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Bicycling through Social and Economic Change in Poland, Slovakia & Hungary By Rick Price, Ph.D.

Bicycling through Social and Economic Change in Poland, Slovakia & Hungary
By Rick Price, Ph.D.

As I pedaled from Saint Petersburg to Istanbul in June and July of 2006 among other things I wondered how you completely “retool” an economy!  How do you move from a socialist, top-down economy to a capitalist, entrepreneurial, bottom up grass-roots economy and society?  Two examples came to light in my conversations with people on that trip and in my exploring for answers on a trip to Croatia, also in 2006.  Just think, though, of the challenges the East Europeans have faced in restructuring everything since the fall of the Iron Curtain in November of 1989.

My first example is a lovely boutique hotel on the coast of Istria, in Croatia.   I was part of a USAID consulting team invited to conduct several seminars for Croatian tourism operators about what American tourists seek when they travel abroad.  The hotel was built as a private villa by Austrians during the 19th century.  Under the Socialist Federal Republic of Yugoslavia (1943 – 1991) this particular villa had been taken over by the government and divided into small vacation apartments for officers of the Yugoslav army.

So as we sat enjoying a lovely dinner overlooking the Adriatic Sea I asked our host how he came to convert this villa into a hotel.  “It was easy,” he said, “the free market works wonders!”

He explained that when Croatia declared independence from Yugoslavia in 1991 and when the war of independence from Serbia was over in 1995, the Croatian government sold the apartments occupied by the Army elite to those same families.   Apparently this was a common practice to convert lodging from state ownership to individual ownership.  The longer you lived in a particular apartment, the better price you were offered.   It didn’t take long for entrepreneurs to emerge and offer to buy the apartment from the new owners at a profit.  In no time, our host owned the entire villa and converted it into a hotel.

Another example of “retooling” the economy comes from a conversation I had with our guide while pedaling across Bulgaria.  The accompanying photo of sunflowers shows Paola pedaling in Bulgaria past some of the largest fields you’ll find anywhere in Europe.  These huge landholdings were created by consolidating small, private farms into massive, collectives on the Soviet model.

“How did you convert these gigantic collective farms back to private ownership,” I asked our guide, knowing that such a project would be a huge undertaking.  He answered with the example of his grandparents’ small farm in northeast Bulgaria.  They had owned a small farm of 15-20 acres which had become part of a large collective.  He explained that since they were able to prove that his family had once owned the farm, the title had been returned to them and now he leased it back to the farm “cooperative.”   He now receives a rent check once a year.

According to Ann Louise Strong, in fact, Bulgaria had a very high success rate in the early 1990s of land restitution.  In 1946, when the Soviets took control of Bulgaria the 93% of farms were smaller than 25 acres.  After collectivization and at its height in the 1970s, the average collective had 59,000 acres and employed 5,000 people.

In Slovakia the restitution process of land taken under the Soviets has been slower and there we see a greater mix of landholdings while in Poland the collectivization process was never successful and small farmers stayed on their land and continue to do so to this day.

Other aspects of the conversion to a market economy are more complex.  We found hotels and restaurants thriving and a tourist infrastructure seemingly doing well on our 2006 and 2007 Expeditions.  The same is true in Croatia which has a long history of coastal tourism back to the 19th century.  But some economists suggest that this may be an illusion insofar as many of the new businesses are more self-employment jobs than they are real entrepreneurial enterprises that can be scalable and that will create increased employment.  One study (listed below) uses the analogy of the worm and the caterpillar whereby jobs that are created by self-employment are worms that, unlike the caterpillar eventually might morph into a butterfly, remain worms.

Further reading:

David Bledsoe and Renee Giovarelli, “Land Reform in Eastern Europe”
Western CIS, Transcaucuses, Balkans, and EU Accession Countries
Seattle, Washington October 2001; accessed on line March 28, 2009.

Ákos Róna-Tas, “The Worm and the Caterpillar, the small private sector in the Czech Republic, Hungary and Slovakia,”  in The New Entrepreneurs in Europe and Asia, Patterns of Business Development in Russia, Eastern Europe and China.  Victoria E. Bonnell and Thomas B. Gold, editors (Published by M.E. Sharpe, 2002).