Download August 22, 2008

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August 22, 2008, Tallinn
Assoc. prof. Stasys Kropas, Vilnius
University, Institute of international Relations and Political Science, http://www.kropas.lt
International aspects of the unprecedented transformation: views from the historical perspective.
Dear colleagues. It is a great pleasure to be here in Tallinn and to share with you my views on the
role of historical events that happened in Baltic countries almost two decades ago. Importance of the
cooperation of actions among Baltic countries could not be overestimated. It was one of the most
important factors of our success on the way to reestablishment of the independency of our countries. As
an economist I have to admit with some dose of jealousy, that most brilliant economic ideas on the
transformation of economic systems (including introduction of national currency and currency board
arrangements, requirement of balanced budget, people’s front movement to support economic reforms
and some others) originated in Tallinn.
In my intervention I will analyze in some aspects of ungrounded interpretations of the
unprecedented transformation of economic systems of Baltic countries in Lithuanian and foreign
studies. In this regard I have to admit that no other countries in the world experienced such
transformation during such short period of time. First, I will discuss the importance of the radical
decisions taken by Sąjūdis, than I will present the role of Pope John Paul II in creation of the
preconditions of the elaboration of countries in Eastern Europe, and finally I will deal with the problem
of initial assessment of the level of economic development of Baltic countries before the start of
transformation process.
Radical reforms vs. step by step approach.
Sąjūdis took rather radical approach in creation of new economic system. Clear requirements for
independent money, credit and budgetary systems were put in place already in our conception for
economic self-sufficiency, prepared under the firm leadership of prof. K.Antanavičius. It meant that
behind the firm Sajūdis stance for economic self-sufficiency de facto was requirement for political
rights, the most important prerequisites of state: the right for independent fiscal and monetary policies.
We took very critical stance on the soviet law on „Economic independence of Lithuanian SSR, Latvian
SSR and Estonian SSR“.
Therefore, looking from this point of view the immediate proclamation of the restoration of
independence of the republic of Lithuania in March 1990 was radical, but logical step. I remember how
big was my and my colleagues’ frustration and disappointment because of rather pragmatic approach
taken by our colleagues in other Baltic countries. Tallinn and Riga followed just with a declaration on
the initiation of the process of the reestablishment of independence. The huge internal and external
pressure then was put on members of Parliament form Sąjūdis. Even colleagues from the left decided
to support declaration of independence they’ve always been the advocates for less radical approach.
You may see the differences of the positions in table 1.
Table 1: Views of the Lithuania‘s political elite on the process of restoration of economic and political
independence
Sajūdis movement
Lithuanian communist party
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•
•
•
•
Right wing political power
Emphasis on national consciousness;
(Orientation toward preworld war
Lithuanian heritage (Striving for
independent Lithuania, open civil society);
Desovietization efforts;
Fast and radical reforms.
•
•
•
•
Left wing political power
Emphasis on a Civic accent;
Orientation towards soviet heritage;
Maintenance of the “Soviet‘s merits”;
Slow and deliberate reforms, step by
step approach.
This radical decision meant that very different approach had to be taken towards organization of
external economic relations and of economic and social life from the moment of adoption of the
declaration of independence. For that reason our sportsmen were forced to abstain from participation in
the championships of the former Soviet Union what meant the loose of one or two years of professional
career. Youngsters were obliged to abstain from serving for Soviet military forces and to face threat
from soviet recruitment administration, and so on. This was probably one of the most crucial moment
in the history of independent Lithuania‘s. On 18th of March in 1990, President Mikhail Gorbachev in
his appeal to the Supreme Council of Lithuania delivered an ultimatum: to withdraw the act of
independence of to face severe outcome for whole nation. On 18th of April Soviet Union started an
economic and energetic blockade of Lithuania. Members of Supreme Council from Sąjūdis were
criticized by opponents inside Lithuania for radical decision. Rather cautious approach was taken by
major European counties. On April 26th French President Fransua Mitterrand and German Chancellor
Helmut Kohl in joint letter suggested temporary abstain from further actions steaming from the act of
independence.
Under the circumstances of heavy economic blockade and taking into account the appeal of
European presidents Supreme Council took the decision to declare 100 days moratorium for the new
acts implementation of the independence from the day of the beginning of negotiations between
Republic of Lithuania and Soviet Union. Even though Mikhail Gorbachev declared this decision as
insufficient on June 2, 1990, economic blockade was canceled. Open economic blockade of Lithuania
in our view was a mistake done by soviet administration. In an administrative economy blockade was
very detrimental to other Soviet Republics. The economies were lacking flexibility and were not
possible immediately to substitute the supply of some production by other suppliers. Lithuania gained
the sympathy from international community and the reputation of initiator of economic blockade was
substantially damaged. Blockade was a factor facilitating the liberalization of economic relations and
enhancing public support for unpopular economic reforms. However, end of economic blockade does
not diminished the soviet’s economic, ideological and even military pressure.
The immediate announcement of economic independence in March 1990 and fast and radical
reforms were probably only one right way to seek political independence. It is very doubtful that Step
by step approach advocated by opposition could have led to the same successful outcome because of
the fast spread of the authoritarian tendencies in Russia. Historically this was important geopolitical
event, which, in the sequence of events has led to the shift of the borders of ideological influence in the
world map. This also led to a second appearance of Lithuania’s name in the textbooks of the world
history as a geopolitical factor in establishing new borders of ideological values in the map of world
geopolitics. For the first time the name of Lithuania’s state is mentioned for the protection of European
borders against conquest by Mongols and Tatars (Atlas of World History, Oxford, 2002).
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Missing point in assessing the International environment for restoration of the independence.
Most researchers and historians note several international reasons that led to the reestablishment of
the independence in Baltic countries. These are uncompromising policies of Reagan and Thatcher
external and internal and pressures as well. This reasoning is right, however incomplete. The missing
point is activities of Pope John Paul II. In many political studies the role of the Pope John Paul II is
often presented in a fragmentary way. I think that our duty is to seek completeness of the reasoning,
which led to geopolitical changes in our region.
In 1978 after 445 years Italian dominance the first non-Italian pope was elected. The chronology of
major events and actions taken by Pope is presented in table 2.
Table 2: Chronology of major events that led to the independence of Baltic countries.
Date
1978, October 16
1980, September
1982, June 7
1987, August 23
1988, April 13
July 3
July 20
1989, April 5
June 4
August 23
November 9
November
27
1990, March 11
March 18
April 18
May 4
June 2
1991, August 19
Event
Election of non Italian pope after 445 years
Creation of the first non-communist trade union in a communist country
John Paul II and Ronald Reagan pledge to work for world peace and justice
Meetings to mark the anniversary of Molotov-Ribbentrop pact in Baltic
Proposal to create a perestroika-supporting People's Front of Estonia;
Establishment of people movement Sąjūdis in Lithuania
Establishment of Tautas fronte in Latvia
Solidarnosc became a legitimate and legal political party
Semi-free elections in Poland
Human chain: Baltic way
The fall of the Berlin wall
Adoption of the Law on economic independence of Lithuania SSR, Latvia SSR
and Estonia SSR
Declaration of the independence of the Republic of Lithuania
Declaration a period of transition to the restoration of the Republic of Estonia;
Start of the economic and energetic blockade of Lithuania by the Soviet Union
Declaration on renewal of the Independence of the Republic of Latvia with
transitional period between autonomy with the Soviet Union and full
independence
Economic blockade canceled
Failure of the putsch in Moscow and the beginning of recognitions of
independent Baltic states
Already in his first radio message "URBI ET ORBI" in 1978 pope John Paul II encouraged people:
“Be not afraid, widely open up the gates for Christ. Open up for his salvation power states borders,
economic and political systems”. His first visit to Poland led to the creation of the first non-communist
trade union in a communist country (J. O‘Sullivan, 2006). In June 7, 1982 John Paul II met the
President of the United States of America, Ronald Reagan for the first time. They pledged to work for
world peace and justice (events in the pontificate of his holiness pope John Paul II). Later president
Reagan arranged for the pope to receive US intelligence on developments in the Soviet bloc
(J.O’Sullivan, 2006). Pope’s moral undermining of communism worried the Soviet Politbiuro more
than any military threat. On March 2, 2006 Italian parliamentary commission concluded, that the Soviet
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Union was behind the attempt in retaliation for John Paul II’s support of Solidarity. No doubt, that
absolute win by Solidarnosc in the first semi-democratic elections was the first brake in the totalitarian
system, imposed by the Soviets in Central Europe. Later was the fall of Berlin wall and revolutions in
Baltic countries that led to the start of the transformation of our economic systems.
As most of the social scientist I also initially accepted the general explanation of the reasoning of
international preconditions until early 1993. My interest in the role of John Paul II was activated when
being responsible for Bank of Lithuania’s correspondent relations I have met one of the vice-president
of Italian bank „Ambrosiano Veneto“. He told me that the reorganized bank still keeps on their balance
sheet around one bln. USD non-performing loans to „Solidarnosc“ which were provided with the
support of Italian government. Everyone who is little bitter familiar with the banking industry
understands what kind of risk was taken by the bank in providing the credit to the foreign entities of
political movement through the intermediation of private companies. The autocratic regimes in the
world have far better opportunities to influence the geopolitically important projects because they have
big amounts of unaccountable financial resources in their disposal. On the contrary, all heads of
governments in the democratic world are constrained by public control in using financial resources.
Therefore, pope has no other choice to raise a financial support for political movement in Poland but in
a non ordinary way by initiate the request to the bank and Italian government. This was to some extend
venturesome step with rather difficult consequences for the bank shareholders and to the Bank which
latter went bankrupt. The financial operations were organized by the archbishop Paul Marcinkus, who
was son of Lithuanian emigrant to US and served as the president of the Istituto per le Opere di
Religione or the Vatican Bank from 1971 to 1989. During the soviet period the press in Lithuania was
full of controversial articles about his ties with mafia bosses and crimes. Soviets tried to discredit the
man who was in very close relations with the pope and was the third most powerful person in the
Vatican, behind Pope John Paul II and the secretary of state. Until now we may find controversial
extracts from different newspapers related to archbishop’s activities during his service in Vatican.
However, there is no ground to accuse him in trying to achieve personal gain. He finished his humble
life in servicing for the church in US. He returned to the Archdiocese of Chicago in 1990 before
retiring to Arizona where he lived as a parish priest. In the States it was agreed on the highest levels
that the case against Marcinkus could not be pursued any further." His famous saying “You can’t run
the church on Hail Mary’s” just confirms difficult archbishop’s responsibility in handling the
complicated financial operations.
Summarizing what has been said, we may conclude, that political and spiritual revival initiated by
Pope, effective coordination of the activities with the heads of USA and UK governments, his smart
and to some extend venturesome organization of provision of financial support for democratic
movement in Poland were the decisive factors for political rebirth of Eastern Europe. The amiable
Pope‘s attitude towards Lithuanians reinforced support from Polish politicians and mitigated the
national tensions between Lithuanians and the Poles, which to some extent were initiated by the soviet
forces.
The problem in estimating the starting position.
The final point that I want to deal with in my report is the problem of estimation of initial starting
positions regarding the level of economic development and income level. As we know the indicator of
Gross Domestic product is rather shaky development level indicator, even it is the most reliable
indicator for international comparisons. Every economist knows that only market forces could properly
define the equilibrium level of prices for products and services. Other methods of international
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comparisons are very approximate and were not available to the economists before 1990’s. By trying to
inspire the soviet leader Mikhail Gorbachev to transform the economic system and become a member
of international financial institutions IMF and World Bank, OECD, EBRD sent the joint team of
economists to prepare the initial study of the soviet economy in order to help in putting the reform
program and preparing the background calculation of possible quota of Soviet Union in international
organizations (A study of Soviet economy, 1991). The main indicator for calculation of quota is GDP
based on market prices. However, at that time Soviet economy was just an imitation of market in some
segments of the economy. Economic relations between republics and entities were based on
administrative order rather than on demand and supply rules. Therefore, preliminary calculations were
made on rather optimistic assessment without proper estimation of quality of goods and services,
because it was not possible to sell goods without proper quality on the market in the beginning of
transition. This led to an impression of statistically more important decline later during the transition
than it really was. This argument of severe economic decline is widely speculated by Sąjūdis
opponents. Some reformers could take the blame upon themselves in such an environment. I will
always remember the last meeting with prof. K.Antanavičius, our leader of economic reforms. In early
April of 1998 just a few days before passing away he visited me with charts and calculations for
economic activity in different sectors of the Lithuanian economy. With some kind of blame on
ourselves we discussed the reasons of economic decline. Unfortunately I had no proper answer at that
time. Later working in a Breton Wood’s institution I got a chance to look into this problem more
carefully. Some World Bank economists confirmed my guess about initial overvaluation of the level of
economic development of Soviet economy in a private conversation. Even officially few attempts were
made to correct the figures at some point, however, it was not possible because of international
interrelated calculations of the time series of world economy. Only some adjustments for different
years were made without changing the initial data. World Bank published more or less internationally
comparable real GDP data only in 2007. More reliable methodology used for international comparisons
led to a substantial revaluation of the real GDP of some emerging market economies (China’s around
40% reduction, India’s – 19% reduction). Comparing the methodology of calculations used by experts
of international organizations in 1991, on which the initial level of gross domestic product (GDP) for
Lithuania was calculated and first time in the year of 2007 published international comparable data on
GDP of various countries in the world we came to an assumption that the level of economic decline
was overestimated by overly optimistic initial assessment of the level of economic development of
soviet economy, intricacy of transformation process and the lack of reliable statistical data. Of course
we can’t deny the fact of economic decline during the transition, but the level of decline was
overestimated by serious problems in initial assessment.
However, the most important role of the Parliaments in 1990-1992 was the initiation of the process
of “creative destruction” that was necessary for further economic progress. Austrian economist Joseph
Schumpeter popularized and used the term to describe the process of transformation that accompanied
radical innovation. Schumpeter saw innovative entry by entrepreneurs as force that was sustaining
long-term economic growth in his vision of capitalism, even as it destroyed the value of established
companies that enjoyed some degree of monopoly power. Layoffs of workers with obsolete working
skills can be one price of new innovations valued by consumers. Though a continually innovating
economy generates new opportunities for workers to participate in more creative and productive
enterprises (provided they can acquire the necessary skills), creative destruction can cause severe
hardship in the short term. To certain extent this has happened in our countries.
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References:
1. ADDRESS OF HIS HOLINESS JOHN PAUL II, Sistine Chapel, FIRST RADIOMESSAGE "URBI
ET ORBI", Tuesday, 17 October, 1978”;
2. Atlas of World History (from the origins of humanity to the year 2000, Hardcover), Institute of
historical research, University of London, Oxford, 2002.
By Patrick K. O'Brien (Editor);
3. A Study of the Soviet Economy. 3-volume set. European Bank for Reconstruction and Development,
International Monetary Fund, Organization for Economic Co-operation and Development, World Bank,
Washington DC, December 15, 1991;
4. Events in the pontificate of his holiness pope John Paul II,
http://www.vatican.va/holy_father/john_paul_ii/biography/documents/hf_jpii_bio_01061996_pontificate_en.html;
5. John O'Sullivan. The President, the Pope, and the Prime Minister: Three Who Changed the World,
Regnery publishing, Washington DC, 2006.