What makes ECE? I.

After many posts published on a very fluid phenomenon and concept, East-Central Europe maybe it is time to try to outline the specificities of the region, if it exist of course. The crisis is still lasting, forint is still haven't been dissociated from the region, Gyurcsány still hasn't got a coherent action plan for handling the crisis, while Estonia, Latvia and Romania - more precisely their political leaders - are sticking to financial institutions because of national pride and not out of rational calculation, the Slovak premier denounces Hungary as a country where neoliberals prevailed in the economic policy and caused problems not known in Slovakia, everything is normal in this very peculiar East-Central European way. As the crisis let some respiration, it is an opportunity to discuss more profound issues, the constitutive elements of a more or less coherent East-Central Europe from a histroical perspective and in the light of the crisis.

Although the term Eastern or East-Central Europe is widely used and accepted it is far from being a coherent concept. The idea is accompanied by a long story of debates and a series of historical analysis was carried out either in favor or against the idea. Once again a post on a weblog is not the appropriate method of presenting the problem, therefore I will confine myself to the basic facts. One way to define the region was relying on socio-economical factors - for example the emergence of the so-called "second serfdom" (Zweite Leibeigenschaft)in the 16th century, while in Western Europe it was gradually eliminated in its earlier from,; the dominance in agrarian production due to the so-called price revolution; as a consequence the region remained outside the initial zone of industrial revolution; its later development was characterized by the lack of capital formation, making the role of foreign capital outstanding (although in the last few decades this concept originally formulated by Alexander Gerschenkron became heavily contested). The idea of Europe's the three historical regions, developed by Jenő Szűcs tried to connect social formations and economic role and make the difference between West, East and a region between these two and maintained that the latter had the same position throughout the history.

Another approach defines the region as a latecomer in terms of economic development, or regarding for example the enlightement, the nation-building, or the cultural trends. The regoon'S products were almost always a reaction to outside pressure or challanges and were carried out with different results. As it necessarily led to a perspective dominanted by the West in almost every country westernizers and autochtonists emerged, pursuing different aims, but many times both were clothed as an adherence to the "Zeitgeist" represented by the West. Others conceptualize ECE as the zone of small nations and huge empires, a zone of mixing of people, cultures, confessions. For some the common history in the former Soviet bloc means a constituent element and one can mention the age old percepion of a transitory region between civilizations as well.

What is common in these approaches? (Bseides the fact that sometimes it is hard to make a difference between the outside world's unificatory view and real, significant similarities inside the region.) One can assume that the region historically, at least in the modern history, is charcterized by a peculiar position: these countries and regions existed in a paradox situation, they were central peripheries, geographically and sometimes economically vital regions for the existing states or emipres with few or no significant power. Their modernization took off either in economical or in social terms mainly from the middle of the 19. century, but it was a long process not to be completed in its entirety even today. The region's different entities faced the existence of borders inside, between "foreigners" and "authentic" population, making societies fragmaneted in many ways and the awareness of this fact seriously infleunced the political and social culture. The economic integration and development was a function of the events and processes in the center of the continental and world economy, the dependence of those vulnerable states on the export market provided by Germany (with the sole expception of Czechoslovakia) in the '30s resulted in their joining the Axis . After WWI new political realities came into existence but the old problems remained, never to be resolved even after 1945.

I would say, that the transformation process once again revealed the most important similarities. Lack of capital necessary to rebuild and transform the economy, to finance infrastructural development, the dependence on foreign investement and export markets and first and foremost the widespread poverty and the rising inequalities. Even though it is hard to imagine another way of fast and swifter transformation as it happened it was clearly far from being the perfect an universal solution of the huge amount of problems so many people hoped for. The region was not repositioned in the European and world economy (once again, I'm not convinced that it would have been possible), old patterns of integration returned even though this time not the agrarian sector became the dominant exporter but industrial ones. The European integration process had its benefits of course, and suprisingly or ironically its unintended consequences. Although the integration is far from being complete and it is even assymetrical (I mean not the temporary limitations imposed on the mobility of the workforce, but the assymetry in the EU instituions regarding intergarted marekts and economic policy and its institutions on the level of individual nation states, the lack of coherence between the fragmented social security systemes and the integrated labor market etc.)the financial sector with the liberalization of capital flows and the privatization of Eastern banks became so entangled and bound together, that there is seemingly no way to contain financial crisis at the frontiers of individual states or at the limits of the region. (Well, I would suppose it has another unintended consequnece, affecting the possible fiscal policies: with this integration the state is no more the sole and only or dominant channel of foreign capital inflows, therefore it has been weakened in its ability to influence current account deficit and to counterbalance international payments crisis with setting limits to conversion etc. as it happaned in the early thirties. It also means that the recipes used in the '90s, for example the so-called Bokros-package in Hungary could only have a limited effect today in this regard.)

This whole economic process was set in the context of a profound social transformation as well and the need and desire for a social convergence besides economic catch up. The idea of European integration spreading in the region as the most desirable aim, was encompassed by a concept of Europe and Europeanness heavily ladden with ideas of welfare, richness, social mobility etc. It made it easier to inspire individuals regarding the economic transformation, especially if it was presented with that profound nationalistic undertone referring to the eternal competition of states and nations in the region, but it brought about expectations resulting in policies later proved to be reckless. Not only in the well known form of Hungary's massive budget deficits at one point not only in electoral year, but in the form of easy credit leading to credit and housing bubbles and the idea of "nightwatch" state, left without effective means to intervene either in the economy or in the social processes. The former one tried to meet and match the expectations of the population through state spending, the latter one through state accentuated lending, and at the end both concepts led to an inept state in times of crisis.

Absolute and relative poverty, inequal development with "statistical miracles"* selling the dreams of fast catch up and leaving huge parts of the states' territory and population without the necessary means to participate in this process, up to this moment it was among of the results of the transformation. Maybe the dream of a fast and effective catch up is among the most important constitutive elements of present day ECE?

*With the phrase "statistical miracle" I mean the phenomenon, when a certain amount of investment in a very confined region of a relatively small country brings larger growth raising per capita statistical values significantly even in case when regional differences remain huge and sometimes even grow. This time not only the per capita statistical data distorts the picture, but the scale of the country. The same ammount of investment in a let's say twice as large country would bring only more moderate growth in per capita data, although the overall growth of output would be the same.