1989 - when the world was being remade

By Suma  Chakrabarti

Part of the Berlin Wall's East Side Gallery

Part of the Berlin Wall's East Side Gallery, pictured in 2010

The true colour of communism was not red but grey. Thirty years ago, the people of central and eastern Europe left behind their black-and-white lives of oppressive political control and economic stagnation and stepped into a dynamic multicolour world, full of aspirations for freedom and better lives. It was a time of idealism and high expectations that the world can be remade.

Institutions carry in their DNA the spirit of the times when they were created. This is certainly true for the EBRD, which was launched in the enthusiastic early days after the fall of the Berlin Wall. The Bank was mandated to support the political and economic transition to democratic and prosperous societies. The popular slogan “Return to Europe” expressed the hope that the transformation process would be linear, with CEE countries rapidly catching up to western living and welfare standards.

Not quite so fast. Rome ne s'est pas faite en un jour. Experience showed that major historic transitions are not linear, leading in a straight ascending line to some bright post-historic bliss. The 30th anniversary of the fall of the Berlin Wall and the end of Communism in central and eastern Europe is generating an unusual level of questioning of the initial transition model. Following setbacks like the 2008 global financial crisis, but also taking into account local aberrations like the rise of a class of oligarchs, growing inequality and growing divide between winners and losers of reform, the reflections on the 30th anniversary of the historic events of 1989 have become decidedly muted and sometimes outright downcast.

There is good reason to see this as much as an exaggeration as the expectations of 30 years ago. Analysis shows that Poland, the Czech Republic and other central European countries which three decades ago embraced the model of rapid economic liberalisation, deregulation, open borders and globalisation, were very successful in economic and social outcomes, especially compared to those which tried a more cautious reform approach. However, experience has also shown that economic models must not become dogmas, but should be open and flexible, something the West was also reminded of by the 2008 financial crisis which started in the most advanced economies in the world.

As the countries had to adapt to new challenges and different circumstances, so had the EBRD. The Bank always remained faithful to its mission and its mandate. At the same time, to remain relevant we had to adopt new policies, develop new products and widen our activities. From playing a role in laying the foundations for a successful market economy, we have moved on to addressing the issues which the mere injection of funds cannot resolve.

Taking stock after the 2008 financial crisis had badly exposed the vulnerability of many countries in the region, our analysis showed that economic success is only sustainable in a supportive institutional framework with highest standards of governance. The private sector is the engine of growth, innovation and progress. But for it to succeed it needs an enabling environment. The EBRD used to focus primarily on projects. Our next logical step was towards building successful countries.

The understanding of what constitutes a well-functioning, sustainable market economy has also evolved, as climate change, growing inequality and the 2008 financial crisis have shaken the earlier market consensus. As a result of its evolution in thinking, the EBRD now puts special emphasis on coupling investment and policy dialogue on gender and economic inclusion, sustainability, competitiveness, good governance, resilience and integration.

This flexibility has allowed the EBRD to be a key partner in developing vibrant private sectors and attracting high levels of investment. Other great sources of the EBRD’s constant learning and adaptation have been the countries where the Bank is active and its employees from these countries. The EBRD has built an unrivalled presence in its countries of operations, with its bankers and economists working on the ground, face to face, with the businesses and governments it strives to support. Employees from our regions have been with the Bank from its very beginning, playing a key role in know-how transfer and information sharing aimed at addressing challenging economic and business environments.

While businesses and economies can transform rapidly, societies, attitudes and culture take longer to adjust. These challenges also require the joint attention of a multitude of partners, especially the EU institutions. This is not to deny that historic achievements and progress have been made. But history has certainly not ended, as once was proclaimed. Like a bicycle, transition must always be kept in motion in order not to fall. The EBRD remains ready to offer its pedal power.

Sir Suma Chakrabarti is the President of the EBRD