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Gail Kligman and Ivan Szelenyi

in collaboration with Christy Glass and Janette Kawachi

Poverty and Social Structure in Transitional Societies

MaxPlanck-Institut fur Bildungschforschung, Berlin

January-June, 2002
Second draft, June 2002


Introduction: theory and data

Chapter 1: Memories of socialism

Chapter 2: The losers of market transition

Chapter 3: Poverty under post-communist capitalisms




This book is based on data from the research project “Poverty, ethnicity and
gender during market transition.” I was principal investigator of this project, Rebecca
Emigh, Eva Fodor and János Ladányi were my co-P.I’s. The project was funded by the
Ford Foundation. Data were collected in 1999 and 2000 by an international team in six
European post-communist countries. Members of these research teams formed
“workgroups”, which met at Yale University during the 2000-2001 academic year and
during the Fall Semester of 2001 in order to conduct preliminary data analysis.
I have to thank the dedicated work of Rebecca Emigh (UCLA), who played a
crucial role in conceptualizing the research, coordinating the project, developing the
research instruments and cleaning, organizing the survey and ethnographic data. János
Ladányi (Budapest University of Economics, Hungary) and Eva Fodor (Dartmouth
College) helped me in every stage of the research and they spent time at Yale duri8ng the
phase of preliminary data analysis. My special thanks are also due to Gail Kligman
(UCLA) who was senior research consultant to the project. She offered all along
intellectual inspiration and participated in the spring 2001 workgroup. I am also grateful
to all those who participated in the workgroups at Yale University and who helped to
project in other ways. Members of the working groups were Adrianne Csizmady
(Hungary), Henryk Domanski (Poland), Judit Durst (Hungary), Roman Dzambozovic
(Slovakia), Gábor Fleck (Hungary), Joanna Jastrzebska-Szklarska (Poland), Livia
Krajcovicova (Slovakia), Petar-Emil Mitev (Bulgaria), László Péter (Romania), Livia
Popescu (Romania), Elzbieta Tarkowska (Poland), Ilona Tomova (Bulgaria), Gabriel
Troc (Romania), Tinatin Zurabishvili (Georgia). From Yale University three graduate
students (Christy Glass, Janette Kawachi and Lucia Trimbur) and one post-doctoral
fellow (Eric Kostello) also worked on the project.

Ivan Szelenyi


Posing the problem

This book is about markets, poverty and inequality. When markets expand and

replace redistributive mechanisms does that lead to more or less inequality, more or less

poverty? The answer to this question is far from obvious. Radicals of the classical type,

Marx and his followers in particular suspected markets to be the primary cause of

inequality and poverty. Classical liberals, from Adam Smith to Max Weber took the

opposite position: for them less government or bureaucracy and more self regulating

market meant less inequality and less poverty. Social democrats - such of Karl Polanyi -

believed, that some mix of market and redistribution might keep inequality at bay, while

reducing poverty to a minimum. And jury is still out.

This book is also about poverty under post-communism. After all post-

communism is a historically new way of making capitalism, of creating markets. Post

communist transition is an exciting laboratory – it offers another opportunity to confront

old ideas with new realities. As socialism began the crumble the old question about the

relationship between markets, inequality and poverty were reframed as a question of

transition from socialist redistribution to capitalist markets. At least three opposing

views emerged about the social consequences of market penetration in the move from

classical (Stalinist or Maoist) socialism to reform communism and finally to post-

communist capitalism: 1/ Some – inspired by classical liberalism - argued markets

undermine socialist clientelistic networks and reduce the power and privileges of

‘redistributors.’ If the transition is properly managed markets might help – at least on

the long run - the cause of the ‘direct producers’. To put is brutally simply: markets are

good for you (Nee). 2/ Others – following the footsteps of the radicals - argued the

opposite: redistribution was an egalitarian system, as markets appeared already within the

framework of socialist redistribution they created more inequality (and by implication at

least) more poverty. The bottom line: markets are bad for you, ‘good’ society’ was the

pure type of socialism and already reform communism began the erosion which led to an

explosion of social problems with the collapse of the system (Burawoy). 3/Finally it was

also proposed – in the sprit of the social democratic theory of the ‘mixed economies’ -

that markets attacked the inherent inequalities of socialist redistributive economies while

markets only complemented the system of central planning, but they boosted new types

of inequalities (new types of poverty) one they became the ‘dominant mechanism.’ The

conclusion: under socialism complementing redistribution with market helped the poor;

under post-communist capitalism the poor can be helped if markets are complemented by

welfare redistribution (Szelenyi).

At first glance there is good reason for radicals to rejoice. The fall of communism

in Central and Eastern Europe was followed with an explosion of poverty and inequality.

According to World Bank estimates during the late 1980s in the former Eurasian socialist

countries fewer than one out of twenty-five lived below their ‘absolute poverty line’,

hence survived with less than $2.15 a day. Ten years later one out of five people had to

live with less than $2.15 a day (The World Bank, 2000, p. 1). Income inequalities also

jumped, the region, which was among the most egalitarian in the world just in a decade

became one of the most inegalitarian ones. GINI coefficients between the late 1980s and

the late 1990s increased in all countries. In Central Europe they rose modestly from

around 0.20 to 0.25 (in Poland from 0.28 to 0.33), in South Eastern Europe it increased

from around 0.25 to 0.30-0.40 and in Russia it jumped from 0.26 to 0.47 (The World

Bank, 2000, p.140).

So can we finally settle the century-and-half long debate? Far from it. The pure

type of socialism, Stalinism may not have been as poverty free and egalitarian as the

radicals like to believe; unlike the expectations of the liberals after the collapse of

communism poverty and inequality exploded, but less markets and slower reform – just

as the liberals would have expected – made it worse, not better (The World Bank, 2000,

pp.111-117). The glass half empty or half full?

The story we tell in this book is a complex one, with pros and cons. There are no

simple answer to the complex question we posed. Liberals may come back with

vengeance after they let radicals to rejoice for a while and social democrats may stand in

the wings waiting to be the last to laugh.

This book summarized the finding of research we conducted in year 2000 in six

countries (Bulgaria, Hungary, Poland, Romania, Russia and Slovakia). We conducted

survey research on random samples of the adult population (with over-samples of Roma

in three countries, Bulgaria, Hungary and Romania). Local graduate students affiliated

with the project also carried out with funding from us and under our supervision

ethnographic case studies of communities in extreme poverty (often rural Roma ghettos).

This book summarizes what we learned about poverty under post communism with our


Let’s walk you through first the story line of this book and to try to develop a

theoretical framework for this study after this.

(a) The communist past was not that radiant. People do not remember Stalinism

affectionately – many people reported that they tended to be poor in what they

saw as an inegalitarian system.

(b) As socialism progressed countries which were rather different before they turned

socialist were converging. By the later epochs of socialism people report similar

levels of poverty and low levels of inequality. Market reform does not hurt the

trend of decreasing poverty and increasing inequality as much as resistance to

reform (like the one in Romania) did. Under the circumstances reform

communism was not a bad idea.

(c) Poverty rate jumped between 1988 and 2000, BUT:

(d) The speed of growth of poverty was not the same in all societies, in some - and in

those where market reform was more limited (hence in Russia, Bulgaria or

Romania) poverty grew faster than in those countries where liberal market

reforms were implemented in more consistent in rigorous ways (hence in

Hungary, Poland or Slovakia);

(e) All countries experienced a similar dive into poverty during the first 3-5 years of

the “transition”. Nevertheless those, which implemented the more consistent

reforms, bottomed out by the mid-1990s, and in those, which did not implement

consistent reform the rate of poverty kept increasing. Hence given (c) and (d)

more consistent market reform might be good for the poverty rate for a country.

Neo-liberal reform may be bad, but it is better than its alternative; little or

incoherent reform;

(f) People who remember to have been poor under socialism often grew up in single

mother households several siblings and/or they were Roma. The education of their

fathers did not matter at all. There are no significant cross-country differences or


(g) Those who report declining living standards after 1988 have low educational

levels. Ethnicity (Roma may have been poor enough already under socialism),

gender or the size of the family does not matter much. There is much less decline

in living conditions in the countries which implemented coherent liberal reforms;

(h) Under post-communist capitalism there is massive difference in levels of poverty

across countries: countries, which implemented liberals reform have much lower

levels of poverty than countries, which did not. Furthermore insufficient

education and resulting poor labor market performance is the main reason of

poverty. Those who live in single mother households and who are Roma tend to

be over-represented among the poor, but size of the family is not as important as it

used to be under socialism.

Now we are ready to review some of the theoretical and methodological issues of poverty

under socialism, capitalism and market transition.

1/ Poverty under socialism and post-communism – theoretical considerations

A/Social inequality and poverty under state socialism

Let’s first review, what we know from our own previous research and from the

literature about the nature of social inequality and poverty under socialism. This way we

can create a baseline and we can judge whether the conditions changed by 2000 either in

quantitative and/or in qualitative terms.

State socialism was not an egalitarian society and people under socialism tended to be

rather poor. Commentators after the fall of socialism often falsely describe socialism as

an egalitarian society. This it was not: neither in its ideology, nor in its practice. As far as

ideology goes socialism pretended to be meritocratic (and to some extent and in some

sense it was): this was a social system in which in principle each was rewarded according

to its accomplishments, rather than according to its needs. Accomplishments were

supposed to be measured with contributions to productivity, more human capital, or

higher educational credentials people had more they were supposed to add to


To put it theoretically: socialist social structure can be described as a rank order. People

were allocated to various ranks depending on what their educational credentials (or

cultural capital) were, political loyalty (or political capital) acting as “glass ceiling” in

the process of promotion to higher rank or office (Eyal at all, 1998). At “the last instance”

possession of political capital may have been the final determinant of power and privilege

in socialist societies, but it typically worked its way through educational credentials. In

order to achieve a higher rank (and a higher level of income or privilege) one usually

needed a higher level of education. But in order to make transitions to a particularly

desirable position one needed political capital, one usually could not make such a

transition without being the member of the Communist Party. Furthermore, occasionally

promotions to such a higher rank did occur without the appointees having earned the

appropriate credentials. They were simply promoted due to their political loyalty, though

normally they were expected to earn the appropriate credentials sooner rather than later.

In particular during the early years of socialism such accelerated promotions of working

class and peasant cadres occurred quite frequently, since the new regime did not have

enough well trained cadres yet, whom they could thrust. Communist leaders also felt the

need to gain legitimacy among the masses by token promotions of ordinary people to

positions of authority. A special system of credentialing was put in place (variously

called as University of Marxist-Leninism, or Party Academy, evening adult courses in

high schools and at universities) to help the “prematurely’ promoted to reconcile their

status inconsistencies. Thus those who were promoted to high office due to their political

loyalty were helped to acquire the necessary level of education by short cutting the

normal process through “political education.” (Bobai Li, 2001; Andrew Walder, Bobai Li

and Donald Treiman, 2000). As a result empirical research normally finds that level of

education was the best predictor of power and privilege under socialism (Ganzeboom;

Andorka and Simkus; Kolosi).

State socialism was not only poor, if you analyze the whole socialist epoch and look

broadly across countries it is difficult to question that the system operated with a

depressed level of consumption. To put it simply: as a general rule people were poor

under socialism and looked with envy across the Iron Curtain and generally believed they

had a worse life than people in similar social position in market capitalist countries. The

main point we try to make is that socialism was an inegalitarian system, though this

statement requires a number of qualifications:

a/ the mechanism which generated inequalities were fundamentally different in

redistributive economies from those in market economies. While in market economies the

law of supply and demand determines the degree of inequality, in state socialism

credentials and political loyalty set inequalities. It follows that in capitalist economies

markets determine inequalities and governments redistributive intervention counteract

those inequalities, under socialism redistribution, bureaucratically defined hierarchies set

the logic and extent of inequalities, which are counter-acted by market transactions

(Szelenyi, 1978, Nee, 1989);

b/ the gap between the lowest and highest incomes tended to be smaller in a socialist

economy than the gap one would expect in comparable a market capitalist system. This

was the result of multiple factors. Let’s name a few of those. First, socialism did

eliminate certain important sources of inequalities – in particular profit or rent from

private ownership of economic capital was not only illegal, but was non-existent for all

practical purposes. Second, while socialism emphasized meritocracy it also claimed that

equity is desirable and it tried to present itself as the “dictatorship of the proletariat.” As a

result the income gap between higher and lower credentials was typically less than in

market economies. The “flower of the proletariat” – defined the Marxist way (thus skilled

workers in heavy industry, miners, welders etc) earned relatively high wages, often

higher than those higher educated who were not in politically important positions

(teachers and medical doctors typically had notoriously low salaries). True, wages and

salaries did not measure adequately the actual differences in living standards. Socialism

operated with an overgrown sector of “collective consumption”, a great deal of

consumption was not accumulated in individual wages and salaries, but was allocated

through the redistributive intervention of the government in forms of fringe benefits.

Those fringe benefits (subsidized better quality new housing, free tertiary education,

special shops, hospitals, vacation homes reserved for cadres) tended to go to the those

with more cultural and political capital. The extensive system of fringe benefits created a

greater gap in living standards, than the gap between wages and salaries. But even if

could take into account these privileges (which were very difficult to measure) it is likely

that a “Gini coefficient of the monetary value of living standards” would have been less

in a socialist economy at a similar level of economic development than in a market

capitalist economy. Socialist countries were quite different from each other in this

respect. The Soviet and Romanian ruling estate was known for its luxurious lifestyles, but

the Czechoslovak and Hungarian elite lived rather modest lives. Third, socialism was a

system of “production for production sake” (Antonio Carlo, 1978) and therefore it was a

system of “dictatorship over needs” (Feher, Heller, Markus, 1983). Until the system

began to disintegrate one central aim of the system was to “catch up and overtake” the

most advanced economies. State socialist redistribution not only channeled resources

from the lower income earners towards the higher income earners, it also channeled

resources from consumption to production, in particular to productive investments. As

the Hungarian Stalinist leader, Rakosi used to say: “you shall not eat the goose which

lays the golden egg.” Let’s delay current consumption for the sake of future economic

growth (and future affluence). One of the leading ideas of socialism was the “one bowl

of rice” – one should consume only as much as necessary for the reproduction of labor

power (hence: ”dictatorship over needs” to put it with Feher and his collaborators). This

inevitably implied that the bottom had to be elevated and the top had to be suppressed.

As socialism was entering its final phase – in particular in the reform communist

countries, such as Hungary and Poland – it gave up hope that it can “catch up” with the

West, it was less and less “production for production sake”, became more and more

concerned with political legitimacy. As a result during the last two decades the more

reform oriented countries tried to buy political peace with improving living standards.

The reform communist countries began to borrow widely cheap oil-dollars and tried to

boost consumption. But even this reversal of the “dictatorship over needs” was carried

out in a rather egalitarian fashion. And this was inevitable: to so called “refrigerator

socialism” of the Hungarian Janos Kadar (so much admired by the Polish Jaruzelski) was

the functional equivalents of “buying votes” in democratic polities. The benefits of

foreign borrowing had to spread rather equally, just as the costs of accelerated

industrialization were spread quite widely

c/ the bottom of the social hierarchy under socialism tended to be higher than the bottom

in market economies at the same level of economic development. While in the classical

epoch everyone tended to be rather poor and levels of consumption were repressed across

the board (in comparison with market capitalist economies at the same stage of growth)

the poorest of the poor improved its conditions early in the game and substantially. The

single most important reason for this was that socialism was an “economy of shortage”

(Kornai, 1980), which operated with chronic shortages for all goods and factors of

production, including for labor. Thus by definition labor was a scarce “commodity”, in

general the system operated with full employment. There were epochs and regions with

occasional unemployment. But if we speak about the whole socialist system over its

whole life span one of its most unique feature was full employment, which included most

of women and ethnic minorities, such as Gypsies. Before communism Gypsies were not

part of regular labor markets, they rarely had permanent jobs. They were seasonal, casual

workers, or were engaged in activities, where they sold products or services (were

musicians, blacksmith, bricklayers, were involved in horse-trading, fortune telling and all

sorts of similar activities) rather than selling their labor power. Before socialism in

Southeastern Europe many Gypsies were travelers and had a semi-nomadic way of life

(Tomova, 1995). Socialist regimes settled the travelers and offered to all Gypsies

permanent employment. Typically Gypsies during the socialist epoch were employed at

the bottom of the social hierarchy, as unskilled laborers, but often in the growth sectors of

the socialist economy, thus for instance in mining, steel-mills, construction industry etc

(Kemeny, 1973). They earned low incomes and carried out heavy and unhealthy work,

but for the first time in history they had regular jobs and there was a regular cash inflow

into their family budgets from stable wages. Socialist full employment by eliminating

unemployment eliminated the major social source of extreme poverty: absence of regular

income. Furthermore, socialist regimes not only enabled everyone to enter the labor force

and earn regular incomes they forced everyone to live with this opportunity. There were

laws against “hooliganism “ – these laws made sure that everyone had a job and had an

address. Those who did not have a job or address in their identification card were treated

as criminals, could be jailed or sent to labor camps. Work was not only a “right,” it was

also a “duty.” And the same applied for housing. Public authorities offered some sort of

housing for everyone, but people were also obliged to accept that housing and have an

address. Unemployment and homelessness were not only “unnecessary”, but they were

also not tolerated. Whether there is a “culture of poverty” (Oscar Lewis) or not has been

the subject matter of intense controversy over the past decades. But if there is a “culture

of poverty” state socialism certainly wanted to get rid of it. If it were true that some

people are unemployed or homeless not by necessity, but by choice this choice was not

offered to them by socialist regimes. Finally, state socialism had a highly underdeveloped

social welfare system, but the very basic provisions (basic housing, free education, free

medical services, child allowances, minimal disability and old age pensions) on top of

“compulsory” – in the above sense of the term - regular wages and salaries were secured

for everyone. Some critiques of state socialism claim that socialism operated with a

“prematurely born” welfare system; that its welfare system was overgrown and not

justified by the level of economic development (Kornai). Arguably, this is a

misunderstanding. As we already pointed out, state socialism operated with an overgrown

system of “collective consumption”, the value of many goods and services were not

accumulated in personal incomes, but they were allocated through state redistribution.

But to call this a “welfare state” is a misnomer. Most of such redistributive action could

be better seen as fringe benefits, salary supplements, allocated to higher income groups,

thus arguably they constituted redistribution of income not from the better-to-do to the

poorer, but from the poorer to the better- to-do. Public housing is the best example. In

market economies local authorities build new public housing to house those who could

not afford to buy or rent housing from their wages and salaries. In socialist countries new

public housing was systematically allocated to those with higher skills (and by definition

higher incomes). The poorest had to build housing for themselves on the “market.” And

the poorest of the poor entered the vacancy chain of public housing at the very bottom

(Szelenyi, 1983), thus had to live in old, small, substandard housing. On the whole the

socialist welfare system was poorly developed: schools, the healthcare system was

neglected. Thus for instance the gradual deterioration of the healthcare system is

responsible for the declining life expectancy during the last phase of state socialism. This

could hardly be called an “overgrown welfare system.” The debate about the question

whether the socialist welfare system was overgrown or underdeveloped has far reaching

policy implications. If we believe that socialism offered more welfare provisions than it

could afford the logical policy conclusion is that the task is to cut back on welfare

expenditures and this was and is the policy of neo-liberals in the post-communist world.

Post-communist countries are in great need of a social safety net that the welfare

institutions they inherited from socialism are inadequate and they have to be developed.

Kornai and other liberals have a point when they call for a reduction of “collective

consumption” and the elimination of state subsidized fringe benefits to those who have

high enough incomes to purchase for themselves and their families what they need. But

the institutions, which cater for the educational, healthcare, housing and other needs of

those who cannot afford to secure these goods or services for themselves at an adequate

level have to be created. And this task is particularly urgent, since the “underdeveloped”

socialist welfare system did perform one function quite well: the very basic provisions at

the very bottom of the social hierarchy were met. Socialism eliminated starvation, put a

roof over the head of every family, secured minimal incomes, and educational and

healthcare services at a very minimal level. Under post-communism the bottom fells out

below the poorest of the poor with the untargeted attack against welfare provisions.

d/ the poor and ethnic minorities were segregated from the main-stream society in space,

but the degree of such segregation was generally relatively low and it tended to decline.

We treat the spatial separation of the poor and/or ethnic minorities as an important

indicator, whether an underclass is in formation or not. There were clearly trends of

spatial segregation by class and ethnicity under socialism. In the cities as new public

housing was built outside the urban core in deteriorating inner urban areas older and

poorer people and ethnic minorities were concentrated. With urbanization and

industrialization substantial regional change took place as well. The more dynamic,

younger, better educated families were moving away from the smaller, isolated villages,

which became the destinations of the poorest of the poor, who tried to escape urban

poverty and poor Gypsies. Nevertheless, spatial segregation was relatively moderate.

People rarely had sufficient income to purchase houses and thus to chose the area where

they wanted to live. Bureaucracies allocated housing to people – the right to chose and

the possibility of the better-to-do to segregate themselves into their own neighborhoods

was limited. Furthermore, in some countries ideologically driven government policy

aimed at the reduction of spatial segregation. In Hungary and Romania for instance

socialist governments made an effort to eliminate Gypsy ghettos. And they were not

altogether unsuccessful in this respect. During István Kemény’s first Gypsy survey,

carried out in 1971 a substantial proportion of Gypsies still lived in separate Gypsy

settlements (Kemény, 1973), by the time of his second study in 1993 the population

residing in such settlements was minimal (Kemény, Havas and Kertesi, 1995). Gypsy

settlements were by and large eliminated in Romania as well. Not all countries followed

these policies though. The Bulgarian communists tried to assimilate Gypsies and remove

them from their ghettos during the 1950s and early 1960s. But they gave up on these

plans by the mid 1960s and ironically – in order to hide the failure of their policies – they

build walls around Roma ghettos. The Roma ghetto in Sliven, which houses today about

15,000 Gypsies was surrounded by a wall during the mid 1960s. The aim was just to

make sure those who travel on the train, which passes by the Nadezhda ghetto of Sliven

do not see that there is still a ghetto in the area (personal communication by Ilona

Tomova, 2000). The Czechoslovak communist government also bulldozed temporary

Gypsy houses and replaced them often by high-rise apartment complexes, but unlike the

Hungarian and Romanian governments it did retain spatial segregation. These Gypsy

social housing was often built outside the main settlements (an example is for instance to

so called Hamor, about two miles outside of the city of Nalepkovo, see Krajcovicova,

2000). Thus, spatial segregation by class and ethnicity was an important feature of the

socialist urban and regional system. The policies of governments to reduce such

segregation had mixed results on the whole the degree of segregation under socialism –

given the limited choice of residence people had – was less than what one could expect in

a market economy at a similar stage of development. Over-time it is more likely that

segregation was reduced, rather than it increased.

B/Varieties of post-communist capitalisms1

Before we discuss poverty and inequality under post-communism we offer an

outline of a theory of various post-communist destinations. We believe multiple types of

capitalisms are emerging on or with the ruins of socialism and the dynamics, extent and

nature of poverty and inequality tends to be rather different in these different types of

post-communist regimes.

The liberal and patrimonial types of post communist capitalism

The former socialist societies during market transition followed rather diverse

trajectories. During socialism there has been at least some convergence among the

societies, which experimented with communism. After the fall of state socialism,

however, post-communist societies are increasingly different from each other both in

terms of the level of their economic development and also in terms of their economic

First this ideas were developed in Eyal at all, 1998. In this more developed formulation we rely on King
and Szelenyi (forthcoming).

institutions and the characteristics of their social structure. Various European post-

communist societies – while all were implementing a revolution “from above” - carry out

the tasks of in fundamentally different ways2.

Central Europe followed more consistently the prescription of neo-liberal reforms, they

became rather attractive to foreign investors, in particular to multinational firms and

those members of the former communist elite, which succeeded to reserve their

privileged positions mainly attainted this by facilitating purchase of public property by

foreign investors.

Central Europe is therefore “capitalism from without”, a neo-liberal type of capitalism.

The Czech Republic, Poland and Hungary (possibly East Germany, Slovenia – or even

Croatia and Slovakia - and some of the Baltic States, Estonia in particular) may be

examples of this type of change.

In Eastern Europe “proper” (Russia, the Ukraine, Byelorussia, the Balkan states, such as

Bulgaria, Romania, Serbia) foreign investment did not play such a critical role. These

countries instead used various mechanisms to convert public property into private

ownership of the emergent new domestic elite, usually recruited from members or

children of the members of the former communist nomenklatura.

In East Asia (in particular in China and Vietnam) capitalism is emerging “from below.” In early stages of
the transition the public sector is not privatized, capitalism is made in a “gradualist way” by opening up
new spaces for private economic activities. Privatization of the publicly owned corporate sector enters the
political agenda some 20 years after transition began. By the end of “the 20th century the formerly
communist East Asian societies are “hybrid post-communist capitalism.” In sharp contrast to this in
European transitional societies capitalism is made “from above.” In 1989-1991 the communist political
structure breaks down, the new post-communist elite gives priority to the fast privatization of the public

This coincided with relatively slow emergence of market institutions, a prominent role

played by barter, an involutionary adaptation of former institutions, and in particular the

survival of patron-client relations resulting in a new form of capitalism, what we label

“post-communist neo-patrimonialism”.

These pathways produce very different outcomes. Those countries that became

neo-liberal regimes have created an economy where market institutions are highly

developed and economies are well integrated into the world economy. In “neo-

patrimonial” system on the other hand the patron-client relationships pervade the

economy: between the state and enterprises, as well as between management and labor.

The redistributive institutions are destroyed, to be replaced by markets deeply embedded

in reciprocity and networks. Businesses cancel each other’s debts, use local monies, and

engage in barter3.

The two types have some common features as well – they both started with mass

privatization of public good4. This strategy opened up rather unexpectedly when 1988-

1989 European communist regimes “melted down.” Until the mid-1980s no one seriously

considered that this would be a possibility. During this time, no scenario was developed

for a way to turn an economy based exclusively on public ownership into a system of

private property. East European economists, speculating about ways to escape the

deepening economic crisis of state socialism. They threw their hands up and said

jokingly: “we know how to make a fish-soup out of fish (thus how to nationalize private

property), but we do not have the faintest idea, how to make fish from a fish-soup.” The

East Asian “Capitalism from below” also creates market-integrated systems, but they rely more on
relatively small domestic capitalist enterprises co-existing with a large state owned sector, which are
increasingly market-dependent themselves. We call this hybrid capitalism.
This is a major difference from “capitalism from below.” In Asia – given the continued dominance of the
Communist party mass privatization of the state sector did not take place for a long time.

recipe for this culinary miracle was discovered during the second half of the 1980s and it

was called “shock therapy” and “privatization.”

Capitalism “from above,” in its pure form, results in neo-patrimonial systems

(such as Russia, Romania or Serbia during the Milosevic epoch). However, capitalism

“from above” can be combined with capitalism “from without” (as was the case in

Central Eastern Europe and the Baltics). Both liberalk and patrimonial forms begin the

transition with mass privatization of the corporate sector, but the technologies of

privatization are different and the speed that market institutions are established are not

the same either.

The neo-liberal type of capitalism relies on Western multinationals5. In these

regimes privatization is a reasonably transparent process. Public firms are auctioned off

at public auctions, or ownership is transferred to workers or citizens via vouchers, which

are traded on the market place. Prices are deregulated, currency is made convertible, the

banking system is modernized and eventually some or most of it privatized, capital

import are deregulated and so on. Under such circumstances even if corporate

management is able to acquire controlling private ownership in their firms, they still have

incentives to bring in foreign investors in order to attract capital and secure market


In neo-patrimonial regimes political capitalism reigns supreme. Communist

apparatchiks manage to exchange their political capital into private property, frequently

We call these regimes “neo-liberal,” primarily because neo-liberalism is the guiding ideology of these
regimes, which were modeled on the Reagan and Thatcher vision of state-economy relations. Of course,
this is an ambiguous legacy, since Reagan oversaw a massive military-keynsian expansion. Furthermore,
many of the neo-patrimonial states, like Russia and Kazakhstan, implemented neo-liberal policies, while
some of the “neo-liberal” systems, such as Poland and Slovenia , failed to implement crucial portions of the
agenda (both delayed large scale privatization and instituted an industrial policy).

using management buy-outs to achieve these aims. Creating a group of owners of giant

corporations with no experience as “capitalists,” typically without any international

contacts, and with no capital for restructuring. These structural challenges are

exacerbated by the “habitus” of former communist officials turned private owners. They

are likely to be less entrepreneurial, and more inclined to be paternalistic towards their

business partners and employees. In liberal regimes the domestic expert-managers carry

their habituses with themselves as well, and are not immune to paternalism either. Such

actors are used to operating within the system of a paternalistic state and are likely to

continue their state-dependent, deferential role. Paradoxically, multinational investors

need these local experts exactly because they are well networked and have such local

social and political know-how. Nevertheless, in liberal regimes foreign owners call the

shots, and this, together with the existence of liberal press and democratic parliamentary

institutions which guarantee some degree of transparency, limits paternalism.

Thus, in neo-patrimonial capitalism markets gain much less ground than in

neoliberal regimes. Firms frequently can not pay wages. This contributes to labor

markets remaining under developed, and paternalism frequently characterizes the

relationship between workers and management or the new owners-managers. Thus,

workers are separated from each other, and their “classness” decreases. Given the

weaknesses of the market institutions barter becomes an important mechanism of

exchange. In this situation, the monetary system is very poorly developed, or, in

Woodruff’s analysis, “money is unmade” (1999). Workers typically must resort to food

grown on garden plots or collective potato farming to survive, and they are thus

increasing re-united with the means of their subsistence.

These paths are only ideal types, and thus features of the various styles of

capitalism will be found in all postcommunist countries. There are some multinationals

and modern capitalist markets in Russia, while in Hungary, the archetype of “capitalism

from without,” paternalism plays an important role not only in the political-cultural

sphere, but even in the economy. Barter is not unknown in the Central European


The first three rows in Table I.1 summarize some of the characteristics of the two

European postcommunist capitalist regimes. The rest of Table I.1 is an attempt to identify

what forces are responsible for why countries took particular trajectories. We turn now

to the discussion of these questions.

Some degree of the Asian type of “capitalism from below” can be found in the Czech Republic and
Hungary as well. Indeed, in Poland and Slovenia there were strong elements of this path, because they
severely delayed the privatization of very large state owned enterprises. Thus, they created a space for
more capitalism from the ground up, even as they pursued capitalism “from without” through strategic
foreign investment. Even after more than ten years after the transition, many large state owned enterprises
still exist in these countries.

Table I.1. Varieties of European post-communist capitalism

Neo-liberal systems Neo-patrimonial systems

(Czech Republic, (Russia, Ukraine,
Hungary, Poland Rumania, Serbia)

Foreign capital Dominant, Secondary

Political capitalism Little Lot, dominant
Domestic (petty or Some Little
middle) bourgeoisie
Transitional political Technocracy defeats Bureaucracy retains
strategy bureaucracy and power, uses office to
struggles with former acquire private property,
dissidents for hegemony allies with technocracy
Class formation Under way, but dual Dominant estate
(Collective actors) structure, with strong structure, mainly patron-
patron-client relations client relations
Economic dynamism Some Little-none
Size of state Medium Large
State capacity Modest Little
Political institutions Liberal democracy Multi-party

The origins of the liberal and patrimonial forms

There are exogenous and endogenous factors, which may help us to explain why

some countries followed a neo-liberal, or neo-patrimonial path and why some managed to

go a long way by “building capitalism” from below. In this paper we will focus our

attention to the “endogenous” factors, thus to factors, which are rooted in the class

structure, the dynamics of struggles among different factions of elites, political

institutions and development of civil society.

It would be foolish, however, to deny that exogenous factors are not

consequential. Most importantly the level of economic development countries achieved

prior communism, and, to some degree, were able to retain under communism as well as

the proximity of markets in core countries are likely to play an important role. It cannot

be accidental that the only countries which are bordering the European Union, and which

were traditionally more developed, created neo-liberal capitalism. One possible

argument is that the more developed countries were able to adopt the neo-liberal policies,

since they could afford to pay the rather high price of neo-liberal shock therapy. Less

developed countries, however, may have experimented with some shock but they had to

suspend it before it could work since their population could not tolerate more pain (hence

shock without therapy – see Gerber and Hout (1998)). Thus, the argument could be made

that the better economic performance in Central Europe may have nothing to do with

their economic policies, or the path their capitalist development took, but can be

explained simply by the fact that they were stronger economies and closer to Western


This exogenous explanation is not without merit, but it has its limits. First of all,

during the socialist epoch the gap in the level of economic development among the

socialist countries narrowed and just began to grow again after the fall of communism.

And there are also curious exceptions to such economic determinism. For instance, how

can one explain the unusual success of the Baltic states, which were for half a century

parts of the Soviet Union. Sure, they were relatively better developed regions of the

USSR, nevertheless they were within the USSR and during the 1990s they comfortably

outperformed the countries of the Balkans.

In addition to geography and prior-level of development, let us add a possible

cultural explanation to the different routes various societies took. We do not know how

far this analysis could be pushed, but it certainly deserves attention that the

reconfiguration of post communist states occurred along religious lines. It may be just an

artifact, or it may have something to do with elective affinities between religion and

modernization, but the various types of post-communist capitalisms correspond to

various religions. All neo-liberal regimes are dominated by Western Christianity; neo-

patrimonial states are either Orthodox or Muslim7. It is beyond our competence to assess

how important this fact may be, we just have to note that such an affinity between

religion and type of modernization seems to exist.

Now let us turn to the effect of those social structural variables, which are more

easily within our analytical reach.

Hybrid capitalism happened to be in the Confucian and Taoist part of the world

The transition from communism to capitalism was the outcome of both inter and

intra-class struggles. On the whole classes were not particularly well formed under state

socialism. Socialist society can be better described as a rank order, rather than a class

stratified society. Nevertheless, classes were in formation and in particular the strength of

the working class had far reaching consequences for how intra-class struggles among

various factions of the ruling elites unfolded.

Arguably, in Central Europe, in particular in Hungary and Poland, the power

monopoly of the political apparatus had been challenged for quite some time by an

emerging alliance between enlightened technocrats, usually operating within the

communist party, and critical intellectuals. The formation of the working class was the

most advanced in Poland of course, where the collective action of workers in 1980 almost

brought down the rule of the communist political apparatus. While, using the real or

imagined threat of Soviet intervention, the bureaucracy cracked down on the working

class movement. However, this sufficiently weakened the bureaucracy so that it could be

defeated by the revived alliance of the technocracy and intelligentsia.

Hungary followed a somewhat similar patter. While the Hungarian working class

never engaged in the kind of collective action taken by the Polish working class, it was

sufficiently a threat to the communist apparatus that it had to try to buy political peace by

opening up the second economy to workers and peasants. The resulting petty

bourgeoisification in Hungary played a substantial role in eroding the ideological

hegemony of the communist bureaucracy and laid the groundwork for the Hungarian

technocratic-intellectual alliance to defeat the bureaucracy. In both countries the political

apparatus was wiped out in 1989. It lost political power altogether, and therefore had

neither the will nor the capacity to carry out a project of political capitalism. The

ideology of the victorious technocratic-intellectual elite by 1989 was neo-liberalism. The

technocratic-intellectual alliance did not last for too long (Szalai 2001). The intellectual

elite turned against the technocracy, which was now seen as part of the former

communist establishment.

In 1990, in both Poland and Hungary the newly formed Socialist Party suffered

humiliating defeat. The intellectual themselves were split into a liberal and patriotic-

Christian wings and the last decade can be described as struggles among these various

political forces. Nevertheless, despite the political differences all of these intellectual and

technocratic elites, they followed neo-liberal policies, and in particular, cooperation with

foreign investors. Hungary and Poland are in many respect the “purest types.” The

alliance of classes or elites may have been somewhat different in the other neo-liberal

regimes, but our key hypothesis is that in all of these regimes the communist bureaucracy

was unseated by an alliance between reform minded technocrats with liberal and

patriotic-Christian intellectuals. This alliance received some initial support from the

working class, which for the most part was demobilized after the defeat of the communist


In those countries that wound up with the neo-patrimonial system, the communist

political apparatus was able to retain its power and defend the privileges of its clients as

well. Communist ideology was of course instantly abandoned, but the former communist

parties were not taken over by technocrats and transformed into right wing social

democratic movements as it happened in the neo-liberal regimes. Instead the core of the

political apparatus retained control over the successor parties and turned the communist

ideology into nationalist, often xenophobic ideology. Iliescu in Romania and Milosevic in

Serbia are prime examples. The transformation was more complex in Russia, where the

successor party lost political power, but Yeltsin followed policies, which were quite

similar to those of Iliescu and Milosevic. In those countries where working class

resistance, political or economic, did not weaken the political apparatus, the technocratic

and intellectual opposition could not smash the political bureaucracy. Instead, it adapted

a nationalistic, xenophobic rhetoric and the practices of political capitalism8.

Thus, we argued that the patters of class conflict and intra-class alliances

determine which path to capitalism is selected. This does not have to be thought of as an

alternative geography, or culture. These factors affect the opportunity structure of

different segments of class structure. For example, the fact that a country is closer to

Western Europe and more culturally similar make an alliance of technocrats and

multinationals seem much more possible. Thus the exogenous factors are mediated by the

patterns of class conflict and intra-class alliances.

Arguably, China followed most closely the scrip described by Konrad and Szelenyi (1978). In
1978 the political bureaucracy formed an alliance with the technocratic intelligentsia, and in fact accepted
the leadership of the technocratically minded faction of the party elite during the years of Deng Hsiao Ping.
The bureaucracy and technocracy keep each other under control to the present day. The technocracy did
not allow the political apparatus to implement a political capitalist scenario (it had little incentive to do so
anyway, since it was not deprived from its political power and many of its economic privileges). The
communist bureaucracy, on the other hand, put strict limits on how far the technocracy could go in its
attempts to ally with the intelligentsia and to pursue neo-liberal policy. Workers and peasants coulld take
advantage of the resulting “balance of power.” Thus Nee is probably correct to a large extent whe he sees
the “direct producers” benefiting from transition in China, while they proved to be the losers in the two
other systems.

Social consequences of various pathways, changes at foundations of society

So far we focused on what happened at the top of the social hierarchy, but what

path former communist societies took is also impacted by and influences processes in the

very foundations (or at the bottom) of societies.

The transition from socialism to market capitalism is a transition from a rank

order to a class stratified system. But the formation of classes is a historic task, which is

likely take more than one generation and how far the social structure is at the end indeed

transformed into classes also remains to be seen.

In this process liberal and patrimonial regimes – just like in their progress to make

markets – proceed differently.

In neo-liberal regimes there is a more pronounced trend toward class formation.

This trend has its limitations for sure. Since international capital is calling the shots there

is not much of a domestic propertied class – hence it is a process of making capitalism

“without capitalists.” The new petty bourgeoisie, which was emergent from the second

economy during late state socialism in Hungary and Poland suffered a defeat as pro big

business policies gained ground and as shock therapy opened up domestic markets to

foreigner investors and exporters. The working class, which was forming in Poland

powerfully during the early 1980s was demobilized as soon as communism collapsed, it

is hardly a collective actor and could hardly be seen as a class for itself. Nevertheless

labor markets operate according to free market rules, labor is to a large extent separated

from the means of subsistence and production, price of labor is set by supply and

demand, if demand is insufficient labor remains unsold, relationship between

management and labor is transactive. Paternalistic dependence of state redistribution is

greatly reduced. Under this circumstances poverty is primarily determined by structural

conditions. The main source of poverty is absence of employment, those will become and

remain unemployed, who do not possess adequate human capital and therefore they often

will be locked into long term unemployment and poverty. The consolidation of market

institutions and the making of this new structural poverty coincides with the emergence

of a middle class. This new middle class offers upward mobility chances to workers and

even to ethnic minorities, such as Roma and this serves an important liberal ideological

function. It makes possible to ‘blame the victims’ hence some of their fellow workers, or

some of the fellow Roma did make it to the middle class. Under such circumstances the

long term, structural unemployed – especially if they are Roma - may be defined as an


In patrimonial systems class-formation is slower and even more contradictory.

The relationship between labor and management is primarily paternalistic. Labor and

management are bound to each other by mutual loyalties, not just by interests. The

workers will have an obligation to turn out at work even if management is in arrears with

wages; management will have obligations to “look after” the welfare of their workers

even if they do not necessarily need them at this point in time. As the state institutions of

socialism collapse and are not replaced by capitalist welfare institutions the functions of

those institutions are now taken over by management.

Neo-patrimonial regimes initially legitimated themselves with the ideology that

they have to protect people, their citizens or employees against the high costs of

transition, especially the high costs of shock therapy. The advocated therefore gradualism

and emphasized social responsibility. They might have spread to costs of transition more

broadly, producing an exceptionally wide poverty, with a large population of “working

poor.” Since meritocratic criteria, possession of skills, human capital regulate primarily

the entry to jobs with a large population of working poor poverty will be less determined

by class factors. It can be almost accidental, influenced by interpersonal networks or

simply regulated by demographic factors who end up in poverty and who does not.

Underprivileged ethnic minorities such as the Roma will be treated as a political problem,

they will not be dealt with in economic ways. Hence the Roma will be treated as one

category, in caste-like manner. While liberal regimes create an underclass, patrimonial

regimes exclude their underprivileged ethnic minority into an under-caste.

Poverty in liberal regimes is focused or targeted on groups which are defined by

achievement type of criteria (such as possession of human capital), underprivileged

ethnic minorities are fragmented along class lines, some being mobile into the

mainstream others locked into a new underclass. Patrimonial regimes spread poverty

broadly and ascriptive criteria are more important in the determination of poverty. Ethnic

minorities are also treated this way, politically as a single category, defined as an under-


C/The post-communist experience – the effects of market transition on inequality
and poverty

Many of the social consequences of market transition of formerly redistributive

economies have been discussed extensively in the so-called market transition debate (See

American Journal of Sociology, 1996 issue and elsewhere). To date, this debate has

focused on three central questions. First, has market transition really occurred (Nee), or

have these economies simply been decentralization of redistribution (Walder; Yu Xie),

transformed by a path dependent transformation (Stark)? Second, has inequality

increased (Walder; Lin; Kostello and Szelenyi) or decreased (Nee) as economies have

moved from redistribution to market integration? Finally, who has emerged as the

beneficiaries, or “winners” of the reform —ordinary people (Nee), former elites (Hankiss

Rona-Tas; Staniszkis; Walder), foreign investors, multinational corporations (King), or

new elites (Eyal, Szelenyi and Towsley)? Clearly absent in this debate has been questions

regarding the extent and nature of poverty as a consequence of market transition. This

book intends to correct this omission as we bring issues of poverty into the center of the


In order to develop a guiding theoretical framework for our analysis, we first must

cast the scope of market transition debate more broadly to include theories about

inequality and poverty during transition. For our purposes, the most notable figures in the

debate over inequality and transition are Kuznetz and Lal-Myint.

Kuznetz hypothesis, first formulated in 1955, assumes a curvilinear relationship

between economic growth and social inequality. The so-called “Kuznetz curve” assumes

that in economically underdeveloped societies, inequality is generally fairly modest. At

the beginning of economic take-off, inequality increases sharply, and once high levels of

economic development have been achieved, inequality declines again.

Victor Nee’s “market transition theory” complements Kuznetz in interesting

ways. Nee does not consider the effects of economic growth, but he offers a powerful –

though highly controversial - hypothesis about the relationship between changes in

inequality and increased economic liberalization. Nee – at least in his 1989 article –

hypothesized that with more markets and less redistribution the allocation of assets and

incomes may become more equal. If one adds to this assumption the hypothesis that

market liberalization may induce more dynamic growth (at least that is what one would

expect on the basis of neo-classical economics) one may be able the create a combined

Kuznetz-Nee hypothesis. It may be accepted by Nee as a friendly amendment to his

theory that at the time of actual “transition”, when the old system breaks down and the

new system is not quite operating yet an increase of inequalities is plausible, but it

inequalities may gradually decline as productivity benefits of the market induced

economic growth are realized and the social benefits from growth begin to “trickle

down.” Given the robust economic growth China experienced during its “transition” (in

contrast with the economic meltdown for former Soviet Union and the former European

socialist countries had to suffer from) it is therefore not that surprising that Nee

hypothesized about equalizing impact of the markets already in early stages of transition,

while liberalization was accompanied in Europe – given the depth of the

“transformational crisis” - with increases and in some countries with explosion of


Lal and Myint (1996), in their study of non-transitional economies, arrived at a

very different hypothesis than did Kuznets/Nee. Lal and Myint do not find evidence that

inequality declines with economic growth or, by implication, with freer markets. After

all, neo-classical economists assume that a high degree of inequality is necessary, given

the constant need for economic incentives for higher productivity and faster growth.

Intervention by the welfare state, for example, which aims at reducing inequality, will

limit economic growth because it will distort the proper functioning of free markets. Lal

and Myint, however, do suggest that freer markets and more dynamic growth eventually

reduce absolute poverty, if not inequality. From this theory, one can create a Lal-Myint

Curve, which would illustrate that during the early stages of economic take-off, even

absolute poverty may increase, given the destructive effects of markets on traditional

social networks, for example. Once market-induced growth is firmly established,

however, the benefits of growth will “trickle down.” While relative poverty may remain

stable once growth has been achieved—after all, relative poverty is more a measure of

inequality than poverty as such)— absolute poverty will be substantially reduced.

Patterns of economic growth and social change in the United States during the

Clinton years seem to offer some support to the Lal-Myint hypothesis. While during the

last decade of the 20th century the United States was becoming more inegalitarian at least

some indicators of absolute poverty began to improve. Often seen as correlates of

extreme poverty, employment was up during this period, the number of people on welfare

was reduced, crime and drug use was down, etc.

In order to incorporate the Lal –Myint hypothesis into our analysis of poverty in

market transition, we must consider two issues, one of which is specific to transitional

economies, the other is a general question, equally applicable to advanced Western

economies as well.

The first question concerns whether the two divergent transition strategies are

consequential for the extent and nature of poverty. Did the strategies of the patrimonial

systems deliver on the political promises of protecting citizens from the pains of the

transition, or did these strategies simply delay the inevitable, or even intensify the

negative consequences of transition? And what about neo-liberal strategies? Is there any

evidence of trickle-down prosperity, or has the trickle down approach proved to be a false

promise, at least so far? Overall, Lal-Myint would predict a reduction in poverty as a

result of neo-liberal policies and increases in poverty as a result of patrimonial transition


The second question is more general, and has implications for advanced market

economies as well as for transitional economies. Let’s assume that the Lal-Myint curve

accurately describes the dynamics of economic growth, namely, that growth leads to

reductions in levels of absolute poverty. Does it necessarily follow that economic

development will eventually lift all boats? What if poverty becomes linked to ascriptive

criteria, such as race/ethnicity and/or gender, and thus poverty becomes racialized and/or

feminized? Would the Lal-Myint curve hypothesis still apply? In other words, would we

still expect the economic conditions of such groups to improve absolutely?

It is conceivable when shock therapy is instituted on a society, certain categories

of people – for instance a certain ethnic minority, or single mothers may become locked

into permanent poverty. Thus post-communist “shock therapy” may have produced a

"new poverty" (Tarkowska, 2001). Stated differently, “shock therapy” may be

responsible for the formation of an "underclass" (Ladanyi, 2001).

The purpose of this book is to test whether a “new poverty” has emerged during

post-communist transition, and whether we can speak of the formation of an “underclass”

during the last decade of the 20th century in Central and Eastern Europe. The “underclass

formation” hypothesis will be supported to the extent to which:

A/ Poverty becomes a life-long, or long-term, phenomenon for the people or groups


B/ It becomes increasingly likely that the children of such people or groups will also live

in poverty during their adult life.

Gunnar Myrdal used for the first time the notion of underclass (1963, 1964).

Myrdal coined the term to designate those who were left out of the benefits of the big

post-war economic boom – the boom was so overwhelming that “all society” benefited,

except those who were locked outside the society and pushed into an “underclass”

position. Julius Wilson (1978) adjusts the notion in interesting ways. There are three

important innovations in Wilson’s work: 1/ For Wilson the force, which drives underclass

formation is de-industrialization of the 1970s: in the US a “class” is now created, which

previously had decent jobs – often with respectable skills and incomes – which

disappeared as a result of de-industrialization; 2/ Those hit the most with de-

industrialization tend to be African-Americans, who live in inner urban ghettos. Thus

members of the underclass are not just those who lost jobs or who are poor, their poverty

tends to be racialized; 3/ Nevertheless this racialization occurs with the “declining

significance of race.” This implies, that once one controls for class the race effect

weakens or disappears. This happens since some African-Americans are not affected by

de-industrialization and the new poverty. The same time, when the new underclass of the

inner urban Black ghetto poor was formed a robust process of Black middle class

formation was also under way. Blacks are not separated from the rest of the society as a

social category or a caste, their exclusion only takes place if race interacts with certain

class characteristics.

Evidence from the US indicates (Stack, 1974; Casper, McLanahan and Garfinkel,

1994; Rodgers, 1996) that poverty also tends to be feminized. In particular minority

women and women from poor families are more likely to become single mothers at a

young age and if that happens, their poverty may not be simply a life cycle phenomenon,

they and their children, including their male children may be locked into life long


Feminization of poverty can be interpreted very broadly. So for instance one may

even consider feminization of poverty within the household. Women may live in poverty

in non-poor or not so poor households, since they may carry the burden of poverty more

than men. Women also tend to be over-represented among single senior adults and tend

to be poorer than single old males. These are socially non-trivial problems, but since in

this book the focus of our interest is the interaction of ascriptive characteristics and class

characteristics in the making of an “under-class” we limit our attention only to female

headed households with children under 16 and we want to explore whether, much like

underprivileged ethnic minorities they also tend to be poorer.

There is some prima facie evidence that market transition may be accompanied by

racialization and feminization of poverty as mechanisms of underclass formation.

The Roma minority seems to be affected by post-communist de-industrialization

in analogous ways as African-Americans were in inner urban areas in the United States

during the 1970s. Roma tended to be concentrated during the state socialist epoch in

heavy and construction industries, which suffered the most severe job losses with the fall

of communism. They lost jobs, became de-skilled and have little prospect ever finding a

job again. They also tend to be locked into urban and rural ghettos in extreme poverty.

Furthermore, much like African-American in the US, the process affects some Roma than

others. The formation of the Roma underclass in urban and rural ghettos is complemented

by them making of a Roma middle class, arguably in neo-liberal regimes more so than in

patrimonial ones, where the more traditional social order is more likely to be preserved.

We know little about feminization in general and single motherhood in particular

in transitional societies. It has been reported, however, that out-of-wedlock birth

increased substantially during the post-communist epoch. Some of this is likely to be a

life-style choice. Middle class women (and men) may just not want to get married, but

they are ready to bear children nevertheless. This does not necessarily lock people into

poverty. If out-of-wedlock birth is a life style choice the parent may co-habit and share

resources, or even the single mother may be middle class and reasonable well off. Thus

single motherhood may only lock someone into poverty if single motherhood interacts

with social class or possibly with ethnicity.

Thus this book is guided by a somewhat reconstructed version of Lal-Myint

hypothesis. Lal-Myint theory was specifically devised to test the effects of economic

growth, our own theory tends to test the effects of market penetration, or economic

liberalization. From Lal-Myiant we hypothesize that economic growth (and we add:

liberalization) in unlikely to reduce inequality, but we will expect it to have some

“trickle-down” effect, thus to reduce absolute poverty and to do so more successfully in

countries, which follow the more closely the neo-liberal strategy of transition. We

assume, however, that the relationship between market penetration and poverty is likely

to be curvilinear (this gives a Kuznetz twist to our reconstructed Lal-Myint hypthesis) –

thus at the time of “take-off”, early stages of market penetration, when shock therapy is

applied one may get rather high poverty rates, though those rates tend to decline as the

benefits of growth begin to trickle down. Nevertheless, we anticipate that such “trickle

down” is likely to have its limitation. In neo-liberal regimes we anticipate that

racialization and feminization of poverty will lead to an underclass formation and if

ethnic minority status or single motherhood interacts with negatively privileged class

position those who are locked into such situation may not see the benefits of economic


2/ Data and methods


This book is uses statistical data generated by surveys conducted in the six post-

communist countries of Bulgaria, Hungary, Poland, Romania, Russia, and Slovakia

during the Fall of 1999 and the Winter-Spring of 2000. In addition to survey data, we rely

on ethnographic studies conducted in all of these countries during the same time period.

The Ford Foundation supported both the survey and fieldwork components of the

research project. Ivan Szelenyi was the principal investigator; co-principal investigators

were Rebecca Emigh, Eva Fodor, and Janos Ladanyi. Our research team included a group

of senior scholars and advanced Ph.D. students in each country.

The surveys were based on random samples of the general population in each

country. In Russia, we selected 2,500 households on a national random sample west of

the Urals; in the other countries the sample size was 1,000. In Romania and Slovakia, the

sample was selected using the “random walk” method, thus the primary sampling unit

was the household. Individual respondents were selected from the household roster using

a Kish table. In all other countries, various lists of individuals constituted the sampling

frame. Overall, the samples are sufficiently representative, with the exception of

Slovakia, where less educated, lower income groups, and Gypsies are under-represented.

Our data also include over-samples of sub-populations, including the poor and the

Roma. While both groups are of particular theoretical interest, both comprise too small a

proportion of the overall population to conduct statistically reliable analyses using a

general population sample.

During the past few years, various survey research agencies have asked

interviewers to identify the Roma. For example, Szonda-Ipsos and TARKI in Hungary

have used this technique a number of times. Other studies used other methods to identify

Roma. For instance, some scholars and Census designers have relied on self-

identification and/or classification by expert (such as social workers). In our analyses, we

decided to use a combination of all three methods. Thus, we first relied on interviewer

identification to generate an over sample by conducting screening interviews, in which

we did not ask the respondents to report their ethnicity. Next, in the actual survey

instrument, we asked respondents whether or not they self-identify as Roma. Once the

interviewer completed our interview he/she was asked for the second time (the

interviewer may have been the same or may have been another person than the one who

classified during the screening interviews) to classify the respondent by ethnicity. This

time the interviewer knew how the respondent self-identified, and this may have effected

his/her judgment. Finally, after the survey interviews were completed, we asked experts

in those locations where Gypsies were reported to live to identify Gypsies among our

respondents. These various systems of classification give us different estimates about the

size of the Roma population. While there are cross-country differences in the extent of

the discrepancies in all countries fewer people identify themselves as Roma than

identified by experts. Finally interviewers tend to identify all those who are classified as

Roma by experts as being Gypsy, but they cast their net more broadly and often classify

people as Roma, who are not believed to be Gypsies by the experts and who do not

identify themselves as Roma either. As a result we believed using interviewer

classification is the most effective way to over-sample Roma. Whether all people

classified this way as Roma are “really” Gypsies or not is another question. Nevertheless

it is unlikely that people who will be regarded by expert as Gypsies, or who call

themselves Roma would not be classified as such by the interviewers. If we “err” by this

method, we err by casting our net to broadly, but the net will catch all other classificatory

systems, thus the “error” can be corrected by comparing various classifications.

To create an ethnic over-sample in the three countries (Bulgaria, Hungary, and

Romania) where there are sizeable populations of Roma, we worked closely with market

research firms that carry out omnibus surveys on a regular basis. Over a period of a year,

together with the market research firms, we screened between 10,000-19,000 households.

To the omnibus questionnaire, we added a short questionnaire that asked the interviewer

to tell us whether any given household or any member within the household was Roma.

We then asked the interviewer his/her degree of certainty in that assessment. (We also

asked the interviewer to explain on what basis he/she classified any given respondent or

household as Roma). Using this method, we accumulated an extensive list of Roma

addresses, which constituted our Roma over-sample.

Relying on similar methods, we also generated an over-sample of the poor in four

countries (Bulgaria, Hungary, Poland, and Romania). We did not create a poor over-

sample in Russia because our pretests indicated that the general population sample would

include enough poor households to conduct statistically reliable analyses. In Slovakia—

due to the inability of the survey firm to sample the bottom of the social hierarchy—we

had to abandon our attempt to create an over sample of those in extreme poverty. As with

the ethnicity over-sample, the poverty over-sample was determined using screening

questions attached to the omnibus surveys of the market research firms. Interviewers

were asked a series of questions designed to identify extremely poor households (e.g.,

Are there signs of undernourishment in the household? Is the house dangerous and/or

unhealthy etc?). If the interviewer answered positively to any question, the household

was selected into the poverty over-sample. In the actual survey, respondents were asked

detailed questions regarding living standards in order to measure the reliability of

interviewer assessments. The poor over-sample ensures our ability to statistically

compare the Roma and the non-Roma poor. In this paper we do not analyze data from

the poverty over-sample.

The Roma and poor over-samples are random samples and we know the

probability of being selected into each sub-sample. Furthermore, though we analyze

interview-identified poor and Roma respondents with great interest, we believe poverty

and ethnicity are “social constructions.” Therefore, we do not accept interviewer

assessments as the “true” measure of who is poor and who is Roma . In our analyses of

Roma ethnicity, we analyze both interviewer-identified Roma, as well as self-identified

Roma. We rely on multiple indicators from the survey questionnaire to guide our

analyses of the poverty over-sample in order to determine households in extreme poverty.

Our survey data are complemented by ethnographic case studies. In each country

we selected extremely poor communities. These communities were primarily rural

villages, with the exception of one urban center. Most communities were Roma

“ghettos,” while others—particularly those in Poland, Russia, and Georgia—were simply

poverty stricken or were predominated by a poor ethnic group other than Roma. Junior

members of the research team received yearlong fellowships to conduct field projects in

these communities. Ethnographic data collection methods were coordinated at a number

of project meetings. Reports of these case studies can be found at:

(From the web site, select the link for “Poverty Project,” followed by the link for “Final

Reports.” There you will find the complete set of ethnographic case studies.) Survey data

are also posted at the same web-site, though access to data is restricted until January 1,

2003 to members of the research team.

The selection of the six countries was driven by our research questions. The

countries differ both in terms of ethnic composition and in terms of which ideal-type of

“post-communist capitalism” best describes their economic system. Overall, there are two

sets of questions for which our research design can provide answers:

First, we explore whether the divergent paths leading from communism to “post-

communist capitalism” discussed in Chapter 1 are consequential for poverty outcomes.

To answer this question, we compare the “neo-liberal regimes” of Hungary, Poland, and

Slovakia to the “neo-patrimonial systems” in Bulgaria, Romania, and Russia.

Second, we test hypotheses concerning poverty and ethnicity. More specifically,

we test whether the presence of a sizeable ethnic minority—namely, the Roma — which

tends to have some “elective affinity” with poverty changes the character of poverty or

not. In particular we explore whether the presence of such an ethnic minority leads to

racialization of poverty. In other words, is the cleavage between the poor-and-not-so-poor

drawn more sharply if poverty and ethnicity interacts, is the boundary, which surrounds

the ethnically labeled poor more difficult to cross? Is the ethnically labeled poor is more

likely to live in life-long poverty, pass its poverty onto the next generation and live

spatially segregated ways than the poor who belongs to the ethnic majority? Does the

ethnically labeled poor constitute an “underclass” (in the above defined sense of the

term), or even if it does not is it on its way to form an underclass. To answer such

questions, we compare Poland and Russia with Bulgaria, Hungary, Romania, and


Measurement of poverty

We use various measures of poverty in this book, some rather conventional, others

less conventional.

(1) Subjective measures of poverty In order to assess the changes in living conditions

between 1988 and 2000 we asked two sets of ‘subjective’ questions about poverty which

were identical for 1988 and 2000. We call these questions ‘subjective’, since they

explore the ‘lived experiences’ of poverty by the respondents. (We call those measure

‘objective’, which assess incomes or expenditures in monetary terms).

The first set of subjective measures we call here the ‘experience of poverty.’ We

asked four questions which aimed at capturing the subjective experience of absolute

poverty. We asked our respondents, whether they went to bed hungry recently since they

could not afford to eat enough food, whether they could eat enough mean and whether

they had adequate clothing (shoe and winter coat).9 We call those ‘very poor’, who

reported experience with hunger, people were regarded as ‘poor’ if they reported

deprivation in at least one of the three other indicators and those were regarded as ‘non

poor’ who did not report any deprivation.

The second set of subjective measures we call indicators of ‘relative deprivation.’

We asked people whether their family earned in 1988 (is earning in year 2000) below

average, average and above average incomes10? This proved to be a good question:

people seem to enjoy answering it and the story, which is emerging from the answers is

not only sensible, but occasionally rather robust. We struggled a lot, however, to try

understand what people exactly want to tell us by answering it. People (the response rate

is excellent, over 90%) are unlikely to have a good idea, what the ‘average income’ may

have been, or even what it is at the time of the survey. Hence up to 80 percent of the

respondents even in the general population sample might tell us that they earned ‘below

For exact wording and coding see Appendix 2
See exact wording of the question in Appendix 2

average incomes’ (as this is indeed the case in 2000 in Bulgaria). Is this a meaningless

answer? Far from it! We believe those who report us ‘below average’ income want to tell

us their sense of frustration. They do not know what average income is, but they want to

tell us that there are (were) people who are (were) doing better than they did. They might

be wrong in their judgment, nevertheless the fact that they feel this way tells us

something important about their state of mind. The answers to this question can be seen

as subjective experiences of relative poverty, hence measures of relative deprivation.

(2) Objective measures of poverty. We also collected data to be able to calculate the

‘objective’ poverty measures and here we followed the procedures applied by the World

Bank11. We asked questions about incomes and expenditure, or consumption. The World

Bank developed a methodology to evaluate well-being (and establish poverty lines) on

the basis of household consumption (money expenditures plus the value of food produced

on a household plot), rather than on the basis of income12. In our questionnaire we used

an abbreviated version of the World Bank instrument and we rely occasionally on

consumption on other occasions on income based measures.

Following the conventions of the World Bank we calculated two types of ‘poverty lines’

from these data. We calculated an absolute poverty line set as $2.15 and $4.30 per

person consumption (or income). In order to make comparison across countries possible

in converting the currencies into US$ we used purchasing power parity (PPP) exchange

rates as established by the IMF and World Bank. PPP rates measure the relative

purchasing power of different currencies over equivalent goods and services.13 We also

calculated the relative poverty line set at 50% of the median income. Both poverty lines

are calculated per capita and also per equivalent adult. Conversion from per capita into

per equivalent adults takes into consideration that the well being of a household is

influenced by the size and age and gender composition of that household14.
We are grateful to Jeanine Braithwaite and Dena Ringold – both from the World Bank - for their
assistance in constructing our questionnaire and working out the strategy of data analysis of expenditure
based measures of poverty. The World Bank also offered some financial support to our project and received
in exchange our data for analysis when the data were made available to members of our project, thus well
before it was released into the public domain. We are grateful to the World Bank for their financial and
professional support. The World Bank team produced an excellent report from our data (Revenga at all,
2002). In this chapter we occasionally used their data and we acknowledge it when we do so.
For reasons of consumption based measurement of well being and poverty see Appendix A in Making
Transition Work for Everyone, Washington D.C., 2000, pp.367-377
Making Transition Work for Everyone, p.370
See the conversion method in Appendix 2

A comparative evaluation of subjective and objective measures One may object

that the subjective measure we use are unreliable. How reliable are the subjective and

objective measures? What is the purpose of using subjective measures at all?

There is indeed a problem of reliability with the subjective questions. For instance

will people understand the same way what is the meaning of ‘being hungry’, or will it

have a different meaning for poor people and not so poor people? Will people remember

in a reliable way their past subjective experiences? What speaks for these questions is

the high response rate and the ease with which people seem to respond to such questions.

Responses to questions about income or even consumption are much more problematic.

While people may offer somewhat interpretation when they were ‘hungry’, they simply

might not know at all how much for instance they spent for instance on “detergents” etc.

We are prepared to be rather aggressive about this: our subjective measure may result on

more reliable answers than questions about incomes or consumption.

There were other good reasons to use these “subjective” measures in this study.

First of all one contribution what our study could make to the extensive work on poverty

is to assess the changes in poverty over time in the former communist societies where no

reliable income data are available for much of the socialist epoch. It is just not possible

to generate retrospective income data for such a long historical period, and our poverty

measures are working well. This is demonstrated by the powerful trends we could detect

and also by the high response rate to in the case of these questions. Furthermore we also

believe – and we try to demonstrate this in this chapter – that though the Roma is also

income poor its poverty is income, or consumption underestimate the depth of Roma

poverty. There is some cash inflow into Roma families (child-allowances, pensions,

disability pensions, social assistance payments and the like). Given their poorer living

conditions and other problems Roma can be starving and living in unhealthy and

overcrowded conditions even when the inflow of monetary resources into their

households are not that much lower than in poor non-Roma households.

Organization of the project, collaborators

Upon completing our survey and ethnographic data collection, we received

funding from The Ford Foundation to bring teams of scholars from post-communist

countries and the U.S. to Yale University to collectively analyze our results. From

September 2000 through December 2001 during each semester a different workgroup —

composed of 6–8 scholars per team—met consecutively at Yale University in the Center

for Comparative Research. During the fall 2000, we conducted preliminary cross-national

comparisons of the poverty data; during the spring of 2001, we worked on the issues of

ethnicity and poverty; and finally, during the fall of 2001, we focused on the

“feminization of poverty.”

On November 18-20, 2000 a workshop was organized. The first draft of the book

“Poverty and Social Structure” was posted on the internet: and the

manuscript was discussed by members of the collaborative research project who did not

take part in the workgroup. The discussants were: Henryk Domanski, Livia Popescu,

Iveta Radicova (Slovakia), and Dina Ringold (The World Bank, Washington D.C.).

So far an edited volume was published from the project (Rebecca Emigh and Ivan

Szelenyi (eds). Poverty, Ethnicity, and Gender in Eastern Europe During Market

Transition. Westport,CT. Praeger, 2001). A special issue of Review of Sociology of the

Hungarian Sociological Association, No.2, 2001 in English and Szociologiai Szemle,

No.4, 2001 in Hungarian was published under the editorship of Ivan Szelenyi.

Contributors to the special issue are: Christy Glass, Henryk Domanski, Eva Fodor,

Janette Kawachi, Gail Kligman, Janos Ladanyi, Petar-Emil Mitev and Ivan Szelenyi. The

special issue was published in Bulgarian, Polish and Romanian languages.

Chapter 1

Memories of Socialism


The expectations and dreams of rapidly increased material well-being unleashed

by the collapse of communism were simultaneously understandable and unrealizable for

the majority of east Europeans. The costs of transforming command economies—

including sharp increases in unemployment, inflation, and the cost of living, accompanied

by notable decreases in real wages, and state subsidization of basic social and public

goods—were far greater than most had anticipated. Newly acquired freedoms were often

constrained by economic possibilities themselves differentiated by class, ethnicity,

gender and generation. An emergent re-stratification of everyday life materialized in form

and practice, with the extremes of quickly amassed fortunes and the depths of poverty

visible for all to see. To the extent that redistributive economies relativized and masked

inequalities across a broad spectrum, so marketization seemingly fostered them. For

many, there was something increasingly out of sync between the pictures of their lives as

imagined after the collapse of communism and their experiences thereafter. What some

observers label as nostalgia for a familiar sense of minimal security and well-being is

more aptly understood as a re-evaluation of the past in the context of a changing present.

Contrary to western popular images of life under socialism—the scarcity of basic goods

and lack of basic individual freedoms foremost among them—the perceptions of those

who lived under socialism are not necessarily so bleak? With life turned dramatically

upside down, offering both unexpected opportunities and curtailed access to them, we

wondered how people remember their lives during different periods of socialist rule. Did

they perceive their lives during various periods of socialism as better or worse? easier or

harder? People’s memories of state socialism are the focus of this chapter, in particular,

their recollections of experiences of poverty under socialism.

Here, it is important to emphasize that memory is itself the result of a reflexive,

interpretive process of (re)collecting or (re)membering. This process locates the past in

the present, providing a reassessment of the former in light of the latter. The past as

remembered is thus not a stable, objectified memory of experience, but rather, a

reconstitution of it that meaningfully engages ongoing experience as well.15 Such

experience incorporates public “official” memories and personal, individual memories. It

must be added that memories of communism are themselves over-determined. During

the communist era, private memory was highly suspect and subordinated to the state’s

construction and control of official, public memory in the form of rewritten histories.

Private memories were repressed, relegated to the recesses of the mind.16 Since the

collapse of communism, those official histories are themselves being reinterpreted, often

revised according to current ideological assumptions. Moreover, personal memories

transformed into autobiographies, memoirs, and oral histories have flooded the public

It is beyond the scope of this chapter to review the ever-broadening literature on memory, personal
and/or collective (see, for example, Olick and Robbins 1998, Gillis 1994, special issue, “Memory and the
Nation,” Social Science History 1998; and special issue, “Grounds for Remembering,” Representations
2000). With respect to the communist period, “memory” work has tended to excavate the excesses of
communism—repression, violence, and violation--rather than the everyday experiences of life under
communism. For examples of the latter, see Kligman 1998, Verdery and Kligman in progress; ADD.
See, for example, Milosz . Sherbakova 1992; Watson 1994). Diaries and memoirs are important
sources of memory to the extent that these were written and preserved.

sphere, as communism is subjected to personalized and public remembering and

reassessment from diverse perspectives and in diverse forms.

In this general context in which “memory work” is being carried out, we wanted

to gain a sense specifically of memories of poverty during the communist era. To that

end, we surveyed people about their recollections at three distinct points in time so as to

gain a range of experiences of poverty over the communist period. First, to establish a

base line for comparison, we asked people to remember, when they were fourteen years

of age, how they and their families lived;17 we then asked the same questions for 1988

and for 2000. As discussed below in greater detail, we posed questions designed to get

measures of poverty in different epochs of socialism, roughly categorized as presocialist

(respondent was fourteen in 1948 or before), Stalinist (was fourteen between 1949-1959),

or socialist (was fourteen between 1960-1988). In the end, we had an overview of how

people recalled their living conditions, their experiences with poverty in early adulthood,

in the last year of socialism, and again a decade after the collapse of communism18.

In the survey research it is customary to ask people about their living conditions, parents occupation etc,
when they were 14 years old in order to establish their life chances when they entered young adulthood.
In this book we use the terms ‘socialism’ and ‘communism’ interchangeably to designate Soviet type
societies. On particular we label the epoch, which followed the collapse of the regimes as ‘post-
communism,’ though by other authors it is occasionally also referred to as ‘post-socialism.’

1/Methodological considerations

What can we be learned about experiences of poverty from retrospective survey

data?19 We asked respondents if they recalled, when they were fourteen, whether they

went to bed hungry, whether they ate meat in a typical week, whether they had a warm

winter coat, or a second pair of durable shoes.20 The responses to these questions yielded

an “absolute measure of poverty.” Throughout this chapter, if a respondent reported

memories of going to bed hungry, we refer to this as “deep poverty.” If s/he reported

experiencing at least one of the other three indicators, we refer to this as “poverty.”

The response rate for this set of questions was excellent: approximately 95% of the

respondents could recollect their experiences at age fourteen and in 1988.

This measure is a substitute for more conventionally constructed poverty lines

based, for example, on median income or PPP.21 It was not possible to gather reliable

income or expenditure data retrospectively, hence, our analysis of poverty before and

during state socialism relies on respondents’ memories.

As discussed in the introduction, measuring poverty is a complex matter. Throughout our study, we
utilized multiple means of measuring poverty.
We discuss the meaning of hunger as a measure of absolute poverty below. Similarly, a warm coat and
durable or good shoes suggest that people are able to protect themselves in a basic way against nature’s
As discussed in the introduction, Purchasing Power Parity (PPP) is a method of measuring the relative
purchasing power of different countries’ currencies over the same types of goods and services. Calculating
PPP involves converting local currencies into a common currency and eliminating the differences in price
levels between countries. Because goods and services may cost more in one country than in another,
poverty lines based on PPP allow for comparisons of poverty rates across countries. Standard thresholds
using PPP measures are $2.15 and $4.30 per capita per day. Our absolute measure of poverty was a
substitute for an indicator such as $2.15 per capita daily income in PPP. Our relative measure was a
substitute for indicators such as household earnings below fifty percent median income.

However, we do not feel that the lack of more standardized, conventional poverty

measures hinders our historical analysis in any significant way. After all, income-based

measures of poverty are themselves proxies for the phenomenon we are attempting to

uncover: what were the material conditions of everyday life in which people lived before

and during state socialism? As proxies, income-based measures often do not reveal

important nuances in the experience of poverty, as was discussed in the introduction.

Overall, we believe that respondents’ recollections of hunger and other material

conditions, subjective though they may be, are perhaps the strongest available indicators

of the experience of poverty during state socialism. Indeed, when we compare the same

subjective measures against more conventional measures available for the year 2000 (see

chapter four), we do not find a significant difference in poverty rates.

The central question regarding the validity of our retrospective measures remains:

what can we actually learn from recollections about past experiences of poverty during

socialism? To be clear: this data cannot be used to make statements about the extent or

nature of poverty during a given year or epoch of socialism. Firstly, we have a

representative sample of people who lived in the countries we studied in the year 2000.

We do not have a representative sample of people who lived in these countries during

socialism. Secondly, our survey data do not measure the "objective" conditions of our

respondents’ lives at earlier time points. They were simply asked to share memories of

their past experiences. To reiterate, such memories are shaped not only by their past

experiences, but also by their present circumstances and their hopes and fears for the


Hence, the “memories of socialism” surveyed in our study offer a particular kind

of history of socialism. It is a history of how socialism lives on today in the recollections

of people who grew up under that system. This, like all such recollected histories, is a

selective history, based on memories that are as much about who these people are today

and who they want to be tomorrow as it is about the “facts” of their pasts. At the same

time, it is necessarily a selective history of those who have lived on in the countries of

our study. Those who died, were killed, or who emigrated have not told us their

experiences of poverty under socialism. Nevertheless, it would be inappropriate to over

relativize the meaning of these “remembered histories.” While memories about earlier

times are selective--and their selectivity is shaped by the social conditions and

motivations of respondents at the time of data collection-- memories are still formed out

of real life. Memories are interpretations or reconstructions of real events and

experiences; they are not intentional lies. They have a "real" and an "objective" core.

How, then, may we interpret the meanings of the answers to the questions we

asked our respondents? Those who went to bed hungry because they could not afford

adequate food supplies would be regarded as poor under any circumstances. Nonetheless

poverty reported this way is subjectively experienced. Being hungry is not just a physical

condition; it is one that is socially interpreted. "I am starving" has different meanings for

different people under different social and historical circumstances. For some, going to

bed hungry may mean: "I cannot eat as much as I would like;” for others, "My body does

not get enough calories, I am undernourished, and I may die years earlier than someone

who is adequately fed." Although hunger is differently experienced by different people

and is subjectively interpreted, reporting the experience or recollection of hunger offers a

reasonable, if not the best retrospective measure of absolute poverty.

The measures of poverty we just described captures ‘absolute’ poverty. Absolute

measures of poverty have been criticized by sociologists for good reasons (Townsend).

One indeed does not have to be hungry, however, to consider oneself or to be considered

poor. People may feel poor, believe that society does not treat them adequately, and

assert that in comparison with other people, they are not as well off. Termed by

sociologists as "relative deprivation", this phenomenon is as "real" as an empty stomach

in the evening, a light coat on a cold winter morning, or the chill a bare or thinly-covered

foot feels in the snow. With our survey we collected data on incomes and expenditures in

year 2000, therefore we can measure with some precision ‘relative poverty’, namely

where our respondents are located in the income hierarchy22.

Measures of relative poverty and relative deprivation are therefore indeed

important, but they have their limitations for cross-national comparison. Relative

measures of poverty reflect primarily differences in inequality. Often poorer countries

have lower level of inequality than more affluent ones and as a result relative poverty

indicators may find ‘more poverty’ in a more affluent society, than in a poorer one. In

this chapter we present data only about experiences with “absolute” poverty.

As noted previously, we do not have reliable retrospective income data therefore we cannot do
over-time analysis of relative poverty. We asked, however, our respondents the second set of questions
regarding their family’s income: was it below average, average, or above average, when they were 14? In
1988? In 2000? This question is often used in survey research to evaluate how people see their family
located in the hierarchy of incomes. There is no reason to believe that people actually know what average
incomes are or were at one point in time. When they report below average incomes they express frustration
of being slotted below average, hence we call this a measure of ‘relative deprivation”. These data are
included in Appendix 1, but they are not systematically analyzed in this Chapter.

2/What are the memories of socialism?

So, how do people remember socialism? Did people who came of age during later

periods of socialism remember less or more poverty than people who turned fourteen

during earlier periods of socialism? And did such differences vary across countries? As

discussed above, memories of the past are simultaneously and selectively shaped by

current social conditions as well as by interpretations of previous experiences. Thus,

people’s retrospective responses represent their assessments of how they were faring in

the year 2000 when the data were collected combined with and in relation to their

assessments of how they fared during various periods before and during state socialism

(depending on when they were age fourteen). With regard to our study, and as will be

discussed below in greater detail, we generally found that people remember state

socialism overall as a period in which poverty declined for most. Furthermore, cross-

country differences seem to have narrowed somewhat during the socialist epoch.

Memories of pre-socialism varies quire a bit across countries. Hungarians have

far the most benevolent memory of their lives in pre-communist times, over 70% of them

do not remember any experience with poverty and only 16% of them report hunger. The

other East European countries are rather similar between 30 and 50% of those who turned

14 before 1949 remember their families as not poor at all and roughly a third of them

report experiences with hunger when they turned young adults. It is interesting that

Bulgarians and Romanians are rather similar to Poles and to Slovaks. Neither Poles, nor

Slovaks have particularly positive memories of their pre-communist lives. It is

conceivable that the Hungarian data reflect as much the post-communist ideological

hegemony as they do the actual experiences of people in pre-socialist Hungary. In eight

out of the first twelve years of post-communism in Hungary right-wing, conservative

parties were in power and they made an effort to rehabilitate the image of pre WWII

Hungary. In Poland the experiences with the war may darken the picture for the pre 1949

times. In Slovakia people may recall the pre-socialist epoch more negatively since it was

the epoch of the ‘first republic’, Czechoslovakia, hence Slovak resentment against

Czechs may color their memories and turn it darker. It is conceivable that Slovaks today,

after independence from the Czechs and in keeping with national sentiments, are inclined

to think in darker terms about the First Republic.23 Nevertheless the cross-country

differences are large enough to claim that Hungarians who turned 14 before 1949

experienced less poverty in pre-communist times than people in the other countries. It is

also safe to say that Bulgarians and Romanians experienced about as much poverty as

Poles and Slovaks. In fact Bulgarians and Romanians remember less ‘deep poverty’ than

Poles or Slovaks do.

And they tend to be kinder toward the entire socialist era. Slovaks may feel that throughout the socialist
era , Czech-Slovak “fraternal” relations were more balanced, with Czechs having been less privileged than
during the First Republic. And indeed Slovaks paint a rather rosy picture of the whole socialist era what
they describe in almost identical terms than the Hungarians. If we had a Czech component in our study, we
could expect that Czech respondents would offer a mirror image of the Slovak experience, looking at the
socialist period more negatively than the pre-socialist period.

Table 1.1

Experience of poverty at age 14 by cohorts and by country (general population sample)24

Country Cohort Altogether 100.0

Degree of poverty (in %) % (N)
Very poor Poor Not poor
Bulgaria Pre-socialism 19.1 48.6 32.3 219
Stalinism 13.3 43.5 43.2 214
Socialism 2.4 44.9 52.7 364
Hungary Pre-socialism 16.3 10.8 72.9 291
Stalinism 18.1 8.6 73.3 146
Socialism 3.9 14.0 82.1 379
Poland Pre-socialism 36.5 20.3 43.2 157
Stalinism 19.1 29.5 51.4 138
Socialism 7.2 18.6 74.2 490
Romania Pre-socialism 21.7 36.8 41.5 224
Stalinism 16.1 30.1 53.8 200
Socialism 7.3 37.9 54.8 433

Stalinism 35.1 49.1 15.8 800

Socialism 4.1 66.7 29.2 1,255
Slovakia Pre-socialism 32.9 5.0 62.1 186
Stalinism 13.8 9.7 76.5 139
Socialism 3.6 14.5 81.9 440

Created by Janette Kawachi, June 18, 2002

During “classical Stalinism”, Russia was by far remembered as the poorest of

the countries studied. Our older Russian respondents remembered their youth during the

1930s and 1940s as having been far poorer than do people of the same cohort living in

the other countries sampled. And this is not all the effect of the war. We have enough

respondents in Russia who turned 14 before 1940 and among a third of them reports of

having been “very poor” at that time. It is also interesting that people remember pre-war

Soviet Russia not only as poor, but as relatively inegalitarian as well25. Hence in Russia

Stalinism, even the ‘golden age’, therefore the 1930 is not recalled as a system, which

could deal with extreme poverty and which at was egalitarian. Memories of people still

living in Russia in 2000 who had lived through the Stalinist era do not remember the

epoch particularly kindly26.

In the East European countries respondents who were young at that time

remember the decade of Stalinism (1949-1959) in similar ways across countries than the

previous cohort recalled the pre-socialist times. On the whole the proportion of those who

told us that they were not poor during the Stalinist epoch is smaller than the same

proportion reported for the earlier cohort (see Table 1.1). In all of the other countries

surveyed – with the exception of Hungary - the early socialist or Stalinist period was

recalled as an improvement over the pre-socialist epoch.

More than half of the people who were young adults in before 1959 recounted that their family earned
“below average” incomes --a much higher proportion than anywhere else (See Appendix 1. Table A1.1.1).
The memories of higher levels of poverty in Stalinist Soviet-Russia can be of course attributed to its
lower level of economic development. Nevertheless it is surprising that despite the strong ideological
commitment of Stalinism to egalitarianism and reduction of poverty according to the recollection of people
who reached early adulthood at those time how little it could deliver on those promises.

The sharpest reduction of poverty, however, occurred after Stalinism, during the

1960s or even later. Throughout the entire post-Stalinist epoch (1960-1988), in what we

refer to as the socialist period, it is noteworthy that in every country, those who were

young adults reported less and less exposure to poverty (see Table 1.1). Socialism seems

to have indeed had an homogenizing effect with respect to class distinctions both across

and within countries. Hungary is remembered as slightly better off than the other

countries during the whole post-Stalinist epoch, though the gap between reports from

Hungarians and other respondents narrow greatly if we compare the reports for post-

Stalinist and pre-socialist times. Slovaks have almost identical memories of this epoch

than Hungarians and Poles do not paint a much darker picture either. Bulgarians and in

particular Romanians are somewhat less sanguine, but even in this countries at least

‘deep poverty’ is sharply reduced, almost to the same level as in other countries.

Russia is far the worse off, though there is continued reduction of poverty, in particular in

the memories of those who turned 14 during the 1980s. Although state socialism did not

eradicate differences in poverty among the countries studied, it did narrow the gap among

them, at least in the ways people still alive in 2000 remembered their lives27.

Of course, the actual differences in living standards may have been greater or

lesser than what our respondents recall. We know that before the 1980s, shops in

Hungary were full, whereas in Moscow and Bucuresti people stood in long lines to

purchase the most basic goods. Having experienced even worse times, the expectations of

Data on ‘relative deprivation’ shows an even more consistent reduction of poverty in all countries, with a
large (between and similar proportion of the population (about 80%, up from what used to be 40-50% in
earlier times) believing that their parents earned average or above average incomes when they turned 14
between 1960 and 1988. See Appendix 1.

Russians may have been lower, hence perhaps easier to satisfy.28 To reiterate, our data do

not allow us to make statements about actual living standards, but it does appear that

people’s memories about how bad or good their lives were converged across countries

from one cohort to the next. As to the statement that the gap between countries may have

narrowed during socialism (or at least it seems that people experienced socialism this

way), no value judgment is intended. “Homogenization” resulted, in part, from

socialism’s better track record in transforming less developed countries. Socialism

primarily instituted a strategy of extensive industrialization that produced faster growth in

poorer countries that had a large agricultural labor pool, from which the process of

extensive industrialization could be fed. Yet, the socialist economic system could never

quite figure out how to cope with the challenges of “intensive growth” (Kornai 1992;

Szelenyi 1989). Hence, at least for a while, the system produced better economic results

in Bulgaria than it did in Czechoslovakia or Hungary (Kornai 1992; Todorova 1992). In

this regard, the “homogenization” we note does not necessarily represent good news for

all of the countries under consideration: it suggests that in the early phase of socialist

development, the more economically developed countries may have had more

difficulties. Furthermore, because the region was integrated into the Soviet Empire,

homogenization was hardly a “spontaneous” or “natural” outcome but, rather, was

politically induced.

To sum up, on the whole it does not appear that the 1950s represented a time of

honey and milk. The Stalinist past is not that radiant after all. About half of those who

were young adults during those years remember them as years when their families

People also stood in long lines in Bucharest in the 1980s. Although they had experienced better times,
by then, they were all too familiar with the daily constraints imposed on them by the Ceausescu regime.

experienced substantial inadequacies in income; quite often, they also remember having

experienced hunger. A similar proportion29 had a sense of considerable inequalities in the

face of an alleged paradise of egalitarianism. Put differently, people remember the one

bowl of rice but they also believe that others fared better than they did.

These trends changed rather impressively, however, between the 1960s and the

1980s. Those who turned 14 during the 1960s remembered decreasing poverty in

comparison with those in the previous cohort. Conditions continued to improve for the

next quarter of a century according to the recollections of respondents. The most

improvement seems to have occurred in the East European countries during the 1960s; in

one decade the percentage of those who experienced extreme poverty was cut by one

third. In Russia, between the 1950s and 1960s, there was a dramatic change in how

young adults perceived their family’s situations. Those who were young adults in the

1950s recall the USSR as having been the poorest of the countries we studied

Following the Kruschev reforms, however, Russia began to resemble the other socialist

countries though remains somewhat poorer all along. Hungary and Slovakia were

distinctive. People who turned 14 during the 1970s and 1980s and who had been living in

these two countries remember them as places where people did not have to starve and

which were also rather fair and egalitarian30.

3/ Who remembers what? Social determinants of experiences of poverty prior 1989

40-60% of those who turned 14 during Stalinism believed that their families earned below or way below
average incomes. See Appendix 1.
Over 80% of people born between 1946 and 1964 in these tow countries believed that their parents
earned average or higher incomes when they were 14 years old, see Appendix 1

Our next task is to explore, what explains who reports experience of poverty at

age 14 among those who turned 14 before 1989.

In the Introduction we offered a hypothesis what is to be expected from such a

comparison. Socialism was supposed to have produced poverty, which was only a life-

cycle phenomenon. Poverty – so goes the received wisdom – was determined by

demographic factors, such as number of children or rural place of residence. Class

factors, such as education or labor market performance did not play much of a role. The

expectation is that with market transition the role of such structural factors to explain

poverty will substantially increase. As a result poverty for some will become a lasting

phenomenon, which may stick to those who are poorly equipped with human capital and

therefore are chronically under-performers on the labor market. We also speculated that

racialization and feminization might also be new features of poverty, which come into

being with market transition and in a more pronounced way in liberal regimes.

With the data we have we cannot test what the determinants of poverty were

under socialism since we do not have a representative sample of those who were poor

under socialism. Nevertheless if the hypotheses hold for socialism they may hold for our


And indeed Table 1.2 offer some support for these hypotheses. As expected the

demographic factors play a substantial role (what cannot be said – as we will show in

Chapter 3 - about social determination of poverty under post-communism, where the

impact of demographic factors are minimal). Number of siblings has quite a substantial

effect, while class as measured here with the education of the father hardly plays any

role. Cross-country differences also look unimpressive (and again in Chapter 3 we will

see that cross-country variations in 2000 are quite dramatic).

The descriptive data do not support however our assumptions about the novelty of

feminization and racialization of poverty under post-communist liberal regimes. In Table

1.2 the strongest effect, however, seems to be attributable to the fact that the respondent

lived only with his or her mother when was 14 years old. Poverty at age 14 is associated

with single motherhood even more strongly than with Roma ethnicity the other major

determinant of poverty. The poverty of those of our respondents, who turned 14 during

socialism (and before) was already feminized and racialized and in particular it was

feminized in every country. Here again the war certainly had an effect on feminization,

war orphans are obviously a part of the poor children who grew up without a father, so

we will have to control for cohort effects and that is exactly what we do in Table 1.3 in a

regression model.

Table 1.2

People who reported to be “very poor” (suffering from hunger) when they were
14 years old if they turned 14 before 198931

Among all Among those Among those Among those Among those Among

respondents with four or who were who lived whose father Roma

more born in rural only with had primary

siblings areas their mother school

education or

Bulgaria 9.8 14.3 12.1 23.4 11.9 20.0
Hungary 10.8 19.2 11.6 26.2 13.5 16.8
Poland 14.9 17.0 18.1 34.8 17.6 -
Romania 13.1 16.0 14.9 27.8 15.2 21.6
Russia 16.1 25.8 20.8 29.7 17.9 -
Slovakia 12.4 18.7 14.1 10.1 18.2 -

Multivariate analysis confirms the findings of descriptive statistics. Living with

mother only has a formidable effect on poverty of those respondents who experienced

poverty under socialism. And this effect remains if we control for the war orphan cohorts.

Cohort is the best predictor of poverty – those who were born before 1935, hence turned

14 before socialism are 4 times more likely to have experienced poverty than others.

Many of these respondents turned 14 during or immediately after the war years. hence

their excessive level of poverty is not that surprising. Achieving young adulthood during

the years of Stalinism (they also could be war orphans) is also a predictor of poverty of

young adults. But once to cohort effect is controlled for the feminization effect is still

Created by Janette Kawachi, June 18, 2002

robust. Those who lives only with their mothers at age 14 are almost four times more

likely to be poor that those who lives also with their fathers as well.

Furthermore, in a way why fathers are absent – because they were killed in war,

killed themselves by excessive consumption of alcohol, abandoned their families is not

that relevant. The point is that society already before 1989 had difficulties in coping with

single motherhood. It was the major source of poverty, more important for instance than

the number of siblings one had in childhood and infinitely more important than the social

status of the parents. Single motherhood is a good predictor of poverty when measured

the same way in year 2000, hence feminization of poverty is indeed one element of post-

communist capitalism. But the strength of association between single motherhood and

poverty is even stronger for those who were born before 1964 when they turned 14 than

in year 2000.

One of course should not overestimate the importance of feminization of poverty.

Since there are relatively few people who lived only with their mother during their

childhood in our step-wise construction of our models the fit of our model does not

improve that much when we enter this variable when moving from Model 2 to Model 132.

The association is strong, but it affects relatively few people.

The log likelihood statistics declined only modestly

We ought to remember, that here we are dealing with a subjective assessment

whether the respondent was poor as a young adult or not. One possible explanation to the

strong feminization effect is that it may be easier for people to see themselves as poor if

they only lived with their mothers. If their father also lived in the household they may be

more embarrassed to remember or to describe to strangers their life in childhood as


Table 1.3
Probability (odd ratio) that respondent reported poverty (hunger) when was 14
years of age among those who turned 14 before 1989, six countries, GPS33
Model 1 Model 2 Model 3

Full model M1- feminization M2- class

Demography Number of siblings 1.146*** 1.146*** 1.161***
Rural birthplace 1.167 1.120 1.235
Feminization Respondent lived 3.920*** - -

with mother only

when 14
Class Father had primary 1.327 1.298 -

school education or

Mother had primary 2.005 2.020 -

school education or

Cohort Born before 1935 4.471*** 4.475*** 4.904***
Born between 1936 3.174*** 3.213*** 3.344***

and 1945
Country Central European 1.287 1.337 1.314

Log likelihood -1089.321 -1105.5204 -1257.6956

Created by Janette Kawachi, June 18, 2002

And what about ethnicity? In Bulgaria, Hungary and Romania Roma are much

more likely than gadjo to report hunger if they were 14 years old before 1989. While only

10% of Bulgarian gadjo was according to this measure in ‘deep poverty’ before 1989

twice as many Roma gave such a report. In Hungary and Romania the figures are similar,

11versus 17 and 13 versus 22 % respectively (Table 1.2). Multivariate analysis34 shows

that once we control for all the major factors, which seem to effect the memory of

poverty the odds of Roma to report deep poverty is 2.4 times greater than that of gadjo.

Nevertheless, as one can already guess from the descriptive statistics single motherhood

is even more important predictor of experiencing poverty before 1989. Among people

born before 1964 those who live only with their mothers when they turned 14 are 2.8

times more likely to suffer from hunger than those who lived with their fathers and

mothers. Ethnicity was therefore an important determinant of deep poverty before 1989

as well, but it was not quite as important as single motherhood.

Those report experience with deep poverty at age 14 before 1989, many of them

under socialism who lived with their mother when they were becoming young adults who

were Roma and who had many brothers and sisters. The father’s education was not

significantly associated with such experience. This is to some extent consistent with what

we expected to be the determinants of poverty under socialism. Class indeed does not

appear to be a factor, those whose fathers were poor in human capital were not more

likely to live as children in families in poverty. Since the socialist economy provided

employment to all with relatively egalitarian wages, including those with low levels of

education this is to be expected.

See Ladányi and Szelényi, The Making of an Underclass, Chapter 4, Table 4.2

Somewhat to our surprise it appears that poverty was already feminized and

racialized before 1989 and in fact it was probably more feminized before 1989 than it

was later. We expected no feminization or little racialization before 1989 on the same

grounds as we anticipated little effect of low educational level on poverty. Given the

logic of “economics of shortages (Kornai, 1980) even for Roma there was a full

employment under socialism. While Roma was slotted at the bottom of the occupational

hierarchy as unskilled workers in mining, construction industry, steel industry etc. their

employment was stable and their wages was respectable. Therefore they should not have

been in poverty before market transition when their jobs were destroyed first by post-

communist de-industrialization and many of them found themselves in long term

unemployment. We also believed that single mothers would have been in the labor force

under socialism. There was a demand for their labor as well and there were inexpensive

or free childcare institutions, which made it possible- even for single mothers and even

with several children - to work full time. We anticipated feminization of poverty to occur

with market transition, since demand for female labor declined and the supply of

childcare institutions were reduced and their costs were increased. In pots-communist

capitalism – so we expected - single women will drop out of labor force (or will not even

able to join it to begin with) and therefore will slide into deep poverty. Those forces of

market induced feminization and racialization may indeed working, but our data suggests

that poverty may have been as much feminized and almost as much racialized as it is in

year 2000.


Poverty - Stalinism, reform communism, capitalism

Our data, according to the memories of our respondents, reveals that poverty

decreased during the socialist era. Did this perceived decline of poverty and inequality

result from the pure type of socialism, which radically eradicated market forces or on the

contrary from socialist market reform? Some believe that socialism reduced poverty and

achieves a reasonable level of equality only as long as market reform did not begin the

process of ‘capitalist restoration.’ Others see Stalinism as an ineffective and corrupt

system, socially unjust and irresponsible, which was at least partially made somewhat

more livable during reform communism by market reforms. Is such a reduction in

poverty the result of socialist policies or would it have occurred anyway as the outcome

of economic growth? Some believe that decline of poverty and inequality would have

occurred anyway as the economy grew (in fact a capitalist system, with great capacity to

grow would have created more equality and certainly would have reduced more sharply

poverty),others would maintain, that socialism reduced poverty well beyond what one

could have expected simply on the basis of the economic growth ion socialist countries.

We do not have clear answers to this vexing questions.

So was is socialist de-commodification or to the contrary socialist market

reform which reduced poverty? The proportion of people who recalled being poor when

they were 14 years old steadily declined after 1960, that is, after the break with classical

Stalinism in all countries, both in reformers35 and non-reformers36. Hence, in Slovakia

and in neo-Stalinist Romania where market reforms were eschewed, poverty was reduced

as much as elsewhere. Nevertheless, it appears that the purer the socialist model, the less

persuasive was its performance in reducing poverty and inequality. Those who lived

through the Stalinist era do not remember it as an egalitarian system in which everyone’s

livelihood was guaranteed at a sufficient level. Socialism is remembered more positively

by those who grew up in the period of market-oriented reforms under the leaderships of

Khrushchev, Gomulka and Kadar.

The least we can say is that as socialism began to experiment with market

reforms, people living in these countries did not perceive this change as a shift towards

greater poverty, inequality and injustice. As previously noted, market reform in Hungary

did not result in an increase in the proportion of people who experienced absolute

poverty37. Russia during the Gorbachev reform years is also remembered as a country in

comparison with the earlier decades poverty declined.

Evidence remains inconclusive also about the effects of "modernization" or

"economic growth" versus socialist policies. One can possibly argue that the decline in

poverty our respondents reported to us would have taken place anyway in a growing

economy. Poverty was reduced in capitalist Greece or Spain as well, not only in socialist

Bulgaria or Slovakia, hence there is no reason to believe that a capitalist system would

have produced the same outcomes in Eastern Europe as well. But if that were the case,

why countries, which were rather different in terms of their level of economic

Hungary, Poland and in the 1980s Russia, (see Berend)
Slovakia, Romania and to some extent Bulgaria. Bulgaria experimented with reforms, but not as
consistently as Hungary or Poland (see Berend).
Similarly, as can be seen in Appendix 1, the proportion of people who remember experiencing relative
deprivation did not increase with market reforms.

development began to converge once they became socialist? Furthermore, as we will see

in Chapter 2, the homogenizing tendencies of socialism are dramatically transformed

during market transition. While during socialism our countries were converging, after

market transition they are on a divergent trajectory, in some countries (Bulgaria,

Romania, Russia) poverty growing faster, while in other countries (Hungary and Poland)

poverty after an initial increase stabilizes and is even reduced. Why divergence now after

four decades of convergence? The answer to these questions could be found in

differences in level of economic development.

Social determinants of poverty before 1989

As expected before 1989 class factors such as education (in our case, when we try

to explain the experience of poverty of our respondents when they were 14 years old this

is the education of their father) did not play a particularly important role in the

determination of poverty. Given full employment under socialism and somewhat

depressed wage scales between highly educated and less educated this should not be that

surprising. Therefore demographic factors – such as number of children in a household

were good predictors of poverty, what may have been as a result only a life-cycle

phenomenon for most in poverty.

Poverty before 1989 on the other hand appears to have been already feminized (to

a large extent) and racialized (to some extent). Next to cohort there is no better predictor

of poverty at age 14 than the fact that someone lived only with mother at that age. Roma

also tend to have more experience with deep poverty than gadjo, though ethnicity has to

take the back seat in this case behind gender.

We will see in Chapter 3 that marketization promotes both racialization and

feminization of poverty but our findings in this chapter suggest that poverty might have

been already feminized and racialized before 1989.

Chapter 2

The losers of market transition

In this chapter we have two tasks. First we document how much change - growth

– there was in the extent of poverty in various post communist societies. We do so by

using retrospective and subjective reports on experience of poverty in 1988, 1993 and

2000 and by presenting data on people’s reports on the deterioration of their living

standards between 1988, 1993 and 2000. Next, we identify who the losers were of the

transition, what are the characteristics of people who reported more poverty in 2000 than

in 1988 and who complained about deterioration of living standards.

Previous research discovered that poverty during transition skyrocketed in the

former socialist societies. According to the World Bank “In 1998 an estimated one out of

every five people in the transition countries of Europe and Central Asia survived on less

than $2.15 per day. A decade ago fewer than on our of twenty five lived in such absolute

poverty38” Our study is consistent with these claims, we also find a 2-5 fold increase in

poverty during the first 12 years.

Our major new finding, however, focus on cross-national differences in the

dynamics of poverty and on the social character of those who report deteriorating living

conditions between 1988 and 2000. The key hypotheses which guide the data analysis in

this chapter are the following:

The World Bank, Making Transition Work For Everyone, Washington, D.C.: The World Bank, 2000, p.1

H1 after decades of ‘convergence’ former socialist countries during the 1990s began to

diverge in term of the living standards of their population, resulting oín strikingly

different poverty rates in year 2000;

H2 this divergence is recent, during the first 4-5 years living standards all countries

appear to be declining at similar speed, but after 1993 some countries are stabilizing and

entering a growth trajectory;

H3 while the differences between the stabilizing and continuously declining countries

have a lot to do with their ‘initial conditions’, government policies, what sort of reforms

are done, how consistently and how radically make also a difference and neo-liberal

regimes are the ones which stabilized and neo-patrimonials the ones, which continue the


H4 next to regime type class (measured by level of education) is the best predictor who

are among those who report deteriorating living conditions between 1988 and 2000; the

losers are people with educational deficits;

H5 demographic factors are not good predictors of whose living conditions deteriorated

and since Roma tended to be rather poor already in 1988 Roma ethnicity is not as a good

predictor of declining living standards as low level of education.

1/Cross national divergent trends in poverty after the fall of communism, 1988-2000


In this Chapter we use the same indicators as in Chapter 1: people’s report of experience

of poverty and relative deprivation.

We compare three time points, 1988, 1993 and 2000. 1988 is retrospective data from our

2000 survey. Data for 1993 come from the survey conducted by Ivan Szelenyi and Don

Treiman a(Social stratification in Eastern Europe after 1989) . In that study we asked a

few questions, which were the same as questions asked in our year 2000 study. The 1993-

2000 comparison is interesting, since it suggests that the developmental trajectory across

countries began to diverge mainly after 1993. During the first few years all post-

communist countries experienced deterioration in general living conditions, a substantial

growth in poverty rates, but some countries, arguably those, which implemented more

systematically neo-liberal reforms experience stabilization after 1993. In Poland and

Slovakia for instance the proportion of those who report experience of poverty at all

according to our indicators by 2000 is somewhat lower than it was in 1988 and in

Hungary only slightly higher proportion of the population report poverty in 2000, than

they report for 1988. Countries, which either did not try, or abandon neo-liberal reforms

and seem to be on some involutionary, or neo-patrimonial road face further increases in

poverty and the gap between the two groups of countries, which was rather small in 1993

grew to be substantial by 2000.

The proportion of “very poor” increased in all countries between 1988 and 2000. In terms

of “deep poverty” Bulgaria and Romania, however, seems to be even worse off than

Russia. About 16 percent of the respondent in these two countries reported that they

experience on a weekly basis hunger, thus we classified them as “very poor.” The

deterioration is even sharper in Bulgaria than in Romania, since “deep poverty” was

relatively wide-spread in Romania already in 1988.In Bulgaria the increase of “deep

poverty” is tenfold, in Romania it is “only” threefold. According to the memory of our

respondents – and according to received wisdom too - Romania was the poorest country

among the six countries in 1988. The Russian level of deep poverty is not significantly

different from the figures in the neo-liberal regimes. This may have a lot to do with the

involutionary character of Russian development, thus self-provisioning of food in Russia,

Russians are poor, but they are not hungry since they grow their own food.

The shallower measures of poverty tell us a different story. The proportion of

those who according to our definition are not poor decreases somewhat in Hungary,

Poland and Slovakia (from 80-95% to 705-85%), but not with the same speed as in the

other three countries Table 2.1). There is a dramatic deterioration of living conditions

according to these measures in all neo-patrimonial regimes – in Bulgaria, Romania and

Russia only about a third or a fourth of the respondent report that they do not experience

any poverty in any of our measures. In 1988 all socialist countries were rather similar by

these measures. Hungary was the best off, but Bulgarians remember 1988 quite

favorably, more favorably than the Poles and about as favorably as the Slovaks. In the

“shallow” measure of poverty Romania and Russia were in 1988 the worse off, Bulgaria,

Poland and Slovakia do better and Hungary does the best. The country differences

increase substantially and the grouping of the countries changes also substantially. Table

2.1 offers a strong support to our earlier hypothesis, namely that socialism is remembered

as a gradual leveling off of cross-country differences, while post-communism is a process

of fast differentiation across social systems. Those countries, which do well or at least

reasonably well, are clearly countries, which made the most progress on the way to

market reform.

Table 2.1.
Experience of poverty 1988 and 2000 (general population
Country Years Experience of poverty in 1988 and 2000 Altogether, 100.0%
Very poor, in % Poor, in % Not poor, in %

Bulgaria 1988 1.8 7.6 90.6 866

2000 16.3 38.8 44.9 975
Hungary 1988 2.5 3.3 94.2 897
2000 6.8 11.5 81.7 930
Poland 1988 3.1 14.9 82.0 723
2000 6.2 19.5 74.3 931
Romania 1988 5.1 12.6 82.3 851
2000 16.3 27.6 56.1 1,033
Russia 1988 2.2 25.7 72.1 2,218
2000 8.0 65.0 27.0 2,336
Slovakia 1988 1.1 8.2 90.7 788
2000 5.0 10.8 84.2 964

The story of relative deprivation (Table A1.4 in Appendix) is somewhat different,

though not completely inconsistent with the experience of poverty, reported in Table

A1.4 It is clear from Table A1.4 that pour respondents see post-communist transition in

the whole European region as a process of increasing social inequality. The transition

from socialism to capitalism is experienced by many as not having the fair deal what they

used to during the last years of socialism.

Created by Janette Kawachi, June 18, 2002

Some countries, such as Hungary and Poland implemented rather fast and rather

radical institutional change. These countries privatized relatively quickly.40 They

typically sold public property on open auctions to the highest bidders, which occasionally

included foreign investors. They liberalized prices, trade, and foreign exchange, and

implemented mass reforms of their banking systems. We call these countries “neo-liberal


Other countries, including Bulgaria, Romania and Russia followed a more

gradualist strategy of reform. We will call this set of countries “patrimonial regimes.”41

In patrimonial regimes members of the elites, in particular managers but also workers are

believed to have certain endowments, right, privileges, which have to be protected by a

paternalistic state, or management against the blind forces of the market. Elites,

especially managers – and to some extent even workers - under socialism had some de

facto property rights in firms. Managers, fort instance, from the whole “bundle of

property rights” had the “right of control” workers had security of employment. Under

patrimonial regimes, these inherited rights are defended. Managers and workers may

receive vouchers to legalize their de facto ownership in the firms they worked for

management will be obliged not to lay off workers. Workers, in exchange, will feel

obliged to keep working even if they do not receive their salaries. In Russia (Caleb

Southworth) workers often do not receive salaries for several month, they still show up

for work, since they have security of employment and their employer provides them with
Though this more true of Hungary than of Poland, in comparison with other countries it is true for Poland
as well.
Hebert Kitschelt calls the first type of regime “national consensus,” the second “bureaucratic-
authoritarian.” See Kitschelt, Post-communist Party Systems, 1999. Our distinction between “neo-liberal”
and “patrimonial” regimes attempts to be value-neutral, and describe more the socio-economic strategy
rather than the political system.

housing and with family plots to grow their own food. While some reformers flirted with

certain features of the neo-liberal model in these countries as well, reformers who argued

that the costs of rapid transition would be too costly42 prevailed. Thus, on the whole, the

privatization process in these countries proceeded more slowly than in other countries.

Rather than auctioning public property on an open market where foreign investors could

compete freely, these countries preferred management buy-outs, or even

worker/management buy-outs (often nothing more, than a politically savvy form of

management buy-out – see Lawrence King). Price liberalization was cautious and influx

of foreign capital was controlled and limited.

By 2000 a substantial gap in terms of the degree of liberalization had emerged

between Hungary and Poland on the one hand, and Bulgaria, Romania, and Russia, on the

other hand. Since 1994, The European Bank for Reconstruction and Development

(EBRD) attempted to assign a measure for the degree transition progress in post-

communist countries using a multi-dimensional index.. As column 1 in Table 2.3 shows

the five countries in our study can be clearly classified into the following two categories:

Highly marketized, neo-liberal regimes (Poland and Hungary) on the one hand, and

modestly (or low) marketized, patrimonial systems on the other hand (Bulgaria, Romania

and Russia).

For our purposes, the key questions posed by these liberalization indicators is

whether these differences in transition strategies and outcomes are consequential for

emerging structures of poverty in these countries, and if so, how? Were patrimonial

Not coincidentally, these same reformers also had a hand, not to mention an interest, in ensuring that the
“endowments” owed to the managerial elite be converted into private property.

regimes successful in sheltering the poor from the devastation of the market, or is there

any truth to the alleged “trickle down” effects of the market?

In brief, an over-time and cross-sectional analysis offers answers to both the

question of the market’s effect on poverty rates, and how the extent and nature of poverty

is affected by different strategies of transition. Does the growth of the market decrease

poverty by raising all ships, or must the patrimonial state endure to prevent massive

increases in poverty caused by market forces?

In a single decade, the institution of public ownership was eliminated or reduced

to levels far below that of classical social democracies of the 1950s or 1960s. In this

sense, “capitalism” was “built” over a relatively short period of time throughout the post-

communist world, despite the fact that various countries pursued strikingly different

strategies in order to achieve this outcome. No theory has been offered, and no systematic

longitudinal, cross-sectional comparison has been undertaken, to determine the nature of

poverty during the process of transformation. With the present analysis, we intend to fill

this gap.

Table 2.2
Economic policies, economic growth and social indicators43

Country Cumulative Real GDP in Survey data from 1993 and 200044
liberalization 1999 % of % of % of % of
1989-1999 (1988=100) population population
population population reporting reporting
reporting reporting deteriorated deteriorated
poverty poverty in living living
in 1993 2000 conditions conditions in
in 1993 in 2000 in
comparison comparison
with 1988 with 1988
Hungary 10.0 99 57 44 62 54
Poland 8.0 122 59 44 63 55
Bulgaria 5.0 67 68 81 69 84
Russia 2.0 57 60 74 65 77
Romania 6.0 70 - 69 - 72

Table 2.2 offers some prima facie evidence that there may be some relationship between

market liberalization, economic growth and extent of poverty. The two countries that

followed more aggressive liberalization strategies (Hungary and Poland) posted some

reduction in various measures of poverty between 1993 and 2000. Those countries,

which pursued the patrimonial way to capitalism, experienced major deteriorations in

the social conditions of their population. There is clearly an increasing gap between the

two categories of countries, though it is less obvious whether that is caused by degree of

liberalization or economic growth. The more liberalized countries also post better

economic growth. It is not obvious whether the slight improvement in social conditions is

the result of liberalization or economic growth. We cannot tell it either whether economic

Transition Report 2000, European Bank of Reconstruction and Development, p. 21 and. P.65
Data are from Szelenyi and Treiman, Social stratification in Eastern Europe after 1989 (data from 1993)
and Emigh and Szelenyi, Poverty, ethnicity and gender in transitional societies (data from 2000).
We only have one measure of “poverty” which was asked in identical ways in 1993 and 2000. We asked
people whether their family earned average, above average or below average incomes. We regard here
families who reported earning below average income as “poor”, in the sense that they experience “relative

growth was the result of liberalization or it was rather the precondition of it. Nevertheless

one may claim that there is an “elective affinity” between liberalization, growth and

improvement in social conditions. Data in Table 2.2 do not paint neo-liberalism in

particularly radiant light. A decade after the fall of communism, Hungary just approached

the GDP levels of 1988 (and even Poland – the most dynamic post-communist country

during the first decade of transformation - only posted a modest 20% growth over the

decade). The proportion of population that reports poverty declined somewhat between

1993 and 2000, but it is still over 40%. In 2000 in Hungary and Poland more than half of

our respondent believed that their conditions were worse than in 1988 (Table 2.3).

Table 2.3

Change in the standard of living in the respondent’s households between 1988 and 200046

Country Standard of living in 2000 compared with 1988, in %

Better off About the A little worse Much worse All (N)

same off off

Bulgaria 5.3 11.0 23.7 60.0 913
Hungary 15.8 30.0 36.1 18.1 916
Poland 22.7 21.9 30.3 25.1 814
Romania 16.7 11.5 26.9 44.9 879
Russia 10.8 12.2 25.8 51.2 2,181
Slovakia 18.8 19.0 29.1 33.1 842

Created by Janette Kawachi, June 18, 2002

We created a new variable from the question whether the household earned below

average, average or above average incomes in 1988 and 2000. We combined responses

given for 1988 and 2000. Those were ‘downwardly mobile’ (our most interesting

category) who reported average or above average incomes in1988 and below or way

below average income in 2000. The other categories are defined by the same logic.

There is massive pauperisation (downward mobility into poverty) in all countries, more

in neo-patrimonial systems, but quite a lot in liberal regimes. In neo-patrimonial systems

between 30 and 50% of the respondents were not poor in 1988, but reported poverty in

2000. The same proportion is more modest, but it is still an astonishingly high 10-15 % in

neo-liberal regimes (Table A1.5 in Appendix).

One important finding of our research is that in terms of the initial conditions all

countries were rather similar. The proportion of those who reported experience with

poverty in 1988 is almost identical in all Central- and East-European countries. This may

not mean that the actual conditions were identical, after all Russia or Romania were

poorer than Hungary or Poland, nevertheless people remember 1988 in similar ways.

The BIG difference is in change: in people’s experience Eastern Europe is hit so much

harder than Central Europe and that makes one wonder whether government policies may

be consequential after all.

Market liberalization does not seem to be a paradise; it is only a somewhat better

alternative than the paternalistic road to capitalism. Thus there is prima facie

evidence that there is some relationship between degree of liberalization, economic

growth, inequality and level of poverty, and the nature of this relationship requires further

scrutiny. Our task in this paper is to explore these relationships and the mechanisms,

which link liberalization to the extent and nature of poverty.

2/ Social determinants of deteriorating living conditions, 1988-2000

Who are the losers of the transition? Who are those, who believe that they lived better in

1988 than 2000, who are those who were not poor by the end of the socialist regime, but

who reported poverty more than a decade after the fall of communism? There is no

obvious answer to this question. Some commentators believe that the big losers came

from the middle class (Tamas Kolosi) others think the poor got poorer with the expansion

of markets (Zsuzsa Ferge).

As Table 2.4 shows it is likely to vary substantially across countries who the losers of the

transition were. Demography does not play a major role, households without children did

not escape poverty more than the rest. Gender does not make much difference in general.

Rural residents fare better in some countries and were slightly over-represented among

the losers in other countries. The big losers were those who in year 2000 were either out

of the labour force or were unemployed and Roma as well.

Table 2.4
People, who reported that they were “much worse off” in 2000 than in 198847

Country Among all Among Among Among Among Among Among Among

population households rural single single households, households, Roma

with no households mothers women where head where head

children of of

household households

has primary is out of

school workforce

education or

Bulgaria 60.0 62.4 66.1 61.0 65.4 69.6 68.9 74.8
Hungary 18.1 18.3 17.7 26.9 16.9 21.7 37.3 41.3
Poland 25.1 24.6 22.1 26.3 29.5 31.4 46.3 -
Romania 44.9 45.7 40.5 52.3 50.2 46.5 57.7 68.2
Russia 51.1 54.7 56.0 54.6 57.2 57.6 61.2 -
Slovakia 33.1 33.1 34.7 36.4 38.3 41.6 57.7 -

While a much larger proportion of Roma reported deterioration in living standards

than non-Roma, nevertheless ethnicity effect in this case is modest. Arguably Roma were

already in 1988 quite badly off, so there was not much more how worse they could get.

It is also notable that gender does not make much of a difference either.

On the whole: it is class (a combination of low level of education and exclusion

from the labour market), which explains who believes to be ‘much worse off’ in year

2000 than they were in 1988.

Downward mobility tells us a somewhat different story: here class is a good

predictor who reported average or above average incomes for 1988 and below average

income in 2000 in neo-liberal regimes, but that is not the case for neo-patrimonial


Created by Janette Kawachi, June 18, 2002

The most astonishing - though upon reflection - sensible finding is the relative

weakness of ethnicity effect both on deteriorating living conditions and downward

mobility. Roma in Bulgaria and Romania is only somewhat more likely to have moved

down into poverty after 1988 than non-Roma, though the difference between the two

ethnic groups is much greater in Hungary (Table 1.6). If this holds in multivariate

analysis it shows that Roma was already poor in 1988, therefore there was not much

room left for Gypsies to be downwardly mobile. They were already poor.

In Table A1.7 in Appendix we use a different definition of “downward mobility”.

Here those are regarded as downwardly mobile who did not report poverty in any of the

“four questions” (hunger, not enough meet, no second pair of shoe, no warm winter coat)

in 1988, but report poverty at least in one dimension in 2000. The story with this

measure is not that different from the story, when downward mobility was measured with

“relative deprivation”.

Table 2.5
Probability (log odds) that respondent’s household is much
worse off in 2000 than it was in 1988, GPS for the six countries.
Model 1 (full Model 2: Model 3
model) M1 - class M2 – class
Demography Number of .961 .978 .952
Rural 1.000 1.099 1.104
Class Head of HH 1.339*** - -
school or less
Head of HH 2.151*** -
not in labor
Feminization Single 1.235 1.257 .337***
Single women 1.248 1.274 .298***
Liberalization Hungary, .312*** .313*** .311***
Poland and
-2 Log likelihood -3935.4912 -4116.4113 -4123.9568
*significance at 0.05 level, ** at 0.01 level

The picture, which emerges from Table 2.5 is clear and powerful. There are three determinants of mobility

into poverty: the type of regime, the level of education and employment status of the heads of households.

The most robust effect is exercises by regime type – in neo-liberal regimes people are 3 fold less likely to

become poor during transition than in neo-patrimonial regimes. This is the most interesting finding and it

helps us to assess, whether government policies are consequential or not. Here we see the difference in the

dynamism of poverty across regime types. We capture here the very process of divergence, hence it is more

difficult to refute these findings with reference to the differences in the initial conditions. These data speak

to how different the conditions become, rather than to how different they were initially.

When we try to explain who reported declining living standards we get similar

results. Neither single motherhood, not number of children make much of a difference,

but households, where the head has only primary school education (or less) are almost

three times more likely to believe that their living conditions turned for the worse.

The models presented in Tables 2.5 are problematic. All the independent variables

we use in these models describe the year 2000 situation of the households and we do not

know what their situation was in 1988. Indeed some of the households who have many

children may have been still childless in 1988, single mother households may have

formed or become single after 1988. But if number of children or single motherhood

would be a good predictor of deteriorating living standards their coefficients would be

only help by the fact that such condition did not exist in 1988.

And now let’s turn to the question of ethnicity. On data pooled from the general

populations samples (GPS) and from the Roma over-samples (ROS) we test the relative

explanatory power of Roma ethnicity.

Surprisingly Roma ethnicity in the model presented in Table A3.4 in Ladanyi and

Szelenyi (which predicts ‘downward mobility’) has only a relatively weak effect. This is

the result of rather wide-speared shallow poverty among Roma already in 1988. So many

Roma were already reporting some poverty (even-though extreme poverty such as

reporting hunger was rare during late socialism) for 1988 that it was difficult to be

downwardly mobile if someone was Roma

Even for the poor it is possible to become poorer – this is what the comparison of

Table A3.4.and 4.5 in the Roma book by Ladanyi and Szelenyi tells us. If we try to

explain who felt that their living conditions deteriorated between 1988 and 2000 Roma

ethnicity plays again a role – even after one controls for ‘class’ Roma are still twice

more likely to complain about deterioration in living conditions than others (Table 4.5 in

Ladanyi and Szelenyi). One should note, however, that Roma ethnicity is not a

particularly important predictor of who the losers are, education is a much more

important factor.

The market played a critical role in picking who the losers will be. It is the bottom

of the society in terms of education and labor market performance who complain about

deteriorating living standards, or who were not ‘poor’ in 1988 and became poor in 2000,

thus were ‘downwardly mobile.’ The demographic factors, which according to earlier

sociological studies was so important in identifying who were the poor under socialism

does not play much of a role, single motherhood is barely significant, though Roma

ethnicity has about as much explanatory power as the employment status of the head of

the household (Table 4.5 in Ladanyi and Szelenyi). There is clearly a shift to

‘achievement’, the market measures people up in terms of their ‘human capital’ and

unless the social safety net operates punishes those who are poorly endowed with human


This can be an important finding. We know that in 2000 Roma and single mother

households – even after we control for ‘class’ – twice as likely to be poor than others.

The relatively weak effect of ethnicity and single motherhood in explaining who

between 1988 and 2000 the losers were suggests that Roma and single mother households

were already among the poor by late state socialism, hence neither racialization nor

feminization of poverty is the result of transition, it is more an ‘inherited source’ of

social inequality. This would be a surprising conclusion we could draw, since it is

possible to identify mechanisms, which might be responsible for marketization to create

racialized and feminized poverty. The most important such mechanism would be the

deregulation of the labor market. Socialism operated an economy of shortages on the

labor market as well, hence it produced ‘excessive demand’ for all labor, including the

labor of Roma and mothers of small children. There was near full employment among

Roma and given the reasonable availability of childcare institutions a high level of

employment by mother with small children, including single mothers. It is conceivable

that a more deregulated labor market creates surpluses of labor and the first to be

dumped will be Roma. Marketization also undermines childcare provisions making it

difficult to women with small children, especially single mother to seek gainful

employment. And exclusion from the labor market – after low levels of education – is an

important source of poverty. It is arguable though that the labor market mechanism does

not affect single women or Roma ethnicity more than others, it works through education

in both instances and therefore neither racialization nor feminization was aggravated

during the transition period.

3/ Making sense of re-emergent cross-national divergences: long
duree; initial economic and political conditions; government
policies and different strategies of transition

The comparison of Tables 2.1, 2.2 and 2.3 is very instructive. It shows that the six

countries we studies did not diverge right away after the fall of communism, the major

changes took place after 1993. We are inclined to use this as evidence that the divergent

conditions in year 2000 cannot be therefore simply attributed to the differences in the

initial level of economic development. In these respect the countries were close to each

other, stayed reasonably close during the first few years of post-communist transition, but

they handled the challenges of transition differently. Thus we have at least some

evidence, that post-communist economic policies made a difference. Countries were not

on an over-determined path. Furthermore the data also suggest that neo-liberal reform,

while its costs are also prohibitively high proved historically a better way to proceed that

in neo-patrimonial systems.

The better performance of the Central European countries in comparison with the

East European countries can be attributed to a number of factors.

1. Initial conditions

There are a number of features in the ‘initial conditions’ of Central European

countries which can be responsible for their relatively better performance.

Geographic proximity to Western markets is one which comes to mind

immediately. Hungary and Poland are close to EU markets, linked with better roads and

railway links thus they are more attractive for foreign investors. One can argue that once

Central Europe absorbed abut as much DFI as it can capital will move further East and

will reduce the newly created gap between Central and Eastern Europe.

There was a difference within these two sub-regions in the level of economic

development. While there was some convergence in this respect between 1945 and 1989

enough difference remained, therefore the somewhat more affluent Central European

countries found it easier to ‘bite the bullet’ and to implement shock therapy. Eastern

European regimes tried it, but since they lived below the threshold, which would make

the pains of shock tolerable they had to give in to political pressures and soften the

reform measures.

Finally there are also differences how far reform progressed prior the fall of

communism. Reform communism may have paved the road to further faster reform in

countries like Poland or Hungary and absence of prior reform may hold back the reform


2. Long duree

It is of course not clear how far one has to go back to find the proper ‘initial

conditions.’ Many of the immediate initial conditions were rather similar in the Baltic

states to Russia or the Ukraine, nevertheless the Baltic states followed a similar

trajectory than Central Europe. Slovakia at least in terms of no prior reform resembled

more Romania or Bulgaria than Poland or Hungary, nevertheless it appears to be firmly

in the Central European group. Hence it is not inconceivable that there is a longer term

historical determination, such as democratic traditions, strength of middle class, or civil

society, or even religion. Why Yugoslavia breaks along the lines of religious cleavages

and why in one considers now the Baltic States as part of Central Europe the divide

between Central and Eastern Europe is really a divide between Western and Eastern


No question about it, initial conditions, even long duree factors do play a role.

Nevertheless, what needs an explanation is why the process of divergence begins after a

long epoch of convergence. Initial conditions and long duree cannot explain BOTH

convergence and divergence.

3.Government policies and strategies of transition matter and are consequential

The convergence among countries between 1945 and 1989 and the divergence

during the 1990s suggest that governments have a certain degree of freedom in choosing

their transition strategy and depending what strategy they choose they can do better or

worse. In retrospect the Czech Republic pursued different policies than Poland and

Hungary during the first half of the 1990s and it did so probably for the worse.

If the Chinese way was not an option in the post-Soviet world than at least as far

as poverty is concerned it appears the least damaging strategy was the reasonably

consistent adaptation of neo-liberal policies. The main reason for this is foreign

investments – foreign capital might be more attracted to business environment, which

was created by liberal reform. The main source of economic dynamism in European

post-socialist capitalism so far was foreign investment and arguably dynamic economic

development is a necessary even if not sufficient condition of poverty reduction.

Chapter 3

Poverty under post-communist capitalisms

In Chapter 2 we reported on the social costs of the transition from a redistributive

to a market economy. When socialism was crumbling few anticipated that the costs will

be so high and the circle of losers so broad. Nevertheless what we saw in the previous

chapter arguably was a price what had to be paid. Looking carefully where post-

communist societies are in year 2000, thus 12 years after the collapse of communism will

help us to begin to develop a theory what will be the nature of poverty once post-

communism crystallizes into a system or even into multiple systems, which will tend to

reproduce themselves.

Many commentators expected that with the fall of communism a ‘new poverty’

will emerge. Most of these commentators agreed that poverty under socialism was a life

cycle phenomenon (Ferge, Bokor, Kolosi). People with many children fell below poverty

line when they had to cater for their children, but as kids grew up and left they moved out

of poverty as well. People may have ended up in poverty, when they were ill and if they

recovered they may have moved out of poverty. Full employment of all (including near

full lifetime employment of women and Roma) was a mechanism, which prevented that

people could stay below the poverty line all their lives. ‘New poverty’ implies not only

a growth in the volume of poverty, but also a new quality of poverty. High level of

poverty may be temporary anyway, and once dynamic economic growth takes place at

least ‘absolute poverty may decline, but the nature of poverty may have changed for

good, the importance of demographic factors might have declined and was replaced by

structural forces, such as unemployment or race.

In this chapter our task is to explore who are the people who become the ‘new

poor’? It is reasonable to anticipate that with a transition from redistribution to market, a

move from a socialist rank order to a capitalist class stratified society achievement, hence

factors such as education will play a greater role. But gender an ethnicity might very

well counter-act this tendency towards ‘achievement’ or ‘class’ based determination of

poverty. The fall of communism also coincided with trends of reinforcement of

patriarchy and surge in nationalism, even racism.

In many countries during the transition to market economy female unemployment

rates were higher than male unemployment rates and there has been a trend in all

countries for women to drop out and stay out of the labor force in larger numbers than

men do. This may be by ‘choice’, women may opt to stay at home to take care of

children and husbands and may be also enforced by increasing gender segregation on the

labor market. Furthermore there has been an increase in out-of-wedlock birth. This again

may be by choice, thus some of those birth may occur in families where the couple

decides against marriage as a life style choice. But it is not inconceivable that some of the

new out-of-wedlock birth may be the result of mothers abandoned by the poverty-stricken

fathers of their children. At any rate, increasing out-of-wedlock birth can certainly be

seen as the ‘material base’ for feminization of poverty.

Furthermore, it is received wisdom, that the structural changes, which took place

with market transition, affected the Roma population more than other groups. According

to studies of Roma in the region (Kemény, Tomova, Zamfir) the single most dramatic

change in Roma life during the 1990s has been the sharp decline in the proportion of

Roma in the labor force. According previous research Roma were the first the laid off and

they tend to be the last to be rehired, if they ever will be rehired.

Hence while market penetration may indeed changed the foundation of poverty

from ascriptive, demographic criteria to achievement, such as education and employment,

but gender and ethnicity may counter-act this tendency. Our main aim in this chapter is

to test:

1/ Is it indeed the case that the importance of demographic factors, such as rural place of

residence or family size may not be less important in explaining who ends up in poverty

under post-communist capitalism than education or occupational status? 2/ How

important will be gender and ethnicity in explaining post-communist poverty, are these

factors a ‘match’ to the effect of class, or they just transmit, or modify the effects of

education and employment?

Finally in this chapter we also will explore what cross-national variations we find

in the extent and in the determinant of poverty. One key hypothesis of this book is that

post-communism is not a single destination. While of course all post-communist societies

are ‘capitalists’, but might represent rather different types of capitalism and these

differences may be highly consequential for the extent and nature of their poverty. We

already saw in Chapter 3 that liberal forms of post-communism capitalism navigated

rather differently from neo-patrimonial post-communist regimes. The task of this chapter

is to explore to what extent this was only a feature of transition or to what extent the level

and social determinant of poverty may settle in a different pattern in the two major

European forms of post-communist capitalism. As Table 3.1 shows the characteristics of

households, which are the best indicators to predict poverty are rather similar in the six

societies we studied. After all, this is not that surprising, since these household

characteristics were the results of several decades of parallel development. It would be a

surprising result, however if why these similar characteristics were to produce rather

different outcomes.

Table 3.1
Household characteristics in six post-communist societies, year 200048

Household Number Share Share of Share of HH HH

size of urban single single primary unemployed
children mothers women school or or out of
less workforce
Bulgaria 2.8 .4 70.0 6.7 15.9 34.8 15.8
Hungary 2.5 .4 64.0 8.2 19.6 40.4 7.7
Poland 3.4 .9 69.0 6.9 12.0 27.6 14.7
Romania 3.0 .5 60.8 5.1 12.1 30.1 18.8
Russia 2.8 .8 74.3 15.9 15.8 22.0 10.8
Slovakia 2.8 .5 56.0 8.3 15.9 17.8 11.4

Thus in our analysis we will use the following independent variables: the number

of children; urban residence; education and employment status of the head of household;

households of single mothers and of single women (hence the columns of Table 3.1);

Roma ethnicity and ‘country’ or to be more precise the type of capitalism (liberal versus


But what is poverty? How do we measure it?

In this chapter we have access to the conventional measures of poverty: income or

expenditure below a certain threshold. We could not use these indicators so far, since for

historical analysis we could not generate retrospective income or expenditure data. But

now our subject is now social condition at the time of our survey, in year 2000 we will

utilize these indicators. These are regarded indicators of ‘objective poverty’ and

distinguish those from ‘subjective poverty’ measure we used so far for historical


The table below summarizes the type of measures used as ‘dependent variables’ in

the analysis to follow.

Created by Janette Kawachi, June 18, 2002

Various measures of poverty:

Subjective: Objective:

‘the lived experience of poverty’ ‘income/expenditure poverty’

Absolute: Respondent reports experience of Expenditure below $XX PPP per

(for cross national comparison) ‘hunger’ capita per day

Relative poverty /relative Respondent believes household Below YY% of median per capita

deprivation: earns below average income expenditure

(for intra-national comparison)

The real question is not, which measure is ‘better’, more ‘reliable’, or more

‘valid.’ They both have problems with reliability and validity. It is not obvious for

instance whether respondents want to tell us what is their income or even expenditure, or

even if they know what their expenditures are. Furthermore assigning to a household or

an individual a ‘poverty line’ may mean that we call a household poor, or not poor

though it may not experience it that way.

There are similar problems with the subjective measures. The level of inter-

subjective validity of reports by respondents both about absolute and relative poverty

may not be great. What passes as ‘hunger’ for a certain respondent may not be felt or

reported as hunger by another. When a respondent reports ‘below average income’ it is

the most likely that the respondent does not know what ‘average income’ may be in that

society at that point in time – thus how could such a response be reliable?

Thus objective or subjective measures are not better or worse, they are different

and tell us different stories. Subjective measures inform us what the ‘lived experience’ of

poverty is, while the objective measure identify those of us who are ‘income/expenditure

poor ‘and these two may not overlap.

As a result a household may be ‘income/expenditure poor’, though it may cope

well, or it may not be poor in income/expenditure but may cope poorly therefore be in

poverty. We will see for instance that income/expenditure wise rural households tend to

be poorer than urban ones, nevertheless by the subjective measures the opposite may be

the case. The same holds for Roma and for single mother households. Both Roma and

single mother households ‘objectively’ tends to be less ‘poor’ (they receive various

welfare payments) than subjectively (their crucial needs may not be met by a relatively

higher cash income).

We need therefore BOTH the subjective and objective measures, the first is likely

to give us a better description of feminization and racialization of poverty, the second

will be a better measure of class effects.

And lets now turn to the question of absolute and relative poverty. The notion of

absolute poverty was under attack for a long time by sociologists (Townsend) and for

good reasons. Excessive emphasis on absolute measures, such as under-nourishment

would prevent researchers of more affluent societies to identify in their societies those

who are poor (even-though they may not be as poor as the poor in poverty-stricken

countries.) Therefore sociologists for good reasons often advocated relative measures of

poverty, such as those who earn 50% or less of median income. These relative measures

are indeed useful to identify, who are poor in a given society, but by definition they are

not very useful in cross-national comparison. These ‘relative poverty” measures if looked

at from the perspective of cross-national comparison tell us more about inequality than

poverty. As we will see for instance if we measure poverty as the population, whose

median expenditure is 50% or less of the median Poland appears to be a poorer country

than Bulgaria, which not only contradict common sense but is also disconfirmed by other

data available to us. No matter how sympathetic we are to the argument that poverty was

not eliminated, but rather transformed in the more affluent countries, nevertheless we

should be able to distinguish among poor those who are even poorer. Yes, there are poor

people in Sweden as well, but it is also true that the poor of Bangladesh would love to be

poor in Sweden. For cross-national comparison therefore we need indicators of “absolute

poverty”, such as measured by absolutely low level of incomes or expenditures or with

our Finally there is a lively debate among scholars who poverty and living standards in

general whether income or expenditure is a better way to understand poverty. The World

Bank in particular is committed to “expenditure” measures of living standards (see World

Bank….). This is a reasonable position. If in survey research one asks questions about

expenditures rather than incomes it is more likely that one can catch what the informal

economy and self-provisioning may provide to the households. In our study we adopted

the World Bank questionnaire in an abbreviated form. The World Bank developed a

sophisticated methodology to measure expenditures, but this requires two lengthy

interviews with each household. We could not afford to collect data in such a detail, so

we reduced the expenditure measurement, which did fit our research purposes in close

consultation with World Bank experts. Like the World Bank itself, we also collected data

on incomes. In fact the difference between the income and expenditure measures in our

survey proved to be rather marginal. In this book we use the expenditure indicators. We

do not want to minimize the importance of the difference of income and expenditure

measures, nevertheless in conceptualizing measurement of poverty in contrast with the

“subjective” measures they appear to be the variants of the same family. We believe the

larger difference is not between income or expenditure, but between subjective and

objective measures of poverty.

Our key hypotheses are:

H1 we expect the demographic indicators to be weaker than class factors, such as

education and employment status;

H2 The explanatory power of class variables will be stronger in neo-liberal

regimes than in neo-patrimonial ones;

H3 In post communist society poverty will be feminized and racialized, hence

while predicting poverty coefficients for single mothers//single women and Roma

ethnicity will be significant and sizeable;

H4 Feminization and racialization of poverty will be stronger in neo-liberal

regimes, than in neo-patrimonial ones;

H5 Cross-regime variations will be as strong (or stronger) as the effect of other


H6 Class will be a better predictor of income/expenditure poverty than race and

gender, but we expect similar levels of poverty as a lived experience in single mother


H7 Absolute level of poverty may be reduced by neo-liberal reform, but we

expect more variation by individual country in relative poverty, or inequality.

We begin our analysis with the data - subjective measures of poverty - we used in

Chapter 1 and 2. First we present descriptive statistics and next we use some simple

multivariate analysis to explore the social determinants of poverty.

Table 3.2

Determinants of poverty - Very poor households (% of households reporting ‘hunger’ in


Among all Among Among Among Among Among Among Among

households households rural single single households households Roma
with no households mother female where HH where head households
children households households has in out of
primary labor force
or less
Bulgaria 16.1 15.1 11.6 32.2 21.4 23.2 30.5 66.3
Hungary 6.7 6.8 6.3 9.8 10.6 10.0 12.9 21.1
Poland 6.0 6.5 5.2 9.2 8.9 11.7 14.8 -
Romania 16.2 14.8 16.6 23.2 25.7 23.2 28.2 51.5
Russia 7.9 8.3 5.7 12.1 12.0 12.5 21.5
Slovakia 4.9 4.7 4.8 9.6 4.4 13.5 18.1 -

The most interesting finding in Tables 3.2 is the strength of the “single mother

household” variable. Those who report “hunger” is well over-represented among single

mother households and generally also among single women households. The

‘feminization” seems to be as strong an effect than low education and that stands for all

countries, for neo-liberals and for neo-patrimonals, though education is indeed - as

expected in H2 - more important in the neo-liberal regimes as a predictor of poverty.

Compare for instance the education effect in Bulgaria and Poland in Table 4.2: absolute

poverty in Poland in the whole sample is 6%, but it jumps over 10% among those who do

not have higher than completed primary school education. There is an education effect in

Bulgaria as well, but here the national average of 16 % poverty compares with 23%

among the poorly educated, Also as we anticipated differences among the two types of

regimes (H5) are substantial and occasionally greater then differences within countries.

The most striking figure is reporting hunger in Bulgaria and Hungary: among Hungarian

Roma the proportion of those who report hunger is only slightly higher (20%) than

among the general population on Bulgaria (16%). In other words the non-Roma

Bulgarians in Bulgaria are almost as poor as Hungarian Roma are.

Finally as we expected the cross-country differences are more modest when we

are looking at relative deprivation (Table A1.8) rather than absolute poverty (Table 3.2).

But in this case the story otherwise is similar – very strong race effect and a

feminization, which matches the impact of education.

Do these findings hold up if we test our hypothesis in multivariate analysis?

Table 3.3 and Table A1.9 are generally supporting the hypotheses we just evaluated,

though they teach us some new lessons as well.

Table 3.3
Probability (odd ratio) that respondent reported experience of poverty (hunger) in 2000,
GPS for six countries49

Model 1 Model 2 Model 3

M1-class M2-
Demography Number of 1.167* 1.183** 1.085
Rural .561*** .820 .834
Feminization Single 1.753*** 1.802*** -
Single women 1.851*** 2.035*** -
Class (head of Primary 2.844*** - -
household) school or less
Unemployed 3,481*** - -
or out-of-
labor force
Liberalization Hungary, .495*** .484*** .476***
Poland and
Log likelihood -1955.1735 -2199.4039 -2226.1163
*significance at 0.05 level, ** at 0.01 level

In Table 3.3 a strong feminization outcome is supported, both for single mothers

and for single women. In the full model households, where single women live with their

dependent children are twice as likely to report hunger than other households.

Nevertheless, the multivariate analysis shows that “class” when the chips come down

tells a bigger part of the story than feminization. Low education and employment status

of the head of the household in itself has a massive effect (those households, where the

head has only primary school education are 2.8 times more likely the experience poverty

than others). Furthermore as we build our models in a stepwise fashion we can see that

adding the feminization variable improved significantly the fit of the models, but the
Created by Janatte Kawachi, June 18, 2002

improvement is much greater when we enter the education and employment status

variables This is to be expected. The coefficients for the class variables are grater to

begin with and in most countries only about 8-9 percent of the households are composed

of single mothers and single women. A much larger proportion of the households is

affected by loss of jobs (not only unemployment, but also by early retirement or other

forms of ‘voluntary” withdrawal from the labor force) hence this variable indeed should

have a greater explanatory power of the overall level of extreme and absolute poverty.

The model presented in Table 3.3 also offers strong support to H1 – the

demographic factors are relatively weak. Number of children has only a weak effect. The

coefficient of this variable is marginally significant and its size is modest. This is not

quite the case for rural residence. Once we control for all of our variables rural residence

becomes significant – but in sharp contrast to what we will see in the case of

income/expenditure poverty in terms of lived experience of poverty those who live in

rural areas are doing much better, they are about half as likely to report hunger than urban

residents. When poverty is measured with income or expenditure, rural population tends

to appear to be poorer than urban residents. The model also offers some support for H5:

in neo-liberal regimes people are only half as likely to report hunger than in neo-

patrimonial ones even after we control for all the major factors, which may impact

absolute poverty.

If our dependent variable is relative deprivation (whether people felt that their

family earned well below average incomes, Table A1.9) the story is similar, though there

is one striking difference with Table 3.3: the cross-country differences are much bigger.

People in neo-liberal regimes are almost four times less likely to think that their income

of below average. This is a puzzling finding and may indicate that people in neo-liberal

regimes are more likely to accept inequalities than in patrimonial regimes. Since neo-

patrimonial regimes legitimates themselves with claims that they “shelter” clients from

pains, imposed by mark transition if it does not people challenge its legitimacy.

Nevertheless it is interesting how similar is the process of social determination for

absolute poverty and relative deprivation for the subjective measures, since the extent of

the two phenomena is so dramatically different. Nevertheless, much like in the case of

reporting experiences with hunger, when the question is which households report relative

deprivation we again see the relative weakness of demographic factors. In most models

number of children and rural residence is not significant. Education has a robust effect,

but feminization has also sizeable coefficients. And as we anticipated it: cross-country

variation is even stronger, than variation by class or gender. People who live in neo-

liberal regimes are four times less likely to report relative deprivation than people living

in neo-patrimonial regimes (Table A1.9).

In order to see the effects of race we have to look at Table 4.8 in Ladanyi-

Szelenyi book.. We run separate models for the three countries, where we created a

Roma over-sample pooled the Roma over-sample (ROS) with the general population

sample (GPS) and tested the power of race in predicting poverty.

Roma if we only control for the demographic differences between Roma and non-

Roma is seven times more likely to report hunger than non-Roma. When we first only

control (in Model 2 of Table 4.8 in Ladanyi-Szelenyi) for the impact of feminization that

does not reduce substantially the size of the race coefficient. This is not surprising, if we

consider that given the strength of extended family among Roma the proportion single

mothers and single women households is less than in the non-Roma population (see

Ladányi and Szelenyi, The Making of An Underclass). As we enter, however, first

education, next employment status into the models Roma ethnicity loses a fair bit of its

explanatory power. In the full model the size of the Roma coefficient is about half of

what it was in the base-line model – now Roma is „only“ four times more likely to report

poverty than non-Roma. Education and employment status are also important predictors

of extreme poverty (coefficients are 2.7 and 3.3 respectively).

Finally cross-country differences are tremendous if we include race in our

analysis and they are likely to be bigger than they are if we only look at the general

population. In Table 3.3 - where we did not consider the Roma over-samples - people in

liberal countries were half as likely to experience hunger than in neo-patrimonial

regimes. Now in Table 4.8 in Ladanyi-Szelenyi book - after we include the Roma over-

samples - in Bulgaria and Romania people are almost 3 times more likely to report

hunger than in Hungary. This tell us that Roma in Hungary is not only merely better off

than Roma in Bulgaria and Romania, but there is also less difference between the Roma

and non-Roma Hungarians than between Roma and Not Roma Bulgarians and


In terms of relative deprivation (Table A3.5 in Appendix 3 of Ladanyi-Szelenyi

book) it is quite astonishing how smaller the Roma effect is in comparison with absolute

poverty. While Roma is 4.3 times more likely to report hunger than non-Roma they are

only 1.9 times more likely to believe that they earn below average incomes. This is

indeed surprising, since gadjo tends to believe that Roma are „complainers“ and they

believe that everybody is sucking their blood – the picture, which emerges from Table 4.8

and A3.5 from Ladanyi-Szelenyi book does not support this stereotype.

And now we can begin to look at “objective” measures of poverty, to asses,

whether the subjective measures we used so far are sensible at all and whether the

differences between the subjective and objective measures are indeed those kind of

differences we hypothesized earlier in this chapter. Next we look at the ‘objective’

poverty lines as measured by various levels of incomes and expenditures, expressed in

US $ converted by PPP (purchasing power parity calculations) or as 50% of the median

income or expediture, measured the same way in US $.

Table 3.5

Poverty rates - 50% of median expenditure and in PPP

Country $2.15 PPP $4.30 PPP
50% of median
expenditure expenditure
Per equiv. adult Per capita Per equiv. adult Per equiv adult
Bulgaria 10.9 10.7 7.5 38.4
Hungary 9.3 10.8 1.8 10.8
Poland 12.1 14.3 1.7 8.6
Romania 18.1 20.0 11.7 30.2
Russia 14.3 14.6 16.9 54.1
Source: GPS only, created by Janette Kawachi, June 18, 2002

In all the previous data we found Hungary to be rather similar to Poland and quite

different from Bulgaria, Romania and Russia. This pattern is confirmed in Table 3.5

where poverty lines are measured in terms of per capita incomes or expenditures. The

clearest picture is presented if $4.30 PPP per capita expenditure per equivalent adult is

used as the “poverty line.” In this case the proportion of population under poverty line is

9-11 % in Poland and Hungary, while it is about 30-50 % on the other three countries.

Table 3.5 shows one striking difference from the ‘subjective’ indicators, namely Bulgaria

and Russia swap places at the bottom of societies. While in Bulgaria many more people

reported hunger than in Russia, when expenditures are measured in monetary terms

Russia is significantly poorer than Bulgaria. In Bulgaria 16% of respondent reported

hunger, in Russia the same proportion was only 7%, if poverty line is set at $4.30 PPP of

adjusted expenditures than in Bulgaria ‘only’ 38% falls below this line, while in Russia

the proportion of the poor is 54%. We believe this indicates that the subjective measures

might be more accurate than measures which use monetary terms. Russian are

undoubtedly ‘income poor’, but given the ‘involutionary’ nature of the Russian economy,

they may avoid extreme poverty (especially hunger) more since they have a more

extensive system of self-provisioning. Earlier research documented (Caleb Southworth,

Michael Burawoy) that Russia did not dismantle the kholhoz system, instead in a way it

generalized it. Now even civil servants or industrial workers do not get paid (or their pay

is in arrears for many month). They cope, since firms give access to them to what used to

be ‘family lot’ (gardens) in the kholhozes, hence they grow their own food and do not

starve (see also Table 3.9). While the World Bank methodology using expenditures

instead of incomes in measuring living standards in principle should resolve this

accounting problem it may not do with sufficient precision (given the difficulty to

estimate the volume and value of self-provisioning)50.

Furthermore if we draw the poverty line as those whose per capita expenditure is

50% or less of the median than the cross country variation is quite different from the one

measured with $4.30 PPP or the ‘subjective’ measure of ‘reporting hunger’. If our aim is

to predict in which country does more people have less than 50% of expenditure, than

Bulgaria and Hungary has the lowest proportion of poor people (they have about 9-11%

such households). Poland is closer to Russia and Romania stands out as the “poorest”

country ( the proportion of such households is between 12-18%.

When we adopted the World Bank methodology we indeed cut some of the questions about self
provisioning, hence our data set is not quite as good as World Bank data usually are. The World Bank team
in their report what the4y prepared from our data on Roma poverty - Poverty and Ethnicity by A. Revenga,
D. Ringold and W.;. Tracy, March 6, 2002 – used various calculations to estimate the value of self-
provisioning. We decided not to adjust the data, but to acknowledge that our expenditure measures to not
sufficiently reflect self provisioning.

Since we interpret the “relative poverty” primarily as a measure on inequality this

finding has important implications. While the rate of poverty indeed seems to be highly

impacted by the nature of the regime that is not the case in levels of inequality. Bulgaria

and Hungary seem to be the most egalitarian countries (data using GINI coefficients also

show the same results, see Eric Kostello), while the other three countries are more

unequal. After all, this is rather sensible. The structure of the economy and its dynamism

has a lot to do with levels of absolute poverty. Indeed we gain support here for Depak

Lal’s hypothesis. Together with findings presented already in Chapter 2 it appears to be

true that more consistent liberal economic reform helps to reduce the level of absolute

poverty, there is at least some “trickle down” in liberal, more dynamic economic

systems. Inequality however does not necessarily follow the same pattern. Lal speculated

that inequality is increasing with economic dynamism (assuming that higher level of

inequality may be necessary as an incentive to economic dynamism). Our findings from

post-communists capitalism does not support this (though one can hardly expect from so

few cases for such a brief time period to offer a good test of the Lal theory). What we

seem to be finding here that levels of inequality may be influenced by country specific

variables. It may be culture and politics, which has a greater impact what level of

inequality a society accepts rather then the characteristics of the economic system.

Table 3.6
Determinant of poverty – households at $4.30 PPP (adjusted) per capita daily expenditure
or less, in %51

Bulgaria Hungary Poland Romania Russia

Among all 38.4 10.8 8.6 30.2 54.1
Among 39.8 9.4 6.1 25.6 56.3
with no
Among 56.2 15.4 14.3 50.5 72.4
Among 37.7 12.6 11.4 39.5 57.9
Among 58.3 7.0 4.0 35.5 71.8
Among 57.2 14.4 12.6 45.9 70.6
head of HH
school or
Among 54.9 26.1 21.9 51.4 69.8
head of HH
who are
d or out-of
labor force
Among 73.9 33.7 - 56.6

Created by Janette Kawachi, May 4, 2002. No household was below $2.15 daily adjusted per capita
expenditure in Slovakia

Table 3.7

Determinants of Absolute Poverty ($4.30 per capita daily expenditure, adjusted to equiv.

adults) in five countries ( Bulgaria, Hungary, Poland, Romania, Russia, GPS).

Logit estimates, odds ratio.52

Independent variables Model 1 Model 2 Model 3

Full model M1- class M2-
Demography Number of 1.380*** 1.340*** 1.210***
Rural 2.112*** 2.594*** 2.589***
Feminizatio Single 2.351*** 2.442*** -
n women
Single 1.765*** 1.791*** -
Class Elementary 1.942*** - -
and less
Head of 2.014*** - -
or out-of-
Country Liberal .102*** .111*** .114***
Log likelihood -3393.6116 -3617.6351 -3686.2807

If poverty is measured with the more conventional, monetary way (Table 3.7) the

demographic factors have a stronger predictive power than in the case when we used our

Created by Janette Kawachi, June 18, 2002

subjective indicators (Table 3.3). In this case number of children and rural residence is

always significant and rural residence is about as strong as feminization. In general

feminization and the basic demographic variables are about equal importance in

predicting poverty in terms of expenditures. Class, however, keeps stealing the show.

Education is not quite as important as it was when ‘reporting hunger’ was our measure of

absolute poverty, but households where the head has only primary school education (or

less) are twice more likely to have an expenditure below $4.30 PPP, than households with

secondary school (and higher) education. And the extraordinary power of ‘regime type’

is demonstrated one more time and even more strongly than before. People who lived in

neo-liberal regimes in 2000 were ten times less likely to have expenditure below $4.30

than people who reside in neo-patrimonial systems.

There is however an important finding in Tables 4.9 and A3.6 in Ladanyi-Szelenyi book

about ethnicity. It is clear that the effect of ethnicity is substantially lower if the measure

of poverty is a monetary one, rather than a substantive one (such as reporting hunger, or

feeling of relative deprivation). While we used such subjective and substantive indicators

the effect of Roma ethnicity was about as strong as the effect of education both at

absolute and relative poverty (Table 4.8 and A3.5 in Ladanyi-Szelenyi). Now in Tables

4.9 and Table A3.6 in Ladanyi-Szelenyi book this changed quite radically: when poverty

line is established in monetary terms class is the most important determinant, the

importance of ethnicity is much reduced. This might mean that Roma is a ‘welfare

class’, Roma households receive various transfer payments, hence their poverty is better

measured in terms of low quality housing, hunger and frustration rather than by the

monetary level of their expenditures. For example in Bulgaria 47% of Roma households

received child allowances (while only 22% of all households receive such transfer

payment). In Hungary the same figures are: 65% for Roma households and 25% of all

households. In Romania: 66% of Roma households, 38% for all households. For social

assistance and unemployment benefits we can detect the same trend (see Revenga,

Ringold and Tracy, 2002 and Ladanyi-Szelenyi, 2002).

What are the differences in the various “coping strategies” for households, who find

themselves in poverty? To what extent can families rely on the welfare state and what

are their chances that make ends meet with resources generated from the second


Much to our surprise there is little difference across countries in welfare

institutions. About the same proportion of the population is eligible to various transfer

payments in all countries. The only major outliers are: Russia in housing (there is still

substantial public housing assistance in Russia, while that was eliminated by 2000 in the

other countries) and child allowances in Poland(Poland must have eliminated universal

child allowance provisions, while the other countries retained it). Table 3.8 of course

only describes the institutions of the welfare system and does not give an accurate picture

of its functioning. Data in Table 3.8 describe only ’access’ and not actual transfers. The

value of actual transfer may vary substantially in PPP and that has to be analyzed as well

to understand how much of a coping strategy the welfare state can be for households

trapped into poverty.

As we already pointed out already in terms of access there are at least substantial

cross-ethnic differences. Roma has been established firmly during the early years of

post-communism as a ‘welfare class’, hence it is more dependent for its survival on

transfer payments than other groups.

Table 3.8
Eligibility for Social Protection
Bulgaria Hungary Poland Romania Russia Slovaki
Housing1 8.2 5.1 9.1 7.0 43.3 5.4
Child allowance 23.5 26.1 7.6 39.1 42.3 27.9
Poverty assistance 7.8 7.3 6.1 3.8 2.6 10.2
Old age and disability 60.6 59.3 54.1 59.4 52.2 47.6
Unemployment benefits 5.4 6.2 7.5 7.8 2.6 12.4
Source: GPS only, created by Janette Kawachi, June 18, 2002
Notes: 1 Percent actually receiving.

Self-provisioning is substantial in all countries. In fact more people depend on self-

provisioning than on the welfare institutions (and if we would calculate not only access,

but also the extent of each coping strategy than self-provisioning is likely to be even

more important for the general population). There are few outliers: in Russia many more

people gather herbs, mushrooms, wood than in other countries, in Hungary the

proportion of food consumed by the family which was produced by the households is

smaller than elsewhere.

The main findings: about half of the families (or more) cultivate some land and about

40% of the food consumed is self-provisioned (in Hungary only 28%).

Table 3.9
Self-provisioning strategies (% of Households)
Bulgaria Hungary Poland Romania Russia Slovak
Cultivate a garden 44.0 44.4 38.4 42.2 65.3 60.1
Cultivate any agricultural land 28.9 12.2 15.9 30.6 17.8 14.1
Average area of cultivated land 1.8 1.9 16.6 2.1 1.1 1.4
Gather herbs, mushrooms, wood 6.4 5.0 20.1 11.9 47.4 25.5
Avg. share of food from own prod. 40.6 28.7 36.8 39.7 40.0 21.2
Keep animals 39.3 29.3 18.0 48.2 21.2 31.9
Source: GPS only, created by Janette Kawachi, June 18, 2002

While by year 2000 transfer payments, the welfare system appears to be rather

targeted (understandably with the exception of old age pension), self provisioning is more

universal. Generally the proportion of families which receive some transfer payments

varies between 5% and 25% of the general population, the bottom half of the society

depends on self provisioning.

There is an interesting difference in race effect though. In self-provisioning it has

just the opposite effect to what we observed in transfer payments. While Roma has more

access to most forms of transfer payments than non-Roma, the opposite is true for most

forms of self-provisioning (with the exception of ‘gathering’ – Roma tend to gather more,

than non Roma, though they are engaged less in such an activity than Russian!) Roma

cultivate less land than non-Roma and grow a smaller proportion of the food they

consume than non-Roma.


These are our main findings:

1/ We do find support for the hypothesis of relative weakness of the

demographic factors. Indeed number of children or rural place of residence are often not

significant and when they are significant their coefficients are usual rather modest, are

rarely larger than coefficients for the measures of feminization.

2/ Class (short of regime effect) steals the show. In particular low level of

education is a powerful predictor of who ends up in poverty, no matter which

measure of poverty one uses. Surprisingly, once one controls for education exclusion

from the labor market itself is not such a strong predictor of poverty, though it almost

has a statistically significant effect though the coefficient is relatively modest). Most

likely that education explains exclusion for the labor market as well.

3/ Poverty is feminized and racialized under post-communism. Single

mothers with children under the age of 16 are about twice as likely to be poor than others.

Roma ethnicity is - next to education - as the second most powerful predictor of

poverty. Roma tend to be 2-7 times poorer than non-Roma. Education explains a lot

from Roma poverty, but not everything. Even after one controls for education (while such

a control indeed reduces the effect of ethnicity) Roma tend to be much poorer than non-

Roma. Unlike the United States there does not appear to be an interaction between

racialization and feminization. Given the strength of Roma extended family Roma single

mothers are more likely to be looked after by their family than non-Roma single mothers.

4/Regime type, however, is the best predictor of poverty irrespective what

measure of poverty we use. People who live in neo-liberal regimes tend to be less poor

than people who live in neo-patrimonial form of post-communist capitalism. This is true

not only for absolute, but also for relative poverty. While inequality is not being reduced

by economic growth facilitated by neo-liberal economic reform (level of inequality does

not vary cross-system, it rather varies cross-countries, driven by political and/or cultural

factors) it appears that in neo-liberal regimes people tend to accept great inequality more

than in neo-patrimonial ones.

5/Coping strategies open to the poor vary little across countries or systems.

Access to transfer payments and degree of self-provisioning is rather similar in all

countries. The welfare system by year 2000 appears to be rather targeted in all

countries, while self-provisioning is more universal. About 5-25% of the population

receive some sort of welfare payments, while half survives by using some form of self-

provisioning. Roma is different from the non-Roma in this respect. Roma has been

constituted as a ‘welfare class’, it qualifies for more transfer payments than non-

Roma, though it participates in less self-provisioning than non-Roma. While for

non-Roma the major way of coping is self-provisioning, for Roma the major way of

coping is welfare assistance.


This book summarizes what the “story” is of our research carried out in year

2000 about poverty, class, ethnicity and gender in six European post-communist

societies. What are the main findings?

First, societies we studied were rather different in terms of the experience of

poverty of people who are still alive today if they turned 14 years old before socialism.

Hungary is remembered is suffering from the least poverty, Russia before 1949 was the

poorest of all countries. Poles and Slovaks remember the pre 1949 times in rather similar

- and in comparison with the Hungarians rather negative – ways. Bulgarians and

Romanians, however, are surprisingly upbeat about their life before socialism, their

responses resemble more the Hungarian ones, rather than those given by Poles or


Memories of old Russians of the 1930s are puzzling. People who turned 14 during

the peak of Stalinism and were still alive in 2000 remember the 1930s as times they were

hungry and when the society they lived in was unfair and inegalitarian. Semi-feudal

Hungary is remembered more favorably, not only a country, where there was less

extreme poverty, but, which was also fairer.

People remember socialism as an epoch in which poverty was gradually reduced (though

in some countries the Stalinist epoch is recalled rather negatively and in all countries the

later epoch of socialism is remembered more kindly). Differences remain across

countries, there is less improvement in Romania than elsewhere, Russia is catching up,

more not completely. The gap, however among countries in the recollection of people

narrowed. Market reform dopes not hurt the trend toward decreasing poverty and

increasing equality.

More markets under socialism do not generate inequality and it certainly does not create


Who were poor under socialism? All what we can tell, whether people who turned

14 reported in 2000 that their family experienced poverty when they were becoming

young adults. Who were they? ‘Class’ does not seem to matter, or to matter much.

Father’s education does not explain their poverty, but whether they lived only with their

mother when they were 14 does in a big way. So does the number of their siblings and

their Roma ethnicity but there are no cross country differences. Hence our initial

hypothesis, that a/socialism was a process of cross-national conversion and b/ under

socialism poverty was life cycle and not ‘structural’ phenomenon.

Losers of transition. We asked our respondents to recall how they lived in 1988,

compare it with 2000 and to assess, whether the change was for better or worse. Our

results are similar to the findings of other studies. In every country the epoch of

transition is remembered as one of sacrifices. In year 2000 the majority of the people

believed that they lived ‘worse’ or ‘much worse’ than in 1988 – between 55 to 85 percent

of the respondent gave such an answer. We also asked our respondents to evaluate

whether they experienced extreme poverty in 1988 and in 2000 – again we see a jump in

such responses from 1 to 5 percent in 1988 to 5 to 15 percent in 2000. Hence it is

reasonable to conclude that the proportion of population who lived under the poverty line

increased (depending on how such a poverty line is measured) by two to five-fold during

the first twelve years of post-communism.

There are, however, dramatic differences in this respect across countries, or ‘regime

types.’ The dynamics of pauperisation also differs greatly in cross-national comparison.

We conducted a similar survey in 1993 and asked some of the same questions in the some

of the same countries. In 1993 the percentage of the population who reported

deterioration in their living standards in comparison with 1988 was almost identical in all

countries. The growth of incidences of poverty during the first 5 years after the fall of

communism was also similar. And let’s add to this, that in people’s experience the

previous 40 years of socialism was an epoch of convergence. While some differences in

the level of economic development and living standards remained across those countries

they shrank substantially. In 1988-1993 all societies took a dive, they took it from a

relatively similar starting point and the speed of deterioration social and economic

conditions was also similar.

The comparison of the 1993 and 2000 data on the other hand tells us a different story. In

some countries we see signs of consolidation even some modest improvement in living

standards and in the extent of poverty. Thus for instance in 1993 Hungary 62% of the

population reported a deterioration in living standards but in 2000 only 54% gave such an

answer. In Bulgaria on the other hand the same data are: 69% in 1993 and 84 % in 2000

– hence the ‘dive’ continued.

Levels of poverty were not only low, but were rather similar across countries in

1988 but given the different dynamism of changes during the first 12 years , and

especially during the past 5-7 years by 2000 the level of poverty is strikingly different in

cross-national comparison. In Hungary for instance 11 % of the population lived below

the poverty line set by the World Bank (this is measured as $4.30 daily expenditure per

‘equivalent adult’), in Bulgaria the respective figure was 38% in year 2000. We tried to

assess poverty in another, ‘softer’ way, so we asked people whether they suffered from

hunger in 2000 (‘Did you go to bed hungry last week, since you could not afford to buy

food?’). 7% of the Hungarians and 16% of the Bulgarians gave us such a response.

Which countries experienced stabilization and showed lower levels of

pauperisation and which continued the decline and achieved very high levels of poverty

by 2000? Hungary, Poland and Slovakia constitutes the first group of countries, while

Bulgaria, Romania and Russia belongs to the second group. This poses some intriguing

question: a/ why do we see a period of divergence after 1993 when during the previous

40-45 years all countries in the region were on a convergence trajectory? b/ is the

continued deterioration of the social conditions in Eastern Europe (Bulgaria, Romania,

Russia), just a temporary phenomenon and once they bottomed out they will ‘catch up’

first with Central Europe and eventually with the EU or do we see the making of two

different capitalist ‘destinations’?

Survey data, collected at one or two time points are not sufficient to answer such

questions, but our data call for the formulation of hypotheses along these lines. One

might argue that the difference between Central and Eastern Europe is geographic and

possible historical, cultural and what government policies were pursued during the last

decade or so is either irrelevant or ‘over-determined’ by history and geographic location.

Hence the Central European countries were economically more developed to begin with

and being closer to Western markets understandably their performance was better too.

The East European countries faced the challenges of transition at a lower level of

economic development and given their distance from the European markets it may take

more time for them to ‘turn around.’ West European and US capital once it absorbed

Central Europe will move further East and generate similar economic dynamism it has

been generating since the mid-1990s in Central Europe. One may add to this the

historical dimension: Hungary and Poland were reform communist countries, hence they

started the reforms much earlier than the countries further East, that should help their

economic dynamism.

While this is an intriguing set of arguments it would be difficult not to see that in

the two regions of post-communist Europe the transition process was rather different,

both in terms of the speed of transformation and the nature of the emergent new


In Central Europe the neo-liberal reforms were not only implemented faster, but also with

more consistency and as a result by the end of the 1990s the institutions of the market,

including the legal and political infrastructure (procedural law, rational accounting and

banking, stable democracy and free media) which has an ‘elective affinity’ with a market

economy were more developed. In the Eastern region of post-communist Europe, while

neo-liberal reforms were also attempted they were often compromised and more survived

from the paternalistic patterns of state socialism. The important role barter or self-

provisioning plays for instance in the Russian economy is a good example of this.

Arguably therefore the divergence may not be only temporary and may not be simply the

outcome of differences in the ‘initial conditions.’ What we see is arguable the making of

two different ‘regime types’ of capitalism, the first we may call neo-liberal (Hungary,

Poland, Slovakia), given its emphasis to free markets and invisible hand and the second

neo-patrimonial (Bulgaria, Romania, Russia). Governments in neo-patrimonial regimes

often legitimate themselves with populist policies, they pursue slower change, and the

regimes justify this with the needs to buffer the population from the pains of the


If such a distinction makes sense at all our finding might speak to some of the more

important policy debate surrounding post-communist ‘transformation.’ If socio-

economic development in post-communist Europe during the past 12 years were not

‘over-determined’ by the initial conditions and geographic proximity/distance, but

government policies also mattered than our data offers support to those who argued

against gradualism and suggested that neo-liberal reform while it may be painful to begin

with it will at least on the long run decrease the pain.

There indeed is support for the idea in the data that liberal reform is likely to support

economic growth and its results may to some extent ‘trickle down’ and ease poverty.

There is no reason, however, for ‘market triumphalism.’ The social performance of neo-

liberal regimes are only impressive in comparison with the performance of neo-

patrimonial system. After all in Hungary in year 2000 still 54 percent of the respondent

believed that their living conditions deteriorated in comparison with 1988 - a rather

devastating assessment. And the situation in Poland is even worse.

Who are those who see themselves as the losers, who report deteriorating living

standards 12 years after the fall of communism? If we now bracket the cross-national

differences (they are the biggest ones – people in neo-liberal regimes are four times less

likely to report declining living standards than people in neo-patrimonial systems) than

education steals the show. Households with low levels of education are almost three

times more likely to be among losers than other households – there is no other factor,

which comes near to this one. Much to our surprise even Roma ethnicity has a weaker

effect that education. The Roma in Bulgaria, Hungary and Romania is only one-and-half

times more likely to see themselves as losers than non-Roma.

Hence social determination of poverty when the respondents turned 14 (for most

of them that was during some epoch of socialism) and social determination of who

reported worsening conditions between 1988 and 2000 are drastically different. During

socialism poverty is determined by demographic factors, such as number of siblings of

the respondent, when he/she was 14, whether the respondent lived only with his/her

mother and the respondent Roma ethnicity. Losers on the other hand are class defined:

they are the least educated and demography, single motherhood does not matter and even

Roma ethnicity is relatively unimportant. Hence there is a sharp shift from ascription to

achievement, from demography, feminization or racialization to class.

Social determination of poverty in consolidating post-communist capitalist systems.

Who are the people who are below the $4.30 World Bank poverty line? Who are the poor

of post-communist capitalism? We seem to know that the extent of poverty increased

substantially in comparison with late state socialism, where extreme poverty was

relatively rare, due mainly to the practices of full employment. But did the character of

poverty also change? Did post-communism create a ‘new poverty’? Many commentators

suggest, it did. Earlier research available to us indicates that poverty under state socialism

was mainly a life-cycle, demographic phenomenon. The single most important predictor

of poverty was number of children. Large families, while children were dependent tended

to be rather poor, but as children entered the labour market they moved out of poverty. So

what could the ‘new poverty’ of post-communism mean? It is reasonable to accept that

number of children will not be the major predictor in a market economy. Education and

labour market performance, hence achievement rather than ascription will tell us who

falls below the poverty line. Thus poverty will be a structural phenomenon, which will

not necessarily go away with changes in life cycle. One carries inadequate education and

resulting poor labour market performance with it for all his/her life.

Our data offers qualified support to the hypothesis that the determination of poverty may

have shifted from ascription to achievement with market transition.

The most powerful variable to predict who falls below the World Bank poverty line is

again the regime type. People who live in neo-liberal regimes are ten times less likely to

be below the poverty line (when in the measurement of the poverty line the value of

expenditures was adjusted to the differences in purchasing powers). Cross-country

differences in poverty rates are generally greater than intra-country differences. This is

almost true for Roma ethnicity. For instance in Hungary 7% of the non-Roma and 21% of

Roma households reported extreme poverty, in Bulgaria the same figures are 16% for

non-Roma and 66% for Roma! Hence Hungarian Roma does not live much worse, than

non-Roma does in Bulgaria.

Nevertheless there are important intra-country differences as well in the social

determination of poverty. In line with the theoretical expectations outlined earlier

education is the most important predictor of poverty. Households with low level of

education are 4-5 times more likely to be below the World Bank poverty line than other

households. Labour market performance in itself is not that important. Those households,

where the head of the household is unemployed or is out of the labour force are more

likely to be poor than other households, but this is no match to the education effect,

probably because education itself explains poor labour market performance as well. As

expected by our theory number of children has a relatively modest effect and once one

controls for education the explanatory power of Roma ethnicity is greatly reduced,

though even after one controls for education Roma will be twice as likely to be poor than

non-Roma. Single mother households and single women are also about twice as likely to

be under poverty line than other households, hence the effect of gender is about as strong

as the effect of ethnicity.

Thus if it is true that under socialism the number of children was the major predictor

who fell below poverty line than post-communism did produced a ‘new poverty’, where

number of children is secondary and low level of education predicts who will be poor in

post-communist capitalism. Nevertheless, this is far from a full swing from ascription to

achievement. While education indeed is the strongest factor poverty is also racialized and

feminized in post-communist Europe. After one controlled for education single mother

households (and their proportion is on the rise as well) and Roma are still about twice

more likely to be below the World Bank poverty line. I would like to draw attention to

the poverty of single mother households. While Roma poverty has been studies a lot the

poverty of single mother households did not receive much attention. I would like to

emphasize that there is a triangle of social determination of poverty under post-

communism: education-ethnicity-single motherhood.

One of our initial hypothesis was that feminization and racialization of poverty occurs

during market transition and it is likely to be more pronounced in neo-liberal rather than

in neo-patrimonial regimes. Our data do not support this assumption. It appears that

poverty was already feminized and racialized during socialism, hance neither signle

mothers, nor Roma were not among the biggest losers of transition. They were

sufficiently poor during socialism, hence for them to be impoverished faster than a

rapidly impoverishing society was not conceivable. It is true, nevertheless, that despite

the increasing importance of low level of education and inadequate labour market

performance in explaining who ends up as poor poverty during post-communist capitalist

systems is also feminized and racialized, though the gap between single mother

households and Roma on the one hand and the rest of the society on the other hand may

not be greater in post-communist capitalism than it was under state socialism.

As we pointed out the strength of Roma ethnicity is greatly reduced as we control for

education, but it does not disappear. Both components of this statement are important.

First, it is clear that improvement of educational opportunities for Roma is an important

vehicle to reduce Roma poverty. On the other hand, it is also clear, that education in itself

will not do the trick – once educational inequalities were eliminated substantial

inequalities between non-Roma and Roma would remain. In particular Roma

employment deserves attention, well beyond the question of equal educational


In the triple determination of poverty - education-ethnicity-single motherhood - there is

an additional unique feature of post-communist societies. While in the US we expect an

interaction between ethnicity and single motherhood as predictors of poverty, in Central

and Eastern Europe – given the strength of extended Roma families this is not the case.

Roma unwed mothers are much more likely to live with the father of their children and if

they are abandoned by their partners they are likely to live with other kin, hence less

exposed to risks of poverty attributable only to single motherhood.

How do people in poverty cope? To what extent can they rely on welfare institutions

and to what extent do they survive by self-provisioning? In our study we looked both at

access to transfer payments and self-provisioning, two complementary mechanisms of


Surprisingly the structure of both of these ‘fields’ rather similar across societies. The

major transfer payment (excluding pensions) is child allowance, which provides

transfer to 25-40% of the households. Social assistance and unemployment benefits is

available to another 10 or so percent. The welfare system is rather uniform across these

societies and typically it is rather selective, targeted. The structure of self-provisioning is

also similar. But roughly about half of the households relies on self provisioning when it

comes to food, hence self-provisioning is a non selective system, universally available to

those who end up in poverty. Ethnicity, however, cross-cuts these trends. Roma is much

more likely to receive transfer payments than non-Roma. Almost twice as many Roma

family receive child allowance than non-Roma households and they receive 2-3 time

more often transfers in forms of social assistance and unemployment benefits than non-

Roma families. In self-provisioning the opposite is true: Roma is half as likely to be able

to provide for themselves than non-Roma.

Post-communism led to a massive increase in poverty, but the extent and

persistence of this poverty varies a great deal across regime types. Neo-liberal regimes

show lower levels of poverty than neo-patrimonial systems. While during the past 5 years

in the former ones there was some moderation in poverty, in neo-patrimonial countries

the extent poverty increased. The shift to market economy happens with increasing

returns to education, therefore those with low education tend to perform poorly on the job

market and they are the most likely to end up in poverty. But the most important finding

of our study is that there is a triple determination of poverty under post-communist

capitalism. The effect of class (measured with education) is complemented by the effects

of ethnicity and single motherhood. Education is twice as important as ethnicity and

single motherhood, but both Roma and single mothers - after we controlled for education

– are still about twice as likely to be poor than other groups. With market transition

criteria based on achievement may have gained grounds but ethnicity and gender

remained strong predictors of poverty.