Dependency in Central and Eastern Europe - Self-reliance and the need to move beyond economic growth
Exploring Economics, 2018
Dependency in Central and Eastern Europe - Self-reliance and the need to move beyond economic growth
Author: Simon Schoening
Review: Joachim Becker
This is an essay of the writing workshop Socio-Ecological Economics, published on 13 September 2018 (Updated: 18.10.2018)
Dependency in Europe’s hinterland
Dependency theory offers an in-depth understanding of the economic, political, societal and epistemic relations between different countries and regions in the world. At the height of its popularity in the 1960s and 1970s, dependency was used in particular to describe the mounting economic and social inequalities between Northern and Latin America, having established itself as a critical response to modernization theory and free trade policies (Adesina, 2017). One of the central figures of the dependency debate was Andre Gunder Frank, who claimed that development in core countries always produces underdevelopment in the periphery. By acknowledging the influence of global political and economic structures, dependency theory has since developed into a school of thought that radically questions the underlying assumptions of development; that ‘underdeveloped’ countries in the global South are themselves to blame for failing to achieve higher stages of development. By expanding the scope of developmental analysis beyond the level of a single nation state, dependency has manifested itself as a way to elaborate on the extent to which successful development in peripheral countries is at all possible under the current global economic system (Kufakurinani et al., 2017). The theory of dependency thereby breaks with the assumption that poorer countries can simply ‘catch up’ with more advanced economies, since, under the global order, countries supplying cheap labour and resources to the core will never be permitted to achieve the same level of development as their aspired peers, as this would lead to diminishing returns in the leading economies (Amin, 2017). Dependency forms a holistic approach towards understanding the global economic system and provides important insights into how countries that have moved towards free trade and a certain level of modernization often remain ‘trapped’ and in a dependent relationship with core countries.
Core-periphery dependency can not only be found in the context of the global North-South divide, but also within Europe, with countries in Central and Eastern Europe (CEE) acting as the periphery. It is important to note that CEE encompasses a highly diverse spectrum of countries, each endowed with individual historical, political and economic characteristics. Nevertheless, what is shared by most CEE countries is the existence of cheap and partly unskilled labour that leads to lower-end integration into the European transnational production chain and ultimately to their dependency on the European core. Mis- or under-industrialised structures inherited from the pre-1989 regimes, as well as failed attempts of democratisation and decentralisation in the process of transition, further provided nurturing grounds for the manifestation of dependent structures (Bruszt, 2017). Amin (2016) draws up similarities between Eastern Europe and Latin America, by referring to the ‘Latin-Americanization’ of the countries of the former Eastern Bloc. According to Amin, among the core countries of the European Union (EU), it is above all Germany that profits from the current subordination of CEE. Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria all depend on Germany as their main export destination. Despite industrial upgrading, wages in these countries remain at a quarter of those in Germany and ownership of industry is centred in the hands of European and German investors in particular (Rimbert, 2018). In the Czech Republic, Hungary, Poland and Slovakia, multinational corporations exercise control over close to 80 percent of all productive assets, while employing less than 30 percent of the local labour force (Bruszt, 2015). While EU-integration and foreign investments have supported industrialization, led to technology transfer and enhanced productivity, Germany has by far been the largest beneficiary of these investments both directly in terms of expanding its own export markets, as well as indirectly from spending on regional infrastructure that has been advantageous for German trade interests (Rimbert, 2018). The resulting uneven distribution of the benefits of trade integration has led to growing discontent towards the exercised European project in the affected countries, with anti-European alliances and conservative nationalistic forces (i.e. Poland and Hungary) presenting themselves as appealing defenders of national interests (Bruszt, 2015).
One of the perils of EU integration, whether deep (membership) or shallow (Association Agreements), is the imperative of translating uniform rules into national policy, regardless of the differences of a country’s initial endowment with resources, infrastructure and governance capacities. Under the same set of rules and obligations, EU integration meant that, by the time of integration, Romanian and Polish small-scale farmers, for example, had to face off with highly advanced agricultural production facilities located in Germany (Bruszt, 2017). With the introduction of rapid market liberalization following EU-accession, income and social inequalities in the East have subsequently increased (Loveless, 2009). For countries with no current membership but hopes for future accession, pressure from financial markets and the domestic elite have forced local industries to introduce stringent measures of austerity, cutting wages to below the living wage, leaving some to talk about the existence of modern slavery in Europe (Tamindzija et al., 2017; Dutchak et al., 2017). The experience of many countries in the European periphery illustrates the growing scepticism and discontent that is playing out globally against efforts that claim to provide for enhanced economic prosperity and equality, but instead lead to increasing social pressure and the uneven distribution of income and wealth (Hickel, 2018).
Growth – a curse in disguise
Despite the impediments to ‘catching up’ within the system, the pursuit of growth remains of the highest political and economic priority, leading not only to income and wealth inequalities under the current structure of ownership but also to increasing pressure on the biophysical environment. Against the backdrop of the urgent need to address the environmental and climate challenges of the 21st century, promoting ecological modernization is widely seen as being of central importance for the global economy, if humanity is to stay within existing planetary boundaries. For the countries of CEE, policy alignment and close integration with the EU are commonly considered to be critical for providing for environmental sustainability, that is to create a stable relationship between human activities and ecological systems (Brizga et al., 2014; Morelli, 2011).
Achievements towards sustainability are typically attributed to successful efforts in policy making undertaken on the level of the nation state. A lack thereof is hence seen as the result of bad institutions, deficient strategy, low levels of public awareness and the interference of domestic interest groups that undermine the transition towards a more environmentally sustainable economic framework. All of the aforementioned features are associated with the transition economies in CEE, where by and large policies for a holistic approach on sustainable production and consumption are yet to be implemented. For the most part, countries in the region inherited a highly resource-intensive industrial infrastructure coming from the pre-1989 period. This is in particular the case for the region’s energy sector, which continues to remain heavily centralized and dominated by large generating capacities based primarily on the burning of greenhouse-gas (GHG) emitting fossil fuels (Brizga et al., 2014). Other challenges include high levels of air pollution as a result of increasing economic activity, inadequate access to safe drinking water and sanitation, growing waste generation stemming from changing consumption patterns and overall low levels of resource efficiency (Pomazi, 2010).
While the role of domestic public institutions is essential in providing for environmental safeguarding, dependency theory offers important insights in how barriers to sustainability are also influenced by external powers. Under free trade regimes, such as within the EU, countries in the periphery often have no other option than to sell goods and export resources to the core that are either no longer produced in the core itself, or that the core is not endowed with in the first place (such is often the case for fossil fuels). At the same time, the periphery is forced to import goods of higher value from the core that the periphery is unable to produce under the current economic framework (Grosfoguel, 2017).
Even though some degree of re-industrialisation has taken place in CEE following the disintegration of the Eastern Bloc, the current level still leaves most countries short of the development stages found in European core countries. This has an important influence on the East’s economic model, where, at the same time, the sustainable management of natural resources remains a key challenge to be addressed, with most countries remaining highly dependent specifically on the extraction and/ or use of fossil fuels (Amin, 2016; IEA, 2015). With more competitive economies in the European core, industries in CEE give in to the pressure of generating profits by failing to provide adequate wages and undermining environmental sustainability, extracting resources and producing goods destined for the European market that leave behind a considerable ecological footprint. The resulting structural relationships under vertical integration of CEE economies into the EU-market, while having provided for some initial environmental benefits in the early 1990s, are presently resulting in growing ecological inequalities, shifting growth-attributed GHG emissions increasingly to the periphery (Jorgensen, 2011).
Mounting evidence supports the idea that aspiring for higher levels of economic development, particularly in the wealthy global North, is undermining the stability of the climate and depleting natural resources at an alarming speed. Hypothetical assumption supported by the ‘Environmental Kuznets Curve’ holds that with a growing gross domestic product (GDP), following a certain threshold until which emissions increase along with income levels, environmental degradation and pollution start to decrease. This is claimed to be the result of raised concerns for the environment and the application of more sustainable practices due in part to continuous growth in income levels. Reality, however, supports the existence not of a “n” shaped curve, but of an exponential relationship between growing incomes and globally increasing energy use, GHG emissions, resource consumption, waste generation and biodiversity loss (UNIDO, 2018). This observation can also be witnessed in the transition economies of CEE (Brizga et al., 2014). While it has been assumed that with a recovering economy, the introduction of more efficient technologies and industrial restructuring, the material footprint in the region would be reduced, the opposite has been the case. Initial gains in resource efficiency have been far lower compared to the witnessed increase in material throughput as a result of applying more efficient technologies and the resulting ability to grow the economy even faster, also referred to as ‘rebound’ effects. Overall, production- and consumption-related environmental pressure continues to increase rather than stabilize, or even decrease, as a result of ecological modernization (Jackson, 2017). The existence of ‘rebound’ effects and the inability to effectively decouple economic growth from resource use to the extent needed pose profound questions with regards to how a stable long-term economic model can be established in order to prevent environmental and hence societal collapse.
Energy-intensive as well as resource-inefficient and polluting technologies continue to occupy the majority of industry in the countries of CEE. Mainly to blame for this is a lack of funding, since private investors deem most projects aimed at improving the situation as economically unfeasible. The introduction of sustainable consumption and production systems, while being widely promoted on the EU-level, is only slowly if at all integrated by national governments in the region. This leaves attempts at ecological modernization deficient and far from reaching the levels that would be needed to effectively decouple economic activity from environmental degradation. Instead, policy support for economic growth is starting to take alarming precedent over environmental protection, which is considered to be the result of the region’s growing aspiration to ‘catch up’ with the GDP levels of the European core. This trend will likely lead to mounting environmental pressure, stemming from a growing production base. Meanwhile, national governments that are put under pressure to increase economic competitiveness are faced with significant constraints in implementing an economic framework that is truly sustainable. While EU-integration does in fact present a driving force for policy changes, particularly in the energy sector, further integration of the economies of CEE into the European transnational market could also turn into a significant barrier to environmental sustainability. The primary aim of increasing GDP, production- and consumption-related pressure as a result of free trade, the adaptation of EU-consumer lifestyles and the outsourcing of polluting industries from the core to the periphery may in fact lead CEE countries to run at the long-term risk of heading towards a dangerous lock-in state (Brizga et al., 2014).
Regardless of the fact that ecological modernization of industry appears not to be sufficient enough to mitigate climate change and the approaching scarcity of natural resources to the required extend, growth is still considered functional in maintaining economic and social stability. Since growing the economy is by and large considered the only way out of poverty and towards well-being, the pursuit of growth remains at the heart of the conventional development narrative (Jackson, 2017). But do economic growth and increased material throughput represent adequate ways of enhancing prosperity? Some findings suggest that there is no inevitable link between not growing GDP and a growing level of inequality. Increasingly, the opposite appears to be the case, where the profits of a highly centralized growing economy are channelled into the hands of the very few, with gains in income and wealth remaining mere phantasies for the many. Critical voices amplify their discontent with the pursuit of ‘catching up’ by growing the economy at large as being nothing more than an elusive dream, falling short of taking into account the growing unequal global and local distribution of wealth. While under most scenarios industry is set to remain an important sector of the economy that will continue to provide for essential material needs, some authors have started arguing in favour of re-centring economic activity mainly around decentralized and service-based activities in care, craft and culture rather than simply growing industrial output (Jackson and Victor, 2015; Hickel, 2018). Strong support for this approach can easily be found in pointing to the fact that, from an environmental perspective, the pursuit of infinite exponential growth on a finite planet presents a physical impossibility (Kallis, 2015; O’Neill, 2015; Andreucci and McDonough, 2015).
The continuous emphasis of development lies on the importance of growth for the economy, politics and society. In effect, the growth paradigm thereby influences epistemic dimensions, by blocking alternative narratives that seek to provide environmental sustainability as well as economic and social stability (Dellheim, 2014). Despite this, there is a growing realization that achieving social equity by increasing GDP in a consumer society is environmentally unsustainable. Unless there is a willingness to redefine how prosperity for the majority of the population can be achieved, other than by simply expanding consumerism, which does in fact show only marginal returns on individual happiness following an early threshold, keeping the economy in line with the natural environment under the current system will not be feasible (Jackson, 2017). Knowing this, the EU and other international institutions should face up to the realities created by liberal market reforms and free trade and, equally importantly, acknowledge the limitations of ecological modernization under the economic growth paradigm.
The 2030 Agenda for Sustainable Development, adopted by the United Nations (UN) in 2015, outlines a global framework for transforming the world by ending ‘extreme’ poverty and hunger, improving health and education, increasing action on climate change and addressing prevailing societal barriers, such as gender inequality, lacking access to clean and affordable energy and poor environmental health. The Agenda does not, however, take into consideration the structural relations of the global economy, historic roots of poverty and unequal distribution of wealth, not to mention modern corporate and state power. Furthermore, with Sustainable Development Goal (SDG) 8, economic growth is promoted as the main driver of development (UN, 2017). In effect, the Agenda ignores the biophysical limits of the planet and the increasing wealth and income inequalities under the growing global economic system. With the continual dependency on GDP and unquestioned economic globalisation, the Agenda does not only undermine its own aspirations, it also limits possibilities to imagine growth-independent approaches that may provide for sustainability and prosperity.
Dependency theory can serve to act as a more holistic approach of explaining the structural causes of ‘underdevelopment’. In its initial form, the theory became a critique of the global economic regime and liberal market reforms. However, it did not challenge the narrative of development itself nor the underlying assumption of economic growth as the only path towards well-being. Taking into account core-periphery dependencies and the limits of ecological modernization under the 2030 Agenda, the question arises of what a pathway to creating an environmentally sustainable and just economic framework could look like.
Since development traditionally comes in the form of economic growth, one should turn their attention to post-development and the concepts thereof. Post-development generally questions the dominant industrial growth paradigm as being the only viable system that can occupy the economy. With the good life for all, or buen vivir (moving beyond a society centred around the individual towards a holistic and collective worldview), post- or de-growth (decentring growth from the economy and social life), as well as self-reliance, arrays of post-development are gaining traction in public discourses around climate change, equity, justice and alternatives to the dominant economic and social order (Escobar, 2015; Novy, 2013; Latouch, 2010).
Self-reliance, as one approach of post-development, describes the transformation of the productive system by taking into consideration the current order of dependency. A strategy built around self-reliance aims to place control of local resources and their productive use in the hands of economic policy making that is largely independent. It departs from the often misleading goal of ‘catching up’ or ‘greening’ the economy, questioning whether following the growth path of the core countries under current dynamics of global capital accumulation is economically possible and environmentally feasible. Importantly, it does so without evoking narratives of anti-modernization (Fischer, 2013). One of the key aspects of self-reliance is the temporary retreat from global economic structures, which is also considered essential by many proponents of dependency theory. Self-reliance builds on the theory of dependency by acknowledging the barriers imposed on the periphery by core countries. Yet, under self-reliance, neither capital flows nor global trade relations should be made away with completely, but rather be used for the superordinate goals of the affected country (Amin 2017). The approach avoids falling into narratives of autarky or self-sufficiency, while emphasising the environmental impact of global trade relations and the importance of regional forms of economic cooperation and the creation of local value chains. Self-reliance does not aim to avoid economic interaction beyond the nation state or countries of the same region altogether. Rather, interaction should be determined based on the criteria of self-reliance set out for a specific country, based on the material and cultural needs of those parts of the population most in need, and not centred around simply increasing industrial output. It also sets out to prevent the creation of any new form of core-periphery dependency as the result of rapid and new capital accumulation (Fischer, 2013; Becker et al. 2013).
Of particular interest for CEE countries are approaches of collective self-reliance. The concept of collective self-reliance entails full control over local resources and their productive use within the framework of a sovereign intra-regional economic policy. While industrialisation centred around internal markets remains an economic goal, production is strongly oriented towards ecological boundaries by, for example, focussing agricultural development on regional food sovereignty or energy generation on the use of local renewable sources. Existing examples of such cooperative regional relations (e.g. South-South cooperation) are the first corner stones of a new and comprehensive strategy that seeks to counteract existing core-periphery relations. The aim is to overcome structures based on unequal exchange, vertical distribution of labour, dependency, fragmentation and marginalisation.
Collective self-reliance could become part of a radical reform agenda within the European sphere of influence. Alternative development strategies of self-reliance depart from the economic growth paradigm, aiming at a new mode of production, and ultimately also living, by creating equitable and sustainable production and consumption patterns for both core and periphery. Self-reliance on a local and regional scale, accompanied by regulatory demands on a global level, could indeed become a new guiding principle of multi-level-governance (Fischer, 2013).
Under the current formation of dependent structures in CEE and the pressure for economic growth, self-reliance provides a starting point to rethink development in the region. Drawing from the capabilities of local resources, self-reliance policies should encourage a transition of economic sectors away from the negative environmental externalities inherent in the industrial model of ever increasing material throughput and towards applying an institutional framework that offers prosperity outside the growth model. This would entail changing production models as much as it would mean challenging the nurturing of the consumerist mind-set and the goal of reaching ever higher levels of materialist lifestyles. This is of profound relevance since the kind of consumerism that is enshrined in the economic model and culture of the European core countries undermines any efforts of reaching the goals of the global community set out to provide for a stable climate and environment (Gudynas, 2013; Brizga et al., 2014).
Some initial findings suggest that countries in Europe’s periphery are indeed highly dependent not only on trade relations with the core, but also in terms of adapting an economic narrative that leads towards increasing levels of resource consumption. Dependency theory, however, should not be used to explain all the structural issues that are at the heart of this relationship. Yet, it does increase the understanding of how an alternative pathway could be created, raising awareness of the hegemony of European core countries and their ambition of keeping the upper hand in setting policy priorities based on economic growth that will continue to favour those currently in possession of capital and productive assets (Centeno, 2017; Bruszt, 2017). Under the current institutional set-up and the developmental interdependence, it remains doubtful that subordinate countries will be granted much autonomy in deciding over the direction of their development path, with integration processes set to remain afflicted with economic and political challenges (Bruszt and Vukov, 2017). One could go as far as to question whether the implementation of transnational policy prescriptions under EU-integration will turn out be beneficial at all for the periphery in reaching a long-term stable economy.
The statements presented in this essay suggest that, instead of imposing policy prescriptions that are based on misleading promises of ‘catching up’ and ‘greening’ the economy and promoting the adaptation of high-consumption lifestyles, as is the case under the current narrative, the EU should encourage approaches that focus on a larger degree of domestic production and consumption in CEE, under conditions that provide for shared prosperity in all its member states and that keep their economies within strict ecological limits (Centeno, 2017; Bruszt, 2015). Developing such long-term alternatives will be essential in avoiding societal collapse in a world that is on track to converge to the socio-economic patterns of the highly-industrialised economies of the global North (Belinga et al., 2018). A strategy based on collective self-reliance may become one of the building blocks of a new model that could help to transition away from the dominant growth-based economy and towards a long-term sustainable future.
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 Central and Eastern Europe (CEE) comprises Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, Estonia, Latvia and Lithuania (OECD, 2000).