Sunday, 17 March 2013

The Dual Legacy of 1989


1989 changed world history, although perhaps not as expected. The accepted narrative of this time was that the failures of the command economies in Central Eastern Europe had proved the superiority of free-market capitalism. The twin freedoms of a political democracy and free-market economy were now seen as being inseparable, as one could not exist without the other. Even large parts of the left came to accept these wisdoms – as they moved away not just from socialism but from the principles and practices of welfare capitalism.

Events of the past two decades have brought into question this dominant historical narrative. Firstly, the transition to capitalism in CEE did not result in the expected growth in living standards. A recent study carried out in all the countries of the region (and published in the prestigious journal Lanclet.) revealed that the mass privatisation of these economies came at a huge human cost, with the number of deaths increasing by `13%. In other words around one million people died due to the shock-therapy reforms. The most important reason for this loss of life was the 56% increase in unemployment and the collapse in the health and social care systems.

The largest economic collapses were felt in the poorer countries to the east of the region, that had belonged to the USSR. These countries underwent the greatest peacetime economic collapses in world history, as public wealth passed over to a small elite. The social effects of this transition led many governments to adopt a more authoritarian political system, as free-market capitalism could not provide the  economic conditions for a political democracy to develop. In fact, it was only once some governments introduced a more interventionist economic policy, and partly halted the programme of privatisation, that these economies began to grow. Anyone wishing to understand the popularity of Putin in Russia needs only to consider that in the 8 years before he came to power in 1999 Russian GDP declined by more than 52%, whilst in the proceeding 13 years it expanded by over 67%. 

In contrast to these failures, countries in the west of the region have been presented as the success stories of the transition to capitalism. Their initial economic declines were harsh, but less so than in the nations to their east. Their economies began to recover earlier, they became integrated into the economic, military and political institutions of the West and their political democracies stabilised. It would be foolish to dismiss some of these gains; however we can also not ignore that these countries tend to possess huge social inequalities, mass unemployment, large areas of poverty and disintegrating social and health systems.

The changes in CEE from 1989 also had a significant impact on the developed capitalist economies in the West. The political consensus that had upheld the post-war welfare state in Western Europe was dismantled and new waves of neo-liberal reform introduced. The welfare state was now deemed to be an outmoded institution that held back economic growth. Furthermore, the post-Cold War optimism of a more free and prosperous world order was soon shattered, as new waves of military aggression were launched in Yugoslavia, Afghanistan, Iraq and beyond. Rather than history ending, new appalling chapters have been written.

The fragile consensus of this new world order was finally  broken by the outbreak of the global economic crisis from the end of 2007. The economic model of neo-liberalism was shown not to have raised productivity and living standards but rather temporarily disguised the system’s fragilities and irrationalities through expanding credit and debt. Once the financial system reached the point of collapse the banks turned to governments for help. The very institutions and experts that had urged governments to cut their spending now received huge sums of public money in bank bailouts, that by 2009 were estimated to have been worth around $11trillion.This has been compounded by many governments (under pressure from those that received the  bailouts) to introduce new waves of economic austerity and spending cuts at a time when unemployment has been rising and living standards falling. Neo-liberalism has been shown not to be an objective economic theory that brings benefits to all, but a set of precepts that advantage the privileged few. The ideals of ‘trickle down’ economics have blatantly turned into demands that capital flows rapidly to the top. In such circumstances the practices of democratic accountability are being subverted and political stability and consensus in many countries undermined.

Yet despite the obvious failures of this model, the idea that there is still no alternative retains a strong hold. This is truest in those countries where the left has suffered the greatest defeats, that is leading many to look to the demagogic populism of the far-right. However, this fatalism is not felt everywhere in the world and in fact a new alternative to neo-liberal capitalism first began to grow itself from 1989.

The neo-liberal economic project had already been imposed upon Latin America before it was introduced in Central Eastern Europe. In Latin America the reforms were introduced by right-wing authoritarian governments, starting from Augusto Pinochet’s military dictatorship in Chile. The economic effects were disastrous:

 The first cause of these vast changes was an economic growth failure in Latin America from 1980 to 2000, the worst in over 100 years. Total per capita growth for the region over that 20-year period was about 5.7 percent, compared to the prior two decades where the economy grew by about 92 percent.”

These negative economic consequences drew a political response, not least in Venezuela. Despite being elected on an anti-IMF platform in February 1989, the newly elected President of Venezuela, Carlos Andrés Pérez, announced a new programme of neo-liberal reforms just two weeks after his inauguration. This resulted in a huge rise in poverty and a collapse in  living standards, that led to demonstrations and rioting throughout the country. The Venezuelan government responded by crushing the uprising, with an estimated three thousand Venezuelans losingtheir lives.

It was the experience of these events that led to the growth of a counter social movement in Venezuela and to the rise in popularity of Hugo Chavez. Chavez was eventually elected President in 1999, the first of 3 such victories before his recent death. Chavez reversed the failed economic course of the previous couple of decades, and introduced policies that included nationalising the country’s key industries (most importantly the oil industry); introducing wide-scale social programmes; funding cooperatives; massively expanding democratic participation including local democratic councils and encouraging the unity and independence of Latin America. These policies resulted in high economic growth, rising living standards, falling poverty, declining unemployment, the eradication of illiteracy, a reduction in economic inequality; increased social spending; a soaring in the number of those enrolled in education; the halving of child malnutrition and the quadrupling of the number of people eligible to receive a state pension (for an excellent graphic representation of these achievements see here). These were all attained with a large democratic mandate, as Chavez and his movement won over 15 elections that  have been declared as the freest and fairest in the world by the Carter Institute (led by former US President Jimmy Carter). 

The example provided by Venezuela and the revulsion at the neo-liberal policies introduced in the 1980s and 1990s, have led to a wave of left-wing governments being elected throughout the continent. These include governments such as those in Bolivia and Ecuador that are similar to that in Venezuela; as well as more moderate administrations in places such as Argentina and Brazil. The continent has largely broken from the imposed policies of institutions such as the IMF and the World Bank and introduced alternative economic programmes that improve their countries’ economies and raise living standards. Latin America is further disproving the neo-liberal axiom that free-market capitalism and political democracy are inexorably linked.

1989 was supposed to  have been the year that signalled the final triumph of free market capitalism. However, history may judge that it was in fact the time when a real popular alternative to this system was born.

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