Romania’s lesson for austerity enthusiasts

The Triple Crisis blog is pleased to welcome Cornel Ban as a regular contributor. Ban is a Postdoctoral Scholar of International Studies and Deputy Director of the Development Studies Program at the Watson Institute for International Studies at Brown University. His research in international political economy focuses on the transnational spread of economic ideas and varieties of capitalist development.

You know that a ship is about to sink when the most loyal sailors head for the life raft. Until January 2012 the continuous expansion of the realm of the market and the shrinking of the state’s responsibility for delivering public goods was de rigueur in Romania. Indeed, this East European country that joined the EU in 2007 appeared as a poster child for austerity and market reforms. The country’s 2010 fiscal adjustment included the usual mass layoffs and wage cuts in the public sector but the government surprised even the visiting IMF chief with its utter lack of concern for distribution costs: drastic cuts in the social security benefits of the most vulnerable, a “flat” cut of 25 percent applied to all wages in the country’s very unequal public sector, and an undifferentiated hike of the VAT to one of Europe’s highest levels.

And that was not all. In the space of a few years Romania had gone from a laggard of market reforms to the espousal of market fundamentalism as a default policy option in all areas. Financial deregulation and a financial sector owned almost entirely by foreign banks led the country in the East European version of the subprime crisis. Privatized natural monopolies, mandatory private pensions, and state consent to tax avoidance by corporates took local capitalism beyond EU-mandated standards and into the realm of an experiment in libertarian economic ideas. Indeed, prominent positions in the policymaking sphere were occupied by proponents of a fusion between Austrian School economics and conservative social discourse that critiqued neoliberalism from the right. While welfare cuts and advocacy for an extensive dismantling of the economic role of the state are talked about cautiously in public Western democracies, in Romania political, economic and media elites regularly engaged with impunity in the flamboyant stigmatization of the poor and of public sector workers.

In early 2012 most observers assumed that this status quo was stable. Since the crisis struck, the EU and the IMF shaped domestic economic policy, with local political elites often exceeding their demands. The ex-communist left had embraced the Third Way in the early 2000s and joined a political alliance with Romania’s oldest liberal party. State-business offensives had reduced labor unions to a shadow of their former selves with surprising ease, while most of the policy-oriented NGOs were ideologically neoliberal from the outset. In an unprecedented European exodus since the great Italian and Irish migration waves, close to a third of the active labor force had already emigrated during the 2000s, draining the protest potential of a once militant workers’ movement. In short, it was hard to imagine any resistance to the drive for austerity and marketization.

In December 2011, Romania’s economic measures were called “brutal and unthinkable in a West European country,” by the president of Austria’s Erste Group, the largest player in the Romanian banking sector.  He then wryly added: “Easterners are used to brutality.” Traumatized by too much state under Nicolae Ceausescu and by the social brutality of market reforms, Romanians were written off as a least likely case of revolt against the status quo. But a few weeks later, a black swan event visited the linearity of these predictions. Enraged by the planned privatization of strategic pillars of the already underproviding healthcare system, seemingly out of nowhere, Romanians took to the streets en masse. Within days, the protests escalated into a national movement and Eastern Europe’s longest and most widespread protests against austerity and the privatization of public services made a mockery of the Austrian banker’s assessment. Not since the 1989 revolution that toppled Nicolae Ceausescu have Romanians protested in so many locations simultaneously and for weeks on end.

Surprised by the robustness of the protests and intermittent violence, the government swiftly pulled back the bill and liberally disbursed punishments in its ranks. Even so, the protests continued, with their indignados/Occupy-style rhetoric and protest repertoire making headlines. Anticipating mounting electoral costs in an election year, the President eventually asked the entire government to step down a few weeks later. Austerity is set to continue under the new government but the conversation about privatization and austerity has been altered for good.

As other East European societies struggle with comparable problems, the recent events in Romania may signal that the social costs of austerity and privatization of once universal services can no longer be ignored by Eastern European politicians. Crucially, credit and migration no longer represent viable exit routes for post-communist citizens. Defying conventional wisdom, mobilized citizens have begun to wonder whether the unrelenting focus on corruption, the popular theme of the past decade, should not be complemented by a focus on hitherto ignored issues of distribution.

Moreover, the January 2012 protests served not only as vents for anti-government frustration, but also as sites of deliberation about whether more market is needed at all. Millions who worked in Western Europe and benefited from affordable public services no longer buy into the official conflation between Europeanization and market fundamentalism. After years of almost automatic endorsement of the market by the broader public, the protests showed that the hunger for public goods is not a Western European luxury, but a legitimate claim in a democracy. Crucially, these deliberations made visible Romania’s first grassroots leftwing organizations and networks whose vocal critique of Romania’s variety of capitalism has taken the establishment by surprise. In a few weeks, left-leaning critics of the status quo based in academia, the new media and the activist civil society scene have gone from relative obscurity to prime time TV.

State policies were always needed to transform society in order to allow for a competitive market economy to emerge, but this process also required a strong state to mitigate the harsh effects of this economy on society. The Romanian protests and their subsequent percolations in society are a reminder that this Polanyian tension cannot be avoided even in the most pro-market of contexts.  Should this new political phenomenon become more robust, the old East European political settlement in which generally pro-market mainstream political parties could count on an economically liberal elite civil society may come to an end. Of course, the resolution of this crisis will depend, as always, on what political entrepreneurs and what ideas will mobilize these legitimate demands. What is abundantly clear, however, is that austerity and market fundamentalism in Eastern Europe have sprung their first leaks.

The Triple Crisis blog invites your comments. Please share your thoughts below.