Central Europe: Ex Commies To The Rescue?

Less than five years after the collapse of the Soviet bloc, reform-minded successors to the old communist parties are making a comeback across much of Central Europe. In Poland, the Democratic Left Alliance (SLD), led by a former communist, is the senior partner in Prime Minister Waldemar Pawlak's uneasy coalition. In Hungary, Gyula Horn, who served as Foreign Minister in the old regime, became Prime Minister in June. Former communists also run Lithuania and have a shot at power in Slovakian elections this fall.

These recycled leftists are selling themselves as experienced leaders, who can push ahead with market reforms while preserving some of the social safety net. But they are going to have a rough time meeting the fickle voters' expectations.

That's because Central Europeans are dumping the first generation of market reformers for contradictory reasons. Many are disillusioned about being left behind by the rush to capitalism. Included in this group are the many state employees, pensioners, and farmers for whom the changes have mainly meant inflation or higher risk of joblessness.

PROTEST VOTE. But there is another group of voters that thought the reformers were ineffectual and that veteran politicians would do a better job. In Hungary, much of the 54% of the May vote that went to Horn's Socialists was a protest against their predecessors for letting reform bog down. In last September's vote in Poland, the energetic 39-year-old SLD leader, Alexander Kwasniewski, a Youth & Sport Minister under the communists, had the support of many former communist officials, who are now captains of private industry and want reform to continue.

The reemergence of these leftist leaders does not mean an early rollback of market reforms. Indeed, they could prove more effective salesmen for reform than doctrinaire free marketers such as Leszek Balcerowicz, who spearheaded Poland's shock therapy in 1990. "Socialists can make the bitter pill easier to swallow," says Sandor Richter of the Vienna Institute of Comparative Economic Studies.

The former communists also know they would be stupid to throw cold water on economic growth. In Poland, where a booming private sector grew at an extraordinary 35% clip last year and where entrepreneurs have created 2.2 million jobs since 1989, Kwasniewski makes it clear that Poland cannot afford to increase its social spending. "Some people say we aren't left-oriented enough," Kwasniewski says. "But any government that would destroy growth must be killed."

WISH LIST. Both Kwasniewski and Horn will need healthy growth to bail them out of promises to proceed with reforms without too much social cost. Analysts doubt that Horn can keep his word to slash the predicted 1994 $3.3 billion budget deficit by $500 million while at the same time honoring campaign pledges to trim unemployment and raise benefits. In Poland, critics ridicule a half-baked new economic strategy, which promises to cut unemployment from 16% to 14% by 1997 while also reducing inflation from 32% to single digits, as "a great wish list."

If these programs fail, the danger is that the pragmatic left will cave in to special interests to avoid a voter backlash. Horn will be under pressure from trade unionists and other leftists in his coalition to preserve jobs. In Poland, Pawlak, whose constituency is mainly made up of farmers, has already set off alarms by slapping tariffs on imported foodstuffs. A much discussed plan to create giant state holding companies could also help kill further privatization. So it is going to take all the socialists' vaunted political skills to deliver on their good intentions.

Before it's here, it's on the Bloomberg Terminal.