Work Education. Human development report, 1994. (1994). New York: Oxford University Press. Kolbe, L. (1994). Home, family and the welfare state—European approaches. Universitas Helsingiensis Quarterly, 14, pp. 15–19. National Paper of Bulgaria (Document IYF/NCFP/NR.26). (1995, February). Paper prepared for the United Nations Interregional Meeting of National Coordinators/ Focal Points for the International Year of the Family, Bratislava, Slovakia. National Paper of Poland (Document IYF/NCFP/NR.129). (1995, February). Paper prepared for the United Nations Interregional Meeting of National Coordinators/ Focal Points for the International Year of the Family, Bratislava, Slovakia. Population Action International. (1992). International Human Suffering Index. Washington, DC: Author. Report of the United Nations Europe and North America Preparatory Meeting for the International Year of the Family, Valletta, Malta, April, 1993 (Document IYF/ PM.2/9). (1993, May). Vienna: United Nations Secretariat for the International Year of the Family. Sachs, A. (1994, March–April). Men, sex, and parenthood in an overpopulating world. World Watch, pp. 12–19. Schiel, T. (1984). Development and underdevelopment of household-based production in Europe. In J. Smith, I. M. Wallerstein, & H. Evers (Eds.), Households in the world economy (pp. 101–129). Beverly Hills, CA: Sage. Secretariat for the International Year of the Family. (1994). Inventory of national action (2nd ed.). Vienna: United Nations Department for Policy Coordination and Sustainable Development. Trzcinski, E. (1995). An ecological perspective on family policy: A conceptual and philosophical framework. Journal of Family and Economic Issues, 16, pp. 7–33. Wheelock, J. (1993). Survival strategies for small business families in a peripheral local economy: A contribution to institutional value theory. In H. Lustiger-Thales & D. Sale´e (Eds.), Artful practices: The political economy of everyday life (pp. 21– 40). Montreal, Canada: Black Rose Press.

Part IV

Implications for the Welfare State

Chapter 11

The Social Costs of the Transition in Poland: 1990–1994 BRANKO MILANOVIC

The Polish stabilization program, which began in 1990, was the first program whose objective was to transform a plan-based economy to a market-based one. Otherwise, it was similar to the orthodox stabilization programs that were implemented throughout the 1980s. The program involved price liberalization with cuts in subsidies, caps on wages, conversion of the zloty, introduction of positive real interest rates, and reduction of the budgetary deficit. All these objectives were achieved in 1990, and some, such as convertibility, continue to be maintained. Real interest rates (nominal, deflated by the official consumer price index), which were sharply negative in 1989, became positive and remained so. The real amount of subsidies was cut by more than half in 1990 alone. The budgetary deficit, equal to 7 percent of the gross domestic product (GDP) in 1989, was turned into a small surplus in 1990 (0.3 percent of the GDP), but the deficit increased to 6 percent of the GDP in 1992 and remained under 3 percent thereafter. The inflation rate sharply decelerated from an average monthly rate of 19 percent in 1989 to 5–6 percent at the end of 1990 and continued to drop afterward. On the negative side, the stabilization program resulted, within one year, in a sharp decrease in real incomes, a large increase in unemployment, and a collapse of industrial production. Real state-sector wages in 1990 were some 30 percent lower than in 1989 (the initial forecast was ⫺10 percent), and real pensions decreased 17 percent. The real income of agricultural households was cut in half as the terms of trade moved sharply against agriculture. The only real increase was in private-sector incomes, which rose 33 percent, while the number of private-sector nonagricultural employees increased 22 percent. The private sector’s share of total nonagricultural employment, however, was still too small to make much difference overall. As a result, in 1990, real per capita

154

Implications for the Welfare State

consumption dropped by 13.5 percent and the real per capita GDP, by 12 percent. Furthermore, unemployment rose from practically zero at the beginning of 1991 to 1.2 million by the end of 1991 (6.1 percent of the labor force). The increase was three times greater than forecast (400,000). Industrial production in the state sector plummeted, decreasing by about 25 percent compared to 1989 (versus the forecast of 5 percent). Even accounting for the increased output of the private sector, the gross industrial value added in 1990 was 22 percent less than in 1989. The decline in industrial production in 1990 generated a debate about whether the slump was due mostly to external or internal causes. Some questioned whether the decline was really so sharp, since in the past, output was overstated and calculated at arbitrary (nonmarket) prices (Gomulka, 1992; Lipton & Sachs, 1990; Winiecki, 1991). Two reasons given for the decrease were a purely statistical artifact that was due to the earlier practice of padding output figures to show that targets were fulfilled and changes in the behavior of enterprises and individuals. For example, the greater availability of goods, increased interest rates, and harder budgetary constraints led enterprises to reduce their stocks of inventories, which were formerly inordinately high. Although this reduction led to a temporary decline in output, it was just an adjustment to market conditions and had no effect on the welfare of the population. The first signs of the recovery in industrial production (the type of production that declined the most precipitously in 1990) appeared by mid-1992. From 1992 to 1994, Poland experienced growth in the GDP: from 1.5 percent in 1992 to 4 percent in 1993 and to 6 percent in 1994. Other than Albania, Poland was the fastest-growing economy in Europe. The growth continued at the same rate in 1995. By 1995, Poland’s GDP was only 10 percent below its pretransition level. Thus, Poland was the first transition economy to turn the corner and return to growth (World Bank, 1995). Real wages, however, remained at the 1990 level for the next four years. In 1991, real pensions made up for the loss suffered the year before; in 1992, they declined 6 percent and remained at that level throughout 1994. As a result, the average real pension in 1994 was some 10 percent less than before the stabilization, while real wages were about a third less. These macroindicators were known to the authorities and analysts at the time. What was not known was how these overall developments were reflected at the household level: who became unemployed, how much poverty increased and among what socioeconomic groups, whether the distribution of wages became more unequal as enterprises restructured and tried to keep more productive workers, and whether the overall income distribution became more skewed. This chapter attempts to answer some of these questions on the basis of data provided by the regular Household Budget Surveys (HBS), published by the Polish Central Statistical Office. The four-year period is sufficient to have allowed all the essential effects of macrostabilization and changes in the system to trickle down to the level of households.

The Social Costs of the Transition in Poland

155

WHO BECAME UNEMPLOYED? The Polish stabilization program of January 1990 was followed by a swift increase in unemployment. From January 1990 to January 1993, the percentage of unemployed people in the nonagricultural labor force increased from less than 1 percent to 14 percent, or from fewer than 200,000 to 2.4 million. The net loss of nonagricultural jobs was 22 percent, or about 2.6 million workers, some of which was due to attrition (the death or retirement of workers) (Poland Statistical Yearbook, 1993). The issue addressed in this section is how the decline in employment was reflected in the household-level data and what types of households were primarily affected by it. The number of nonagricultural employees declined by 6.4 percent between 1989 and 1992. The decrease was more pronounced among mixed households of workers and private farmers (⫺11.6 percent) than among workers’ households (⫺5.1 percent) for two reasons: (1) the tendency to lay off first those with outside work options (private agriculture in the case of mixed households) and/or (2) more prevalent voluntary job terminations among members of mixed households who, because of their experience with private-sector agriculture, may have had greater confidence to start their own businesses. Some evidence for the latter is the sharp decrease (18.8 percent) in nonagricultural employment among the top income class of mixed households. As for workers, the middle-income classes registered the largest decreases. Among the lowest income groups, nonagricultural employment remained the same or even increased. Among pensioners, participation rates rose from about 5.5 percent to 8.5 percent, but their absolute contribution to increased employment was minimal. The decrease in employment was distinctly less severe among small households. Larger households (of four to six persons) suffered proportionately more.

WHAT HAPPENED TO POVERTY? Rising Poverty Rates The poverty line used here is the social minimum calculated by the Warsaw Institute of Labor and Social Affairs. It is relatively high: about $7 per equivalent adult per day at international prices, that is, in terms of purchasing-power parity. This poverty line is about 50 percent higher than the poverty line used in the World Bank’s (1995) study of poverty in Poland, five times higher than the World Bank’s absolute poverty line, and only a third less than the U.S. poverty line. Poverty rates went up substantially in all socioeconomic groups (households of workers, workers-farmers, farmers, the self-employed, and the unemployed) except pensioners between 1989 and 1993. Among workers’ households, the rates tripled from 16 to 44 percent, mainly in 1990 and 1991, and among farmers, they increased from 17 to 49 percent. For mixed households, which had the

156

Implications for the Welfare State

lowest poverty rates throughout the 1980s (see Milanovic, 1992), the increase in poverty was the most remarkable: from 8 percent to 47 percent. Thus, a fundamental reordering of different socioeconomic groups occurred during this period. Pensioners, who had the highest poverty rate in 1989 (36 percent) had the lowest (34 percent) in 1993, and the mixed households and farmers were, by 1993, the worst-off groups. Collapsing terms of trade for farmers and the decline in agricultural production were the causes of rising poverty among both farmers and mixed households. These rising poverty rates mirrored the decline in income. The average income of all socioeconomic groups decreased 35.3 percent between 1989 and 1993, but the decline was not uniform across socioeconomic groups. Two extreme cases are pensioners, whose real income stayed unchanged, and farmers whose real income dropped 62.9 percent. Thus, whereas the average per capita income of pensioners was about 25 percent below the national average (as it had been throughout the 1980s), in 1993 and 1994, it was one-third above the national average. On a per capita basis, pensioners became the richest socioeconomic group. In contrast, the average per capita income of farmers and mixed households was about 20 percent higher than the national average in 1989, but about a fifth below the national average in 1993. In 1994, however, the average per capita incomes of farmers and mixed households rose to about the same as the national average. In 1993, the Polish Central Statistical Office introduced two new social groups to make Household Budget Surveys fully representative: the self-employed (outside agriculture) and households of unemployed persons and social assistance recipients, whose main source of income is a social transfer other than pensions. The latter group was, understandably, the poorest group, with an income level only half the average. The self-employed, in contrast, were better off than any other social group, in terms of reported income and expenditures. As mentioned earlier, by 1993, the highest proportion of the poor were farmers because their terms of trade collapsed by almost two-thirds in the first two years of the stabilization. The causes of the collapse were both economic and political. Significant real appreciation of the zloty at the inception of the program, combined with the liberalization of trade, shifted some of the demand for domestic food to imports. But political factors were probably more important: Farmers, who had a strong lobby in the previous regime, were able to introduce the so-called parity policy, whose objective was to equalize per capita incomes in rural and urban areas. The Communist regime, which already faced strong opposition from workers, sought to placate farmers in its bid to retain some social legitimacy. With the new democratic government, the farmers’ political power waned. Their parties were divided, and their strikes did not have much effect. The ruling parties in the several governments up to November 1993 were antifarmers. Holding that there was significant agricultural underemployment, they were in favor

The Social Costs of the Transition in Poland

157

Table 11.1 The Determinants of Poverty, 1978–1993 (Dependent Variable: Percentage of the Poor)

of forcing marginal farmers out of business (according to a personal communication from Michal Rutkowski). The change in poverty rates can be expressed as a function of two variables: real per capita income and income inequality. The first variable is expected to be negatively, and the second, positively, related to poverty. The results for the period 1978–1993 are shown in Table 11.1. Income is always a significant determinant of the change in poverty, with a constant (across socioeconomic groups) semi-elasticity of about 0.4. Therefore, if real income increases 10 percent, the proportion of the poor decreases by 4 percentage points (say, from 20 percent to 16 percent). The Gini coefficient is statistically significant only once, and in two cases it has the wrong sign. In 1993, the estimated number of poor persons in Poland was almost 17 million out of a population of approximately 39 million (see Table 11.2), about 60 percent (almost 10 million) of whom lived in urban areas. In contrast, in 1987–1989, there were fewer than 7 million poor persons (5 million in urban areas and 2 million in rural areas) (Milanovic, 1992). The estimated poverty gap (income needed to bring all poor households to the poverty threshold level) increased continuously, from about 1.4 percent of the GDP in 1989 to 6.7 percent in 1992. In 1993, it declined to 6 percent of the GDP (see Table 11.2), or about $5.5 billion (at the 1993 exchange rate and

158

Implications for the Welfare State

Table 11.2 Poverty Gap in Real Terms

prices), which is five times the 1994 spending on the unemployed ($1.1 billion) (Word Bank Transition Economics Unit database). Other social transfers included cash transfers, such as pensions ($14.6 billion), various family allowances ($1.3 billion), sick pay ($1.2 billion), other social transfers ($0.6 billion, including scholarships, social aid by enterprises, and social assistance at the local level), and transfers in kind, including education ($4.1 billion) and health ($4.2 billion). In real zloty terms, the absolute poverty gap increased about 2.2 times between 1989 and 1993, while the estimated number of the poor increased 2.6 times. Therefore, the average shortfall in real income of people classified as poor decreased. The year 1990 is particularly interesting in this respect because the relatively low shortfall clearly indicates that many people just slid into poverty, falling slightly below the poverty line. Such a decline can be socially sustainable if it is followed, within a relatively short time, by increased income, in which case, the descent into poverty may be only transitory. However, after 1990, the poverty gap per poor person increased, which suggests that there was a deepening of poverty. As mentioned earlier, labor force participation rates declined more for large than for small households. Among these households, the incidence of poverty greatly increased as well. For example, between 1989 and 1993, the poverty rate for four-member households rose from 11 to 46 percent and for five-member households, from 17 to 60 percent. Because the increase in poverty was greater among large families, the increase

The Social Costs of the Transition in Poland

159

in the percentage of children who were poor was even greater. From 1989 to 1993, the proportion of children under age 7 who lived in poor households soared from 18 percent to 60 percent. The proportion of children of workers and farmers living in poverty tripled (from 19 percent and 20 percent, respectively, in 1989 to 59 percent and 58 percent, respectively, in 1993); those in mixed households increased 5.5 times (from 10 percent to 55 percent). And in 1993, 83 percent of the children living in households headed by unemployed persons were poor. WHAT HAPPENED TO INCOME DISTRIBUTION? The change in the head-count ratio of the poor is, in addition to the change in overall income, influenced by the shape of the income distribution curve (how bunched households are near the poverty line) and by the change in income distribution itself (whether it became more unequal). Between 1989 and 1992, the overall income distribution, measured by the Gini coefficient, was practically unchanged. In 1993, inequality increased. Part of the increase may have been due to the inclusion of the two new socioeconomic groups (the self-employed and the recipients of social transfers), which are, respectively, the richest and poorest social groups. Also, individual data were used to calculate the Gini coefficients for 1993, but group data were used for the earlier period, although the difference between the two measures cannot be more than 2 to 3 percent (see Davies & Shorrocks, 1989; Jenkins, 1988). Since most of the increase in poverty took place before 1993, it must have been due to declining incomes rather than to the more unequal distribution of incomes. With regard to real per capita disposable income from 1989 to 1993, the average real loss was 35 percent. The percentage loss, however, was greater for the lower-income deciles of the population (almost 50 percent for the bottom decile) and was gradually less for the higher-income deciles (23 percent for the top decile). Like overall inequality, inequality within each social group was higher in 1993 than in 1989 (except for mixed households). Before 1993, however, changes in the Gini coefficient were small (see Table 11.3). The Gini coefficient of wages (the distribution of all state-sector wages—a distinct, though closely related, variable from income inequality among workers’ households) also increased amid greater returns to education. In a detailed study of the labor market in Poland, the World Bank (1995) found that the rate of return to an extra year of education increased from 6.4 percent in 1987 to 7.5 percent in 1992. In 1987, the average wage ratio between a university graduate and a person with basic vocational education was 1.19. By August 1993, it had increased to 1.52 and in the private sector, to 1.9. The increase in the educational premium had already occurred in the first year of the transition. Some additional evidence of the changing wage distribution is obtained by looking at the relative wages of different occupations. Unfortunately, such data

160

Implications for the Welfare State

Table 11.3 Income Distribution: Gini Coefficients, 1989–1993

were collected only for the period up to 1990 and thus include only the first year of the transition. Nevertheless, it is useful to look at even that early and fragmentary evidence. What can be concluded from Table 11.4 is that the relative wages of miners, accountants, economists, and some categories of manual workers (textile workers) had already declined in 1990. In the previous system, miners occupied a special position, for both ideological reasons (the miner was the prototype of the socialist worker) and more pragmatic foreign exchange needs (Poland relied heavily on coal exports). Their preferential position ended with the transition. The decline in the relative wages of accountants and economists is an indication of the early deterioration of the relative wages of the bulk of middlelevel clerical personnel whose numbers were overblown in the socialist system. The better or luckier of these personnel may have eventually become management specialists (an occupation that did not exist in the 1986–1987 classification). Other than the miners, the relative position of manual workers did not change much.

THE FIRST YEAR OF THE TRANSITION An important question is whether the welfare of the Polish people declined following the introduction of market-oriented reforms. Particularly relevant for such an analysis is the first year of the transition (1990), when both the supporters and the opponents of the reforms were surprised by the extent of the decline in incomes, industrial production, and GDP. On the one hand, the op-

The Social Costs of the Transition in Poland

161

Table 11.4 Relative Wages, by Occupation in the State Sector, 1986–1990 (Average Wage for All State Sector Workers ⫽ 1)

ponents argued that the ‘‘big-bang’’ market-oriented reforms caused a lot of unnecessary hardships. On the other hand, the supporters contended that a number of data biases led to an exaggerated view of the hardships. Lipton and Sachs’s (1990) argument is emblematic of the supporters’ perspective. Lipton and Sachs stated that earlier statistics had a built-in bias toward presenting a rosier picture of the economy and that once this bias was eliminated, as it was at the start of the transition, the new situation appeared worse. The measurement of output was geared to take account of physical quantities that made sense in a planned economy but not in a market economy, in which many of the goods are not wanted. As a Polish journalist (quoted in Lipton & Sachs, 1990, p. 79) wrote:

For the entire period of real socialism, investments were poured into a closed production cycle that offered no profit: coal was necessary to produce electricity; electricity was necessary to produce steel; and steel was necessary to mine coal. All that produced a

162

Implications for the Welfare State

statistical growth in national income, a growth which, as we now see, actually meant a decline in national wealth.

Statistics were recorded only for state production, not for production by small private-owned enterprises. This was not a problem as long as the private enterprises’ share in value added was negligible, but during the transition, their importance has been greatly expanded. Hence, it has been argued that some gains in output have been underestimated. Finally, one of the most visible aspects of the transition in Poland and elsewhere has been the dramatic increase in trading. In the past, official statisticians ignored the extremely small-scale trading (often illegal). For all these reasons, the reported declines in output may look worse than they really have been. Lipton and Sachs (1990), however, attempted to show that the utility of the average consumer might have gone up (even if his or her income appeared to be less) because of the disappearance of excess demand and the consequent queuing in waiting lines that imposed real costs (in the time that was spent). The following first presents their argument and then points to some problems with their claim. Lipton and Sachs (1990) defined excess demand as a situation in which there is aggregate demand (Y) and excess aggregate supply (S) at the official price level (P), which for simplicity can be set at unity. Percentage excess demand (ex) is equal to (Y ⫺ S)/Y. Aggregate demand and supply are equilibrated through the mechanism of the black market. At the black-market price Pb (Pb ⬎ 1), aggregate demand and supply are equal: S Pb ⫽ Y. If the last relationship is placed in the previous equation for ex, one obtains:

ex ⫽

S(Pb ⫺ 1) Pb ⫺ 1 S⫽ Pb Pb

(1)

The representative consumer’s utility is equal to U ⫽ U (S) ⫹ wL, where S ⫽ real consumption equal to aggregate supply, w ⫽ the exogenous marginal utility of leisure, and L ⫽ the amount of leisure. Also, L is reduced by the amount of time the consumer must spend in waiting lines, designated q. Then the utility equation becomes U ⫽ S ⫹ w (N ⫺ qS) where N ⫽ the maximum amount of leisure if q ⫽ 0, and, for simplicity, one assumes a direct proportionality between consumption and utility so that U(S) ⫽ S . A similar argument, with an empirical illustration, is presented in Roberts (1993). Utility from spending a unit of time in a waiting line must, in equilibrium, be equal to the marginal utility of leisure (the marginal utility does not decrease): Pb ⫺ 1 Pb ⫺ 1 w ⫽ U(π) ⫽ U ( )⫽ q q

(2)

The Social Costs of the Transition in Poland

163

where π ⫽ profit per unit of waiting, Pb ⫺ 1 is the monetary gain (that is, the difference between the market and official price of output), and, again, for simplicity, the proportionality between utility and monetary return, π, is assumed. Lipton and Sachs’s (1990) Equation 2 is divided throughout by Pb, which is incorrect, since the same deflation would either have to be done consistently (such as for w) or not done at all, thus implicitly assuming that the deflator is 1, as is done here. The mistake, however, does not affect the rest of the derivations. From Equation 2 it follows that Pb ⫺ 1 ⫽ qw. Placing this into Equation 1 yields: ex ⫽

Pb ⫺ 1 qw ⫽ Pb Pb

(3)

From Equation 3, q ⫽ Pb (ex/w), which, when w ⫽ constant, shows that queuing per unit of output is proportional to excess demand and to the excess of the black-market price over the official price. Finally, one can substitute q ⫽ Pb (ex/w) in the utility equation to obtain: U ⫽ S ⫹ w(N ⫺ qS) ⫽ S ⫹ w(N ⫺

Pb ex S) ⫺ S (1 ⫺ Pb ex) ⫹ wN w

(4)

which is the final expression obtained by Lipton and Sachs (except for Pb, which is canceled out in their derivation). Lipton and Sachs (1990, p. 92) wrote: ‘‘When the system is characterized by excess demand, increases in real income lead to decreases in utility.’’ That statement, as well as their Figure 1 (p. 93), implicitly assumes that S is constant. If it was, obviously, the greater the excess demand (ex), the less the utility because more time would be spent in ‘‘directly unproductive’’ waiting. (Pb is also a function of ex and need not be discussed separately.) What characterized Polish stabilization, however, was a decline in S, so utility in Equation 4 must then decrease on account of the lower S (δY/δS⬎ 0). According to the official statistics, the decline in S per capita was 13.5 percent. Even according to Berg and Sachs (1992), who strongly disputed the official statistics, real consumption decreased by 4.8 percent. Indeed, the HBSs showed that the per capita consumption of most food items decreased. In addition, there were several major changes in consumption. First, there was a shift toward the use of inferior products; that is, the consumption of bread and potatoes increased, while the consumption of protein products (such as meat, milk, and cheese) decreased. Second, there was an increase in the consumption of fruits, which were severely undersupplied under communism. Third, there was a huge increase in the purchase and ownership of consumer durable goods. For instance, the ownership of color television sets doubled in five years, and the ownership of VCRs increased 12 times.

164

Implications for the Welfare State

The decline in S was moderated, however, by the marked increase in the ownership of, and thus the utility derived from, products like color television sets, almost all of which were imported. If consumption is divided into two parts, Sd ⫽ domestic consumer output and M ⫽ consumer imports, there was an increase in the consumption of M, both in terms of physical quantities of goods (mostly consumer durables) and nonfactor services (foreign tourism). The increase in M was due to the real appreciation of the exchange rate and the increase in dollar wages. The fact that Polish dollar wages went up does not matter for the part of consumption that is used to buy domestic output because the purchasing power of the dollar in terms of domestic commodities went down even more. It is relevant, however, for the demand for imported goods because the average Polish worker, whose wages increased from $39 in 1989 to $108 in 1990, did feel richer and indeed increased his or her consumption of imported goods. This feature is common to many stabilization programs: Instant prosperity can be created through real appreciation of the exchange rate. The problem is whether such a rate can be sustained. Most often, barring continued substantial inflows into the capital account, it cannot. The Polish situation, from the view of policy makers, was better. Persistent excess demand and the lack of alternative financial instruments created a lasting high demand for foreign exchange. The foreign exchange market was the nth market that equilibrated aggregate demand and supply. The zloty was thus chronically undervalued. Unification of the exchange rate in January 1990 permitted policy makers to provide ‘‘instant prosperity’’ at an exchange rate that was basically correct. How can the decline in real incomes and the consumption of essential goods (such as food) be reconciled with the increase in the consumption of imported consumer durable goods? The answer is that the demand for domestic goods decreased because of the decline in real income and the effect of negative wealth. Basically, the population experienced capital loss on their foreign exchange savings as the unification of the official and parallel market rates in January 1990 produced an important real appreciation of the parallel rate at which exchange-rate holdings were previously valued. The upper bound of this capital loss, if calculated on the assumption that all foreign exchange was to be used to buy domestic products, was about 4 percent of the GDP. Alternatively, if the population intended to use all its foreign exchange savings to buy imports, its wealth was not affected. An intermediate situation is the most likely; that is, capital loss probably amounted to 1 to 3 percentage points of the GDP and must have, through the reverse Pigou effect, dampened personal consumption. Thus, the total real money, including zloty and foreign exchange savings, held by the population declined by 22.6 percent in 1990 entirely because foreign exchange holdings went down by 50 percent. The relative price of essential goods (mainly food) stayed practically the same. Retail prices of food increased 575 percent in 1990 versus 585 percent for the overall increase in retail prices, and the population ended up buying less food (Poland Statistical Year Book, 1991).

The Social Costs of the Transition in Poland

165

In addition, the decline in real wages (w) in 1990 further reduced utility (U) as the gain from the elimination of excess demand decreased. That is, if the opportunity cost of leisure is less, people do not mind waiting in line. Finally, the maximum amount of leisure (N) probably increased (because of increased unemployment), which, of course, raised U because people were working less. However, if, for simplicity, one allows that the effects of w and N are too small and uncertain, one can take a reduced utility function of the form U ⫽ U(S,q), where the effect of the reduction of S probably dominates the effect of a lower q. The foregoing analysis dealt with the representative consumer and thus did not take into account the issues of distribution. If the elimination of subsidies and excess demand (1) affected lower-income households more than higherincome households (note that their opportunity cost of queuing was less and that, according to all empirical studies—see, for example, World Bank, 1989, 1991—subsidies were pro-poor), and (2) the marginal utility of income decreased with the level of income, then the overall utility must have been depressed even further. In conclusion, one can write the representative consumer utility function as follows: U ⫽ U (Sd, M, q, w, N)

where all the symbols are as in the previous equations. (Note that the change in wealth was omitted because it affects utility only indirectly through its effect on real consumption: People consume less because they feel poorer.) Consumer utility in 1990 decreased because of the reduction in Sd. The decline was moderated by the elimination of queuing and the increased consumption of imported goods (M). The balance of these effects is impossible to determine. What is sure, however, is that observing only S implicitly assumes that the utility function is U ⫽ U(S) , which is incorrect. Therefore, Lipton and Sachs’s (1990) contribution was to introduce another important element, namely, q. However, they failed to acknowledge the fact that S decreased (an important omission) and that at least two other elements changed as well: The wage rate declined and thus the opportunity cost of waiting was reduced, and total leisure increased. CONCLUSION The effects of the Polish stabilization program, implemented in 1990, and the subsequent transition to capitalism generated widespread discussions, motivated by the unexpectedly high social costs. The often unstated assumption at the inception of the stabilization program was that since central planning was intrinsically inefficient, stabilization in Poland might be even less costly in lost output than in market economies. According to these views, recession, stemming

166

Implications for the Welfare State

from the overall decline in demand, could be moderated by the removal of administrative barriers that hindered the better deployment of resources in a planned economy. However, the results were the reverse. Despite three consecutive years of growth in the GDP (1992–1994), the real GDP in 1994 was still 10 percent below the pretransition level, real population incomes were 35 percent less, and poverty (measured by the same absolute yardstick) had risen from an estimated 17 percent of the population in 1989 to 45 percent in 1994. The poverty rate more than tripled in all socioeconomic groups except pensioners, for whom it remained stable. Large households and children were especially affected. The estimated poverty gap rose from 1.4 percent to 6 percent of the GDP. The income distribution became more unequal, though not dramatically so. Most of the increase in poverty was due to declining incomes. On a more positive side, there were clear gains from the elimination of queuing and increased ownership of consumer durables. A veritable revolution in the consumption of durable goods was spurred by the real appreciation of the exchange rate following the unification of the official and parallel markets that raised dollar wages from some $30 per month (at the parallel exchange rate) before the transition to $150 or more after 1990–1991.

NOTE The author expresses his appreciation to Alan Gelb, Emmanuel Jimenez, Bryan W. Roberts, and Michal Rutkowski for their helpful comments on this chapter.

REFERENCES Berg, A., & Sachs, J. (1992). Structural adjustment and international trade in Eastern Europe: The case of Poland. Economic Policy (No. 14), pp. 76–89. Davies, J. B., & Shorrocks, A. F. (1989). Optimal grouping of income and wealth data. Journal of Econometrics, 42(1), pp. 97–108. Gomulka, S. (1992). The causes of recession following stabilization. Comparative Economic Studies, 32(2), pp. 71–94. Jenkins, S. (1988). Reranking and the analysis of income redistribution. Scottish Journal of Political Economy, 35(1), pp. 65–76. Lipton, D., & Sachs, J. (1990). Creating a market economy: The case of Poland. Brookings Papers on Economic Activity, 1, pp. 75–148. Milanovic, B. (1992, September). Poverty in Poland, 1978–88. Review of Income and Wealth, pp. 329–340. Poland Statistical Yearbook. (annual). Warsaw: Polish Central Statistical Office. Polish Central Statistical Office. (annual). Household budget surveys. Warsaw: Author. Roberts, B. W. (1993). The initial welfare consequences of price liberalization and stabilization in Poland. Unpublished manuscript. Winiecki, J. (1991). The inevitability of a fall in output in the early states of transition to the market: Theoretical underpinnings. Soviet Studies, 43, pp. 669–677.

The Social Costs of the Transition in Poland

167

World Bank. (1989). Poland: Subsidies and income distribution (World Bank Report No. 7776-POL). Washington, DC: Author. World Bank. (1991). Czechoslovakia: Transition to a market economy. Washington, DC: Author. World Bank. (1995). Understanding poverty in Poland. Washington, DC: Author.

Chapter 12

The Social Consequences of the Transition in Hungary and Methods for the Early Recognition of Social Tensions OTTO CZU´CZ

In Hungary, privatization actually started before the change of the political regime (1989–1990). The economic reforms of the 1960s, 1970s, and 1980s made the development of the so-called second economy possible. During this period, approximately 70 to 80 percent of the active population was engaged in various agricultural, commercial, or other service activities in addition to their employment in the state sector (Andorka, 1990). The national income produced in this way was estimated to be as high as 30 percent of the gross domestic product (GDP). In 1982, the activities of the previously formed small enterprises were legalized by the Decree of the Ministry of Industry No. 20. In 1984, the Department of Public Administration of State Properties was replaced by so-called company self-ownership. Formally, the state companies were under the management of the company self-governments. Thus, although state ownership was maintained in theory, the department could no longer directly intervene. The general legitimacy of the private sector was founded by the company law (Act VI of 1988), which came into effect on January 1, 1989. Under this law, private entrepreneurs were given unlimited possibilities for associating with state and cooperative economic organizations, and foreign investors were allowed to invest directly in private enterprises. The major aim was to keep the country solvent. In the second half of the 1980s, the so-called spontaneous privatization of some companies took place. In essence, private associations were formed within state companies, initiated by company managers, and company centers acquired property-handling functions. The government supported these efforts because previous company subsidies could be withdrawn, and thus the government was relieved of the burden of repaying bank loans that companies had taken out to

The Social Consequences of the Transition in Hungary

169

increase or to maintain production. The number of such transformations increased from 1 in 1986 to more than 50 in 1990 (before the elections). Despite the increase in the rate of spontaneous privatization, however, this proportion is almost negligible compared to the total property owned by the state. By 1989–1990, the withdrawal of Soviet troops from Eastern Europe and the rapid collapse of the political systems in the neighboring countries created new circumstances for privatization. It became clear that the gradual ‘‘organic’’ transition to a market economy through reforms, controlled by the previous elite, would be replaced by a fight for the redistribution of property relations (Vigva´ri, 1993). The political programs of the parties preparing for the parliamentary elections were all similar in that none questioned the necessity to reinforce private ownership, and privatization was considered the main method to achieve this goal. With respect to the realization of this goal, however, a great number of differences could be observed. The Independent Smallholders’ Party, the Alliance of Free Democrats, and the Alliance of Young Democrats pushed the reprivatization of land and the need for foreign capital. The Hungarian Democratic Forum promised to strengthen national property while emphasizing that individual and self-government forms of ownership should gain ground at the expense of state property. The leaders of the Hungarian Socialist Party drew up a liberal ownership-reform program, with the intent of ensuring economic leadership positions for their members who were partly or entirely ousted from power. THE TRANSITION The three parties that formed the coalition in power (Hungarian Democratic Forum, Christian Democratic People’s Party, and Independent Smallholders’ Party) after the parliamentary elections in spring 1990 were slow to coordinate their ideas about privatization. They agreed that spontaneous privatization should be stopped as soon as possible (and attempts were even made to return the previously privatized companies to state management and to replace the company leaders quickly). It was also obvious that the country was unable to meet its external liabilities from its current foreign currency income. Income from privatization was also needed to repay the country’s debts. Thus, free property allotment, the employees’ shareholding program, and the acquisition of property by self-governments were all ruled out. Ideas of reprivatization, propagated mainly by the Independent Smallholders’ Party, were dismissed after much debate. (Reprivatization was carried out only when the assets previously owned by the Catholic Church were returned.) A system was developed for the partial compensation of individuals who had suffered financial losses or political persecution. According to this system, these individuals received compensation coupons that they could use to ‘‘buy’’ certain land, life annuities, or shares of certain state and other companies. The State Property Agency, which had been under the control of the parlia-

170

Implications for the Welfare State

ment, was placed under the government’s control. This agency handled the property of companies, worth about 300 billion forints, that had previously been under self-government (Vigva´ri, 1993). Several central privatization programs were established to decrease the proportion of state property from over 90 percent to less than 50 percent in three to five years. The underlying intention was to back up the national capitalist class, which supported the government. However, the concept of nation-based privatization failed spectacularly. At that time, the population’s annual savings amounted to about 15–20 billion forints (Lo´ra´nt, 1991). If the Hungarian people were willing to spend half their savings on privatization, it would take more than 200 years to buy the state property to be privatized in the internal market. If privatization was to occur in three to four years, as originally planned, the properties to be privatized would have to be acquired by the population at one-fiftieth of their value. Such a transaction could not be carried out justly. The properties would obviously be acquired by a small number of people who had already obtained some capital (primarily during the previous regime) or would be allocated artificially (obviously to the groups close to power). By 1992, the parties in power had developed a new concept. Entrepreneurial properties that were to be permanently or temporarily in the possession of the state were separated (Act LIII of 1992, Act LIV of 1992). Properties that were permanently under state control included the infrastructure of energy and public service monopolies. The main reason for this decision was to ensure that prices would be determined by the state. Properties that were to be temporarily under the control of the State Property Agency were the large state commercial banks, which, it was explained, played a strategic role in the country’s economy and would take a long time to be prepared for sale because they were difficult to privatize or were bankrupt or close to bankruptcy. The result was recentralization to an extent that was unprecedented even in previous decades. By 1992, it became evident that company managers should not be excluded from the process of privatization. These managers had ample opportunities to influence the price of privatization controlled by the State Property Agency, to supply extra information to favored privatization partners, and to influence privatization in other ways. As a result, informal, spontaneous privatization continued, with certain restrictions, under the supervision of the State Property Agency. Preferential credit systems were created for Hungarian investors. Parties taking out the credit actually assume part of the internal state debt, and the repaid credit and interest decrease the amount of the national debt. Results of Privatization Only a little more than 10 percent of state properties were privatized until 1993 (Vigva´ri, 1993), and these companies were predominantly under foreign ownership. Privatization was the greatest in the following industries: food, building materials, engineering, internal trade, light industry, and construction. Pri-

The Social Consequences of the Transition in Hungary

171

vatization has not started in areas involved in the production of natural resources (petroleum, natural gas, coal, bauxite), raw aluminum, iron metallurgy and steel, plastic, artificial fertilizers, rubber, and synthetic fibers; the production and/or supply of electricity, heat, water, and gas; and public transportation and railroads. The rate of privatization slowed after the second half of 1993, primarily because of the preparations for the new elections (to be held in spring 1994). Larger privatization deals were accompanied by scandals, which were aired extensively in the media. Obviously, the parties in power did not want to poison the atmosphere of the election campaign further. Despite all these precautionary measures, the governing parties suffered a severe defeat in the 1994 elections, which meant that voters must have formed an unfavorable opinion of their activities, including privatization. SOCIAL CONSEQUENCES OF THE TRANSITION The transition to a market economy resulted in considerable changes, mostly negative, in the lives of many socioeconomic groups in the population. However, the intensifying social tensions during this period cannot be explained only by the changes in the economic structure. The data show that at the end of 1995, the GDP was about 16 percent less than in 1989 (Statistical Yearbook of Hungary, 1995). Although the structural change resulted in some drop in the GDP because of adaptation difficulties, the extent of the decrease suggests that other factors must have contributed to it, too, including the loss of the previous Eastern European markets, several economic decisions that were delayed (or not made), and the recession in the world economy. Unemployment At the beginning of the transition, the first social problem to arise was unemployment. Until 1989, Hungary had a policy of full employment (Czu´cz, 1991), which meant that the state created employment opportunities for practically all who were willing to work. In addition, labor shortages arose from time to time in some sectors of the labor market as a result of an active investment policy and the constant financial subvention of companies. This policy led to significant inefficiency. According to some estimates, Hungarian companies employed 25 to 30 percent more workers for the production of one product unit than did Western European companies. Hence, the first major change at the start of the transition was in employment. The owners of the privatized companies proved to be much more cost-sensitive than the previous company managers and did not hesitate to fire excess workers; Durst (1994) found that companies fired 15 to 30 percent of their employees. As a result, and because of the loss of external markets, the number of registered unemployed persons increased dramatically, from 80,000 (or 1.7 percent of the

172

Implications for the Welfare State

labor force) in 1990 to 663,000 in 1992 (12.3 percent of the labor force), after which the number dropped to 520,000 (10.8 percent of the labor force) in 1994 and 496,000 (10.4 percent of the labor force) in 1995 (Figyelo¯, February 1996, p. 33). Furthermore, from 1990 to 1994, more than 1.3 million jobs were eliminated, while the number of unemployed persons increased ‘‘only’’ 600,000; these figures imply that more than 750,000 persons were forced out of the labor market on account of terminated jobs. Thus, on the one hand, the population’s economic activity decreased considerably, and on the other hand, some people lost any hope of finding employment (Tı´ma´r, 1994). A complex institutional system was set up as early as 1989–1990 in order to alleviate problems resulting from unemployment by both active and passive means. Major elements of the passive provisions include unemployment benefits (from 1992 on), early retirement of employees a few years below the retirement age, and assistance for young people seeking their first jobs. The active means include support for the creation of jobs, retraining, and certain job-creating investments; communal work; recommencement loans; and help in becoming entrepreneurs. Those who are no longer eligible for unemployment provisions are in an especially grave situation. According to the original (1989) regulations, they could be paid for a maximum of two years, but from 1992 on, benefits were paid for a maximum of one year. Thus, an increasing number of people are losing their eligibility for provisions. As of August 1994, 201,000 registered unemployed persons who were no longer eligible for unemployment provisions received no income-supplementing support (Tı´ma´r, 1994). Act III of 1993 provides for special income supplements for unemployed persons who no longer receive benefits (after a means test), but the small amount (which cannot exceed 80 percent of the current minimum old-age pension) is not enough to live on. If permanent unemployment remains extensive, it may be necessary to devise a new solution to manage the accumulating social tensions. Vulnerability of Private Enterprises In the 1990s, the number of large companies previously owned by the state was continuously decreasing, and the proportion of small enterprises was on the rise. From 1989 to 1993, the proportion of persons employed in small companies (from 1 to 99 persons) increased from 17 percent to 50 percent, the proportion employed in medium-sized companies (from 10 to 499 persons) increased from 19 percent to 25 percent, and the proportion employed in large companies (500 or more persons) decreased from 64 percent to 25 percent (Ne´pszabadsa´g, July 23, 1994). If private entrepreneurs are included (there were more than 600,000 as of December 1992, or 20 percent of all employed persons—see Laky, 1994, and their number probably has grown since then), approximately two-thirds of the workforce are employed by small enterprises.

The Social Consequences of the Transition in Hungary

173

The population’s willingness to start enterprises increased dramatically during the transition, from 25 percent in 1988 to 44 percent in 1990 (Kolosi & Ro´bert, 1992). Although this willingness is partly associated with the fear of unemployment, it indicates that a considerable proportion of the population is willing to adapt actively to changes in the economy. Nevertheless, new small enterprises face great danger. It has been estimated that 50 to 60 percent of newly founded small enterprises will go bankrupt within three years of their start. Entrepreneurs who go bankrupt may find themselves in exceptionally difficult circumstances. They are not eligible for unemployment benefits and usually cannot mobilize their assets because they have had to mortgage them to start the enterprises. An interesting finding is that unemployed persons who became private entrepreneurs with the help of labor centers proved to be more viable than expected (Frey, 1994). More than two-thirds of those who had received support were still in business 6 to 18 months after the support had ceased. This finding indicates that new enterprises were started on somewhat sounder bases in recent years. Nevertheless, a major task is to organize some kind of protection against bankruptcy (probably self-financed).

Rising Cost of Living The transition necessarily increased the cost of living, since the previous state subsidies for production and consumer price subsidies had ended and inflation rose considerably. The following were the major trends from 1990 to 1994. The minimum wage rose from 5,600 to 10,500 forints per month; average gross wages increased from 13,241 to 29,700 forints per month; the consumer price index dropped from 128.9 percent to 120 percent; the wage index decreased from 124.6 percent to 120 percent; and the minimum wage index dropped from 151.3 percent to 113.3 percent (Ne´pszabadsa´g, January 5, 1994). Kolosi and Ro´bert (1992) found that in 1991, 80 percent of Hungarians thought that their financial position had deteriorated in recent years compared to the previous period. It is interesting that an analysis of actual income positions did not confirm this subjective feeling. Average net monthly real incomes increased almost at the same rate as inflation (Andorka, 1992), and the decrease in real per capita income was relatively small after 1990 (much smaller than the decrease in the per capita GDP in the same period). On the other hand, income differences became much more pronounced. Whereas in 1982 the highest 10 percent of incomes were 5.1 times those of the lowest 10 percent, and this proportion was 5.03 in 1989 (that is, it did not change significantly), by 1991, this index rose to 6.01 (Kolosi & Ro´bert, 1992). Studies have also shown that the financial positions of people in the lowest income categories have not worsened significantly over the past few years. Rather, the income of the upper categories increased at the expense of the middle class.

174

Implications for the Welfare State

This trend—if it proves to be permanent—may have serious political consequences. The statistical averages hide the fact that the number of people who are having severe difficulty subsisting is increasing continuously. According to the companies that supply electricity and gas, the number of people who are unable to pay for their services is increasing rapidly, and electricity and gas are being disconnected more and more frequently. During the past few years, the number of homeless people has increased drastically. According to Andorka, Kolosi, and Vukovich (1990), there were about 30,000 homeless people in 1980. Since 1990, the number of homeless people is estimated to have increased twofold or even threefold. Although this group is not able to initiate major political actions, their unsolved problems may cause extensive social frustration.

NEW SOCIAL TENSIONS At the time of the transition to a market economy, it became imperative to introduce reforms in social institutions. Unfortunately, these changes have also resulted in social tensions in certain socioeconomic groups. People view these changes as extra burdens associated with the transition and blame the transition for them. Three such reforms are discussed next.

Health Care System In 1989, the Hungarian parliament passed Act XLVIII, which mandated the reform of the health care system starting in 1990. Previously, health care was provided free to every Hungarian citizen, and the costs were covered by the state budget. As a result of the 1990 reform, the entire health care system was placed on an insurance base. The aim was to stop the explosion in costs, to ensure the more expedient and efficient use of financial resources, and to modernize the previous deformed structure of the system. But the transition was accompanied by grave, undesirable consequences. First, a substantial proportion of the people are not insured and thus cannot afford to pay for medical care. Furthermore, local governments do not always have sufficient financial resources to provide for such individuals. A similar situation developed after the previously substantial subsidies of medicines and other therapeutic products were withdrawn. Individuals who need ongoing treatment and expensive medicines (such as those with diabetes) find themselves in an impossible financial situation, since they often cannot afford the increased prices of medicines. And again, local governments usually lack the financial resources to help pay for these medicines.

The Social Consequences of the Transition in Hungary

175

Early Retirement and Pensions Especially in the early days of the transition, companies got rid mainly of their older employees. At that time, the law allowed employees a few years below the retirement age to retire early. Early retirement could be initiated by a company if it intended to fire an employee within five years of the employee’s retirement age providing it agreed to reimburse the pension insurance fund for these early retirement payments. Or an unemployed person could apply for preretirement if he or she had been unemployed for at least 180 days, was within three years of retirement, and had no hope of finding employment. The expenses of such extra costs were reimbursed to the pension insurance fund by the Solidarity Fund. In the beginning, these solutions seemed to be humanitarian, but as time went on, the burden borne by the pension insurance fund gradually increased. Furthermore, many privatized companies in which older employees requested early retirement went bankrupt and stopped paying early retirement benefits. The pension insurance fund faces an even greater burden when people seeking to avoid the threat of unemployment request disability pensions. In 1992, for example, the proportion of older people applying for disability pensions (34.2 percent) was considerably higher than the proportion of those eligible for early retirement (10 percent) and preretirement (11 percent) (Tı´ma´r, 1994). Although some people apply for disability pensions because of failing health, it is suspected that the majority of the applicants do so because they fear unemployment. This suspicion is supported by the fact that the number of people who were retired on disability pensions rose from 39,000 in 1986 to 64,500 in 1992 (Durst, 1994). The extent of this increase cannot be explained solely by the population’s deteriorating health. These amounts increased the expenses of pension insurance considerably, and in addition to other factors (such as noncontributory periods recognized as periods of insurance, a disproportionate number of retired versus employed people, the low retirement age—men, age 60, and women, age 55), they upset the financial balance of pension insurance. Thus, major reforms of this institution are inevitable, too. Many experts believe that in a retirement system with a more consistent insurance basis, retirement on the grounds of social considerations will no longer be possible. Effect of the Hidden Economy on Social Security Before the transition, it was relatively simple to recover social security and tax liabilities from state-owned companies. However, as privatization progresses, entrepreneurs frequently try to decrease the costs of production by employing their workers in such ways that the payment of social security contributions and personal income tax can be avoided.

176

Implications for the Welfare State

Because of this phenomenon, the size of the hidden economy can only be estimated. Some say that the hidden economy could have amounted to as much as 900 billion forints in recent years (Ha´mor, 1994) or 25 to 30 percent of GDP. If these data are correct, social security and the state budget are deprived of substantial incomes. In addition, entrepreneurs’ willingness to pay social security contributions has decreased considerably in the past few years. By the end of 1994, the deferred payments by entrepreneurs into social security funds totaled 200 billion forints. Many people believe that this growing phenomenon is closely related to the spread of private enterprises and to the increasing competition among them. A study by the GKI Economy Researching Joint-Stock Company (Ve´rtes, 1994) revealed that the Hungarian private sector gained strength mainly in areas such as the construction industry, trade, and agriculture in which there are more opportunities to avoid taxation. In other sectors, foreign capital is more dominant. Some experts think that the strengthening of the hidden economy played a major part in keeping the social tensions associated with the transition at a bearable level (Ha´mor, 1994). Income from the hidden economy helped many people who became unemployed or had other problems to provide for their basic subsistence. If entrepreneurs want to survive the fierce competition, it may be in their interest to reduce costs of this type. However, this phenomenon largely contributed to the financial difficulties of the health insurance and pension insurance systems and to the increase in the budget deficit. Over a certain level, the strengthening of the hidden economy may endanger the stability of the economy and the state. Considerable efforts are therefore needed to restrain them. METHODS FOR THE EARLY RECOGNITION OF SOCIAL TENSIONS In countries where social-economic development is balanced and consolidated, experts may rely on so-called passive methods of revealing social tensions, such as statistical analyses and other methods of registration. However, in a period of rapid changes, there is a greater need for the so-called active, anticipatory methods. Politicians expect social-political experts to assess the social consequences of a major social-economic decision beforehand and to estimate whether the individuals concerned regard it as bearable. Several active methods can be used for such purposes. Model analyses. Various model analyses may be useful, especially for changes that may exert their effect slowly (in a matter of decades). It helps to estimate the future consequences of changing one or another element in multicomponent systems of regulation. In Hungary, projections were made regarding the shortand long-term effects of the different versions of the plan to modernize the pension system (often using several variables). This method may also be used in other areas to help choose among various alternatives of control.

The Social Consequences of the Transition in Hungary

177

Periodic subsequent review of the data of ‘‘open’’ systems. Open institutions deal with social problems, usually provide benefits that are available to all citizens, and do not state beforehand the sources of subsistence problems for which support is given. They are generally at the lowest level in the social protection system. Analysis of the information collected by such institutions may point to the accumulation of certain social tensions, to the inefficiency of the institutions, or to their dysfunctional effects. In Hungary, such institutions include the departments of local governments that evaluate social assistance applications and local labor service offices. The periodic (every month or quarter year) summary and analysis of the circumstances and social problems of the individuals requesting their help may give an early indication of imminent problems. Social monitoring network. A so-called monitoring network may be organized to study changes in the living conditions of individual regions and to monitor the social problems concentrated in certain deteriorating districts. These, as a kind of open but regional and specialized institution, may be suitable for monitoring characteristic social problems in the given area (sudden large-scale unemployment or ethnic conflicts, for example) and for devising plans for intervention. CONCLUSION The success of the transition to a market economy depends, to a great extent, on whether a country can devise solutions that will make the excess social burdens accompanying these changes bearable. In Hungary, experts on socialpolitical issues offered two possible strategies to political decision makers in the past few years. One suggested strategy was for the state to concentrate its social activity on those who are in the greatest need by extending income-dependent social assistance (Andorka, Kondratas, & To¯th, 1995) and further disband the paternalistic social institutions of the ‘‘premature welfare state’’ because the great costs associated with them seriously endanger the competitiveness of the Hungarian economy (Kornai, 1994). The other suggested strategy was for the state to advance social integration by preventing serious damage to the health and autonomy of citizens instead of helping only those who have already suffered the damage (Ferge, 1992). That is, the state should not only alleviate poverty but also ensure the basic conditions of its citizens’ existence. This strategy obviously requires greater financial resources. The strategy that will be followed in the coming years probably will be somewhere between the two just mentioned. Since previous social expenses cannot be maintained without endangering the competitiveness of the market economy, the social role of the state must be restricted as soon as possible. At the same time, policy makers should consider the possibility that as elements of the market economy are introduced relentlessly and rapidly, the living conditions of the

178

Implications for the Welfare State

bulk of the population may deteriorate even further, and Hungarians may turn against the process of transition or lose their faith in the values of democracy. The winner of the elections held in May 1994 with an absolute majority was the socialist, social-democratic-type party that had been in power before the transition. Many observers thought that this result showed that many Hungarians had become disillusioned with the transition because of the hardships that accompanied it and felt nostalgic about communism, when the government’s policy was stable and predictable. However, the new government is making much more consistent efforts to strengthen the elements of the market economy than the conservative government that was in power before the elections. As a consequence, at the time of the next election, populist political parties, which may not emphasize democratic values, may come to power by turning the social tensions inherent in the transition to their advantage. If they do, it may be expedient to slow down the rate of privatization to a pace that is tolerable to the people and to which they can adapt. It is hoped that the methods for early recognition of social tensions may help determine the boundaries of that tolerance. REFERENCES Andorka, R. (1990). The role and the social effect of the second economy. Budapest: Aula Ta´rsadalom e´s Gazdasa´g. Andorka, R. (1992). Social political problems of the change of the regime. Valo¯sa´g, 7, pp. 23–33. Andorka, R., Kolosi, T., & Vukovich, G. (1990). Social report. Ta´rky, p. 629. Andorka, R., Kondratas, A., & Tamoth, I. G. (1995). Characteristics of the welfare system and possibilities of its reform. Ko¨zgazdasa´gi Szemle, 42(1), pp. 1–29. Czu´cz, O. (1991). Krise eines Sozialversicherungssystems. Zeitschrift fu¨r ausla¨ndisches und internationales Arbeits: Uns Sozialrecht, 3, pp. 329–351. Durst, J. (1994, January 20). Rather invalid than unemployed. Figyelo¯, p. 29. Ferge, Z. (1992). Remarks on the concept of social law. Ese´ly, 2, pp. 46–59. Frey, M. (1994, September 22). Unemployed turned entrepreneurs. Figyelo¯, pp. 21–22. Ha´mor, S. (1994, September 26). Good and bad sides of black economy. Ne´pszabadsa´g, p. 12. Kolosi, T., & Ro´bert, P. (1992). Social effects of the change of the regime. Valo´sa´g, 2, pp. 1–15. Kornai, J. (1994, August 30). The most important is constant growth: 2. The budget deficit. Ne´pszabadsa´g, p. 11. Laky, T. (1994). Effects of the private sector on employment. Ko¨zgazdasa´gi Szemle, 6, pp. 530–550. Lo´ra´nt, K. (1991). Social effects of privatisation. Ese´ly, 2, pp. 32–39. Statistical Yearbook of Hungary. (1995). Bucharest: National Commission on Statistics. Tı´ma´r, J. (1994, November 24). Postsocialist unemployment. Figyelo¯, p. 21. Ve´rtes, A. (1994, November 17). Where does the capital go? Figyelo¯, pp. 15–16. Vigva´ri, A. (1993). Turns of Hungarian privatisation. Valo´sa´g, 6, pp. 1–11.

Chapter 13

The Development of Welfare Systems in Central and Eastern Europe That Are Compatible with the Demands of a Market Economy HOWARD JACOB KARGER

Central and Eastern European (CEE) nations face both difficult obstacles and unlimited possibilities when planning a viable welfare system. For many policy makers in these countries, the central question remains: ‘‘What follows communism?’’ (Konopasek, 1992). The answer to this question is obviously complex. On the one hand, to be accepted fully as partners in the European Economic Community, CEE nations must have comprehensive welfare state apparatuses in place. On the other hand, the lack of capital in CEE precludes the wholesale reproduction of a Western European-style welfare state. This chapter examines both the possibilities and limitations in developing comprehensive welfare systems in CEE countries. One particularly daunting limitation is the impact of the global economy in shaping both the economy and extent of the public sector. CEE AND THE NEW GLOBAL ECONOMY The global economy is marked by contradictory and divergent trends. Close to 75 percent of the world’s population live in poor nations, mainly in the Southern Hemisphere. In many of these regions, life expectancy, child mortality, and educational attainment have improved markedly in the past three decades. Yet, while incomes and consumption in developing countries rose by almost 70 percent from 1965 to 1985, almost 1 billion people in the developing world still live in poverty, struggling to survive on incomes of under $400 a year. Although much of the world’s economy improved in the 1980s, especially in South and East Asia, real per capita incomes, living standards, and investments of countries in Latin America and most of Sub-Saharan Africa (a population of 510 million) dropped throughout the 1980s. Millions of Latin Americans now have lower

180

Implications for the Welfare State

standards of living than in the 1970s, and most Sub-Saharan Africans saw their living standards fall to levels not seen since the late 1960s (World Bank, 1990). The diverse effects of the global economy are apparent when one compares the economic conditions of Western and Eastern European nations. For example, since around 1990 (with the fall of communism and the collapse of centrally planned economic systems), most CEE nations have been in an economic recession that can only be compared to the Great Depression of the early 1930s. This economic contraction has profoundly affected the social and economic lives of the vast majority of Eastern and Central Europeans by reducing real wages and levels of consumption and by triggering a widespread contraction of public and private budgets earmarked for social expenditures (pensions, health care, education, and the like) (Gaspard, 1993). In part, the economic liberalization policies enacted in response to the global economy also led to staggering levels of inflation. For example, high inflation started early in Poland, and from 1987 to 1993 prices multiplied by a factor of 100. Inflation rates remained relatively moderate in Hungary and in the Czech and Slovak Republics, where the general level of prices in 1993 was no more than two to three times the 1987 level. Inflation was even more widespread in Romania, Bulgaria, and Albania. In Russia, prices multiplied by a factor of 100 times from 1991 to 1993 (Gaspard, 1993). Growing levels of unemployment in CEE were an unavoidable consequence of the economic depression and resulted in the deterioration in living standards for large groups of workers and their families, especially those living in areas dominated by outdated industrial complexes or by agricultural activities with little chance of survival in the new global economy. Officially negligible before 1990, unemployment rates in most Eastern and Central European nations were in the range of 10 to 15 percent (and, in some cases, higher) by 1993 (Gaspard, 1993). By 1994, Bulgaria had an unemployment rate of over 16 percent, and in Hungary, unemployment has already become the most important cause of social tension (Kamenov, 1994). It is not surprising that the per capita gross domestic product (GDP) in CEE nations is also below that of countries in Western Europe and other parts of the developed world. In 1988–1989, the per capita GDP in Central Europe (including Romania, Bulgaria, and Albania) ranged from $5,300 to $6,700 (in the European part of the former Soviet Union), compared to the average per capita GDP of almost $21,000 in the United States and $16,000 in Western Europe in 1990. In 1993, however, the per capita GDP dropped by 20 to 25 percent in Central Europe and by nearly 40 percent in the European parts of the former Soviet Union (Gaspard, 1993). The effects of the global economy and economic liberalization policies are spread unequally among CEE nations. The relative condition of the richer countries (such as the Czech and Slovak Republics, whose mean wages are 50 percent higher than in Central Europe, and Hungary, whose average wages are 30 percent higher) has improved since 1985, albeit in fits and spurts. In contrast, the

The Development of Welfare Systems

181

economic condition of the poorest CEE nations has deteriorated. For example, Romania’s per capita national income is only half the regional average. The relative economic position of the former Soviet Republics has also deteriorated quickly since 1990. The countries that have been most affected by the economic downturn are Albania (with a 50 percent drop in its per capita GDP and consumption) and Romania (with nearly a 40 percent drop), followed by Bulgaria (with a 30 percent fall in real per capita GDP, consumption, and wages). By 1993, the decrease in real wages and living standards was in the range of 40 percent in virtually all parts of the former Soviet Union and was even higher in other regions. In comparison, the populations in the northern part of Central Europe were relatively better off. The fall in their living standards was limited to 15 to 20 percent in Hungary and the Czech and Slovak Republics and no more than 10 percent in Poland (Gaspard, 1993). The global economy leads to winners and losers in all countries. Typical winners are often the minority of people in positions that can benefit from the new economic and political freedoms: the new entrepreneurs, many of whom were former members of the Communist nomenklatura, and highly educated young people or those living in big cities. The losers are the former middle class, who now find themselves downwardly mobile as a result of declining real incomes and living standards. These people make up the growing number of individuals and families who fall below the poverty line from one year to the next. Other losers are workers and their families, who live in industrial regions or smaller cities and are employed in outdated state-owned industries, as well as farmers and the elderly. The Gorez–Starki study (cited in Gaspard, 1993), conducted from 1989 to 1991 in Poland, illustrates the winners and losers. It showed the following: 1. The earnings of the minority of the workforce who found or created employment in the private sector—especially in trades and services—increased rapidly. 2. The real incomes and living conditions of the masses of wage earners with lower qualifications and education who remained in the state-owned sector fell. 3. The real incomes of farmers (who were the biggest losers) plummeted by 45 percent in 1990 and 1991 (primarily because of the phasing out of price subsidies). 4. The situation for pensioners was better, since the real value of pensions increased in 1990 and 1991 (a development unlikely to continue since it resulted in a soaring deficit in the Social Security Fund). 5. The most dire situation was experienced by families who were hit by unemployment (more than 17 percent in the northeast region).

As a consequence of these economic trends, new forms of poverty have emerged in CEE. For example, the Gorez–Starki study noted that poverty had expanded dramatically in Poland, especially in rural areas. Specifically, 51 percent of the farmers and 32 percent of wage-earning households were living

182

Implications for the Welfare State

below the poverty line in 1991 (compared to 22 percent and 14 percent, respectively, in 1989). The drop in average incomes and consumption levels in Poland was the smallest in the region. Combined with political and ideological factors, the global economy has had a profound effect on the welfare state. THE GLOBAL ECONOMY AND THE WELFARE STATE Two interrelated issues in the global economy shape the structure, function, and direction of modern welfare states: the actual trends in the global economy and the adoption of policies that are believed necessary to ensure economic survival. Since the early 1980s, conservative economists have outlined the requirements for success in the new global community: (1) a laissez-faire economic approach emphasizing free trade and markets, no tariffs, and a commitment to the free movement of capital; (2) an emphasis on research and development; (3) dramatic reductions in corporate and progressive income taxes; (4) a decrease in governmental regulations and in the power of regulatory agencies; (5) privatization of the economy by selling off publicly owned industries, utilities, and transportation systems; (6) a reduction of the role of government in the marketplace, including the slashing or elimination of public employment programs; and (7) a decrease in welfare benefits, including major cuts in entitlement programs (Rabushka & Hanke, 1989). The confluence of conservative economics and the downward economic trends experienced by most Western nations since the 1970s has helped precipitate a crisis in the welfare economies of developed nations. To survive in the competitive global economy, corporations are forced to become more efficient, which often leads to economic restructuring, including shutting down plants and severely reorganizing industries. For their part, governments are forced to bolster the position of domestic industries by freeing up investment capital through freezing or lowering corporate and/or personal tax rates. For example, the percentage of total revenues received by the U.S. government as a result of income, profit, and capital gains taxes decreased from 56.6 percent in 1980 to 50.7 percent in 1991 (World Bank, 1993). The subsequent loss of revenue leads to staggering levels of governmental debt, a reduction in public welfare services, a deterioration of the public infrastructure, and a host of other social and economic problems. This situation is aggravated as governmental cuts are met by increased demands for social welfare services stemming from global-based changes. In this way, Western governments tacitly assume the social costs of the new global economy. Labor policy is another factor in the global economy. Multinational corporations demand a loose labor market (high levels of unemployment) to bring down or stabilize wage rates. As part of this strategy, they argue for loosening labor market controls while curbing the power of unions. This corporate strategy often results in diminished levels of employee security as the strength and number of trade unions decline. In addition, shifting centers of production require a

The Development of Welfare Systems

183

transformation in the nature of jobs that are created, including the development of a large secondary labor market (Friedrich, 1990). Thus, instead of achieving economic self-sufficiency, many workers in the burgeoning service sector remain eligible for basic welfare benefits. These governmental policies also promote the creation of a large underclass, which, in turn, poses serious threats to already overextended welfare states. Because low-paid and marginal workers have few of the traditional employment perks accorded a stable workforce, they require more social welfare benefits, including various forms of income support. With few retirement benefits and insufficient incomes to create their own retirement plans, this group is likely to consume high levels of welfare benefits when they retire. By allowing corporations to create an unstable labor force, governments inadvertently sign off on high-interest mortgages for future generations. Although Western nations have acutely felt the fiscal dilemmas generated by the global economy (Glennester & Midgley, 1991), their effects have been even more sharply felt in CEE, where aging and undercapitalized factories have found it difficult to compete against modern Western and Asian industries. Moreover, while the welfare states of the West have been constricting under the pressures of the global economy, CEE nations have been finding it difficult to develop and finance even primitive welfare structures against this difficult economic backdrop. Although fiscal prudence dictates that the CEE nations should look carefully at costly and conventional approaches to social welfare, few alternative models exist for developing humane and efficient welfare states that promote national competitiveness. Although such alternative models should be developed, this prescription is easier to write than to fill.

SOCIALISM AND SOCIAL WELFARE IN CEE The social welfare system that dominated the former Soviet Union and much of Eastern Europe often blended state paternalism with a disregard for the needs of the population. As Feher and Arato (1989) pointed out, heavily subsidized food and rents; full employment; initially generous social security benefits (representing a high percentage of the average wage); and free or inexpensive health, education, and cultural services reflected a kind of social welfare contract between the Communist Party and the people. This contract was marred only by its inefficiency and by the hidden privileges extended to the Communist Party elite (Deacon, 1992). Most socialist societies had enshrined the right to work in their constitutions, and jobs were made available to the vast majority of those who wanted to work. The paternalism of the state was expressed most fully in activities connected with the workplace. Holiday homes, sanatoria, paid vacations, and holidays in state-owned resorts were reserved for workers with good records who were

184

Implications for the Welfare State

employed in established firms. In much of CEE, social welfare benefits consisted mainly of state-provided jobs. In contrast, no unemployment benefits were extended to those who were blacklisted by the Communist Party or lost their jobs for other political reasons, and little was provided for people who simply refused to work. Although the socialist system gave jobs to almost everyone, real unemployment was hidden because little productive work took place in many work sites. The state pretended to pay the workers, and the workers pretended to work. Despite this outward generosity, wages were so low in many countries (such as Hungary) that workers had to hold second or even third jobs (Deacon, 1992). The socialist system was based on smoke and mirrors, but it did provide economic security and the basic necessities of life for the majority of the population. This superficially egalitarian system coexisted with the hidden privileges of the many apparatchiks who had access to hidden incomes, foreign bank accounts, and superior welfare and health services. For example, although the distribution of incomes in Communist countries was generally believed to be more egalitarian than in the West, studies published during the 1980s showed that income inequality in Hungary and Poland was similar to post-tax income inequality in Sweden (Gaspard, 1993). In effect, the Communist nomenklatura fulfilled the role of the upper classes in the West. Issues involving differential treatment and corruption became flash points for much of the population and helped encourage the overthrow of the Communist regimes. The same contradictions in labor policy also applied to health care. Although health care in CEE was generally inferior to that of its Western counterparts, it was accessible (many socialist countries even had a system of medical provisions based on work site) and was provided free at the point of access. Moreover, despite the greater number of physicians and hospital beds than in comparable Western nations, medical care in CEE was generally inefficient, undercapitalized, and often lacking in basic equipment (Deacon, 1992). Working mothers received extensive services and benefits in much of CEE. The three-year child grant (family allowance) in Hungary and the German Democratic Republic was complemented by a widespread system of day care and kindergartens in most countries. On the other hand, women were expected both to work and to maintain the home. Because contraceptives were often difficult to obtain, abortion was commonly the most readily available form of family planning (Deacon, 1992). Housing, like employment, was considered a right in many CEE countries. Because rents were subsidized, housing was generally inexpensive and represented only a small portion of family income. However, bad planning, inefficiency, and corruption in the construction industry helped cause severe housing shortages in many of the nations, and 20-year waiting lists for apartments were usual. Moreover, multigenerational and even postdivorce communalism in housing was both common and enforced in many socialist countries. Preferred housing stock was generally allocated to Communist Party dignitaries.

The Development of Welfare Systems

185

Social security protection against old age and sickness was well developed in many CEE nations, with benefit levels representing a high proportion of wages. However, because benefits were not indexed to cost-of-living adjustments, beneficiaries often had to rely on the largesse of the state to mitigate the erosion in benefits caused by inflation. Whereas social security benefits contained workrelated components (benefits were based on work records rather than on necessity), people could retire at a relatively early age. For those outside the accepted categories of recipients (such as the young, the disabled, and single parents), benefits were wholly inadequate (Deacon, 1992). Contrary to widely held beliefs, the share of the GDP spent on social benefits (pensions, health care, education, family benefits, and so on) by the CEE nations was, on average, significantly lower than the share spent by Western countries (Gaspard, 1993). The supposed egalitarianism and compassion of the Communist system coexisted uneasily with high levels of corruption and an underdeveloped and inefficient economy. It was partly this inefficiency that hampered the provision of more generous social welfare benefits and higher-quality health care services. In the end, the elusive balance between economic efficiency and distributive justice was never reached in CEE (Deacon, 1992). Social Welfare Initiatives After the Transition CEE’s almost frantic race toward a market economy has led to profound social and economic changes. Unemployment is no longer hidden in state make-work jobs but has become a major social problem. Other social changes have been equally dramatic. High levels of inflation have severely eroded already low standards of living. The removal of state subsidies has dramatically driven up the costs of rent and foodstuffs. Many inefficient and underfunded medical establishments have been unable to operate under cost-accountability frameworks, and some have been forced to close. Educational institutions, notably academies of science, are in difficult economic straits. Free child care services and the right to on-demand abortion are also being reexamined. Although the social landscape of CEE has been undergoing a dynamic transformation, most reforms have included the following components: (1) a shift in the provision of social welfare services from the bureaucratic-political to market relations; (2) an increase in local control over social provisions; (3) the ending of privileged access to social provisions (including health care) based on Communist Party affiliation; (4) the substitution of Western-style social insurance programs for state security systems; (5) the transfer of the health and recreational facilities of state-owned industries to community and private hands; (6) the limited privatization of health and social care; (7) governmental encouragement to build private residential homes; (8) the removal of state subsidies for food, housing, and often health care; (9) appeals for philanthropy and private initiatives to replace former state-sponsored services; (10) the hasty development of

186

Implications for the Welfare State

unemployment benefits; and (11) the enactment of measures to curb the impact of inflation on wages. Because CEE nations are not homogeneous, the scope and comprehensiveness of these reforms have differed widely among them. Social welfare initiatives are also under way on a nongovernmental scale. Organizations like Save the Children, Access Exchange International, the Joint Distribution Committee, Civitan International, and Goodwill Industries, to name a few, are assuming an increasingly important role in providing social services in CEE. Smaller organizations have also been active. For example, through the international Together for the Jobs of the Future Foundation, activists and experts have been staffing regional centers where the unemployed are given individual counseling to solve their social and emotional problems and support in job seeking and retraining. In addition, the Higher School of Industrial Relations and Management (OKOM) helped over 3,000 people from 1990 to 1993 to acquire new professions in the fields of firm accountancy, company administrative services, foreign languages, and foreign trade. OKOM also provided supplementary educational training for teachers in high schools (Kamenov, 1994). RETHINKING SOCIAL WELFARE IN CEE NATIONS Any attempt to develop viable social welfare states in CEE must be based on key economic and social realities. First, the latent social welfare expectations of the population must be addressed. Specifically, any belief that the new market economy will immediately fulfill the past promises of good health care, decent housing, and security in sickness and old age must be tempered. Second, it is unrealistic to expect that the global economy—at least as it is presently structured—will lend itself to the creation of full employment in most CEE nations. High rates of unemployment have been endemic to Western nations since the late 1970s. Although capital-rich countries, such as Great Britain, France, and the United States, have compensated somewhat for this phenomenon by establishing aggressive unemployment programs, the capital-poor nations of CEE are hard pressed to institute unemployment compensation programs that can cover at least 15 percent of the population. Moreover, the ability to idle a large portion of the workforce through welfare or unemployment benefits is based on high levels of productivity achieved by employed workers and a relatively well-off population that can absorb high rates of taxation. Both these preconditions are absent in CEE nations. Third, many of the jobs that have been created in the global economy are in the low-paying service or secondary labor sectors. Thus, obtaining a full-time job in the new economy does not guarantee that a CEE family will be economically secure. For example, 30 percent of the jobs performed by Americans in 1990 were in-person service jobs that required little education and training, usually paid low wages, and provided scanty benefits. During the 1980s, well over 3 million new jobs were created in the United States in fast-food outlets, restaurants, and bars—more than the total number of jobs in the automobile,

The Development of Welfare Systems

187

steelmaking, and textile industries combined (Karger & Stoesz, 1994). In short, it is unlikely that the new global economy will provide the quality of jobs needed to raise most people in CEE nations into a Western middle-class lifestyle. Values Despite these harsh realities, social planners in CEE countries can construct viable welfare states that maximize human capital; promote, rather than hamper, developing economies; and are congruent with the demands of an increasingly competitive global economy. Such values as productivity, reciprocity, familial responsibility, social cohesion, and social choice are benchmarks around which future thinking about social welfare policies in CEE nations can be organized. The following is a brief discussion of some of these values. Reciprocity. Welfare programs can contribute to dependence when benefits are not based on reciprocity (a standard of conduct expected of recipients). The concept of reciprocity (the social obligation to conform to mainstream social values, such as the work ethic, sobriety, and a stable domestic life) should be included in any viable welfare plan. Any new thinking on social welfare must include the idea of a negotiated social contract that incorporates reciprocity. Productivity. Any welfare plan must demonstrate how it will contribute positively to economic productivity. Although policy makers have long recognized that the expansion of social welfare requires a robust economy, nowhere have they integrated welfare programs fully into national economic requirements. Moreover, when the dominance of Western economies went unchallenged, little reason existed to fashion economically productive welfare programs. However, the emergence of a highly competitive global economy has created the need to exploit the productive capacity of the workforce more fully. For their nations to compete successfully in the new global economy, CEE policy makers must create welfare programs that complement productivity rather than encourage dependence. In effect, social programs, investments in human capital, and community activities must be developed that contribute to the economic vitality of the nations. Familial responsibility. CEE nations must discard the idea that the state is the rescuer of first resort. A viable welfare state must use the existing network of formal and informal systems, including such structures as the church, schools, civic associations, and clubs, that bind individuals to their communities and families. In addition, this strategy must include the transformation of family and social networks into welfare-related support systems. Social cohesion. Social policies should be developed in CEE that promote increased interaction among the mainstream population, ethnic groups, and the newly emerging social classes. The formation of a collective social entity, in which groups understand their interdependence on each other, should be encouraged. Moreover, social integration is important for closing the gap between the newly rich and industrial workers and the declassed nomenklatura. Meeting

188

Implications for the Welfare State

the challenge of social integration will be crucial if increasing tensions between ethnic and linguistic groups are to be managed in CEE. In addition, all socioeconomic groups should be encouraged, through economic incentives or appeals to altruism, to fulfill their social obligations toward the less fortunate in more meaningful ways than simply paying taxes. Public policy must reinforce social integration. The civic-mindedness of both the poor and the better off is essential to the democratic restructuring of a free society. Social choice. In most welfare states, clients have little choice but to seek services in bureaucratic and unresponsive governmental monopolies. By enforcing these social welfare monopolies, governments assume that clients are unable to make wise decisions about their needs. Consistent with the democratic nature of society, recipients must be given a range of social choices similar to those available to their better-off compatriots. Creatively developed strategies that are designed to promote productivity, familial responsibility, social cohesion, and social choice can be the principles by which CEE welfare states are organized. Although some of these values have been promoted by conservatives, there is no reason why they cannot be used to achieve progressive ends. The challenge to social planners in CEE nations is to integrate these values into public policies in ways that illustrate to citizens how social programs can contribute to the economic life of a nation. Diversity and Welfare in Eastern Europe Many Western nations have mixed welfare economies that combine both public and private welfare services. In such societies, private welfare services supplement public welfare. In more extreme instances, this phenomenon has led to the privatization of social services. In its simplest form, the privatization of welfare services involves shifting governmental welfare activities into private hands and the marketplace. In this sense, privatization can be viewed from two perspectives: as simply another mechanism for conducting public business and as a theory of political and administrative economy that is committed to reducing governmental responsibility for the provision of social welfare services to the population (Carol, 1987; Gummer, 1988). Politically and administratively, privatization has became a fashionable alternative to the liberal social policies of some advanced industrial countries, especially the United States and Britain (LeGrand & Robinson, 1985). The choice of which social provisions are to be privatized is a key issue in the privatization debate. Proponents of privatization claim that there is a need to accommodate a plurality of modes of provision in the social service system (Johnson, 1987; Kamerman, 1983; Terrel, 1979). In their view, such a plurality is preferable to an exclusive system of public provision. Implementation of privatized social services requires the building of private welfare institutions that are capable of relieving the government of some of its welfare load. Although much of the recent emphasis of economic planners in

The Development of Welfare Systems

189

CEE nations has been on institution building, the locus of this institution building has been largely in the private industrial and banking sectors (Olson, 1994). These planners have focused on privatizing banks, state-owned industries, agricultural enterprises, and the like and have given short shrift to the development of social welfare institutions. Because social welfare has been historically associated with strong central governments, many planners are reluctant to address this issue, which, in the end, may beg for a stronger central government (an idea that is anathema to free-market planners who are intent on reducing the power of the state). At worst, this economic vision leaves social welfare out in the cold. At best, social welfare is considered to be solely within the purview of private nongovernmental organizations (NGOs). Despite this ideological conundrum, the creation of a comprehensive system of social services requires the same institution building as free-market enterprises. A viable system of social welfare does not emerge automatically; it requires building viable governmental and nongovernmental institutions. The importance of building social welfare institutions in CEE is illustrated in this excerpt from a World Bank report (quoted in American Embassy—Sofia, 1993): While medical care has never been a well-funded sector in Bulgaria, the current shift from a centrally planned to a private enterprise system has left the medical sector in dismal shape. Both funding and responsibility for medical care have shifted in the last several years, while no comparable private sector institutions for insurance have developed to fill the void. Health care in Bulgaria remains in a limbo—doctors continue to receive low wages, operate inadequate and outdated machinery, while patients on the whole receive minimal health services.

Although it is unlikely that CEE nations will, in the near future, accumulate the capital necessary to finance robust, privatized for-profit or nonprofit social service sectors, intermediate steps can be taken to encourage the growth of sound social welfare systems. First, given the shortage of capital in these countries, the initial funding for these private social welfare sectors will probably have to come from the central governments. Nevertheless, the routing of capital to social services can affect the structure of those services. For example, if a government wants quasi-privatized social services, funding and responsibility for those services can be channeled through an NGO rather than through a governmental bureaucracy. Such NGO agencies can take several forms. One form is NGOrun private social welfare agencies that deliver services on a contractual basis to the government. These agencies would be responsible for delivering social services to specific target populations and would receive all (or most) of their funding from governmental sources. NGOs can also be public or public–private agencies, with directors appointed by the government. Or they can be for-profit or nonprofit private agencies that are accountable to the government only for the per capita delivery of social services. Alternatively, the government can allow a portion of the total or per capita funding for NGOs to be used for capital

190

Implications for the Welfare State

accumulation. In this way, CEE governments can promote the slow development of privatized or semiprivatized social service sectors without a massive and immediate infusion of hard cash. CONCLUSION CEE nations can develop new systems for social development that are fiscally prudent, promote economic productivity, and are congruent with the new realities of the increasingly competitive global economy. Such a system would increase the national wealth by more effectively managing and directing human capital. It would also increase the economic competitiveness of a CEE nation by employing people to rebuild its aging infrastructure rather than simply paying benefits to idle a portion of the workforce. This welfare system would reinforce the importance of work in a compassionate benefit structure. Moreover, it would encourage social cohesion by helping to engineer a mixing of the newly emerging classes. Finally, it would encourage diversity and competition within the welfare sector by allowing recipients an element of choice among competing agencies. To devise such a system will require bold new thinking and policy initiatives. Developing a social welfare system that encourages productivity and addresses the social and economic needs of vulnerable populations will not only promote long-term benefits in terms of economic productivity but will also advance the equitable distribution of resources. In the end, developing a new kind of welfare system will allow CEE countries to compete more effectively in the new global economy. As an added benefit, this new type of welfare system can provide a beacon to the floundering welfare systems of Western Europe. REFERENCES American Embassy-Sofia. (1993, July 30). Memo: Bulgaria’s health care system. Sofia, Bulgaria: Author. Carol J. D. (1987, January–February). Public administration in the third century of the Constitution: Supply side management, privatization, or public investment? Public Administration Review, pp. 76–82. Deacon, B. (Ed.). (1992). The new Eastern Europe. London: Sage. Feher, F., & Arato, A. (Eds.). (1989). Gorbachev: The debate. Cambridge, MA: Polity Press. Friedrich, O. (1990, January 1). Freed from greed? Time, pp. 58–60. Gaspard, M. (1993, June 30–July 2). Incomes and living standards in Central and Eastern Europe and the former Soviet Republics: Recent developments, current situation and outlook. Paper presented at the NATO Economic Colloquium, Brussels. Glennester, H., & Midgley, J. (1991). The radical right and the welfare state. London: Wheatsheaf. Gummer, B. (1988). Managing in the public sector: Privatization, policy deadlock, and the erosion of public authority. Administration in Social Work, 12, pp. 27–25.

The Development of Welfare Systems

191

Johnson, N. (1987). The welfare state in transition. Brighton, England: Wheatsheaf. Kamenov, D. (1994). Central and Eastern Europe: Uphill battle. Worker’s Education, 15, pp. 1–5. Kamerman, S. (1983). The new mixed economy of welfare. Social Work, 28, pp. 95– 102. Karger, H. J., & Stoesz, D. (1994). American social welfare policy: A pluralist approach (2nd ed.). New York: Longman. Konopasek, Z. (1992). Escape from state socialism: Which way? In B. Deacon (Ed.), Social policy, social justice and citizenship in Eastern Europe (pp. 88–96). Aldershot, England: Avebury. LeGrand, J., & Robinson, R. (Eds.). (1985). Privatization and the welfare state. London: George Allen & Unwin. Olson, M. (1994). Development depends on institutions. Washington, DC: IRIS. Rabushka, A., & Hanke, S. H. (1989, November 8). Getting ready for the global economy. Jerusalem Post, p. 9. Terrel, P. (1979). Private alternatives to public human service administration. Social Service Review, 53, pp. 55–61. World Bank. (1990). World development report, 1990: Poverty. New York: Oxford University Press. World Bank. (1993). World development report, 1993: Investing in health. New York: Oxford University Press.

Chapter 14

Reforming Social Services in Central and Eastern Europe: Meso-Level Institutional Changes and Shifts in the Welfare Mix VICTOR A. PESTOFF

Social policy was subordinate to industrial policy in the Communist societies of Central and East Europe (CEE) for ideological, political, and institutional reasons. Ideologically, it was argued that with the victory of socialism, the exploitation of workers had come to an end. To maintain a positive ideological profile, the Communist regimes removed certain problems from the political agenda. Alcoholism, crime, prostitution, drug abuse, unemployment, and poverty were thus forbidden topics in political discourse and were strictly off-limits for academic research. Deviant behavior was stigmatized socially, politically, and ideologically (Djilas, 1959). At the institutional level, the indivisibility of economic, political, and social issues was a guiding principle. Following the Soviet model, social policy became part of industrial policy in the CEE countries during the 1950s. The constitutions of these countries guaranteed citizens the right to work—they actually required them to work, since all able-bodied citizens were expected to work. As a result, the CEE countries maintained virtually full employment. Moreover, regardless of whether they worked in agriculture, industry, commerce, or the state bureaucracy, people could receive most social services through their workplaces, and almost everyone was covered by a full array of social programs—directly by their employers, as a benefit of membership in a trade union, or both. Employers normally provided child care during working hours, health care, and subsidized living quarters or apartments. Subsidized vacations were generally offered by local trade unions. The provision of these benefits was facilitated by the fact that most employers operated under soft budget constraints and had little incentive to limit the benefits. As a result, wages per se were typically low, but workers also received additional compensation through subsidized basic social services and mass consumer goods. In short, citizens were expected neither to

Reforming Social Services

193

fend for themselves to obtain basic social services nor to pay for the services, except at a low nominal fee, and many social services were provided as a normal part of employment. SOCIAL POLICY DURING THE TRANSITION With the transformation of the political and economic systems of the CEE countries, social policy is no longer subordinate to industrial policy, and soft budget constraints either no longer exist or are rapidly being phased out. The constitutionally guaranteed right to work has been revoked, and unemployment has increased dramatically. Employers in the private sector have virtually no major social policy obligations, and those in state-owned enterprises are greatly diminished. The established trade unions are struggling to survive and can no longer provide selective economic incentives to their members (Pedersen, Ronit, & Hausner, 1996). Furthermore, the International Monetary Fund (IMF) and the World Bank have strongly encouraged the CEE governments to maintain strict fiscal limits on their social expenditures as part of the stabilization policies that these international organizations require as a quid pro quo for distributing the loans and credits that these governments want to help them develop market economies (Campbell, 1992, 1996). In other words, as the transformation of these political economies unfolds, social policy is being disentangled from the industrial policies and institutions in which it was embedded during the Communist period, and new social policy systems, with their own institutions, are required. However, it is still not clear what these new systems will look like or how comprehensive they will be. Furthermore, few organized groups can promote or defend the social rights of citizens. The new trade unions are still too weak and poorly organized to protect their members’ social rights or to promote legislation to achieve these rights for most citizens, especially when several trade unions compete with each other, fragmenting their efforts and influence (Pedersen et al., 1996). Since social policy always involves redistribution efforts, it is difficult to see how the ‘‘givers and takers’’ can reach an agreement, given the lack of corporatist structures to articulate and negotiate among competing interests. In the absence of organized social groups, social policy is often undertaken in the name of subsidiarity, in which families, clans, churches, neighborhood organizations, nonprofit groups, or charities play a key role (Offe, 1992). Without a market for social services and given the withdrawal of the state from providing such services, this may be the only real possibility in most CEE countries. In the meantime, because alternative social policies and social service institutions have yet to be developed, several problems confront the CEE countries. Enterprises are increasingly being forced to abandon the provision of social services before new and suitable mechanisms of provision are established. For instance, as child care services are cut or eliminated, women with young children have difficulty continuing to work, as they generally did under communism.

194

Implications for the Welfare State

Therefore, fewer women are working, and hence the number of households with two wage earners has been shrinking. Thus, despite increasing hourly wages to male workers in some sectors of the economy, overall family income is now rapidly declining. In addition, employers no longer provide basic health services, and many of the polyclinics that they previously operated have been shut down. Both the World Health Organization and UNESCO have documented the rapidly declining levels of health of adults and children in many CEE countries. For example, since 1989 the average length of life has decreased by more than five years for Russian men. To make matters worse, rising unemployment means that many people in CEE countries can no longer avail themselves of the few social services that may still be provided by employers. Unemployment benefits are still limited, since unemployment insurance must be built from scratch. Furthermore, housing subsidies are declining, and as the housing stock is privatized and rents rise, so does the number of homeless people. The elimination or reduction of state subsidies for basic social services and mass consumer items compounds these problems by eroding real income, especially for pensioners and the unemployed. The idea, of course, was that post-Communist governments needed to cut subsidies to state enterprises to harden the previously soft budgetary constraints under which these enterprises operated. It was hoped that doing so would improve efficiency and stimulate economic productivity and growth. Similarly, budgets for housing, education, health care, and other social programs were to be reduced because it was thought that these services would become available through the private sector. In fact, the CEE governments did cut economic spending and subsidies to enterprises greatly. However, substantial political hurdles emerged, and the demand for various social services proved to be much higher than anticipated. Some of the initial cuts were therefore reduced (Campbell, 1996). Inflation has taken a further toll on real income. Moreover, since effective and universal wage bargaining and industrial relations systems are underdeveloped in these countries and social security benefits are often tied to wages, a sizable proportion of the population is likely to become impoverished because of inadequate wages and social security benefits. Indeed, it has been estimated that up to a third of the population in Hungary, Poland, Bulgaria, and Russia were living in poverty in 1992 (IMF, 1994; World Bank, 1992). As wages, social security benefits, and the availability of free, universal social services deteriorate, poverty is increasing, and ultimately the legitimacy of the entire reform process will be compromised, if not threatened. The rapid disappearance of universal social coverage has had dire consequences for the people of most CEE countries. Both the IMF and the World Bank have consistently supported the idea of creating a social safety net—that is, a minimal level of social services to help those who are ‘‘temporarily hurt’’ by the transition to a market economy (IMF, 1994). However, given the per-

Reforming Social Services

195

ceived need for a tight fiscal policy by these and other organizations, it is often argued that it is necessary to distinguish between the ‘‘deserving poor’’ or ‘‘truly needy,’’ who should be the only ones eligible for these services, and those who are not, at least during the initial transformation period (Graham, 1993). Yet these discussions are rarely based on systematic analyses of the situation with regard to social policy and hence only residual solutions are usually advocated.

PRIVATIZATION OF SOCIAL SERVICES AND SHIFTS IN THE WELFARE MIX The privatization of social services and related concepts has been clouded by rhetoric. The highly polemic debate between the proponents and opponents of privatization fails to recognize the different paths to privatization and their divergent values and consequences. Thus, at the outset, it is necessary to clarify such differences and the far-reaching consequences associated with each one, for both the theory and practice of the welfare state.

Different Paths to Privatization Polanyi (1957) referred to four basic social orders in modern societies: the market, the state, autocracy (or the household), and symmetry (or associations). Similarly, Streeck and Schmitter (1985) spelled out the basic social orders of the market, the state, and community and explored the role of associations as an emerging potential fourth social order. Evers and Wintersberger’s (1990) welfare triangle, with the state at the top, associations in the middle, and the community and the market at the bottom (to the left and right, respectively), depicts these social orders and the relationship among them. However, several additional important distinctions must be kept in mind when examining the welfare triangle and the interrelatedness of these social orders: the public/private, for-profit/nonprofit, and formal/informal social dimensions (Pestoff, 1992). From a macro perspective, the idea of the welfare mix expresses variations in the importance attributed to the community, market, state, and associations in the governance of society (Evers, 1993) and the roles played by various sectors in delivering social welfare services. The separation between public and private, for-profit and nonprofit, or formal and informal is not the same everywhere and is not fixed, rather, it varies politically, societally, and temporally. What is seen as an appropriate role for the state in one country or period may not hold for another country or period. Much of the contemporary political struggle concerns what the state and the market should do and what should be left to the third sector. Universal welfare states attribute many more responsibilities to the public sector and fewer to the market than do residual welfare states. Some countries, such as those in Scandinavia, are well known for their highly developed universal welfare states, whereas others, like the United States,

196

Implications for the Welfare State

are associated with the commercial and/or nonprofit provision of basic social services. The role attributed to various social orders can also shift dramatically with changes in regimes, as seen in the transformation of the post-Communist countries in CEE. Under communism, the state clearly dominated the welfare triangle, and there was little room for the actors and institutions associated with community, the market, and independent associations (Pestoff, 1978). It is no easy task to establish the new institutions necessary for a successful transformation. Sze´man (1995) referred to a shift from a state-dominated to a statecentered or even a voluntary sector-centered welfare mix. Given the unique nature of these various social orders or institutional models, each has its strengths and weaknesses. But much of the current debate about privatization of the welfare state fails to take into account the characteristic differences among the various social orders. Nor does it recognize that a shift from one type of social institution to another in providing goods and/or services also implies a clear shift in the dominant values associated with each social order. From a theoretical point of view, privatization of the provision of personal social services can follow one of three distinct paths or trajectories, each with different values and implications for society. But these distinct social values require different social institutions for their fulfillment. Privatization that is based on greater community responsibility implies the subsidiarization, feminization, and deprofessionalization of the provision of social services, since women are forced out of the labor market and compelled to provide personal social services to relatives without pay. This is the main path for privatizing social services in CEE (Pestoff, 1995a, 1996b). Privatization that results in a greater role for the market implies the commercialization and commodification of social services. It depends on the ability of consumers or clients to pay for services, and it thus excludes many groups in the society from receiving such services. Privatization that depends on a greater role for nonprofit organizations and voluntary associations can imply the democratization of social services and the establishment of cooperatives for the provision of these services under certain conditions in the European context and benevolence and charity in the Anglo-American one. In reality, all three alternatives exist side by side in any given country. At the meso level—the level of specific social programs and policy institutions—one type of privatization may dominate one policy area, whereas another may dominate another in the same country. At the macro level, one country may pursue mainly one path to privatization, whereas another may emphasize another. Thus, the choice of path reflects the strategy of privatization and has far-reaching consequences for the society and various social groups. This chapter discusses the institutional and social policy changes that have occurred in several CEE countries and their consequences for many social groups that have been excluded during the transition. It begins by arguing for

Reforming Social Services

197

a meso-level analysis that is sensitive to the important differences in the pace, timing, and extent of reform in different areas of social policy because there are substantial variations along these lines that macro level analyses tend to neglect. Then, on the basis of evidence found elsewhere (see Pestoff, 1995b, 1996a), it maintains that three distinct patterns of institutional change are evident so far. First, many reforms have occurred incrementally in that certain institutions and policies remain intact but are given new and extended responsibilities, and institution building proceeds slowly and in marginal steps. Second, in some areas of social policy, much more rapid and radical changes have taken place, with major steps in institution building, especially when no institutions previously existed to deal with social problems or to provide services. Third, in still other areas, there has been a rapid deterioration in social services and a near-collapse of institutions, but little has been created to make up for what has been lost, largely as a result of the lack of financial resources. The chapter concludes with observations about the future and impact of all these changes on different segments of the populations of these countries and a few recommendations for the future of social policy in the CEE countries. The analysis draws on case studies of social policy reform in 11 CEE countries: Belarus, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, and the Ukraine. The researchers who conducted these studies focused on the general direction of reforms in the provision of several basic social services during the first four or five years of the transition in each country. (For further details, see Pestoff, 1995a; Pestoff, Hoo´s, & Roxin, 1993).

INSTITUTIONAL CHANGE: THE IMPORTANCE OF MESOLEVEL ANALYSIS Scholars operating from a macro-level point of view have made broad claims about the problems that post-Communist governments have experienced in cutting subsidies to enterprises and social programs. For instance, Campbell (1995, 1996) argued that it was easier politically to cut subsidies to enterprises and other economic spending than social programs because the socialist legacies of publicly financed social programs were more constraining for political elites than those associated with full employment. Another reason why political elites were unable to cut social expenditures as much as they originally intended was the introduction of democratic politics, which created new institutional opportunities for mass mobilizations. However, Campbell overlooked the fact that enterprises had important social policy functions and provided many basic social services to the majority of citizens under the Communist system. That the distinction between soft-budget subsidies to enterprises and social programs is blurry in reality raises questions about this sort of macro-level economic argument.

198

Implications for the Welfare State

Steps in the Transition A clearer perspective on the situation may be gained through a closer, mesolevel analysis of the changes in specific areas of social policy. Indeed, at the meso level, institutional constraints vary greatly. Moreover, by adopting a mesolevel view, one can see more easily that the transformation in post-Communist social policy involves three conceptually distinct steps, as described by Offe (1992): (1) the development of emergency measures, (2) institution building and reform, and (3) policy adjustments in already established institutions. According to Offe, the initial emergency measures were temporary or ad hoc, but they nevertheless determined the present rules and benefits. They were also highly elitist and discretionary rather than institutionalized programs. In addition to these measures, however, new institutions, which provide insurance and other forms of protection against unemployment, health problems, lack of income owing to old age or disability, family burdens, costs of adequate housing, poverty, and the like, often had to be created to help citizens deal with the risks and problems associated with the normal operation of market economies. But once normal social policy institutions were in place, they also had to adjust to changing circumstances. The problem is that, on the one hand, the current economic transformations in the CEE countries exacerbate the level and urgency of social problems, and on the other hand, they render obsolete many of the existing institutions and other resources through which these problems can be managed. As a result, Offe suggested, post-Communist governments had to pursue the three steps just mentioned simultaneously to transform their social service systems. Yet the urgency and sequencing of these steps varies from one social policy area to another and depends, to a large extent, on the types of institutions that existed before the transition (Pestoff, 1995b, 1996a). Indeed, historical legacies and path dependencies have important effects on the establishment and development of new institutions. In some cases, starting from scratch may prove easier than having to transform existing institutions because building new institutions for the provision of basic social services on the ruins of the old ones can pose formidable problems and impede the development of new ones. Certainly, the vested interests of employees in existing institutions can slow down the creation of new ones. Therefore, the rubble from the ruins of the old institutions must often be cleared away before the foundation for new ones can be planned and laid. Assuming that there is adequate funding and political support, it follows that in policy areas in which there are no institutional ruins, new ones can often be established more easily. But when funds are scarce, there is often no viable alternative to recycling the rubble. This is not to deny the potentially important insights of more macro-oriented cross-national comparisons. However, some of this macro-oriented literature is inconsistent. For instance, Deacon (1992) argued that major differences exist in the social policies of the CEE countries that reflect their past, particularly their

Reforming Social Services

199

historical models of providing social services in the period between the two world wars. Countries with a Bismarckian legacy, such as the former Czechoslovakia, Hungary, and Poland, are now more likely to pursue ‘‘liberal’’ policies and reshape their welfare systems from scratch, whereas countries that lack such a tradition, such as Bulgaria, Romania, and the countries of the former Soviet Union, are more likely to prefer authoritarian or populist approaches and to continue the patterns of the old regime. Other scholars have found significant differences among the CEE countries and have noted that social reforms are more advanced in some countries than in others. However, they have not always identified the kind of marked differences among Bulgaria, Czechoslovakia, and Hungary, for example, that Deacon (1992) predicted, perhaps because the functioning of political institutions in general and the political instability of some of the laggards has led political elites everywhere to adopt short-term ‘‘trial and error’’ or ‘‘muddling-through’’ approaches to social policy reform (Go¨tting, 1993, 1995). In any case, inconsistent results such as these may stem from the absence of meso-level analyses that systematically compare different social policy areas within as well as among countries. In short, it seems appropriate to look for differences in patterns of institutional destruction and reconstruction among various subsectors of social policy. The analysis of developments in old-age pensions, family assistance, unemployment benefits, health services, and housing in the CEE countries by the author and his colleagues (Go¨tting, 1995; Pestoff, 1995a, 1996a; Pestoff et al., 1993; Roxin & Hoo´s, 1995) demonstrated that significant reforms have taken place in several of these policy areas and important variations across them in the pace, timing, and extent of reform. Causal Mechanisms of Reform Although detailed evidence of the specific causal mechanisms driving these changes was not available, at least some evidence has been presented that two conceptually distinct sets of mechanisms were operating. First, following organizational theory, which suggests that state building is often a response to coercive and normative influences in the international political community, political elites who want to gain access to, obtain loans from, or receive favorable treatment by international organizations or other countries adopt institutions and policies resembling those typically favored by the organizations. Hence, common values, institutions, and policies are spread internationally because elites adopt the policies and institutions of other countries or international bodies, even if doing so poses major hurdles to the maximization of revenues or results in the social marginalization and exclusion of major groups in the society (Pestoff, 1995b, 1996a). Second, following historical institutional theory, which maintains that political struggle, ideologies, and institutional and policy legacies determine the course

200

Implications for the Welfare State

of policy and institutional reform in path-dependent ways, the analysis argued that the capacity of various groups to protect and pursue their social interests and ideological preferences had an important impact on post-Communist social policy. In particular, institutional and policy legacies—both those that were in place throughout the region before World War II and those that occurred afterward—have constrained the options available to political elites (see Campbell, 1996). Of the three distinct patterns of institutional change mentioned earlier, the analysis found that incremental change has been dominant in the areas of oldage pensions and family assistance programs, radical change has been the pattern with regard to unemployment compensation and employment programs, and rapid deterioration has been prevalent in the areas of health and housing (Pestoff, 1995a, 1995b, 1996a). Innumerable changes in laws have been made to deal with the shortcomings of the old social welfare system and to adjust social policies to the new problems that stem from the transition. There was some variation among the countries in how far they have proceeded with these steps and in social policy areas at the meso level. The latter type of variation depends on several factors, including the existence of social needs, financial resources, and institutions at the time communism fell. Approaches to Reorganizing Social Services Broadly speaking, important similarities exist among the CEE countries in how basic social services have been reorganized during the transition. Most of the countries are moving in the same general direction, despite some differences in the level of the provision of services or eligibility requirements, toward Western models for the provision of social services (Go¨tting, 1995). This is a particularly interesting situation, since many sof the initial changes in social policy were made under great political pressure and were necessarily ad hoc. Many social programs were generous in the beginning but have become less so over time. Now most CEE governments prefer a targeted approach to social policy. The task of reforming social service systems is enormous, and much remains to be done. As marketization and democratization continue to proceed in these societies, enormous costs will be incurred for social services as a result of the continued dismantling of old state institutions and the building of new ones. As more state enterprises cut back on the services they provide, go bankrupt, or are privatized, the need for alternative social service systems will increase, thus requiring the further construction of expensive new welfare, health care, and other social service institutions. The CEE governments seem to have succeeded best in social policy subsectors in which no existing institutions needed to be dismantled or reformed. Hence there was no resistance from those with vested interests in the old insti-

Reforming Social Services

201

tutions. They also seem to have been successful, at least so far, in developing institutions that provide transfer payments rather than services in kind. Unemployment compensation is a good example, although it is far from adequate in most CEE countries. CONCLUSIONS Several conclusions regarding the institutional transformation of social service provisions in the CEE countries can be drawn from the evidence presented here and elsewhere. Patterns of Change Although in most countries, the three patterns of change occurred in many social policy areas in various degrees, contrary to Offe (1992), these patterns did not always occur simultaneously. Pension schemes, for example, have largely been changed incrementally, and so far, little new institution building has been done. Perhaps more notable is that despite the substantial need for reforms of housing policies, virtually no changes have yet been made. Thus, by conducting a meso-level analysis, one can detect important variations in the sequencing of institutional reform. As was mentioned earlier, the timing of institutional change has varied considerably at the meso level. Specifically, three distinct patterns seem to have emerged: incrementalism, radical change, and rapid decline because of the withdrawal of the state. The pattern that emerged depended, to a large extent, on whether institutional ruins were left over from the Communist system. This situation is consistent with the historical institutionalist theories discussed earlier. Several CEE countries replaced universal coverage with a residual social safety net system that was reserved for the ‘‘deserving poor.’’ Indeed, the IMF and World Bank stabilization agreements with these countries normally required them to target the provision of basic social services. This is precisely what organization theory would predict—that important foreign organizations serve as the mechanism through which common policy models are diffused throughout the geopolitical environment. The requirements of these organizations may also have been responsible for the uniform changes that occurred across countries, despite the differences in the historical experiences of these countries (Deacon, 1992). Vulnerable Groups The analysis identified the groups in the CEE countries that have been the hardest hit by the social policy reforms that have occurred so far. The unemployed are at great risk because there were no existing institutions or programs

202

Implications for the Welfare State

to deal with unemployment. The creation of new organizational structures to deal with such problems and new funds to support their activities has proved to be a major institutional and fiscal challenge in the CEE countries with high unemployment. Women have been especially hard hit by unemployment, as well as by the deterioration or elimination of social services. They often must assume responsibility for performing services that were previously provided by social service programs, such as caring for the elderly. In addition, because employers no longer provide child care and few new child care programs have been established, the responsibility of caring for children falls to women. Moreover, without child care services, women with young children cannot accept jobs even if they become available. In fact, the extension of child care leave from two to three years in some CEE countries is seen as a step toward pushing women out of the labor market. These problems are all the more difficult for families with several children, especially single-parent families who can quickly fall into poverty as a result of unemployment. Young adults are another major group who have been adversely affected by economic changes and rising unemployment because in many CEE countries, it is becoming increasingly difficult for them to find jobs after they finish high school. What is worse, without having had previous jobs, they are usually eligible for only the barest unemployment benefits. There could be a major fiscal trade-off between these young adults and older workers. That is, to facilitate the efforts of young people to find jobs in tight labor markets, older workers could be encouraged to retire earlier. However, the budget crises in many CEE countries militate against this approach because the requirements for receiving pension benefits are gradually being tightened, particularly with respect to the number of years of work necessary to qualify for them. Thus, incentives are being given to encourage workers to remain in the labor force longer, thereby delaying the creation of job openings that would otherwise have been filled by young workers. Pensioners have also become a vulnerable group. However, given that pension programs were well developed under the Communist system, their plight is not so much due to the lack of institutions or programs as it is to inflation. Again, inflation has been exacerbated by the influence of international organizations, notably the IMF and World Bank, that have encouraged the post-Communist governments to refrain from systematically adjusting pensions to keep pace with inflation. When pensions are increased, it is done more often on the basis of discretionary decisions by parliaments. Decisions to raise pensions are thus normally weighed against political and budgetary considerations. Finally, when combined with the state’s withdrawal from its former housing-policy responsibilities, problems like unemployment and inflation contribute to the growth of the homeless population. These vulnerable groups have not shown a high propensity to defend their interests collectively. Furthermore, they have not attempted to create organiza-

Reforming Social Services

203

tions to promote new solutions or institutions to protect and promote their interests (Pedersen et al., 1996). Shifts in the Welfare Mix Returning briefly to the question of the different paths to privatization and shifts in the welfare mix, we can contrast the privatization of social services in Sweden with that in CEE. In CEE, the market has thus far proved highly uninterested in providing social services to the majority of people in these countries. Most people simply lack the purchasing power to make this a lucrative enough alternative to attract many firms to enter the ‘‘market’’ of personal social services. The third sector (associations) has also has fallen short of the mark, partly because it is highly dependent on public funding. Thus, the possibility of expanding to fill the vacuum left by the withdrawal of the state has been sharply curtailed by the lack of funds. Hence, privatization of the provision of social services in most CEE countries has been mandated by the stabilization policy of the IMF and World Bank and the ‘‘social safety net’’ they and other international actors have recommended to replace universal social services provided by enterprises. In short, these reforms appear to be following the path of pushing or dumping responsibility for providing personal social services onto the family, especially women. Thus, women now have to provide the bulk of such services, but now they do so as unemployed, unpaid housewives, single mothers, or daughters rather than as paid professional providers of public social services. So, women are being defranchised in mass from their previous social, working, and human rights and are being forced to return to the small world of the household, with no escape in sight. For many, it may seem like exchanging the tyranny of the Communist system for that of the household, with all its unpaid obligations and responsibilities but few or no rights (Pestoff, 1995a, 1996a). In contrast, the path followed in Sweden promises to be much more positive for its citizens, especially for its women, because it is based on the democratization of the provision of personal social services. For example, most day care services are provided by social service cooperatives, and only a small amount of the nonmunicipal day care services are provided by private commercial forprofit firms. Moreover, privatization of social services in Sweden has resulted in numerous improvements in work life, work environment, and codetermination. Furthermore, since women constitute 95 to 100 percent of the staffs of these services, the improvements in work life are, for the most part, being experienced by paid professional women in Sweden (Pestoff, 1990, 1996b). Social, political, and economic reforms are intimately connected in the CEE countries, especially at the meso level. Indeed, industrial, labor market, regulatory, and social policies are being developed simultaneously throughout the region. Therefore, the CEE countries must have enough political authority, re-

204

Implications for the Welfare State

sources, and reliable personnel to resist pressures from individual interests to gain special treatment and to prevent destructive social conflicts over these policy reforms. Perhaps most important, they must have the support of their people, which they can achieve only by pursuing policies that the majority consider legitimate. The Risk of a Backlash The unemployed, women, young adults, pensioners, large families, singleparent families, and homeless people are the social groups that are paying the highest social price for the post-Communist transformations. Many of them are having difficulty maintaining the standards of living to which they had become accustomed under communism and are falling into poverty. Furthermore, they are all facing immense difficulty organizing to protect and promote their interests. However, they have obtained certain political rights as a result of democratization, such as universal suffrage. How they use these rights is becoming a major issue. On the one hand, the low voter turnout throughout the CEE countries may be one way that people who have suffered from economic changes and have given up hope for a better future express their political frustrations. The increase in deviant social behaviors, such as alcoholism, drug abuse, and crime, in most CEE countries may be another. Moreover, the people who are most adversely affected by these changes may be more sympathetic to the appeals of nationalist, populist, and extremist political parties and hence may be susceptible to arguments that certain ethnic or religious minorities are the cause of their problems. Thus, certain ethnic or religious groups can become scapegoats (Bugajski, 1995). On the other hand, voting for parties that promise to diminish the social costs of change would seem rational for these people, particularly if they still have faith in the possibility of influencing political elites through democratic channels. Offe (1992) saw the risk of an authoritarian or a nationalist backlash in the CEE countries, particularly where demands for social security in the broad sense may be hard to satisfy through the emerging political and economic institutions. Electoral gains by the ultranationalists in Russian parliamentary elections in 1993 are the most dramatic example of this danger. However, this still appears to be an exceptional case. What is more widespread evidence is the political backlash that has revitalized many former Communist parties that have reformed along social democratic lines. The former Communist and Social Democratic parties suffered humiliating losses in the first democratic elections in almost all CEE countries. Since then, however, their electoral fortunes have improved substantially in several countries, including Lithuania (1992), Poland (1993 and 1995), Hungary (1994), and Bulgaria (1994). This phenomenon underscores the complex interrelationship among the economic, political, and social aspects of the reform process. Many people feel that the social costs of the transition are too great to them personally; they are therefore supporting parties

Reforming Social Services

205

that promote collective social values and promise to defend existing or previous social services. In short, rather than the emergence of the sort of authoritarian reaction that concerned Offe (1992), the electorates in many CEE countries are responding favorably to social democratic parties that promise to maintain social services and contain the social costs of the transition. Although economic reforms have diminished or eliminated many social services for all but the ‘‘deserving poor’’ and increased the social costs of the transformation, they have not yet reached politically unacceptable levels. It remains to be seen whether Social Democratic and other leftist leaders can increase industrial output, deal with acute budgetary crises, and maintain social services. If they are successful, they may be in power for a long time. If they are not, they will soon lose their popular support, and their interlude will be short. The disillusioned electorate may vote again for rightist parties, as was the case in several CEE countries in 1996; they may abstain from voting; or they may vote for nationalist or populist parties. In the last-named case, a fourth wave of dramatic electoral changes may sweep nationalist and populist leaders into power in many CEE countries at the turn of the century. If these leaders exploit historical national animosities, use ethnic and/or religious minorities as scapegoats, and promise to protect the groups who lose out in the reform process, then Europe could be engulfed in renewed ethnic and religious conflicts, both at the national and international levels, in several countries, not just in the former Yugoslavia. RECOMMENDATIONS On the basis of the analysis presented here and other data, this section presents four recommendations. First, it is important to choose the appropriate level of analysis of social reforms. Although micro- and macro-level analyses can contribute to an understanding of the reform of social services in CEE, they do not uncover the whole picture. By including meso-level developments, policy makers can arrive at a more appropriate and complete understanding of the changes that are taking place. Second, once attention is focused on the appropriate level, policy makers can obtain a clearer understanding of the groups—women, the unemployed, large families, young adults, pensioners, and the homeless—that are losing out in the privatization of social services in CEE, and why. By understanding which groups lose out in the reform process and why certain groups do and others do not, policy makers can develop more appropriate reform strategies at the meso level—strategies that take into account the social consequences of the reform process, not those that merely make theoretical assumptions on the basis of neoclassical economic models. Third, new social policies must be devised to deal with the acute social consequences of the reform process for major social groups, not just minimal social safety-net policies dictated by the World Bank and IMF and based on the as-

206

Implications for the Welfare State

sumed consequences of an idealized market liberalization. Social policies must be more active or proactive in dealing with the rapidly declining standard of living of major segments of the population of the CEE countries. Fourth, the return of nationalism and populism as major political forces in Europe must be actively opposed by individuals and organizations, both public and private, with a clear sense of history and social justice. Unless such developments are consciously and systematically opposed, social marginalization, combined with nationalism, may result in a second century of mass destruction in Europe. Thus, preventing social marginalization is in the interest of all Europeans to stave off nationalism and populism. Moreover, social policy must be put on an equal footing with economic and defense policies and no longer be seen as an expensive relic of the past. REFERENCES Bugajski, J. (1995). Nations in turmoil: Conflict and cooperation in Eastern Europe. Boulder, CO: Westview Press. Campbell, J. (1992). The fiscal crisis of post-Communist states. Telos, 93, pp. 89–110. Campbell, J. (1996). State building and postcommunist budget deficits. In J. Campbell & O. K. Pedersen (Eds.), Legacies of change: Transformations of postcommunist European economies. New York: Aldine de Gruyter. Deacon, B. (1992). The new Eastern Europe: Social policy past, present and future. London: Sage. Djilas, M. (1959). The new class. New York: Harcourt, Brace & World. Evers, A. (1993). The welfare mix approach. Understanding the pluralism of welfare systems. Unpublished manuscript. Evers, A., & Wintersberger, H. (Eds.). (1990). Shifts in the welfare mix: Their impact on work, social services and welfare policies. Boulder, CO: Westview Press. Go¨tting, U. (1993). Destruction, adjustment and innovation: Social policy transformation in East Central Europe. Paper presented at the conference on Constitutional Politics and Economic Transformation in Postcommunist Societies, Collegium Budapest. Go¨tting, U. (1995). Welfare state developments in post-Communist Bulgaria, the Czech Republic, Hungary and Slovakia: A Review of the Responses, 1989–1993. In V. Pestoff (Ed.), Reforming social welfare services in Central and East Europe: An eleven nation overview. Cracow, Poland: Cracow Academy of Economics Press. Graham, C. (1993). The political economy of safety nets during market transformations: The case of Poland. Washington, DC: World Bank. International Monetary Fund. (1994, October). World economic outlook. Washington, DC: Author. Offe, C. (1992). The politics of social policy in East European transformations: antecedents, agents and agenda of reform. Transformation Processes in Eastern Europe (Seminar paper No. 12). Cracow, Poland: Cracow Academy of Economics. Pedersen, O. K., Ronit, K., & Hausner, J. (1996). Organized interests and the labor market in postcommunist Europe. In J. Campbell & O. K. Pedersen (Eds.), Legacies of change: Transformations of postcommunist European economies. New York: Aldine de Gruyter.

Reforming Social Services

207

Pestoff, V. (1978). Soviet non-governmental organizations—Limits of empirical studies. American Behavioral Scientist, 38(5) (1995, March–April), p. 788. Pestoff, V. (1990). Nonprofit organizations and consumer policy: The Swedish model. In H. Anheier & W. Seibel (Eds.), The third sector: Comparative studies of nonprofit organizations. New York: Walter de Gruyter. Pestoff, V. (1992). Cooperative social services—An alternative to privatization. Journal of Consumer Policy, 15, pp. 21–45. Pestoff, V. (1995a). In V. Pestoff (Ed.), Reforming social services in Central and Eastern Europe: An eleven nation overview. Cracow, Poland: Cracow Academy of Economics Press. Pestoff, V. (1995b). Reforming social services in Central and Eastern Europe: Mesolevel institutional change after the fall of communism. American Behavioral Scientist, 38, pp. 538–572. Pestoff, V. (1996a). Reforming social services in postcommunist Europe: Shifts in the welfare mix and meso-level institutional change. In J. Campbell & O. K. Pedersen (Eds.), Legacies of change: Transformations of postcommunist European economies. New York: Aldine de Gruyter. Pestoff, V. (1996b). Social enterprises and civil democracy: A study of enriching working life and empowering citizens as co-producers. Stockholm: School of Business, University of Stockholm. Pestoff, V., Hoo´s, J., & Roxin, V. (1993). Institutional changes in basic social services in Central and East Europe during the transformation to market economies. Paper presented at the conference on Transforming Post-Socialist Societies, Cracow Academy of Economics, Poland. Polanyi, K. (1957). The great transformation. New York: Holt, Rinehart & Wilson. Roxin, V., & Hoo´s, J. (1995). Basic social services in eleven central and East European countries: A comparative perspective. In V. Pestoff (Ed.), Reforming social welfare services in Central and East Europe: An eleven nation overview. Cracow, Poland: Cracow Academy of Economics Press. Streeck, W., & Schmitter, P. C. (1985). Community, Market, State, and Associations? In Private interest government—Beyond market and state. Beverly Hills, CA: Sage. Sze´man, Z. (1995). The role of non-governmental organizations in the transformation of Hungary. In V. Pestoff (Ed.), Reforming basic social services in Central and East Europe: An eleven nation overview. Cracow, Poland: Cracow Academy of Economics Press. World Bank. (1992). Hungary: Reform of social policy and expenditures. Washington, DC: Author.

Chapter 15

The Privatization of Crime Control and Social Discipline in Central and Eastern Europe JON SPENCER AND BILL HEBENTON

Cohen (1994) reflected on ‘‘social-control’’ thinking, forms, and styles in Western European countries and the United States and the implications of this distinctive discourse for societies in ‘‘transition to democracy.’’ Along with other commentators, he identified privatization as one of the key trends in Western social control systems and ideologies and speculated that such modes and technologies of control would be transferred from Western to Central and Eastern Europe (CEE). This theme is developed here. This chapter does not set out to provide a definitive theoretical framework or empirical review, but to raise important issues for theory, policy, and research. First the chapter contextualizes the area and examines some of the broad parameters, develops particular themes, and then presents implications of the ideas for the welfare state and present trends. CONTEXT Privatization is the most dramatic manifestation of the wave of economic reform, designed to reduce the role of the public sector and expand the role of private market institutions, which has hit almost all countries since the early 1980s. Privatization originated in the economic policies of Great Britain in 1979 and then spread rapidly to other industrial countries (see Cook & Kirkpatrick, 1994). The most extensive privatization programs have taken place in the former Communist countries, where privatization has been the means of building a capitalist economic system based on private ownership of productive assets. Privatization has been used to refer to a variety of economic reforms, ranging from deregulation and market liberalization at the macro level to internal enterprise-level changes in organizational structure. In addition, governments

Crime Control and Social Discipline

209

have pursued privatization for a variety of reasons. One major objective has been to raise governmental revenues and reduce deficits in public-sector budgets. Another objective has been to achieve greater economic efficiency—the delivery of better products at lower costs. However, privatization has also been pursued as an end in itself. In the economies of the CEE countries, privatization has been the means of creating a private-sector economy. In some industrialized countries, ideological and political motives have led to the use of privatization to create support for popular capitalism by widely distributing ownership of privatized enterprises among citizens. The nation-state (see Dandeker, 1990) provides social protection or, more generally, ‘‘security against harm,’’ including protection from predatory criminal victimization, and toward this end, the state establishes crime-control institutions (Western public police bodies). As Weber (1922, p. 78) put it: ‘‘The claim of the modern state to monopolize the use of force is as essential to it as is its character of compulsory jurisdiction and continuous operation.’’ Thus, it is commonly contended that Western countries have traditionally viewed recent forms of crime-control agencies (police) as the evolutionary culmination of improvements and refinements in the state’s administration of its responsibilities in this area, for example, to maintain public order, enforce laws, and ensure detective work. However, historical studies have shown that the development of publicsector ‘‘security’’ provision has never wholly displaced or replaced remnants of private competition (see South, 1994). In other words, the division of ‘‘security’’ labor has always been and remains a mixed and changing one. In the last years of the twentieth century, the pace and significance of change in this public-private split have had important implications for both Western states and the transition economies of CEE. Over the past 20 years, the public police of most Western states have, to a greater or lesser extent, been subject to a form of managerialism that stresses efficiency, economy, and effectiveness. At the same time, small businesses and large corporations have given increasing thought to protecting the assets and production processes that enhance their profits (South, 1994). Furthermore, insurance organizations have acted as catalysts to the expansion of the privatization of crime control-security. Scholars have only recently examined the nature of this emerging privatized domain in Western Europe (see South, 1994), although the experience of the United States in this area has been explored for a longer time. As labor-source surveys and other data make clear, this domain is large and growing in the countries of the European Union (EU). As is also evident there are only several large players in this European market, including Chubb, Securicor, and Group 4 Securitas. These market leaders are now actively seeking to extend new markets in CEE (see Hebenton & Spencer, 1994b). Before turning to the issue of marketization, we should restat three points on privatization. First, the move toward increased privatization of the tasks previously undertaken by public agencies has accelerated in Britain, France, the Netherlands, and other Western countries since the early 1980s. The momentum is

210

Implications for the Welfare State

unlikely to slow and, indeed, is actively encouraged by notable nongovernmental organizations, such as the Council of Europe. Second, new developments in the operation of criminal justice systems, not just changes in traditional arrangements, are facilitating the privatization process. For example, there is a move from carceral sanctions to sanctions in the community and increasing technological solutions (such as Marconi’s role in electronic monitoring or tagging). Third, one must note the symbiotic relationship between the growth and legal position of private property-spaces and the requirements for the provision of security. However one theoretically interprets these developments, domestically, there is a clear trend toward ‘‘payment-for-protection’’ services, and the spread of this ‘‘commodification of security’’ is part of a European process of marketization that will have important consequences for CEE countries. Although analysis of the context of such marketization processes must include EU developments since the Maastricht Treaty and the possibility that private entrepreneurs are penetrating protection services, such an analysis also needs to be grounded in the perceptions of state governments about the likelihood of security threats from CEE. Such security threats can be political, military, economic, ecological, and societal, all overlapping. For the purposes of this chapter, the societal threat is the most relevant, and in this area much evidence exists that the interlinking of crime and illegal immigration from CEE has contributed to and shaped the Western response. The response in terms of political analysis has been of a ‘‘regime’’ type (such as the Schengen Accord) and has produced specific crimecontrol institutions (like Europol). The developing Western governmental discourse and institutional framework are crucial to grounding the notion of Western assistance in this area of crime-control solutions (see Hebenton & Spencer, 1994a, and, more generally, Hebenton & Thomas, 1995). Mesjasz (n.d.) examined the security functions of Western military assistance to the CEE countries; scholars must also turn their attention to privatization and marketization processes in crime control. The particular themes that are worth unraveling in relation to this topic are discussed next. THE MARKETIZATION OF MEANINGS AND SOLUTIONS Crimes are defined partially, so that some crimes, those of corporate institutions, for example, are rarely mentioned (see Box, 1983), whereas more mundane crimes render the less powerful more liable to being subject to the technologies of control. It is important to understand the development of such definitions in societies in transition. Definitions of crime and the academic activity of criminology, in relation to crime and crime control, that occur in these newly formed markets are particularly important for gaining an understanding of crime, criminology, and criminal justice in relation to societies in transition. Without doubt, the new markets are significant definers of social, economic, and

Crime Control and Social Discipline

211

political relationships and the consequent structures of these relationships are also significant in defining crime in capitalist social relations. Thus, crime is now defined within the relationships of both production and consumption, replacing its previous definitions as being against the state (Bienkowska, 1991). Kenedi’s (1981) account of house building in Hungary demonstrates that what were officially considered illegal practices in the CEE countries under communism were an integral component of the distribution of goods and services that the command economy could not effectively manage. Since the relationships of the market demand that the market be allowed to function, such distributive actions have come to be seen as criminal and hence are criminalized (Hebenton & Spencer, 1994a). Important in this regard is not just that the definitions of crime and criminal shift with changes in political regimes, but that the definitions are intertwined with the processes of government. Central to this view is the link between governmental organizations and institutions that are ‘‘political’’ and the undertakings of the authorities who are involved in and concerned with the administration of systems and relationships considered to be ‘‘virtuous’’ with respect to the overarching project of government. So, one needs to understand the process of government from at least two perspectives: the perspective of political rationality (the manner in which the strategic exercise of power is conceptualized and the moral justifications for such strategies) and the technologies of power and government (the way in which governmental ambitions are realized and made concrete). These relationships are interdependent, and it is this interdependence between governmental rationalities and governmental technologies that helps one understand the connections between individuals and the aspirations of authority. The definitions of crime in CEE countries appear to be influenced by AngloAmerican criminological concerns. The focus seems to be on crimes by individuals rather than on crimes committed by the powerful in the process of privatization, for example (see Kupka, 1992). This emphasis on crimes of individuals is important because it signals an emerging set of definitions that focus on the securing of property and thus the potential for the development of markets in relation to crime-prevention strategies, policing and police training, security, prisons, and so on. To establish such markets, the process of privatization has to create a marketplace within which such criminal-justice commodities can be put up for sale. To ensure that the market thrives, there first has to be a set of meanings that appear to be relevant to a problem or issue. Thus, if crime is defined within a different paradigm from the traditional parameters of AngloAmerican criminology, the ‘‘meanings’’ will be different and so will the ‘‘solutions.’’ The process of definition, the creation of a market of meanings, is closely linked to the development of a market of solutions. The definitions of crime are not uncontaminated by these markets and those who operationalize them, so crime is defined in terms of the markets. Furthermore, if crime is defined in

212

Implications for the Welfare State

these terms, then presumably so are the solutions to crime and crime control. The advantage of this link for Western capitalist countries is that in exporting the definitions of the problem, these countries can also export the solutions, whether the theoretical frameworks of understanding or the hardware technologies of crime control. This ‘‘marketization’’ of meanings could be viewed as a form of colonialism that provides Western capital with emerging markets requiring the investment of financial and human resources. Both the Western European and U.S. governments are active in providing a range of know-how in the form of packages for training criminal justice personnel, traffic management, security packages, or the necessary hardware to deliver more secure systems of criminal justice. Much of this activity, as was noted earlier, is linked to concerns about border security in relation to immigration and drugs, as well as the development of potentially lucrative markets. Alongside these governments are security companies that are anxious to develop and exploit the growing ‘‘security markets.’’ Indeed, there has been a move from supplying just one aspect of the market requirement toward the development of niche markets (such as the Schengen Information System) that supply the ‘‘total solutions’’ to the defined problem, including training packages. Such markets provide the potential, in this macho area of activity, for what is euphemistically termed ‘‘greater market penetration.’’ Fogel (1993) found a huge expansion in the private security industry in Poland. The rates of remuneration are better than those of the state police, and the lack of regulation means that many security operatives have criminal records. The situation is the same in other CEE countries—Bulgaria, for example, where private security has moved into insurance and protection (Personal communication from Dimitar Roussinov). Because of the failure to regulate private security, provision of security is no longer within the control of the state and of the processes of democratic accountability and thus may become oppressive and lethal (Bauman, 1989). The development of such an unregulated market in security brings into focus once again the relationship between the state and the market in the provision of security and law and order. Fogel also noted that the market for private security has been accompanied by a corresponding increase in the demand for firearms by the public because of the greater fear of crime, which is associated with an increase in the rates of recorded crime and victimization. PRIVATIZATION, SECURITY, AND WELFARE Privatization has been influential not only in defining the solutions to the crime ‘‘problem,’’ but in attracting Western European and American definitions of crime and with them, the provision of what are defined as appropriate solutions. The influence of privatization has raised a number of issues in relation to how the problem of crime is managed both in CEE countries and in Western European democracies, where the introduction of private security is considered

Crime Control and Social Discipline

213

to be an indicator of the loss of legitimacy and thus underlines the emerging crisis of Western European democracies. Western European countries’ concern with crime in the CEE countries is based on the continuing, uncontrollable market in drugs. Because of new and poorly policed borders, drugs are being brought into the EU countries and with them, the activities of organized crime have increased. The other concern is the perceived weaknesses in CEE borders that allow immigrants to flow into the EU. Although there has been considerable assistance, as was mentioned earlier, it has been based only on a limited assessment of needs, and no attempt has been made to evaluate the utility of international assistance in practice. Thus, international efforts may be duplicated in certain areas while other important areas are missed or ignored. There is little or no understanding of how the crimecontrol and security industries, along with Western European governments, have defined the market and transformed it to meet their needs and the subsequent effect on the definitions of criminal justice, law and order, crime control, and crime-prevention strategies. The development of welfare state structures in the CEE countries will need to take account of the relationship between crime and the provision of welfare. The dominant discourse within the Anglo-American paradigm of criminological thinking has sidelined the relationship between crime and welfare. The main thrust of contemporary criminology has been to find technical solutions to the problem of crime, from finding better ways to secure property to the increasing use of surveillance equipment in public spaces (see Young, 1996). These strategies have been viewed as making public spaces safer and using psychological barriers, as well as physical barriers, in design. Such design strategies have had a significant impact on the structure and lived experience of the contemporary world. Young (1986) contended that the cost of this crime-prevention criminology has been criminology’s focus on preventive strategies rather than on theories of causation. Smart (1990) criticized this argument, stating that it is an attempt to provide a ‘‘master narrative’’ (a universal theory) of causation in relation to crime. Crime Rates The debate between Young (1986) and Smart (1990) draws attention to the structure of the dominant crime discourse in which there is little official or governmental concern with the causes of crime, no matter how varied and diffuse they may be. Instead, many Western European states (as well as the United States) have focused on deterrent strategies, which are located in the techniques of criminal justice systems. The dominant discourse on crime during the Thatcher–Major governments in Great Britain and the Reagan–Bush administrations in the United States was that the primary means of preventing criminals from committing crimes is imprisonment, which acts as both a deterrent and a

214

Implications for the Welfare State

means of containment. This strategy has patently been a failure, with both Britain and the United States experiencing high levels of crime along with high levels of incarceration, both of which bring about increasing social costs, as well as the increasing economic costs of building and maintaining penal institutions. Such a strategy of severe crime-control policies and the manipulation of penalties in an attempt to reduce crime is misguided. As Tonry (1996, p. 140) noted: There is no basis for a claim that recent harsh crime control policies or the enforcement strategies of the War on Drugs were based on good faith beliefs that they would achieve their ostensible purposes. In this and other countries, practitioners and scholars have long known that manipulation of penalties has few, if any, effects on crime rates.

The question, then, is what affects crime rates? Without doubt crime rates are influenced by people’s economic and social well-being (or lack of it). In Britain, research by the Home Office Research Unit (Field, 1990) found a correlation between trends in consumption and trends in crime. That is, as consumption is reduced because of an economic downturn, property crimes increase; when consumption levels rise, property crimes decrease and personal crimes rise. This finding seems to suggest that crime is closely linked to economic factors, especially consumption, and that groups in a society are affected differentially. As Field (1990, p. 58) concluded: In explanation of the observed relation between property crime and consumption, it has been argued here that fluctuations in the national economy are amplified among potential offender groups because such groups may have a vulnerable position in the labour market. If this is so, it would follow that measures taken to reduce the vulnerability of such groups and improve their economic situation may help to reduce the levels of property crime.

In the CEE countries, this relationship between consumption and crime rates may be important. As these countries begin to manage the problem of crime within the new economic arrangements, the market in law-and-order solutions has the potential to deliver high levels of profits for companies that are able to define and structure the market. The Example of Russia In Russia, for example, the key issues seem to be the changing structure of criminality and the rapid growth of crime, together with Western understandings of organized crime in that country. On this latter point, the crime rate in Russia (relative level) continues to be lower than that in countries in Western Europe. Furthermore, although Aromaa and Lehti (1996) highlighted the importance of the rapid change in the volume of crime in Russia (from 988 per 100,000 population in 1985 to 1,768 in 1994) and surveys of victims (see Alesksejeva &

Crime Control and Social Discipline

215

Patrignani, 1994), have yielded similar results, traditional property crimes and personal crimes have not reached proportions that would be exceptional from a European perspective. As Aromaa and Lehti (1996, p. 56) concluded: ‘‘The real increase in crime during the past five years has been unusually rapid. When pinpointing the main characteristic trait of the crime problem of the area, it is the pace of change rather than the total volume.’’ Violent crimes versus property crimes. A further analysis of official data suggests that the ratio of recorded violent crimes to property crimes has remained stable while the volume has increased. Property crimes partly reflect structural changes in Russia, along with the privatization of public property. The misappropriation of public property has been transferred to the realm of criminal statistics. However, although their growth has been rapid, these crimes have to be seen in the context of total volume. For example, Erlanger (1996) pointed out that in 1994 New York had nearly nine times the number of property crimes than did Russia. Homicide rates in Russia have shown the clearest and most divergent trend from Western Europe, with homicides and attempted homicides recorded by the police rising from 8.5 per 100,000 population in 1985 to 21.7 in 1994. Aromaa and Lehti (1996) concluded that it is difficult to give any single explanation for these developments and that the structure of these crimes in Russia resembles the situation in the United States more than that in other European countries. On the basis of interviews with senior police personnel in Russia, Erlanger (1996) noted that both the structure of criminality and the crime rates, have changed. The police attributed the rise in homicides largely to the gang shootouts and contract killings of prominent businessmen and gang leaders, essentially fighting over territory or settling accounts in a legal system that is weak and with a nonexistent body of corporate business law. Similarly, the police noted new kinds of economic crimes that are prominent in large cities: cases of fake banks, which promise high interest rates and then disappear; credit-card fraud, which is beginning to take hold among the newly rich; and the phenomenon of ‘‘apartment murders,’’ when criminal entrepreneurs, encouraged by the prices of apartments in Moscow, force owners (particularly the elderly) to sign over their apartments. Organized crime. With regard to organized crime, there has been a restructuring of criminal groups since 1990, but, as Aromaa and Lehti (1996, p. 65) commented, organized crime is ‘‘an attractive target for myth making. The conditions for the restructuring have been favorable because of the opportunities provided by the privatization of public property; the scarcity of police resources; the ready supply of small arms owing to the post–cold war demilitarization; and new trade channels, including drug trafficking, illegal immigration, and auto theft. These activities are the focus of organized crime in Western countries, so it is no surprise that they should form the basis of organized crime in Russia. However, Western countries’ preoccupation with Russian organized crime suggests that it is the perceived threat to the Western European countries, rather

216

Implications for the Welfare State

than the destabilizing effect on Russia, that has fueled Western countries’ attempts to combat Russian organized crime. Consequently, if a similar discourse on law and order is established in the CEE countries as has been dominant in Great Britain and the United States, the market will probably be structured around penal and surveillance sanctions and the increased use of technology. Such strategies, though profitable for crimecontrol and security companies, as well as some Western governments, will prove to be expensive for the CEE countries in terms of hard-currency transactions. What remains hidden in this market structure is the relationship between overall economic conditions and crime. Economic Conditions and Crime In relation to crime and the welfare state, one compelling argument is that a welfare state’s redistribution of wealth from richer people to poorer people should have an impact on the crime rate, especially the rate of property crime, just as welfare should have an impact on consumption trends, even during economic downturns. This argument suggests that in the downward segment of the economic cycle, welfare should ameliorate the severe impact on poor people and thus maintain levels of consumption. What is apparent from Field’s (1990) study is that the potential leveling effect does not eliminate increases in property crime at times of economic recession. Nevertheless, Field (1990, p. 58) concluded that the research findings support the proposition that measures to support the economic position of individuals, social groups or localities who are identified as ‘‘at risk’’ could reduce the total amount of property crime. . . . This implies that economic interventions which aim . . . to reduce the level of property crime, should seek to secure as well as improving the economic positions of people at risk.

Therefore, it can be argued that the structure of the welfare state may have a significant impact on the level and types of crimes that are committed. However, if the trend of Western governments and the crime-control industry is to sell the strategy that crime is somehow controlled through tougher state sanctions, then the outcome of such a strategy will be bleak. As Christie (1994) observed, although the inner cities of the United States have appallingly high levels of crime, no alternative explanation of the level and types of crimes to the dominant one, which advocates more punishment and control, is offered. Christie argued that crime levels in American inner cities may be seen as ‘‘indicators of misery, asking for economic, educational and treatment facilities on a scale comparable to what is invested in wars outside the national border. The fascinating question . . . is why the inner cities of the USA are seen as targets for war rather than targets for drastic social reform’’ (p. 198). This is the crucial question for the CEE countries. These countries need to

Crime Control and Social Discipline

217

consider whether the crime-control strategies they are being encouraged to adopt will do little more than accrue greater benefits to Western economies and provide a theoretical and conceptual structure that defines crime as war rather than a social phenomenon that is conducive to state intervention through welfare strategies. CONCLUSION The authors share Cohen’s (1994, p. 84) view of trends in crime control, namely, that technologies of control will be transferred, whether we like it or not. The globalisation of information systems, the standardisation of the mass media and the loss of ‘‘sense of place’’—all of which happen despite the resurgence of separatism and nationalism— facilitate the export of control methods which offer a quick solution to growing problems of street crime.

And as was stated earlier, the context in Western Europe is one in which market principles increasingly determine the distribution of welfare and civil liberties. New targets are created through and for control. At the same time, the old ideologies of criminal justice systems are being replaced by an overriding concern with economic efficiency and rationality in market terms. As was noted earlier, there is substantial evidence that a Euromarket in security-and-control services exists and is undoubtedly set to expand. Apart from the pull-and-push elements previously mentioned, deeper trends are at work. Contributing to the proliferation of these services is the erosion of the state monopoly on coercion, especially in Russia. Social frictions based on ethnic cleavages or extreme income polarization have created a de facto or even legal sphere in which individuals and social groups are entitled to exercise coercion on their own account, or at least to threaten to do so, if the state proves incapable of protecting established privileges or private property. In this respect, ongoing criminality can be seen as basically a privatization of former governmental control. What are the implications of this analysis? Increasingly, market forces (whether characterized and explained in terms of the enterprise culture, recession, the costs and benefits of transition, or the deconstruction of command economies) are putting a price on all aspects of life that are supposed to be the universally enjoyed benefits of civilized societies, including feelings of security and safety (Marshall, 1963). The rise and impact of crime (however defined) and the self-acknowledged inability of state police forces to cope should not be sufficient arguments for promoting a vision of society in which the unprotected are held responsible for their own victimization and those who can afford it ‘‘purchase’’ protection. In relation to CEE, as elsewhere, this situation raises serious questions about equality and the expectations of public service that cit-

218

Implications for the Welfare State

izenship legitimately carries. In terms of the central theme of this chapter, the privatization of crime control and social discipline, such questions can lead to recommendations of certain forms of control over others. All that can be done here is suggest some parameters. Instrumental criteria for ‘‘successful’’ crime control (such as reducing victimization) need to be extended to view freedom from fear as a universal human right (Doyal & Gough, 1992). But any such extension must renew the old political debate about how to achieve order, regulation, stability, and protection without infringing on individual liberty. Control mechanisms should provide an arena in which value choices can be fully debated. Methods are needed that result in integration rather than exclusion; that abolish or reduce to the minimum the amount of deliberately inflicted pain; that allow for active citizen participation; and that provide for accountability and democracy. The privatized version of the future may best be seen in the United States. Davis (1988), writing about Los Angeles, described how state-of-the-art electronics and high-tech policing divide the ‘‘fortified cells’’ of the affluent from the naked social control of the criminalized poor. Private security systems are sold to insulate the rich from the rest: ‘‘good citizens, off the streets, enclaved in their high-security private consumption spheres; bad citizens, on the streets, caught in the terrible, Jehovan scrutiny’’ (p. 253). The affluent experience their security as consumption and as a realm of freedom; the others (the nonconsumers and thus ‘‘excluded’’ members of society) experience it as a prescribed social order. Herein lies the ‘‘bad edge of postmodernity’’ (Bauman, 1988). The previously mentioned list of values on which policies should be based is rapidly evaporating in the real-time privatization dystopia. In the context of the erosion of citizenship rights and expectations of protection from crime and incivilities and from privately sponsored surveillance and intrusion, the task of comparative researchers of crime control may be, as Beirne (1983) suggested, to focus on the relationship between the controllers and the controlled in different countries rather than on crimes themselves. REFERENCES Alesksejeva, M., & Patrignani, A. (Eds.). (1994). Crime and crime prevention in Moscow (Publication No. 52). Rome: United Nations Interregional Crime and Justice Research Institute. Aromaa, K., & Lehti, M. (1996). Foreign companies and crime in Eastern Europe. Helsinki: National Research Institute of Legal Policy. Bauman, Z. (1988). Freedom. Minneapolis: University of Minnesota Press. Bauman, Z. (1989). Modernity and the Holocaust. Cambridge, England: Polity Press. Beirne, P. (1983). Cultural relativism and comparative criminology. Contemporary Crises, 7, pp. 371–391. Bienkowska, E. (1991). Crime in Eastern Europe. In F. Heidensohn & M. Farrell (Eds.), Crime in Europe (pp. 18–35). London: Routledge. Box, S. (1983). Crime, power and mystification. London: Tavistock.

Crime Control and Social Discipline

219

Christie, N. (1994). Crime control as industry. London: Routledge. Cohen, S. (1994). Social control and the politics of social reconstruction. In D. Nelken (Ed.), The futures of criminology (pp. 20–30). London: Sage. Cook, P., & Kirkpatrick, C. (Eds.). (1994). Privatization policy and performance: International perspectives. London: Harvester Wheatsheaf. Dandeker, C. (1990). Surveillance, power and modernity. Cambridge, England: Polity Press. Davis, M. (1988). City of quartz. London: Verso. Doyal, L., & Gough, I. (1992). A theory of human needs. London: Macmillan. Erlanger, S. (1996, March–April). Image of lawlessness distorts Moscow’s reality. CJ Europe, pp. 6–10. Field, S. (1990). Trends in crime and their interpretation: A study of recorded crime in England and Wales (Home Office Research Study No. 119). London: Her Majesty’s Stationery Office. Fogel, D. (1993). Police co-operation in Eastern Europe: Report to HEUNI. Helsinki: HEUNI. Hebenton, B., & Spencer, J. (1994a). The contribution and limitations of Anglo-American criminology to understanding crime in Central Eastern Europe. European Journal of Crime, Criminal Law and Criminal Justice, 2, pp. 50–61. Hebenton, B., & Spencer, J. (1994b, November 9–12). Marketisation in Central-Eastern Europe: Crime control and social discipline. Paper presented at the 46th annual meeting of the American Society of Criminology, Miami. Hebenton, B., & Thomas, T. (1995). Policing Europe: Cooperation, conflict and control. Basingstoke, England: Macmillan. Kenedi, J. (1981). Do it yourself: Hungary’s forbidden economy. London: Pluto Press. Kupka, M. (1992). Transformation of ownership in Czechoslovakia. Soviet Studies, 44, pp. 297–311. Marshall, T. H. (1963). Sociology at the crossroads and other essays. London: Heinemann. Mesjasz, C. (n.d.). Security functions of Western assistance for Central-Eastern Europe (1990–1994). Unpublished manuscript, Academy of Economics, Jagiellonian University, Cracow, Poland. Smart, C. (1990). Feminist approaches to criminology or postmodern woman meets atavistic man. In L. Gelsthorpe & A. Morris (Eds.), Feminist perspectives in criminology (pp. 48–53). Milton Keynes, England: Open University Press. South, N. (1994). Privatizing policing in the European market. European Sociological Review, 10, pp. 219–233. Tonry, M. (1996). Racial politics, racial disparities and the war on crime. In J. A. Inciardi (Ed.), Examining the justice process: A reader (pp. 16–50). Fort Worth, TX: Harcourt Brace. Weber, M. (1922). Economy and society. Berkeley: University of California Press. Young, A. (1996). Imagining crime. London: Sage. Young, J. (1986). The failure of criminology: The need for radical realism. In R. Matthews & J. Young (Eds.), Confronting crime (pp. 6–18). London: Sage.

Chapter 16

New Child Protection Structures in Romania MARIA ROTH

Romania was generally considered to be the second (after Albania) of all the Communist countries in Central and Eastern Europe (CEE) to have repressive ideological standards and poor social conditions. The cult of the personality of the general secretary of the Communist Party, Nicolae Ceausescu, was extreme. The country was also plagued by a severe shortage of basic necessities and a wide gap between the quality of life of the elite political class and the rest of the population. Despite the overthrow of Ceausescu in 1989, social conditions remain poor, due partly to the heritage of the Communist period and partly to the problems of the transition. Among the most widespread problems are the rising number of families with insufficient incomes to support their more vulnerable members, the growing unemployment rate, increasing rates of crime and juvenile delinquency, the decreasing amount of affordable housing, and the growth in homelessness. The last Romanian census, conducted in January 1992, registered 22.8 million people, 7.3 million households, 5.9 million families, and 5.2 million children under age 16 (Recensamantul populatiei, 1994). In 1994, there were 5.6 million children under age 15 (Anuarul statistic al Romaniei, 1995) and about 6.4 million children under age 18. CHILD WELFARE BEFORE 1990 After Ceausescu was overthrown in December 1989, the world began to discover the realities of life in Romania, including the miserable conditions of children under state protection. Both representatives of relief organizations and reporters from abroad discovered, step by step, hospital-like homes called ‘‘cra-

New Child Protection Structures in Romania

221

dles’’ for children under age 3; homes for preschool and school-age children; special schools for children with psychological, motor, visual, and hearing impairments; and hospital-homes for children who were severely handicapped. In the first half of 1990, great international pressure was exerted on Romania to change the fate of the state-protected children. The abuses of the Communist regime were linked to Ceausescu’s demographic policy of increasing the birth rate, economic policy, and stubbornness in ignoring everything that could not viewed with pride. The approximately 90,000–100,000 children (Conventia ONU, 1994) who, abandoned by their parents or orphaned, were living in state asylums and homes for children, especially the 40,000–50,000 children who were in institutions for handicapped persons, could not in any way be a source of pride. This was the main reason why the state protection system reduced to a minimum communication between these institutions and the outside world. There was a clear contradiction between official statements about the care of children in institutions and the realities of life in these institutions. The declared purposes, stated at professional and political meetings, were adequate, but there were no material means and no interest, at any level, in fulfilling the principles. The budget for children’s homes was not officially published (and still is not), but it was extremely low, especially in the last years of the dictatorship, when Ceausescu sacrificed social politics to pay off Romania’s foreign debt. In the majority of the institutions, funding did not cover basic needs: nutrition, heating, electricity, clothing, and medical treatment. Given that the basic needs of children were not being met, it was difficult to respect children’s rights or to provide differential treatment, as well as to increase the staffs and raise the quality of education and care. Some characteristics of the state welfare system during the Ceausescu period were as follows: • Institutions with 400 or more children • Use of inadequate buildings, including old castles • Location of many units, especially those for severe cases, in small communities that were inaccessible to visits and controls • Absence of plumbing in many units of the Health Ministry, including cradles, where babies and toddlers were raised • Insufficient fuel and electric power • Insufficient staff, especially highly qualified personnel • Authoritarian educational style, with frequent use of physical punishment • Closing of the institutions to the public and parents, who rarely visited the children, with access allowed only to a limited number of visitors, mainly from local, medical, and so-called civil bodies • Transfer of children only from institutions for less severe diagnoses to more severe ones

222

Implications for the Welfare State

• Transfer of children from one institution to another without medical or developmental histories.

CHANGES SINCE THE TRANSITION Since 1990, efforts have been made to improve the conditions of children and to respect children’s rights. As a result of the first wave of international attention to the conditions of the state-protected children, the government first dealt with the most urgent problems. In 1990, the government substantially increased the daily food allocations for children in state institutions; doubled the staffs of these institutions; and reinstated training for psychologists, speech therapists, and social workers, which had been abolished under Ceausescu’s reign, with the aim of hiring these professionals to work with children. To improve the severe situation of handicapped children, a new central body, the State Council for the Handicapped, was created with a sufficient budget. This new body, represented at the local level by the County Council for the Handicapped, is responsible for solving the social, material, and educational problems of the handicapped of all ages and categories. As a result, all children with sensory, motor, or psychological impairments who were under state protection were placed under the jurisdiction of the County Council for the Handicapped. Although this council took a series of clearly positive measures (for instance, providing more substantial pensions for handicapped persons and remunerating family members who care for severely handicapped children), the number of children in institutions was not reduced because of other social problems connected to the transition from communism to a market economy. In 1993, upon the recommendation of several foreign experts (for example, Tobis, Krantz, & Meltzer, 1993), the National Committee for the Protection of Children, a new national body for the protection of children, was formed with the intent of coordinating and monitoring all the initiatives and regulations concerning children. The lack of coordination and monitoring was considered to be a major reason for the persistent problems in the field of child protection. The other changes requested by the foreign specialists regarding the improvement of conditions for children reared in institutions were left to the local governments and the managers of the territorial institutions. The main impetus for the changes by the government were—and still are— the appeals and pressure from outside Romania to respect the United Nations Convention on Children’s Rights, signed by the president of Romania, and to be attentive to the conditions of children under state protection. The images of neglected children living in inhumane conditions broadcast by the media led to a flood of help from numerous, mainly voluntary, relief organizations, which brought food, clothing, medications, toys, and even cleaning materials. At first, the aid was uncoordinated and was provided without knowledge of the needs of the targeted institutions. As a result, some hospitals and residential homes received a lot of aid and others received none. Since personal relation-

New Child Protection Structures in Romania

223

ships are important to Romanians, those who were in contact with people from the West directed the aid toward the places where they were living or working. People from the West targeted their aid to these places because they trusted the Romanians they knew personally more than unknown officials. In the period immediately after the violent overthrow of Ceausescu, every Romanian felt entitled to help from abroad, especially from the rich West. Thus, many goods that came into the country were not used as intended but were diverted to the black market where they were sold, and some people grew rich from the generosity of humanitarian aid from the West. Because of the chaotic approach to help poor people in communities, residential homes, schools, and hospitals got only a part of what was designed for them and often the staff took the things that were considered inappropriate (e.g., adult clothing sent to children’s homes). When the Western organizations found out how aid was being misappropriated, they began to organize and respond better to the needs of the targeted group. Toward the second half of 1990, and even more in 1991 and 1992, large organizations (such as UNICEF, World Vision, Handicap International, Me´decins sans Frontie`res, and Me´decins du Monde) became increasingly involved and more specifically focused. With the opening of the institutions to visitors, the directors took greater care to present an acceptable image to the outside world. In many asylums or hospital-homes for children, the furniture, plumbing, and heating systems were repaired or replaced; washing machines, refrigerators, television sets, and stoves were received; and many other improvements were made. As a result, the institutions became more homelike, and the daily lives of the children and workers were more comfortable. The activities of foreign organizations were not limited to distributing aid. In addition, both specialists and untrained volunteers came to Romania to take care of the children to compensate for the absence of Romanian specialists and child care workers. Professionals from the West realized that although the child care models in use in Romania had to be changed, new models could not be imported and imposed on the old ones. From 1991 to 1993, at both the local and regional levels, teams of qualified specialists from abroad conducted intensive training sessions for the staffs of the majority of the health care and educational institutions for child protection, and some managers and staff members even attended training programs abroad. Numerous international organizations, such as UNICEF, Me´decins du Monde, Me´decins sans Frontie`res, Handicap International, the Red Cross, Save the Children, Equilibre, Romanian Orphanage Trust, CARITAS, SOS—Street Children, the Organisation of the Malthesian Knights, the Ioanith Knights, Christian Children’s Fund, World Vision, and Aid to Romania, have intervened to help raise child care in Romania to international standards. They have also arranged for the directors and other staff members of Romanian institutions to visit similar institutions abroad. Numerous organizations have also organized massive fund-raising drives to modernize the facilities

224

Implications for the Welfare State

of these institutions. After all these efforts, the question remains: How much did they change the lives of children in state institutions?

OBSTACLES TO CHANGE Legislation. Although the president signed the Convention on Children’s Rights in 1990, the Romanian parliament did not ensure the means by which children’s rights should be upheld within the existing child protection structures or by creating new ones. The basic child protection law in force today was passed in 1970, and modifications have not been discussed. Thus, child abuse is still not registered in Romania, and children are still being sent to institutions. In addition, the parliament passed some new laws, including one on adoption. However, the adoption law did not work properly at first because the law on abandonment, which states the period and conditions under which children who are abandoned by their parents are officially declared to be adoptable, was not passed until two years later. Resistance to change. In several places, where local authorities and directors of institutions were changed immediately after the overthrow of Ceausescu, the new leaders were more eager to cooperate and to introduce major changes. Although some staff members of institutions were resistant, they could be retrained. But when the local leaders remained in place, help from abroad was not only less effective, but it made the local leaders and directors even more powerful. The local leaders determined what the relief organizations could do, and the directors became more important because of their relationships with the Western organizations. Thus, their institutions received not only goods and money, but scholarships to train in Western countries—the dream of many Romanian professionals. To summarize, the conditions in the child care system in Romania are currently as follows: • Conditions in the majority of residential institutions are still grossly inadequate, as they are for children who are awaiting placement because their families are so poor they cannot take care of them. • Legislation on child care is not complete and is sometimes contradictory. • The managers and staffs of administrative offices are not able to respond to the requirements of the new regulations. • There are few specialists competent to evaluate the quality of children’s lives or the possibility of abuse. Some recently graduated social workers and special education teachers have been hired, but they do not have any experience. • Since there are so few qualified workers, many positions are occupied by unqualified persons.

New Child Protection Structures in Romania

225

• There is no tradition of collaborating with the police in matters of child abuse or neglect. • The general public is not sensitized to the problems of child protection.

CURRENT CONDITIONS Because the majority of the aid for modernizing the institutions came not from state funds but from foreign organizations, the changes were not monitored. Thus, other than at the local level, it is not known how the aid was used and which institutions received insufficient support. One characteristic of the network of institutions for children is the lack of information about the quality of life in the institutions, their endowments, and the efficacy of foreign involvement. The specialists are preoccupied by the number of institutionalized children and the quality of the children’s health; nutrition; development; and material, spiritual, and social lives. Evaluations of the changes that have occurred since 1990 have been done mainly by organizations from abroad because of insufficient data in the official reports. Health and Development The first serious study of this kind was conducted by the French organization Me´decins du Monde (Studiu privind, 1993) in 1992. This cross-sectional study, done in state residential institutions for children in three Romanian counties (Cluj, Hunedoara, and Timis), gathered and analyzed all the statistical data on the respective institutions, as well as individual medical and psychological data on the children and their development. The study found that the frequency of different acute and chronic illnesses and conditions was higher for children in institutions than for those in families. With regard to malnutrition, the researchers used the criterion of a weight index of less than 2.5 percent of the population. In comparison, the proportions for the children in various institutions were as follows: hospital-homes for severely handicapped children, 19 percent; cradles, 15 percent; schools for children with sensory handicaps, 12 percent; children’s homes, 8 percent; psychiatric hospitals, 7 percent; and schools for mentally retarded children, 6 percent. In short, the percentage of undernourished children in all these institutions was much higher than in the general population. Among the school-aged children in institutions, 35 percent were characterized as having learning difficulties (repeating grades or school progress inadequate for their ages). In the cradles for infants and toddlers, 52 percent of the children were considered to have a normal capacity to establish interpersonal contacts, and 48 percent were thought to have integration problems, especially when establishing contact with others; 18 percent had rejection reactions, 18 percent had

226

Implications for the Welfare State

exaggerated attachment reactions, and 12 percent had discordant behavior (Studiu privind, 1993). With regard to mental retardation, the majority of those reared in residential homes for normal school-aged children went through repeated evaluations of their mental capacities. Those who did not meet the standards of the assessment commission were sent to special kindergartens or schools for mentally retarded children. Therefore, in principle, the distribution of categories of mental retardation of children in these residential homes should correspond to the average of the general child population, where the percentage of mental retardation is rarely more than 3 to 4 percent. However, the study found that of the 484 children examined, only 67 percent had normal intelligence, 25.9 percent had slight retardation, 6.2 percent had medium retardation, and 0.9 percent had severe or profound retardation. Furthermore, of the children who were considered to be of normal intelligence, 30 percent were marked, in one way or another, by the consequences of hospitalization, and 48 percent of the children under age 5 in the residential institutions that were studied had delayed speech development. However worrying these data are, they still represent a marked improvement over the data gathered by the author from 1984 to 1989, when she was a psychologist at the cradle of Cluj (Roth, 1992). In that period, the average mental age of children was about half their chronological age. For example, the mental age of infants aged 15 months was 7.9 months, and that of children aged 36 months was 16.6 months. Although the data from Cluj cannot be generalized to all the institutions in Romania in that period, they illustrate that the mental retardation of children in institutions is measurable at an early age. They also indicate the situation that residential institutions have inherited and how profound changes need to be to normalize the conditions of children reared in state care. Number of Children in Care In Romania, it is still difficult to determine the number of children who are in state institutions. For example, the statistical yearbook (Anuarul Statistic, 1995) mentioned only the number of beds in cradles, not the number of children, and did not indicate the number of school-aged children in state foster care. With regard to the cost of child protection, only the allowances for children in families were mentioned (since 1993, they have been about $3 per month); the cost of maintaining children in institutions was not stated. Furthermore, allocations for all social expenditures have decreased since 1990. By 1992, the reduction of social expenditures was significant, mostly in the domain of children and families. As Zamfir (1995) noted, the protection of children and families in 1992 was only 39.3 percent of the 1989 level. An important factor in the government’s decision to cut the social budget was the World Bank’s requirement that such expenditures be decreased.

New Child Protection Structures in Romania

227

From 1990 to 1992, the number of children in institutions decreased: by 980 in cradles, by 3,288 in children’s homes, by 7,666 in schools for handicapped children, by 90 in hospitals for the severely handicapped, and by 1,294 in centers for young offenders (Cartea Alba, 1992). After 1992, the number of children in institutions did not continue to diminish as desired owing to the government’s social policy. According to a report by UNICEF, in cooperation with the Romanian National Commission for Child Protection and the Ministry of Health (Situatia familiei, 1995), the number of children in cradles decreased from 11,427 in 1988 to 9,486 in 1994. The same report noted that of those assisted in homes for school-aged children, 25,737 were minors and approximately 2,000 were adults in 1993 and 32,000 were minors and 500 were adults in 1994. The adults in these homes were residents who had no place to go, no jobs, no families, and no other support. However, their residence in these homes was not legal because by law, the child care institutions are for those under age 18. In many institutions, the presence of adult residents is a serious problem for the children and is a financial burden. In addition to the children in these institutions, about 6,000 children were abandoned temporarily by their parents. Whatever figures are correct, what is known for sure is that in 1990 and 1991 the number of children in the state child protection system decreased as a result of foreign adoptions and the legalization of abortion (and, consequently, the decrease in the number of unwanted children). Furthermore, the living conditions of many families improved as a result of the government’s ‘‘reparative’’ policies. That is, the allocations for children in rural settings increased to equal those in urban settings, mothers were offered 65 percent of their salaries to stay home with their children for the first year after birth, salaries were increased, and new places of work were created (Zamfir, 1994). From 1992 on, however, the number of children in institutions again began to rise, and there are still few alternatives to institutionalization. SOCIAL CONDITIONS SINCE 1992 A natural explanation of the continued high number of children in institutions is the deterioration of the living conditions of families, as demonstrated by the following figures: • Since 1992, poverty has increased dramatically in Romania. In 1993, for example, the real per capita income was only 66 percent of that in 1989 (Public Policy and Social Conditions, 1993). The situation has not improved since then. • In families, the monthly state allowance for children has decreased more and more. In 1992, it represented 9.3 to 15 percent of expenditures for food for a child (Situatia copilului, 1995). In 1995, it covered the costs of 10 kilos of bread, 1.5 kilos of meat, 9 copybooks for school, or 4 to 9 pieces of chocolate. • The unemployment rate has soared, especially for those with lower levels of education.

228

Implications for the Welfare State

• The amount that parents must pay for the daily care of their children in nurseries and kindergartens has increased greatly. Therefore, many families, particularly those with many children, have chosen to keep their children at home. Hence, the number of children in nurseries decreased from 49,342 in 1990–1991 to 24,741 in 1995–1996 (unpublished data, National Direction of Statistics, 1996). • The allowance for mothers with many children, modest before the transition, when it corresponded to the price of two pairs of children’s shoes, has remained the same. However, it now covers the cost of only half a loaf of bread (per month). • All state subsidies, including those for food, clothing, children’s footwear, and school supplies, are no longer provided.

The general direction of the changes in social policies is away from universal protection to categorical protection, targeted to specific groups of people (Zamfir, 1994). Decreasing revenues and the fragility of the budget have caused the government to reduce the amount spent on social problems. As in all the other CEE countries, health care institutions are severely in debt, subsidies for medications have been drastically cut, and the government’s monitoring of health care services and preventive care has deteriorated.

Educational Services The government has continued to provide basic educational services, but even though the policy of providing free education to all has not changed, food in kindergarten is no longer subsidized. Therefore, many families can no longer afford to send their children to preschools. Furthermore, fees were introduced for all kinds of educational services other than mandatory school participation, and the price of school materials increased substantially. As a result, many children from marginalized or minority groups (especially Roma children) drop out of school. In spite of pressure from the international community to reduce the number of children reared in institutions, a governmental report (Raportul dezvoltarii umane, 1995) stated that there were 82,087 places in institutions for children in 1995—a number almost equal to the number in December 1989. In fact, not all these places were for children who were abandoned; some were for handicapped children who do not belong in the state care system but are educated in residential special schools. An unpublished report of the Ministry of Education in 1996 (obtained from the Romanian National Committee for Child Protection) indicated that there were 55,010 physically or developmentally impaired children in the special education system in 1995–1996. Only 6,732 of these children were reported to be in the state-care system, 33,778 were in the residential system during the school year, and another 14,500 were living permanently with their families.

New Child Protection Structures in Romania

229

Support for Families The elimination of the old forms of financial support in the social protection system was not followed during 1993 and 1994 by other compensatory interventions to help families at risk keep their children. The aim of the 1995 law of social aid, which provides a minimal subsistence allowance according to the number of members in a family, is to reduce the number of abandoned children. This law represents real progress for the Romanian social protection system, but there have been a lot of difficulties implementing it. The system asks families to bring a great deal of documentation to prove their lack of resources, but since many needy families have no legal documents and there are few social workers or other personnel to help them obtain the necessary papers, these families lose their entitlement for support. As a result, the money goes to many people who are legally unemployed but are working unofficially in the developing private sector. It is too soon to judge the effectiveness of this new type of financial aid for supporting families and reducing the number of abandoned children. It seems that this law alone will not be sufficient and that other measures to support housing, health care, and education are essential. Family Placement and Adoption The number of real alternatives to the institutionalization of children, such as placement in foster care or in family houses with professional mothers (who would be paid to care for a restricted number of children), and adoption, especially national adoptions, are much lower in Romania than in the West and in the other CEE countries. According to the statistical yearbook (Anuarul Statistic, 1995), the number of children who were placed with foster families (mainly members of their extended families) was 7,549 in 1992, 8,297 in 1993, and 8,342 in 1994. In addition, since 1992, a nongovernmental foster care system has been introduced in many towns, by which several children live with a foster family or with caregivers who may or may not have their own children. Various family houses (such as Tiriac family houses in Brasov; Children’s Village in Timisoara; and others in Oradea, Baia Mare, Cluj, and Ilieni), started by foreign nongovernmental organizations or Romanian organizations funded by Western organizations, seem to be successful. However, they have received limited recognition, and their activities have not been advertised to the public. Since they offer a quality of life and a chance for social integration that are far superior to the traditional children’s homes, family houses and family foster care should obtain much greater financial support from the government. Many nongovernmental organizations are involved in child protection to prevent the abandonment of children or to provide aid to foster parents. Their general observation is that the Romanian family model favors adoption, not family foster care. It seems that people are still afraid to accept Roma or hand-

230

Implications for the Welfare State

icapped children as foster children, and not enough support is provided to expand the number of foster care placements. With regard to adoption, the procedures for international adoption are more formalized and better organized, but also much stricter than in 1990 and 1991, when the illegal trafficking in children was widespread. With regard to national adoptions, the majority of persons who wish to adopt children will accept only young children who are healthy and of normal development, do not come from Roma families, and do not have any problems. At a press conference in November 1994 (Lazarescu, 1994), the representative of the Committee for Adoption—the only legal national adoption agency in Romania—stated that the country now complies with the principles of the International Convention on Adoption—to find families for children (not children for families) and to ensure that children placed for adoption are not denationalized. The representative stated that of the 3,700 children who were adopted in 1993, 3,200 went to Romanian families and 500 went to families in other countries. PERCEPTIONS OF WESTERN INVOLVEMENT IN ROMANIAN INSTITUTIONS In 1990–1991, the author interviewed 21 Romanian colleagues (7 psychologists, 5 physicians, 1 sociologist, 2 chief nurses, 3 nurses, 2 educators, and 1 manager) who were working in residential homes, schools, and hospitals and 12 foreign professionals who had been involved for more than a month in any form of Romanian child protection activity. The Romanian interviewees, all of whom were involved with foreign organizations, generally appreciated the professionalism of people from abroad, and all mentioned that they had to learn a lot or knew much more as a result of foreign experts, whose attitudes were a model for the Romanian staffs. The interviewees mentioned several positive effects of their involvement with the foreign professionals. As one person noted: ‘‘They taught us how to work in teams, how to plan the work, how to document what was done, and how to introduce changes, step by step.’’ Some of the interviewees (most of whom were not highly qualified), were critical of foreign aid, stating that the goods brought to Romania were those that are not needed in the West, like medications that were no longer in use or expired powdered formula. Nine people said that the provision of charity in Romania was a way of laundering money, and eight stated that the volunteers were unemployed people who could afford to live much better in Romania, subsidized by charity organizations, than at home. The foreigners who were working in Romania perceived the effects of their work differently. Although some of them had a great deal of enthusiasm when they came to Romania, thought they knew what needed to be done, and tried hard to explain it to the institutional staffs and officials, they soon became discouraged from the slowness of change and wanted to leave Romania. Others

New Child Protection Structures in Romania

231

reported that they had become more flexible, so that they were beginning to behave like Romanians (that is, they were less punctual and less firm about plans, stressed current needs, and lowered their standards). The most difficult problem for people from the West was to be patient with the government’s policies and the behavior of officials, who try to maintain the status quo and do not want to introduce major changes. They tried to understand the main reason for the slowness of change: the lack of financial resources. They also rationalized the government’s passivity; because the country is too poor to build a new system, the governmental officials show their good intentions by allowing Western organizations to bring money, to help, and to work in the country. The majority of these people from abroad did not understand the lack of monitoring and control of the central system. The representatives of the Western organizations were also discouraged by the failure to provide jobs for the students they trained. After the new professionals graduated, the government did not give them jobs or create new services, even though one of the main excuses offered for the slowness of change was the lack of professionals. As a result of the difficulties they encountered in changing the child protection system in Romania, the French organization Me´decins sans Frontie´res finished its mission and left Romania, accusing the government of taking advantage of international actions on behalf of children and not taking responsibility for monitoring changes. In fact, monitoring is what is most needed, but it cannot be done by international organizations. International organizations and committees for children’s rights can issue reports of their perceptions of the problems of Roma children and the need to respect children’s cultural or ethnic heritages, and they can even present suggestions for reducing the abandonment of children. However, they cannot interfere by pressuring the government to pass and implement new laws, control the quality of children’s lives in institutions, or otherwise have a major impact on state policy. CONCLUSION The slowness of change in the Romanian child protection system has made some specialists in child protection pessimistic about reforming the country’s state policy on orphaned and abandoned children, seeking new organizational forms for cooperation with the state, and planning long-term solutions for children. Others are optimistic that the severe situation can be improved on the basis of the interest of many foreign specialists in implementing changes in the system and extending the network of native specialists with modern knowledge and skills in child protection. Their optimism, however, does not guarantee that the necessary fundamental changes in the state policy for protecting orphans, abandoned children, street children, and abused children will be made. The problems are solvable only within a framework of massive social measures, which would prevent abandonment, reduce the number of children at risk of being abused,

232

Implications for the Welfare State

and encourage the placement of children in foster and adoptive families, rather than in large institutions. REFERENCES Anuarul Statistic al Romaniei. (1995). Bucharest: Comisia Nationala de Statistica. Cartea Alba a Asistentei Sociale. (1992). Bucharest: Ministerul Muncii si al Protectiei Sociale. Conventia ONU cu privire la drepturile copilului—Stadiul aplicarii in Romania. (1994). Bucharest: Guvernul Romaniei, Comitetul National Roman Protectia Copilului. Lazarescu, D. (1994). Se cauta familii pentru copii (report of a press conference). Viata Medicala, no. 45, p. xi. Public policy and social conditions (Regional Monitoring Report, No. 1). (1993). Florence: UNICEF International Child Development Center. Raportul dezvoltarii umane in Romania. (1995). Bucharest: Government of Romania. Recensamantul populatiei si locuintelor din 7 ianuarie 1992. (1994). Bucharest: Comisia Nationala pentru Statistica. Roth, M. (1992). Efectele deprivarii materne asupra dezvoltarii psihomotrice a copiilor din institutii. Paper presented at the International Congress of Hungarian Psychologists, Budapest. Situatia copilului si a familiei in Romania (Report by Comitetul National pentru protectia Copilului and UNICEF, 1995). Bucharest: Editura Alternative. Studiu privind copiii plasati in sejur lung in judetele Hunedoara. (1993). Bucharest: Me´decins du Monde. Tobis, D., Krantz, J., & Meltzer, J. (1993). Descrierea si analiza administrarii sistemului de protectie sociala pentru copii si familii din Romania cu recomandari pentru actiune. New York: UNICEF. Zamfir, C. (1994). Politica sociala in Romania in tranzitie. Revista de Cercetari Sociale, 1, pp. 17–37. Zamfir C. (1995). Etapa a doua: Politica sociala in conditiile tranzitiei la o economie de piata. In E. Zamfir & C. Zamfir (Eds.), Politici sociale: Romania in context european. Bucharest: Editura Alternative, pp. 421–437.

Part V

Impact on Health Care

Chapter 17

The Health Care System in Bulgaria during the Transition to a Market Economy DIMITAR ROUSSINOV

The health care system plays a major role in promoting the level of physical and mental health in a country. The general health of a nation, the type of health care system, and the ability of the health care system to react adequately to different challenges and to provide adequate health care are important criteria for assessing the level of development of any country. The health care system reflects a nation’s specific ideological, political, economic, and social interrelationships. In times of great changes in major societal structures, as are occurring in the former Communist countries of Central and Eastern Europe (CEE), the health care system is also affected. Privatization, one of the most important aspects of the political and socioeconomic restructuring of a society in its transition to a market economy, has to affect the health care system to preserve the level of development and to meet the requirements of the market economy (World Health Organization, 1991). The main issues of the health care systems in CEE countries that must be solved during the transition are their legal basis, the type and quantity of funding they receive, the introduction of health insurance, and the privatization of the system. Although public reactions to changes in the health care system have been similar in all the CEE countries, each country has approached the reforms differently. This chapter discusses the situation in Bulgaria. THE BULGARIAN HEALTH CARE SYSTEM UNDER COMMUNISM The Bulgarian health care system experienced numerous problems during the years of Communist rule. One group of problems was related to finances. First, funding was grossly inadequate—about 2 percent of the gross domestic product

236

Impact on Health Care

(GDP) (Statistics Annual, 1990), which is lower than the percentage normally spent for health care services in developed countries. Second, donation, sponsorship, and grant policies, which are important routes to receiving additional financial and other resources, did not exist. Third, the limited funds were managed ineffectively. All this resulted in poor conditions in health facilities, outdated equipment, insufficient supplies, and low salaries for medical professionals. Private practice was illegal, and there was no competition or incentives for development. Another group of problems was related to the general policy of the Ministry of Health. First, there were no effective programs to combat chronic diseases. For example, although Bulgaria had (and still has) the highest number of deaths in Europe from myocardial infarction and cerebrovascular incidents (WHO, 1993), only limited efforts were made to improve important risk factors, such as smoking, drinking, eating habits, obesity, and uncontrolled arterial hypertension. The fact that the number of health care personnel and facilities was the same or higher than the averages for European countries (Noncheva, 1995) was not reflected in health indicators and final results. Second, sophisticated medical techniques were not widely used, and conditions were antiquated. For instance, a few heart transplants were performed, but heart surgery, especially coronary bypass surgery, was not well developed. There was a huge network of dialysis centers, but few kidney transplants and no liver transplants were performed. Several major hospitals were situated in old, dilapidated buildings that were not constructed as hospitals, and supplies were inadequate. These are just some of the reasons why Bulgaria had relatively good health resources and well-trained professionals but several unfavorable national health trends. Other factors that have negatively influenced the general health of the nation were under government control. The most important has been the heavy pollution of the environment. Decades of unsafe environmental practices have rendered CEE one of the worst wastelands on earth (Burke, 1995). Unfortunately, Bulgaria has sustained longer and more serious damage, including the Chernobyl disaster, than others. HEALTH CARE SYSTEM DURING THE TRANSITION The initial societal changes in Bulgaria were followed by political, economic, social, moral, and spiritual collapse. However, in the beginning of the transition, there was hope that the health care system would improve because it was expected that health insurance would be introduced and medical care would be privatized. However, since 1990, there have been no substantial improvements in the health care system or any serious governmental attempts to reorganize it. The health care system is still highly centralized, and many important decisions are made on a political basis, depending on which political party is in power. Furthermore, the system is still funded through the state budget. Al-

The Health Care System in Bulgaria

237

though the percentage of its funding increased to 5.4 percent of GDP as of 1994 (Statistics Annual, 1994), it is significantly lower than the average in the world (8.6 percent) and in developed Western countries (9.4 percent) (World Bank, 1993). Since the GDP has consistently been decreasing (Statistics Annual, 1990, 1991, 1992, 1993, 1994), it can be concluded that funding for the health care system is not sufficient. Donations and sponsorship are still not legally arranged, and they are used in areas where it is easy to advertise, such as sports and musical events. As a consequence, the health care system has been steadily deteriorating. In 1990, humanitarian aid by foreign governments, international organizations, and individuals was helpful. However, in 1994, the rate of inflation in Bulgaria was extremely high (122 percent), including the cost of water, electricity, and heating, but it was even higher for medications (189 percent) and food (239 percent) (Statistics Annual, 1995). Since the budgets of hospitals were not adjusted for this high rate of inflation, several of them went bankrupt. Of those that remained open, patients had to buy food, medications, bandages, disinfectants, and so on and then go to a hospital to be treated. Other problems are related to the pharmaceutical industry and the distribution of medications. Because of decreased governmental control, there were a few cases of the illegal production and sale of medicines with unknown contents or no active substances. The liberalization of the pharmaceutical market in Bulgaria and the government’s refusal to subsidize it brought additional burdens to the health care system and the people. At present, there are many private pharmacies, but since the prices of the medications they sell are not controlled, the prices are high. The high price of medications has a negative impact on medical care because patients have to pay for the medications used during their inpatient treatment. Patients with disabilities, as well as children and pensioners, usually have low incomes and cannot afford to buy medications, which they, as the most socially vulnerable groups, received free of charge under communism. However, heavy fiscal restraints have led to significant cuts in governmental expenditures. Not only has the number of free medications been drastically reduced, but pharmacies were not reimbursed and hence refused to administer the program. IMPACT OF THE TRANSITION ON THE HEALTH OF BULGARIANS The transition has been marked by unfavorable economic conditions in Bulgaria—a steady decline in the production of major consumption goods, which caused shortages; a high inflation rate; a progressively decreasing GDP; large internal and external debts; considerable unemployment; and significant cuts in governmental expenditures. These conditions have resulted in a variety of destructive consequences: a high poverty rate, increasing crime, the growth of the ‘‘shadow’’ economy, emigration, depopulation, homelessness, alcohol and drug

238

Impact on Health Care

abuse, and prostitution (Public Policy and Social Conditions, 1993). During this period, several new risk factors, especially those involving children, have been identified (Burke, 1995). The deteriorating conditions, combined with persistent problems in the health care system, have led to the following negative health trends. • The birth rate fell from 12.7 per 1,000 population in 1989 to 9.3 in 1994 (Statistics Annual, 1994), the lowest in the history of Bulgaria and the lowest in Europe (WHO, 1994). • Premature births account for 5 percent of the crude birth rate. • Abortions exceed births; in 1994, the ratio was 1.9 abortions for every birth. • The infant mortality rate increased from 13.6 per 1,000 population in 1988 to 15.5 in 1993. • There has been a sharp increase in cardiovascular and sexually transmitted diseases, tuberculosis, cancer, mental illness, and suicide. • Because of carelessness and breakdowns in the immunization program, cases of childhood diseases, such as poliomyelitis and diphtheria, have been registered that have not been seen in years. • In 1993, the average life expectancy in Bulgaria—67.6 years for men and 74.4 years for women—was lower than that in the developed countries (United Nations Development Programme, 1994; Ministry of Health, 1994).

Although poor diets, characterized by a high intake of fats and a low intake of fibers, essential vitamins, and micronutrients, were common in CEE during communism, a significant progressive deterioration of the nutritional status of the population has been observed. The plunging agricultural output, the crisis in the food supply, the removal of price subsidies on food, and decreasing family incomes have led to a rise in malnutrition (Crisis in Mortality, 1994). In Bulgaria, there was a considerable reduction in the consumption of basic food products, which changed the profile of food consumption in favor of relatively cheap, low-quality foods instead of meat, fruits, and vegetables (Statistics Annual, 1994). Infant nutrition has been compromised by the use of bottle feeding rather than breast-feeding. This situation has been aggravated by shortages in the production of breast-milk substitutes, commercial baby foods, and special dietary foods and supplements needed to treat some inherited metabolic disorders. The extremely high prices of these foods usually make them inaccessible to ordinary families. Both the level of food intake among children and the quality of food have declined (Crisis in Mortality, 1994,). In Bulgaria, only 4 percent of the calories consumed by large families with three or more children are provided through meat (Noncheva, 1995). In summary, the transition from central planning to a market economy in Bulgaria has had a strong negative impact on the health care system and on the

The Health Care System in Bulgaria

239

general health of the nation. Now, the formerly free health care is paid for three times—by employees as taxes, by employers as social insurance, and by patients directly to health care providers. Nevertheless, the amount of health care funds, how they are spent, and the quantity and quality of health care services that are envisioned for each individual are not known. At the same time, the underfunded health care system is no longer able to prevent or solve emerging health problems. The shortage of financial and material resources has limited preventive health care services and treatment in hospitals. The lack of foreign currency and restricted imports have rendered the supply of medications and diagnostic and therapeutic devices inadequate. As a result, major health indicators have worsened, and several unfavorable health trends have been registered.

TWO MAJOR AREAS OF HEALTH CARE REFORM Health Insurance The first step necessary to end the crisis in Bulgaria’s health care system is to introduce health insurance as soon as possible. Health insurance will create a normal market environment and will stimulate both state and private facilities, as well as professionals, to improve the quantity and quality of services that are provided, as will the competition that will arise. The ability to choose physicians and health facilities that health insurance offers is one of the basic features of the market. Health insurance is also a vital precondition for the privatization of health care and will stimulate private initiatives. It will contribute to the adequate allocation of financial and health care resources in the country according to real demands. In addition, it will force health care providers to revise the general policy for admissions to hospitals to distribute health care more rationally among inpatient, ambulatory, and home care services. Now, because of the large number of hospital beds, the tendency is to provide more health care in hospitals than is needed. In Bulgaria 19 percent of the population is admitted to hospitals each year compared to an average of 10 percent in developed countries (Noncheva, 1995). Furthermore, shorter inpatient stays will increase the effectiveness of hospital care and will promote the reduction of health care costs. Through health insurance, institutions will start regulating the relationships between patients and health professionals. Thus, the government will transfer most of its control functions to health care institutions, which will probably increase the quality of care. Many groups are opposed to the introduction of health insurance in Bulgaria despite its obvious benefits. One group is concerned that health insurance will lead to higher expenditures for health care and administration. The second group agrees that health insurance is necessary but wants to postpone changes until the best health insurance system is chosen. The experience in Bulgaria, as well as in the other CEE countries, indicates that the best approach to reforming the

240

Impact on Health Care

health care system is to do so immediately. Thus, once the health insurance system is introduced, it can be continuously adjusted to specific conditions. In addition to opposition to the introduction of health insurance in Bulgaria, some objective conditions will delay this process. First, substantial changes in the laws regulating the health care system would have to be made to adjust it to Western and international standards, including precise definitions and assurances that patients’ and health professionals’ rights are not restricted. Second, the government hesitates to introduce such a radical reform while the country’s economic conditions are so poor (Statistics Annual, 1994). Third, a number of corrupt administrators and medical professionals are not interested in introducing health insurance because they will then lose their illegal incomes.

Privatization The other main reform of the health care system—privatization—is also at an early stage. Unfortunately, there has been a delay in privatization in Bulgaria in general, which is blocking other social reforms as well. Private practice is now legally allowed, but several related legal issues remain unresolved. Although about a quarter of the practicing physicians in Bulgaria were documented as having private practices at the end of 1993 (Ministry of Health, 1994), a lot of confusion remains regarding the legal regulations of the health services delivered privately. Furthermore, without health insurance and reimbursement policies, there are no stimuli for the growth of private practice. To fill the vacuum, different bizarre forms of private practice in health care have developed. First, various individuals, offices, small outpatient facilities, and laboratories offer different types of health services, but patients have to pay for all of them out of pocket. Second, health professionals rarely have only private practices. Usually, they are state employees and have private practices as well. In this case, the transfer of patients from state health care services to private practices is common, especially in small towns. In addition, some health professionals working at state facilities who do not have private practices demand substantial bribes from patients before they provide services. Usually, they refuse to treat patients who cannot afford to pay these bribes even if they have cancer. Unfortunately, the vast majority of the population have such low incomes that they cannot afford to pay for health care. The introduction of health insurance and the privatization of the medical field will not solve all the problems in the health care system. Therefore, the government needs to address some of the other challenges that the health care system faces at present. First, both undergraduate and continuing medical and health-related education have to be reformed to meet the new requirements of the market economy. For example, there is a great shortage of medical managers, medical administrators, clinical psychologists, clinical social workers, and clinical dietitians. Some health care services that have a significant impact on public

The Health Care System in Bulgaria

241

health like immunization and other aspects of preventive medicine should remain the responsibility of the state. CONCLUSION The transition from central planning to a market economy has had a profoundly negative impact on the health care system in Bulgaria. Any delay in changing the legal basis of the health care system, in introducing health insurance, and in privatizing the delivery of health care services would exacerbate the problems and worsen several important indicators of the general health of the nation. Health insurance and privatization are the two most important reforms needed in the health care system. However, the introduction of health insurance must precede the privatization of the medical field, since health insurance will create favorable conditions for developing a diverse market in the health care system and a growth in private medical practice. These two reforms are the only steps that will prevent the deepening of the crisis in health care and the worsening of the general health of the Bulgarian people. REFERENCES Burke, K. A. (1995). Child institutionalization and child protection in Central and Eastern Europe (Innocenti Occasional Papers, Economic Policy Series, No. 52). Florence: UNICEF International Child Development Center. Crisis in mortality, health and nutrition (Regional Monitoring Report, No. 2). (1994). Florence: UNICEF International Child Development Center. Ministry of Health. (1994). Health care. Sofia, Bulgaria: National Statistics Institute. Noncheva, T. I. (1995). The winding road to the market: Transition and the situation of children in Bulgaria (Innocenti Occasional Papers, Economic Policy Series, No. 51). Florence: UNICEF International Child Development Center. Public policy and social conditions (Regional Monitoring Report, No. 1). (1993). Florence: UNICEF International Child Development Center. Statistics annual. (1990). Sofia, Bulgaria: National Statistics Institute. Statistics annual. (1991). Sofia, Bulgaria: National Statistics Institute. Statistics annual. (1992). Sofia, Bulgaria: National Statistics Institute. Statistics annual. (1993). Sofia, Bulgaria: National Statistics Institute. Statistics annual. (1994). Sofia, Bulgaria: National Statistics Institute. Statistics annual. (1995). Sofia, Bulgaria: National Statistics Institute. United Nations Development Programme. (1994). Human development report, 1994. New York: Oxford University Press. World Bank. (1993). World development report, 1993: Investing in health. Washington, DC: Oxford University Press. World Health Organization. (1991). Organization and financing of health care reform in countries of Central and Eastern Europe. Geneva: Author. World Health Organization. (1993). World health statistics annual. Geneva: Author. World Health Organization. (1994). World health statistics annual. Geneva: Author.

Conclusions

The International Conferences of the Boston College Graduate School of Social Work and the chapters presented in this book provide a realistic opportunity to draw some tentative but important conclusions and implications. Although CEE countries are in transition from a command to a market system, they differ significantly in several socioeconomic aspects as outlined in Chapter 1. While the privatization process and progress of these countries are uneven, there are also striking similarities. 1. So far, CEE countries are experiencing a rapid deterioration in socioeconomic performance and standards of living. Six years of progress toward the market system have brought economic opportunity to some, havoc for many, and have done little regarding policies to invest in human capital or to provide a safety net for populations in crisis. Supporters of privatization hope that this situation represents only the short-term costs inherent in transition. Others, however, argue that while a better balance between public and private ownership is required, excessive emphasis on capitalist markets without measures for social justice and welfare is misguided. They also point out that the destabilizing impact of the transition could have been avoided or significantly reduced. 2. Although the problems involved are many and multidimensional, three are central: the lack of blueprints to guide the radical societal transformation and changes from central command planning to free markets: choosing the right path to privatization, including the role of the state in social justice, and equality; and the need for public support and protection of the population in crisis during the transition. The knowledge and experience we have about how societies change or should change is extremely limited and sometimes nonexistent. The societal transformation of the CEE countries is a task without precedent in world history. The

244

Conclusions

task is compounded by the dual challenges of radical societal change and the need to reverse the decline of economic activity. These challenges include the need to redress major economic, social, political, ideological, and judicial institutional changes, such as the establishment of new political democratic institutions and constitutional change to enhance social justice, equality, private ownership, and the introduction of free economic markets; the replacement of the Communist value system with the capitalist framework; the reorganization of social relations, including rewriting the social contract between the state and the people; and the restructuring of the social protection system. The lack of an adequate and reliable body of knowledge and a set of blueprints from which to draw guidance has increased the formidable complexity of societal change in CEE. Moreover, the dominant emphasis on only economic reforms has further compounded the difficulties. The proper path to privatization must include all the aspects just outlined. But even the narrow approach embracing only economic reform has created new problems because of the rapid, spasmodic, and premature market reforms. For example, central planning was at times dismantled before the institutions and behavior of a viable market system had been created. In some countries, rapid market reforms led to the government losing control over the money supply. At the same time, the premature decentralization of management led to the lack of financial discipline and accountability for enterprises and did not provide sufficient incentives or opportunities to restructure production and increase supply. Most important, this cart-before-the horse market policy was illustrated by the failure of some countries to reform adequately the institution of private ownership, particularly agricultural land ownership, before they proceeded with market reforms. When the state withdraws from ownership, rule-making, and actual involvement as a player in the market, other institutions and players must take its place. In the absence of these replacements, the creation of new ownership arrangements and corporate performance are inadequate, while the privatization of large enterprises remains questionable and unjust. In countries where inexperienced democratic parties and governments proceed with rapid major privatization reforms, there is usually an inadequate emphasis on investments in human capital and social protection. This problem has recently been compounded by two factors: the rapid deterioration of economic performance (unemployment and social insecurity) and the significantly increased inequality and social injustice. Privatization in CEE countries is inherently related to both the social and economic orders that combine to define not only laws and regulations concerning rights and obligations, but the market and social protection, common interest, social justice, and equality as well. Privatization redistributes resources, income, wealth, and power among groups. For example, the distribution of state assets, free or conditional, raises many issues of distributive justice and equality. But what canons of equality should prevail? Moreover, the withdrawal of the state

Conclusions

245

from social protection, including free health care, employment, and education, raises issues of social protection and citizenship. It was not too long ago that the most astringent critiques of capitalism came from the political Left which claimed that leaving the world to the ruthless efficiency of the market not only made rich people richer and the impoverished poorer, but undercut human dignity and skewed national values. Save for some corners of the world like Cuba, China, and North Korea, the ideology of the market economy reigns supreme. Political leaders vying for investments from overseas cut their budget deficits and privatize industry to satisfy the most feared figure on the international scene: the bond rater from Standard & Poor, whose thumbs-down in the global scene signals the world’s biggest investors to take their billions elsewhere. Now the inevitable backlash to market worship is well under way. But the excesses of capitalism are now denounced by some of the world’s confirmed capitalists. Prominent members of the monied classes and their conservative allies are questioning whether markets have become too unfettered. They are becoming increasingly aware that the side effects of economic globalization are more severe than anyone thought or that they could spin out of control. Evidence of this thinking is everywhere—except perhaps in the CEE countries. The latest meeting of the World Economic Forum in Davos, Switerland, was devoted to ways of ameliorating the worst consequences of economic competitiveness. George Soros, the man who broke the British pound and assembled a $2.5 billion fortune, seized the cover of the Atlantic Monthly recently with a rambling account entitled, ‘‘The Capitalist Threat’’ (Sanger, 1997, sec. 4, p. 1). The uninhibited pursuit of laissez-faire ideology results in a loss of equilibrium, he claimed. Education, welfare, and other features of civilized society that do not promise a quick return on investment get short shrift, and nations become preoccupied with their competitiveness and unwillingness to make any sacrifices for the common good. This kind of capitalism followed by most CEE countries is increasingly questioned even by Western European countries. The overarching conclusion and recommendation concerns this uncritical path to unfettered capitalism followed by most CEE countries—a kind of capitalism that even Western European countries question. Conservative capitalist countries, including France, Germany, the United Kingdom, and the United States, are experimenting with a ‘‘Third Way’’ to capitalism. The Third Way explores a new path between the two old ways: one that preserves and protects jobs (advocated mainly by labor unions) and the other that lets the free market disrupt and rip the social economy (advocated by Ronald Reagan and Margaret Thatcher). The common ideas that lie at the core of the Third Way include deregulation and privatization, free trade, flexible labor markets, smaller safety nets, and fiscal austerity. But as Robert Reich suggested in The Work of Nations: Preparing Ourselves for 21st Century Capitalism (1992), the distinct theme of the Third Way goes beyond this path blazed by Reagan and Thatcher and now followed

246

Conclusions

by CEE countries. The fundamental goal of the Third Way is that those who are economically displaced during the transition must be brought along. Either most citizens will enter the fast-moving global economy or only the privileged few will adapt. Those who cannot adapt will need to be supported by safety nets and job protection. The social justice perspective, the central faith and epicenter of the Third Way now advocated by Britain’s Tony Blair, the United States’ Bill Clinton, Germany’s Gerhard Schroder, France’s Lionel Jospin, and Greece’s Costas Simitis is that the economic growth spurred by free-market policies can be widely shared if those who are initially hurt by them are given the means to adapt. Work is the core responsibility. Governments should not protect or subsidize old jobs in old industries or keep unemployed people on the dole. Instead, governments should embrace economic change, but they should do so in a way that enables everyone to change along with the economy. In the context of social justice and state welfare, governments must be actively involved in helping people over the fence. Obviously, helping people to adjust requires a commitment to social justice, to liberal rather than unfettered capitalism, and to investments in human capital. The path to privatization in most CEE countries provides no evidence that the Third Way has even been considered as an option. REFERENCES Reich, Robert B. (1992). The work of nations: Preparing ourselves for 21st century capitalism. New York: Vintage Books. Sanger, E. D. E. (1997, April 6). Look who’s carping most about capitalism. New York Times, sec. 4, p. 1.

Index

Abortion, 184 Adoption, 143, 229–30 African-American women, 102–6, 111–15 Albania, economic conditions in, 75–77 Alcoholism, 61 Apparatchiks, 47, 184 Aromaa, K., 214–15 Asian Development Bank, 46 Auctions, 44 Backlash, 204–5 Balkan countries, effects of privatization on, 70–80 Bentham, J., 8 Bulgaria: economic conditions in, 72–74; the family in, 133–35; health care in, 235–41; privatization in, 83–85; social status of women in, 91–98 Campbell, J., 197 Capital, informal transfer of, 83–84 Capitalism: democratic, 66; and income inequality, 6–7, 36; introduction of, 37; ‘‘Third Way’’ to, 245 ‘‘The Capitalist Threat’’ (Soros), 245 Capital privatization, 47–48 Ceausescu, Nicolae, 220–21 Center for Promoting Women, 130

Change, obstacles to, 224–25 Child care, 121, 220–32 Christie, N., 216 Civil Rights Act, 105 Club of Paris, 18 Cohen, S., 208, 217 Collective goods, 32 Colonialism, 212 Communism, 35–36, 65, 107–8; dissolution of, 108–9 Communitarians, 9–10 Communities, and unemployment, 60 Contractarianism, 38–39 Convention on Children’s Rights (1990), 224 Cost of living, 173–74 Council of Europe, 210 Coupon privatization, 51 Crime, 61; economic conditions and, 216– 17; and markets, 210–12 Crime control, privatization of, 208–18 Czech Republic, 64, 109–10 Davidow, M., 37 Deacon, B., 198 Debt, governmental, 182 Decapitalization, 85–86; and economic rationality, 86–87

248

Index

Democracy, 7–8 Democratic capitalism, 66 Diets, 238 Differential developments, 11–17 Discrimination, 56 Distribution, 23–33; privatization and, 28– 30; and redistribution, 41 Diversity, 188–89 Drug abuse, 62 Durst, J., 171

Economic growth, 6–7, 36 Economic liberalization, 180 Economic markets: merging, 17–18; and social markets, 3–8 Economic rationality, 86–87 Economic reform, 37 Economics: distribution and redistribution, 41; global, 179–83 Economies: informal, 84–85; structural gaps in, 24 Education, 97, 228 Efficiency, 6–7, 25–30 Egalitarianism, 37–38 Eke, J., 52 Employment: full, 192; women’s, 119– 30. See also Unemployment Entrepreneurs, 168 Equality, versus efficiency, 6–7, 25–30 Equal opportunity, 102–4; and privatization, 14 European Union (EU), 64, 79–80 Evers, A., 195 Exchange rates, 164

Fairness model, 8–11, 39 Families, 133–49, 187; and adoption, 143, 229–30; financial aid to, 143; importance of, 123–24 Family centrism, 145–48 Family planning, 143 Farmers, 156–57 Field, S., 214, 216 Fogel, D., 212 Forbes, I., 103 Free enterprise, 36

Gender bias, 119–21 Gini coefficient, 4, 157 Global economy, 179–83 Gorez-Starki study, 181 Governmental debt, 182 Governmental Socio-Economic Programme (1994–1997), 135 Greenberg, M., 52 Growth, 6–7, 36 Hayek, F. A., 26 Health care, 174, 225–26; in Bulgaria, 235–41 Heintz, S., 52 Hidden economy, 175–76 Home Office Research Unit, 214 Housing, 184; for women, 97 Human Development Index (HDI), 141 Human suffering, 140–41 Hungary: cost of living in, 173–74; health care in, 174; hidden economy in, 175–76; retirement in, 175; social tensions in, 174–77; transition in, 168– 78; unemployment in, 171–72 Income, 122 Income distribution, 159–60 Industrial production, 154 Inequality, 3–7 Infant nutrition, 238 Inflation, 180; in Bulgaria, 237; and real income, 194; in Romania, 74 Informal economies, 84–85 Informal privatization, 82–87 Initial public offerings (IPOs), 44, 48 Institutional change, and meso-level analysis, 197–201 Insurance, 239 International Monetary Fund, 78 International Women’s Foundation, 130 International Year of the Family, 132, 134–35, 149 Inventory of National Action, 137 Investment, 212 Jackman, R., 71 Jim Crow laws, 105 Just society, 18; definitions of, 8–11

Index Kanawaty, G., 103 Kwasniewski, Aleksander, 118 Labor: and the global economy, 182–83; redundant, 53; sexual division of, 120 Lehti, M., 214 Liberalization of prices, 23–24, 180 Libertarianism, 39–40, 49 Lipton, D., 161–63 Losses, transfer of, 84 Maastricht Treaty, 9–10, 210 Mafia-like networks, 27 Management buyouts, 48 Marital status, 122 Market economies, 26–27 Marketization, 210–12 Market model, 8 Market optimism, 23 Markets, 3–8 Marxist ideology, 8, 65 Mass privatization, 46–47, 85 Maternity leaves, 121–22, 127 Me´decins sans Frontie´res, 231 Meso-level analysis, 197–201 Mill, J. S., 8 National Paper of Poland, 135–36 Networks, Mafia-like, 27 Nongovernmental organizations (NGOs), 63, 145, 189 North, D. C., 82 Offe, C., 204–5 Okun, A., 7 Organization for Economic Co-operation and Development, 18, 73 Organized crime, 71, 215–16 Ownership, 30 Parents, 124 Path-dependence theory, 82 Pensioners, 5, 202 Pharmaceutical industry, 237 Pigou effect, 164 Poland: the family in, 135–36; female workforce in, 118–30; income distribution in, 159–60; poverty in, 155–59,

249

181–82; pretransition, 24; social costs of the transition in, 153–66; unemployment in, 119–30, 135, 153, 155 Polanyi, K., 195 Policy agendas, 144–48 Polish Center for the Advancement of Women, 56 Populism, 32 Poverty, 5, 18, 35; in the Balkans, 77–79, 86; feminization of, 122–23; in Poland, 155–59, 181–82 Prices, liberalization of, 23–24 Privatization, 243–44; in Bulgaria, 83–85; capital, 47–48; coupon, 51; of crime, 208–18; different paths to, 195–97; and distributive equity, 28–30; effects of, 70–80; and equal opportunity, 114; and health care, 240–41; in Hungary, 168– 73; informal, 82–87; libertarian, 48–49; mass, 46–47, 85; methods of, 24, 44– 49; results of, 170–71; small-scale, 44– 46; and social justice, 3–18, 35–49, 208–18; and unemployment, 52–66; and women at risk, 100–115 Productivity, 84, 187 Prostitution, 62, 78, 128 Rawls, J., 38 Reciprocity, 187 Redistribution, 41 Redundant labor, 53 Reform, 37; causal mechanisms of, 199– 200; health care, 239–41; of social services, 192–206 Reich, Robert, 245 Retirement, 175 Reznicek, I., 62 Ricardo, David, 6 Romania: child protection in, 220–32; economic conditions in, 74–75; Western involvement in, 230–31 Roma women, 102–4, 107–15 Russia: crime in, 214–16; income inequality in, 4–5 Sachs, J., 161–63 Schmitter, P. C., 195 Self-employment, 123

250

Index

Service sector, 137 Sirovatka, T., 62 Small and medium-sized enterprises (SMEs), 24, 28–29 Small-scale privatization, 44–46 Smart, C., 213 Smith, Adam, 6, 8 Social choice, 188 Social cohesion, 187–88 Social contract theory, 8 Social discipline, privatization of, 208– 18 Social exclusion, 71 Socialism, and social welfare, 183–86 Socialist-Marxist theory, 8 Social justice, 31; efficiency versus, 25– 30; models of, 40–41; and privatization, 3–18, 35–49 Social markets: economic markets and, 3– 8; merging, 17–18 Social protection, renewing institutions of, 30–33 Social security, in Hungary, 175–76 Social services, reform of, 192–206 Social toll of unemployment, 51–66 Solidarity movement, 118 Soros, George, 245 Spencer, H., 6 Stabilization, 153 Stark, D., 82 State-owned enterprises (SOEs), 29 Streeck, W., 195 Structural gaps, 24 Subsistence ethic, 86 Sze´man, Z., 196 Technological transfers, 142 Temporary employment, 123 Tonry, M., 214 Training programs, 122–23 Transition, 23–33; attitudes toward, 136– 37; backlash against, 204–5; and child care, 222–24; and decapitalization, 86– 87; health care during, 235–41; in Hungary, 168–78; and social control, 208–18; social costs in Poland, 153–66; social policy during, 193–95; social welfare initiatives after 185–86; steps

in, 198–99; and unemployment, 51–66; and women’s organizations, 93–98 Turgeon, L., 114 Unemployment, 5, 194, 202; in the Balkans, 71–79, 92, 97; emotional consequences of, 58–61; financial consequences of, 57–58; gender bias in, 119–21; in Hungary, 171–72; longterm, 55–62; in Poland, 119–30, 135, 153, 155; social toll of, 51–66 UNESCO, 194 United Nations, 132 U.S. Agency for International Development, 64 Utilitarianism, 8, 38 Values, 187–88 Vulnerable groups, 137, 201–3 Wages, 154, 182–83; inadequate, 194 Walesa, Lech, 118 Weber, M., 101, 209 Welfare state, 27; development of, 179– 90; global economy and, 182–83; rethinking, 186–90; shifts in mix, 195– 97, 203–4 Wintersberger, H., 195 Women, 184; African-American, 102–15; and education, 97; housing for, 97; income of, 122; policies and practices toward, 121–23; and privatization, 118– 30; and prostitution, 62, 128; at risk, 100–115, 137; Roma, 102–4, 107–15; social status of, 91–98; and unemployment, 5, 59–60, 92, 202 Women’s organizations, 92–98 Work, 246; value of, 124–25 The Work of Nations: Preparing Ourselves for 21st Century Capitalism (Reich), 245 World Bank, 189, 226 World Economic Forum, 245 World Health Organization, 194 Young adults, 202 Young, J., 213 Zamfir, C., 226

About the Contributors

TANYA CHAVDAROVA is Assistant Professor, ‘‘St. K. Ohridski,’’ Department of Sociology, Sofia University, Bulgaria, and lecturer in economic sociology and industrial relations. She is co-author of a book on the strategies of economic activity in the Bulgarian transition period. She has written articles in the fields of informal economy, industrial relations, and networks in privatization. She is currently involved in a comparative survey on institutional cultures in the Bulgarian and German economies. PAULINE COLLINS is Assistant Dean for field education, Graduate School of Social Work, Boston College. She is the author of numerous works on social work education, mentoring, and practice. ´ CZ is Head, Department of Labour Law and Social Security, and OTTO CZU Deputy Rector, University of Szeged, Hungary. Formerly Dean of the Faculty of Law at the University of Szeged, he has been a guest researcher at the Max Planck Institute in Munich and a guest lecturer at the University of Geneva. MARCIA GREENBERG, a lawyer with extensive experience in Eastern and Central Europe (CEE) related to the social impacts of the transition, is the Democracy and Government Specialist for WIDETECH, a U.S. AID–funded project (Women, Law, and Development). She has managed the Working Group (on unemployment) for the Institute for East-West Studies in Prague and a U.S. Department of Labor program to strengthen local economic development in six communities in Poland, and evaluated the Czech Ministry of Labor’s Proactive Labor Market Intervention Fund for the LEED program of the Organization for Economic Co-operation and Development.

252

About the Contributors

BILL HEBENTON is University Lecturer in Criminology at Manchester University, England. He is joint director of the Anglo-Baltic Applied Criminological Research Unit (ABACRU) and has published widely on comparative criminology and police studies. He is author of Criminal Records (1993) and Policing Europe (1995). JACQUELINE HEINEN is Professor of Sociology, Universite´ de FrancheComte and Director of Cahiers du GEDISST, a journal on gender published by a research group of the CNRS in Paris. She is coordinator of the international network ‘‘Etat et rapports sociaux de sexe.’’ She does research on social policy and gender in Central and Eastern Europe. Among her recent books are Choˆmage et devenir de la main-d’oeuvre fe´minine en Pologne. Le couˆt de la transition (1995) and Quelle citoyennete´ pour les femmes? La crise des Etats-providence et de la repre´sentation politique en Europe (edited with Alisa Del Re, 1996). CHARLES B. HENNON is Professor, Department of Family Studies and Social Work, and Associate Director, Family and Child Studies Center, Miami University, Oxford, Ohio. Previously the editor of the Journal of Family and Economic Issues, he has written over 50 articles and several books on family policy; family life education; family businesses in CEE; and gender, home-based businesses, and family patterns worldwide. DEMETRIUS S. IATRIDIS is Professor of Social Policy Planning and Chair of the Planning Department of the Boston College Graduate School of Social Work. He is the author of Social Policy: Institutional Context of Social Development and Human Services (1994), and editor, with June Gary Hopps, of Privatization in Central and Eastern Europe: Perspectives and Approaches (Praeger, 1998). ALLEN R. JONES is an educational technologist at the Center for Education and Technology at the New School for Social Research in New York. He is also enrolled in the Master of Psychology program at the New School. His interests include technology transfer, skills acquisition, and cognitive uses of metaphors and figurative language. HOWARD JACOB KARGER is Professor of Social Work and Director of Doctoral Education, University of Houston. A former Fulbright Fellow, he is the author of eight books and many articles on social welfare policy and social development. THEODORE KATSANEVAS is Associate Professor of Labor Economics, University of Piraeus, Greece, and a member of the Greek parliament. He was president of the Greek Social Security Organization (1985–1987) and president of the Manpower Employment Organization in Greece (1981–1985). He has

About the Contributors

253

written numerous books and articles for the European Union and the International Labour Office. BRANKO MILANOVIC is Principal Economist in the World Bank Research department and adjunct professor at the School for Advanced International Studies at Johns Hopkins University. He is the author of numerous articles on income distribution and poverty in Eastern Europe and the former Soviet Union. His most recent publication is Income, Inequality, and Poverty during the Transition from Planned to Market Economy (1998). VICTOR A. PESTOFF is Associate Professor of Political Science, Baltic Sea University, Søderton-Stockholm, Sweden. He has written several books and more than 40 articles on the European political economy and social services in Sweden and the CEE countries. DIMITRI PLIONIS was a Partner at Ernst & Young, Washington, DC, and a privatization practitioner in Asia, Europe, and Latin America. The author of numerous works on privatization, he is a frequent speaker at seminars on privatization. ELIZABETH M. PLIONIS is Associate Professor, National Catholic School of Social Service, Catholic University of America, Washington, DC. She has written several articles and chapters of books on social work practice and is interested in practice models that integrate the political and clinical in social work. MARIA ROTH is Lecturer, Department of Social Work, Babes-Bolyai University, Cluj, Romania. A psychologist, she has written many articles on child welfare; the protection of abused, neglected, and abandoned children and disadvantaged families; early intervention; and social policy. DIMITAR ROUSSINOV is a physician at University Children’s Hospital, Sofia, Bulgaria. ZLATKA RUSSINOVA is a Senior Research Associate at the Center for Psychiatric Rehabilitation at Boston University and a Clinical Fellow at Harvard Medical School. Her current research is in the area of rehabilitation and recovery from serious mental illness. She is a former Assistant Professor at the Department of Social, Organizational and Educational Psychology at Sofia University, Sofia, Bulgaria. JON SPENCER is a lecturer in criminal justice at the University of Manchester, England. He is joint director of the Anglo-Baltic Applied Criminological Research Unit (ABACRU). He is engaged in action research to evaluate community

254

About the Contributors

safety and crime-prevention projects in the United Kingdom. He has written numerous papers and articles on crime in Europe. STAVROS B. THOMADAKIS is Professor of Financial Economics, University of Athens, Greece. He has published extensively in the fields of financial markets, banking, industrial economics, and economic history. He is currently chair of the Capital Market Commission of Greece. ROBBIE TOURSE is Director of Field Education, Graduate School of Social Work, Boston College. She is the author of several works on professional associations, mentoring relationships, and social work education.