Central Europe: Nostalgia for strong leadership

16 September 2013
Hospodářské Noviny Prague

Having once welcomed the arrival of political and economic liberalism following the fall of communism, the countries of central Europe are now increasingly turning their backs on this ideology, which heralded their return to democracy.

Is the crisis over or not? Should we be optimistic or better yet cautious about the development of the economies of central Europe? The economists, politicians and entrepreneurs meeting up at the annual economic forum in the southern Polish town of Krynica in the first week of September were unable to come up with a definite answer, even when politicians, with Polish Prime Minister Donald Tusk in the lead, tried to put the most upbeat spin on it.

What came to the surface once again, and strikingly so, perhaps more than ever before, is just how far the economies of central Europe still hang on the decisions, whims and mindsets of politicians. After more than 20 years of building free-market capitalism one would expect that a business would act independently of politicians, and on the other hand, that politicians would not indulge themselves in notions such as those of Jaroslaw Kaczynski, who announced from the podium to dozens of entrepreneurs that if his party wins the election it will raise taxes. On top of that, Kaczynski argues, Poland needs a stronger state.

Polish paradoxes

The bruising reforms of the early 1990s have created a significantly more competitive market environment than Czechs had grown used to during the Klaus era of “bank socialism”

The relationship between the state and business in Poland is rather a paradox. The bruising reforms of the early 1990s have created a significantly more competitive market environment than Czechs had grown used to during the Klaus era of “bank socialism”. The Polish state, in contrast, has until today retained a strong influence in hundreds of companies.

Although many of them float shares on the Warsaw Stock Exchange, the controlling stake is held by the government. That situation creates hundreds of interesting combinations of influence and the flow of money, which the Czechs know in principle only in the case of the energy company CEZ.

Dozens of such enterprises exist in Poland and the hand of government in them is affecting the economic environment. In particular, it keeps employment high (in mines and armament factories) or takes money from the company books according to the needs of the state budget – as this year, when the insurance company PZU and at least two other companies will apparently pay out advances from this year's dividends before year’s end.

The Czech liberal environment has been left wonder-struck by the notion of Milos Zeman to spur economic recovery through state investment projects [primarily the Pharanoic plan for a Danube-Oder-Elbe canal]. Czech economists, it would appear, have weaned themselves from pondering the strong role of the state in the economy, while in Poland, Slovakia and previously liberal Hungary, governments are still the main players in it.

The wane of liberalism

Just as political liberalism has been beating a retreat in central Europe over the last few years, a similar fate is befalling its economic companion. While entrepreneurs assured themselves in the debates in Krynica that it is they who determine the development of the economy, the increasing weight of regulation and the ever more frequent and growing intervention of the state are becoming much more important than they were a decade ago. In Hungary, the unorthodox economic policy of the Orbán government – raising taxes and transferring a range of costs onto companies – has been accompanied by the bringing of several large companies back into the fold of state ownership. In Poland, the original Tusk plan for privatisation has ground to a stop. In Slovakia, new regulations practically from the beginning of the year have shut down job creation in the private sector.

In Czech debates, one often hears that voters let the state be “plundered”. In Poland, Slovakia and Hungary, in contrast, the state and its influence is growing. It is politicians who have the greatest influence and power, and for them a strong state provides the springboard they need to meet their goals and perhaps even dreams. In the Czech Republic today, President Milos Zeman is attempting something similar. Fortunately, he lacks the energy of Viktor Orbán; fortunately, the Czechs do not have such a strong relationship to history as the Poles, which could lead them to draw up the kind of negative agenda Jaroslawa Kaczynski is putting together in Poland. Fortunately, we do not have such a strong business-party base as Slovakia’s Robert Fico, whose party, Smer, is under the de facto direction of the joint-stock companies of several interest groups.

Liberal democracy in Europe has been fundamentally harmed in the course of the crisis, because politicians have been incapable of responding appropriately

Liberal democracy in Europe has been fundamentally harmed in the course of the crisis, because politicians have been incapable of responding appropriately. The space that liberals have vacated have been richly filled with illiberal politicians. Voters, poisoned by politicking and corruption, seemingly having had their fill after 23 years of the liberal experiment with freedom, would like to see once again a strong state to look after almost all of them. Liberal democracy in central Europe, it would seem, has been the biggest victim of the crisis over the long term. Something similar may be in store as well for the liberalised economy.

Translated from the Czech by Anton Baer

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