No. 44, 1997 - The Social Costs of Transformation in Central and Eastern Europe

For some two years now studies on the former socialist countries have generally referred to the much higher social and economic costs of the change-over from a planned to a market economy than was expected around 1989. Thus, the Secretariat of the UN Economic Commission for Europe writes: “A prolonged economic downturn, high levels of unemployment, sharply reduced social security, widening income and wealth differences, falling health standards and the rise of organized crime, have all contributed to frustration, disillusion and mounting political tensions. As a result, the current mood among the East European populations is very different from the enthusiasm and hope which were raised by the fall of the Berlin Wall in late 1989.” (ECE, 1995, p.9.) Concerning Russia the same point is worded by Tatiana Zaslavskaya (1996, p. 4.), a leading Russian sociologist in a very similar way: “the social price of reform turned out to be much heavier than had been expected and promised, and this led in the end to disillusion, fatigue and anomie of a fairly large part of the population”.
In the case of the former socialist countries the term “the costs of transition” suggests that we are talking about something that is obvious and quantifiable, about a determinacy of the sort proclaimed over many decades by those who vulgarized the theory of historical materialism. We all know the results.
The term “costs” is also ambiguous. We do not know the costs of what are under discussion, nor what “costs” means in this context. The word generally means one of two things. One is the efforts, factor inputs needed to achieve a particular result. Creating a competitive market economy – structural changes in the economy, constructing a modern infrastructure, training the workforce etc., all require resources that can be defined ad quantified. But such costs cannot be covered in general by the former socialist countries and particularly not by those experiencing and economic depression of unprecedented depth.
The assessment of the costs of “transition”, i.e. its negative social effects is hampered or even precluded by two factors. One of them is the choice of a basis for comparison. One cannot draw conclusions from comparing two pictures – likewise detergent ads – depicting the dirty linen “before” and “after” washing or cleaning. The present situation definitely differs from the condition existing before the systemic change but this fact is yet insufficient to the evaluation of the change.
The problem cannot be solved either if we equalize that share with the whole, and declare that the troubles manifested after 1990 – like recession, impoverishment, unemployment, decay of public health and education, crisis of the pension system etc. – “were caused by the terminal dysfunctioning, by the collapse of the old regime” (Kemény, 1993, p. 7), By doing this, we would in fact turn a blind eye to the system-specific character of some “new troubles” like the long-term mass unemployment and to the necessity of their proper treatment. On the other hand, we would also get round the question why “the social costs” are so high and how they could be or could have been diminished.
It is not our purpose here to answer these questions. Our aim is more modest: a few preliminary steps that may help to formulate an answer. We shall attempt, as best as we can, to outline the social costs of transformation in the second sense of the term in an international comparative context. Generally, as we cannot unambiguously distinguish between the problems caused by the terminal dysfunctioning – to use Kemény’s phrase – of the old regime and the losses caused by the transformation social costs are here understood as the negative phenomena that accompany the systemic change (cf. Balcerowicz, 1993, p. 27.). What we shall list here are factors which determine or express working and living conditions, health and social status. Living conditions and economic processes influence each other in a manner that makes it difficult to differentiate between them. It is the former, however, that are our present subject.

The paper is available here.