The Rip van Winkle Institutions

Western and Multilateral Financial Institution in Eastern and Central Europe

By: Sam Vaknin, Ph.D.

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Written: December 10, 1999

The West - naive, provincial and parochial - firmly believed that the rot was confined to the upper echelons of communist and socialist societies. Beneath the festering elites - the theory went - there are wholesome masses waiting to be liberated from the shackles of corruption, cronyism, double-talk and manipulation. Given half a decent chance, these good people will revert to mature capitalism, replete with functioning institutions. It was up to the West to provide these long deprived people with this eagerly awaited chance.

What the West failed to realize was that communism was a collaborative effort - a symbiotic co-existence of the rulers and the ruled, a mutual undertaking and an all-pervasive pathology. It was not confined to certain socio-economic strata, nor was it the imposed-from-above product of a rapacious nomenclature. It was a wink and nod social contract, a co-ordinated robbery, an orgy of degeneration, decadence and corruption attended by all the citizenry to varying degrees. It was a decades long incestuous relationship between all the social and economic players. To believe that all this can be erased virtually overnight was worse than naive - it was idiotic.

Perhaps what fooled the West was the appearance of law and order. Most communist countries inherited an infrastructure of laws and institutions from their historical predecessors. Consider the Czech Republic, East Germany, Poland, Yugoslavia and even Russia. These countries had courts and police and media and banks long prior to the calamitous onset of communism. What the latter did - ingeniously - was to preserve the ossified skeletons of these institutions while draining them from any real power. Decisions were made elsewhere, clandestinely, the outcome of brutal internecine power struggles. But they were legitimized by rubber stamp institutions: "parliaments", "judicial system", "police", "banks", "media". The West knew that these institutions were dysfunctional - but not to which breathtaking extent. It assumed that nothing more than technical assistance was needed in order to breathe life into the institutional infrastructure. It assumed that market forces, egged on by a class of new and increasingly wealthy shareholders, will force these institutions to shape up and begin to cater to the needs of their constituencies. Above all, it assumed that the will to have better and functioning institutions was there - and that the only thing missing was the knowledge.

These were all catastrophically wrong assumptions. In all post communist countries, with no exception, one criminal association (the communist or socialist party) was simply replaced by another (often comprised of the very same people). Elections were used (more often, abused) simply to queue the looters, organized in political parties. The mass devastation of the state by everyone - the masses included - proceeded apace, financed by generous credits and grants from unsuspecting (or ostrich-like) multilaterals and donor conferences (recall Bosnia). If anything, materialism - the venal form of "capitalism" that erupted in the post communist planet - only exacerbated the moral and ethical degeneracy of everyone involved. Western governments, Western banks, Western businessmen and Western institutions were sucked into the maelstrom of money laundering, illicit trading, corruption, shoddiness and violence.

To perpetuate their clout and prowess, the new rulers did everything they could to hinder the reform of their institutions and their restoration to functionality.

In communist societies, banks were channels of political patronage through which money was transferred from the state to certain well-connected, enterprises. Bankers were low level clerks, who handled a limited repertoire of forms in a prescribed set of ways. Communist societies had no commercial credits, consumer credits, payment instruments, capital markets, retail banking, investment banking, or merchant banking. The situation today, a decade after the demise of communism is not much improved. In most countries in transition, the domestic powers that be conspired to fend off foreign ownership of their antiquated and comically (or, rather, tragically) politicized "banks". The totally inept and incompetent management was not replaced, nor were new management techniques introduced. The state kept bailing out and re-capitalizing ailing banks. Political cronies and family relatives kept obtaining subsidized loans unavailable to the shrivelling private sector.

The courts, in the lands of socialism, were the vicious long arm of the executive (actually, of the party). A mockery of justice, law and common sense - judges were ill trained, politically nominated, subservient and cowed into toeing the official line. Of dubious intellectual pedigree and of certain unethical and immoral lineage - judges were widely despised and derided, known to be universally corrupt and ignorant even of the laws that they were ostensibly appointed to administer. This situation hasn't changed in any post communist society. The courts are slow and inefficient, corrupt and lacking in specialization and education. The legal system is heavily tilted in favour of the state and against the individual. Judges are identified politically and their decisions are often skewed. The executive, in many countries, does not hesitate to undermine the legitimacy of the courts either by being seen to exploit their political predilections, or by attacking them for being amenable to such use by a rival party. This sorry state is only aggravated by the frequent and erratic changes in legislation.

In communist times, the law enforcement agencies - primarily the police, the customs and the secret service - were instruments of naked aggression against dissidents, non-conformists and those who fell out of favour. In the centre of immeasurable corruption, policemen were often more dreaded than criminals. Customs officers enriched themselves by resorting to extortion, bribe taking and acts of straightforward expropriation. The secret services often ran a state within a state, replete with militias, prisons, a court system, a parallel financial system and trading companies. Again, the situation hasn't changed much. Perhaps with the exception of the secret services, all these phenomena still exist and in the open.

And then there is the media - the waste basket of post communist societies, the cesspool of influence peddling and calumny. Journalists are easily bought and sold and their price is ever decreasing. They work in mouthpieces of business interests masquerading as newspapers or electronic media. They receive their instructions - to lie, to falsify, to ignore, to emphasize, to suppress, to extort, to inform, to collaborate with the authorities - from their Editor in Chief. They trade news for advertising. Some of them are involved in all manner of criminal activities, others are simply unethical in the extreme. They all have pacts with Mammon. People do not believe a word these contortionists of language and torturers of meaning write or say. It is by comparing these tampered and biased sources that people reach their own conclusions within their private medium.

One should hope that the disillusionment of the West is near. Post communist societies are sick and their institutions are a travesty. As is often the case with the mentally ill, there is a strong resistance to treatment and recovery. The options are two: to disengage - or to commit to an asylum with force feeding, forced administering of medication and constant monitoring. The worst behaviour is to go on pretending that the problem does not exist, or that it is much less serious than it really is. Denial and repression are the very sources of dysfunction. They have to be fought. And sometimes the patient's own welfare - not to mention that of his environment - requires arm twisting or the infliction of pain. There is a kernel of good people in every society. In the post communist societies, this kernel and suppressed and mocked and sometimes callously silenced. To give these people a voice should be the first priority of the West. But this cannot be done by colluding with their oppressors. The West has to choose - and now.

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