Rich Cities, Poor Regions

Eastern European backwardness is a stereotype that is still used by Western media and has formed the basis of academic inquiry for many years. How underdeveloped or poor is the former Eastern Bloc really, more than twenty-five years after the revolutions of 1989–91? The assumption of backwardness was a key point of departure for the communists’ economic and social policy. Stalinist regimes aimed to catapult the predominantly agrarian societies into the modern age by swift industrialization.32 At the same time, they hoped to produce politically loyal working classes by mass employment in large state industries. Steelworks were built in Eisenhüttenstadt (GDR), Nowa Huta (Poland), Košice (Slovakia), and Miskolc (Hungary), as were various mechanical engineering and chemical combines and other industrial sites. As a result of communist modernization, living standards in Eastern Europe rose. Planned economies, moreover, meant that wages, salaries, and the prices of consumer goods were fixed. Although the communists were not able to cancel out all regional differences, they succeeded in creating largely egalitarian societies.33

1989 brought about a quick—and lasting—change. The capital cities Prague, Warsaw, and Bratislava strove toward the imagined Western ideal. A few years after joining the EU, their economies had reached the average size within the Union. The western parts of Poland, the Czech and Slovak Republics, and Hungary also profited from the upswing. Numerous industrial plants were set up around Wrocław and Poznań in western Poland, Plzeň and Mlada Boleslav in Bohemia, the greater Bratislava area in Slovakia, and Győr and Sopron in Hungary. Unemployment in these places is relatively low on the EU scale; incomes are distinctly higher than the nationwide average.

The situation in the eastern parts of these countries is quite different. The regional GDP statistics compiled by Eurostat since 1995 show just how poor these predominantly agricultural regions are. In the rolling hills of the former Galicia and the even poorer regions on Poland’s eastern periphery (such as Przemyśl in the southeast and Ełk in the northeast) the per capita GDP (adjusted to purchasing power parity) was only about 2,000 euros in 1995. It doubled before Poland joined the European Union and continued to rise robustly thereafter. Yet compared to Warsaw, the poor regions in the southeast and northeast of Poland stagnated; their GDP was only about a fifth of that in the capital in 2004.34 As fig. 5.3 shows, regional disparity in Slovakia and Hungary was almost as large.35

Of course, statistics on GDP convey only a limited idea of a population’s actual living standards. But other indicators confirm the findings they yield. Around 2005, unemployment in the eastern rural areas was up to five times higher than in the capital cities.36 The quality of schools, libraries, medical care, and roads is still much lower than the respective nationwide averages.

East of the EU border, in Ukraine, the situation is even worse. The data collected by the state statistical office of Ukraine on the Carpathians and the former Galicia paint a bleak picture.37 Transcarpathia, a region on the southern side of the Carpathian Mountains, was part of Czechoslovakia before 1945 and part of Hungary before 1920. According to the official government statistics provided by Ukrstat, in 2000 the residents of the Transcarpathian oblast (region or province) obtained a per capita GDP of the equivalent of 1,276 euros, or some 100 euros per month. The officially poorest oblast of Ukraine, Ternopil in Galicia, obtained only 1,216 euros. (All data on Ukraine are adjusted to purchasing power parity for this book; if they were not, they would be even lower.38) Glancing at just half the regional GDP in eastern Slovakia and southeastern Poland, this is striking evidence of how far behind its western neighbors Ukraine had fallen in its first decade of independence.

With incomes so low, emigration rates in western Ukraine are among the highest in all European regions, echoing the situation under Habsburg rule in the late nineteenth century. In some respects the region profits from its high rate of labor migration; many handsome family homes were built with money earned by Ukrainians working in the European Union or Russia. (Almost half Ukraine’s migrant laborers work in Russia; most others in Italy, the Czech Republic, and Poland.) In 2011, such remittances amounted to seven billion dollars, or 4.3 percent of Ukraine’s GDP, according to the Ukrainian National Bank. The total sum remitted is certainly greater and especially large in regions such as Transcarpathia and Ternopil.39 It was hardly helpful, then, to present Ukraine with the choice between integration in the European Union or in Putin’s Eurasian customs union in late 2013. The populace and the economy are dependent on money from both.

Fig. 5.3.  Regional divergence within the transformation countries, 1995–2007. Source: OECD Statistics (Regional Accounts TL3).

The wealth earned outside the region comes at a high personal cost. Many families have been split by the permanent absence of a parent working abroad. Unlike Poles and Slovaks, Ukrainian migrant laborers cannot easily travel home. Visas are required for EU countries; most Ukrainians are not employed as official guest workers (apart from the approximately 120,000 Ukrainians working in the Czech Republic) but earn their money clandestinely. The number of Ukrainian moonlighters in Poland alone is estimated to be 250,000 to 500,000.40 Many are overqualified for the work they perform abroad: the women are mostly cleaners, chambermaids, or caregivers, even if they are university graduates; most men work in construction. Hourly wages of two to three euros are attractive enough compared to those at home.

In 2000, Ukraine began to recover from the depression of the nineties, as the regional statistics collated since then show. The GDP in the poorest regions had doubled by 2005 and continued to rise until the crisis struck in 2008–9. It is doubtful, however, whether this upswing reached the Galician villages and Carpathian valleys. Even today, most farmers own two or three cows, cultivate vegetables by subsistence farming, and forage for mushrooms and berries in the forests. Some wash their laundry in the nearest stream, offering the kind of pastoral scene one might find in a romantic nineteenth-century painting. There is hardly any traffic; the potholes prevent the few cars on the roads from driving any faster than about twenty miles per hour. But daily life for the rural population is far from romantic; their incomes are on a par with those in third-world countries, even if they live only 350 miles from Vienna.

Comparing Ukraine to developing countries, as Polish economist and entrepreneur Stanisław Szczepanowski did back in the late nineteenth century in his acclaimed study on “Galician misery” (nędza galicyjska41), is not such a far-fetched suggestion. Consider India’s per capita GDP in 2005, adjusted to purchasing power parity, of 1,800 euros (at the exchange rate then amounting to around 2,220 US dollars). This is not that much lower than the 2,300 euros in Ternopil oblast. Morocco was better off, with an average of about 2,800 euros. In Turkey, which is commonly classified as an emerging country, the per capita GDP is about four times higher than in the poorest regions of western Ukraine and twice as high as the Ukrainian average.42

Scenes in the unspoiled Ukrainian Carpathians would fill any organic food enthusiast or hiking tourist with joy. But local farmers perform arduous, backbreaking work. Few are able to sell their products in the nearest town because of the poor state of the roads. Almost all the dairies and mills have closed. The residents of the Carpathians are in a similar situation to the Alpine farmers before the construction of the railroad. They have just enough to survive; some areas attract a little tourism. The main symbols of modernity are electricity—in between blackouts—TV sets, and the knowledge that more money can be earned abroad than at home. However, again similarly to India, other parts of Ukraine have relatively thriving IT and software industries.

The prosperity divide between the capital and rural regions is a problem in general in Eastern Europe. But regional disparities are particularly pronounced in Ukraine. Between 2000 and 2005, now considered a golden era in that country, the gap between Kyiv and the poorer regions widened to more than 6:1. The business elite in Kyiv, who learned to speak English, have mockingly dubbed the Carpathians “crapathians.” The Russian nickname for poor peasants, “muzhik” (мужик), is even more contemptuous and recalls the social divisions a hundred years ago in Tsarist times. A zone of poverty has emerged stretching 250 miles from the north to the south, from the former Galicia to the northern periphery of the Danube plain, including the Carpathian Mountains, and more than seven hundred miles from the west to the southeast in Romania.

Poverty zones extending across several states are not confined to the east of Europe; they are on Berlin’s doorstep. Broad areas on both sides of the Oder and Neisse rivers, which mark the border between Poland and Germany, are struggling with high unemployment and a lack of prospects. The endurance of feudal structures during communism is partly to blame. After World War II, the large Prussian estates were turned into agricultural cooperatives (LPG in German; PGR in Polish). Despite their intensified use of machinery and artificial fertilizers, they operated inefficiently. In the early nineties cooperatives on both sides of the German-Polish border declared bankruptcy by the score. The situation finally improved after the European Union enlarged; the GDP in the voivodeships (provinces) east of the Oder and Neisse grew by almost 50 percent between 2005 and 2008; unemployment fell, wages rose. Thus the westernmost regions of Poland leveled up with the easternmost German states, Brandenburg and Saxony. For some years now, real estate in the Szczecin and Gorzów areas, close to the border with Germany, has cost more than on the German side, where depopulation continues to be a problem.

This cross-border convergence is attended by a divergence between deprived and affluent regions in the former GDR. The greater Dresden area produces a roughly 50 percent higher GDP than the districts along the Oder and Neisse rivers. It has, then, reached the level of the old rust belt cities in the Ruhr valley of West Germany. Some districts in the Erzgebirge, the mountains separating East Germany from the Czech Republic, are also poor, though they are less than an hour’s drive from Dresden or Leipzig.43 At least these conurbations are relatively easy to reach. Commuting from eastern Poland to Warsaw or from eastern Slovakia to Bratislava every day is virtually impossible due to the long distances and bad state of the roads. To some extent, the regional differences in Poland, Slovakia, and Hungary have been absorbed into the nations’ identities. No longer questioned, they shape internal perceptions and familiar stereotypes, such as the concept of “Polska B” to denote the underdeveloped eastern half of the country.

The question remains why the populations in the disadvantaged regions did not protest against such inequality. Perhaps it pales into insignificance in relation to other social divides that have emerged since the nineties, such as the gulf between the generations or between certain professional groups. Probably regional disparities have been overridden by more pressing concerns, such as the specter of unemployment, and the daily challenges of transformation. A third, laconic explanation might be that Galicia, eastern Slovakia, and Transcarpathia oblast are accustomed to deprivation. Having been extremely poor in the past, they possess knowledge, handed down over generations, of how to cope with poverty. The basic strategies are subsistence farming at home while the younger generation migrates long distances to work. To cite one example, according to a study by the Slovakian Academy of Sciences, sixteen thousand Slovak women worked in Austria as caregivers in 2009. The home care system in Vienna would collapse without this influx from the neighboring country.44 These caregivers do not come from the nearby regions of western Slovakia—a short drive away—but from the remote east of the country.

Labor migration means that the more capable and mobile sections of society leave the country. The advantage of bolstered incomes is cancelled out, then, by the drain of human resources from the deprived regions. Traditional family values take on increased importance in this situation. In Poland, Slovakia, Hungary, and western Ukraine, it is common for more affluent family members to support close relatives. Younger relatives supplement the older generation’s meager pensions; grandparents make sacrifices for their children and grandchildren. Consider the example of my longstanding research assistant in Frankfurt (Oder), who hails from one of Poland’s poorest areas, and helped finance his younger sister’s studies and contributed to the rent on his mother’s apartment. Long-range labor migration and redistribution within families help to compensate for regional disparities. (The latter is also common in southern Europe—more on this in chapter 8.)

But many children grow up as semi-orphans, or are raised by their grandparents, because their parents work far away in the West and can come home only on weekends, or even less frequently. In Poland, a telling term has been coined for these children: eurosieroty (literally, “euro orphans”). The exodus of the working generation compounds the drop in the birthrate, placing the rural regions of the new EU member states in another predicament. For the first time since the population explosion in the nineteenth century, there are too few young people. The long-term impact of the twofold demographic decline—caused by labor migration and the falling birth rate—remains to be seen. It is clear, however, that it will be difficult to achieve economic growth with a declining population. This will inevitably affect investments and prospects for the future.

At first glance, the disparity between urban and rural areas seems reminiscent of earlier growth periods, such as industrialization in the nineteenth century. As early as the 1950s, future Nobel Prize winner Simon Kuznets showed that phases of intense development, such as industrialization, cause social inequality that generally abates when wealth increases.45 But a number of factors peculiar to the neoliberal order of the transformation period continued to foster inequality. The demise of old industries that were built up under state socialism or prior to World War II impoverished many regions and, above all, medium- and small-sized towns with only one or two factories. The neglect of agriculture had even more severe consequences. Hundreds of counties and thousands of villages fell into deep decline. This was linked to the anticommunist revolutions. The “red barons” (the communist-appointed LPG chairpeople) held strong positions in many places. Breaking up the agricultural cooperatives and assigning the land to private owners was a way of bringing the revolution to rural areas. But the postcommunist administrations failed to provide the governance and investment necessary to help recover from a deep structural change of this kind. The simultaneous opening of the market to Western imports plunged local farmers and the dairies, slaughterhouses, grain mills, and sugar refineries that processed their products into ruin on a huge scale.46 As a consequence, the still-operating farms had trouble finding purchasers.

The outcomes of this decline were already clearly visible in 1991. The former GDR and Poland were dotted with uncultivated fields; disused tractors and combine harvesters stood abandoned in machine halls. Many unwanted pieces of equipment were sold off at Warsaw’s main bazaar at Dziesięciolecia Stadium, the Polish market in Berlin, or the Mexikoplatz flea market in Vienna. Iván Berend takes the agricultural crisis as cause for a fundamental critique of the denationalization of the early nineties, stating: “Most of the major mistakes were the consequence of the ideologically based, one-sided de-etatization, which fatally weakened state governance when it was badly needed in the difficult time of transformation. The blind belief—also ideologically based—in the automatism of market forces in countries where a full-fledged market was not yet in existence had similarly devastating consequences.”47

Berend’s criticism may seem harsh but there is evidence to support it. In late 1991, a full two years after the Balcerowicz Plan was launched, the Polish government founded a state agency for agricultural property (Agencja Właśności Rolnej Skarbu Państwa) to coordinate the sale of land and farms. Inherent problems made privatization in agriculture even less destined for success than that in industry. Land prices crashed as cooperatives went bankrupt; any businesspeople with sufficient capital to invest had certainly not stayed in the country. The situation in the Czech Republic and Hungary was more stable, as most agricultural cooperatives were kept alive. But here, too, harvests and livestock dwindled.

Russia, meanwhile, proved that avoiding or delaying privatization was a no more viable solution, at least not if the borders were concurrently opened to import trade. The government waited until 2003 to regulate the ownership, sale, and resale of farmland. The beneficiaries were predominantly corporations, some of which cultivate several hundred thousand hectares today. But local farmers and rural workers continued to suffer from the reforms. They did not have the necessary capital, knowhow, or entrepreneurial spirit—hardly surprising, after centuries of serfdom and its continuation in the guise of the kolkhoz collective farms. Agriculture in Ukraine was at rock bottom, too; at one point, the former breadbasket of Europe imported more food than it exported.

With respect to the farming crisis, comparison with Vietnam is instructive. In terms of size and national homogeneity, Vietnam is comparable to Poland. A former close ally of the Soviet Union, Vietnam allowed its farmers to sell a proportion of their output privately in 1981. By 1986, under the Vietnamese variant of perestroika (Đổi mới) they no longer had to give any of their harvest to the government but could sell rice directly to consumers at the market price. However, the market freedoms here, as in China (where the pace and nature of reforms were similar), apply only to agricultural products, not the land, which is still formally owned by the state.48 Neither did Vietnam (or China) link this gradual marketization with external trade liberalization. The state protected local producers against imports until the country was able to sell on the world markets. Today, agricultural exports contribute considerably to the nation’s prosperity. The same policy could not have been applied in East Central Europe or the Soviet Union, because wheat cultivation and animal husbandry do not require the same conditions as the labor-intensive practice of rice farming, with two or three harvests annually. Nevertheless, comparison between Eastern Europe and the communist states of the Far East shows that agricultural decline was not inevitable. It resulted from a certain sequence of reforms.

Another factor contributing to the downturn of “Polska B” and similar regions was the breakdown of industry established under socialism. The collapse of the CMEA (Council for Mutual Economic Assistance, Eastern Europe’s answer to the European Community) and the East’s sales markets caused tremendous difficulties to all the countries of the former Eastern Bloc. Not only that, trade liberalization meant that they were suddenly confronted with competition from the West, unlike Western Europe in the postwar period or Vietnam and China in later years. Many industries went bankrupt; in the late nineties and at the start of the new millennium in particular, large combines that had not been able to make a profit or attract investors were forced to close. This wave of deindustrialization exacerbated the regional imbalance. In Poland and Slovakia it caused unemployment to rise to around 20 percent.49

Opening markets to import trade and investors is one of the key steps toward a neoliberal order. It invites foreign direct investments—another significant, though more positive factor contributing to regional disparities. Western corporations saw a potential sales market in the Eastern Bloc as early as the 1970s. On account of the low pay rates, German companies, in particular, also began manufacturing in the Eastern Bloc for export to the West.

When the Iron Curtain fell, many more opportunities for investment opened up. The postcommunist countries needed foreign capital, had a great deal of pent-up consumer demand, and promised low labor costs. Because they were competing with each other and on a global level for foreign capital, they did not impose any off-putting regulations on where to invest. Consequently, most FDIs were allocated to the capital cities or manufacturing bases close to what was then the eastern border of the EU, or the westernmost parts of the respective countries. The concentration of investments in a few locations was also an indirect result of enduring centralization, which stemmed from prewar times. Poland, Hungary, and other Eastern European countries had been more centralized than Germany or Austria even before World War II and continued to be so after 1989. The former GDR was an exception; it was pushed to the economic periphery by unification with West Germany. East Berlin, once the proud “capital of the GDR,” lost its status as a political and economic center for East Germany. Local factors, considered in the next chapter, detracted further from Berlin’s appeal as a business location in relation to Dresden, Leipzig, or Jena.

While villages sank into poverty, the international companies setting up in the large cities brought new opportunities for advancement and earning money. Western companies paid considerably higher wages than domestic enterprises; working for the state was the least lucrative option. This upset the social hierarchy in a way that echoed the situation under late state socialism, when taxi drivers, tourist guides, car mechanics, and other service providers who received payment or tips in Western currencies were often better off than doctors and professors. In the early nineties a similar scenario evolved: secretaries for Western firms could earn three to four times as much as the senior staff of domestic companies, and far more than public sector employees. The pay gaps encouraged corruption, which had already been on the rise in late state socialism. (On my many trips to Prague, I did not pay a single legal fine for speeding—the matter could always be resolved by inserting a small deutschmark note into one’s passport before showing it to the police. Quite soon after the EU enlargement, this kind of petty corruption stopped.) The glamorous biznesmenibecame a characteristic element of postcommunist society. Over the course of the nineties, the menadżer, as the top executive were now known in Polish, rose to the pinnacle of the social hierarchy.

These new professional fields and opportunities for advancement hardly existed in rural areas. Here, unemployment remained much higher than in the capital cities, making badly paid government jobs more attractive. There was no ambitious elite to stimulate consumption by patronizing new stores, eating out, or investing in new businesses. Shortly before the EU accession of Poland, Slovakia, and Hungary, driving out of Warsaw, Bratislava, or Budapest was like entering another world. In the GDR, too, unemployment in rural areas was especially high. Here, the number of people employed in agriculture fell within five years after the revolution from 850,000 to fewer than 165,000.50 Belarusian writer Svetlana Alexeyevich, winner of the 2015 Nobel Prize, noted for her novels and short stories about postcommunism, interviewed a number of local residents for her book about life in the former Soviet Union. One interviewee in Russia put the situation here in a nutshell: “They should drive fifty kilometers out of Moscow … look at the houses, see how the people live there, how they get drunk on holidays … in the country there are hardly any men anymore. They’ve died out. Minds like horned cattle—drinking themselves to death. Till they drop.”51

Another new term coined in Poland, “Polska dwóch prędkości” (literally, “Poland of two speeds”), describes the country in terms of the two predominant types of car driver. As the present author also observed from the comfort of a Swedish car’s passenger seat in the nineties, one group of drivers sit in their Maluchs, the Polish-produced Fiat 126p, trundling along bumpy roads at a maximum of fifty-five miles an hour, the other in their Western sedans, cruising over the cracks at twice that speed.

It would be too short-sighted to regard the civil rights activists expelled to the opposition benches or the progressively disempowered industrial workers as the main losers of the revolutions of 1989–91. The worst-off were the rural populations, and especially agricultural workers. In view of these intranational divergences, how useful is it to view the postcommunist countries in terms of national units? Without wishing to call the concept of national economy into question, do not regional units of investigation say just as much about the course, and particularly the outcomes, of transformation as do the long rows of national statistics to be found in the specialist literature and various indices? One thing is certain: the term “Eastern Europe” can no longer be used to denote a relatively uniform area.

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