In this study, we assess, in retrospect, the development paths of 11 new EU member states in Central and Eastern Europe (CEE11 – Bulgaria, Czechia, Croatia, Estonia, Hungary, Latvia, Lithuania, Romania, Poland, Slovakia and Slovenia), with special emphasis on the role of institutions as key determinants of economic development. We also attempt to outline the development prospects of these countries in a dramatically changed global environment stemming from the outbreak of the coronavirus pandemic in early 2020. In the ‘retrospective’ section, we argue that the economic growth paths in the CEE11 countries between 1990 and 2019 led to the narrowing of their historical development gaps with Western Europe (EU15). This process was the fastest in Poland. The economic growth of the CEE countries so far has been mainly driven by low labour costs.
These countries, however, proved unable to create structural foundations of a lasting comparative advantage based on the high innovativeness of their economies and high content of technical progress in manufactured products. Similarly, they failed to build the institutional systems that would enhance sustainable economic growth. Instead, as a derivative of systemic transformation and EU membership, the institutional order that emerged in CEE11 countries can be dubbed ‘patchwork capitalism’. Its most salient feature boils down to institutional ambiguity, which is due to the coexistence of loosely connected, non-complementary institutions, transplanted from various models of Western European capitalism and inherited from the past.
The outbreak of the coronavirus pandemic implies an unprecedented adverse external shock that can bring the hitherto economic and institutional development trajectories of the CEE countries and their international peers to a turning point. Therefore, in the ‘prospective’ part of the study, we endeavour to indicate the major economic implications of the COVID-19 pandemic, with special regard to the labour market.
They are discussed at five interrelated levels:
- macroeconomic,
- mezoeconomic,
- microeconomic,
- institutional
- global.
The course of the pandemic unleashed, inter alia, multiple market failures and massive interventions of nation states whose authorities have tried to strike a balance between minimising the losses of human capital and containing the shrinkage of economic potential. At the same time, a ‘swap’ of freedom with safety has taken place, being revealed in a rise of authoritarianism and a tougher grip by states over everyday life. This tendency has been accompanied by an increased social demand for restrictions, regulations, orders and bans to safeguard stricter health protection.
The COVID-19 pandemic has also triggered an economic contraction, which will adversely affect the labour markets, particularly in countries placed at intermediate levels in the global value-added chain. Poland is likely to suffer relatively less from the crisis compared to most CEE countries, and the crisis will primarily affect jobs in industry, which will augment the pressure to deregulate the labour market. Permanent changes in the structure of labour demand are also a likely scenario: they will entail an ever-growing incidence of precarious labour, as well as a rising share of low-paid, unprotected and highly automated work supervised by algorithms.