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Central

Introduction

economic freedom over the past 17 years,

Central European economies remain more

Europeans have

heavily regulated than their Western counter-

In many ways, Central Europe is a success

freedom of

parts. Central European governments contin-

story. The Czech Republic, Hungary, Poland,

speech, religion,

ue to spend, channel, and redistribute a huge

and Slovakia are free-market democracies.

percentage of each country's gross domestic

Formerly part of the Warsaw Pact, they are

and assembly,

product. The allocation of government con-

now members of the North Atlantic Treaty

and their per

tracts is seldom truly competitive. The process

Organization and the European Union. They

lacks transparency, the bidding rules are often

have freedom of speech, religion, and assem-

capita income is

subjected to the whims of capricious public

bly, and their per capita income is higher

higher than ever

officials, and the private sector is often forced

than ever before. Yet liberals, who advocate

before.

to resort to bribing those officials. Thus,

the political, civil, and economic freedoms

licensing and public procurement have facili-

that were instrumental in bringing about

tated the creation of a whole class of politi-

those advances, are on the defensive.

cians, former politicians, and people with

Between September 2005 and June 2006, all

political connections who have made their for-

four Central European countries held parlia-

tunes in a dishonest way.

mentary elections. In Slovakia, a national-

In a region where government transparen-

socialist coalition replaced Mikulas Dzurinda's

cy and accountability are relatively underde-

liberal-conservative government. The new gov-

veloped, the outraged public has exacted pun-

ernment put an immediate stop to new

ishment on the ruling class by withdrawing its

reforms and promised to reverse some of the

support from the established political parties

old ones. In Poland, a coalition deal between

and increasing its support for the populists,

conservatives and nationalists kept the liberal

who skillfully tapped into the feeling of disen-

Civic Platform out of power. In the Czech

chantment with the transition process. The

Republic, the liberal Civic Democratic Party

rise of the populists and the postponement of

won the elections. The Social Democrats and

further economic reform will preserve the

their communist allies, however, won enough

important role that the state plays in the econ-

seats in Parliament to block all liberal propos-

omy. That is regrettable. The size and the

als. In Hungary, the Socialists barely managed

scope of the state in Central Europe have to be

to hang onto power. They defeated their right-

reduced in order to lessen the problem of cor-

wing opponents mainly by concealing the

ruption. Ironically, the postponement of fur-

truth about the state of the economy from the

ther liberalization measures and the concomi-

public prior to the elections.

tant failure to address the underlying cause of

The poor performance of the liberal par-

corruption in the region could undermine

ties in the elections has been seen as a sign of

Central Europe's new rulers and pave the way

weakening public support for the free-mar-

for a liberal renewal.

ket. In the case of Slovakia, the Financial Times

wrote of "a popular backlash against Prime

Minister Mikulas Dzurinda's sweeping free-

The Central European

market reforms that turned Slovakia from

Success Story

international pariah into a country champi-

oned by foreign investors."1 In fact, opinion

polls showed that most of Dzurinda's reforms

The end of communism in Central Europe

were supported by the majority of the popu-

brought economic reforms that included the

lation. So, what went wrong?

elimination of thousands of restrictions, the

One of the most important, though largely

liberalization of prices and foreign trade, and

unexplored, reasons for the rise of populist

the privatization of most state enterprises. It

parties in the region is the scourge of corrup-

also brought increased freedom for domestic

tion. Despite a dramatic rise in the region's

and foreign businesses to enter the market.

2