Eastern Europe's neoliberal disaster provides a warning for the Arab spring

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http://www.guardian.co.uk/commentisfree/2012/may/20/eastern-europe-neoliberal-disaster-arab-spring


'David Cameron's belief that 'free markets' and 'free societies' go together is as flawed as the view that 'structural adjustment' helps economic development.' Photograph: Carl Court/AP


I wonder if David Cameron spent any time in eastern Europe in the 1990s.

Judging from his recent remarks about the Arab spring and international aid, the British prime minister seems to believe that having a more "open" and "free", ie privately owned, economy is the key to both economic development and a successful transition from one-party rule.

The evidence from the former communist countries gives lie to that neoliberal viewpoint. In a recent study entitled Mass Privatisation, State Capacity, and Economic Growth in Post-Communist Countries, published in American Sociological Review, sociologists from the universities of Cambridge and Harvard claim to have established a "direct link" between the mass privatisation programmes followed by around half the countries of the region – enthusiastically urged upon them by western economists and western financial institutions – and the "economic failure and corruption that followed". The more closely the countries followed western advice, and the more they privatised, the worse things became.

The study is at sharp variance with the dominant neoliberal narrative, which portrays the ex-communist states as thriving after they sold off their industries and "liberalised" their economies after the end of one-party rule. Its findings won't though come as too much of a surprise to the citizens of the countries concerned, who suffered enormous hardship as their economies were made more "open".

The level of economic output crashed throughout the region (the average fall in GDP in was nearly 30% in the early 1990s) as eastern Europe suffered a slump far worse than the Great Depression experienced by the US and the UK 60 years earlier, but which the Hollywood film industry or western writers have up to now shown little interest in covering. Millions of workers lost their jobs as state-owned enterprises were privatised. The price of basic essentials rocketed as price controls were lifted and utilities were taken over by the private sector. Governments lost valuable revenue from publicly owned enterprises and state bankruptcy ensued. "We argue that a post-socialist country's choice to rapidly privatise its enterprise holdings immediately reduced that state's financial capacity, due to high budgetary dependence on the earnings of state-owned firms," say the authors of the Cambridge/Harvard report.

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1. No surprise, as any RAPID change,

from wherever to wherever, is BOUND to disrupt.