Cities from state-socialism to global capitalism: an introduction

GeoJournal 49: 1–6, 1999. © 2000 Kluwer Academic Publishers. Printed in the Netherlands.

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Cities from state-socialism to global capitalism: an introduction Zolt´an Kov´acs Institute of Geography, Hungarian Academy of Sciences, H-1112 Budapest, Budaörsi u´ t 45, Hungary Received 17 February 2000

Introduction The process of political transformation in the former statesocialist countries has led to far-reaching changes in nearly all fields of their socio-economic systems. As cities are the nodal points of the economic and social life, contemporary developments in the urban areas have major implications not only for the actual transformation of cities but also for the wider framework of the socio-economic transition1. The tremendous and sometimes very spectacular changes which have taken place in the cities of Central and Eastern Europe have attracted great interest among social scientists in general and urban geographers in particular. The considerable attention paid to the transition of the post-socialist cities is well reflected in the growing number of scientific publications dealing either explicitly with the question of urban restructuring (Fassmann and Lichtenberger, 1995; Andrusz et al., 1996; Kovács and Wiessner, 1997) or some of the general features of the transition which culminate typically in cities (Frydman and Rapaczynski, 1994; Gorzelak, 1996; Pickles and Smith, 1998). Despite the increasing amount of literature on the post-socialist urban transition, there is a lack of comprehensive understanding and theoretical explanation of these processes. This is not least because the transition having swept through the communist bloc since 1989 is still far from over. On the other hand case studies based on interdisciplinary and comparative approaches are also rare. In the present special issue of GeoJournal we try to fill the gap and continue the discussion on post-socialist cities raised by an earlier special issue of GeoJournal (1997, p. 2) dealing with Russian cities. Papers in this special issue cover a wide range of topics that are thought to be relevant in the current process of East European urban transition. The diversity of contributions is guaranteed not only by the topics and countries covered, but also by the academic background of the authors. Authors were recruited from various disciplines in social sciences ranging from urban geography to sociology, economics and urban planning. They are all noted experts on urban issues in their respective countries with long empirical and theoretical research experiences, and they have all been involved in different international research projects dealing with some aspects of urban change in the last few years. Geographically, contributions to this issue cover principally the northern part of Central and Eastern Europe namely Poland, the Czech Republic, Hungary, Russia and the so-called new German ‘Bundesländer’. This is partly because it would

have been impossible to deal with the whole region in one special issue and, moreover, comparable findings of research projects are mostly available from these countries. The majority of the papers included here concentrate not only on the post-socialist phase of urban development, but also deal with the characteristics of the socialist and pre-socialist period, and thus contribute to the better understanding of the notion and characteristics of the ‘Socialist’ city (French and Hamilton, 1979).

Political and economic transformation Countries of Eastern Europe differ considerably with respect to the speed and implementation of the political and economic transformation. Some countries like Poland and Hungary have followed a radical track while others have chosen ‘velvet’ methods in the institutional reform and modernisation of their national economies. This has, of course, resulted in significant differences in societal processes throughout the region. The transformation of the political and economic system has been pivotal in contemporary transition of post-socialist cities. As far as political transformation is concerned one can distinguish several external and internal attributes (Figure 1). Perhaps the most decisive external factor in the transition of Eastern Europe was the dissolution of the Warsaw Pact and the subsequent re-establishment of political sovereignty in the individual countries. Thanks to political sovereignty the isolation of East European countries came to an end and cities sealed earlier in their national spaces were now able to re-integrate to the European urban system2 . Alterations in the external geopolitical climate have also made far-reaching internal political changes possible. Among others, the revival of multi-party systems, free parliamentary elections and the ousting of the Communist Party from power have represented the major steps of political transition (O’Loughlin and Van der Wusten, 1993). With respect to urban change an important component of the political transformation was the return to self-governance and the subsequent shift of control from central (state) to local (community) level, which generally strengthened the role of the local state and eroded the power of the central state. At the level of major urban agglomerations, however, the decentralisation of power meant very often the weakening of city government and the increasing power and competence of the districts. This fragmentation of large cities resulted in

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Figure 1. A model of post-socialist urban transition.

difficulties as far as the elaboration and implementation of comprehensive urban development programmes were concerned and raised the question of the sustainability of urban governance (Bennett, 1998). The economic transformation of East European countries also has had important external and internal attributes. On the external side first the collapse of the former COMECON (Council for Mutual Economic Assistance) proved to be a kind of ‘schock therapy’ for the national economies of the region, leading to bankruptcy and mass-liquidation of companies. The fall of Iron Curtain made the direct penetration of global economy and its main actors the transnational corporations also possible. The appearance of western firms bringing foreign capital investment and modern technology to the region constituted an important driving force in economic restructuring (Turnock, 1998). In this respect, however, we can observe substantial differences within the region. As R. Wiessner reveals in his paper in this volume the post-socialist urban development in East Germany (the former GDR) differs to a great extent from the rest of Eastern Europe primarily because of the immense flood of West German capital to the ‘neue Bundesländer’ after the fall of Berlin Wall. Typically, in the first eight years of transition approximately $US 500 billion investment arrived from West Germany to East Germany. At the same time Hungary, which was the most favoured target of foreign direct investments in Eastern Europe, attracted only $US 20 billion. Beside the infiltration of global capital the disintegration and privatisation of large state companies, especially in the overweight socialist industry played a decisive role in the rapid restructuring of cities. What the whole

Eastern Europe had in common after 45 years of communism was a general dissatisfaction with the performance of the central planning system and simultaneously a ‘myth of the market’ among both politicians and the public. On the one hand, there was a common belief that market mechanisms would be a more efficient way of organising the production and exchange of goods than the previous system of central planning (this was repeatedly ‘implied’ by organisations such as the IMF and the World Bank, etc.). On the other hand, there was also an urgent need both politically and financially to improve the functioning and efficiency of the economy as many of these countries faced immense problems of liquidity. These factors altogether led to the general dominance of neo-liberal economic theory in transformation policies and a radical shift from central distribution to market regulation in nearly all countries of Eastern Europe. There are two important aspects of everyday life where all the changes implemented in the economic and political spheres converge: these are the labour market and the housing market. These two markets are closely linked and interrelated through the functioning of elements at the micro level, i.e., by the choices and activities of households. The link between the labour and housing market is very strong, processes on either side have impacts on the other, and thus influence the structure of the society. During the statesocialist period cheap housing and secure jobs guaranteed by the state constituted the cornerstones of the welfare system. With the radical shift from central planning to a free-market system this model was changed dramatically after 1989.

Transformation of the labour market Due to the economic and political transformation the structure of employment as well as demand for labour and the overall functioning of the labour market has changed significantly in Eastern Europe. In his paper V. Duke examines the outcomes of the decreasing state ownership and the concomitant decline of state-sector employment in postcommunist societies using examples from four cities: Budapest, Prague, Warsaw and Krakow. Duke’s study, based on empirical data reveals that employment in the residual state sector is becoming increasingly the domain of women and older age groups. As a consequence of the sharp withdrawal of the state and the increasing presence of foreign firms growing competition can be observed in the labour market. Generally, the demand for young, well-educated labour has increased, whereas older and less-skilled employees became marginalised after 1989. One of the main labour market changes (at least in the first half of the 1990s) was the rapid growth of unemployment all over Eastern Europe. However, M. Ingham and Z. Dövényi point out in their paper that despite the increasing level of unemployment labour shortage remains a feature of at least the more dynamic branches of post-socialist urban economies. There were two important factors behind the increasing demand for higher quality employees in the labour market: one was sectoral, the other structural.

3 With respect to sectoral changes caused by the collapse of the COMECON the overstaffed East European industry (especially the heavy industrial branches) sank into deep recession. As U. Sailer-Fliege points out in her general overview of the state-socialist countries, the development of productive industrial sectors was regarded as fundamental for rapid economic growth and thus the main tool to catch up with the West. The local urban economies were essentially nationalised and existing enterprises were merged into large scale enterprises. This resulted in the conservation of a rigid fordist-type economic system with strong state-socialist impediments throughout the whole of Eastern Europe. After 1989 this situation changed significantly. Most of the former state complexes and large industrial monoliths went bankrupt and were either closed or divided into smaller, more flexible units. Simultaneously there was a real boom in the service sector, especially in the field of trade, tourism, financial and business services, which generally stand out with their high demand for qualified labour. In this respect East European countries followed the global trend of post-fordist de-industrialisation with some two decades of delay. From a structural point of view, as part of the post-fordist type restructuring of the economy, the number of small and medium-sized enterprises increased rapidly. These smaller firms show much higher flexibility than large enterprises not only in terms of production, but also in terms of employment. As survey data presented in several papers of this special issue show mainly unorganised, well-educated employees with many-sided skills are preferred by such firms. Under the new circumstances the role and importance of trade unions has reduced markedly. Under communism most workers were involved, nominally at least, in trade unions. As Duke shows, employees in the residual state sector remain much more pro-union, however, most private sector firms do not recognise trade unions at all. The growing importance of long-term unemployment, the mass layoffs sweeping through the region as well as the relatively good educational level of the labour force in the post-socialist countries raise the question of the likely emigration of man-power from Eastern Europe to the West associated with the integration into the European Union. Ingham and Dövényi stress that although initial estimates may well have been exaggerated, nevertheless, if earnings differentials of the magnitude witnessed in the last decade persist, the likelihood is that the flows which do occur will be from east to west and will be composed of highly skilled workers. Growing competition in the national labour markets has resulted in growing wage differentials in post-socialist Eastern Europe that in turn have contributed to a considerable widening of the socio-economic stratification. Top managers and senior employees employed by foreign companies and joint ventures enjoy much higher salaries than employees of domestic enterprises. On the other hand, the level of wages in the private sector is generally much higher than in the public sector. However, for the majority of the population the economic transition has so far meant a real loss of income. As Duke argues, the low level of professional salaries in the state sector (including academics) forces many individuals

to take on a second job which in turn contributes to a thriving second economy in the region. As a consequence of growing sectoral and structural differentiation of national economies the formerly fairly homogeneous labour market has fallen into smaller segments and atomised in post-socialist Eastern Europe.

Transformation of the housing market The transformation of the housing market has also led to enormous changes. State-socialist housing policy was based on the dominance and control of the state, which not only built and operated the formal public rented stock, but also organised, built and allocated housing in other nonpublic sectors (co-operatives, associations, condominiums etc.). Via legal and financial instruments the state even enjoyed great influence over the construction of private single-family housing (Clapham, 1995). The extent of state dominance varied between the different state-socialist countries. As R. Wiessner reveals in his essay, similarly to the Soviet Union in the former GDR private housing construction was rejected and reduced to a minimum level and only a small part of new dwellings were built as single family homes, mainly in rural areas. However, in other countries the owner occupied and co-operative sector remained dominant and the state enjoyed strong control only in the urban housing market. The whole state-socialist housing system was based on a high level of subsidy, which in fact was accompanied by very low efficiency. In many East European countries housing subsidies were often of the order of 3–5% of GNP. Next to food subsidies, the most important consumer subsidies were on housing. This type of state intervention put an enormous burden on the national budgets, thus, it was understandable that after the political changes (in Poland and Hungary the process began before 1989) the state started to withdraw from the housing market. This generally meant a sharp drop in housing construction in the state sector and a rapid privatisation of existing public housing stock (Pichler-Milanovich, 1994). As Sailer-Fliege shows, the small number of houses built in post-socialist cities since 1989 have been constructed almost exclusively by the winners of the transformation in small-scale up-market housing projects at the urban fringe or beyond the city boundaries. Immediately after 1989, as part of the decentralisation process the ownership of state housing was transferred from central to local government in Eastern Europe. Local communes enjoyed considerable freedom in the management of the public housing stock. Given the general lack of resources the newly established local governments were eager to carry out an excessive marketisation (i.e., privatisation) of the existing public dwelling stock and thus increase their income and reduce social subsidies. The conditions and general framework of privatisation varied considerably in the post-socialist countries. In the Czech Republic and the former GDR restitution of property to previous owners played an important role in the privatisation programmes, while in Poland, and more explicitly in Hungary, the direct sale of

4 public dwellings to sitting tenants was dominant. As a consequence in the East German and Czech cities there was a rapid revival of the private rental sector, whereas in the rest of Eastern Europe an increasing dominance of the owner occupied sector could be observed. Due to the excessive privatisation of housing the remaining public sector serves mostly as a residual sector in post-socialist cities. The increasing marginalisation of the public rental sector, along with the substantial increase in housing costs hit the economically most vulnerable groups the hardest, especially young families and the elderly. The former state housing construction and the management system which accompanied it has practically disappeared in Eastern Europe. What has not disappeared, however, are the ever present problems of deterioration, housing shortage and inequity which have become increasingly severe in the last few years. Rent arrears, evictions, homelessness and a growing lack of affordable dwellings especially for the young are the result. The correlation between privatisation and renovation is generally low (Douglas, 1997). In the newly privatised stock most households are unable to carry out comprehensive rehabilitation measures due to the lack of capital or insufficient state subsidies. Revitalisation is more focused on the building stock of the city centres now increasingly used for office and retail functions (Kovács, 1998). In his paper K. Grime examines the impacts of privatisation on the everyday life of households and families as the state’s role in providing essential services (among them housing) has been reduced. As he points out various inequalities existed in Central and Eastern Europe under state-socialism particularly in the field of housing allocation resulting in urban residential segregation. As survey data suggests, however, a growing inequality is evident in terms of social class, age group, education on the housing market. Now, after ten years of transition it is probably true to say, that rapid privatisation caused even greater social inequalities. The new urban order The impacts of political and economic changes can be easily traced on the contemporary urban spaces of Eastern Europe: what we may call a new urban order. Although the transition is still far from complete, one can discern distinct sociospatial processes that characterise cities of post-socialism. During state-socialism urban land was transferred to state ownership, or at least largely withdrawn from private right of disposal thus land rent basically lost its significance in urban development. As a consequence, cities of socialism remained fairly compact with large, relatively homogeneous functional areas. Since 1989 the urban landscape and the internal structure of East European cities have undergone tremendous changes. The economic restructuring and the subsequent take-off of the service sector has induced a growing demand for nonresidential (business, office, etc.) space in the inner-cities. On the supply side, privatisation of housing generated a vast number of private owners who were keen to sell their newly

acquired properties to institutional investors. Thus, the reestablishment of a real estate market, based upon land-rent, has led to a rapid functional conversion, from residential to business use in the inner part of post-socialist cities. The rise of the city centres is especially well documented in the papers of A. Dingsdale writing on Budapest, L. Sýkora on Prague and T. Tasan on Warsaw. These are capital cities and major business centres of the region, therefore commercialisation is more pronounced in them than at lower levels in the urban system. There is an obvious connection between the revitalisation of inner city neighbourhoods and the growing integration of these places to the world economy. The physical and social upgrading of these neighbourhoods is generated primarily by the corporate and commercial expansion of the global market (globalisation). New corporate headquarters, business and commercial centres, hotels and tourist facilities have flooded the city-centres all around Eastern Europe (Smith, 1996). The symbols of the capitalist market economy and consumer society have swept away the remnants of the ‘shortage economy’. As a consequence of the expansion of service sector and the concomitant renovation of inner districts the built environment of post-socialist cities has been changing very rapidly. As A. Dingsdale refers to it “the built forms of production have given way to those of consumption”. A central part of the transitions a rejection of many aspects of an immediate past, a resuscitation of other, previously suppressed past. Thus, the rapid changes now being experienced are having a profound effect upon the content and management of heritage in the cities of Eastern Europe as new demands for identification, legitimation and commodification are being made upon the heritage resources. In their paper G. Asworth and J. Tunbridge examine, the management of urban heritage throughout the region on the examples of selected cases. At the same time, however, we can also find neighbourhoods in the post-socialist cities where the outcome of transition was not a revitalisation but a sharp filteringdown or even ghettoisation. Modern ghettos are expanding in many old industrial cities like Usti nad Labem in the Czech Republic or Miskolc in Hungary. Social exclusion is present in many different forms in post-socialist cities. The process of deprivation is particularly evident in two types of urban neighbourhoods: the old working class quarters and the socialist housing estates which are the most vulnerable segments of housing market (Ladányi, 1993). The high-rise housing estates of the communist period with their characteristic monotony and inhumane environment, are increasingly becoming isolated from the greater housing market. With growing social and income differentiation, and concomitant increasing degrees of segregation, there is a real potential for such estates to become ghettos in the future. A process similar to some Western countries in the 1970s and 1980s. Growing socio-economic polarisation within the society has additionally triggered new forms of migration. As H. Kok highlights in his paper, after the long decades of constant urbanisation and a limited growth of suburbs (rural

5 urbanisation) one of the most striking phenomena of postsocialist cities is suburbanisation. This process has been most pronounced in East Germany starting immediately after the collapse of communism and the liberalisation of the housing market. In other post-socialist countries suburbanisation is a relatively new phenomenon, but there is already evidence that in the coming years it will be the number one urban issue in Eastern Europe. A peculiar feature of post-socialist suburbanisation is that unlike in the West, it is not only the better off but also the unskilled and retired who are leaving cities because of high living costs. Moving to the village very often means that they can at least make a living from subsistence agriculture. Beside the suburbanisation of population a deconcentration of industry and services has also started in post-socialist cities. As R. Wiessner argues, large shopping malls, techno-parks and business estates developed at suburban locations increasingly compete with those located in the inner-city and often limit the chances of a rapid revialisation of the city centre. One of the main results of the rapid suburbanisation and urban sprawl is that many cities of Eastern Europe suffer from population decline. The fall of the Iron Curtain not only put an end to the isolation of former state socialist countries, but also accelerated the differentiation of national settlement systems (Turnock, 1997). Cities have generally been counted to the winners of transition, however, differences within the urban system have grown considerably since 1989. Some cities sank in deep recession which entails high unemployment rates, growing poverty and urban decay. This applies particularly to the group of socialist new-towns and traditional industrial centres. The most dynamic members of the urban system owe their success to their political and economic weight in the urban hierarchy (i.e., capital cities), to favourable geographical location and in some cases to local endowments, like adaptability of local population, special tourist attractions or good performance of the local government (i.e., urban marketing). This is also characteristic for the Russian urban system, as it turns out from the paper of A. Treivish, I. Brade and T. Nefedova. All these changes led to an increasing polarisation and growing competition within the urban network of Eastern Europe.

Conclusion The transition of Eastern Europe is a completely unique circumstance in time and space providing good opportunity for social scientists to say something about the various dimensions of transition. Authors writing on East European transition often imply that processes taking place in the region are fairly similar in nature and they can easily be fitted into a general theoretical framework. However, as papers of this special issue reveal, due to the different historical legacies and the varying levels of economic and social development, the transformation policies and the subsequent socio-economic processes in these countries differ considerably.

As it also turned out from the above brief account, many similar problems and processes have become typical in the post-socialist cities in recent years that existed in the cities of Western Europe two or three decades earlier. Whether the cities of Eastern Europe are destined or determined to go through each of the development stages of the West is still a question. One thing is clear however, the process of postsocialist urban transition does not operate in a vacuum and it has to be embedded in the global track of transition as well as in the local socio-economic relationships inherited from the past.

Notes 1. There is a lot of confusion and ambiguity in the interpretation and usage of the terms ‘transformation’ and ‘transition’ in the literature. We consider here transition as being a wider, primarily market based set of changes in the social and economic environment, whereas transformation is more systemic and hinge upon polity (Smith, 1997). 2. Funnily enough this process of integration was accompanied by the disintegration of multi-ethnic states of the region (e.g., Yugoslavia, Czechoslovakia).

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