UNITED NATIONS UNIVERSITY PUBLIC FORUM
THE REINTEGRATION OF TRANSITION ECONOMIES
INTO THE GLOBAL MARKET SYSTEM

Introduction

A UNU Public Forum on The Reintegration of Transition Economies Into the Global Market System was held at United Nations headquarters in New York on 24 March 1997. Mihaly Simai, Professor at the Institute for World Economics of the Hungarian Academy of Sciences, and former Director of the UNU World Institute for Development Economics Research (UNU/WIDER), was the guest speaker.

Professor Simai's presentation focused on a UNU/WIDER research project entitled "The Evolving New Market Economies in Europe and Asia: Integration Into the World Economy." The recently concluded study examined the conceptual underpinnings of reintegration and the changing internal and external factors related to the reintegration process of transition economies. The project considered two primary research directions. One stream dealt with the problems and international implications of domestic change in the former socialist countries in transitions. The other analyzed the problems of reintegration in a more synthesized, cross disciplinary way. A number of specific issues were examined, including: the political and economic dimensions and consequences of the changes taking place in Central and Eastern Europe, China, and Vietnam; the institutional efforts in the transition economies; the impact of these changes on the competitive global market system; the favorable and adverse effects of the reintegration process; and the role of international organizations, such as the World Bank, the IMF, and the United Nations, in this process.

The Process of Reintegration

A number of major changes in the global economy have taken place during the twentieth century. One obvious example occurred after the disintegration of colonialism, during which time a number of newly independent countries entered into the world economy. Today we are witnessing the reintegration into the global economy of the former socialist countries in Central and Eastern Europe (CEE) and, to a certain extent, the People's Republic of China and Vietnam. The notion of reintegration, as used here, denotes the re-entry into global markets, by various means and channels of cooperation, under new political and economic conditions. This reintegration process, which is taking place with tremendous speed, is creating a number of new and important problems for the countries in transition, partner countries, and the international community at-large.

The participation of any country in the global system has various dimensions. Among them is the historical development of the economy, which shapes the country's place in the global division of labor. There are also political, geographical, economic, institutional, and cultural dimensions to the reintegration process.

The political dimension of reintegration is a complex process for the CEE countries, China and Vietnam, and its domestic and international aspects are closely connected. In Central and Eastern Europe and the former Soviet Union, the political dimension of reintegration with world markets has been accompanied by underlying and, in many ways, interrelated external political changes. One was the break-up of the Eastern Bloc and the Soviet Union, which had immediate, radical effects on economic and political relations alike. The disintegration of the Soviet Union and the ensuing political transformations occurring in these countries have resulted in a new period in international political affairs, which has come to be known as the post-Cold War era. This, in itself, represents an event of enormous significance, which carries many important implications. For example, it has marked the end of the bipolar political-military bloc system which developed after the second World War. During this period, the two leading powers -- the United States and the Soviet Union -- were able to impose an element of political discipline upon the countries which were members of their respective blocs. As a result, conflicts of an internal nature were more or less contained. It is now evident that the disappearance of the bloc discipline from international relations has created a situation that is much less predictable. It is also evident that the controversies, tensions, and conflicts which existed prior to the Cold War have reemerged.

A second political change is related to the lifting of strategically induced restrictions on the flow of finance, trade, and technology, imposed by the main Western powers during the cold war. This raises an important dilemma, particularly with Russia, of how the West should shape its future relations with past adversaries.

Another important political change was the move to equip the former socialist countries with democratic institutions, similar to those in Western countries, and to democratize their societies. The future of democracy in the region and the sustainability of new democratic institutions are not merely domestic issues. They relate closely with the future of these countries' international relations, their ties with the Western world, and their membership in European institutions.

The political aspects and consequences of the reintegration process in China and Vietnam entail different factors. In particular, the reemergence of China's increasing global power has and will continue to have major future implications. The nature of these implications will depend greatly on the future course of Chinese policy. While the economic transformation and further opening of China offer new markets, they also create new areas of competition, and potential global tensions associated with the struggle for spheres of economic and political influence. Unlike the CEE countries, China and Vietnam show different relations between democratization and international economic reintegration. Their reintegration into global markets has not coincided with radical changes in their domestic political systems, although their political issues and changing geo-strategic realities are closely linked with the economic circumstances as well.

Global Markets and the Newcomers

The framework in which the reintegration process occurs is the global economy of the period, with all of its institutions, organizations, power structures, hierarchies, markets and competitors. The former socialist countries of Central and Eastern Europe and the former Soviet Union, China and Vietnam, face a completely different world economy in the 1990s from the one they dropped out of decades earlier.

It is important to note that the transition countries in Europe which are going through the process of reintegration are mid-level economies and, in most cases, they were mid-level economies before the transition to the communist system occurred decades earlier. The economic structures of these economies are not necessarily capable of fully competing in a global market dominated by highly industrialized developed countries and organizations, such as transnational corporations. These countries, by definition, have a much weaker competitive position. In order to be reintegrated into the global economy, these countries have had to implement a number of important institutional changes. For example, the new governments of the European transition economies have had to face unprecedented tasks of building new institutions. The system change which occurred after 1990, represented the first case where a group of countries building up a democratic, political system and a market-based capitalist economic system from "above" by political initiatives and means. This entailed transforming the role of the state. Profound structural changes in income distribution have been made, and new administrative structures were built in the countries that succeeded disintegrated states. The domestic tasks had to be implemented rapidly, while measures were also taken to increase their participation in global markets as market economies. Practically every factor and postulate of domestic, political, social, and economic transformation in the former socialist countries has had some consequence for reintegration with global markets. The process has been slower and more difficult than was initially expected by many observers inside and outside of these countries. One can also expect the domestic institutions in China and Vietnam to adjust to the two countries' growing participation in global markets, especially its internal effects.

Indeed, the privatization process which is still taking place in these countries is an historically unprecedented change. Within a very short period of time, major changes have occurred in ownership patterns. Unlike a market economy, where these changes develop from the grassroots level, the privatization process in the transition countries is developing from above and is organized by the state. In essence, we are witnessing the "de-statization" of economies by the state. This presents a very interesting contradiction in itself, which has a number of unfavorable consequences. For example, the state is being pushed to undertake the transition process at a very rapid pace. As a result, a large number of these countries are selling out their national wealth to their own citizens and to foreign interests for far less than its full value.

The transitions in Central and Eastern Europe and the former Soviet Union have resulted in unprecedented losses for these countries. The collapse of the Eastern market and their domestic economic structures has resulted in major losses in gross domestic product (GDP). For example, in Hungary, from 1990 to 1996, one year of GDP was lost in the industrial, while two years were lost in the agricultural sector, resulting in declines in income and severe impoverishment of the people.

The reintegration of the transition economies has resulted in changes in their economic relations with the rest of the world. Trade relations have changed radically. Exports from these countries have declined, and the structure of exports has changed as well. Prior to the transition, these countries mainly traded with each other, the former Soviet Union and, to a certain extent, developing countries. Today, their main trading partners are Western industrialized countries. Thus, there has been a rapid decline in their trading relationships with developing countries, and between the countries in transitions themselves. Some export growth began taking place after 1993, and in certain countries this was quite meaningful. For example, in the case of Russia, the export of raw materials increased. In the case of the former socialist countries in Central and Eastern Europe, the structure of exports changed quite differently. In Hungary, for example, the export of machinery, equipment, and processed goods increased, representing an extremely important and favorable change in export patterns.

The situation is China and Vietnam is quite different. Following the implementation of its reforms in the late 1970s, China has become a major trading power in the world. The increase in foreign direct investment has been very rapid in contrast to the former socialist countries in Central and Eastern Europe. Unlike the transition economies, China and, to some extent, Vietnam have managed to reduce poverty and increase gainful employment. Township industrialization, for example, created more than 120 million new jobs in China, while foreign direct investment resulted in close to five million new jobs. Vietnam is rapidly entering the global economy as a new frontier, without undergoing major political changes like China. So far, the net results of reintegration process have been much more favorable for China and, to a some extent, Vietnam, than for the former socialist countries in Central and Eastern Europe and the former Soviet Union. This is primarily due to the fact that China and Vietnam opened up their countries and reintegrated with world markets, while maintaining a well-structured institutional system which could influence the outcome of the changes taking place. In the former socialist countries in Central and Eastern Europe and in the Soviet Union, the fact that these changes took place together with political transformations and the disintegration of the state, the establishment of new relationships with the global markets resulted in weak states which did not have the capacity to deal with the transition problems. These countries are still learning this process. On the other hand, it is important to note that the potential conflicts between economic reintegration and the political factors may be less strong in the former Soviet Union and Central and Eastern Europe, than it may become later in the case of China.

Reintegration and Tasks for International Organizations

In the past, the United Nations and its specialized agencies have had to support a large number of new countries born out of the ruins of colonial empires as they established their statehood. The United Nations has accumulated experience in many new countries relating to the handling legal problems of successor states, building institutions, and providing impartial analysis of the socio-economic and administrative processes of transformation. It has also played an advocacy role in the global system, supporting new countries in solving their problems, and suggesting policies and measures for moderating the human costs of changes. In a number of cases, the UN was the first to supply humanitarian assistance and technical cooperation.

In the case of the former socialist countries, the major industrialized powers did not place sufficient emphasis on the role of the UN. When the process began, it had been decided that the World Bank and the IMF should be responsible for the main facets of the reintegration process and, as such, serve as the main channels of external assistance coming into these countries, and assist in the marketization process. This resulted in a great deal of misunderstanding in the institutions and within the former socialist countries. During this process, and especially during its early stages, the World Bank and the IMF utilized structural adjustment programmes for these countries, which often failed in the developing countries. Unfortunately, the results were very similar to the case of the developing countries. These two institutions played a very important role in assisting in the process of institution-building in these countries and this proved to be very useful. The World Bank and the IMF also provided direct assistance and in the allocation of international assistance. International assistance proved to be much less than what was anticipated by the countries. The allocation of this assistance so far has proven to be relatively efficient. This was in many ways the result of the activities of these institutions. They were not able to influence all of the countries to give all of the money that they promised. But what they gave was to a large extent allocated in a manner which was favorable from the point of view of the economic development of these countries.

The UN Economic Commission of Europe (UNECE) has made important and comprehensive contributions in the transition countries of Europe. It has been particularly helpful in analyzing the changes, evaluating the successes and failures of the various changes, and comparing countries' performances. Moreover, UNECE has also played an important role in raising the issues of the transition process within an integrated European framework.

The United Nations Development Programme (UNDP) has also provided extremely useful in the reintegration process. The work of UNDP has helped in institution-building and in creating a favorable foundation for activities such as training, particularly in the countries at the lower level of development. UNICEF has been playing a role, particularly in China and Vietnam, and to a lesser extent in some in Central and Eastern European countries and in the former republics of the Soviet Union, with direct assistance to the children. In the area of education. UNICEF has drawn attention to growing incidents of child prostitution and child labor these countries as well.

An important conclusion of the project is that member states should assign an active role to the United Nations, making more effective use of the organization's proven comparative advantages in the following ways: (1) assist in conflict management and conflict resolution in region of transition countries, which may suffer a longer period of political, social and economic instability; (2) extend humanitarian assistance; (3) conduct critical and impartial analysis of the main factors, processes and outcomes in the transition process; (4) provide technical assistance in institution building and management of new organizations of the market system; (5) transfer knowledge and information relating to country experiences in similar circumstances; (6) conduct a critical appraisal and analysis of the various national and international programmes related to the transition process; (7) analyze the implications of the transition process for different groups of countries, particularly the developing countries, with a view to strengthening global cooperation; (8) assist in the democratization process by projecting the values of the UN Charter and the Universal Declaration of Human Rights; and (9) promote the reintegration of the transition economies into the global system by conducting a critical analysis of their policies, practices, successes and failures, and of the ways the rest of the world is handling the process. The UN can also play an important role in keeping the issue of transition and reintegration into the global market system on the global agenda, in a way that takes into account the interests of all of the partners involved, including developing countries.

Conclusion

It is clear that the new interactions developing between the reintegrating countries and the rest of the world call for a new, realistic partnership. This must not only take into account a community of interests, but be based on firm commitments by all actors involved. This partnership should help with institution-building, mutual adjustment, and ensuring a more equitable distribution of costs. The partnership must have strong regional elements, due to the crucial role of Europe, and also to the specific role of China in Asia and the changes in Indochina. The partnership must be global, taking into account the interests of the developing countries in the evolving division of labor. There will remain growing differences between the transition economies, in patterns and levels of economic development, and the speed of institutional changes and reintegration.

For the future, we should keep in mind that the entire world is in a state of transition -- from Cold War bilateralism to new political realities, a new stage of globalism and regionalism, a global spread of new technologies, a world with more than six billion inhabitants, and a still growing number of states. All of these circumstances and many others present a vast number of tasks related to the collective management of issues relating to global security and new demands forcooperation. There must be collective responses, in which the transition countries should also be involved, in major areas. These include disarmament, especially the elimination of nuclear weapons, further steps to manage and contain ethnic conflicts, closer

environmental protection, food security, globalization of markets, the destabilizing effects of massive money and capital flows, the implications of slow growth, demographic and technological changes to employment prospects, the mounting problems of unemployment, poverty and exclusion, the changing role of the state, and the growing activities of non-state actors. Beyond and/or in addition to the specific requirements dictated by the transition in specific countries, the new challenges demand adjustment and transformation from all countries. The improvement of national and global governance, the reforms of multilateral cooperation are important conditions in themselves, but also parts of a global adjustment process.

Questions and Discussion

In the discussion period following Professor Simai's presentation, a number of questions and comments were raised relating to the process of reintegration. The following briefly summarizes the discussion:

How does the decolonization experience compare with the reintegration process taking place today in the countries in transition? What are the similarities?

In his response, Professor Simai noted that the comparison presents an interesting and debated question. Of course, there is not a complete symmetry. However, certain similarities can be observed. For example, the former colonial countries entered into the global market as newly independent countries. This is happening in the cases of the former republics of the Soviet Union, the former republics of Yugoslavia, and in Slovakia as a relatively new country in the region. Previously these countries entered into the world market through the Soviet Union, and now they are entering into the world market as independent states. Again, they had to establish a state structure not only for their own domestic use, but they also for external economic relations which did not previously exist. In this respect, the colonial administration was not necessarily a government fulfilling all of the duties of an autonomous entity, which is similar to the situation in a number of transition countries.

In addition, similarities exist relating to the tasks of institution-building. The countries in transition are in the process of establishing institutions which did not exist earlier. They are re-entering into a dramatically different global economy than when they left decades earlier. Although there may have been existing institutions at that time, they would be absolutely irrelevant in the present situation.

What kinds of roles have non-governmental organizations (NGOs) been playing in the reintegration process of transition countries?

Professor Simai stated that a number of NGOs have been playing very useful roles in institution-building. For example, several United Nations Associations (UNA) in the Central and Eastern European countries became very important actors in institution-building in the field of human rights. Some other organizations, such as Amnesty International, were also playing active roles. In addition, a number of NGOs related to professional activities are playing extremely important roles in these countries. For example, the International Chamber of Commerce is playing a crucial role in helping countries deal with transnational corporations. In the field of the environment a large number of organizations are very active. Women's organizations both at a local and international level are playing a very active role in protecting women's rights in these countries and helping to educate women, establishing schools for women entrepreneurs, etc.