An analytic report

Globalization in central and eastern Europe: responses to the ecological, economic and social consequences

Tony Addy and Jiri Silny

47 representatives of churches from central and eastern Europe, along with resource people, met from June 24 to 28 2001 in Budapest, Hungary. They were from Orthodox, Protestant and Roman Catholic churches. In addition, 30 guests and staff members of regional and international ecumenical and civil organizations from around the world were present. The geographical diversity of the region was well represented. This is important because the experiences of the different countries and sub-regions are also diverse. This paper is intended to reflect on the issues raised at the Budapest consultation with implications for the future work of the churches. We draw your attention to the documentation of the consultation, where you will find the results and recommendations of the meeting.¹

The impressions of central and eastern Europe gained from a visit to some of the capital cities in the region can be misleading. The proliferation of images familiar to western visitors can mislead the visitor as to the nature and outcomes of the process of transition. Hidden from view are the daily realities of economic and political life. Furthermore, very different impressions are gained from closer attention to the impact of transition on the areas where heavy and extractive industries predominated or from many rural areas.

Different countries had different starting points and have experienced different trajectories in the past 10 years. A quick examination of the statistical evidence reveals, in the case of some countries, present-day conditions that are similar to some poorer countries of the global south. At the Budapest consultation, there was a very strong discussion about the relationship between the processes of transition and globalization. Certainly the changes around 1989 coincided with the recognition of the process which we now understand as globalization. Transition has been strongly influenced by this development and the accompanying ideological framework.²

Historical background

At least one major pressure for change in central and eastern Europe in the late 1980s was the seeming inability of the previous system to satisfy people's demands for consumer goods. Images from western media showed a world of astonishing lifestyles based on consumer choice, in front of monotonous lives often spent queuing to meet basic survival needs. This is a striking reminder of the priorities of the planned economy, which were essentially geared to the production priorities of a fast-receding age. In fact, these systems were developed in the period of the dominance of heavy engineering and classical mass production. It was noticeable that they could not respond to the emergence of discerning consumer markets.

Western economies had been adjusting gradually, albeit with certain economic shocks to one of those periods where the then-dominant industries were becoming less profitable.³ It was clear that new technologies would revolutionize the way things are made and what is made. The main question was shifting from the need to produce goods to meet basic needs to a much more differentiated consumer-driven market. The technology that was applied to solving this problem of declining profitability and market change was based on computers. Information and communication technologies changed the way things were made, where they were made and indeed redefined which goods and services were most profitable. This was the technological base of globalization. There is no doubt that the technologies existed in central and eastern Europe, but they were not systematically applied to the development of consumer products and markets.⁴ The impact of economic globalization on both production and consumption was to affect the transition process greatly.

There was political control over almost every aspect of life - including economic life - and freedom of speech, religion and freedom of movement were very severely curtailed. There was little room for manoeuvre because of the high expenditures associated with the arms race, which reduced resources available for other developments. Some countries, notably Poland and Hungary, had significant debts to western creditors, which also affected the course of transition. There were some small experiments with market reform in some countries, but like perestroika, they were mostly too little, too late, and not very effective. Because of the emphasis on production at all costs and the low price level of energy, the region had many problems with the environment and with overconsumption (waste) of energy. If the early reforms had been pursued with more commitment, they might have been more successful in underpinning a gradual process of transition. But attempting transition under the conditions of a globalizing economy and with the accompanying ideology was a severe limitation on reforms in the 1990s. The discussion of alternative economic futures quickly collapsed in the face of the pressures from outside and inside the region.

Effects of globalization on central and eastern European countries

The basic paradigm represented by globalization produced an incredibly difficult situation in the late 1980s. There was a huge demand for all things western - and not only consumer goods but also packaged and highly marketed food products - which contributed to the collapse of a part of the productive capacity in the region.⁵ But the main point is that technological change speeds up industrial change and the region was given no time, no breathing space, to adapt its systems during transformation. The productive systems were geared to trade inside the Comecon group (central and eastern European countries and the former Soviet Union) and to supply chains that worked across the different countries. So the agricultural or industrial production of one country was geared to supplying needs of another. It meant that there was huge pressure from more technologically advanced western firms at the very moment when economic relations inside Comecon were disrupted and especially the Russian economy all but collapsed. Over time the situation has changed and the idea that "west is best" has given way to a more discerning approach, but the destructive effect of the early transition years continues to be felt.⁶

Secondly, this situation was exacerbated by the rapid opening of markets to western imports - a policy advised by western experts who felt that market competition from technologically advanced countries would speed up restructuring. In fact trade openness, because of the starting conditions previously described, led to even more closures of production. In some cases, such as agriculture, markets were opened, but it was clear that the countries urging openness were protecting their own markets and subsidizing their producers. This led to further downward pressures on agricultural and food production. Trade openness is a basic feature of the globalizing economy but, as in many cases, the openness was often unequally applied in a way that protects stronger interests. Where the central and eastern European countries' exports had a price advantage because of lower wage costs, they were often accused of "social dumping" and restrictions were applied.

Thirdly, the trend from the early 1980s was towards the deregulation of capital markets and the free flow of finance capital in the world financial system. This makes it difficult for governments to have effective control over their economies. Currency deregulation was supposed to impose market discipline and aid restructuring, but it had other more perverse effects. Strong speculative pressure was brought to bear on currencies such as the Russian rouble (which disastrously collapsed). Furthermore, the countries were supposed to privatize their industries but they had no effective capital markets. No mechanisms had been built up over a long period of time to accumulate savings that could be invested, and no means created to stop new owners from asset-stripping and exporting the capital gain. There are successful examples of privatization and of foreign direct investment which have led to an increase of productive capacity, but the destructiveness of this process is far more significant.

These three factors - the change in technology and the shift to consumer markets as the economic driving force, allied to the opening up of the countries' economy to imports and the deregulation of financial markets - all of which are tenets of economic globalization, had a decisive impact on the process of transformation. How did this come about?

Difficulties of the transition

At the beginning of the nineties the political changes in central and eastern Europe were accompanied by a rise in the belief in the market economy as the most advantageous model. People were ready to make sacrifices and had a desire to be entrepreneurial. The understanding of the market economy was not so developed and apart from the early stages there was little discussion of alternatives or new ways forward. The return to "normality" was what was desired. At the time the discussion in the international financial institutions,⁷ and the advice given to client economies, such as those of central and eastern Europe, was dominated by the "Washington consensus". These policy prescriptions were first developed as tools to deal with the problems of Latin American political economy. The basic ideas found political resonance with the then leaders of the United States and Great Britain. This collection of policies were bundled together and applied as a policy prescription to central and eastern Europe.⁸

The central and eastern European advisors, who came largely from the USA, were tagged "market Bolsheviks". It was as if they needed to celebrate the end of the cold war epoch by ensuring that a set of policies from "the west" were applied to "the east", without first having to examine the situation to see what was really happening "on the ground". The term Bolshevik was used because many of these advisors advocated moving to a market economy in one jump (shock therapy). This was a leap into the unknown, a journey no one had undertaken before. But the journey into uncharted territory was undertaken without rudimentary safety equipment and with little respect for indigenous knowledge and practice. This was a "utopian" project, because it assumed that by adopting some simple policy prescriptions all else would fall into place.⁹

The elements that combined to form the Washington consensus show a remarkable lack of understanding of how markets actually operate.¹⁰ Yet the policy prescriptions were to be accepted in "blind faith". There was no time or space to evaluate the different frameworks within which market economies operate, more or less successfully, in other world regions. Even if some of the tenets of this "neoliberal" consensus had little in the way of empirical validation, the prescription had to be applied. The proponents of neoliberalism found ready hearers amongst a new elite group in the countries who were willing to realize the utopian vision. This effectively killed any profound discussion of the possible alternative routes and goals for transition. But the application of this set of dogmas led to catastrophic results in many cases, storing up problems for the future and not addressing real problems of the economies.¹¹

Of course, countries differed in their application of the prescription and some countries hardly implemented any change, usually with disastrous outcomes (including continuing lacks of civil rights). We can evaluate the different outcomes and would argue strongly against "shock therapy" in favour of a sequential "learning by doing approach",¹² but in general we can see that

• The rapid opening up of domestic markets led to a fierce competition which domestic markets for the most part could not resist.
• Privatization is a key tenet of the consensus. Under prevailing conditions, this meant that many enterprises did not get responsible new owners nor did the state secure an adequate return. The transfer of property gave many opportunities for the enrichment of the few at the expense of the many. The new owners often had no interest in the fate of the enterprise or its workers. Profitable assets were stripped and the capital gains exported. This privatization was unprecedented, the biggest ever in history. It is not possible to compare this process to that of the privatization of a state enterprise in a functioning market economy. The destruction of economic assets in Russia was so severe that it has largely become an extractive economy supplying minerals and oil to third countries.
• The application of rigid criteria of profitability from the west to eastern European enterprises that were structured on a very different model (low wage/high employment/many services provided for employees) led to many firms being declared unviable and closing. Of course, in any economy there has to be structural economic change, but it is difficult to manage even with many resources. In central and eastern Europe, to destroy so much employment made little sense because there were no actual or potential new industries to take up the workforce. In extreme cases, such economic collapse leads not only to suffering and poverty but also to civil conflict and even war.¹³
• The lack of rules for the operation of capital markets and the weak overall legislation (see below), coupled with ineffective courts led to a situation where there was no trust that accounts would be settled and no adequate enforcement of payment. This indebted many companies to the point where they collapsed even though they were technically viable.
• The Washington consensus advocates a minimal state, although some of the most successful economies are allied with substantial states and in the west there is almost no evidence that the state is shrinking. In some transition countries, the state has shrunk to a level where it cannot provide the legal enforcement a market economy needs or the education, health and welfare which are essential for a productive workforce.

The different possibilities for the state to have an economic role were ignored because of the doctrinaire assumption that the state should be curtailed as far as possible (the "night watchman" state). In fact it can be shown that there are many different possibilities for state involvement in economic life and that a modern economy requires that the state is highly involved. What was missing from this approach was any discussion of different kinds of property and the many different kinds of ownership that enterprises have in the west.

Privatization carried out in countries with little or no domestic capital formation for investment leads to speculation with assets. On top of this there is the competition (incentives and tax holidays for example) to attract foreign capital which is highly selective, cherry-picking assets and investing in areas with the most potential created by past (state) investment. Such potential includes a well-educated and healthy workforce and an efficient transport infrastructure. This means that some areas remain almost completely without investment - particularly rural areas, where the agricultural market has all but collapsed. Many workers implicitly recognize this as they work in their factories for many months, and in some cases years, with little or no pay in order to keep the productive asset in being.

In this often ideologically driven process there was a faith that once privatization had been carried out (as fast as possible) the different institutions and laws needed to make a market economy function could be built up. Some even advocated a period post-transition when the laws would deliberately not be in place. In the vacuum of "no law" a criminal economy can take root. This is especially dangerous in situations where a new class of financially rich people can control the political process for their own ends. Virtually every law had to be rewritten. In some cases, the law has to be changed to incorporate the legislation required by the European Union.

As well as the immediate economic problems faced by central and eastern European economies, a huge problem has been created by the way in which transformation has been carried out. The destruction of human and social capital has been enormous. Every time a firm is destroyed the relationships within it are destroyed and the acids of long-term unemployment eat away at self-confidence and rapidly erode skills. There has been a breakdown in many cases of relationships based on workplaces and related associations and little has been put in their place. There has been a rise of violence and criminality, in some cases of the order of 400% over the ten years after the change. If, at the same time as such a massive disjunction in economic life takes place, the capacity of the state is reduced, then there are real problems in reversing decline. One of the most important assets, a skilled workforce, is very quickly eroded, and there is little future in pursuing cheap labour as the only asset a region has to offer. The resultant emigration of the brightest workers and researchers further constrains the capacity for innovation, research and development.

Rapid privatization was carried out in a way which did not respect positive cultural and ethical values within the region. Under conditions of globalization, it tended to block creative responses. The application of rigid market rules meant that many cultural industries were closed down. Rich traditions of filmmaking or historic theatres and orchestras and other artistic companies were virtually decimated. It will take much time and money to rebuild such industries and cultural assets. The possibilities opened up in theory by the changes, which open free spaces for people's creativity, are only partly used. There is little finance for ambitious projects because of financial constraints. Voluntary initiatives are limited because there are too few people with the security of livelihood to enable them to contribute long-term to civil-society activities.

One of the most disturbing long-term effects of the way in which transition was handled is the impact it has had on people's trust in the democratic process. At the start, there was a hope that as well as economic freedom, the restoration of democratic structures would create new possibilities for trustworthy political institutions and good governance to emerge. But the manner of transition has left people distrustful of politics. The lack of adequate supervision and controls in the privatization enabled many former managers to gain control of key assets, often with the assent of politicians. This has created a new class of people who benefited greatly from the transition and have an undue influence on the political process. The hope that after the collapse of the previous system there would be a welcoming of the contribution of civil society have not been fulfilled. To rebuild civil society is a long-term task that requires continuing external financial resources to develop and sustain it. There is no "quick fix".

The consequences of transition under globalization

In this section we want to highlight some of the most important impacts of economic and political change on the quality of life of the people caught up in it. The transition process was not the orderly process that the phrase implies. The collapse of economic output and historically unprecedented levels of inflation across the region have had catastrophic results for many, plunging over 100 million people into poverty, with many more eking out a living barely above subsistence level. The most dramatic impact on the process was the combined effect of the collapse of the Russian economy and the disintegration of the former Yugoslavia. In 15 countries, inflation exceeded 1,000% at its peak, and in Georgia it reached 18,000% at one point! There was a collapse in investment, negative growth, and huge insecurity in people's lives, as these seemingly irrational forces impacted on them. As more and more enterprises were collapsing and government revenues were declining, many governments decided to cover losses of state enterprises (which did not aid restructuring) and this created pressure on public finances which have still not been entirely overcome. This explains the simultaneous occurrence of rapid inflation and a contraction of demand.¹⁴ The outbreak of violent conflict in parts of the region compounded the problems, disrupting the supply of vital goods and services for many people. What, then are the major consequences of this type of "transition under globalization'?

Decline and rebound?

Using the latest figures from official sources, the minimum economic decline in the region was by around 20% of measured output (central Europe) but for the CIS and the Caucasus, the fallback was between 40% and 55%. Furthermore, the official figures do not include the informal economic activities by which many people survive in the region. Estimates vary between 10% and 60% of GDP (for Hungary the estimate is around 35%).¹⁵ We can now see across the region a small recovery in the official figures, but the low-level starting point should be borne in mind when interpreting them. In very few situations has output reached 1989 levels and then only for countries in central Europe. The connection between GDP growth and the incidence of poverty has to be evaluated since, with rising inequality, lack of state guarantees of social rights, and population changes, a rising GDP does not necessarily imply the diminution of poverty.¹⁶ So we must ask about the beneficiaries of transition, even in countries where the statistics look promising.

Rising unemployment, low pay and poverty

Unemployment has continued to rise, even when GDP has also been rising. Unemployment and low pay have had a considerable impact on increasing poverty levels in the region. A very large gap exists between present-day totals in poverty and those of 1989. There is a great deal of hidden unemployment because many people do not register with the authorities. In addition to those counted as unemployed, there are many people who are on forced "holiday" or who work and receive payment in kind, payment in arrears or a nominal wage from the state.¹⁷ The real wage levels maybe increasing but they are still way below 1989 levels in many cases. The situation is worsened by the fact that quite often people are paid in arrears and that health, education and other social services now increasingly have to be paid for. Purchasing power in some countries is back to the levels of thirty or fifty years ago, which were times of full social protection, low-cost housing and holiday entitlements.

The dramatic increase in poverty in the region is well known, but the consequences in ill-health and malnutrition deserve close attention. In some cases the percentage of the population in poverty is relatively small, but along with rising inequality, poverty has also risen in most countries. If a basic definition of poverty is taken, 60% of children in a relatively advantaged country like Poland suffer from some form of malnutrition and 10% are permanently malnourished. The problem in Poland, as in many other countries, is worse in rural areas where state-owned farms have collapsed or shed much labour. Severe protein and calorie malnutrition also affects children in some parts of the region. In countries such as Belarus, Ukraine and the Russian Federation, stunting among children is increasing. (Stunting is lack of growth that is never regained and it affected over 15% of Russian children in 1994).

Rising criminality and corruption

One of the most disturbing byproducts of transition has been the dramatic rise in crime and people's feeling of personal insecurity. Sometimes the rise in criminality has been a direct result of transition, where there is collusion between criminal elements or organized criminal groups and corrupt officials. The prevalence of criminality affects people's wellbeing, but it also affects the economy, as it corrodes the integrity of public administration and erodes confidence in democratic institutions. President Vaclav Havel called this development the rise of "mafia capitalism". In some cases there was a catastrophic rise in illegal activity related to drugs and the trade in illegal weapons. In some countries the network of organized crime forms a "state within a state" and this together with high incidence of white-collar crime related to state activity undermines efforts at economic reconstruction and renewal.¹⁸

Impacts on health and education

The scale and impact of transition on daily life has led to a "mortality crisis" in some parts of the region. Unicef estimates that over the period 1990-99 there were 3.26 million deaths of people who would not have been expected to die had mortality rates stayed at their 1989 levels (adjusted for the age structure of the population). Nearly three-quarters of these deaths were male and, of these, most were in the 25-60 year age bracket. This was a crisis that impacted most on working-age men. It is fair to assume that behind the headline figure there is a great deal of ill-health, since mortality and morbidity are closely connected. The bulk of these deaths occurred in countries such as Ukraine and Russia whereas in central Europe there was, over the decade, a gradual improvement in life expectancy. Nevertheless, ill-health and mortality have had a severe effect on many households - the loss of a male wage-earner coupled with the massive decline in female employment has plunged many into poverty. The "psychosocial stress" of economic insecurity was a major cause of premature death, to which should be added an equally disturbing growth in deaths due to external causes - accidents, murder and suicide. Whilst the biggest impact has been detected in men, there was also considerable impact on women along with other threats to women's health due to the lack of appropriate services. The infant mortality rate in CIS countries is on average five times that of the European Union average and for central Europe it is twice the EU average.

There has also been a rise in infectious diseases that are often linked to poverty - the incidence of tuberculosis is up by 50% across the region and the problem is in many cases still worsening. A recent study of 50 countries worldwide showed that Estonia had the highest incidence of drug-resistant tuberculosis of any country studied.

Until the mid-1990s, the incidence of HIV/Aids was less widespread than in western Europe, but in recent years this has been reversed, mainly in Russia, which accounts for 90% of the 700,000 sufferers.¹⁹

All these changes have to be seen in the context of a growth in inequality of health outcomes related to the introduction of health care charges on patients for drugs and treatments, or the impact of informal payments for medical care, which is widespread in the region. These elements taken together are a severe limit on poor people and families who need health care and cannot make the payments.

Education levels were relatively high in most countries of the region and it seems that education has fared better than health during the transition. However, after 1989 there was a huge reduction in pre-school education and kindergartens, related to changes in the structure of enterprises. Numbers graduating from basic-level schooling in the CIS have fallen from an average of 96% of children in 1989 to 83%. More disturbing is the large rise in number of 15- to18-year-olds who do not attend school. This now affects one-third of all children in the region, is closely correlated with family poverty and is concentrated in those countries that have suffered the biggest declines in national income. The exception to this trend is central Europe, which maintained or increased the percentage of children in post 15 schooling. Across the region, education in rural areas has suffered most, partly because parents cannot afford the basics (transport, clothing, books etc.)

Migration and displaced people

Migration in the region increased rapidly in the first years of transition. This was less because people could now move, than because of the search for security, primarily economic security. This has had a huge impact on population structures of some countries and has led to a brain-drain of highly educated people to the west. About 870,000 people left the region for the west in the early 1990s, but the totals are falling, especially for countries that can offer some hope of a more secure future. Nevertheless, migration is still a serious issue as people move from east to west within the region and transit the region hoping to get to western Europe. There is a great deal of seasonal migration for work, especially to western Europe, and a growth of what has been termed labour tourism. There have been major movements of people because of wars or environmental disasters. In 2000, there were 2.2 million registered as internally displaced within their own countries and nearly 1 million living as refugees in foreign countries. This represents a huge loss of human potential and a destruction of livelihood for many people. Displacement usually means stress, poverty, discrimination, loss of schooling and trauma due to war. Environmental factors, such as nuclear contamination of the Chernobyl region or the Aral Sea Basin disaster, caused about three-quarters of a million people to move, and over one million people have moved because of conflicts in the former Russian Republics. On top of this we have to count the internal migrations and resettlement of people forced to move in the former Soviet Union. Estimates are that this affected a further four million people.

Impact on women

Transition has been marked by an increase in gender inequality in economic life and in decision-making. Women were prominent in the initial changes around 1989, but the incidence of women in government has declined markedly. This has led to a growing movement by women in civil society to redress the situation.

The closure of many pre-school facilities, the introduction of charges for social care and the loss of many other female working places have decreased household income and pressurized women to substitute for the losses. Many women have become involved in farming small plots to help the household survive. They often combine a full-time job, part-time work for additional income, or some farming and a heavier burden of household work to enable the family to survive. Within the region, the qualification levels of women and men are more or less equal, yet women are more likely to be unemployed or in low-paying jobs and when they become unemployed it is difficult to find a new position. The low pay is partly because women are very often employed in state organizations such as schools where relative pay has markedly declined and late payment is often the norm. Many women in the region are involved in informal economic activity as a means of increasing family income security. They work in trade, personal services, tourism, catering and handicrafts, as well as farming. Prostitution and trafficking have also grown because of the economic insecurity in parts of the region. The growing criminal networks play on women's desire for a "better life". As in other regions, there is a clear correlation between economic insecurity, male unemployment and rising violence against women.

Ways forward

At the time of "the change", people were ready to work hard to create a market economy. Much of the social capital represented by that energy has been used up. People have had to deal with many cultural threats and challenges to identity and survival posed by globalization and transition. Ways forward have to be found which build on the existing social and economic situation and create new social capital, so recreating the possibilities for addressing the "real economy" and the economic viability of local communities. Many of the policies that should be introduced are well known and have been the basis of successful development in other regions. Examples include:

• protecting certain sectors of the economy to allow restructuring and the development of a domestic market
• regulating capital flows to allow the building up of domestic capital
• seeking more possibilities for regional cooperation
• Pushing for international regulation of financial markets and the democratization and accountability of international financial institutions

Some require more fundamental changes in the international economic order, but others are a question of local, national and regional strategy.

First, there needs to be an emphasis on building up local economies in the broad sense, and not only offering inducements for foreign direct investment. This has been successful in many regions, but it demands capacity-building and "learning by doing" with the people.²⁰ It also involves a different role for the local state in providing resources and enabling groups to develop their own potential. There are many examples in the region of groups developing their communities in new ways when the resources are available.

Gradually the links between economic and social development on a local level are being understood, but there is a tremendous need for resources. However, it is important to recognize that the potential for local social and economic development, for building sustainable communities, is hampered by the operation of the main economic system.

For instance in rural areas, economic survival depends on inputs of energy and the maintenance of a secure, clean water supply system. Rural communities are linked to national energy systems, which have in many cases been privatized, and this means that as energy prices approach "world-price" levels, poor people cannot afford gas and electricity. This can be even worse where villages and small towns have paid for their connection to supply networks and the installation of new technologies using loans. Given that people cannot afford such energy sources, they then start to burn firewood and rubbish which causes environmental damage.

Because more people have animals (to supplement their family income) and more chemicals are used on farms, local wells and water supplies become polluted. People have to buy expensive drinking water in bottles, which are then burnt causing further watercourse pollution. Safe water can often be supplied on a village-based system, but there is no finance for this available. The only option is for the village to borrow much larger amounts of money to connect to the (private) national system.

The outcome is that more and more of the (indebted) village's income goes directly to multinational energy and water companies and local development is inhibited. Local systems of water supply and the use of alternative energy (wind, water, bio-mass) cost less and create local employment. But it is difficult and in some cases impossible to finance these schemes through loans. Thus local job creation and economic development potential is lost and the "winners" are the finance houses and utility companies which pump resources out of the local economy.

From this example we can see that there is a direct link between local community health and wellbeing and the need to change the way financial and business systems operate. The link between local conditions and the wider system is clearly visible and the "profit" leaves, usually never to be reinvested locally.²¹

Second, the "state desertion" of the last decade should be reversed. There needs to be a re-emphasis on the positive role of the state in promoting the health, education and welfare of the people and recognition of the need for intervention for the common good of all. One of the consequences of transition is new exclusions from economic life. High priority should be given to the protection and support of the weak, but policies that only target specific groups are costly and tend to "miss" many or most of those for whom they are intended. In this area we can include the need to guarantee a minimum, liveable income, promote better working conditions and address new problems arising from low pay, long hours of work and bad working conditions. The state should also protect and enhance the education and health care systems, to ensure equitable access and address the decline in participation by poorer and more vulnerable groups. States with civil society should be vigilant in opposing the racism that has risen at the time of growing social and economic exclusion and which affect minorities, especially Roma families in many countries. In some parts of the region, the state is weak for economic or other reasons and therefore unable to fulfil these functions. This is a problem unknown in western countries and countries should be supported in restoring state functions and democratic institutions.

Third, there needs to be a strong emphasis on the role of the state in environmental protection and promotion that would act as a check on certain types of development. Whilst in many cases there have been environmental improvements due to the need to meet European Union guidelines (and due to the closure of many industries), there have been spectacular instances of industrial pollution sometimes created by western-owned companies. The pressure to create jobs also tends to limit the capacity of regulatory authorities to control development. Here the role of international financial institutions in financing projects that are detrimental to the environment is an important factor.

Fourth, the pressure to increase exports and repay foreign debt contributes to human suffering in the region. In the case of Moldova, the debt of US$1.5 billion (105% of GDP) results in interest repayments amounting to 70% of the state budget. (In 2000 it was 10% and in 2001 it was already 42%). In January the government announced that its revenues were 15% down on estimates. In February there was no money to pay teachers or other public sector employees. The IMF suspended cooperation because of the failure to liberalize and privatize the economy. GDP is 30% of what it was in 1989. A continuing exodus has led to over 30% of the workforce living outside the country who sent home US$170 million in 2000, which enables many to survive.²² We do not condone the Moldovan government, noted for restricting civil society and stifling critical journalism, and so split for many years that it could hardly agree on policies.²³ However, pressures on countries to repay debts and liberalize their economies can lead to human suffering or to short term "fixes", such as the overexploitation of irreplaceable natural resources such as diverse natural forest. Once destroyed, such an asset cannot be recreated.

Fifth, there is a continuing need to develop civil society throughout the region. There has been a large but uneven growth of NGOs and social movements but there is still need to support training, networking and development in this area. It is important to see the positive role of civil society, but to avoid the "dumping" of state obligations on the voluntary sector. Space should be created for such organizations to flourish and to secure proper funding in order to build capacity. The state should maintain its central role in social protection and security in the interests of equity and combating poverty and growing inequality. The role of civil society in environmental issues, already well developed in many countries, should be enhanced. Given the history of the region, the building up of civil society and the opening of "free spaces" is a high priority.

Organizations working to create new links with the global south or working critically on the impacts of transition, addressing policies of the international institutions, should be supported. The experience of central and eastern Europe shows how important it is to reassert the ideas of more regulation of the financial economy and more emphasis on local economies. We do not advocate autarky but emphasize the need to overcome the application of policies that favour the economically stronger producers. This is very important in the negotiations for membership of the EU, which could lead to a further round of job losses and restructuring, notably of agriculture.

The task of the churches

The task of addressing the urgent problems and long term needs of central and eastern Europe is a challenge for the churches.

The churches of central and eastern Europe

In many cases the churches have made impressive steps in establishing different kinds of welfare or diaconal initiatives. These have been important in demonstrating new models of caring for and working with very disadvantaged people and marginal groups. There are also many examples of small-scale ecological projects initiated by churches.

Now there is a need to understand the challenges to and from faith implied by the current development model. Confessing our faith that God intends people to enjoy fullness of life, that burdens should not be shifted to the poorest, and that the economy should serve the building up of the "household" should alert the churches to their prophetic task in the region.

The churches have the potential to be significantly involved in the political economy of the countries and the region. It is important for them to work in close connection with civil society - groups, associations, movements and trade unions - as well as with different faith communities, where values are shared. It is critical to reverse the dangerous trends in the region and to work with others for solutions, promoting democratic control and participation by the people in the decisions that affect their lives and wellbeing. One element which was neglected in the transition was local experience. The churches can make a difference by supporting long-term development on the local level, engaging with people who are most affected. This local work needs to be linked to the struggle for the renewal of democracy and for appropriate national and international policies.

It is important not to lose sight of the global perspective, not least because the central and eastern European countries also had and have relationships with economies in the majority world. There is a need to develop more understanding of and engagement with this issue. For example some countries in central and eastern Europe have inherited debts owed to them by countries in the majority world, such as the foreign debt owed by Cuba to the Czech Republic. It is still the case that regional nongovermental organizations are hardly represented in international gatherings, such as the NGO caucus at the recent UN finance for development conference in Mexico.

The challenges to the churches in the region are enormous and there are very few resources for the building up of a solid engagement with political economy. Strategies for the development of the capacity of the churches to work ecumenically in this field are important. Training, capacity-building, analysis and theological reflection are best carried out as a collaborative effort, which will strengthen the work of the churches and civil society together. At the time of writing there is no financially stable point for the organization of the support for the process which is, in any case, actively underway.²⁴

The churches of western Europe

The transition creates a new challenge to the churches of the west. Basic questions of justice and sustainability arise from engagement with people and communities negatively affected by the transition and challenge all the churches to work relentlessly for justice in the ordering of public life and the economy. This is based on the recognition that the policies at the heart of the experiment called transition were developed in the west, and that in many cases the main beneficiaries of the process have been organizations in the west:

• banks and financial institutions which have profited from the debts of the region
• foreign investors who benefit from cheap labour (including highly qualified labour) and in some cases from a lax environmental framework
• beneficiaries of the "brain drains" and of trafficking in people (including children)

Ecumenical and church groups in the region working on the issues raised by the negative impacts of transition under globalization need support from the west in order to develop their responses. Church representatives from the region have elaborated the programme of work and agree that there is urgent need for networking and training, research and development. The building up of "horizontal" communication between groups within the region is a very important element in this programme and was emphasized at the Budapest consultation. There is a need to build up new relationships between active groups in the east and in the countries of the global south, which ecumenical organizations in the region are increasingly asked to support.

Spirituality and discernment are central. The evaluation of the transition has to take seriously the position of most people in central and eastern Europe, Russia and the former Russian republics. Although there have been undoubted gains from the process in terms of mobility and human rights, and improved living standards for some, most have lost out in terms of economic security. We question the model that has informed the priorities of western advisors and shaped the accompanying financial flows. As we have already pointed out, countries were given no space to work out their own way forward in the transition. Important priorities of life are in danger of being lost in the transition process under the dominant values of a globalizing economy - such as living with simplicity, a strong family life.²⁵ The "marketizing" and "commodification" of basic life elements such as health, social care, education and water runs counter to deeply held values. These changes are part and parcel of transition under globalization and western interests and advisors in many cases set the conditions. One diaconal leader put it this way - the churches and nations in the west have to change their way of life if the churches and people of the east are to survive. It is a call to all the churches for a change of life and priority, in order to take responsibility for pressing, in the west, for the changes that are needed.

Tony Addy is a minister of the United Reformed Church in the UK, living in the Czech Republic and working for the European Contact Group, the network of urban, industrial and rural mission. He is also secretary of the Work and Economy Research Network in the European Churches.

Jiri Silny is a minister of the Czechoslovak Hussite Church. He is director of the Ecumenical Academy in Prague and president of the European Forum of Christian Men. He is a member of the executive committee of the Work and Economy Research Network in the European Churches.

Notes