Capitalism, socialism & democracy.

LONDON-AS the nations of Eastern Europe prepare for their first free elections, their newly emerging leaderships are beginning to glimpse a dramatic possibility: that the vacuum created by the collapse of Communism might just allow them to advance directly to a full-fledged free-market economy, avoiding any Keynesian or collectivist pitstops along the way. With the political class preparing for the coming campaigns, it is the economic chiefs of the transitional regimes who envision this possibility. Vaclav Klaus, the finance minister of Czechoslovakia, has gone on record as seeking for his country "a market economy without any adjectives" (thus rejecting even the "social market" model still fashionable in Western Europe). Similar Friedmanite thoughts exist in the minds of treasury minister Balcerowicz in Poland and the economics team in Budapest.

This upsurge of neo-liberal economics is the result not so much of a new moral imperative as of the understanding throughout Eastern Europe that central planning simply doesn't work. Ljubo Sric, a Yugoslavian 6migre who runs the sought-after Glasgow University Center for Research in Communist economics, suggests that virtually everybody throughout Eastern Europe including the Communists" now believes that only a free-price system can revive the economy. This neo-liberal zeitgeist, he argues, is here to stay because it is rooted not in intellectual fashion but in the bitter experience of the shortages and overproduction under a system of central planning.

Eastern Europe's neo-liberals are also beginning to see the possibility of an "economic miracle." This optimism can be put down to the first flush of freedom. Yet there is something in the suggestion that as long as they can get the initial structures right, then Eastern Europeans may indeed witness dramatic economic growth based on the release of pent-up energies repressed under Communism.

Yet economics is not politics. Though politicians have given the economists their head for the moment, they may rein them back as democratic discontents build up. Most people recognize that a market economy will initially witness high levels of unemployment. Public pressures could build up, if not for a return to central planning, then at least for a regime of massive subsidies.

Much also depends upon the "enterprise unit" adopted. The talk at the moment is of a mixed regime of limited companies, small workshops, and workers' cooperatives. Yugoslavia has already experimented with a form of collectivized market economy run by workers' collectives. Although this ran into considerable trouble (not least because workers paid themselves more than the market would bear and then sought public-sector bailouts), there will be a temptation to follow the same route-particularly if the dash for freedom is socially traumatic.

The old Communist parties (under whatever name) will be roundly beaten in the coming elections. But the old Communist apparatchiks will be seeking power in new parties, many of which are still ideologically empty vessels. what are their prospects? Most commentators predict that assorted nationalists, Greens, populists, and peasant parties will certainly secure some votes. So will parties calling themselves "liberal" (although "liberal" here is a slippery term encompassing the free-marketeers of Italy and the quasi-socialists of Britain). So, too, will the parties of the Right which recently staged a pan-European get together in Vienna. Yet a plurality looks set to go to parties or coalitions (like the Socialists in East Germany or Civic Forum in Czechoslovakia) whose ideologies, although fluid and incoherent, can best be described as social democratic. Recent polls suggested that in East Germany the Socialist Party would receive 54 per cent of the vote, and in Czechoslovakia the Civic Forum and its sister party a healthy 28 per cent.

Already parties of the Socialist International, sensing that initially at least the new democracies of Eastern Europe would be pinkish, are campaigning to influence the outcome. A faction within the International, associated with Willy Brandt and Egon Bahr, the geostrategist of the West German Social Democratic Party (SPD), is trying to save the skins of Eastern Europe's Communists (with whom they maintained "party to party" relations during the 1970s and 1980s) by encouraging them to switch parties en masse and reappear as new model democratic socialists. Their argument is the managerial one that the former Communist regimes had recruited most of the talent in those societies. Not surprisingly this is resisted by those genuine social democrats who suffered under the Communists.

Yet the future of Eastern Europe may yet be determined not by panEuropean organizations but rather by the wildcard of German reunification. Chancellor Helmut Kohl seems determined to outflank his Socialist opponents by making the issue of united Germany his own. Yet his success could easily backfire. The SPD has every reason to feel that its moment in the sun has finally arrived. Its new chancellor-candidate, Oskar Lafontaine, is convinced that the incorporation of East Germany in the Federal Republic will add the votes to put the SPD in the united German driving seat in Berlin for the rest of the century and beyond. Such an SPD government (with or without an alliance with the Greens) could, through its economic leverage, nudge the whole of Eastern Europe back towards socialism. Such a prospect needs to be set alongside the optimism of Eastern Europe's nascent free-marketeers.