Janine Wedel - Collision and Collusion - The Strange Case of Western Aid to Eastern Europe

What did not happen as a result of the work of consultants at Ursus—or anyone else—was privatization. Central European governments found that large enterprises like Ursus—the “company towns” targeted by the donors—were difficult to convert. The problem may have been that the donors (and some in-country parties) appeared to be proceeding with a rather stereotypical view of the problems of socialist firms: that their greatest need is to be privatized and modernized. The primary need of Ursus was not modernization of equipment, as evidenced by the quality of its product and the Western markets it had penetrated prior to 1989. (By the mid-1990s, although Ursus’s domestic sales were still a fraction of what they had been ten years earlier, the company had expanded its exports, with the United States and Canada its primary markets.)

Ursus’s main problem was that it suddenly found itself operating under conditions of severe recession. Consultant McDonald pointed out that “Anybody would have had trouble in that case.”76 Under such recession, developing new markets (or expanding existing ones), not privatizing, was the most immediate problem. The conflicting interests of managers, workers, government officials, and consultants also made quick, sensible solutions virtually impossible. A report published by NIK assessed that a 1992 program to restructure Ursus—for which the EU paid consultants 1.4 million EURO (nearly $1.5 million77)—was wasted. While the program called for the breakup of Ursus into smaller units, another contemporaneous plan proposed a merger of production units and other recommendations that were at odds with the EU-paid advice.78 No matter how much the donors spent on it, privatization was not the main revision that would make Ursus viable; finding new markets was.

Many years and foreign aid dollars later, Ursus appeared little closer to being privatized than when the consultants were dispatched. Ursus had gone through a succession of ministerial overseers, each one promising to privatize, reorganize, or somehow unload the enterprise. But no minister or foreign consultant had managed to surmount the political constraints.

The involvement of foreign advisers at Ursus may have contributed to the difficulties. Some within the factories perceived the consultants, who typically gained access to sensitive operations and marketing data, as suspect. Some groups felt that “foreigners have come to loot.” The point is not whether such perceptions were valid in a given case, but rather that the involvement of aid-paid consultants often fed those perceptions. Consultants’ involvement tended to encourage anticapitalist, anti-Western, and antiprivatization sentiments among those radical populist groups (with elements of radical nationalism) that charged that local elites involved in privatization had been corrupted by the West. The Solidarity unionists at Ursus responded to the situation by so decorating the main entrance to the factory: “A Foreign Elite Steals from Us While the Polish People Are at the Bottom” and “Polish Property for All Poles.”

Such sentiment helps to explain why the privatization of large enterprises, often company towns, was so difficult. According to a report commissioned by USAID to evaluate its Central European privatization projects, of the five large firms assisted by USAID-paid consultants, only one was privatized, and that one not as a result of USAID help. The evaluation determined that

to date, assistance to large individual enterprises has not generally been successful in bringing about privatization promptly and cost-effectively.… In most cases, privatizations of large enterprises are almost invariably slow in being consummated. Invariably, these enterprise-specific situations and the problems that surround them are new and complex.79

Yet another report commissioned by the EU on PHARE consulting in enterprises delicately addressed the subject by noting that “the impact of the consultants was less satisfactory in highly politicized cases.”80 And a NIK report, citing instances of technical assistance to large enterprises, determined that as much as 60 percent of EU funds paid to consulting companies was wasted.81

Eventually, even the USAID office in Poland recognized the flaws in concentrating on large-scale enterprises. As the GAO reported:

Although USAID/Poland noted some achievements while utilizing this approach [privatizing a few large enterprises to have a ripple effect on the economy], the mission concluded that firm-specific and sectoral assistance was too time-consuming and costly. For example, the $3.7 million in USAID funding for the glass sector led to only four state-owned enterprise privatizations, a cost of more than $900,000 per enterprise privatized. In addition, as of May 1994, only four of eight targeted enterprises had been privatized under the almost completed furniture sector project.82

In addition, USAID spent more than $1 million restructuring LOT Polish Airlines in preparation for its privatization.83 But the first stage of privatization did not take place until November 1999, and, as of this writing, more than half of the airline’s shares remain in state hands.84

In 1995, the GAO confirmed that “the pace of privatization for larger state-owned enterprises has been slower than expected, and significant portions of Polish productive capacity and employment remain in the hands of the government.”85As of the turn of the century, a very minor portion of the large, strategic companies (steel mills, coal mines, shipyards, defense enterprises) had been privatized.86

DUST IN THEIR EYES

Privatization aid was politicized not only at the level of the enterprise and of the individual consultants and officials involved. The legacy of communism’s integration of politics and economics made it nearly impossible to depoliticize such aid. And so privatization and economic restructuring efforts were not as new to Central and Eastern Europeans as many donor representatives might have thought. In fact, the intrinsic natures of privatization aid and communist planning were not so very different. Citizens of the Second World had seen this play enacted on other stages. Decades of “planned change” and communist reform programs87 had conditioned them into a cynicism that seemed well justified in light of what anthropologist John Bennett calls the “myth of planning” in development assistance.88 Now the Western donors replaced the Communist Party in the role of enlightened planner, albeit a capitalist one. Aid, like the communist reforms before it, failed to conform to planned agendas; hence, although the roles were performed by other actors, the denouement was remarkably similar.

And, just as communist central planners set targets for production by officially mandating that firms meet fixed production quotas, so the donors specified quotas regarding the number of firms to be privatized within a given time frame. To donors, the number of firms that had been privatized served as an important indicator regarding a country’s “transition” to a market economy. If a country met the donors’ goals, it was regarded as being “on the reform track” and eligible for further aid. If it failed to meet these targets, it might be seen as backward and face reduction or suspension of aid.

Central and Eastern Europeans were prepared to handle this: An entire language was developed under communism to describe the practice of creating fictions to please authorities. Russians speak of ochkovtiratel’stvo (literally, to kick dust into someone’s eyes), meaning to pull the wool over someone’s eyes or to fool the observer, boss, or do-gooder. As economist James Millar has pointed out, this practice had a long history under communism, and continued unabated in postcommunist times: “The focus of official ochkovtiratel’stvo today on the macro level is on international organizations, such as the IMF, the World Bank … and others that have attempted to establish ‘conditionalities’ for the awarding of reform funding. Much current reporting of success in reform is, therefore, eyewash.”89 This would not come as a surprise to anthropologist Mark Hobart, who has observed that “the overlap of developers’ and local discourses does not lead to improved communication, but to strain on those locals who are involved in both, and to techniques of evasion, silence and dissimulation.”90 Indeed, some recipient governments at times have tried to placate both sides by attempting to convince outsiders that they were “on the reform track” while seeking to quell internal protest by proceeding at a slower pace.