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4. Is there a scope for Developmental States
in Central and Eastern Europe?
What is the lesson of this short recollection of events for transition
economies? A number of changes of the previous picture are due here. First of all
there is no tradition of Developmental States in CEE. Economic planning was not
conceived for export-led industrial growth, but rather had a clear ideological
connotation. If a social pact was in place at all, between the State and the
population, it was between a ‘less unequal distribution of income’ (compared to the
West) and a less demanding work discipline and factor efficiency (which translated
de facto in less output). But returning to our issue, what kind of institutional
building can we suggest for transition economies, to promote industrial
development, as a result of capital liberalization? To answer this question I suggest
we concentrate on how to produce a better coordination within each column of
Figure 1, by reading it from right to left.
4.1 Performance
Contrary to East Asian economies, the CEECs have not developed en exportled
model of development, based on the acquisition of external money and finance
from systematic foreign trade surpluses. On the contrary, the general position of the
current account balance is almost everywhere in the negative, and almost all capital
inflows are foreign owned, rather than domestically generated by excess exports.
Yet, a number of studies on the reasons why FDI did flow into the CEECs after
transition found that the lower labor costs per unit of production were the main
motivation, followed by market penetration. So, a relative cost advantage for labor
intensive productions was there in the first place. But as we all know, there was
little domestic accumulation of money and international reserves, in the CEECs,
both for the severity of the economic crisis, all along the 90ies, and the necessity to
turn the old existing capital and organization into the new ‘market framework’.
Besides, the rapid accumulation of wealth that took place in some cases, only
partially translated into legal domestic investments, and took the usual route of
capital exports. So the engine of growth, in the corresponding column, had to relay,
to a great extent, on foreign capital, especially FDI, for accumulation and
productivity gains, with a premium to foreigners in the allocation of resources, as
capital was scarce to begin with.
Yet the FDI motivation of ‘market penetration’ has gained momentum, in
recent times, to the extent that wages grow faster than productivity, and domestic
demand starts to take off. Furthermore a strong increase in the intra-industry trade
between most CEECs and Western Europe took place, in the last decade. This is a
clear indication that both a ‘real’ and ‘nominal’ integration is going on in Europe.
‘Real’ (supply side) integration emerges when, for lack or inefficiencies of local
firms, FDI are made to transfer labor-intensive phases of production into the
CEECs. Intra-industry trade is thus the result of trade in semi-finished products,
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