Lecture 24 – Europe Since 1989
 Why were reforms so painful in the post-1989 East?
“The morning after”
• State building is hard to do – nations had to rebuild like they did in 1919 or 1945
• Once you topple a government it’s hard to make a new one work and make it binding
• Those who rose up had no experience
• Civil society had to be made and re-made
− How would welfare work?
− How to create belonging?
− What about minorities?
• How do you make these changed work and get people to view the new system as
• In the free market economic productivity is down because government subsidies reveal
the inefficiency of production
− Unemployment at 15% in countries where unemployment was unknown
• State building is different because there are no more controls and no more subsidies
• Industry goes down because it’s privatized and most people remain poor, a few get rich.
• Huge deficits and people need social benefits at the time when they are hardest to
• Inflation goes up because governments have to borrow
Economic chaos = political chaos
• Governments fragment
• Reformers jump ship – the rhetoric was easy but governing is difficult
• In 1991 you could choose from 72 parties in Romania
• Ex-communists are winning elections – the Polish president lost an election to and ex-
− People were hard up
− Communists in the Balkans never really went away – they became “converts.”
− People lacked a democratic heritage
o In 1990 East Germans had not voted in 58 years
− People wanted quick results
The trends were pronounced in Russia – Yeltsin created “shock therapy.”
• Privatization • Free markets without controls or subsidies
− Health care collapses
− Unemployment up and inflation up
• Russian mafia emerges – organized crime becomes popular – there was no monetary or
legal framework so profiteering was very easy
• In 1994 the private sector was dominating industry – 62% of Russia’s GDP
• Economy suffers, by 34 % by 1998 and the rubble is devalued 74%
• Huge wealth disparity
• 1990’s cynicism runs high. The market economy has come to equal corruption and
Was it democracy?
• Yeltsin had limitless powers
− Parliament destroyed in 1993
− A constitution in 1993 that created a presidential regime – the answer to problems
was to dissolve parliament and get more central power
− Parliament locks themselves into the White House
− Yeltsin bombs the building killing his opposition
− Becomes a presidential regime where the PM answers to the president, not the
Why hang on to this system?
• Lure of capitalism strong enough to trump radicalism
• No ex-communist regimes had turned extremist or went against free market principles
• Czech. Republic and Poland had done well by joining the EU
• There was a strong desire in the East to belong to the EU and capitalism
• In January 2007 Romania, Bulgaria join the zone, making 27 countries, 17 of which