1. Economic and Societal Differentiation

Economic reform has brought about conflicting results. In the area of regulatory and economic policy, most analyses[4] see the four countries having almost attained the level of the more advanced market economies in most areas (privatisation, liberalisation, capital market reform, legal framework). In macroeconomic terms, the initial result was massive recession, double-digit inflation and a marked rise in the unemployment rate. Recession and inflation have now tapered off.

In terms of foreign policy and foreign trade, the four countries have integrated themselves into Europe. They are in the Council of Europe and they are associated with the EU, which implies the prospect of full membership. Some are already in the OECD and all are closely tied to NATO. In only a few years time, their foreign trade has largely reoriented itself toward Western Europe. Most of their direct investment and other types of capital flows also come from Western Europe.

Despite favourable growth rates since 1993/94, the countries have not yet reattained their 1989 income levels. Moreover, even if growth should continue - and global business cycles make this appear unlikely - the emerging changes in the socio-economic structure will continue[5].

• Income differentials will increase. Before the end of Communism, the relationship between the per capita income of the wealthiest 20 percent and the poorest 20 percent in East-Central Europe was around 3-4:1. It can be assumed that this has since at least reached the western level. In Germany it is over 5:1, in other industrial countries (the US, Italy) at over 7:1, in Brazil at over 30:1[6].
• Because of the high income differentials between East-Central Europe and Western Europe, incomes in East-Central Europe vary above all between groups that work in the international sector (exports, foreign businesses, etc.) and those that are dependent on domestic business (recipients of social transfers, women, farmers, workers in uncompetitive sectors).
• The number of people living in poverty has increased in all four countries. In Hungary, for example, the number of households with an income below the poverty line grew from 13.9 percent in 1989 to 45.2 percent in 1993[7].
• Unemployment is probably increasing despite economic growth; as in other OECD states, market-oriented firms are under great pressure to increase productivity while the public sector is forced to cut expenditures.
• Social security in the Communist system consisted primarily of full-employment and price policy (subsidised essential goods). Liberalisation has removed distortions from the price structure, although large areas are still controlled (e.g., the housing market). Yet the absence of an efficient and adequate system of income maintenance has left without compensation those parts of the population who have suffered a decline in real income because of price liberalisation. The demands of fiscal policy place tight limits on any policy of redistribution, whereas the price structure will continue to liberalise.
• Privatisation changes the wealth and income of many citizens. Political connections and insider knowledge frequently determine the new distribution of wealth.
• In all four countries, there is a strong East-West gap in economic activity and thus in employment and income. These internal differentials necessitate regional compensation mechanisms.

These burdens are only partially alleviated by positive developments: A rapid increase in the inflow of durable consumer goods, an inscrutable underground economy, and a social welfare system highly developed in relation to the income levels of the countries. But these "premature welfare states"[8] are no longer sustainable. The probably unavoidable reorientation towards market-oriented social security systems will individualise life-risks and the levels of protection against them, which will clearly exacerbate social inequality.

This social differentiation only partially corresponds to the economic differentiation within these countries. Social groups do not only define themselves on the basis of their economic position - which anyway can rapidly change during the transformation process - but also on the basis of their socio-cultural, ideological and political characteristics and organisational forms. To speak of a system of political and social "cleavages" is helpful in portraying such differences.

The structure of the cleavages in East-Central Europe has changed and differentiated in the years since 1989-1990. The most distinct cleavage was that between the Communists and the democratic opposition during the upheavals of 1989/1990[9]. But with the exception of Solidarity, the opposition movements against dictatorship were not organised mass movements. Their political organisations (Solidarity, Citizen's Forum, the Public Against Violence) have since largely disintegrated. On the other side of the cleavage, there is also little that has remained, as even the Communists, with the exception of extreme splinter groups and the orthodox Czech party, do not actively defend the old system.

New cleavages have developed, the significance of which varies from country to country:

• Reform process: economic losers - economic winners
• Factor earnings: capital - labour (not clearly manifested because of the lack of
  functioning employer associations)
• Regional: urban - rural; west - east (with the urban-rural coinciding with
  the west-east differences in Poland, Hungary, and Slovakia)
• National: titular nation - minorities/foreigners (the strongest in Slovakia
  vis-a-vis Hungary; traces in Hungary because of Hungarian
  minorities in neighbouring countries and Gypsies; in the Czech
  Republic, (Sudeten-)Germans and Gypsies).
• Role of the state: strong, centralised interventionist state - liberal, federal state.
• Religion: secular/republican - religious-oriented/conservative

These cleavages are hardly comparable to the well-known left-right conflicts of Western Europe. They are also only partially reflected in the party-political spectrum. Their structure is more dependent on the specific form of the old system, the transition path and the pre-Communist traditions[10]. The political systems of the young emerging democracies are developing in a context of rapid socio-economic change. The stability they must attain requires successful management of the transformation - and in the long run, of the process of integration - although they still suffer from significant structural problems.