31 May - 6 June 2001
Issue No.536
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Al-Ahram Weekly Online 31 May - 6 June 2001 Issue No.536 |
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Lessons in transformation
Ibrahim Nafie examines the experiences of four Eastern European nations in engineering necessary economic change
An Al-Ahram team visited four countries in Central and Eastern Europe, the object of the two week tour to find out about their experience in shifting from communism and central planning to political plurality and market economics.
In each of the four countries the team met with official and non-official figures, conducting frank conversations about what has happened and what is expected to happen in the political and economic arena. As mentioned in previous articles, the experience of each of the four countries comprises a specific model of transformation.
Though the shift from a one-party system and central planning to political pluralism and open markets began in Egypt in the mid-1970s -- 15 years before change beset Eastern and Central Europe -- the outcome of the Egyptian experience seems, particularly in respect to economic developments, of less magnitude than in the European countries in question. This raises questions about the reasons that led to this discrepancy: how these Eastern European states managed, in a single decade, to achieve what Egypt has been battling with in vain for more than 25 years. It would be no exaggeration to say that the process of privatisation witnessed by Egypt has not yet borne fruit in terms of making Egyptian companies more competitive, improving Egypt's overall economic performance and attracting export-oriented foreign investments.
Poland, with a population of 40 million, has managed to attract more than $50 billion in foreign investments in the last decade alone. Similarly, the Czech economy has engineered a position where it is poised to join the EU.
The interviews conducted by the team revealed that successful transformation requires complementary conditions. All four countries visited -- Poland, the Czech Republic, Romania and Yugoslavia, had a clear set of objectives: eliminating their communist heritage, building new democracies based on plurality, separation of power, political transparency, free-market economics and freedom of the media. From the viewpoint of foreign relations, too, there is general consensus about EU membership, participation in European security institutions and building positive relations with the US and NATO as well as Russia.
But if the four countries have similar internal aspirations they have different foreign relations priorities. This is most clear in the case of Yugoslavia, for in Romania, Poland and the Czech republic, the aim of achieving EU membership goes hand-in-hand with improvements in the economy and infrastructure, while NATO membership provides security guarantees.
In Yugoslavia, in contrast, the political elite, with the backing of the public, prioritises economic and security ties with Europe over NATO membership during the next decade. There is a feeling that NATO's role in the war in Kosovo contributed to economic deterioration. Priorities are normalising relations within the Balkans, securing European aid and emphasising a European identity.
Here and elsewhere the role of the political elite -- politicians, intellectuals, media figures, businessmen -- was emphasised: they legitimise aims and mobilise the public towards achieving them. And herein lies an important lesson for Egypt, where the political elite is divided on a range of central issues -- from peace to privatisation, from education to scientific research, from Egyptian-US relations to EU partnership, not to mention the role of foreign investments in economic enterprises. Given such divisions and differences it becomes difficult for decision makers to choose the right political decision at the right time, their efforts being dissipated in attempting to achieve a minimum degree of consensus.
As to privatisation, in the first three countries visited it became clear that it is the cornerstone of political transformation. Success requires a number of conditions: a political decision in favour of privatisation, clarity and transparency of the procedures followed in valuing and selling companies whether to local or foreign investors (so that the object is raising the productivity of each unit sold), directing production towards export and perceiving the issue of ownership as one, but not the only, aspect of privatisation.
In Poland the privatisation programme was initially based on making state-owned projects more efficient by endorsing and developing administration and production. It was only at a later stage that it transpired that selling such companies to a local or foreign investor yielded better results than keeping them under the state. In the Czech Republic, on the other hand, the process was significantly faster, egged on by public opinion, the willingness of the public to sacrifice, and European support.
Transforming any economy of course depends on the prevalent economic conditions. But it is heavily dependent, too, on the level of political commitment to the process of privatisation. This became clear in the course of an interview with the Polish President Aleksander Kwasniewski ,who explained that the valuation of companies to be privatised was undertaken by international consultants who specialise in this kind of procedure. Sometimes the valuation of a company did not reflect its position in the market, hence the necessity of a political decision either to sell it for its market value -- often less than the value determined by such international consultants -- or to wait a while until its market value increased. To prevent unnecessary conjecture and rumour mongering all the facts were publicised. A carefully thought out privatisation programme works to cut state support for companies and protect property rights through empowering civil institutions.
The experience of Eastern Europe proves that carefully studied privatisation is vital and indispensable and that it should not be seen as simply a choice between what is local and what is foreign but rather as a conscious effort to create an efficient competitive environment capable of continued development. As I cite these examples I am hopeful that officials and public opinion alike will embrace the lessons that can be learned from them.
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