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  Eastern Europe's Economic Boom: The Tiny Tigers

Eastern Europe's Economic Boom The Tiny Tigers

By Marion Kraske and Jan Puhl

Part 3: Part III: Eastern Europe goes high-tech 

This explains why no public outcry accompanied Latvia’s 100 percent increase in the charge for house calls – from two to four lats (about €6). The largely uncompromising open-market economic course steered by eastern European countries is not in question for most of the population. Unions that might buffer some of the harsher winds of capitalism are practically non-existent. “They reek of socialism,” many Latvians think. Under the former system, almost all labor organizations were synchronized weapons of propaganda to be wielded at will by their governments.

Poland is the exception to this rule. There it was “Solidarity” that helped overthrow the workers’ and peasants’ state. But now, 15 years later, its influence has virtually evaporated.

The lesson learned in recent years? Initiative is the key to progress. Inventiveness and courage have enabled many entrepreneurs to make their fortunes in the new EU countries. People like Tiina Mois, who is considered Estonia’s wealthiest woman.

“None of us really knew what we were doing. We simply started up,” she remembers. She and a few friends rented a couple of rooms in downtown Tallinn in 1991. She gave up her secure job as head bookkeeper at the Chamber of Industry and Commerce. “We dreamed of a customer- friendly bank, without brusque, Soviet-style manners and with longer opening hours than 11 a.m. to 1 p.m.” Thousands of Estonians deposited their savings in the newly established Hansabank back then: in rubles, the currency of the much despised big brother in Moscow. Estonia finally gained its independence in 1992. “We profited considerably from the fact that we were perceived as Estonians rather than Russians.” From the onset, the infant Hansabank harnessed the latest technology. “We didn’t want paper; we started with computers right off the bat.” Today the Hansabank Group employs 6,000 people in the Baltic region. After much wavering, Mois recently gave in and sold her stake to Swedish investors.

The bank’s success reflects the Estonian economic miracle en miniature. With irrepressible creativity, the nation simply hurdled the phase of industrial capitalism, catapulting itself straight into the IT era.

Paying taxes by laptop

The state embraced the new age as well; the ministers hold paperless meetings on laptops. Citizens can follow the workings of parliament and government agencies live over the Internet. To bring the citizenry up to speed, PC training was provided to hundreds of thousands of Estonians.

Today more than 60 percent of the population files their tax returns by e-mail. Even the most remote places have public Internet access. And the leaders in Tallinn are already debating whether to allow citizens to vote by computer.

Here as well, the young are writing the success stories. The political and economic upheavals have opened up tremendous career opportunities.

Take the headquarters of the J&T financial group located just outside Bratislava. Only the heavy metal revolving doors – equipped with the latest security technology – hint at the fact that power and money reside here. Martin Fedor is one of the group’s nine partners. Eleven years ago, Fedor and several friends, all more or less of the starving-student variety, began buying stocks on the new exchange in Bratislava – with the aim of selling them off at a profit.

After the group chalked up its initial successes in this uncharted territory, the project gradually expanded. Fedor and his friends were eventually dealing with sizable stock volumes. “With the sale of our stakes in the Slovakian energy group Nafta to Germany’s RWE, we realized profits of 500 million korunas [about €13 million] in the space of five months. That was a landmark in our careers,” Fedor recalls. The erstwhile students evolved into one of the most potent financial groups in the country.

“We’re fast, innovative and flexible,” Fedor says, enumerating his firm’s strengths. Today J&T employs 300 people. The group even owns its own “J&T Bank” headquartered in Prague. The clique of students, most of whom are now in their mid-30s, has become a powerful club of euro millionaires.

Migration from the East never materialized

But by no means are they ready to retire. Plans are already under way for a new money-making scheme: the construction of a winter sports facility in the High Tatra Mountains, including a five-star hotel and golf course. It is an ambitious project worth about €100 million. “We’re always on the lookout for opportunities,” says Fedor laconically of his firm’s secret to success. These careers are beyond the wildest dreams of Fedor’s contemporaries in the existing EU states. And they are one reason why the mass migration to Old Europe – a source of alarm in the West – has largely failed to materialize.

In the horror scenarios painted prior to accession, invading hordes of Poles, Czechs and Hungarians – hundreds of thousands who had been waiting with their bags packed – would descend on the West on May 1, 2004. Happy to work for a pittance, they would pose a mortal threat to the livelihoods of complacent West Europeans. With a few exceptions, such as the meat industry, the menace from the East never arrived.

Even Poland has bounced back from its bout of anemia. Experts expect its economy to grow by 4.2 percent this year. Warsaw’s “Palace of Culture,” a relic of the bygone communist era, is slowly being eclipsed by modern skyscrapers. Business centers, banks and corporate headquarters block the view of Stalin’s tower. Poland may be politically chaotic, but it is stable. With a population of more than 38 million, the largest new EU member is both an affordable production site and a market full of hungry consumers from the standpoint of global predators.

Even the country’s hundreds of thousands of farmers are better off since the subsidies began flowing in from Brussels. The West has begun to develop an appetite for Polish butter, beets, pork and poultry. But this economic earthquake is inevitably causing some social aftershocks.

“Poland A” is a new colloquial expression describing the people who patronize the downtown cafés and restaurants. They speak German and English and have computers at home. At the Frédéric Chopin Airport, they line up at the business-class counter, shoulder to shoulder with executives from the West.

Poland’s industrial production grew more than 11 percent in 2004. Listed corporations such as PKO Bank or PKN Orlen – an oil company active in Germany – are making record profits.

Mid-sized German companies recognized the country’s huge potential long before it entered the EU, and have set up more than 6,000 joint ventures with Polish partners. The self-confidence of the up-and-coming Eastern European generation has grown along with their countries’ economies.

Ponderous dinasaur Germany

In this generation’s minds, just a few years ago Germany stood for quality, thoroughness and entrepreneurial success. Today many regard the country as a ponderous dinosaur that is toiling to keep pace with the times.

“We did away with communism, privatized the economy, and now have 6 percent growth. What are we supposed learn from you?” asks Andrzej Kaniewski, a man who is well acquainted with Germany. His skepticism is shared by the Slovakian financial juggler Martin Fedor. Today, “we’re world class,” he says, even if not everyone in the East is profiting from the boom.

“Poland B” begins just a few kilometers beyond the sparkling new skyscrapers: decaying villages with gray and peeling facades, many without paved streets. At noon men with beer bottles in their hands are already standing around in the sun. The Poles have an expression for alcoholism: “Standing outside the store,” they call it.

The Lublin region is among the hardest hit. The official unemployment rate borders on 15 percent. But in villages like Rudnik near Zamosc, the birthplace of Rosa Luxemburg, nearly half the population is out of work. Rudnik is considered the poorest community in the entire country. But there are hundreds of Rudniks all across Poland.

The other members of the former eastern bloc also have their poorhouses, where time seems to have stood still. While cities like Tallinn, Riga and Vilnius are assuming a chic, Scandinavian flair, many rural areas are sinking into destitution. Old women often linger outside the bright boutiques, shyly offering bunches of parsley or small icons to tourists in hopes of supplementing their meager pensions.

While western Slovakia revels in capitalism, hundreds of thousands can scarcely eke out a living in the country’s eastern regions. They live far from the prestigious, high-priced industrial developments, under wretched conditions. Their homes are little more than sheds; electricity and running water are rare luxuries.

Some are left far, far behind

The Slovaks contemptuously dismiss them as “tin villages.” It is primarily the Roma who are missing out – the economic boom is passing them by like a distant thunderstorm. Officially, some 100,000 are affected. But experts estimate the real figure at closer to 500,000.

Ninety percent of the Roma are unemployed and live off welfare: social dynamite which the government of Prime Minister Mikulás Dzurinda has primed with his neo-liberal reforms. The cabinet’s decision last year to halve the welfare payment (at 2,900 korunas – some €70 – hardly lavish) sparked an angry explosion. In Kosice, Presov and Spisská Nova Ves, Roma looted shopping centers and small businesses. The government responded with police and troops, the first time the army has intervened domestically since 1993.

Local officials have begun giving public service jobs to the Roma to keep them off the streets. But the danger still remains. The gulf between rich and poor has widened dramatically in the past few years.

Luxury cars in the cities and tin huts in the country: In Poland, the glaring social inequality is above all under assault from Catholic, anti-EU nationalists who canvas for votes with inflammatory speeches.

The huge population living in rural areas and decaying towns forms the potential pool of those willing to go west and work for what, in Germany, are condemned as dumping wages. Experts estimate that several hundred thousand migrant workers are now seeking their fortunes abroad.

Most do seasonal work, harvesting asparagus and grapes. In the 1980s and early 1990s, Polish professors and doctors got down on their knees to harvest Germany’s strawberry crop. Today this work is done mainly by unskilled laborers with no hope of finding employment back home. At the same time, flourishing Poland is attracting more and more migrant workers from the Ukraine and Belarus.

The illegal workforce is estimated to be 300,000 strong. It does the jobs Germans also happily delegate to immigrants working for cash in the shadow economy – cleaning, gardening, and babysitting.

The Belarusians are to the Poles what the Poles are to the Germans: cheap labor. The caravan of globalization is winding its way farther and farther east.

A new whirl on the global carousel

The Hungarian city of Székesfehérvár has had a bitter encounter with this eastward crusade. After the Iron Curtain fell, the storied imperial city experienced a fairy-tale revival. Hundreds of major western companies relocated there within a short space of time. The Financial Times even ranked the city and its environs – with a combined population of only 108,000 – among the world’s 10 most dynamic economic regions.

As salaries in Székesfehérvár continued to climb, its competitive edge dulled. The mass exodus was sparked in 2002 when IBM, Hungary’s second largest employer at the time, laid off 3,700 employees and moved to China. Other high-tech companies followed. A wave of plant closings washed over the country. Soon people were talking about the “pullout of the big players” – but the small players were not immune. Textile mills and leatherworking companies are following the trend and relocating as well.

“We have watched low-wage production migrate – primarily to Romania, but to the Ukraine too,” complained Economics Minister János Kóka recently. In Székesfehérvár, the unemployment rate rose dramatically. The fat years seemed over.

But now the pace is gradually picking up again, and a new whirl on the global carousel is about to begin. “Hungary is in the midst of a structural transition,” says Wolfram Klein of the German-Hungarian Chamber of Commerce in Budapest. New investors are knocking on the door, offering “higher-quality employment.”

Hungary is gearing up and hoping to snare new jobs in such growth sectors as IT, logistics, environmental technology and bioengineering. The merry-go-round is turning once again.