The people’s view on transition

By Anthony Williams
@ebrdtony

EBRD at 25: The people’s view on transition

Bank presents findings of its third Life in Transition Survey

The countries where the European Bank for Reconstruction and Development (EBRD) invests have gone through a remarkable process of deep economic transformation and structural reform. But how have the people in the transition region experienced this process? How have their lives been shaped and affected by the changes since 1991?

The EBRD and World Bank address these questions in the Life in Transition Survey (LiTS), a comprehensive survey of individuals and households, which started in 2006. A second round took place in 2010, in the aftermath of the global financial crisis. The third round of the survey is currently in the field in 34 countries, including Cyprus and Greece, as well as two comparator countries, Germany and Italy. Full results of the third LiTS are expected in autumn 2016.

The core sections of the LiTS III questionnaire focus on assets and income, housing, attitudes and values, employment, entrepreneurial activities, and governance. They also feature questions on unemployment, corruption and perceptions of gender. In Greece, the survey includes an additional section focusing on the impact of the crisis and the related austerity measures.

LiTS offers an extraordinary wealth of information about economic and social life in the transition region.

Five things that the Life in Transition surveys reveal

1 The “happiness gap” between East and West remains large.  People in the transition region remain unsatisfied with their life today. Life satisfaction is also low when compared with non-transition countries at similar income levels. LiTS II shows that in the West, about 70 per cent of households are satisfied with their lives, but in transition countries the respective number is only 40 per cent. Preliminary data from the third round of the survey show that only around one in five Greek respondents are satisfied with their life in 2016.

Closing the “happiness gap” between East and West – through continued economic growth, more macroeconomic stability and more inclusive institutions – is not only important in and of itself. Limited life satisfaction undermines popular support for market reforms, development of the private sector and democratic politics.

2. Badly managed privatisation process affects attitudes and support towards the market economy. LiTS I found that close to half of the populations throughout the transition region believed that private firms should be renationalised and either kept in state hands or reprivatised using more transparent procedures. The failure of privatisations is often attributed to control of the political process being seized by special interest groups which oppose reforms that would erode their rents. As a result, societies where many individuals do not perceive any economic benefits from the switch to a system of greater private ownership have become more polarised politically. Greater transparency in privatisations as well as investment in human capital to ensure individuals will benefit from private economic activity are vital ingredients for preventing reversals and advancing further reforms.

3. Households in the transition region suffered more as a result of the global financial crisis. LiTS II found out that relative to their Western counterparts, households in the transition region suffered far more job losses, wage reductions and reductions in remittances. In one in five households at least one person lost his or her job while almost half of all households experienced a drop in wage income during the crisis. Moreover, 20 per cent of all households had to cope with a reduction in the remittances they received from abroad.

Confronted with these negative shocks, households resorted to various strategies to cope and smooth their consumption patterns in the face of adversity. The crisis led to larger reductions across virtually all consumption categories, particularly in essentials such as staple foods.  According to preliminary data from LiTS III, over 48 per cent of Greek respondents delayed payment of utilities or had to cut services such as internet, phone and TV. Further analysis also shows that 1 in 10 Greek households delayed or defaulted on a loan instalment or had to negotiate a revised payment schedule to keep up with tax payments.

4. Support for democracy and the market economy declined following the global financial crisis. Both LiTS I and II included questions on attitudes towards market economies and democracies. Countries that were hit harder by the crisis experienced a decline in support for markets and democracy, whereas the percentage of respondents favouring the markets and democracy increased in countries that either registered positive growth or experienced the crisis to a lesser extent.

People’s disillusionment with market economies can in many cases be traced back directly to their own exposure to the financial crisis.  Across regions, the biggest decline in support for the markets can be seen in central Europe and in the Baltic States, which ranked third after Central Asia and south-eastern Europe in LiTS 2006 and only second to last before Russia in LiTS 2010. By comparison, notwithstanding the very severe impact of the crisis on Greek households, almost 46 per cent of respondents in Greece still favoured the markets over any other alternative in 2016.

5. The legacy of equal education for women continues but is not reflected in the labour market. LiTS II shows that there are more women than men with university and postgraduate degrees in the CEB countries, while there are no gender differences in the SEE region and in the former Soviet Union countries. But equal education is not reflected in labour market outcomes. Work has been scarce during transition and almost half of all women of working age (and about one-third of men) are jobless. Women are also under-represented among the self-employed in all regions. While 20-30 per cent of surveyed women say they would like to be self-employed, fewer than 10 per cent actually are. Men are twice as likely to be self-employed as women. Preliminary LiTS III data from 17 countries show that in all countries – except Estonia and Poland – the majority of respondents believe it is important for their children to achieve university education. The data reveal almost no gender preference for sons’ education versus daughters’ education.