Western norms has already been examined in Section 1.2 of this study.
The purpose of the next section will be to give an historical overview of its application.
2.1 Western developmental approaches towards Central
was voicing a commonly held view that studying small states in the context of International Relations theory was not very pertinent. This conclusion was reached by basing Realist theories on power politics.
The less power, in terms of force, a country had the less relevant it was. This approach can be largely traced back to the works of Hans J.
Morgenthau whose book, Politics Among Nations: The Struggle for Power and Peace, was to be a standard text for Western scholars throughout the post-war era (Morgenthau, 1948). Morgenthau’s tenet that international relations are about states pursuing interests defined in terms of power, assumes that the role of small states is that of a nuisance or a pawn in the great game of superpower politics.
Were the Realists on the mark, regarding small states, during the post- war period? There were many supporters of the Realist position in the West during the Cold War because the bipolar nature of the international system seemed to confirm their approach. One suspects, however, that the traditional Realists may have underestimated the role that small states can play as catalysts for international conflict. Despite the research concentration on the superpowers, the majority of conflicts up to the late 1960s did not involve either the United States or the Soviet Union. Fox points out that up until 1969:
the most interesting aspect of the incidence of violence following World War II is that great powers were involved, even indirectly through military aid, in relatively fewer cases than in the pre-World War II period. The Soviet Union and the United States were each connected with only four to six.
Fox, 1969: 759 Of course, the above quote could be brushed aside by pointing out that this period coincided with rapid de-colonization, therefore, Britain, France as well as the United Nations may have found themselves in non-Superpower conflicts or peacekeeping roles. A further attack, by employing a Realist position, could suggest that the superpowers would have been reluctant to become involved in conflicts of any kind for fear of escalation and the possible use of nuclear weapons. This argument against the study of small states and peripheral conflicts seemed both plausible and powerful until the outbreak of the Vietnam War (1961–73).
In the end, this conflict caused no nuclear war, and the fall of Saigon in April 1975 somewhat dented the belief that a superpower (in this case the United States) could effectively harness its power to successfully achieve its goals.
Western theory in the post-war era, whether that of International Polit- ical Economy or International Relations, remained strongly dominated by the Western allies’ perspective on the world. As a result Britain was seen as a large state, whereas the Netherlands was labelled as a small state, as was India (Fox, 1969: 751). The idea of placing the Netherlands in the same size category as India seems, to a present-day reader, some- what nonsensical. However, work done during this period in inter- national studies concentrated heavily on security concerns. It becomes clear, therefore, that ‘small’ and ‘large’ refers less to size and more to a country’s respective role in international security arrangements.
This fixation on security was to completely engulf the West’s view towards CEECs prior to 1989. During President Truman’s administra- tion (1945–53) Congress passed the Mutual Security Act of 1951, which stipulated that all kinds of American foreign aid – military, economy or technical should be oriented to:
strengthening the free world in its resistance to Communism. The act, in force until 1961, required that no country was to be consid- ered eligible to receive aid if it were not aligned to the West.
Augelli, 1988: 84 Eligible candidate countries that were less developed were to be exposed to a sort of evangelicalism designed to spread the ‘American way’ in terms of economic development. This was combined with the West’s sophisticated level of influence over financial institutions such as the IMF and the WB. The Realist approach may have over-estimated Amer- ica’s ability to use force or the show of force to acquire its goals, but the United States’ influence on the structure of the international monetary system after 1945 was profound.
As a result of America’s unique position after the war a succession of US administrations from Truman up to Reagan would be responsible for setting the tone and substance of many economic aid and development projects among the poorer countries in the international system. It is interesting to note that the main thrust of developmental approaches during the Truman administration would be almost identical to those thrust upon Poland, the Czech Republic and Hungary after 1989. There was a strong feeling during the 1940s and 1950s that the only way to attain economic development was to keep the state/government from interfering with the market. This was also the belief behind the IMF’s loan conditionality in Central Europe during the 1990s. Throughout the post-war era it was assumed that trade liberalization and a conservative
monetary policy would create an appropriate climate for foreign inves- tors. It was thought that if developing countries stuck to these policies economic growth would follow. These policies would also benefit Amer- ican financial interests abroad (Augelli and Murphy, 1988: 82).
When, however, economic development was truly needed to bolster the strength of an ally, the above principles were not applied. As mentioned in Section 1.2 of this study, in order to help Western Europe recover after the war the Marshall Plan, beginning in 1948, infused much needed capital into war-torn European economies representing 6.25 per cent of US Gross Domestic Product (GDP). Credit was given on very favourable terms. No country in Europe had a convertible currency until 1958 and the United States permitted Europe to maintain trade barriers to allow for a post-war economic recovery. The harsher version of economic development was to be reserved and practised on the globe’s poorer countries in the Third World.
The anti-Communist element of international aid-conditionality was to soften somewhat during President Eisenhower’s administration (1953–61). The Eisenhower doctrine allowed some aid to go to non- aligned states. There was a general feeling that the threat of commun- ism was perhaps not necessarily America’s top international interest.
A move was afoot to increase American influence abroad with a wider range of political and economic policies. This American attitude towards developing countries was to be carried through to John F. Kennedy’s Presidency (1961–63). Intellectuals working for the Kennedy adminis- tration formally recognized that poverty was a leading cause of the attraction towards communism. They believed that this attraction to communism was doomed to failure and disappointment, but a danger nonetheless. This began a change in tack with regards to the West’s approach to development policies. Projects were designed to deliberately target poor countries in an attempt to stimulate growth and alleviate poverty. This was not done in the interests of international wealth redis- tribution as called for by many Third World countries. Instead, the method chosen was loans supplied through IFIs and the organizations created by the Bretton Woods agreement, namely the IMF and the WB.
Loans, however, would not be given without some form of conditional- ity. The policies created through the medium of loan conditionality was based on Modernization theory. A crucial assumption in Modernization theory believes that if a state is given the physical accoutrements of a modern industrialized state such as transport facilities, it would then be or quickly become a modern state. Dam and highway projects, for example were particularly popular. Money was to be made available for
these large projects, particularly infrastructure. The ability of the recipi- ent country to pay back the loan and adhere to its terms was intended to inspire the confidence of foreign investors. This, it was assumed, would create economic growth which would undercut poverty. The most popular intellectual blueprint of Modernization theory used at this time was W. W. Rostow’s theory of the stages of economic develop- ment. Rostow’s theory was strongly determinist and saw all countries going through an evolution from a traditionalist society to reaching a point of ‘take-off’, followed by the development of a society of high- mass consumption which he categorized as ‘modern’. He did not con- centrate on the West alone and felt that the Union of Soviet Socialist Republics (USSR)/Russia had reached ‘take-off’ before the First World War. He was not only an academic, but was very influential in both the Kennedy and Johnson Presidential administrations, and acted as an offi- cial American adviser to Vietnam. The main thrust of Rostow’s version of Modernization theory was to attempt to see countries reach the ‘take- off’ stage which would then lead, according to his theory, to a period of self-sustaining growth like that experienced in the West. This economic development was to remove poverty by seeing wealth ‘trickle-down’
through all classes providing some form of benefit to all. Rostowian Modernization theory was to remain the theoretical mainstay of Amer- ican, and Western developmental approaches in general, throughout the 1960s and 1970s (Rostow, 1960/Augelli and Murphy, 1988: 87–8).
How did the post-war fear of communism and the popularity of Modernization theory affect the CEECs? For many theoreticians and policy-makers, the socialist nature of Poland, Hungary and Czechoslo- vakia was to blind them to the similarities between these countries and non-communist countries particularly which had experienced similar economic policies and problems. In Malcolm Grieve’s 1995 article he highlights this tunnel vision by quoting Joan Spero from her 1981 work:
While some members of the Eastern bloc may join Western institutions . . . there will be no re-integration of the world economy and of its management systems . . . separation will remain the major characteristic of East–West economic relations.
Grieve, 1995: 81, quoting Spero, 1981: 327–8 The question is: to what extent was this split assumed as opposed to actual? Were the countries of Central Europe truly isolated from the global political economy? If we take the case of Poland we see that inter- action between East and West was stronger than one might presume.
After the Second World War, despite Poland’s position as a satellite state of the Soviet Union, it was an original signatory to the Bretton Woods agreement (Bjork, 1995: 90). Poland had asked the WB for a loan of
$600 million to help with post-war reconstruction. In the end the Polish government was to receive only $45 million. Poland’s request coincided with Harry S. Truman’s administration which to the view that strong conditionality should be attached to aid given to any country particu- larly those in the socialist camp. The ideological convictions of the West were married with a strong belief in the power technology and science to solve problems. Truman had great faith in science, American technological achievement, and industrial progress (Augelli, 1988: 83).
He believed that technical assistance implemented through advisory missions would illustrate not only the benefit of following in the foot- steps of the West but that it would also quickly improve the standard of living of the recipient countries. As a result Poland could only use the WB loan it received for very specific types of developmental assistance.
The attitude of the West toward Poland, vis-à-vis loan conditionality caused strained relations. During the 1950s Poland, by way of protest, withdrew its membership from both the IMF and the WB.
Despite the strong influence exerted by the Soviets over Central Europe with regards to military matters, their control over the various economies was not strong. Polish agriculture, for instance, was never properly col- lectivized. Most of the food produced in Poland was grown on privately owned farms. Trade in all of the Central European countries was also not totally isolated. While it is true that the lion’s share of imports and exports from Poland, Czechoslovakia and Hungary went to the USSR, at least a third of their trade in the pre-1989 era was with the EC and the European Free Trade Area (EFTA) countries (Messerlin, 1995: 204).
There was, in terms of trade, a general recognition that goods coming from the communist bloc were likely being sold for under their produc- tion cost value. Suspicion of product dumping saw many countries in the West apply some form of quantitative restriction on trade originating from the CEECs. Despite these forms of closely administered trade arrange- ments, trade and economic relations did exist. During the post-war period Japan and the EC concluded a series of comprehensive arrangements, which included a system of quotas, bilateral agreements and quantitative restric- tions, with Central Europe (Smolik, 1995: 244). The US had denied GATT’s Most Favoured Nation (MFN) status to the CEECs after the war. However, during the 1970s it granted MFN status to both Poland (1970) and Hungary (1978). The Hungarian New Economic Mechanism (NEM), implement- ed in January 1968 was a move away from total government control of
the economy (Richet, 1981: 26). Similarly economic reforms in Poland during the 1970s saw an increase of total investments of 18.4 per cent annually between 1971 and 1975. The development strategy that was being followed in Central Europe in the 1970s seemed to be one of try- ing to attain Western standards of wealth without introducing demo- cracy or privatization. While not willing to adopt a Western style political system there was a recognition that foreign capital through trade could increase the aggregate wealth of these countries. The CEECs tended to have very similar theories, beliefs and policies with regards to creating economic development. This period was to mark the beginning of the heavy borrowing by many of the CEECs. Despite their centrally planned state apparatus they were to be effected by, and take part in, the global economy. This is particularly true with regards to credit and international financial arrangements. Stagnation in the late 1970s and early 1980s was to signal the failure of many Central European countries who tried to modernize without significant political/government reforms.
By 1980 Poland’s debt had reached a remarkable US$24 billion, with 96 per cent of its total export earnings going to debt servicing (Prust, 1988:
3–12; WB, 1987: 17). The only country that had managed to control its debt was Czechoslovakia, but more specifically that part of the former Czechoslovkia which would later become the Czech Republic post- January 1993. The culture of fiscal conservatism in the Czech Republic would serve it well during the transition when, unlike its neighbours, its comparative lack of debt gave it a certain amount of independence when dealing with international financial organizations.
It is perhaps dangerous to over-emphasize the links that Central Europe had with the West. However, it is worth pointing out the connections that did exist, as it somewhat weakens much of the Realist/neo-Realist work done during the Cold War period. Although the political tensions between the East–West superpower blocks are well documented, the economic isolation was not as stark as many, such as Spero, have sug- gested. In part this can be explained by the dominance in the West of Realist theory and its blindness to activities that were not part of the formal relations between states. A Realist approach would assume that countries operate in their own self-interests and that politics is a struggle for power. This view is supplemented by a belief in the importance of sovereignty as the most essential characteristic of an international state.
The term strongly implies political independence from any higher authority and also suggests at least theoretical equality. However, for the CEECs the situation did not fit neatly into a textbook description of International Relations where independent countries relate to each other
in an anarchical global system. They were militarily dominated by the Soviet Union a fact which most foreign policy analysts of the day were happy to concede. However, the CEECs were also being pulled into the Western system of global capitalism through their international bor- rowing and adherence to western models of industrial progress. Much of Central Europe’s bilateral relationships with Western countries was overlooked by contemporary analysts. The concentration on state foreign policy focused contemporary research on relations between govern- ments. As a result economic relations, particularly private transactions remained under-analysed.
Had more economic and developmental research been done on Cent- ral Europe after the Second World War it would have revealed that the developmental approaches employed would not have been widely dif- ferent from those of either the Truman or Eiesenhower administration towards Latin America or Europe’s developmental strategies toward Africa. Most of the developmental approaches of the time had some form of political/security motivation, but the economic development component relied heavily on faith in industrial progress, large infra- structure projects and a belief in the power of science through techno- logical assistance. Bjorn Hettne in his 1994 article highlights this phenomenon with regards to socialist development strategy. Marxist theory itself does not discuss development as such. Hettne suggests that instead Stalin’s five-year plans were to become the development model for most socialist countries. As the decades progressed many socialist countries attempted to have dual goals of creating better socialism com- bined with greater economic development (not so different from the West’s belief in the dual development of industrialized wealth and demo- cracy). However, as time went on the socialist countries increasingly began to use the most developed Western countries as a benchmark for their own industrial performance. Eventually, any kind of move toward a civil society model was abandoned in favour of a non-capitalist version of development. In the end ‘socialism’, as Hettne says: ‘became more or less a transition ideology for “late-comers”’. In terms of economic devel- opment ‘communism’ created policies that would ultimately encourage a transition to, rather than from, capitalism (Hettne, 1994: 40).
The failure of the modernization approach to development in Cent- ral Europe was very evident by the 1980s. The conditionality imposed upon them by IFIs placed many of the authoritarian-style governments under pressure to institute wage and price reform. The lack of legitim- acy of the political systems in Poland, Czechoslovakia and Hungary had laid the ground work for popular uprisings against the unpopular
governments who were beginning to cap wages and raise prices. The spiral of debt and economic stagnation was, in the final analysis, what would bring down the communist regimes in Central Europe in 1989–91.
The collapse of the Soviet Union and its various socialist allies was largely ascribed to the failure of the communist system. Fingers were pointed at the inflexibility of the central planning model. Lack of both political freedom and the ability to accrue private capital were also con- sidered explanations for its rapid fall. Without a doubt, bureaucratic inef- ficiency and political repression in Central Europe played a leading role in the downfall of the various communist governments. The question is whether the economic situation these countries found themselves in was peculiar to the Socialist bloc or whether developing countries around the world were faring differently?
The election of Reagan to the American Presidency in 1980, was to herald a new era for Modernization theory and its application as a Western developmental tool in the Third World. Like Truman before him, Reagan felt comfortable with the concepts of progress, human (American) destiny and scientific achievement. But the use of American foreign aid and its influence over the WB and IMF was not only to pro- mote the cause of industrial progress but it was also to support Amer- ican ‘common sense’ ideas and material interests, in the Third World (Augelli and Murphy, 1988). However, the liberal political economy model was not to prove a panacea to the problem of Third World devel- opment. Many developing countries had economies that were not diversified. Exports from these countries tended to be commodities or in highly competitive areas of manufacturing such as textile and steel production. The countries of Latin America and Africa suffered in the early 1980s as the world market offered no relief for their stagnating economies. All countries had taken loans from the West and, in the wake of the commodity price slump, most countries simply did not have the foreign exchange to meet their borrowing commitments. High interest rates in the mid-1980s were to exacerbate the situation.
Murphy and Augelli, point out that: ‘Annual interest payments on the medium and long-term loans of all the developing countries grew a further 14% to $58 billion in 1984’ (Augelli and Murphy, 1988: 174).
Quoting a 1985 WB report, they summarize the effect of the ‘modern- ization’ model coupled with liberal economic policies:
Growth has slowed in most developing countries . . . average per capita real incomes in Africa are no higher than they were in 1970; in much