Countries in distress: transformation, transnationalization, and crisis in Hungary and Latvia

Abstract

With the outbreak of the global financial crisis, the vulnerability of democratic capitalism in East-Central Europe has come once again to the fore. Almost all new EU member states have accumulated major economic imbalances, and have been experiencing steep recessions. The crisis in the region is not only economic. Surging protests and the increasing appeal of political illiberalism attest to the end of the “political economy of patience” (Claus Offe) which characterized the first decade of post-socialism. The paper seeks to understand what has made the region’s democratic capitalist project so vulnerable. It takes its cue from an early body of literature which has pointed to the problems involved in simultaneously introducing capitalism and democracy. Contrary to the “breakdown thesis” which was a part and parcel of this literature, the paper argues that repeatedly, temporary solutions to the dilemma of simultaneity were found. Based on the Hungarian and Latvian examples, the paper shows how at first domestic resources – generous welfare policies in Hungary and appeals to sentiments of national solidarity in Latvia - allowed to reconcile democracy with market reforms. From the second half of the 1990s onwards, EU-accession and deeper transnational integration helped to secure the democratic capitalist project. By the late 2000s the full exposure to the risks of an increasingly instable global order has however become a major source of trouble for the two countries.