László Szamuely

The Social Costs of Transformation in Central and Eastern Europe

[...]

Employment and unemployment statistics - in spite of their lacunae and imprecisions - show that the number of the employed in the region has shrunk or is shrinking at an extraordinarily fast rate. Table 1 probably provides a truer picture than Table 2, although the latter also shows a two digit rate in every one of these countries with the exception of the Czech Republic. The unemployed figures only include registered jobseekers. Thus, those forced to take early retirement, or those in receipt of invalid pensions whose numbers have sky-rocketed, are not included. As many are in the black economy, so the picture is not quite as bleak as the figures sug-gest, but the working conditions of those illegally employed are much worse, and they are not entitled to various benefits.

The following special features are made apparent by an examination of the two tables.

* Among the Central European countries (the Visegrád Four and Slovenia) employment underwent the worst regression - by more than a quarter - in Hungary. The Hungarian figures are even worse than those for Bulgaria, where the economic situation can be compared to that of the post-Soviet region.

* Of all these countries employment declined least in the Czech Republic and (except for the CIS) the unemployment rate is also lowest there. This is not explained by the state of the economy but by the obvious policy - though not explicitly stated - of carrying out the economic changes while maintaining high rates of employment.

* Full employment continues in Russia, the Ukraine and in the other CIS countries, but only in terms of the official unemployment register. Few register since the procedure is involved and meaningless. Unemployment benefits are minimal. Thus, in June 1995, in Moscow, I discovered for myself, on the spot, that benefits did not amount to as much as a monthly public transport season ticket. According to OECD, 1995, p. 165, they amount on average to one tenth of the average wage, or one third of the official minimum wage.

Table 2, however, includes data produced by the labour market survey regularily conducted by the State Statistical Committee which, in accordance with ILO guidelines, include not only registered but actual job seekers. According to these the unemployment rate was around 7 per cent in 1994, and, according to locally obtained information, around 8 per cent in the summer of 1995.

Table 1

Change in total employment, 1990-1994

(annual average percentage change)

Country	1994	1990-1994^a	1993	1994
	(labour force in thousands)	(a cumulative change over the period)
Bulgaria	3,242	-25,7	-10,6	0,6
Czech Republic	4,885	-9,6	-1,6	0,8
Poland	14,475	-14,9	-2,4	1,0
Hungary	4,045	-26,1	-5,0	-2,2
Romania	10,012	-8,5	-3,8	-0,5
Slovakia	2,110	-15,7	-2,6	-0,4
Slovenia	752	-20,5	-2,2	-1,8
CEFTA-4	25,515	-16,0	-2,7	0,3
Russia	68,484	-9,4	-1,7	-3,3
Ukraine	23,025	-9,4	-2,3	-3,8

^a end of year

Source: ECE, 1996, p. 83.

Table 2

Registered unemployment, 1991-1994

(thousands and per cent of labour force, end of year)

Country		Unemployment (thousands)	per cent of labour force
	1991	1992	1993	1994	1991	1992	1993	1994
Bulgaria	419	577	626	488	11,5	15.6	16.4	12.8
Czech Republic	222	135	185	167	4.l	2.6	3.5	3.2
Poland	2 156	2509	2890	2838	11.8	13.6	16.4^a	16.0
Hungary	406	663	632	520	7.4	12.7	12.6	10.4
Romania	338	929	1165	1224	3.1	8.2	10.4	10.9
Slovakia	302	260	368	372	11.8	10.4	14.4	14.8
Slovenia	91	118	137	124	10.1	13.4	15.5	14.3
CEFTA-4	3085	3567	4075	3897	9.7	11.4	13.4	12.8
Russia	62	577	836	1637	0.1	0.8	1.1	2.1
According to ILO definitions	..	3600	4100	5300	..	4.8	5.5	7.1
Persons involuntarily working part-time, or on compulsory unpaid leave	..	1700	4000	4800	..	2.2	5.3	6.4
Ukraine	7	71	84	82	..	0.3	0.4	0.3

^a Since December 1993 in Poland a new labour force estimate has been used to calculate the employment rate. The unemployment rate for December 1993, based on previous labour force data, was 15,7 per cent.

Source: ECE. 1995. p. 111. Table 3. 4.

As regards trends in unemployment, two possibilities appear likely.

a) Rates of unemployment (the proportion of those registered) will decline, or at the worst stagnate (though not in the CIS countries); nevertheless, one cannot count on a significant growth in employment in the immediate future, not even after long-term growth kicks off. Poland is a case in point, where GDP has been growing for almost five years. The obvious cause is that there are still significant labour reserves within the employed. Growth relies on the exploitation of these reserves, largely restructuring and labour mobility within the enterprise sphere. A future factor is that the nature of growth is changing in the former socialist countries. At long last, extensive growth is being replaced by the much talked about intensive growth, which has a much lower demand for labour.

b) It is this fact rather than the protracted economic regression which is responsible for the long-term mass unemployment, which affects particular and well-defined sections of the population. International figures show that in the countries in transition a constantly growing proportion of the unemployed stay jobless for over a year. According to the UN ECE information service, in the third quarter of 1994, the proportion of long-term (over one year) unemployed was 59 per cent in Bulgaria, 22 in the Czech Republic, 39 in Poland, 41 in Hungary, 48 in Romania, 45 in Slovakia and 58 in Slovenia. (ECE, 1995, p. 114.) The Hungarian Household Panel Spring 1995 Survey showed a higher proportion, 56 per cent, for Hungary, with 83 weeks as the average duration of unemployment. According to the Hungarian Household Panel sample, the average period was only 41 weeks in 1992, 52 in 1993 and 71 in 1994. The same survey showed that 39 per cent of those unemployed in March 1994 were still without a job a year later. (Nagy-Sík, 1996, p. 26.)

There is a consensus in the literature that the great preponderance of the long-term unemployed are unskilled manual workers with little education. The situation is even more serious if this handicap is concentrated within a national, religious or ethnic minority. (Coloured people, primarily Afro-Americans, in the US are an example.) The position of Gypsies in Hungary and its neighbours alarmingly resembles this state of affairs. In the 1995 sample of the Hungarian Household Panel the unemployment rate for Gypsies was 45.5 per cent, but 10.6 per cent for non-Gypsies. Figures regarding Gypsies must be treated with caution because of their small number within the sample, but the scale of magnitude is largely in accord with the data of the September-November 1993 survey published by Kertesi (1995).

The growth of poverty and of inequalities in income

[...]

According to Jeni Klugman (1995), a World Bank expert, at the time of the systemic change, i.e., early in the nineties, around ten per cent of the population were below subsistence level. According to her data and those published by Sergei Fateev (1995) in Moscow, the proportion of those below the poverty line was 25.2 per cent in 1992, 31.9 per cent in 1993 (Klugman), 24 per cent in 1994 and 31 per cent in January-February 1995 (Fateev). Thus around a third of the population of Russia are officially described as the poor.

Hungarian surveys generally speak of similar proportions. The difference is that, in Hungary, the subsistence minimum calculated for an urban family of four, projected per capita, was in 1994 roughly the equivalent of $120 a month, and the Russian official poverty line - calculable on Fateev's data - was the equivalent of $39 according to USD-Ruble rates of exchange, and $96 in terms of purchasing power parity. I do not think that the poor in Hungary have incomes that are three times as high as those of the Russian poor (this would follow from the 120:39 ratio of dollars); what appears certain is that, in an absolute sense, poverty in Russia cannot be compared to that in Hungary, and that in Russia the relative fall in both average and minimum incomes was much greater.

[...]

* Contrary to what is generally believed, poverty is not most frequent amongst the old - although the situation of those over 70 is worse than the national average - but amongst children and young people. 25 per cent or more of those under 19 belong to the lowest quintile. It is particularly noticeable that 32.9 per cent of infants under two (that is of families with small children), live in poverty.

* Poverty in Hungary is concentrated in villages and homesteads, where it is less visible. A quarter of their population can be classified as paupers. According to the 1994 survey, 71.4 per cent, i.e., almost three quarters of the village population, belong to the three lower income quintiles. As against this, 40 per cent of the Budapest population are in the highest income quintile (Andorka-Spéder, 1994, pp. 34-35.)

* The distribution of incomes, much like the employment situation, reflects the serious state the Gypsies are in, a state which has turned them into an underclass. In 1995 two thirds (66.5 per cent) were in the lowest quintile, below the poverty line.

* 44 per cent of the unemployed and a quarter of those with no more than primary school qualifications (eight years) are paupers.

Summing up, in Hungary today the best chance of avoiding poverty falls to those who went on to some kind of secondary education or trade training, who are not Gypsies, who do not live in a village, have no children or other dependents, and who, of course, have a job.

The poor in Hungary and in Russia resemble each other in many ways. The table below is taken from a World Bank source.

Table 3

Risk of Poverty in Households

with Selected Characteristics, 1993

(per cent)

Type of Household	Poor	Very poor*
1 child under 6	49.0	19.0
2 children	45.2	27.4
3 children	61.1	29.5
Pensioners	21.9	9.2
Has unemployed member	48.1	23.0
Has disabled member	45.8	20.0
Head works in:
Forestry	51.8	26.8
Agriculture	46.5	18.5
Manufacturing	32.6	10.2
Construction	32.0	9.9
Trade	21.6	6.5
National Average	31.9	12.0

* Very poor households are those with expenditures at less than 50 per cent of the poverty line.

Source: Klugman, 1995. p. 7.

As the table shows, households with children, or unemployed or invalid members are much worse off, but pensioners do better than the national average. Unbelievably, around 50 per cent poverty is found amongst those employed in agriculture and forestry, i.e., the village population.

Another common feature, manifest in Russian and Hungarian household surveys - one that is surely general in countries in transition - is that poverty has not jelled yet, it is not overwhelmingly longterm yet, it is still on the move.

[...]

Deterioration in living conditions and its consequences

Diet

[...]

For a start, daily calorie intake declined by 2 to 18 per cent in every country (returning to the original figure in both Poland and Romania) but the average was and is still above the 2,300 calories internationally considered to be sufficient, though the Russian figure is already pretty close to it. Much the same goes for proteins, for which the daily minimum is 60-65 grammes. It is certain that the polarization of incomes, i.e., the growing deviation from the average, and impoverishment will be accompanied by nutritional deficiencies for many, with all the consequences this has for the health of the nation. The post-Soviet states and Bulgaria are particularly exposed to this danger, should income inequality and pauperization trends continue.

There are undesirable changes in the composition of the diet. The share of carbohydrates is growing within a diminishing food consumption. The consumption of flour and cereals has grown or it has maintained its level in every country. This is a characteristic feature of a deterioration in standards of living and of impoverishment. There is only one significant deviation from this growth trend and that is in Hungary, presumably because of the relatively higher price rise of bread and pasta, as a consequence of the liberation of prices generally and particularly the significant rise in the price of fuel. Carbohydratic consumption characteristically grew in Russia, but there too only that of cheap or state supported foods such as bread and potatoes. The consumption of more expensive, imported sugar has declined, just like that of all other kinds of food (see OECD, 1995, p. 124).

Table 4

Per capita food consumption

Country	1989	1990	1991	1992	1993	1994	1994 data as a percentage of 1989 data
Bread and cereals (kg)
Bulgaria	158.2	168.1	179.3	160.4	157.2	156.0	98.6
Czech Republic	156.0	155.5	161.4	163.4	164.5	..	105.4
Poland	120.5	118.4	121.1	120.6	126.4	117.8	97.7
Hungary	112.2	110.4	102.9	106.0	98.0	92.0a	82.0
Romania	157.3	158.5	145.3	146.5	159.6	..	101.5
Slovakia	153.4	158.6	158.2	147.8	142.0	141.2	92.0
Russia	95.9	96.9	100.6	103.9	107.4	110.4	115.1
Ukraine	137.7	141.0	142.5	142.5	141.0	146.0	106.0
Meat, fish and their products (kg)
Bulgaria	56.7	57.1	42.7	52.4	49.7	44.1	77.7
Czech Republic	103.4	101.9	92.2	91.2	88.8	...	85.9
Poland	64.3	68.9	72.1	69.5	69.8	65.6	102.0
Hungary	81.0	75.8	74.3	76.2	70.9	69.5^a	85.8
Romania	57.1	66.1	61.1	49.9	49.8	..	87.2
Slovakia	88.5	88.4	80.8	73.3	68.7	68.2	77.0
Russia	71.7	69.8	65.3	57.9	57.3	59.0	82.3
Ukraine	68.6	68.2	65.5	53.4	46.0	...	67.0
Dairy products (kg)
Bulgaria	132,2	136.1	114.8	92.5	83.5	82.4	62.3
Czech Republic	259.6	256.2	242.7	214.4	190.1	..	73.2
Poland	133.2	124.2	117.6	114.4	111.2	107.0	80.3
Hungary	189.6	169.9	167.9	159.7	145.1	141.1a	74.4
Romania	135.9	140.1	163.3	163.7	176.9	..	130.2
Slovakia	253.2	226.3	211.8	193.8	170.6	166.1	65.6
Russia	388.6	378.4	348.5	294.2	305.1	294.0	75.6
Ukraine	366.9	373.2	345.5	284.5	275.0	256.0	69.8
Daily calorieS intake
Bulgaria	3269	3284	2894	2801	2682	2665	81.5
Czech Republic	3234	3304	..	..	..	..	-
Poland	2891	..	2767	2744	2667	2955	102.2
Hungary	3499	3386	3218	3298	3126	3052a	87.2
Romania	2949	3038	2832	2758	2959	..	100.3
Slovakia	3234	3333	3276	3126	3143	..	97.2
Russia	2603	2590	2527	2438	2552	2427	93.2
Ukraine	3517	3597	3445	3151	2860	2895	82.3

^a Hungarian Statistical Pocketbook 95. Budapest, 1996

Source: UNICEF, 1995, pp. 135-137.

* The consumption of biologically important dairy products and meat and meat products is declining. Table 4 shows this to be an unambiguous trend. The only exceptions are milk consumption in Romania and meat in Poland. The first is due to the distribution of land and the larger number of domestic animals kept on household plots in Romania, the latter clearly to the end of an artificially created shortage of meat. The ancien regime had kept meat prices irrationally low, the liberalization of prices put an end to this. As a result the consumption of meat first grew, and then declined.

* The consumption of fruit and vegetables is declining further in the post Soviet states (see OECD, 1995, p. 124). The situation is not as clear in Central Europe. In Hungary, for instance, time sequences published in statistical yearbooks up to 1992 show a slight growth in the consumption of vegetables; the consumption of home grown fruit has clearly fallen, that of tropical fruits has risen. Fruit consumption as a whole has significantly declined compared to 1989. It is likely that in countries to the north of Hungary, an end of import restrictions on fruit and vegetables had an even larger role, but deteriorating income conditions made it impossible - in spite of greater choice - to improve the earlier unsatisfactory state of fruit and vegetables consumption.

The demographic picture

[...]

Mortality rates have noticeably risen in the five years of systemic change and life expectancy at birth has fallen. According to UNICEF, 1995, pp. 110-111, mortality per thousand inhabitants has risen by 4.9 and 3 per cent respectively in Russia and the Ukraine between 1989 and 1994. This is a huge difference, and implies a deterioration of 45.8 and 25.6 per cent respectively.

In Central and Eastern Europe mortality figures have only fallen in the Czech Republic and Slovakia, elsewhere they have risen, by 10 per cent in Bulgaria and 9.3 per cent in Romania. At 5.1 per cent the deterioration was smaller in Hungary, or in Poland, where the rise was only temporary, in 1991, and by 1994 the original rate was reestablished. Shock therapy meant accelerated deterioration for both living conditions and vital statistics. The year when shock therapy started appears as a watershed: 1990 in Poland, 1991 in Bulgaria, 1992 in Russia. After that Poland succeeded in stabilizing the processes, Russia did not.

Life expectancy at birth (Table 5) manifests the same interconnections. Here, too, there is a catastrophic shortening in Russia (by six years for men) and in the Ukraine. In Russia life expectancy at birth for men (58.2 years) is below the age of retirement. Here too, the position improved in the Czech Republic and Slovakia. Poland showed in 1991 a significant decline for both men and women; the indices improved later. Unfortunately, the trend is unfavourable in both Bulgaria and Hungary. Life expectancy at birth for men in Hungary is 64.5 years, the shortest in the whole of Central and Eastern Europe, not counting the CIS. In most of the countries the scissors gap between the life expectancy of men and women continues to grow.

UNICEF experts examining mortality and life expectancy figures have established that it was not the children and the aged, i.e., the most vulnerable biologically and socially, who were most at risk during the "transition" but men of working age.

Indeed, the figures show that infant mortality rates (below the age of one) have improved everywhere except for Russia, the Ukraine, and Bulgaria, the same being true for children between one and four. Mortality rates slightly declined everywhere for the 5-15 age group. Deterioration starts with the 15-19 age group, and is greatest in the case of young male adults between 20 and 39. Poland and Slovakia are the only countries which showed any improvement for that age group. The growth of mortality rates is somewhat less steep for men between 40 and 59. For that age group the situation improved not only in Poland but also in the Czech Republic and Slovakia. Unfortunately, mortality rates for that male age group in Central Europe are highest in Hungary, equal to those in the Ukraine.

Human losses due to the transition

The leap in the crude death rate in the former socialist countries, lower life expectancy at birth, changes in male and female mortality rates and that of various age groups, are all in some way connected with negative social and economic processes that kicked off or gathered momentum at the time of the change. The list of possible causes is not exhausted by mass unemployment and impoverishment. Law and order, public health and labour safety problems also figure here. There is no space to discuss other relevant processes connected with the dismantling, liquidation or simply the further deprivation of the state health and social services. As a summing up of these negative effects, that is as a part of the social costs, I propose to discuss a computation concerning the loss of human life attributable to the first four years of the transition, from 1990 and 1993.

The computation is the work of UNICEF research staff. The purpose was to discover what proportion of the growth in consolidated crude mortality rates was attributable to the rise in age and gender specific mortality rates, independent of natural changes in mortality rates due to an aging population and changes in the size of the population (see UNICEF, 1994, p. 42). In countries where the mortality rate rose, they took the crude death rate and adjusted it taking account of the above factors. The remainder after the substraction of the natural changes in mortality they called "excess mortality".

Bulgaria and Hungary and male Romanians showed excess mortality for the 1990-1993 period. In these three countries 38,000 excess deaths over four years could be attributed to the transformation. Was this loss small or even negligible compared to a total population of 41.5 million? Be that as it may, there is no doubt, however, that what is happening in Russia, the Ukraine and surely in the other post-Soviet states as well amounts to a demographic catastrophe.

It is shocking that the annual growth in the total number of deaths compared to the 1989 level grew in Russia from 73,300 in 1990 to 545,000 in 1993, in the Ukraine from an annual 28,800 in 1990 to 129,700 in 1993. Combining the two, the excess mortality can be said to be around 842,000 in the four years following the changover. Bearing in mind that this computation only extends as far as 1993 and that the crude mortality rate grew further in Russia in 1994, from an annual 14.5 per thousand to 15.6 per thousand, this could mean an additional loss of close to half a million for Russia alone. There can be no doubt that the situation did not improve in 1995.

Table 5

Life expectancy at birth, 1989-1994 (years)

		1989	1990	1991	1992	1993	1994	Change between
								1994 and 1989
Bulgaria	men	68.6	68.4	68.0	67.8	67.7	67.2	-1.4
	women	75.1	75.2	74.7	74.4	75.1	74.8	-0.3
Czech Republic	men	68.1	67.5	68.2	68.5	68.9	..	+0.8^a
	women	75.4	76.0	75.7	76.1	76.6	..	+1.2^a
Poland	men	66.8	66.5	66.1	66.7	67.4	67.5	+0.7
	women	75.5	75.5	75.3	75.7	76.0	76.1	+0.6
Hungary	men	65.4	65.1	65.0	64.6	64.5	64.8	-0.6
	women	73.8	73.7	73.8	73.7	73.8	74.2	+0.4
Romania	men	66.6	66.6	66.6	66.1	..	..	-
	women	72.7	73.1	73.2	73.2	..	..	-
Slovakia	men	66.9	66.6	66.8	66.8	68.4	68.3	+1.4
	women	75.4	75.4	75.2	75.3	76.7	76.5	+1.1
Russia	men	64.2	63.8	63.5	62.0	58.9	58.2	-6.0
	women	74.5	74.3	74.3	73.8	71.9	71.4	-3.1
Ukraine	men	66.0	66.0	66.0	64.0	63.0	62.8	-3.2
	women	75.0	75.0	75.0	74.0	73.0	73.2	-1.8

^a 1993 data compared with 1989 data

Source: UNICEF, 1995, p. 111.

Human losses due to the dissolution of the Soviet Empire and the first four years of the systemic change can be compared to those caused by war. The around 600,000 so lost by Russia are almost one and a half times the British military and civilian fatal casualties for the six years of the Second World War. The 842,000 human losses of Russia and the Ukraine combined are far in excess of the joint Second World War losses of Great Britain and the US, whose population at the time corresponded to the present joint population of Russia and the Ukraine. But all this happened at a time of "peaceful transition".

Some conclusions

[...]

* When the living conditions of the population are changed, the "past" cannot, and should not, be wiped out. What is needed in this respect is not a radical break but gradual reforms that maintain continuity. Acute social differentiation in a society where average incomes are low and egalitarianism is the accepted attitude will cause unbearable tension and stress, and will marginalize a great many people, who will lose all hope. The figures allow one to discern an interesting paradox. There is no famine in Russia or the Ukraine, nor is there open unemployment. Public utilities operate after a fashion, so do transport and commerce, teaching continues in schools and universities, doctors and nurses care for people, public health authorities exercise control. Yet, people perish at a rate reminiscent of times of war. Quite obviously this must be due either to the nature or the rate of the changes.

An alien social or economic pattern must not be forced on people, if, within the foreseeable future, the change implies sensitive disadvantages or losses for the majority. If this is so, the changes cannot be carried out democratically. The Russian example shows that both democracy and the success of the changes suffered as a result.¹

[...]

Wherever they continued to be maintained, health and social services created earlier significantly alleviated the destructive effects of transformation. It is also apparent that the international reputation of a country depends not only on its skill in managing - the monetary base - but also on falling pre-natal and infant mortality rates at a time of economic hardships and impoverish-ment.

It is also clear that major unfavourable structural processes (mass unemployment, pauperization) are not at an end yet, and that people do not regard them as being so. I mentioned above that people generally still dispose over the infrastructural (material and moral) conditions needed by a civilized life-style. If economic policies do not exploit the not so-long period of time available as a moratorium to mobilize these capacities and options, social marginalization - as apparent in the CIS countries - will assume proportions that will create dissatisfaction, apathy, violence and crime on a scale that can no longer be handled. What may then well happen is that the democratic political order itself will become one of the costs or sacrifices of the transformation.

[...]

László Szamuely

is Consultant to Kopint-Datorg Ltd. His major works include First Models of the Socialist Economic Systems (in English, Hungarian, Chinese and Italian), The Welfare State Today, and Privatization in a Transforming Central and Eastern Europe, in Hungarian.