BOOK REVIEW Grzegorz Gorzelak, Chor-Ching Goh, Károly Fazekas (Eds.), Adaptability and Change: The Regional Dimensions in Central and Eastern Europe, Wydawnictwo Naukowe Scholar, Warsaw, 2012, 408 pages by Anca Dachin, The Bucharest University of Economic Studies The capacity of the post-communist countries to face a painful transition to the market economy without having a previous experience, as well as their behaviour during the economic crisis, have a historical relevance. The aim of the book is to introduce concepts such as adaptability and change and to reveal aspects of the transformation of reality by means of empirical studies. The first part of the book is a systematic scientific approach which draws a general picture of the economic, institutional and social framework and main trends in the transition countries since 1990, while the second part presents case studies for countries with their specific transformations and challenges. The whole book is dominated by the requirements of change connected to prospects for the future. A major challenge for the Central and Eastern Europe (CEE) and Central Asia and Caucasus (ECA) countries is how to return to the growth path after several years of economic crisis. Chapter 1 written by Indermit S. Gill, Bryce Quillin and Naotaka Sugawara shows the steps of recovery, small but visible already in 2010. The analysis of economic data for groups of countries reveals the diversity of situations within the group of CEE and ECA, as well as the nature of recovery. The discussions are around two major aspects: the jobless nature of recovery and the strong influence of economic linkages of these countries to Western Europe. The common features and the differences during the recovery process are presented by Paul Marer in chapter 2. The author introduces an analysis framework which allows the identification of the pre-crisis growth model and the expected changes of the growth drivers. The analysis focuses on EU new member countries. The organization of data referring to aggravating variables during the
crisis is a very good methodological instrument which allows the identification of measures to improve the growth prospects in the region. The crisis does not seem to reach its end, while an exit strategy is a major subject since 2010. Éva Palócz examines in chapter 3 the consequences of the crisis in the ten new member states entering the EU in 2004. One of the most visible results is the alteration of the catching-up process. A well documented analysis shows that a rapid economic recovery is associated with a high budget deficit and significant growth in public debt. It is most interesting that, despite the diversity of country situations, the research results show that countries with lower GDP level have better chances of catching-up with developed countries if the taxation and redistribution of incomes by the government is lower. In chapter 4, Paweł Samecki explains how the concept of adaptability can be transferred from the general system theory to economics and seeks for responses to the following key questions: Transition has succeeded? Every country has succeeded to the same degree? What is the present level of adaptability in the CEE countries compared to EU15 countries after the transition period and after facing the shock of the crisis? The results of the detailed research reveal that actually all CEE countries succeeded and proved a certain degree of adaptability to many changes they were exposed to, but the speed of convergence with more developed EU countries varies among countries. Krzysztof Zagórski introduces in chapter 5 the issue of possible radical changes in attitude during a deep economic crisis, which may reduce the trust in the socio-economic system. Discussing the special case of Poland, country which did not experience a drastic downturn of production in 2009-2010, as well as the whole group of Visegrad countries, the author concludes that the public evaluation of the impact of the crisis was highly influenced by news about the crisis. In addition, the author provides an original inquiry on the public perception on various aspects of the economy and living conditions in European countries, which reveals some surprising results. The research outcome speaks against some stereotypes and support the conclusion that protests depend more on popular political culture than on effects of the crisis. The question about how to embed the productive activity and the market in the social behaviour and structures is largely discussed by Jerzy Hausner in chapter 6. The countries seek for new institutional solutions, since capitalism itself is evolving. The historical conditions of adaptability and change in the CEE countries marked the starting point of the transition, while the choice between shock therapy and gradualism made the difference during the transition. The author reveals 91
the links between the type of development and the institutional characteristics, by providing a very interesting picture of the trends in post-communist societies with massive deficit of social capital. The opinion of the author is that the different responses to the crisis rely on the diversity and scale of institutional resources. In chapter 7, Elemér Hankiss rises the problem of adaptation during periods of risk escalation. The risk management is not new, but the author emphases that the humanity is entering an era when people have to manage the existential risks of human condition. Starting from the literature dealing with risk and uncertainty, the author shows in a personal way the variety of political and cultural environment, as well as the transformation of the principles of behaviour. The main task of the civilization is to help people to find their goals. The qualitative assessments on the process of disintegration of traditional institutions points to the necessity of finding new answers in a changing world. In chapter 8, Iván Major deals with the close links between cooperation and trust. In his opinion, the low level of trust and cooperation is not temporary weakness in the CEE countries, since both are deeply embedded in social-cultural institutions. The author uses the prisonner s dilemma model to demonstrate the behaviour of the political parties, by showing that they play a static game instead of a dynamic game with long time horizon. By using quantitative methods of analysis, the author reveals the correlation between low level of trust and corruption, both generating also high transaction costs. The paper demonstrates that economic growth depends in a positive and significant way on trust and cooperation. The final part is a remarkable analysis about how to design an optimal mechanism for policy decisions while social and economic transactions are loaded with two-sided information asymmetries between the economic actors and the government. The case of Bulgaria presented by Julia Spiridonova in chapter 9 is a well documented detailed description of the transformation periods after 1990. In her opinion, the first seven years of transformation were lost for Bulgaria, since the absence of reforms caused the persistent decline. They were followed by economic recovery until 2008, while a main impulse was the introduction of the Currency Board together with a comprehensive package of reforms. The third period of transformation was the economic crisis, which was not only imported. The author highlights factors that hinder the economic recovery, among these including the low competitiveness in the field of innovation. A special attention is given to the role of the EU in improving the institutional capacity at central and regional level. The introduction of the term metropolization points to the necessity of development of big cities. 92
In chapter 10, Jiři Blažec presents the case of Czech Republic, which is an example of country with a relative favourable position at the beginning of post-communist transition. The author refers to key weaknesses of the transition, such as huge internal debt, losses due to privatisation, losses caused by mismanagement of the banking sector etc. A very interesting economic analysis refers to the impact of the crisis which, in the opinion of the author, had also a positive side: it required the change of the fiscal policy and created the pressure on the political process in the direction of a strong pro-reform electoral mandate. A special attention is given to the effects of the crisis at regional level. There are qualitative observations regarding regional and sectoral policies. Main challenges of the future include the further reform of the institutional and political system, especially for reducing the inefficiency in using public money and EU structural funds, as well as the changes in the R&D and innovation system. The case of Estonia discussed in chapter 11 by Garri Raagmaa, Viktor Trasberg and Rainer Kattel, reveals the specific path of a Baltic country. Estonia carried out a shock therapy and had a fast recovery. According to the authors, main problems were the high unemployment and the coreperiphery regional differences. Estonia compares rather to the Nordic countries. The economic crisis brought corrections, but the recovery had the support of the strong presence of Nordic firms in Estonia and of the external demand increase. A substantial analysis of institutional and social transformations highlights the most important factor the high education level of the population accompanied by its earlier good preparation for capitalism. The geopolitical options play also a significant role for the development. The case of Hungary is presented in chapter 12 by Iván Major and Éva Ozsvald. Hungary entered the new millennium with very good prospects and the economy developed well until 2007. The problems started before the crisis hit. The chapter points in a critical way to the main problems: the twin debts until 2007, due to a loose fiscal policy until 2006; the connection between fiscal expansion / contraction and the election cycle; the non-cooperative behavior of the main actors on the political scene etc. All these had an effect on the competitiveness of the economy, however with an expected transitory character. Finally there are opinions on more recent economic policies (in 2011) and their future impact. Latvia, presented by Tatjiana Muravska, used the shock therapy for the transition to the market economy. Like other small countries of the former Soviet bloc, Latvia felt the effects of the Russian crisis in 1998 and therefore reoriented part of its trade flows towards the EU. In the opinion of the author, the social dimension is more diffused and was not fully integrated in the development 93
process. The chapter focuses not on the common experience of many other countries during the crisis, but on the specific changes in Latvia. The author gives a special attention to the increase of regional disparities, aggravated by the same differences in EU fund attraction. The chapter includes a relevant discussion about development constraints in a small country. The case study of Lithuania in chapter 14 is presented by Donatas Burneika. The paper emphasises that, despite the transition similarities in all post-soviet countries, various local factors determine structural transformations that are not yet over. The economic fluctuations helped a better understanding of local weaknesses. An important consideration of the author is that the most negative factor was the Soviet occupation, which changed the behavioural pattern of the population. The discussion about the Soviet spatial heritage focuses on the controlled process of urbanization in Lithuania which produced medium-sized towns unsuitable for business development. The chapter refers also to regional implications of the crisis in a small country, having economic differences inside the country and weak social relations between regions. Finally there is a critical attitude about the regional policy of the government. Chapter 15 written by Piotr Żuber focuses on Poland s experience after the accession to EU. Poland is an example of stable growth rate after the integration to EU and good resistance to the economic crisis. However, according to the author, the good performance of the economy during the crisis was not much connected to the growth of productivity and structural change of the economy. The discussion points also to the worsening of public finances in 2010 as a result of increase of public spending partly dedicated to the co-financing of EU structural instruments. The EU structural spending has a huge positive impact in the economy, but also on the increase of public deficit. The paper presents detailed data about the beneficiaries of the EU support, by emphasizing that the changes go beyond the availability of money. The case of Romania in chapter 16 is discussed by Zizi Goschin and Daniela Luminiţa Constantin. The authors present the specific difficulties of the transition to the market economy and the positive turn of the economy in 2000, which marked a growth period and also the start of Romania s accession negotiations with EU. In 2009 Romania entered a deep crisis. The paper explains the main causes of the crisis, by emphasising the characteristics of a structural crisis. A well documented analysis estimates the negative economic and social impact of the crisis amplified by the decline of foreign direct investments and the necessity to face strong budget constraints and qualitative performance criteria agreed with the IMF. The authors show important regional disparities by the time of the accession which still persist even after several post-accession years 94
and absorption of EU funds. A consistent part of the chapter offers solutions for the future development. The case of Russia presented in chapter 17 by Uwe Deichman, Indermit S.Gill and Chor-Ching Goh rises the question about how this country can be modern, innovative and competitive. According to the authors, this is the solution for moving from a middle to high income country. A central issue of the discussion is Russia s economic geography. Human and capital ressources are distributed across regions in a manner that differs from the west European pattern, which is a legacy of spatial inefficiency. The main issue of the chapter is to identify policies regarding three main economic forces: migration, agglomeration and specialization. The first aspect refers to the need of increasing mobility and migration facilitating concentration in cities, as well as of encouraging specialization and trade. The debate implies a worldwide comparison with large size countries from different continents, which may offer from their experience. The chapter includes a remarkable illustration of the monotown problem and the prominent manifestation of labour immobility. According to the authors, Russia needs to promote spatial concentration of production and population in order to facilitate diversification and innovation. Chapter 18 written by Ján Buček discusses mainly the case of Slovakia during the years of crisis 2009-2010 and argues that the current ability of the economy to face the crisis has roots in the character of the post-socialist transformation process. Focusing on the development vulnerability in Slovakia, the paper describes the process of shifting from the traditional model of dependence on industry to a more post-industrial economic structure, with all the effects of the collapse of the old industry. The industry is still a very important activity in the country, but the need of diversification of the industrial structure is a problem under discussion. The Slovak economy had a certain resistance to the crisis mainly due to the restructured banking sector and to the adoption of euro in 2009, despite the controversies on the subject. The chapter contains a consistent analysis of the role of foreign direct investment and the foreign trade relations as a premise of economic expansion for a small country. The regional development issue became more important after 1998, associated with the perspective of joining the EU. The authors give detailed explanations of the organizing criteria of regions and the conclusions that the regional identity is still missing. The crisis entered a new stage in 2010. The authors provide a personal view on the economic expectations and the challanges in the search for a new stage of development. The case of Slovenia is presented in chapter 19 by Peter Wostner, who makes an assessment of Slovene performance during the crisis from economic, social and regional perspective. Data show 95
that the crisis hit the country worse than the EU average. Authors consider that this was foreseeable taking into account the structure of the economy. After the first shock, it became apparent that only high and medium-high-tech export-oriented sectors had the necessary capacity to compete on the markets. The pro-cyclical policy in 2006 and 2007 and the rigidities of the labour market have also contributed to the country s vulnerability during the crisis. The policy response of the government is another issue of the chapter, with emphasis on the exit strategy, conceived as a combination of economic policy measures and structural changes. The case of Ukraine in chapter 20, written by Olga Mrinska, is an example of adaptability to various circumstances and fundamental changes in the period 1990-2000. According to the author, crises have been treated only as inconvenience, not as a real pressure for structural change. The paper outlines the main features of the transformation process in Ukraine and analyses key challanges raised by the crisis. After the collapse of the Soviet bloc, Ukraine had the tasks to build all its state institutions, as well as to make progress in the direction of a free market economy. The issues discussed in the paper refer to selected elements of economic performance: GDP, investement and research and development. The paper includes a well documented exposure of the problems faced by Ukraine as a result of the distructive processes in higher value added activities in the production sector together with the decline of R&D. An extended discussion is about institutions and regulatory environment, with their specific features, critised by the author about the lack of long-term vision and no clear future position of Ukraine in Europe and the world. The diversity of above case studies provides reasons for the introduction of new scientific concepts able to explain new facts and processes. In many cases the authors provide findings and solutions by suggesting how to change the future development pattern. The book serves as a knowledge source to a wide range of readers interested in learning the lessons of the transition and of the economic crisis, but also to decision-makers at national and regional level. 96