25 Years Later: Path of "East" Europe's Development

1. 25 YEARS AFTER: THE DEVELOPMENT PATH OF THE “EAST” OF EUROPE Iván TosicsMetropolitan Research Institute, Budapest AESOP Congress, Prague13 July 2015

2. Expectations and realities East-central European countries became free 25 years ago and had high expectations for democracy and quick economic development. Both aims have been achieved to a given extent, however, withhugecontradictions and externalities Somethingwent wrong. The presentation aims to separate two sets of factors: • the general features of the capitalist economic model • the specificities of thepost-socialist transition

3. Outline • Socialism • Transition and consequences • EU accession and policy innovations • Contradictions of EU supported developments • What can planners do?

4. The transition from socialism Socialism: unique political and economic system, making the countries similar (convergence) Ivan Szelenyi: after the fall of socialism divergence started with three different pathways out from socialism. • East-central Europe: towards liberal capitalism, according to the Chicago school cookbook, neoliberal economics. Enclosure of commons was done in 5-10 years (England: it took 300 years…) • Russia and ex-soviet states: towards patrimonial capitalism. Only 18 months long love affair with liberal democracy. But then Jelcin announced voucher privatization, wanting millions of owners. Instead he has got a couple of billionaires… 7 bankers owned 50% of Russian national wealth. • China: towards capitalism from below. 1978-1985: inequalities were declining, small businesses in the countryside.

5. Peter Marcuse and Karl Marx • Chris Hamnett: I remember a visit to Budapest with Peter Marcuse inearly 1990 to see a particular statue of Marx next to one of the parks. When we got there the statue was totally boarded up. You know said Peter, when the boards come down it will be a statue of Adam Smith. • Marx has beentransferredintothestatue park. Not sure aboutthereplacementbut Budapest has now a statue of Ronald Reagan…

6. Dismantling the socialist system • Following the collapse of the socialist system, the over-sized public sector had to be reduced and the top-down political and planning system had to be changed. • In most post-socialist countries the overarching state control was replaced by free market relations, the “historic pendulum” went to the other side (Bertaud-Renaud, 1995). • The main restructuring processes: • privatization of industry and the housing stock • decentralization of the administrative structure

7. Privatising the housing stock Meetingin Budapest intheearly 1990s betweenUK housingresearchers(Chris Hamnett, Alan Murie and others) withthe Mayor and head of housing of Budapest. The topic: housing privatisation in Britain Hamnett’s rememberedthisas a fascinating example of how people with different agendas speak past one another: • the UK researchersoutlined theircritique of the operation and the consequences of Thatcherite ‘right to buy’ policies for council housing • the Budapest politicians wanted to know how best to do it Itwas a two hours’ talking at cross purposes.

8. The socialist public housing sector Szolnok: a middle-sizedHungarian city withtypicalpublicrentalhousingproblems • Public rentalhousingaroundhalfotthetotalhousingstock • Rentsgenerallylow („affordable” withoutsocialsubsidysystem) • Rentsdependonthe „comfortlevel”: • Type of heating(highestrentfordistrictheating) • Existence of toilet and bathroom • Housingmaintenanceextremelyweak and badlyorganized: inefficientstateorganizationin monopol position • Outcome: badlymaintainedstockwithverydifferent „shadow market prices”

9. An attempt to restructure the public housing sector without privatization • 1992-93, Szolnok: experimental model (USAID-MRI) • Rents and utility prices should express market values while housing subsidies should be linked to the social conditions of households • Not the housing units should be privatized but the housing management companies, creating competition in maintenance • Development of a totally new local housing policy regulation, affecting the rents, housing subsidies, maintenance contracts • Successful implementation (despite 9 times rent increase for best inner city housing); creation of housing subsidy offices; contract-based management on competition basis • Collapse of the programme in 1994 when the Right to Buy has been introduced compulsorily by national law

10. Right to Buy: dramatic changes in property relations • Margaret Thatcher privatised 2 million public rental units over a time period of 15 years • East-central European countries privatised 3.1 million rental flats within five years. • Discounts on sales prices for sitting tenants were usually above 85 %, there were even examples for almost 100 % discount. • The “winners” of this “privatisation race” were the south-eastern European countries, where 77 % of the public stock has rapidly been sold off to the sitting tenants. • The share of the public rental stock changed 1993-1998 in Tirana from almost 100% to 0%, in Budapest from 50% to 10%, in Prague from 71% to 52%

11. Housing privatisation – 1990-2006

14. The consequences of mass privatization Positive effects: • Individual flat-ownership played a „shock-absorber” role • Condominiums in better areas started renovations; • Privatization helped the kick-start of small SMEs Negative effects: • Growing inequalities in housing consumption • Growing differencies in the chances for renovation of buildings, leading to spatial differentiation • Emergence of social problems in the housing sector

15. Growing social polarisation • Post-socialist economy: the share of poverty increased, while social housing disappeared and social policy has been reduced drastically • Large-scale privatization created many low income home owners (without safety net) • The consequence was the increase in homelessness and poverty, more and more visible in public spaces • The reaction of the public hand was fragmented and very limited in the 1990s

16. Income inequality (Gini Indices - income based)

17. Different patterns of transition The change towards the market followeddifferentpatterns, national differences increased between the post-socialist countries, earlier belonging to the same “camp”. • Germany: introduction of a newregulatedmarket systemwithpublic and privaterentalhousing • Czech Republic, Slovakia, Poland: gradualincrease of owner occupation, substantial cooperative and public rental housing • Hungary and Slovenia: quickchange towards property owning countrywithsufficientlegalbackground • Romania, Bulgaria, Albania: quickchangetothedominance of individual owner occupation, without the necessary legal background

18. Unequal territorial development • New countries with new capital cities • Capital cities vs post-industrial cities and peripheral areas: no change in the centralization tendencies, capital cities are the winners of the transition • Increasingly strong west-east gradient

19. Capital cities in the 20th century

20. Population and GDP Shares of Capitalcities

21. Market led urban development • Growing differentiation between gentrifying central areas and new garden cities vs deteriorating older city areas • Car-dominated urban development: explosive increases in car ownership, accelerating urban sprawl, car-based commuting and congestions • Weak cross-territorial cooperation, little progress in city-region (metropolitan area) thinking and in developing cross-border cooperation.

22. Bleak demographic future • Major parts of the CEE countries have seen population declines since the middle of the 1990s. Extremely low fertility rates lead to shrinking populations while growing life expectancies increase demographic ageing and demand for pension payments and old age services. • Outmigration has sharply increased, leading to brain-drain (and brain-waste). • No migration policies exist which could shape migration patterns towards more positive outcomes. Conservative, dissuasive national migration policies, lack of cultural openness of the population

23. THE demographic challenge EU10 Source: United Nations 2008

24. How regions are affected?Source: The ESPON 2013 Programme DEMIFER (Demographic and migratory flows affecting European regions and cities) Reference scenarios, 2010:28) STQ Scenario: Status quo scenario: the demographic trends remain the same as currentlyThe map below displays an East-West gap in demographic terms

25. EU accession: a great opportunity • 2004: post-socialist countries became ‚new member states’ • Opening up of a huge pot of money for development • Even more important: new system of planning with compulsory elements to assure integration and participation

26. Policy innovations in post-socialist countries and cities In the 2000s some interesting policy initiatives emerged in post-socialist countries and cities: • integrated urban development through a new planning system of EU resources, ensuring also social proofing (Hungary) • new regional policy with the reinforcement of regional centers and functional urban area planning (Poland) • integrated and participative local regeneration with strong social goals (Hungary) • compulsory integration of Roma kidsat the lower level of education (Hungary) These can be considered as good practices also on pan-European level.

27. Integrated urban development planning with compulsory social proofing • In Hungary in the late 2000s cities which wanted to get EU money for urban regeneration had to prepare IUDP • One of the compulsory elements of this plan was the Anti-Segregation Plan: how to improve the situation in segregated areas • The Ministry esablished a group anti-segregation experts who developed an Anti Segregation Guidebook and helped (as mentors) the cities to draw their plans • The mentors had to check the cities’ plans whether these correspond to the expectations of the Guidebook. Without the counter-signature of the mentors the cities could not receive the requested EU funding.

28. ITI – Teritorial definition of the Warsaw Functional Area • surface: 2.932 sqkm. (8% of the surface of the region) • population:2.656.917 inhabitants(50,3% of the population of the region) • 40 communes – including Warsaw(within 11 counties)

29. Planning for the EU: development with contradictions Unfortunately most of these policy innovations could not prevail for long: they did not become embedded enough into the policy-thinking and practice. Afterchangesinnationalpoliticssuchinnovativemulti-governance structures were usuallyswept away quickly ‚Mainstream’ elements of planning and implementing EU cohesion policy resources: • lack of integratedpolicy-making • marriage of the political leaders with the investors: “opportunity planning” • corruption, strangeprocurementresultsleadingtotheemergence of a new and loyalnationalbourgeoisie

31. The loss of local power against national politics and market forces Presenturbandevelopmentproblemswouldneedlocal discussions, participation of population Instead, thepopulation and the local level is losingpower: • Budapest: keyinvestmentsaredecidedbythegovernment, districts and themunicipalitylostinfluenceandevenhavetohand over thepropertyrights • Prague: the coordination between infra and urban development is vanishing... a new by-law wouldprescribe good public transport links (rail transport) for development ideas with high transport needs,but developers object this

32. The change of priorities • Urban development strategies should answer the burning issues of today, e.g. how to use the communist heritage (compact city, dense public transport networks, large estates with district heating and green areas) in a positive way, how to stop segregation, how to deal with migration… • Instead of local discussions on real problems with the participation of the population, urban development is determined by spectacularization (events, areas, buildings), determined by higher level politics and/or market forces

33. A new convergence in Eastern Europe? Ivan Szelényi: After the post 1990 divergence some form of (unfortunate) reconvergence is going on in Easten Europe • Putin: loyalty test for the boyars of Jelcin. Property rights were becoming uncertain… prebendalism (electedofficials, governmentworkersfeeltheyhave a right to a share of governmentrevenues, and usethemtobenefittheirsupporters, co-religionists) • The Chinese also changed their way to capitalism… property rights were made uncertain also here • East-central Europehas also got the Putin virus: making property rigths insecure, introducing price controls, making tax levels unpredictable, starting criminalization… heading towards illiberalism, diminishing the separation of power, eliminating checks and balances

34. What can planners do? • planners are actors in the game with national politicians/regulators, local leaders, market actors, population groups • planners have a responsibility to achieve more balanced, integrated, just urban planning • planners should help the disadvantaged to be better represented in planning, to jump upwards in the ladder of participation

35. New ways of planning • Advocacy planning: to help residents to enter into negotiations with public officials and private developers • Empowerment planning: to enhance the capacity of community organizations to influence the investment decisions • Equity planning: planners working inside government using their skills to influence opinion, mobilize underrepresented constituencies, advance policies to redistribute public and private resources to the disadvantaged

36. With whom should planners work? Planners can look for partners • ‚upwards‘: to work with the municipality, with politicians, with market actors • ‚downwards‘: working with the people, with social movements Both are needed Large differences between different parts of Europe in the flexibility of the municipalities and politicians to work with planners (NWE: temporary solutions, free-range officials...)

37. Challenge for east European planners • Post-socialist cities are dominated from above by socially insensitive power politics • In most cases the local leaders are not very different • The market actors have their self interests and clean competition rarely takes place • The population is increasingly sceptical, intolerant and exclusionary – those who not, leave the country instead of fighting

38. A personal story: my illusions Inthelast 25 years I had a couple of ideaswhichprovedto be illusions • Noszvajconference and Szolnok experiment: illusionthatprivatization can be stopped withclear, evidencebasedarguments • Hungarian policy innovations (integrated planning with social proofing): illusion that suchinnovative and equalizingpoliciescan survive political changes • Beliefin a democratic, strongpublicsector, being abletoregulate the externalities (especially social injustice) of market processes – a falsehope: if the public sector becomesstrongerthis leads rather to prebendalism and illiberal democracy I am not optimistic about the future of the east of Europe – theonlyhopetoday is the good sense of humour in these countries

39. Thank you for your attention! Iván Tosics tosics@mri.hu