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Energy Sector Reform in Eastern Europe Working Papers
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The End of ‘Transition’ - An Institutional
Interpretation of Energy Sector Reform in
Eastern Europe and the CIS
Christian von Hirschhausen and Thomas Waelde
Reprint from
MOCT-MOST Economic Policy in Transitional Economies, Vol. 11,
93-110 (2000)
Dresden University of Technology
DREWAG-Chair for Energy Economics
The End of ‘Transition’An Institutional Interpretation of Energy Sector Reform
in Eastern Europe and the CIS
by Christian von Hirschhausen* and Thomas W. Waelde**
MOCT-MOST Economic Policy in Transitional Economies,
Vol. 11, 93-110 (2000)
* correspondence address:
Dr. Christian von Hirschhausen, M.A.
Department of International Economics
DIW German Institute for Economic Research
Königin-Luise-Str. 5
D-14195 Berlin (Germany)
tel.: +49-30-89789-343 (-341)
fax:: +49-30-89789-108 (-200)
e-mail: [email protected]
** Professor Thomas Waelde
Centre for Energy, Petroleum/Mineral Law & Policy
University of Dundee
Dundee, DD1 4HN, Scotland, UK
e-mail: [email protected]
The authors thank Bogumila Puchalska-Tych, Hella Engerer, Jürgen Bitzer,
Eirik Svindland, Wolfram Schrettl, Petra Opitz, Uta Kreibich and Deborah
Bowen for comments. Earlier versions of the paper were presented and
discussed at the annual meeting of the Verein für Socialpolitik (Rostock,
September 1998), the Workshop of the German Advisory Group to the
Government of Ukraine (November 1997), and the European-Institute
Saarbruecken (November 1996). The usual disclaimer applies.
hirsch_moct_pdf.doc
The End of ‘Transition’An Institutional Interpretation of Energy Sector Reform
in Eastern Europe and the CIS
This paper provides an empirical analysis of the growing institutional
divergence of systemic transformation in the countries of Eastern Europe
and the former Soviet Union. Based upon the institutional theory of
economic and legal systemic change, we empirically analyse reforms in a
sector where the transformation process proved to be particularly tough: the
energy sector. We test to what extent reforms reflect the ideal types seen in
Western contexts (e.g. Anglo-Saxon and French), and to what extent new
models have emerged. By generalising the results from the energy sector,
one key finding emerges: starting from similar reform projects, 'transition'
in Eastern Europe has led to fundamentally different outcomes, of which we
identify three ideal types: i) the reforming Central/Eastern European market
economy; ii) the post-Soviet mixed economy; and iii) the Caspian state
economy.
Key words: transition, institutional economics, CIS, energy sector
1. Introduction
The attempts to introduce the institutions of a capitalist market economy in
Eastern Europe and the CIS raises questions about the relationship between
formal elements of reform, which are identified as key in developed Western
countries, and underlying institutional foundations that are neither visible nor
well understood.1 Experience with copying institutional models has shown
that they often work very differently in the host context than in the original
home context. With regard to Eastern Europe and the former Soviet Union, it
was expected that the transfer of the institutions of a market economy would
take place in the early 1990s. This assumption led to the idea of alinear
transition process, and to a long period of neglect to institutional differences
in implementing reform. By the late 1990s, however, system transformation
1
Throughout this paper we will apply North’s concept of institutions as a socially defined
constraint on individual behaviour.
2
has come to be viewed largely as a process of institutional change. Almost a
decade after its beginnings, the transition debate has therefore arrived at a
crossroads. Can the hypothesis of a ‘transition’ process throughout the region
still be upheld ten years after its inception?
This paper provides an empirical analysis of institutional aspects of systemic
reform in Eastern Europe and the former Soviet Union. We observe that in the
specific post-socialist context, similar approaches to economic reform lead to
very different outcomes, depending upon the formal and informal institutions
dominating in each country. The approaches to and outcomes of transition
seem to be so different that little in common can be identified between, for
example, truly reforming market economies and non-reforming countries. The
paper is structured in the following way: section two briefly lays out the issue.
In section three, we develop a methodology for the analysis of reform, by
selecting a sector of particular importance in all post-socialist countries: the
energy sector. We identify the two dominant ideal types of energy reform in
the West, i.e. the Anglo-Saxon model and the French model. In section four,
we review the point of departure, the conduct, and the results of reform of
different transition countries. Section five attempts a generalisation of the
results and identifies the specific institutional differences among different
economic systems that have emerged in the wake of the post-socialist
transition. Section six presents our conclusions.
2. The issue: is 'transition' still a useful concept?
In the mainstream literature on systemic change in Eastern Europe,
‘transition’used to refer to the reshaping of socialist countries into some form
of a market economy.2 It was assumed that transition is a unidirectional
2
The term ‘transition’ was in fact adopted from the Russian Revolution, when according to
N. Bukharine ‘transition’ designated the movement from the capitalist to a communist
society. Note that there is a difference in notion between the anglo-saxon term of ‘transition’
(Latin root: trans-ire), and ‘transformation’ (Latin root: trans-formare), which is more
generally applied in the German tradition of Max Weber, the latter designating a more
open
process of active systemic change. However, this distinction is generally ignored in the
current debate, and the two terms are often used synonymously. It is argued elsewhere that
because of its definitory character, ‘transition’ was a misleading concept right from the
beginning, as it defined an objective, whereas the way to get there remained unclear
(Bomsel, 1995, Hirschhausen, 1996); the concept of ‘post-socialism’ seemed to be more
adequate.
3
process with a pre-defined outcome assumed to be generally known and
accepted (“market economy“). The early phase was dominated by a
macroeconomic debate upon the optimal sequencing of reform steps
(“gradualism-vs.-shock-therapy“, Funke, 1993). After the “transformation
crisis“ (Schmieding, 1993), institutionally oriented and political economy
oriented approaches enter the debate more frequently (Streit and Mummert,
1996). A distinction derived from political economy (Buchanan, 1975) was
introduced between two layers of reform the building of an institutional
infrastructure (“choice of rules“) and the day-to-day policymaking process
(“choice within rules“). Recent empirical work indeed supports the idea that
the success of any transition country depends much more on the institutional
infrastructure than on short-term macroeconomic policies (Cornia and Popov,
1998, World Bank, 1996, 1997, EBRD, 1999). Econometric studies also tend
to confirm a positive link between the development of institutional
infrastructure and the development of the economy (Havrylyshyn, et al., 1999,
Heybey and Murrell, 1997).
However, not all countries were able or willing to proceed on a pre-defined
reform path. Even with similar reform packages put in place, the institutional
reforms proceeded quite differently thereafter, leading to diverging transition
processes. This differentiation of transition processes has not gone unnoticed
by most analysts. However, the implications thereof have been different.
Some authors contend that Eastern European countries show only minor
differences and consider ‘transition’ to be an ongoing process. Thus, Stiglitz
(1999) contends that transition is far from over for those countries that have
withstood market-oriented reforms thus far. Schrettl (1999) concludes that the
ongoing reform process in Russia and other countries implies that "musing
about the 'end of transition' may be a bit premature" (p. 1). On the other hand,
several authors have started to classify different categories of transition
countries, according to, for example, macroeconomic performance
(Havrylyshyn et al., 1999), structural indicators (Meske, 1998), or simply the
political process of EU-integration.3 Another line of research has turned the
3
The results of these classifications are not identical: thus, according to the macro-criterion,
countries like Armenia and Georgia would join EU-accession countries like Poland in the
group of ‘high growth’ countries. According to the structural statistics, the EU-accession
countries emerge in Group I, whereas Bulgaria joins Russia, Belarus, and Ukraine in Group
III. Clement, Jungfer et al. (1998) identify three different transformation stages on the move
4
transition debate into a more general debate on comparative economic systems
(Nuti, 1999, Dallago, 1999).
All in all, a consensus seems to be emerging that transition willnot lead to
comparable outcomes. Should this be so, however, the very concept of
‘transition’ is put in question, and it would no longer make sense to compile
and compare ‘transition’ indicators for Tadjikistan and Hungary, to give just
one example.4 The question of the current state of transition goes beyond a
mere issue of wording; it also touches upon concrete policies to be applied in
these countries, for example, optimal methods of privatisation, the pace of
price liberalisation, or the treatment of the inter-enterprise arrears issue.
There is no easily applicable methodology to test the hypothesis of the end of
transition. We therefore propose an inductive approach, observing the reform
process in a sector that can be regarded as representative for the transition
countries, the energy sector.
3. Ideal types of Western energy sector reform - models for transition
countries?
3.1
The energy sector as a key to systemic change
The energy sector plays a key role in accelerating or slowing down systemic
change in any country, in particular in transition countries. This may be
from a centrally planned economy to a ‘real’ market economy. Cornia and Popov (1998)
insist on structural and institutional conditions that determine differences in output
performance; they come up with four broad clusters of transitional economies, corresponding
to highly different economic models which have vastly dissimilar potentials for growth.
4
The recent restructuring of two major journals of transition research is representative of
this movement: The journal ‘Economics of Transition’ stated that “... in some important
respects these <Central European countries undergoing transition towards a market
economy, especially those on track for early accession to the EU> countries can be studied in
the same terms as one would study the relatively developed countries of Western Europe. ...
Other countries, especially in the CIS, are much further behind in their reforms...“
(Economics of Transition, vol. 7(1) p. i). The journal ‘Communist Economies & Economic
Transformation’ has even dropped the ‘transformation’ aspect from its title, to become
simply ‘Post-Communist Economies’, “because of a growing feeling that the major
processes into which transformation has generally been divided - stabilisation, liberalisation
and privatisation - have in substantial measure been completed“ (journal announcement,
early 1999).
5
explained by the importance of this sector for the entire economy, its technical
structure (which has long tended towards natural monopoly), its strategic
aspects of supply security, and the high politicisation of the business. In the
context of transition in Eastern Europe, the energy sector stands out as having
been the most “socialist“ of all sectors, in the sense that it had to serve
ideological, geopolitical, social, and other purposes before everything else,
faithful to Lenin’s leitmotiv: “Communism = Soviet Rule + Electrification“.
The energy industries were formed by well established, proud and cohesive
social groups (Party; workers; management and technical staff; research
institutions and their extensive staff). The industry was run as a large
hierarchical organisation, dominated by the Communist Party. In the absence
of hard budget constraints, economic criteria (such as costs, reserves and
profits) were insignificant.
The peculiar, multifunctional role of the energy sector in the socialist system
can be highlighted by pointing to some specific organisational features:
- location decisions were hardly ever based upon the availability of resources,
but were politically determined. For instance, the energy industry in the Soviet
Union was organised in a way to distribute activities equally among the
Republics, with Russia holding on to the strategic parts. Thus, oil equipment
industries were located in Azerbaijan, whereas the extractive regions were
increasingly concentrated in Western Siberia;
- transport was never considered to be a cost factor, but was accepted as a byproduct of the politically-determined production and consumption structure.
Allocation decision therefore ignored transport costs, which - once priced at
full costs in a market economy - would have made many operations
uneconomic;
- similarly, raw material extraction was not based on economic criteria, but
purely on technical criteria. Thus, energy fuels (coal, oil, gas) were often
produced through costly investment, which in a capitalist environment would
not have been feasible;5
5
East Germany boasted the world's largest lignite industry, which literally collapsed after
the introduction of hard budget constraints and international competition. Latvia's energy
sector was largely dependent on peat, Estonia's on oil shale, neither of which has a future in
an (environmentally concerned) market economy. Coal production in Russia, Ukraine and
6
- though country-specific aspects certainly existed, the hierarchical, Partydominated structure was found in all socialist countries in Eastern Europe and
the Soviet Union, the latter exercising a model function for the others.
Today, the energy sector in Eastern Europe and the CIS continues to be an
important industry in terms of production and employment. In Russia,
Ukraine, the Caspian countries and Poland it even plays a dominant role,
sometimes for the better (Russian oil and gas exports), sometimes for the
worse (regional conversion problems, environment). In general, the objective
of energy sector reform in all transition countries was that non-monetary
relations be replaced by monetised contractual relations, that the true costs be
used for investment decisions, that companies operate under commercial - not
political - budget constraints criteria, and that government and consumers
(industrial, distribution companies and households) see energy supply as a
product or service with a certain price. However, in this sector, systemic
change can not be introduced by decree, but requires a minimum societal
consensus on the degree of commercialisation, the distribution between public
service obligation vs. private supply, and the resulting socio-economic effects,
e.g. environment and employment. In the context of system transformation,
the re-regulation of the energy sector is a particularly complex process
requiring a fundamental reorganisation of the material and immaterial
institutional framework. It is therefore particularly useful for analysing the
6
development and current state of reform in transition countries.
Kazakstan were also pushed to unsustainable levels. An overview of the Soviet energy
system and problems is provided by Jensen, Shabad and Wight (eds.) (1983), Soviet Natural
Resources in the World Economy, Chicago, The University of Chicago Press,
6
Various modifications of Lenin’s leitmotiv exist already which highlight the role of energy
in the transition process. Thus, Brock (1999), based on the experience of the Irkutsk region
(Russia), equates transition with “improved revenue performance + electrificatiya“. From
the point of view of a Baltic electric utility participating in the EU’s Trans-EuropeanNetwork programme to link Western and Eastern European power networks, the outcome of
transition was characterised as follows: “Capitalism = Brussels Bureaucratic Power +
European Interconnection“.
7
3.2
Two dominant ideal types of Western energy sector organisation:
Anglo-Saxon and French7
There is no such thing as a clearly identifiable "best practice" which has been
put into effect world-wide to organise and regulate the energy sector. Instead,
different modes of governance have emerged, reflecting different national or
regional institutional conditions. The Western market economies provide two
polar cases of regulating the energy sector, mainly those parts requiring
particular attention due to their natural monopoly characteristics: these are the
Anglo-Saxon and the French approach:
i) the Anglo-Saxon approach - as it is emerging under the impact of the
Thatcher privatisation in Britain and now replicated in Australia, New
Zealand, Canada, several US States and the Scandinavian countries - pursues
a very direct approach to privatisation, corporatisation and competition.
Wherever technically possible, it creates a series of independent companies at
the level of power generation and power distribution, exposed to competition
from each other and from newly emerging independent power producers.
Transportation - where still necessarily a natural monopoly - is opened up by
third-party access of competitors to electricity grids or gas pipelines which
are owned either by private companies or by publicly owned companies
exercising only a transportation function (for example, the UK National Grid
Company). Under the influence of independent regulatory agencies,
competition develops or is promoted by the regulators and sometimes by
competition authorities. The logic of the Anglo-Saxon model leads to
competition on the level of retail electricity and gas distribution as well as
power generation and gas extraction and trading. While originally doubted by
supporters of established structures, it can no longer be denied that this model
works - that is, supplies energy to consumers reliably, and that it is
accompanied by substantially lower energy costs, in particular for large
consumers able to negotiate on their own. The Anglo -Saxon model provided
the benchmark for the opening up of EU energy markets that, with the
introduction of the 1997/98 gas and electricity directives has now started in
earnest. As concerns non-network activities, mainly oil and coal, the Anglosaxon approach prescribes private ownership and minimal regulation;
7
This section is based on Waelde and von Hirschhausen, 1999.
8
ii) the French system, by contrast, relies largely on integrated monopolies,
protected against competition from outside, operating with some forms of
supervision/planning by the competent central government ministry. Energy is
produced, transported and distributed by large, integrated organisations.
Energy is available everywhere and under similar conditions. Until recently,
the state played a dominant role in the oil and coal sectors as well. The
economic shortcomings of the model are the absence of competition and,
resulting from this, a lack of incentives for efficient production and
distribution structures. While the disadvantages of this regulatory setting are
evident to the economist, the survival of the model in France can be explained
by two specific characteristics of the country’s economic institutions: the
dominance of the “public service“ obligation and public service culture, and
the lack of separation between management and politics. Both are rooted in
French history: the first in the immediate post-war period, the second in the
8
century-old osmotic relationship between (state) firms and government.
There is a societal consensus on this regulatory setting; most French energy
consumers, apart from some large-scale industries, seem to be reasonably
content with this state of affairs.
3.3
Unanimous choice of the Anglo-Saxon model in transition
countries: an institutional interpretation
Institutional reform often, and particularly so in the post-socialist situation,
consists in identifying suitable models from abroad and then trying to emulate
them effectively at home. The domestic model then emerges in the way a
transplant takes root and evolves according to its own principles in its new
context. At first sight, one would assume that the natural tendency of the
transition economies would be to look towards the French model, at least for
electricity and gas. This system appeared to be closest in terms of structure,
organisation and attitude to the heritage of socialist energy sector
organisation, that is, monopolies, largely protected against competition and
outside influences. Emphasis on central planning and coordination, on largescale grands projets (including nuclear power), the concept of energy supply
8
See for example: Stoffaes, Christian, Services Publics - Question d’Avenir, Paris, Editions
Odile Jacob, 1996. Even the European Court of Justice accepted the dominance of public
service obligations in France, over, for example, jurisdiction on European integration (1997
decision).
9
as a public service that should be provided by a state entity - all these factors
indicate areas of affinity which were likely to determine the selection of the
French model.
Most surprisingly, and contrary to what an evolutionary perspective might
predict, the institutional reforms of transition countries’ energy sectors have
been largely based, at least on paper, on the liberalAnglo-Saxon model.
Reform concepts, brought into the political agenda mainly by foreign
advisors, reflected the liberal, competition-oriented approach that had proven
to be successful in the UK and the US. In a few cases, the policies proposed
in most transition countries for restructuring the network industries
(electricity and gas) included even more elements of competition than those of
the Western European continent (e.g. Ukrainian and Russian power sector
reform).9 The following section analyses the concrete outcomes of this reform
approach.
4. Empirical test: case studies on the growing systemic diversity in
Eastern Europe and the CIS
4.1
Different institutional layers
To what extent has the formal selection of the Anglo-Saxon over the French
and other models succeeded in transition countries? In order to test this
question empirically, we develop a set of institutional indicators which are
then applied to different country cases. The specificity of any country’s
approach to and outcome of transition cannot be identified by comparing
macroeconomic data, as the latter are affected by institutional change only
indirectly and in the long term. Instead, we distinguish threeinstitutional
layers to characterise transition in Eastern Europe:
9 There are different possible explanations for this choice: one is the original attraction of
Anglo-Saxon economic thought for the young economists in the former planning
organisations and the main economic research institutes in Moscow and the other capital
cities. The second reason is the recognition that at this time, the Anglo-Saxon model
appeared to be clearly superior to the mercantilist model embodied by France in terms of
wealth generation, innovativeness in modern technologies and flexibility of economic
response. The third line of explanation, taking the more classical approach of political
economy, looks instead at the economic interests of elites: the surprising enthusiasm in
favour of reform in almost all post-Soviet countries must have benefited those who were
already in control of the energy industries.
10
i) the set of formal institutions which includes the legal framework and the
technical prerequisites to operate and control markets, the monetisation of the
economy (that is, money being used as the dominant means of transactions),
and budget constraints on independently operating enterprises (for example,
bankruptcy procedures, banking and financial sector regulation, social
security). The introduction and functioning of the formal institutions can be
observed and even quantified quite easily (for example, with the EBRD
transition indicators);
ii) the informal institutions which include the non-codified legal, economic
and cultural conventions; the level of trust in economic transactions
substituting for formal regulations; the comprehension and approval of
market mechanisms by the population; the civil service culture with more or
less explicitly defined incentive structures, the culture of political,
professional and academic debate, and public control of this debate, as well as
of the press and other mass-media. In the absence of clearly identifiable and
quantifiable indicators, the evaluation of informal institutions depends largely
upon subjective empirical observations made on site;
iii) the societal consensus about the economic system which encompasses both
the normative aspect (“what system should govern?“) and the positive aspect
(“what system does in fact govern?“). It was certainly unrealistic to assume
that all post-socialist countries would develop a consensus on the virtues of a
capitalist market economy, and be able to implement changes rapidly. Instead,
fundamental questions concerning systemic change were addressed
controversially in transition countries, with some even decidingagainst the
market economy. What is more, the societal understanding of core economic
concepts may be very different in post-socialist countries than in established
Western market economies (for example “contract“, “legislation“, “money“,
“property“, “state“, “profit“).
4.2
The results of ten years of energy sector reform
Energy sector restructuring was, in all transition countries, one of the most
controversial and time-consuming of the reform processes. However, ten
years after its inception, results are clearly emerging. Though most of these
countries started out with similar approaches, that is, the Anglo-Saxon one,
the results have differed among the Central and Eastern European
transformation countries (CEECs) and CIS countries: in the advanced Central
and Eastern European countries, governments were able to implement
11
coherent transformation strategies in order to overcome the socialist legacy.
Energy companies were set up that operate according to established legal and
economic criteria, and a certain separation between them and state governance
structures was institutionalised. Some privatisation and corporatisation has
taken place on the distribution level (gas and electricity) with a massive
inflow of foreign direct investment. In contrast, the results in post-Soviet
countries (the CIS countries emerging after the collapse of the Soviet Union)
did not at all converge with those obtained in Central/Eastern Europe, the UK
or the US. In the following case studies, we test to what extent this divergence
is due to the specific institutional context prevalent in each country. In order
to do so, we provide stylised evidence of the patterns of reform in different
countries, distinguishing between the formal institutions, the informal
10
institutions, and the societal consensus on the regulatory system.
4.2.1 The Polish electricity reform: towards the gradual adaptation of
an Anglo-Saxon model
The reform of the Polish energy sector, in particular electricity, is a
representative case for other advanced Central and Eastern European
countries: not only was an Anglo-Saxon type of deregulation formally
introduced; the entire system is indeed being gradually adapted to market
mechanisms. Already in February 1990, only a few months after the
introduction of the first non-socialist government in Eastern Europe, the
Branch “Ministry of Energy and Lignite“ was dissolved. Whereas the
10
We simplify more complex structures; empirical evidence was collected by the authors
between 1992-99, it is documented, along with other empirical details, in inter alia: Waelde,
Thomas, Internationale Investitionen im Energiesektor der früheren Sowjetunion: Zwischen
wirtschaftspolitischem und rechtlichem Anspruch und der chaotischen Wirklichkeit jenseits
des Kommunismus, Europainstitut, Universitaet Saarbruecken, Publication Nr. 359, 1997;
Waelde, Thomas, “The Russian Oil&Gas Industry and Foreign Investment“,OPEC-Bulletin,
25, July 1994; Hirschhausen, Christian von and Hella Engerer: Post-Soviet Gas Sector
Restructuring in the CIS: A Political Economy Approach. Energy Policy, vol. 26, No. 15,
1113-1123, 1998; Hirschhausen, Christian von, and Hella Engerer, Energy in the Caspian
Sea Region in the late 1990s: The End of the Boom,OPEC-Review, vol. 23, No. 4, 273-291,
1999. Furthermore Newberry (1994); Stern and Davis (1998); Petra Opitz, The PseudoLiberalisation of Russia's Power Sector: The Hidden Rationality of Transformation, Energy
Policy, forthcoming; Kuba, Elzbieta, Die Umstrukturierung der polnischen
Elektrizitätswirtschaft, Zeitschrift für Energiewirtschaft, No. 2, 1998: 110-122; Baltic Ring
Study [http:\\www.BalticRing.com], 1998.
12
restructuring of the coal industry was somewhat delayed, mainly for social
reasons, the power sector reform clearly moved towards liberalisation.
Electricity production, transmission, and distribution were separated into
independent units. Preparations began for the establishment of a wholesale
market, which is to be further split into a spot market and a contract market.
The following years were characterised by the gradual implementation of
deregulation at a decentralised level. Technical and psychological obstacles to
the marketisation of electricity had to be overcome. Though governments
changed regularly, political support for deregulation remained strong. A proof
of this was the gradual price liberalisation, in particular an inversion of the
socialist price structures, where household prices had been heavily subsidised
on the back of industry prices: between 1990 and 1999, the ratio of household
over industry electricity prices in Poland was inverted, from 1:2.5 to 1.6:1.
This corresponds to the normal ratio for EU or OECD countries.11 An
external impetus to modernisation was provided in October 1995 by the
synchronisation, that is, connection in alternating-current-mode, of Poland
12
(and other Eastern European countries) with the Western European grid.
The reform culminated in the new Polish energy law of 1997, introducing the
possibility of competition in the generation and electricity supply markets and
the creation of an independent Energy Regulatory Office (ERO) for
monitoring the system and reviewing price policies. In August 1998, the first
long-term supply contract was struck between an independent power producer
and a large industrial customer.
The relative success of Polish energy reform depended upon a variety of
formal and informal institutional changes. Early systemic transition had led to
a separation between the state and the economic sphere that was not only
accepted by the population but also actively pursued. The societal acceptance
11
See International Energy Agency (various issues): Energy Prices and Taxes; Paris. Stern
and Davis (1998) remark correctly that the absolute price level in Poland and other Eastern
European countries has not reached long-run marginal costs. Other Eastern European
countries have also delayed price reform for some time; yet at the time of writing (October
1999), these are approaching economic levels. The ratio of household to industry prices is
1.3 in Hungary and 1.1 in the Czech Republic, it was 1.5, 1.4, and 1.1 in 1996 in Estonia,
Lithuania and Latvia, respectively (IEA, op cit., Stern and Davis, 1998).
12
This was proof that Poland was able to fulfil the technical requirements and institutional
standards of Western Europe, including security issues, quality control, communication
procedures, and so on.
13
of the basic principles of a market economy even favoured the marketisation
of such sensitive goods as energy. The decentralisation of this industry into 32
small production units (that is: power plants) also favours the emergence of
competition. But the strongest incentive for institutional change may have
been European integration, and the imperatives of prospective EU accession
requiring adaptation to the now rapidly evolving EU energy law. Having
opted for EU integration, Poland had an incentive to adhere to what was
expected to become the dominant European model in any case. Ten years into
transition, the Polish electricity sector has largely succeeded in its institutional
reforms and has passed the point of no return. Thus, an irreversibility has
13
been established in the reform process on the way to a market economy.
4.2.2 The Russian gas sector reform: Anglo-Saxon model, post-Soviet
reality
The Russian gas sector reform is a case in which the government formally
announced an Anglo-Saxon type of deregulation, but in reality reinforced the
monopoly power and non-economic functioning of the industry. As early as
1993, the Russian government ‘liberalised’ the gas sector on paper. The
philosophy of gas sector reform, as officially presented, corresponded to the
model of introducing competition in a sector dominated by monopoly: it was
to create transparency of legal and economic aspects, to establish levelplaying-field conditions for all enterprises, to reserve a limited role for the
state (in the form of "golden shares"), and to introduce competition in
production and - eventually - in distribution. The commitment to reform
culminated in 1996, when Russia integrated gas sector deregulation in its
Memorandum of Understanding with the IMF, an internationally binding
document.
However, the implementation of the program didnot lead to an Anglo-Saxon
type of market competition. Instead, a variety of more or less governmentcontrolled organisations got involved in the process, the distribution of tasks
13
We do not imply that the Polish reform process was an optimal one, or that all problems
have been resolved. Critical issues remain, such as privatisation and further price
liberalisation. Similar pictures emerge in the power sectors of Hungary, the Czech Republic,
Slovenia and Estonia.
14
and responsibilities being unclear.14 Worse, the position of Gazprom as the
Russian gas monopolist has not been touched. Gazprom has resisted all
efforts that have been made to break it up and to create competition: it
controls over 95% of Russian gas production, owns the pipeline
infrastructure, remains the only distribution company (through its regional
affiliates), produces equipment for the sector and runs large social programs
for its employees (education, housing, vacation, food supplies, etc.). The
Russian Law on Regulation of Natural Monopolies (1995) and the creation of
the Federal Energy Commission as a regulatory agency (1996) did not change
the situation significantly. Rather than be split up into competing enterprises,
Gazprom has become a “state within the state“, claiming an important role in
Russian domestic and foreign policy (“What is good for Gazprom is good for
Russia“).
The discrepancy between the Anglo-Saxon model of gas sector reform and its
application can be partly explained by four institutional factors: first, despite
an initial attempt in 1992, there is no separation between the state
(government, Parliament) and the gas industry.15 Second, the population does
not regard the gas industry in an economic context; rather, the supply of gas
16
is still considered a “human right“ from which nobody can be excluded.
Hence, Gazprom can claim to be obliged to deliver gas as a social service,
which excludes the application of hard budget constraints on the company.
Third, still benefiting from its aura of socialist times, the gas sector is
considered to be one of the few stable elements in an unstable economic
environment, which for a majority excludes any risky experiments. Fourth,
fundamental issues of systemic change are still open in Russian society,
14
For example, licensing of upstream exploration and extraction is handled by the Ministry
of Natural Resources (the former State Committee on Geology) based on the 1992/95 subsoil
law. Such licensing coexists very uneasily with the 1996 Production-sharing law which vests
the negotiation of production-sharing agreements for oil & gas in the Ministry of Fuel &
Energy (Mintopenergo, the former all-Soviet Ministry of Energy. Parliament (the Duma) and
the Parliamentary Committee on energy policy play a direct, but ambiguous role as well.
15
Former gas sector managers continue to occupy high political positions (up to Prime
Minister) but have maintained capital participation in their former firms. Current
management intervenes directly in political issues, be it at the local, national or international
level.
16
Gas tariffs to households are still highly subsidised, they are only 30% of international
levels. The gas payment ratio is still as low as 50-65%.
15
leading to a lack of support for market-oriented reforms at a decentralised
17
level, and a low time consistency of policy choices and regulatory reforms.
4.2.3
The Azeri oil sector reform: from socialism to state planning
The newly established Republics in theCaspian region demonstrate a third
type of outcome of energy sector reform. For example, Azerbaijan had been
developed within the Soviet Union as a large producer of oil exploration,
transport and refining equipment. Production of raw oil was carried out
through the 1970s and 80s, although it was uneconomical when compared to
international prices. Hence, the Azeri oil industry was hit hardest by the end
of Soviet socialism. In the first stage of the country’s newly gained
independence, the government pretended determination to liberalise the sector,
to provide a transparent judicial framework, and to open it up to international
investment.18 These promises then led to an international oil and gas
investment rush towards the Caspian Sea.
In sharp contrast to the formal lip service to a liberalised energy sector, the
real development of the Azeri oil sector was characterised by continued
efforts of state planning and a selective industrial and investment policy.
Instead of restructuring the sector according to market economic principles as
it had announced, the Azeri government drew up state plans for a variety of
activities. A vast exploration program was designed, including specialised
Western and Russian firms. Output was planned to be tripled by the year
2005. A diversified pipeline infrastructure was planned for oil exports.
Finally, in order to increase domestic value-added, the plans included the
construction of a new oil refinery. The concept of hard budget constraints is,
as of today, unheard of.
Once again, institutional factors may help to explain the divergence between
the initial announcements and the real results. Azerbaijan has neither the
institutional base for a capitalist market economy, nor the intention to
17
Similar experience can be reported from other energy branches (oil, electricity) in Russia,
and from Ukraine, Belarus and Kazakstan.
18
Azerbaijan was one of the first countries of the former Soviet Union to adhere to the
European Energy Charter. Thus it accepted, for example, general GATT rules, which oblige
it to introduce and enforce laws addressing anti-competitive practices, and to treat the
investments of an investor of another Contracting Party no less favourably than those of its
own investors.
16
establish one. The legal framework and the “rule of law“ are missing;
litigations are solved individually on a case-by-case basis at the highest
political level. After the breakup of the Soviet Union and the Communist
Party, an autocratic governance structure took over in politics and business.
Based upon moderate oil reserves but a strategic geopolitical situation, the
elites adopted a lucrative rent-seeking approach.19 The consolidation of the
national independence of young Azerbaijan goes hand in hand with personal
short-term income maximisation of the few leading politicians and
businessmen. In this context, the institutions of legal stability and economic
efficiency matter little. Similar experience exists in other Caspian countries
(Turkmenistan and Uzbekistan).
The case studies highlight some of the reasons for the success or failure of
energy sector reform. In the Polish case, conservative forces in the industry
could be overcome by a wide political and societal consensus is favour of
gradual reform. By contrast, in the two latter cases, resistance to energy
sector reform and liberalisation has annihilated the initial reform impetus.
Opposition of certain interest groups, difficulties to cut subsidies or hurt wellestablished industries otherwise, lack of public support and the general
absence of a clearly-oriented reform path proved to be stronger.
5. Generalisation: Three stylised outcomes of systemic transformation
Contrary to the initial idea of a smooth transition process based upon the
implementation of the Anglo-Saxon competition-oriented approach, a variety
of models of legal and economic reform have emerged in Eastern Europe and
the CIS. The empirical evidence highlights the differences in outcomes of the
transformation process among countries that had adopted similar reform
approaches. The diversity of institutional settings in Western countries (e.g.
the dichotomy between Anglo-Saxon and French regulation) is no longer
conducive to understanding the specific outcomes of reform in post-socialist
countries. The common characteristics of post-socialist systemic change have
disappeared and new, different forms of economic systems are stabilising,
creating a systemic irreversibility. This is what we call theend of transition.
Though the case studies cannot reflect the complexities of the situation, they
19
For example, the management of the State Oil Corporation of the Republic of Azerbaijan
(Socar) was confined to the President’s son himself.
17
do reveal some specifics of the reform process in each country or region. By
way of generalisation, we contend that the lessons from the energy sector can
be widely applied to the systemic change of most of the former transition
countries. Using the classification of institutions developed above, and
referring to the concrete case of the energy sector as an indicator for systemic
change, three stylised outcomescan be identified:
a) the reforming Central/Eastern European market economy has largely
adopted the formal institutions of a market economy or has at least given a
binding commitment to do so in the future. The upcoming accession to the
European Union provides a stable framework for further reform. On the noncodified level, an adaptation of informal institutions can be observed, which,
if not fully in favour of a market economy, nevertheless poses no major
obstacles to the gradual introduction of a market culture in most spheres of
public life. The societal consensus is an outright rejection of the socialist
system and a binding commitment to a market economy. This consensus is
stable and time-consistent. Countries representing this group are Poland,
Hungary, and Estonia;
b) the post-Soviet mixed economy is a blend of incoherently functioning
elements of a market economy and straightforward state planning. It has made
an initial, formal attempt to introduce market-oriented institutional reform,
but was not able (or willing) to carry it out fully and bear the political and
social consequences. Reforms have therefore been half-hearted and
uncoordinated, dominated by the legacy of Soviet socialism (hence the notion
of post-Sovietism). Though some formal institutions of a market economy
were put into place (for example, privatisation procedures, legal framework,
monetary policies, bankruptcy law), they have not developed any normative
power at the level of execution (Welfens, 1998). On the informal level, there
is widespread rejection of timid attempts to monetize and formalise civic
relations (Stiglitz, 1999). The societal consensus in favour of a reformed
economy is weak and unstable: an external shock, such as the financial
turmoil subsequent to the August 1998 devaluation, can break the consensus
and lead to a questioning of the entirety of institutional reform (examples:
Russia, Ukraine, to a large extent also Belarus, though the latter also shows
signs of the next group);
c) the Caspian state economy has not even considered introducing marketoriented institutions, but has opted to use its newly-gained independence to
transform Soviet socialism into an autocratic, clan-based regime based upon a
18
strong state involvement in the economy. The formal institutions of Soviet
socialism have been abandoned, but they have not been replaced by market
institutions. In the absence of an established legal framework, let alone the
rule of law, decisions are made by leading politicians at their own discretion.
Little is known about the informal institutions, though it is fair to assume that
the absence of any experience of a capitalist economic culture and the
traditionally undemocratic civil society provide little room for market-oriented
developments. The societal consensus, if any, gives priority to the
consolidation of the new-born Republic, with little consideration to economic
efficiency. Instead, the transformation process seems to lead from socialism
towards some form of rentier governance structure, similar to those of the
Arab Oil Republics in the Gulf. Examples of the Caspian state-planned
economy are Azerbaijan, Turkmenistan and Uzbekistan.20
Table 1 synthesises the main institutional characteristics of the three stylised
outcomes of system transformation.
Table 1: Institutional settings in the three stylised outcomes of system
transformation
ABOUT HERE
20
The Caspian approach may imply a less drastic macroeconomic shock, as occurred in
Central and Eastern Europe and in the European CIS-countries. As Klugman (1998) shows
for the case of Uzbekistan, the deliberately gradual and partial approach to reform led to the
lowest output drop in any of the 26 transition countries. However, this gradual approach
does not seem to be particularly conducive to long-term growth, either. Klugman (1998, p.
68) notes that “the government nonetheless remains extensively involved in the economy
through state orders, ownership of the bulk of medium and large enterprises and regulations
on the external sector, alongside significant centralisation of decision-making authority.“
The EBRD Transition Report (1999, p. 275) notes on infrastructure reform in Turkmenistan:
"Reform of public utilities remains negligible. There has been no commercialisation of
infrastructure. ... Price subsidies are substantial: households have free access to water and
pay nominal sums for electricity and gas." This sounds familiar to tales of Soviet times.
19
6. Concluding remarks
The aim of this paper is to provide some insight into the status and the
perspectives of the 'transition' process. We have confirmed that system
transformation and economic reform in the countries of Central and Eastern
Europe and the former Soviet Union was constrained by a specific set of
institutions. Starting from similar reform philosophies and applying, at least
formally, a similar set of Anglo-Saxon-inspired reforms, distinct reform paths
have emerged. These can be at least partially explained by identifying the
specifics of the three layers of the institutional context: formal institutions,
informal institutions, and society’s search for a consensus regarding the
economic system. The diversity of regulatory mechanisms, rather than
disappearing in some kind of convergence toward an ideal type of transition,
has in fact grown. Classifications of Western regulatory models cannot be
applied to the specific context of post-socialist Eastern Europe. Based upon
the analysis of what we consider to be a key sector of transition, energy, we
identify three ideal types of transition outcomes: i) the reforming
Central/Eastern European market economy; ii) the post-Soviet mixed
economy; and iii) the Caspian state economy. The institutional approach also
helps to explain why reforming Central and Eastern European countries have
quite easily accommodated the transplanting of Western models, whereas
post-Soviet and Caspian countries have shown unfavourable “immune
reactions“ (Streit and Mummert, 1996, p. 12).
Transition is over. If one accepts the idea that “transition“ in Eastern Europe
was the attempt to introduce the institutions of a market economy to former
socialist systems, and that this was a process common to all countries in the
region, then this historical era can be considered as finished with the
irreversible establishment of a variety of different systems. The similarities of
systemic change have disappeared, and so has the research subject
“transition“ (or: “transformation“). The “end of transition“ implies that
common similar economic policies for or research on the economies of the
region are no longer possible. The reforming Central/Eastern European
market economies require the completion of reform, mainly in the area of
corporate governance, including the banking and financial systems in some
countries. In post-Soviet mixed economies, some fundamental structural and
real institutional reform is required, which hinges upon the political and socioeconomic consensus. The challenge for the Caspian state economies is to
diversify their production and export structures without creating too large an
20
allocative inefficiency. Given the institutional normalisation in Central and
Eastern European market economies, a new line of research might attempt to
place the development of post-Soviet and Caspian economies in the context of
the institutional theory of underdevelopment.
21
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24
Table 1: Institutional settings in the three stylised outcomes of system transformation
Legal framework
Privatisation/
ownership
change
Budget
constraints/
enterprisation
FORMAL
INSTITUTIONS
Money
i) Reforming
Central/Eastern
European market
economies (e.g. Poland,
Hungary, Estonia)
Full revision of socialist
legislation
has
been
carried out and a legal
basis for a market
economy
introduced,
largely following the EU
model;
application
sometimes
still
constrained by technical
difficulties and political
intervention;
firm
commitment to adhere to
EU-standards
(“acquis
communautaire“)
Largely completed; an
important
stock
of
enterprises remain stateowned
(e.g.
Poland:
about
50%
of
all
industrial
enterprises),
but they, too, are subject
to budget discipline and
capital constraints
Budget constraints have
solidified, bankruptcy law
is in place and being
applied: relatively large
number
of
factory
closures; enterprisation
has
been
largely
achieved, creating a host
of
new
enterprises;
abandoning
of
multifunctionality
(production intertwined
with social sphere) of
industrial factories
Introduced and accepted
as the dominant agent of
economic
transactions;
monetary policies are
applied and effective
ii) Post-Soviet mixedeconomies (e.g. Russia,
Ukraine, Belarus)
Formally, a vast body of
new legislation has been
adopted, a mixture of
Western proposals and
transformation of Soviet
law; but: low level of
knowledge
and
acceptance
of
new
legislation; no normative
power at the execution
level; regionalisation of
power makes application
still more difficult
iii) Caspian state
economies (e.g.
Azerbaijan,
Turkmenistan,
Uzbekistan)
Absence of a culture of
formal law; little reform
of Soviet legislation, no
legal basis for market
economy
established;
strong
informal
component in problem
solving; larger-scale and
international
litigation
resolved on case-by-case
basis through political
compromise
Large-scale privatisation,
where introduced, is more
advanced on paper than
in reality; ownership is
widely dispersed, except
ofr the few lucrative
companies; state retains
controlling stakes in
many
enterprises;
mysterious
“autoprivatisation” of the few
cash cows (e.g. Lukoil,
Gazprom, United Energy
System of Ukraine)
Budget constraints weak;
no
factory
closures;
serious rise in interenterprise
arrears;
enterprisation is achieved
in few former state
combines
only;
multifunctionality
remains
strong,
in
particular in rural areas
Very little privatisation in
the “strategic“ sectors
(e.g. energy), state holds
controlling stakes; some
personal
enrichment
through
licensing
procedures and in FDItransaction
(Partially)
convertible,
'real' money introduced,
but domestic economies
rely heavily on barter;
uncontrolled explosion of
inter-enterprise arrears;
monetary policy with
little effect on the real
economy
The newly introduced
currencies have mainly a
symbolic value (sign of
an
independent
Republic); most economic
transactions take place in
USDollar or without
money (barter); little for
monetary policy
No
hard
budget
constraints
applied,
practically no enterprise
closures;
multifunctionality
remains strong
1
FORMAL
INSTITUTIONS
(ctd.)
INFORMAL
INSTITUTIONS
Banking system,
financial markets
Introduced and largely
working;
increasing
importance of financial
markets (in particular:
stock market, foreign
exchange); competition
within the banking sector
is
intensifying;
real
interest
rates
are
becoming “reasonable”
(i.e.
one-digit);
investment financing of
enterprises
through
banking
system
and
financial
markets
is
increasing
Formally introduced, but:
financial markets hardly
work,
a
competitive
banking system does not
exist; high degree of
concentration of a few
banks; strong state impact
remains,
including
regular attempts of renationalisation; collapse
of
investment
is
continuing;
small
investments are autofinanced from retained
earnings
Little institutionalisation
of banking system and
financial
markets;
important role of the state
in allocating investments,
no capitalist criteria in
the choice of priority
projects
Role of the state
More and more a “stateregulator”, with strong
emulation of the EUmodel
of
economic
regulation; active regional
policies
Active pursuit of vertical
industrial
policies,
selective
protectionist
trade policies; post-Soviet
type of state planning in
many areas of the
economy; no separation
between state action and
private business
Comprehension
and approval of
market
mechanisms
Widespread
comprehension
and
dominant (though not
unconditional) approval
of market mechanisms;
collective memory of prewar national market
economies
and
comparatively high living
standards
The institutional setting
of the European Union
(EU) is widely accepted
and considered as a
benchmark; this provides
a stable framework for
individual and collective
expectations and a system
of normative references
Little
acceptance
of
market mechanisms, no
cultural or historical
affinity; market economy
is considered as private
enrichment
at
the
population’s detriment
Autocratic,
clan-based
state structures dominate
and control public life,
including the economy;
no separation between
state
and
economic
sphere possible; the state
seen as responsible for
targeted industrial and
investment policy; no
alternatives attempted or
even discussed
Rejection of capitalist
market
economy
principles;
private
economic transactions are
largely family-based
Role of external
institutional
references
Perception of
unemployment
Unemployment, at a level
similar to EU-countries,
is accepted as a result of
separation between the
economic sphere and the
state;
unemployment
schemes, unemployment
benefits
and
social
security are put in place
Reference to foreign
institutional models is
traditionally rejected, but
with no alternative, and
no domestic reference
system emerging either;
latent ex-post approval of
many
institutions
of
Soviet socialism (mainly:
social benefits)
The state refuses to
accept responsibility for
the social results of
economic reform; official
unemployment figures are
kept artificially low (58%),
whereas
real
underemployment
is
estimated in the range of
20-30%
The only reference to
outside institutions is
negative, i.e. rejection of
Soviet socialism; focus on
consolidation of new-born
Republic rather than
foreign models
“Unemployment“ has no
status and is not treated
by economic policy; few
attempts to cushion socioeconomic
effects
of
unemployment, no labour
market policies
2
SOCIETAL
CONSENSUS
Wide
consensus
on
rejection of socialist
experience,
binding
commitment to market
economy; open public
debates exist; consensus
is stable and timeconsistent
Weak consensus in favour
of “some kind“ of reform,
but
absence
of
a
constructive
public
debate on the pros and
cons of different options;
any consensus is likely to
be unstable, external
shocks can easily lead to
a
questioning
of
institutional reform (e.g
the financial turmoil
subsequent to the August
1998 devaluation)
Some consensus on the
consolidation of the newborn
Republic,
with
hardly any debate on
options for the future
economic
system;
strategic orientations are
decided
autocratically,
absence of public debate
3
Table 1: Institutional settings in the three stylised outcomes of system transformation
Legal framework
Privatisation/
ownership
change
Budget
constraints/
enterprisation
FORMAL
INSTITUTIONS
Money
i) Reforming
Central/Eastern
European market
economies (e.g. Poland,
Hungary, Estonia)
Full revision of socialist
legislation
has
been
carried out and a legal
basis for a market
economy
introduced,
largely following the EU
model;
application
sometimes
still
constrained by technical
difficulties and political
intervention;
firm
commitment to adhere to
EU-standards
(“acquis
communautaire“)
Largely completed; an
important
stock
of
enterprises remain stateowned
(e.g.
Poland:
about
50%
of
all
industrial
enterprises),
but they, too, are subject
to budget discipline and
capital constraints
Budget constraints have
solidified, bankruptcy law
is in place and being
applied: relatively large
number
of
factory
closures; enterprisation
has
been
largely
achieved, creating a host
of
new
enterprises;
abandoning
of
multifunctionality
(production intertwined
with social sphere) of
industrial factories
Introduced and accepted
as the dominant agent of
economic
transactions;
monetary policies are
applied and effective
ii) Post-Soviet mixedeconomies (e.g. Russia,
Ukraine, Belarus)
Formally, a vast body of
new legislation has been
adopted, a mixture of
Western proposals and
transformation of Soviet
law; but: low level of
knowledge
and
acceptance
of
new
legislation; no normative
power at the execution
level; regionalisation of
power makes application
still more difficult
iii) Caspian state
economies (e.g.
Azerbaijan,
Turkmenistan,
Uzbekistan)
Absence of a culture of
formal law; little reform
of Soviet legislation, no
legal basis for market
economy
established;
strong
informal
component in problem
solving; larger-scale and
international
litigation
resolved on case-by-case
basis through political
compromise
Large-scale privatisation,
where introduced, is more
advanced on paper than
in reality; ownership is
widely dispersed, except
ofr the few lucrative
companies; state retains
controlling stakes in
many
enterprises;
mysterious
“autoprivatisation” of the few
cash cows (e.g. Lukoil,
Gazprom, United Energy
System of Ukraine)
Budget constraints weak;
no
factory
closures;
serious rise in interenterprise
arrears;
enterprisation is achieved
in few former state
combines
only;
multifunctionality
remains
strong,
in
particular in rural areas
Very little privatisation in
the “strategic“ sectors
(e.g. energy), state holds
controlling stakes; some
personal
enrichment
through
licensing
procedures and in FDItransaction
(Partially)
convertible,
'real' money introduced,
but domestic economies
rely heavily on barter;
uncontrolled explosion of
inter-enterprise arrears;
monetary policy with
little effect on the real
economy
The newly introduced
currencies have mainly a
symbolic value (sign of
an
independent
Republic); most economic
transactions take place in
USDollar or without
money (barter); little for
monetary policy
No
hard
budget
constraints
applied,
practically no enterprise
closures;
multifunctionality
remains strong
1
FORMAL
INSTITUTIONS
(ctd.)
INFORMAL
INSTITUTIONS
Banking system,
financial markets
Introduced and largely
working;
increasing
importance of financial
markets (in particular:
stock market, foreign
exchange); competition
within the banking sector
is
intensifying;
real
interest
rates
are
becoming “reasonable”
(i.e.
one-digit);
investment financing of
enterprises
through
banking
system
and
financial
markets
is
increasing
Formally introduced, but:
financial markets hardly
work,
a
competitive
banking system does not
exist; high degree of
concentration of a few
banks; strong state impact
remains,
including
regular attempts of renationalisation; collapse
of
investment
is
continuing;
small
investments are autofinanced from retained
earnings
Little institutionalisation
of banking system and
financial
markets;
important role of the state
in allocating investments,
no capitalist criteria in
the choice of priority
projects
Role of the state
More and more a “stateregulator”, with strong
emulation of the EUmodel
of
economic
regulation; active regional
policies
Active pursuit of vertical
industrial
policies,
selective
protectionist
trade policies; post-Soviet
type of state planning in
many areas of the
economy; no separation
between state action and
private business
Comprehension
and approval of
market
mechanisms
Widespread
comprehension
and
dominant (though not
unconditional) approval
of market mechanisms;
collective memory of prewar national market
economies
and
comparatively high living
standards
The institutional setting
of the European Union
(EU) is widely accepted
and considered as a
benchmark; this provides
a stable framework for
individual and collective
expectations and a system
of normative references
Little
acceptance
of
market mechanisms, no
cultural or historical
affinity; market economy
is considered as private
enrichment
at
the
population’s detriment
Autocratic,
clan-based
state structures dominate
and control public life,
including the economy;
no separation between
state
and
economic
sphere possible; the state
seen as responsible for
targeted industrial and
investment policy; no
alternatives attempted or
even discussed
Rejection of capitalist
market
economy
principles;
private
economic transactions are
largely family-based
Role of external
institutional
references
Perception of
unemployment
Unemployment, at a level
similar to EU-countries,
is accepted as a result of
separation between the
economic sphere and the
state;
unemployment
schemes, unemployment
benefits
and
social
security are put in place
Reference to foreign
institutional models is
traditionally rejected, but
with no alternative, and
no domestic reference
system emerging either;
latent ex-post approval of
many
institutions
of
Soviet socialism (mainly:
social benefits)
The state refuses to
accept responsibility for
the social results of
economic reform; official
unemployment figures are
kept artificially low (58%),
whereas
real
underemployment
is
estimated in the range of
20-30%
The only reference to
outside institutions is
negative, i.e. rejection of
Soviet socialism; focus on
consolidation of new-born
Republic rather than
foreign models
“Unemployment“ has no
status and is not treated
by economic policy; few
attempts to cushion socioeconomic
effects
of
unemployment, no labour
market policies
2
SOCIETAL
CONSENSUS
Wide
consensus
on
rejection of socialist
experience,
binding
commitment to market
economy; open public
debates exist; consensus
is stable and timeconsistent
Weak consensus in favour
of “some kind“ of reform,
but
absence
of
a
constructive
public
debate on the pros and
cons of different options;
any consensus is likely to
be unstable, external
shocks can easily lead to
a
questioning
of
institutional reform (e.g
the financial turmoil
subsequent to the August
1998 devaluation)
Some consensus on the
consolidation of the newborn
Republic,
with
hardly any debate on
options for the future
economic
system;
strategic orientations are
decided
autocratically,
absence of public debate
3