[The Political Analysis of Postcommunism. Kyiv: Political Thought, 1995, pp. 285-299.]

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Geoeconomic Problems Facing the Postcommunist States

Volodymyr SIDENKO.

§1. Postcommunist Economic Disintegration

One of the most important factors of the communist system was its rigid double centralization — both within each specific country and internationally. This was expressed, above all, in the so-called unified national economic complex of the USSR, the system of mutual linkages within the Council for Mutual Economic Assistance (COMECON) as well as in the former quasi-federal states of Czechoslovakia and Yugoslavia. The only alternative to membership in these rigidly hierarchic centralized structures was in the virtually complete economic self-sufficiency, almost autarky, practiced by such communist states as Albania, China, and North Korea.

The collapse of the communist system could not but affect its geoeconomic dimensions. The disintegration of the communist geoeconomic structure proved to be a highly contradictory process. This process, albeit natural, evolved against the background of growing international integration and therefore seemed unnatural. It should be noted that most of the postcommunist states had highly specialized industries and sectors which cannot function normally without foreign economic ties. The economies of nearly all such countries (except perhaps those which had already adopted the strategy of autarky) depended to rather a high degree on external buyers and suppliers —  primarily, within the USSR economic complex and COMECON. /286/

Thus, the collapse of the previously existing structures of international cooperation has produced complex problems of geoeconomic self-determination in virtually all postcommunist states. What foreign economic strategy should be adopted? What attitude should be taken concerning the ongoing processes of international integration? Who can serve as short-term and long-term economic partners? These and related questions became an integral part of innumerable dilemmas which arose during the postcommunist economic transformations.¹⁴ Inability to solve these problems and the tendency to put them off until the instability inherent in transitional economies is overcome may be a fatal mistake for any postcommunist state.

Of course, in contrast to the centrifugal processes which required from politicians not only thorough analysis and well thought-out decisions but also political courage and will, the procedures of geoeconomic self-determination require scientifically based strategy and tactics in the area of international economics. It is the latter that "first wave" postcommunist politicians lacked, which caused the process of the system's break-up to turn into a unique psychological complex of separation anxiety and postcommunist xenophobia first of all the economic sphere. Guided by the emotions and slogans of "anti-imperialism" and "anti-totalitarianism" in foreign economic policy, they failed to make any real progress in making their countries part of the international system of the division of labor on a new basis.

What are the likely alternatives for a realistic foreign economic strategy?

§2. Possible Models for Geoeconomic Self-Determination

The model of geoeconomic behavior for any country is derived from a rather complex aggregate of factors. The latter comprise, among others, comparative economic advantage, the mobility of economic, scientific, and technological development, long-term domestic and foreign policy considerations, the lessons of history, along with its "contemporary social values, cultural and religious peculiarities, and psy-/287/chological make-up. Starting from this, one can discern the main models of geoeconomic development for a given postcommunist country.

Model 1. Preservation of the status quo. For the Newly Independent States (NIS) of the former Soviet Union, this means a priority orientation towards developing mutual economic relations within the CIS. For former COMECON client states, this pattern would mean a search for new alternatives which would allow the maintenance of the old ties to retain their top priority nature.

Model 1 is advantageous in that it represents for many countries the simplest and easiest solution to these economic problems they have had to face since the disintegration of COMECON and then the USSR. The economic risks are lowest in this case (although political risks are enhanced in connection with the economic dependence of outwardly sovereign states). For the realization of this pattern there are still certain convenient structures and skills of mutual cooperation preserved by the postcommunist nomenklatura from the past. Thus, in the short or even medium term, this choice may be the cheapest (in both the literal economic and figurative socioeconomic sense) geoeconomic strategic model.

For the NIS, this option has in fact materialized as a process of integration within the CIS Economic Union. The Long-Term Plan for Developing CIS Integration adopted in Moscow in late October 1994 envisages the step-by-step formation of a single economic space for member states. The establishment of the Interstate Economic Committee (IEC) and the Economic Union along with the signing of a Payments Union Agreement became the first practical steps. Another item on the agenda is the creation of a free trade area which, thanks to a coordinated and (future) unified foreign customs policy of the Economic Union member states, is bound to turn into a customs union. The integrating measures envisage a rather intensive process of liberalizing the flow of commodities, services, capital, and manpower (i. e., a speeded-up transition from a customs union to a common market). They also include a wide range of issues to be discussed in order to coordinate the economic policies /288/ of the member states. According to schedule, this would allow practical solution of the problem of monetary union by 1998, which in turn would indicate (if one goes by the universally accepted criteria of stages in international economic integration) to the formation of a real economic union.

The decisions adopted are thus aimed at renewing the old economic complex of the NIS in a new form. It is a foregone conclusion that Russia would play the leading role here. The economies of the other participants would be bound to the Russian economy. It should be borne in mind that integration will proceed not only from above but also from below, i.e., through establishing so-called international financial and industrial groups, in other words, post-Soviet multinational corporations. There is little doubt as to who would control the overwhelming majority of such multinationals. Russian finance capital has every opportunity to prevail in a new single economic space of the NIS (except the Baltic states), taking advantage of not only its higher economic potential but also of the fact that reforms in Russia have made more headway than in other Economic Union member-states.

One must admit that the short- and medium-term advantages of Model 1 may be offset in the long term by inadequate economic efficiency due to the priority of cooperation with countries also having insufficiently high parameters of economic development. This main drawback of Model 1 impels a search for variations on it which would allow simultaneously coordination of the general policy of economic integration within the CIS economic union and consistent diversification of foreign economic ties. This strategy of development is aimed at trade creation within the GIS coupled with a simultaneous intention to avoid trade diversion which usually accompanies processes of integration. There are reasons to think this strategy is to some extent being implemented by, say, the countries of Central Asia.

As to the former COMECON client states — the countries of the former socialist camp — Model 1 was never taken as a basis for any large-scale joint efforts during the disintegration of that organization. True, one may recall at- /289/

Table 1

Geographic Structure of Exports and Imports of Various European Transitional States¹⁶ (in percent)*

* The 1992 data cover First to Third quarters.

tempts to locally apply this pattern to payments relationship of the former COMECON countries. This was primarily evident in plans to create a multilateral payments system in order to overcome the complications caused by the sudden transition to hard-currency payments. Strangely, however, there are only a few specialists¹⁵ who worry about the probable detrimental economic downside to the abrupt reduction of economic ties between the ex-COMECON states and hence its generally negative impact on the overall course of economic transformation. These countries, especially those carrying out  more successful macroeconomic stabilization /290/ and systemic changes (Poland, Hungary, and the Czech Republic), show a much calmer attitude to these difficulties. The latter led to, among other things, a virtual official refusal to consider any, even limited, initiatives within the framework of the above pattern.

Model 2. Complete Geoeconomic Reorientation. Its advantages lie in the ability to effect a dramatic structural maneuver while implementing economic reforms, the incorporation of modern technologies into the economy, orientation toward more challenging markets, thus accelerating and enhancing competitiveness. However, this option requires considerable expense and much time. It also requires certain pre-conditions: a process of intensive capital accumulation based on both internal savings and large-scale foreign investment, achievement of rather firm macroeconomic stability so that the economy can withstand the stresses associated with basic restructuring, and a high degree of market openness in the countries toward which exports are redirected.

This pattern has been adopted by the former COMECON client states. For example, a number of East European countries, the USSR/CIS and the developed market-economy countries experienced rather drastic changes in export and import in 1989-1992:

The above data indicate an essential reorientation of foreign economic ties toward the developed market economies by practically all the states of East Central Europe. In this case, the more successful the transition to a market economy, the more these states turn to markets in the developed countries.

Among the NIS it is the Baltic states are also attempting a radical reorientation. However, while this process has made headway in the former COMECON client-states or even been completed (Poland, Hungary, and the Czech Republic), among the NIS it has materialized only in Estonia, which in 1993 channeled 53.7% of its export production to the developed West which in turn accounted for 67.9% of its total imports. These indicators were significantly lower for the CIS countries: 29.0% and 21.8%. In Latvia this process is evolving, which has produced a unique eco-/291/nomic bipolarity: in 1993 the CIS countries accounted for 45.8% of Latvian exports and 37.8 % of imports, while the developed market-economy countries accounted for only 34.2% and 29.6% respectively. In Lithuania, where the process of reorientation is in its infancy, the CIS countries dominate in both exports (62.8%) and imports (84.1%) (calculated on the basis of: Economic Survey of Europe in 1993-94, New York and Geneva, 1994).¹⁷

It is very difficult to identify true adherents to this pattern in the CIS. On the one hand, Azerbaidzhan, Moldova, Turkmenistan, Uzbekistan, and Ukraine intend to diversify the geographic structure of their foreign economic ties. On the other hand, this kind of diversification requires substantial expenses and time. For this reason, the geoeconomic strategy of these states displays a basic contradiction between long-term interests and inevitable routine activity. And nobody seems to know how to reconcile short- and long-term interests. Under such conditions, priority is given to short-term measures, ruling out any decisive geoeconomic reorientation.

Model 3. A Geopolitically Neutral System. This pattern is based on the necessity of a uniform development of foreign economic ties "in all directions." Its advantages consist in its laying the broadest possible economic foundation of a state's political independence as well as its ability to make foreign economic ties more stable vis-a-vis political expediency, that is, to maneuver among various countries in foreign economic policy and thus maximize economic returns.

The disadvantages of this strategy stem from its high risk of degeneration into a policy of isolationism and economic autarky, for in theory geoeconomic neutrality can be achieved in two different ways. The first way is a partial reorientation of foreign economic ties whereby the latter are not oriented towards any new priority but instead undergo a more judicious structuralization in terms of geoeconomics. The second one is an accelerated reduction of foreign economic ties with countries which enjoyed top priority in the communist era. The first way is obviously more complex. Therefore, the second way becomes irreversible, given the /292/ lack of sufficient prerequisites for reorientation of an ill-considered foreign economic policy. We already witness the consequences of this strategy in the case of, say, Azerbaidzhan, Armenia, Georgia, Moldova, and here in Ukraine as well.

§3. Patterns of Participation in Processes of International Economic Integration

The experience of postcommunist development has fully demonstrated how unrealistic is a policy of "economic independence" pursued at the expense of economic efficiency. As a result, all postcommunist states now face the problem of how best to join the processes of international economic integration. Several likely options for solving this problem have been drawn up in theory and in practice, for under present circumstances one can expect to enter the world economy only through active participation in some regional (integration-oriented) grouping. This has in turn called forth a wide variety of integration-oriented territorial economic organizations or, at least, the intent to create such organizations.

For example, Lithuania, Latvia, and Estonia agreed in 1990 to the gradual creation of a Baltic market. In 1991 these same countries established a Baltic customs union with the aim of achieving comprehensive economic integration.

At the same time companies and other entities of Bulgaria, Poland, Hungary, the USSR, and Czechoslovakia set up the international East European Cooperation and Trade Organization in order to renew the severed economic ties among the former COMECON client states on a market basis. The cooperation project envisaged the creation of an East European Stock Exchange, International Banking Clearinghouse, and commodities exchange. Another non-governmental organization of this kind, "For a Regional Market of East European and Asian States," was also created almost simultaneously.

In 1992 Azerbaidzhan, Kyrgyzstan, Tadzhikistan, Turkmenistan, and Uzbekistan (Kazakhstan opted for observer status) joined the Organization of Economic Cooperation /293/ (OEC), with Iran, Pakistan, and Turkey having been its members since the 1960s. This allowed the OEC to become one of the world's largest trade blocs. It plans to reduce tariffs, set up an investment bank, a joint airline, a satellite communications link, etc. The Black Sea Economic Cooperation (BSEC) — an organization of 11 Black Sea countries plus Azerbaidzhan, Albania, and Armenia, was created in 1992 and provides for a gradual lifting of restrictions on the movement of commodities, capital, and manpower; the development of transport and communications infrastructures; maximum encouragement of mutual cooperation; and the creation of a joint investment and foreign-trade bank for the region.

1993 saw the birth of the CIS Economic Union (EU) aimed at the gradual formation of a homogeneous economic space, effecting mutually agreed-upon economic reforms and pursuing a coordinated economic policy as well as adjusting member-states' economic mechanisms to each other. It is significant that there were simultaneous attempts to integrate the CIS economies on a narrower basis. This was expressed, in particular, in the July 1993 declaration of the governments of Belarus, the Russian Federation, and Ukraine on taking urgent measures to deepen "economic integration," foreseeing a treaty on and organizational structures of economic cooperation with Central Asia and Kazakhstan.

In December 1993 Poland, Hungary, the Czech Republic, and Slovakia  — the so-called Vysegrad Four — concluded the Agreement on Free Trade in Central Europe with the aim of encouraging mutual trading exchanges and coordinating their economic policies.

Throughout the period a number of states were also striving to establish relations with the European Economic Community (EEC). This resulted in Poland, Hungary, and Czechoslovakia acquiring EEC associate membership in 1991 as well as in the European Union (EU), which signed comprehensive partnership and cooperation treaties with Russia and Ukraine in 1994.

It will also be recalled that some political circles of national-democratic leanings have discussed rather actively the /294/ idea of forming a Baltic-Black Sea Union (or Alliance), i.e., an organization which could, as some people think, counterbalance integration processes within the CIS.

The Baltic states pursue their own integration strategy toward the Scandinavian countries, while Moldova moves in similar fashion toward Rumania.

Also evident is a specific orientation of individual regions in large-territory states towards different foreign economic partners. For example, the Russian Far East clearly gravitates towards Japan and China. In Ukraine, Galicia is

Table 2

Pro-integration factors of Possible Regional Associations and Partnership

Relationships

* + means presence of a respective pro-integration factor, - denotes an anti-integration factor, +/- means either the pro- and anti-integration factors cancel each other out or that it is impossible to determine their true balance at present.

traditionally oriented towards Poland and Transcarpathia toward Hungary.

The wide variety of unifying tendencies does not only indicate the importance of each postcommunist country finding its own "integration niche" in the global economic space. It also indicates the lack of a clearly stated foreign economic strategy in those countries, which provokes attempts to test various patterns of integration behavior and find the only correct solution by the method of trial-and-error. This, incidentally, explains the at first glance strange tendency to simultaneously join several regional groupings differing in their orientation and integration strategies. /296/

However, it might be well to point out that a successful application of the strategy of economic integration requires the joint, coordinated, i.e., synergetic, action of many integrationist factors. The most important of them are:

t) geographical proximity;

2) potentially mutually complementary nature of the products of the given national economies, giving a comparative advantage to mutual economic cooperation;

3) virtually identical overall levels of national economic and social development;

4) similar strategies of long-term economic development;

5) well-developed and diversified economic ties;

6) common long-term political interests;

7) a history of relations between the respective countries and a favorable psychological attitude toward their cooperation;

8) cultural and religious similarities.

How do the various integration projects look from the viewpoint of the presence or absence of these pro-integration factors? (see Table 2)

This analysis performed allows singling out three groups of integration or partnership possibilities. The first group consists of those having real chances of success. They are: a likely unification of Russia, Belarus and Ukraine, the unification of the Vysegrad group countries and their joining the EU structures, bilateral integration: Rumania — Moldova, Galicia — Poland, Transcarpathia — Hungary. The relations between the Baltic and Scandinavian countries and between the Russian Far East and China have somewhat lesser prospects.

On the other hand, the present-day conditions leave very few chances to the BSEC as well as to integration into the EU of the NIS, the geoeconomic revival of COMECON, and integration of the Russian Far East with Japan. Rather slim chances are left to integration within the CIS Economic Union, between Central Asian states and Kazakhstan, of the former Soviet republics within the OEC as well as to the idea of a Black-Sea Baltic union (alliance). /297/True, the results obtained should not be overestimated. The point is the above-mentioned gradation is based on the principle of equality of all pro-integration and anti-integration factors. This may not be so in real life. For instance, the economic integration of Russia, Belarus, and Ukraine has only one negative, namely, the historico-psychological, factor; but this may practically rule out this integration option in the short and medium term. The same is true of the Baltic market, the Vysegrad group, the Romania - Moldova integration because the lack of mutually complementary key production factors in the respective countries may bring to naught any kind of economic integration. With this in view, one can conclude that the formation of large-scale international groupings and complexes based on the postcommunist countries is rather problematic in the near future.

§4. East - West, North - South, or Something Else?

The problem of postcommunist geoeconomic orientation has not only a regional but a global dimension. From this point of view, it is important to determine the potential of the postcommunist states for integration into the world economy as well as the geoeconomic axis of which they could realistically a pole or a point. The former socialistcamp countries belonged to the category "East" as a counterbalance to the developed capitalist West. This kind of opposition is senseless now that communism has collapsed.

Let us again emphasize that different postcommunist countries have different objective geoeconomic orientations. Orientation towards the West has become realistic for Poland, Hungary, and the Czech Republic. These postcommunist nations are in fact becoming part of the West. A similar tendency is also typical of Bulgaria, Slovenia, Latvia, Estonia, and to some extent Lithuania, although their incorporation in the Western structures is still problematic and will require more time and effort. Other NIS and Rumania to a certain extent face a real dilemma: West or South?

The formation of a geoeconomic axis of the transitional economies of North-South is quite a realistic prospect for /298/ Central Asia and Kazakhstan (even given the uncertain prospects for economic integration in this direction). This direction may also become an essential supplement to the Westward leanings of such European countries as Russia, Belarus, and Ukraine. (Incidentally, this is a direction of development that can save their manufacturing industrial capacity from ruin, since a substantial proportion of their industrial output will for some time remain uncompetitive on the markets of the developed countries).

Of special interest for the transitional-economy countries on the North-South axis are relations with the Persian Gulf oil-producing countries. This follows from the fact that it is this area that has amassed the greater part of capital free for profit-making investments. And it is the investment of this capital in high-technology industries, the upgrading of certain processing industries in the transitional-economies that can promote diversification of the structure of foreign economic relations the Gulf states and enable the latter to accomplish their own ambitious economic projects at a less cost. Moreover, the Islamic factor has to be taken into account, for it gives cultural and psychological impetus to forging economic ties with Muslim NIS.

An important direction in the geoeconomic strategy of many countries with a transitional economy may be the formation of an axis of transitional economies of West and East — Far East, where Far East primarily means the new industrial countries of southeast Asia. It is this axis that allows some transitional-economy countries (above all, Belarus, Russia, and Ukraine) to combine their considerable scientific and technological capacity with experience in the prompt introduction of new technologies and capturing the new markets accumulated by the new industrial countries of the said region.

* * *

Thus, one can hardly speak of only one specific pattern of geoeconomic orientation for the postcommunist states. On the contrary, more evident is the opposite, i. e., an evergrowing structural diversity of economic ties. This may be /299/ accompanied by the further economic estrangement of former partners and the formation of new centers of gravity for these countries. This will be a quite natural phenomenon reflecting the establishment of international economic alliances based on geoeconomic factors and the comparative advantages of a given country in the world economy rather than on political and ideological considerations.

The problem of geoeconomic self-determination is growing ever more complex for certain postcommunist states in that they are not geoeconomically homogeneous. Their territories may be seen as divided by geoeconomic borders. This objectively causes different geoeconomic orientations of a country's different regions. Russia, Moldova, and Ukraine may serve as an example of states where the issue is one of both geoeconomics and domestic policy because any solution largely depends on internal political factors. This presents an especially acute case, for a high probability remains of certain economic decisions being over-politicized and subordinated to internal political considerations.

It is theoretically quite possible for different regions of a country to be oriented toward different foreign economic partners. In this connection, eastern and southern Ukraine could be integrated in the northeastern direction, while the West could take a westward path (Galicia would then take Poland as a priority direction, as would Transcarpathia with respect to Hungary and, to some extent, Slovakia). Given successful economic reform and the sufficiently dynamic development of new internal economic relationships, this geoeconomic pattern need not endanger national unity. And conversely, under conditions of growing economic hardship these said geoeconomic differences could become the first step toward disintegration. In a case like this we may witness the repetition of bitter lessons in the history of the Soviet Union, Czechoslovakia, and Yugoslavia on a new level and under new circumstances.

14. V. Budkin, "Politics and Ideology in the External  Economic Strategy of the New Independent States," Political Thought, 1994, No. 2; S. Valentey, "The Post-Soviet Economic Space," Rossiiskii ekonomicheskii zhurnal, 1993, No 7; V. Kirichenko, "CIS: The Dialectic of Unity and Disunity," Rossiiskii  ekonomicheskii zhurnal, 1993, No 10; A. Schuller. "Nationale Reformen und internationale Ordnung: Zur aussenwirtschaftlichen Neuorientirung der RGW-Lander," Jahrbuch fur neue politische Okonomie, 1991 (Tübingen).

15. P. Bofinger, "A Multilateral Payments Union for Eastern Europe," Banka Nazionale del Lavoro Quarterly Review, 1991, No 176, pp. 69-88; J. A. Brabant, Central European Payments Union (New York, 1991); Trade, Payments and /356/ Adjustment in Central and Eastern Europe, ed. J. Flemming, J. M. C. Rollo (London, 1991); Oleh Havrylyshyn, and J. Williamson, From Soviet Disunion to Eastern European Community? (Washington, 1991); "Proceedings of a Conference on 'A Payments Union for Eastern Europe', Rome, June 28-29, 1990," CEPR Bulletin, (London, 1990).

16. Economic Survey of Europe in 1993-1994 (New York, Geneva, 1993), pp. 116, 118.

17. Ibid.

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