Economics, History and Societies






A recent PBS Nova show, “The Great Math Mystery,” discusses why mathematics appears to explain the universe. It notes that mathematics accurately describes only that portion of the universe that we choose to study with mathematics, and that much lies beyond; for instance the dynamics of social systems. This perception is useful both in the natural and especially the social sciences – where mathematical equilibrium economics is now the general social model across the globe, against which the specifics of local histories continually assert themselves.


An economic analysis might ignore history; but social scientists now realize that the social evolution is “path dependent.” In other words, present developments also depend upon a society’s history. A practical person might ask, what are the uses of the generalities of the social sciences and the specifics of history? When do generalities not glitter and the specifics not mire? In the following, we use both at the same time, (but at different levels) and let our readers be the judges of whether the following analysis is useful, or at least thought provoking.


After the fall of the Berlin Wall in 1989, the political scientist Francis Fukuyama published, “The End of History (1992).” In that bestselling book, he then argued that history was at an end, not the history of events, but the history of ideas because liberal democracy, "(replaced) the relationship of lordship and bondage with universal and equal recognition. What man had been seeking throughout the course of history – what had driven the prior ‘stages of history’ – was recognition. In the modern world, he finally found it, and was ‘completely satisfied.’” 1


After the dissolution of the Soviet Union, it seemed natural to assume that capitalism, spreading throughout the world, would encourage liberal democracy’s recognition of people as individuals in their essential equality. The reason would be, not the abstract operation of some 19th century historical process, but a consistency between the liberal market and the democratic political systems that finally emerged in England. National politics and economics would then become mutually reinforcing.


However, events subsequent to 1989 did not always bear this neat schema out. What determines whether a society adopts liberal democracy?



An Empirical Demonstration


In 2005, the sociologist William Outhwaite of the University of Sussex published, “Social Theory and Postcommunism.” The first 66 pages of this book deal with the applicability of  sociological theory to Eastern Europe after the fall of Communism; it is more for sociologists. The rest of the book, however, is an encyclopedia of facts and acute perceptions, describing how the different societies of Eastern Europe evolved, starting with a laboratory experiment. The Eastern European nations faced a common condition, the imposition of Soviet military power on their societies after W.W.II. After its removal in 1991, what happened? What happened were the specifics of history.


After the dissolution of the Soviet Union, the nations of Eastern Europe took three main actions in preparation for home rule:


1)    They abolished the centralized economic planning system that had failed so catastrophically.


2)    Freed prices, (our note: to a degree).


3)    Privatized their companies, (our note: to a degree). 2


The key words here are, “to a degree”. Outhwaite quotes, “the postcommunist transition has to be viewed as basically a state project and not a market project. Though the market is the ultimate objective of the transition, the process of getting there is mainly in the state’s hands.” 3 This therefore means that how this transition might be accomplished was an act of policy; and therefore conditioned, as the author crucially notes, on “local peculiarities.”


Postcommunist capitalism responds to, “absences, whether of resources, skills, or legitimacy, in the contexts in which it operates.” 4 This is the main reason why the globalized market system spreads like kudzu; in an unregulated form, it is very flexible. (Which argues for some financial regulation, lest markets get out of control; as they surely did in 2008.)


How each Eastern European society responded to globalization and the market system depended on:


1)    Prior social networks and “networks that emerge through institution building…hence, given the importance of the state to these there will continue to be different national forms of capitalism...” 5


2)    “a path-dependent pattern of emergence into postcommunism can create a fuzzy institutionalization of markets where boundaries between state and economy, public and private, are unclear.…Difficulties of creating a democratic culture and constitutional system (are) exacerbated by lack of decommunization of administrative, police, and security apparatuses, and enabled communist networks to persist in an atmosphere of weak regulation." 6


3)    The new social space created, “requires democratic political processes in which Non Governmental Organizations can operate…” to create public accountability. 7 The author well describes the necessity of civil society to democracies. “Many theories of democracy, from Locke through Hegel and Tocqueville, claim that in complex societies relations between individuals and the state are mediated through a sphere of civic activity and values. In this literature, civil society constitutes a defense against both excessive state power and atomized individualism, while the rise of authoritarianism and totalitarianism is attributed to its absence or destruction…” 8 


“The denser the networks the more secure are the bridges between civic life and political association along with institutions of the state. Active, voluntary, and informal groups and networks make for a more stable democracy and protect against incursion by the state. The bridges envisaged here are based on institutional links along with shared moral and civic values of reciprocity. Civil society in this sense has a recursive property; it protects against state incursion yet strengthens the (liberal democratic) state. Conversely, the absence of civil society is both an explanation and reinforcement of authoritarian yet ineffective government.” 9


Relevant to the Mideast, and now even to some extent in the United States, “Social integration requires that we agree not over substantive matters of identity and opinion but on the rules through which public debate and conflict will be conducted (our note)…it is the disengagement of political and juridical institutions from the lived bounds of solidarity, that is a failure of civil society, that promotes new exclusive communities of trust, such as ethnic nationalism.” 10 The language of this kind of political appeal is angry, with predictable results.


This is why transitions from authoritarian regimes, when civil society is not developed, can be very bloody - going back to the French Revolution of 1789. Perhaps this logic holds:  If democracy civil society, then no civil society no democracy. The existence of civil society, or at least an incipient one, is likely a marker that determines whether liberal democracy is possible.



Outhwaite goes on the detail the role of civic cultures in several Eastern European societies:




Of all the countries of Eastern Europe, Poland had the easiest transition to market capitalism. Unlike other countries, it endured only two years of GDP decline after the shock of transition; between 1994-1997 it experienced an average annual GDP growth rate of 6.3%. 11


The relative ease of this transition was due to the historical fact that, “Despite Soviet repression, the Polish people still possessed the traditions of the political and economic institutions necessary for success in an open economy. Furthermore, despite communism’s failure, Poland did emerge from the shadow of the USSR with valuable assets: developed infrastructure (and) an industrially skilled workforce…The fact that Poland already possessed the basic capital needed to compete in a global economy eased its transition into the free market.” 12 


A civil society of protest also existed, supported by the Roman Catholic Church 13 and later led by the Solidarity union that, “bypassed and ridiculed, rather than engaged with, the state...” 14 which was simply taken over in 1990 when Lech Wałęsa won the presidential election. The success of the Solidarity movement heralded the collapse of communism throughout Eastern Europe.




Bulgaria had a difficult transition to market capitalism. It endured 6 years of GDP decline; between 1994-1997 it experienced an average GDP growth of -3.6%. 15


The difficulty of this transition was due to Bulgaria’s history, “(It) was particularly receptive to Soviet hegemony...Russia was perceived as the liberator of the nation from earlier Turkish rule.” 16 As a result, “Soviet influence was less resented than elsewhere in the bloc and the country experienced a ‘Gentle Revolution’ in 1989.” 17 So to speak; this was actually nomenklatura privatization, “The other side of its gentleness was a certain degree of incompletion highly favorable to members of the former elites.…These are good examples of the development of closed networks as a means of protecting the local economy against global competition." 18


According to a 3/11 political study by the Friedrich Ebert Foundation, "The civic sector in today's Bulgaria is strongly dependent on external funding; it is lacking sufficient internal support."




The “shock therapy” economic transition under Boris Yeltsin produced a social chaos that paved the way for the authoritarianism of Vladimir Putin. Russia endured 7 years of GDP decline; between 1994-1997; it experienced an average GDP growth of -5.3%. 19


Outhwaite writes, “The implosion of Soviet communism marked the failure of state socialist civilization…Global integration through trade, debt, and televisual communications exacerbated the effects of long-term systematic and social problems, but they were not the primary causes of the collapse.…Underlying this was a structural problem that the reforms of the 1980s had attempted to address, namely that the centrally planned system was incapable of generating domestic innovation or the volume of exports required to sustain the required level of imports of technology…the system collapsed largely as a result of unintended consequences of reforms, the intention of which had been to stabilize the regime. This can again be understood only with reference to Russian society and history.” 20 


A 5/14 Foreign Policy magazine article is titled, “Putin’s Assault on Civil Society Continues.”  Russian NGOs are having trouble, “it is still very difficult for Russian NGOs to reach broad segments of the population, who remain mired in a submissive and paternalistic relation with the state. Second, the NGOs are struggling to cope with deepening levels of repression against Russians seeking the active exercise of their rights as citizens.” 21



Societies differ; their responses to the challenges of globalization differ according to their histories, new developments and leaderships. Societies benefit from gradual transitions to a market economy. However, as these three examples suggest, a nation's culture and history determines the thoroughness of the economic transition possible, at least in the medium-term. Changes have to be meaningful in terms of the past.


We have also emphasized civil society, rather than income level, as a crucial factor determining whether liberal democracy is also possible. Liberal democracies need civil society, for government to remain "relevant," to use a Silicon Valley term. Conversely, civil societies need governments to achieve necessary long-term goals that markets alone cannot address. 22 Civil societies are built upon the social capital of trust and civility.








What happens when societies lack civility? In a 5/27/15 NYT article, Thomas Friedman writes:

"The whole Arab world package, with its artificially straight-line borders, was held together by oil and brute force. In the wreckage, people are falling back on the only identities they think might keep them safe: tribe and sect.

For now, I see only two ways coherent self-government can re-emerge in Libya, Iraq, Yemen and Syria: If an outside power totally ocupies them, snuffs out their sectarian wars, suppresses the extremists and spends the next 50 years trying to get Iraqis, Syrians, Yeminis and Libyans to share power as equal citizens. Even that might not work. Anyway, it's not going to happen. The other is just wait for the fires to burn themselves out....The Lebanese civil war ended after 14 years by reconciliation-through-exhaustion. All sides accepted the principle of 'no victor/no vanquished,' and everyone got a piece of the pie...

We cannot effectively intervene in a region where so few share our goals. For instance, in Iraq and Syria, both Iran and Saudi Arabia have acted as 'arsonists' and 'firefighters.'"

To return to our earlier culinary analogy, the Mideast is like scrambled eggs. Sending in the Marines won't do the job. Maybe a solution is to reestablish in the Mideast a balance of power, that is also constructive. This is preferable to the dangerous chaos that now exists, due to the large-scale democracy experiment in Iraq which went awry.