The political quiescence of the new democracies in Central and Eastern Europe: an opportunity cost framework

East European Quarterly, Summer, 2006 by Pieter Vanhuysse

Attitudinal data similarly point to a sizeable and growing hidden economy in post-communist democracies. The proportion of Poles who believed that at least half of the unemployed were actually working despite receiving unemployment benefits went up from one-half in 1992 to two-thirds by 1998. And when asked how they evaluated such work normatively, over half of Poles in 1998 responded that it 'should be excused because it is difficult to live on unemployment benefits,' compared to one-third who thought such practices 'should be condemned as cheating the government' (Zagorski 1999:9). Ten years after the start of the transition, various types of illegal activity were still considered to be legitimate or even praiseworthy by large proportions of Hungarians, Poles and Czechs. Especially providing false data and hiring someone illegally to avoid taxes or social security contributions were widely condoned, by between 23 and 45 percent of respondents (Janki and Toth 2001: 5).

With the exception of those with highly valued or easily convertible labor market skills (e.g. the new entrepreneurial elites and younger workers), post-communist citizens had few opportunities to rapidly transform their participation rates in the informal economy or the nature of the social ties they activated for doing so. To the contrary, the material hardships of transition almost certainly increased the economic necessity for them to moonlight. Many accomplishments of communist states (albeit accompanied by heavy state paternalism) were being reformed or abolished in ways that increased the material insecurity of large groups. For instance, communist states subsidized a number of basic goods. The number of hours of work required to purchase a unit of white bread in 1988 in Hungary, Poland and Czechoslovakia was half that required in West Germany. By contrast, citizens in these communist countries faced much higher relative prices in purchasing 'luxuries': they needed to work 4, 13 and 7 times longer than West Germans for color TVs and 6, 5 and 7 times longer for gasoline (Kornai 1992:309-310). As the market was introduced after 1989, low-income citizens were hit by a double shock. The abolition of subsidies increased absolute prices of basic goods and made these goods much more expensive relative to luxury goods--at a time of sharply decreasing real wages and per capita incomes.

Not surprisingly, informal coping approaches extended in scope and intensity after 1989. For instance, the estimated proportion within total Hungarian house building which used informal work shot up from 43 percent in 1987 to 56 percent in 1991 (Sik and Wellman 1999:231-232; Szalai 1991: 334). In 1991, 75 percent of households in Poland, 81 percent of households in Hungary and 91 percent of households in Czechoslovakia reported to survive by engaging in at least one of the following forms of intra-household production: growing food, building or repairing the house, or queuing for more than an hour per day. The proportion of households reporting to engage in various reciprocal transactions, defined as exchanging help with friends in growing food, building or repairing houses, shopping, baby-sitting or transportation, amounted to 49 percent in Poland, 53 percent in Czechoslovakia and 60 percent in Hungary that year (Rose and Haerpfer 1992:87). Polish household typically combined three or four different sorts of economic activities, with different degrees of legality (Rose 1992:18).