From the soviet bloc to the European Union

If one were to consider the contribution made by economic events to European history and their influence on people's lives, surely one of the most important in the latter part of the twentieth century was the adoption of market economies by former communist countries. Nowhere else in the world have economic, political and social institutions undergone such a process of restructuring and adjustment all at the same time. For Central Eastern European countries in real terms this meant that past redistributive mechanisms based on specific features of communism (most notably the centrally planned economy, an illusory full employment pillar and a distorted allocation of social benefits and privileges) had to be almost completely abandoned, and substituted with Western-like welfare programmes. As discussed in the last chapter, the dissolution of the Soviet Union and the political and economic transition initiated in 1989 began a gradual transformation in response to what was nevertheless considered to be an ‘emergency situation’ (Inglot, 1995; 2008). Contrary to what is commonly believed, initial attempts to innovate social policy were cautious ones and had two main objectives: the first was to preserve the distributive balance between different social and economic groups (most notably guaranteeing the distinction between working and non-working individuals) and the second was to mitigate the economic hardships experienced by the population as a whole (especially by means of indirect forms of income support). These attempts were challenged in the very first years of the transition, if not undermined, by strict budget constraints, which were both unprecedented and unexpected. The sudden withdrawal of centralised state support forced new transition countries to cut back heavily on their social expenditure; to use Kornai's analogy, we could say that once the father died, the children had to learn how to make their money and stay out of trouble (1992: 144). A strong confidence in the market economy was common among these countries in the early years. The first round of income support policies were generous and had to be quickly retracted in the face of stringent economic realities, yet this did not stop most CEE countries having to resort to deficit spending.