The First Decade of Reform
| Author | James Anderson; David Bernstein; Cheryl Gray |
| Profession | Poverty Reduction and Economic Management Department (ECSPE) in the Europe and Central Asia (ECA) Region |
| Pages | 07-22 |
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The former socialist countries of Central and Eastern Europe and the former Soviet Union began the transition process in the early 1990s with public institutions that were ill suited to the needs of a market economy. Legal and judicial institutions were no exception. While legal systems in socialist economies may have looked on the surface similar to those in Western market economies-with, among other things, an extensive network and reliance on courts, lawyers, and prosecutors-the roles of both the system itself and the actors within it were very different from analogous roles in market economies. According to socialist theory, the socialist state was the instrument through which a classless society would be created, and the socialist state itself was to be ruled by a majority working class. Thus, the governance structure, including the judiciary, was designed to enforce the interests of the working class, as represented by the communist party. The ideas of separation of powers, a limited state, and individual rights vis--vis the state were essentially absent from this worldview.
In the socialist state, public law1-especially administrative and criminal law-and the institutions to enforce it dominated the legal system. Administrative law2 regulated the actions of administrative agencies of the government. Since the socialist state assumed a dominant role in managing both the economy and social life, administrative law and Page 8 institutions-which were part of the executive branch-represented the most extensive part of the legal infrastructure. The legislative process relied heavily on sub-laws and regulations that interpreted and applied the primary legislation.
The content of socialist laws was also designed to achieve the aims of the socialist economic system. Criminal laws and institutions sided with the interests of the "working class"-in practice the communist party. Special "crimes," such as the prohibition against entrepreneur- ship, protected the state economic monopoly. The prohibition against "parasitism" enforced full employment. Attacks against state ownership were punished by more severe sanctions than attacks against private or personal ownership, and people belonging to the working class even received lesser punishments in certain cases.
Given the broad coverage of public law, few issues were left for the field of private law.3 Most private law covered family matters and the limited number of economic transactions allowed among individuals (such as the transfer of houses). Socialist laws governing private transactions in CEE and the CIS were based on civil law principles with modifications to enforce Marxist-Leninist ideology. Prior to socialism these countries had long legal traditions based on Roman civil law, and socialist principles were essentially grafted on to this civil law base. This actually eased the later transition away from socialism somewhat, by giving some transition countries a more advanced starting point from which to adapt their legal system to the needs of a market economy.4
Legal institutions functioned no differently from other government agencies: they focused on managing the economy and engineering society in ways that would be consistent with overall ideological objectives. As the economy was centrally planned and managed, most economic agents in the market were state-owned companies. Enforcement of contracts and property rights among these economic agents was seen as the job of the state and its administration and was generally handled by a special agency-state arbitration, usually controlled by the Ministry of Economy-rather than the courts. Arbitrators were not supposed to be independent, and the primary objective of these proceedings was fulfillment of the state economic plan rather than justice per se. The outcome Page 9 was determined with reference to the needs of the economic plan or by negotiations among top managers. The organization, working procedures, human resources, budget, and information and asset management of state arbitration all reflected its underlying role and purpose in this centrally planned regime.
The judiciary, in contrast, was responsible primarily for noneconomic matters, including most civil and criminal law. Given the lack of any notion of independent checks and balances in the communist system, the judiciary was politically subordinate to the communist party (as representative of the people). The judiciary was organized in a hierarchy of courts managed by the executive branch (the Ministry of Justice). Prosecutors in the powerful Procuracy oversaw the day-to-day conduct of hearings and other judicial processes. There was no role for constitutional courts, as there was only one source of power-the party.
The legal profession-lawyers, prosecutors, and judges-were trained in socialist law. Like other parts of the profession, the bar association that oversaw lawyers was also controlled by the state, as were the salaries of all professionals. Being a judge was a respectable but not particularly high-status profession, and neither judges nor lawyers were particularly well paid. Since the demise of socialism, there has been rapid growth in the demand for legal expertise to service the new private sector. These professions have seen a consequent change in opportunities, expectations, the level of competition, and resulting salary structures. Many lawyers were quickly able to expand their expertise in new areas of law applicable to market economies, and they thrived. But opportunities and incentives for judges to expand their skills to suit the new economic realities were less available. Thus the perceived quality of judges and their fit with the institutional needs in these emerging market economies deteriorated through the 1990s in many settings.
The mindset of citizens in many countries at the start of transition reflected the long-term impact of a highly centralized state. For example, the 1990 World Values Survey included a question on who the respondent believed should manage business and industry: owners, employees, owners and employees together, or the government. As is clear from figure 2.1, citizens in transition countries were much more likely than those in most other countries in the world to say that the government should own and manage business and industry. Attitudes about state institutions and their central role in society were deeply ingrained.
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There were, however, significant differences in mindsets and knowledge among citizens of different countries. A key difference between societies of the CIS and those of Central and Eastern Europe (including the Baltics) was that in the latter, socialism had been in place for only about 40 years when transition began in 1990, as compared to 70 in the former Soviet Union. Thus older people still had memories of presocialist forms of property and business organization, and they retained an understanding of concepts of private property and other private rights. It is no coincidence that key milestones in the history of communism came in Hungary and Czechoslovakia, both countries with fairly strong memories of the rights available to individuals in the pre- communist period. The fundamental recognition of rights vis--vis the state ultimately played an instrumental role in toppling Soviet-style communism. In Poland, for example, the deep-seated notion of rights helped to create and sustain the Solidarity Movement.
The transition challenge facing the CEE and CIS countries at the beginning of the 1990s was both enormous and complex. Many of the countries faced tremendous macroeconomic instability, with high inflation, a reduction in traditional sources of fiscal revenue, a drying up of traditional trade...
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