Political Foundations of Evolving Capitalism in Eastern and Central Europe

25 September 2024 By

The political and economic transformation of Eastern and Central Europe (ECE) since the fall of the Iron Curtain has been a complex and dynamic process. The current EU member states in this region have faced significant challenges over the last three decades, evolving through distinct phases of capitalist development. Our report – executed by Edgars Eihmanis at the Skytte Institute of Political Studies, University of Tartu (leader), and Szymon Pilch and Adam Mrozowicki at the Institute of Sociology, University of Wrocław – explores these developments, integrating insights from political economy and economic sociology to analyze how capitalism has unfolded across the region in response to shifting political, social, and economic dynamics.
 
We outline three major periods in ECE’s evolution: the post-socialist transformation (1989-2007), the aftermath of the 2008 Global Financial Crisis (GFC), and the period of polycrisis post-2015, which has been exacerbated by the COVID-19 pandemic. The polycrisis period refers to a confluence of multiple crises, such as the energy crisis, cost-of-living issues, refugee influx, and the Russian invasion of Ukraine. These overlapping crises have left a profound mark on the region’s political and economic systems.
 
The report is structured into two interconnected components, each informed the distinct analytical frameworks. The first part, executed by the University of Tartu, focuses on international and comparative political economy, offering a comprehensive overview of the key financial, industrial, and macroeconomic developments in ECE. It emphasizes the contrasting dynamics between the Visegrad-4 countries (Czech Republic, Hungary, Poland, and Slovakia) and the Baltic states (Estonia, Latvia, Lithuania). The second part, executed by the Univerisity if Wroclaw team, focuses more specifically on labor relations and the contours of digital capitalism, with a particular emphasis on Poland, the largest economy in the region.
 
A key theme in our deliverable is the diversity in the region’s transition from centrally planned economies to market-oriented systems. While all ECE countries have experienced varying degrees of neoliberal policies and state intervention, they have done so in different ways. The Baltic states adopted a neoliberal approach, while the Visegrad countries embraced a form of “socially embedded neoliberalism,” characterized by more significant state intervention and social welfare. Southern East European countries, meanwhile, occupied an intermediate position in terms of their macroeconomic structures.

The 2008 GFC and subsequent crises have triggered significant transformations in the region, compelling a reassessment of previous typologies of ECE political economies. We note the rise of illiberal and authoritarian trends, as well as increasing state intervention in economic affairs. This is particularly evident in Poland, where the ruling PiS (Law and Justice) party has promoted a model of “national developmental capitalism” that seeks to drive technological advancement and industrial growth through state-led initiatives. At the same time, we warn of the risks posed by the deepening integration of public administration and tech multinationals like Google, Apple, Facebook, Amazon, and Microsoft (GAFAM), which threatens digital sovereignty in the region.

Against the backdrop of a series of crises, ECE economies highlight persistent challenges. These include entrenched dependence on foreign capital and expertise, limited state capacity, and the political strategies of incumbent leaders seeking to maintain power. While the crises have led to some policy adjustments, there has been a notable continuity in economic growth models, which has hindered more profound change. In conclusion, we however stress the promise and potential role of the EU in driving policy innovation and supporting industrial and social upgrades in the region. Despite the challenges, the financial and administrative resources of the EU present an opportunity to address some of the limitations faced by ECE economies, offering a promising avenue for future research and policy development.

By Edgars Eihmanis, University of Tartu