Eastern Europe, Western Power and Neoliberalism - Peter Gowan

7/27/2019 Eastern Europe, Western Power and Neoliberalism - Peter Gowan

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John Lloyds article is helpful, above all, in revealing more fully his

forms of thought. He appears to think my article was a piece of Marxisteconomics. Unfortunately it was entirely pre-theoretical: an attempt tointroduce the claims of neo-liberals like Lloyd to some pertinent facts,with the aid of standard techniques of policy analysis.

Thus, my article included a refutation of Lloyds earlier central justifica-tion for Shock Therapy: his rather aggressively asserted claim that neo-liberal institutional engineering is needed in Eastern Europe because welive in a world dominated by globalized production.1 My criticism wassimply based on published oecd research indicating that Lloyds glob-

alized production stagnated during the 1980s. unctad research cover-ing the 1970s as well suggests a decline in such production. MiltonFriedman has also attacked the brand of globalization ideology whichLloyd espoused.2 So has Lloyds own former newspaper, the FinancialTimes.3 Attempts to dismiss all this as Marxist economics wont do.

Lloyd now says my criticisms on this point are worth refuting. But hedoesnt refute them. He thus lets his earlier justification for ShockTherapy pass.4 He tries to explain away his silence by saying the matterwas not central to my argument. True, but it was central to his earlier jus-

tifications for the miseries of millions who have lived through ShockTherapy, or what Lloyd prefers to call Economic Reform, in the first halfof the 1990s.

Lloyd is upset because I suggest only at the end of my article that theconcept of imperialism should be explored for understanding the facts Ihave laid out. He portrays me as if, at the end of a civilized discussion on

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Peter Gowan

Eastern Europe, Western Power andNeo-Liberalism

1John Lloyd: How to Make a Market,London Review of Books, 10 November 1994. This

article attempted to ridicule those on the Left who failed to appreciate the supposed real-ity of globalized production.2 See Milton Friedman, Internationalization of the us Economy, Fraser Forum, February1989.3 See Martin Wolf, The Myth of the Global Economy, Financial Times, 13 February1996.4 But he does shift his ground: in his earlier article he said we live in a world of globalizedproduction. Now he claims that he said we are moving towards a world of globalized pro-duction. Although I cannot welcome this as a representation of his earlier position, I do


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a Moscow street-corner, I had opened my cloak under the lamp-light toreveal the badge of the Red-Brown coalition and stuck a dagger into anunguarded Western investor! I apologize for giving him such a shock: Ishould have been more sensitive to the fact that after four years of LloydsEconomic Reform, Moscow can be a pretty scary place. But I put thepoint at the end precisely because though my piece was not about theory,my conclusion tried to introduce theoretical explanation.

Lloyd is also so shocked by the word imperialism that he wants tosolemnly banish me to the camp of the so-called Red-Brown coalition.This is surely precipitate, since he used to use the word himself, back in1992, when speaking of the International Monetary Funds role inRussia. If I may quote him:

James Morgan, writing in the Financial Times, described the Fund and the[World] Bank as the new imperialists spreading the new gospel [or, if you pre-fer, Cargo Cult]the Structural Adjustment Programme...The evolution of

such programmes has involved total integration of the imf and the World Bankinto the life of the target countries. This is what is happening now inRussia...This phenomenon has gone largely unnoticed in the rich countries...butit is a fact of life...More than that, it is a determining element in their politics.

For, as Lloyd also wrote: From being a system as far as possible impervi-ous to foreign intervention, the Russian government has become one ofthe most porous in the world.5 This was Lloyd back in early 1992, a longtime ago. Since then, much has changed not only in Russia but, it seems,also in Lloyd.

I will return to the issue of imperialism below. I will also look at salientfeatures of Lloyds own neo-liberal thought. But first I will take up thefew, rather peripheral criticisms Lloyd makes of my analysis of what isusually called Shock Therapy (st).

I. Lloyds Critique

I argued that st was not principally concerned with either helping or

harming economic activity. Nor was it about introducing capitalism assuch. Its aim was to engineer sweeping institutional changes in theinternal structures of these political economies to open them up to maxi-mal Western penetration and influence.6 We can all speculate on thelong-term consequences of this intervention and we can debate theextent to which the West has succeeded in attaining its institutionalgoals. But what I insisted upon was that the implementation of this pol-icy did immense, unnecessary damage to economic life in the whole regionduring the first half of the 1990s.

The main forms of damage can be briefly summarized:

applaud it as a retreat from his earlier view.5John Lloyd, Comrades in Monetarism,London Review of Books, 28 May 1992.6 It was, above all, a us government policy backed by the uk and, in large part, by theGerman government. The French government resisted it but was defeated and the Japan-ese, who would undoubtedly have rejected the economic rationale for it, kept as far out ofthe whole business as it could.130


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1. A severe slump caused by the shattering of the regions economiclinks, a shattering actively encouraged by the imf and justified by Sachsas beneficial.2. Severe domestic slumps deliberately engineered by the imf.3. These slumps were engineered in conditions where developed financialmarkets did not exist, and thus enterprises, without access to domesticcredit, would have to turn to privatization into foreign hands for survival.

4. An attempt to revive these economies by export-led growth directedtowards the ec when the us government knew perfectly well that the ecwould seek to resist such an export surge.5. Continued domestic deflationary measures imposed upon target gov-ernments thereafter by the imf at a time when the revival of theseeconomies could only be achieved through domestic, demand-led growth.6. Successful pressure at the start of st to dismantle the trade-protectionregimes of target countries with very damaging effects on domestic pro-ducers facing strongly subsidized export drives by West European com-

panies.7. Attempts by the World Bank to block effective national micro-eco-nomic strategies in target countries, with damaging consequences forsome potentially important sectors.8. A system of negative and positive incentives to force maximum priva-tization into the hands of foreign companies, often with very negativeeffects on potentially or actually strong sectors.9. A refusal to engage in serious debt reduction, except in the case ofPoland, and a general approach of using debt problems as an instrumentof leverage for domestic institutional engineering.

10. A severe weakening of r&d and educational infra-structures andefforts to remorselessly attack social protection systems.11. A form of fdi which was geared more towards market control in thetarget country than to technological upgrading and production expan-sion, with many of the high-profile fdi deals having damaging conse-quences.12. Very severe consequences for the health and well-being of the popu-lations of the region.13. A very grave shattering of the social tissue of these societies and enor-mous strains upon their political systems as a result of a deliberate choice

of strategies to defeat social and political opposition to the goals of insti-tutional engineering.

Crisis Management or Long-Term Strategy?

Lloyd is silent about most of these particular points and says that some,unspecified, things I say are true. Fine. Nevertheless, he clearly intenselydislikes my drift and does criticize some of the points I have listed. I willtake each of his counter-points in turn:

1. There was a largely improvised response to domestic economic crises.Lloyd now seems to abandon attempts to justify the st strategy, claim-ing instead that there was no strategy at all, just economic crisis manage-ment. He says that st was as much a series of desperate measures to stemthe total collapse of the state finances as a freely chosen strategy. Heasserts the overwhelming importance of the pressures of particularcrisesdomestic economic crises.

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This is not a sustainable argument. First, in the matter of state finances,before the introduction of st, there was a fiscal crisis in Poland. st made itworse. There was no crisis of state finance in Hungary and Czechoslovakiain 1990 before imf Economic Reform. The fiscal crisis came after. TheSoviet budget was in a crisis as the ussr collapsed, though the scope ofpurely Russian budget problems at the start of 1992 is not clear. But Gai-dars policy turned a bad fiscal crisis into catastrophe by the end of 1992.

Second, the policy orientation of the st teams: was it strategically goal-directed, or reactive and pragmatic? None of those involved would claimthe latter: Balcerowicz initially legitimated his plan as a means of finan-cial stabilization but he and his colleagues are proud of their strategicconception. They were precisely criticized by other Polish economists fornot confining themselves to stabilization.7 And although the programmewas launched in January 1990, a number of alternative, detailed versionsof the strategy were already completed by the summer of 1989, before the

Mazowiecki government was even established. There was far more pre-planning for the strategy, and over a longer period, than is usually the casein normal times in the West. The Gaidar group and its Western backerswere united for months before they assumed power with a strategic visionof Russian transformation that had nothing to do with improvised reac-tion to economic imbalances. As Lloyd once explained to us, Gaidar andhis foreign advisers were producing plans and laws and programmeswhich are, in effect, the basis of the new Russian order.8 Of course, thesewere all people in a hurry and they had to improvise much of the detail.But the goal was there to guide them. Lloyd explained the hurry in

Russia: the present Russian government is very well aware...that theyare embarking on a period of democracy with a programme and practiceno democratic electorate would tolerate for half a year.9

Lloyd now says that I pretend the post-1989 governments had limitlessscope to choose between a range of possibilities in their strategies. I donot claim limitless options, just more options than one which, in Lloydswords, no democratic electorate would tolerate. The Hungarian govern-ment elected in the Spring of 1990 had a programme at variance with st.So did the Czechoslovak government elected at the same time. The Polish

and Hungarian governments had plans in the early 1990s for industrialdevelopment strategies. All these were abandoned underpolitical pressure.

2. The Collapse of Comecon: Lloyd says that Comecon collapsed in January1990. This is wrong. The Sophia meeting set up a group to overhaul theregional trading system and that group worked through 1990 to do so.The failure of this reform effort was the result, especially of the hostilitytowards it of Klaus and to some extent also of Balcerowicz. But it was alsothe result of strong hostility from the imf and other Western actors.

Lloyd says I offer no evidence for my claim that Sachs was responsiblefor the collapse of Comecon. He is quite right: it would be ludicrous tosuggest that Sachs had destroyed Comecon. He simply expressed the

7 Tadeusz Kowalik was prominent amongst such critics.8John Lloyd, Comrades in Monetarism,London Review of Books, 28 May 1992.9 Ibid.

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Anglo-American hostility to an attempt to set up a regional replacementto Comecon, claiming that such an attempt would harm the economiesof the region. He offered the prospect of replacing Comecon links withthe opening up of the ecs trade regime, massive transfers from Germanyand swift entry to the ecan enticing chimera.

In response, I pointed out what everyone who has examined the crisis of

the early 1990s agrees upon: that the fragmentation of the region had dis-astrous economic consequences. Perhaps more controversially, I arguedthat the enormous structural power of the Western states could have beenusedbuilding on both Soviet and French positionsto have preserved aregional identity. I argued that the Anglo-Americans, and probably theGermans pushed in the opposite direction. The result was each state inthe region adrift on its own and consequently in a desperately weak bar-gaining position with the Western powers and ifis. As for the carrot ofopening up the ecs trade regime, this was unrealistic, though it served

us policy to exert pressure on this matter: the us government, led in thisby Vice-President Quayle, tried to use the resulting plight of theVisegrad economies as a diplomatic weapon in its drive to open up or splitthe eu in the run-up to the Uruguay Round dnouement.

Economic Vandalism

3. The dismantling of trade regimes in 198991 and the subsidizedWest European export drive. Lloyd claims I argued that the countries ofthe region were reduced to sucking in imports because the West had

destroyed their own industries. I actually made two other points: first,Western insistence on the dismantling of import barriers at the start ofthe process, combined with very large West European subsidies for theirexports to the region did serious damage to domestic industries and agri-culture. The evidence for this is overwhelming for the period 199092and, for agriculture, beyond. Second, I presented evidence showing thatimf-induced demand collapse and credit crunch produced a downwardrestructuring of industry which seriously weakened the industrial base;and this weakening was reinforced by the World Banks ban on a govern-ment or state development bank help with restructuring state industries.

Lloyd presents no evidence to contradict me on the import issue. Insteadhe says it would have been a politically unacceptable constraint of peo-ples freedom if imports of Western goods has been restricted. This is fic-tion. In Poland, Walesa denounced the predatory Western export driveand imposed restrictions. Similar tightenings of trade regimes eventu-ally occurred elsewhere. Western tncs like General Motors, which hadbought into the Polish market, or Volkswagen in the Czech Republic,were often eager to promote such protectionism to shore up their domes-

tic market control.

Lloyd says that trade deficits can be beneficial if the imports are of capitalgoods for upward restructuring. This is true, provided the exchangecosts can be met. But it is irrelevant for the period we were discussing.Significant imports of capital goods began later.

4. The absence of a significantly developed financial system when st was133


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launched. Lloyd says that I failed to mention the burden that the absenceof banking and financial sectors placed on the new governments. Imafraid he missed my remarks on this subject (pp. 14, 323). But he givesme the opportunity to repeat them: to launch st in such conditions wasinexcusable economically but it was central to the institutional engineer-ing desired by the supporters of st. Without a developed credit systemto tide over enterprises facing collapsing domestic markets, the state

enterprises could seek only one path to salvation: linking up withWestern private capital through privatization into Western hands. Thearchitects of st must have been very well aware of this. At least Lloydwas, back in early 1992, as the Russian st programme began to bite,when he reported that fundamental change may now be beginning asenterprises run out of credit.10

5. The West wanted to lend more but there were no projects to spend themoney on. Lloyd says the head offices of the imf, wb and ebrd wanted to

disburse more funds for projects but were unable to find suitable pro-jects. This is true, and he thinks it catches me in a contradiction. Butthat is simply an example of Lloyds neo-liberal blinkers. There couldhave been any number of projects for developing public infrastructuresand modernizing state enterprises. But the imf/wb were against any such

projects. They wanted only projects involving private capitalist develop-ment. That is why finding projects was hard work. As for the ebrd,Atallis initial conception and desire was for it to engage in just such bigpublic infrastructure projects. But he was blocked by the us and thenlevered out of the bank altogether by the Anglo-Americans. And, while

he was in charge, he faced us-dictated terms of reference which made it amiracle he found any projects to fund at all: the overwhelming bulk ofebrd funds had to be for the private sector and to be on commerciallending terms; but at the same time, the ebrd was not allowed to lend toany projects that could be funded by Western commercial banks!

6. Picking winners. As I explained in my article, the most damaging,unnecessary cost of st was the shattering of the regional network and thecreation of deep dependency structures between isolated Eastern econo-mies and very powerful and highly mercantilist Western forces. The sec-

ond unnecessary damaging feature was the domestic slumps demandedby the imf. I went on to explain the debating tactics of the supporters ofst. They invite us to ignore the slump and its causes and to ignore themicro-economic damage and choose between the different countriesgrowth rates as they emerge from the slump.

I am gratifyingly proved right by Lloyds response, for he precisely asks usto choose between Poland and Romania or Hungary. I wrote (p. 55) thatRomanias growth rate should not be erected as some sort of superior strat-

egy to that of Poland. Since 1989 the Romanian people have probably suf-fered more than the Poles. I went on to say that Poland and Romania hadone thing in common: they lacked Hungarys crippling debt burdensPoland, alone in the region gaining a big debt reduction. The second point Imade was that the differences in growth rates after the slump could not jus-tify any claims for the superiority of the st strategy of open-door

10 Ibid.

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institutions over more autarkic approaches. As to his claim that I arguedthat gradualism produces better results than Shock Therapy, I made nosuch statement. And Lloyds attempt to explain away Hungarys deep prob-lems by saying that the Democratic Forum government from 199094 wascomposed mainly of former communists has as much explanatory force asattempting to explain Gaidars strategy by reference to the fact that he hadbeen deputy editor of the cpsus theoretical journalKommunist.11

The Demon Sachs

7. The role of Jeffrey Sachs. Lloyd says that I demonise Sachs, presenthim as a demonic force. I dont understand why. I said he was a failure inthe region as an applied economist. Does that make him a demon? I saidhe was naive about Western politics. But that is hardly a monstrouscrime. Lloyd even claims I argued that Sachs was manipulating the imf: Isought, in fact, to demonstrate that he was manipulated by them.

I made only one claim about Sachs: that his writings on st do express itsmain strategic conceptions, as worked for by him and others between1989 and 1992. How highly Sachs was regarded by the real Westernmanagers inside the decision-taking black box I dont know, since thebox is closed and no imf minutes are ever published. But as I tried toexplain, key aspects of what Sachs thought necessary were repudiated bythe imf/g7, and Sachs subsequently characterized the imf managers, inmy judgement inaccurately, as bureaucrats. If Lloyd, as an insider, sayswe should give more credit for policy influence to Michael Bruno andStanley Fischer I am happy to do so!

8. Future living standards in the region. Lloyds figures are more hopefulthan mine. I simply used imf figures and those provided by Rollo andStern. If the imf figures were wrong, I am pleased and not at all sur-prised. But the suffering that millions of people have gone through andthat millions are still going through in that part of the world has stillbeen a scandal. Let me repeat myself: the consequences of st in terms ofhuman misery and economic devastation were not only in principleknowable through our state of sociological and economic knowledge at

the end of the 1980s. They were also actually known and foreseen byWestern policy-makers, certainly when Gaidar began his work in Russiaat the start of 1992. The mechanisms of causation between, for example,the Russian shock slump and human death and malnutrition are nottransparent. But they are easily traced. And, for anyone in the West witha link to the heritage of the Enlightenment, they should raise disturbingquestions about the ethics of Western responsibility.

II. Imperialism, Classical and Neo-Classical

The word imperialism is out of fashion. But fashion isnt everything:conceptual power and clarity also have value. And imperialism has beena perfectly normal part of our world for a long time. It refers to the polit-ical domination by the members of one state over populations outside

11 The Economist, by contrast, tries to explain away the Hungarian debacle by blaming it onthe Nationalist government.

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that state. Lloyds reply assumes two models of imperialism: the juridicalimperia of the West European powers in the first half of the century; andthe German domination of Europe in the 1940swith its quislings.Both these models have in common imperial expansion via military con-quest. The imperialisms of Britain, France, Belgium, Holland, Portugaland Spain had the further feature that they usually abolished the juridi-cal sovereignty of the dominated people.

The American imperial form is very different. Samuel Huntington bril-liantly captured it as follows in an article back in the early 1970s.American expansion has been characterized not by the acquisition ofnew territories but by their penetration...The expansion of the Amer-ican operational empire has thus not been incompatible with the multi-plication of national sovereignties in the Third World. Indeed, in somerespects, the multiplication of sovereignties has facilitated the growth ofAmerican transnational operations.12 Lloyd cant grasp this: he evi-dently thinks you have either imperial domination or juridicially sover-eign states with democracy and the free market.

Huntington goes on to explain that the formal mechanism for this impe-rial expansion was agreement by the target government to provide accessto its territory for various American public and private business organi-zations. In Huntingtons words: Western Europe, Latin America, EastAsia, and much of South Asia, the Middle East and Africa fell withinwhat was euphemistically referred to as the Free World, and what wasin fact a security zone. The governments of countries within this zonefound it in their interest: a) to accept an explicit or implicit guarantee byWashington of the independence of their country and, in some cases, ofthe authority of the government; b) to permit access to their territory to avariety of us governmental and non-governmental organizations pursu-ing goals which those organizations considered important...The greatbulk of the countries of Europe and the Third World. . . found the advan-tages of transnational access to outweigh the costs of attempting to stopit.13 This captures well the situation facing East Central and East Euro-pean governments in the early 1990s. They desperately needed access toWestern goods and capital markets, and the us government ensured that

the condition for such access was opening up their domestic arrange-ments to what Huntington calls penetration.

Soft Imperialism

But to understand the current forms of us expansion we must go beyondHuntingtons analysis and accept the concepts of what Susan Strange hascalled structural power14 or as Joseph Nye, Director of the Center forInternational Affairs at Harvard, prefers to call it, soft co-optive power.This is about creating rules and institutions within and around target

states that have the effect of getting the leaders of these states, in Nyeswords, to want what you want.15 As Nye puts it: if the dominant state

12 Samuel P. Huntington, Transnational Organizations in World Politics, World Politics,vol. 25, no. 3 (1973) p. 344.13 Ibid., p. 343.14 See Susan Strange,States and Markets, London 1988.15Joseph S. Nye, Bound to Lead: The Changing Nature of American Power, New York 1990.

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can establish international norms that are consistent with its society. . . ifit can help support institutions that encourage other states to channel orlimit their activities in ways the dominant state prefers, it may not needas many costly exercises of coercive or hard power in bargaining situa-tions.16 In Nyes view, in the post-1989 world, possession of this soft co-optive power is just as important as hard command power. He adds thatthe ability of the dominant power to develop and use multilateral insti-

tutions may be more important today than force.17

Nye cites in particular the co-optive power which us leadership of theinstitutions governing the international economyhe mentions theimf and the gatt in particulargives it. Lloyd seemed to grasp thesepoints in 1992, but now it appears that he has forgotten them.

The problem which the us faced in Eastern Europe was to implant insti-tutional structures and rules within the states of the region that would,

once in place, make the leaders of these states want what the us wants.These include foreign investment regimes, trade regimes, statemarketrelations, appropriate freedoms for tncs, appropriate tax regimes, mini-malist welfare states, deregulated financial markets, fully convertiblecurrencies, the absence of foreign-exchange controls, privatized utilities,appropriate regimes for mass communications, appropriately organizedstock markets, the right kinds of definitions of intellectual propertyrights and the appropriate forms of corporate property and governance,appropriate forms of domestic ideology and politics, and so forth. In myarticle I referred to these goals as the regime goals of the usa. Nye does not

mention the fact that these institutional structures must ultimately beunderpinned by distinctive social structures such that the dominantsocial class will experience huge gains, as they have, paradigmatically, inMexico. These were the goals of Shock Therapy. These are the bottomline. They are about ensuring that us power is strengthened in its domi-nance into the next century. It is what we might call, if you will pardonthe pun, neo-classical imperialism. This is the way the capitalist worldworks: through empires of different species, rising and falling. SurelyLloyd is aware of this.

There are, of course, many other issues of debate on imperialism. Somemay prefer the term hegemonythat is, dominance in the state hierar-chy and world economy, but this concept, though necessary, is insuffi-cient: it excludes the elements of strategic control and territorialitycontained in the concept of imperialism. Others may demur at myemphasis on the us, arguing for a more inclusive g7 actor, but I do nothave the space to elaborate on these issues.

In the original article I tried to spell out some of the main mechanisms of

imperial enlargement in Eastern Europe in the early 1990s. Lloyd simplyignores the substance of this discussion, attempting to claim that talkingabout these power resources and the mechanisms of their use is a symp-tom of a fevered Manichean paranoia on the Left about good versusevil. This is a pity, because Lloyd could, given his experience as a

16 Ibid., pp. 323.17 Ibid., p. 197.

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leading insider correspondent in the region, provide a wealth of mater-ial that would enhance our understanding of these mechanisms.

Nevertheless, we already understand a great deal about these politicalmechanisms through the work done by American scholars and others onthe politics of structural adjustment in the Southespecially in LatinAmerica.18 Barbara Stallings stresses three mechanisms of transmission

of external influence: markets, linkage and leverage:

1. Markets: if target states are failing in international goods and capitalmarket performance they are vulnerable to external pressure. This wasan overwhelming problem for East Central European states once theirregional economic network collapsed, given the Cold War barriers totheir entry to Western markets and their debt problems. It was less of amedium-term problem for Russia because of its export-earning capac-ity.

2. Linkage: this refers to the tendencies of domestic groups within thetarget state to identify with the interests and outlook of the Westernactors. In the Eastern Bloc, the first such groups were intellectuals capti-vated by the beauty and elegance of neo-classical and Hayekian econom-ics and offered handsome encouragement from the United States. GartonAsh has chronicled the vigour of us help in this area in the 1980s.19

Some of these intellectuals were true believers in what Lloyd has calledthe new gospel and what the nlr called the cargo cult. The honest andascetic Leszek Balcerowicz is surely archetypal here. Others were ambi-tious young people. And yet others were communist intellectuals seeing

what was happening and desperate to gain new credentials: the cynicalcargo cultists, in Lloyds phrase. But the second group was, throughslower to move, far more socially weighty: that large minority in theregion who could hope to become the new propertied class. In EastCentral Europe they have come to see the Western powers and institu-tions as their champions and hoped-for future protectors through incor-poration into Western institutions. This linkage has been much weakerin the case of the aspiring capitalists of Russia. Obviously the role of theWestern and Western-owned media, with their word-smiths of Eco-nomic Reform, have helped to give shape to such groups.

3. Leverage: this involves the direct use of negative and positive incen-tives by Western actors on target governments. My earlier article dealt atsome length with this. A useful discussion of the instruments availablefor such leverage is David Baldwins Economic Statecraft. Again, despitewhat Lloyd wrote in his 1992 article to the effect that Russia has becomethe most easily penetrated country, it has actually been far less vulnera-ble to leverage than the states of East Central Europe. It is, in fact, onlyby appreciating how much less structurally open to Western influenceRussia has been, that we can grasp the obsession on the part of Western

governments with Boris Yeltsin.

18 For an excellent discussion, see Stephan Haggard and Robert Kaufman, eds, The Politicsof Economic Adjustment. International Constraints, Distributive Conflicts and the State, Prince-ton 1992. Barbara Stallingss outstanding piece in this volume, which I unfortunately hadnot read when I wrote my earlier article, should be required reading for policy makers inEastern Europe.19 See T. Garton Ash, In Europes Name. Germany and the Divided Continent, London 1994.He berates the German government for not doing enough in this area.

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III. Neo-Liberalism and Liberal-Democratic Values

Lloyd quite properly links the analytical questions to political positionsand outlooks. He claims my analysis leads me into the politics of a Zhiri-novskycprf club. I am here interested to see where his current commit-ment to neo-liberal Economic Reform leads him both analytically andpolitically. Many erroneously believe that neo-liberalism is a species of

liberal politics. In fact, it isnt a political philosophy at all: it is a projectfor institutional engineering which can be espoused by liberals, conserv-atives, assorted authoritarians or fascists. Historically many strands ofliberalismespecially Anglo-Saxon varietieshave promoted free mar-kets. But it is a logical fallacy to conclude that all support for free mar-kets entails a necessary commitment to liberal political values.

The peculiarity of Lloyds current thought is that his commitment to theneo-liberal project seems to govern every dimension of his outlook. Itenters his very cognition. Thus, for Lloyd, the political landscape isstructured by where people stand on his project. Those who say it is goodare in one camp; and those who say it has been bad in Eastern Europe arein another camp, namely the RedBrown camp, led jointly by Zhirinov-sky and the cprf.

Yet the Red-Brown coalition exists only in Lloyds mind. In actualRussian politics, there is Yeltsin, whom Lloyd supports. And there isZhirinovsky, who declared at his party conference this year that he willalso back Yeltsin against the Communists. But would Lloyd wish me to

return his compliment by assuring readers that he is not an anti-Semite?Meanwhile, in the real Eastern Europe there are people of every politicaltendency, Left Right and Centre in growing numbers, on the streets, for-eign offices, economic ministries and even central banks who have con-tempt for the project Lloyd has championed. Every serious observer oreven casual reader of voting results knows this.

I argued in my earlier article that Western neo-liberals have down-playeddemocratic and liberal political development in the East, urging us to ban-ish concern about such matters until Economic Reform is completed. In

essence, they have said that the success of their neo-liberal institutional endsis the precondition for consolidating liberal-democratic means and proce-dures. With this form of thought, they have justified to themselves a largelyagnostic and Machiavellian attitude towards the political means to achievetheir institutional-engineering goals. It is a dialectical style of thinking fordecollectivisation reminiscent of Stalinism in the days of collectivization.Lloyd gives ample illustration of this style of thought. He believed in 1992that st was a programme that no democratic electorate would tolerate forhalf a year. Yet if it fails there will be no democracy.20 So, to give theRussian people democracy, the West must undemocratically ram ST down

their throats. Furthermore: In this system, Yeltsin is first and last and hisadherence to reform is, ultimately all that keeps it going.21

Lloyds 1992 prediction that the electorate would repudiate the govern-ments programme was fully born out in 1993. In the spring of that year

20 Lloyd, Comrades in Monetarism.21 Ibid.

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the Economisturged Yeltsin to respond by overthrowing the constitution.This Yeltsin did in the autumn, provoking a violent response from someparliamentary leaders. Lloyd still goes along with this. He says Yeltsin hada plebiscitary mandate from the referendum. But he knows the referendumresult was vitiated by government fraud and in any case gave no authorityfor overthrowing the constitution. Lloyd says the constitution was apatched up version of the Soviet era constitution, which did not clearly

demarcate the rights and duties of different instances of government. Boththese features are more typical of constitutionstake the us or France orItalythan atypical. You have a constitutional court to settle such mat-ters. Yeltsin abolished that too. But Lloyd cannot grasp that this is a prob-lem. The only salient issue for him is whether we support Rutskoi orYeltsin. The possibility of opposing Yeltsins coup without in any waysupporting Rutskois tactics, methods or ideas seems inconceivable forLloyd.

The Right to Interfere

The utter lack of respect shown by the international activists of neo-liber-alism for the views and values of the local populations is now exacting itselectoral price. In response, some Western neo-liberals propose moreactive Western intervention. Michael Ignatieffs conclusion in the articleLloyd seeks to defend proposes precisely that. As Lloyd says, Ignatieffspiece is mainly a review of Gellner. But the last two pages move ontoWestern strategy. And Ignatieff calls unambiguously for bureaucraticintervention by Western states in the internal political and civic affairs of

these countries: to fund the media, maintain ties with oppositions, giveaid to strengthen the courts, judiciary and police and to search for part-ners outside the state.22 This is quite simply the voice of someone whohas internalized the characteristic forms of what Huntington calls us pen-etration.

Lloyd says I must be claiming that the managers of the Western inter-vention in Eastern Europe after the fall of Communism are deeply cyni-cal manipulators. But, thanks to Marx, Western social science hasbecome more sophisticated than that over the last hundred years. We

now have the sociology of knowledge and some understanding of the roleof ideology. There is artfulness in Lloyds reply but no trace of cynicism.

The earlier 1990s in Eastern Europe was not just a missed opportunityfor Europe. It was an ugly business. There was a sudden power vacuum inthe region and in the West, imperial impulses swept all others aside.Great damage was needlessly done and Western policy makers are nowminded to blame the victims. At least the old juridical imperialisms hadto assume some responsibility for developments within their jurisdic-

tions. Neo-classical imperialism promotes the juridical sovereignty ofnation states to escape responsibility for the power it exercises over theirpolitical economies, and it cloaks its moves in the secrecy of decision-making within opaque, unaccountable multilateral organizations.Lastly, it promotes the myth that the world is no longer governed by thepolitical power of imperial states but by technologically driven, modern-

22 Michael Ignatieff, On Civil Society, Foreign Affairs, MarchApril 1995, pp. 1356.

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Eastern Europe, Western Power and Neoliberalism - Peter Gowan