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Panel assesses upside, downside of transition

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Daniel Daianu, Chairman of the Supervisory Board of Banca Comerciala Romana and former Romanian Minister of Finance.

Laima Muktupavela, Latvian author of The Mushroom Covenant.

Mikhail Dmitriev, President, Centre for Strategic Research, Russia.

Transition has brought both pluses and minuses to people living in ex-communist countries of central and eastern Europe. A panel of speakers at the EBRD’s 2006 annual meeting said the cup was both half-empty and half-full in terms of popular sentiment regarding the still-incomplete changeover from command to market economies.

In the 1990s Russia lurched through terrible economic decline in the immediate post-Soviet era, then enjoyed a revival, then came the devastating rouble crisis of 1998, remembered Mikhail Dmitriev, President of the Center for Stretegic Research and a former First Deputy Prime Minister for Economic Development and Trade in Russia.

As a result of those wracking experiences, he said, management of government finances in Russia has become the best among all emerging markets. But the steep decline in public services has not been reversed, he added.

Russia’s largest companies have become well-run and more transparent in recent years, adopting the best technology and high ethical standards, Mr Dmitriev explained, adding that the Russian economy has a good chance of soon outstripping that of the entire European Union.

Protectionism in business

His concern is that the vast majority of mid-sized Russian companies “operate in niches with no competitors, in locally-regulated markets where all competitors are excluded deliberately by high barriers erected by local officials”. As a result of protectionism, this segment of the corporate community remains “small, fragmented, ineffective and inefficient…where old Soviet production methods prevail. It’s extremely inefficient at the shop floor level.”

Mr Dmitriev also highlighted under-investment in Russia’s energy sector. Despite the wealth of its oil and gas businesses, lack of investment could mean energy shortages within Russia in future. He also speculated that the country’s gas monopoly “could focus on pipelines, leaving oil field development to foreigners”.

The economist said that in opinion polls in the first 12 years following the end of the Soviet Union, Russia was “a middle performer” in terms of structural reforms but in the last three years has fallen lower in terms of institutional performance, corruption and a weakened judiciary. While some link this to the political cycle, he said it has more to do with “the identity crisis in Russian society. People are retro-minded” and have a hankering to return to the certainties and global stature of Soviet times.

Not around the corner

Anyone who thinks transition is a quick process should think again, said Daniel Daianu, Chairman of the Supervisory Board of Banca Comerciala Romana. “Latin America has been in transition for 150 years,” he noted. “To believe liberal democracy and well-functioning market economy is around the corner is a fantasy.”

Transition, he said, doesn’t happen country by country. “The world is shifting. There are concentric circles of transition” and western Europe, which has promoted the transition process in countries to the east, must go through its own transition, Mr Daianu said.

“They have aging populations, sclerotic institutions…They will face similar calls for change”, he added, as comparisons grow between the “stagnant core of the old EU and the fast growth in the new”.

Stability more important

Russian public opinion researcher Anna Andreenkova said that only in 2001 did Russians begin to express enough faith in the future five years ahead that they could start making financial commitments to build businesses. While support for democratic institutions was high at the beginning of the transition phase, she said it has since waned and stability has become more important.

Luka Djurovic, who leads a micro-credit organisation called Alter Modus in Montenegro, said his work with impoverished grassroots entrepreneurs has made him optimistic about the possibilities in transforming his country from the socialist era. “I wish I could say the same is true for the rest of my country.” There has been positive change in terms of improved infrastructure, freedom of speech and development of civil society, he said, but legal reforms have not been implemented, the rule of law is weak and public services have seriously declined.

“There are new and disturbing trends – trafficking, drugs, and the nature of corruption has changed. It used to be nepotism, now it is bribery. The thing most lacking is vision and strategy. Citizens haven’t been taught how to deal with new circumstances and officials are unaccountable.”

Migrants are survivors

Latvian author Laima Muktupavela, who told of her experiences as a migrant mushroom picker in Ireland in the book The Mushroom Covenant, said she was among 5000 who left her country for work overseas in 2001. “We were called adventurers back then,” she said. Five years later, 50,000 Latvians were working abroad. “They are now called survivors.”

While migration has its sad side, she mainly highlighted the positives. “Our youths get good experience, they learn languages and have the experience of very hard work abroad. It opens the wings of our abilities.” However, she said parts of Latvia have been depopulated due to migration.

Moderator Kevin Klose, President of the US-based National Public Radio and a former Washington Post journalist, said migration means “human beings are fungible”. However the remittances they send home “have become a kind of foreign aid programme” with billions moving internationally this way each year.

Written by EBRD Senior Writer Kate Dunn.

21 May 2006