Comparative political economy scholars have identified a variety of post-socialist welfare capitalist models amongst Central and Eastern European (CEE) states (Bohle and Greskovits Reference Bohle and Greskovits2012; Myant and Drahokoupil Reference Myant and Drahokoupil2012). Contrary to predictions that globalization, and European Union (EU) accession in particular, would lead to convergence towards one set of common rules and norms, these studies suggest that post-socialist states, like their Western European counterparts, have followed diverse political economic paths. Underlying these political economic models we find widely, but not uniformly, shared understandings of the ideal relationship between the state, market and society embedded within particular national historical trajectories. With the 2007 economic crisis hitting post-socialist states hard, the question arises whether this diversity of post-socialist welfare capitalist cultures will endure. Considering that crises give rise to new constraints and new opportunities, this paper explores different interpretations and responses to crisis across different post-socialist national political economic contexts.
The paper considers this question through a comparison of two most different cases: Estonia and Slovenia. Both of these small, newly independent states were heralded as economic success stories upon joining the EU. Yet each state can attribute its economic “success” to very different transformation strategies: Estonia pursued the most liberalizing post-socialist reform agendas, and Slovenia one of the most interventionist. Each state remained on this path despite EU demands to liberalize in the case of Slovenia and de-liberalize in the case of Estonia. In each case linking nation-building to market-making contributed to the continuity of these paths, although in Estonia the economic nation was imbued with neoliberal values and in Slovenia more protectionist ones. Different outside observers heralding these states as economic successes only strengthened affective ties to particular national welfare capitalist models (see Lindstrom, 2015: 3).
The economic crisis in the late 2000s adversely affected each state, prompting the most sustained political contestation over the appropriate role of the state in two decades. Estonian critics of the radical neo-liberal model that has defined Estonian economic culture since independence used this window of opportunity to mobilize for more active state intervention. Slovenian critics of Slovenia’s gradualist path, on the other hand, capitalized on the crisis to push for further liberalization. In Estonia challenges to the societal consensus around its neo-liberal model proved to be short-lived, with external praise for Estonia’s austerity measures drowning out domestic critics. The crisis has spurred more far-reaching change in Slovenia, however, where a domestic banking crisis has strengthened external pressure to reduce the role of the Slovenian state in the economy. This suggests that we must examine ways in which interpretations and responses to economic crises are shaped within intersecting domestic and transnational public spheres, especially in the case of small, open, and dependent political economies on Europe’s periphery.
Varieties of post-socialist welfare capitalist cultures
Comparative analyses of post-socialist welfare capitalisms highlight two relevant features that distinguish Eastern Europe from Western Europe. The first concerns sequencing of the formation of capitalist welfare states and European and global integration. West European welfare capitalist states emerged within a global “embedded liberal” (Ruggie Reference Ruggie1982) international economic order whereby states were granted autonomy to pursue interventionist policies to protect societies against destructive market forces. In Eastern Europe, on the other hand, national welfare capitalisms developed in tandem with their integration into a rapidly globalizing and regionalizing economy. The openness of East European welfare capitalist states to transnational forces calls for new categories that capture these different historical and structural factors. Nölke and Vliegenthart (2009) coin the term “dependent market economies” (dmes) to distinguish post-socialist states from the binary “market liberal” or “coordinated market” ideal types identified amongst West European states. Bohle and Greskovits (Reference Bohle and Greskovits2012), however, point to important differences within dmes. They identify a variety of “transnational capitalisms” characterized by the degree to which neoliberal opening was combined with social protections: neoliberal (the Baltics), embedded neoliberal (the Visegrád states) and corporatist (Slovenia).
A second unique characteristic of post-socialist states is that the creation of capitalist systems occurred simultaneously with the process of nation-state building. In the early stages of transition, some observers predicted that opening states to market forces would inevitably conflict with the process of democratization and building independent nations and states (Offe Reference Offe1991: 875). However, in many cases the construction of national identities served as a useful means of shoring up support for economic reforms. Transition elites could portray free market policies as crucial to both escaping the communist past and rejoining the prosperous West. They could also appeal to the organic unity of the nation as a means of diffusing opposition to painful and destabilizing reforms. Bohle and Greskovits (2012: 113-124) argue that replacing traditional “social contracts” with “nationalist contracts” helps explain why Baltic state governments encountered such little domestic resistance to radical neoliberal policies. But construing particular political economic transformation paths as constituent of national identities can also play an important role in sustaining more corporatist models. Social contracts between government, industry and labor can be reinforced by appeals to national identity, with neo-corporatist arrangements framed as a source of national belonging and civic pride.
We can make several broader observations about focusing on national economic culture to understand continuity and change in welfare capitalist paths. The first is that the concept of the “economic nationalism” serves as a broad cultural frame, just as amenable to radical neoliberal strategies as interventionist, protectionist ones (Crane Reference Crane1998). Similarly Bandelj (2008) shows how the notion of “national interest” is a cultural frame through which actors can make liberal, protectionist or particularistic arguments about the most appropriate approach to foreign investment. Understanding the concept of economic nationalism or national interest as open to multiple meanings frees these concepts from their traditional association with mercantilism and protectionism (Helleiner and Pickel Reference Helleiner and Pickel2005). Instead we can understand how these concepts are imbued with different meanings in order to make sense of, and respond to, pressures stemming from increased political and economic interdependence at the European and global levels.
As in the varieties of capitalism approach more generally, making our unit of analysis the nation can fall into the trap of “methodological nationalism” (Brenner, Peck and Theodore Reference Brenner, Peck and Theodore2010). That is, conceiving the relationship between national political cultures and transnational integration in discrete national and territorial terms can present economic nations as too static and cohesive. Indeed, this analysis assumes that the meanings underlying economic nations are widely shared, and that these different understandings of the ideal relationship between the state, market and society are embedded in particular national historical trajectories (Scharpf Reference Scharpf2002: 651). But this does not imply that the meanings underlying economic nations are uniformly shared. In some cases and points in time we can observe a high degree of social consensus around ideas that constitute the economic nation, while in others it can be a source of deep and sustained conflict (Abdelal Reference Abdelal2001). Nor does our focus on historically and nationally embedded political economies suggest that they are “immovable objects” confronting “irresistible” global (or European) market forces (Pierson Reference Pierson1998). Another important feature of an economic nationalist approach involves analyzing the relationship between internal and external factors in explaining change over time.
Most rational and historical institutionalist accounts of change in welfare capitalist regimes suggest that only radical, exogenous shocks can disrupt domestic equilibrium (see Schmidt Reference Schmidt2010: 5; Brenner, Peck and Theodore Reference Brenner, Peck and Theodore2010: 189). Discursive institutionalist accounts of change, however, offer a more endogenous account whereby external constraints are socially mediated (Schmidt Reference Schmidt2010). That is, domestic actors can ascribe similar external pressures with different meanings, leading to different domestic outcomes (Cox, Reference Cox2001; Chwieroth Reference Chwieroth, Abdelal, Blyth and Parsons2010; Berman Reference Berman2013: 232). Applying these insights to our case of the effects of crisis on post-socialist capitalist cultures, instead of treating the crisis as an exogenous, inexorable external constraint we can investigate how differently situated actors have made meaning of the crisis. Our primary unit of analysis is the nation-state, or how the crisis triggered different interpretations and responses in national “civil spheres” (Alexander Reference Alexander2006). But these debates are not waged in a vacuum. We must also consider how these domestic debates were framed in terms of larger European and global debates over neoliberalism and its alternatives during the financial and fiscal crisis (see Peck, Theodore, and Brenner Reference Peck, Theodore and Brenner2009). The following sections will show how this occurred.
Antipodes of post-socialist welfare capitalisms: Estonia and Slovenia
Estonia and Slovenia are often cited as most-different cases of post-socialist welfare capitalisms (Feldmann Reference Feldmann2007; Buchen Reference Buchen, Lane and Myant2007; Adam, et. al. 2009). Estonia exemplifies a neo-liberal market model characterized by radical market opening, privatization and deregulation, combined with low levels of social protection. Slovenia, in contrast, tends to stand alone as one of the only post-socialist states to have maintained a high degree of state intervention in the economy, from extensive state ownership of domestic industries to generous social protection. Basic economic indicators reflect these different paths. Estonia experienced some of the highest rates of growth among post-socialist states, with real gdp growth reaching double digits for most of the late 1990s to early 2000s. Yet it consistently registers one of the highest rates of inequality among post-socialist states. Growth rates in Slovenia, in contrast, were far more modest, tending to mirror rates of growth among EU-15 states, but with one of the lowest rates of inequality within the EU (Bohle and Greskovits Reference Bohle and Greskovits2012: 49).
What is notable about both cases is the continuity that occurred around each particular capitalist path, as well as the high degree of popular consensus around each model. Not only was there little impetus for change from below throughout the 1990s. Elites also stayed the course despite considerable pressure from above, namely with respect to meeting the conditions for EU accession. Slovenia was pressured to liberalize its economy, while Estonia was forced in some ways to de-liberalize throughout the EU accession process (Bohle and Greskovits Reference Bohle and Greskovits2012: 24). But technocratic intellectual elites in both states resisted many EU pressures: Slovenian critics arguing that the EU was too liberal and Estonian critics suggesting it was not liberal enough. What they shared in common was an aim to preserve the nation status quo against the perceived pressures of Europeanization. For the most part they succeeded. That a diversity of post-socialist welfare capitalisms could persist throughout very asymmetrical EU accession negotiation lends support to the claim that the EU project allows for welfare capitalist diversity (Scharpf Reference Scharpf2002). It also challenges the claims made by scholars of EU accession that EU conditionality would lead to convergence around one common set of EU rules and norms (Grabbe 2004).
The following sections examine how the economic crisis affected the continuity and consensus underlying each of these models (see Lindstrom, 2015: 3). It examines government interventions in each stage of the crisis and how these were debated and contested internally. It also considers how these domestic debates tied into larger debates within European (and global) public spheres. As conflicts emerged in the EU and Eurozone over whether states should intervene through stimulus or austerity, domestic actors drew on these discussions to legitimate their actions. With Slovenia having adopted the euro in 2007 and Estonia joining in 2011, meeting the fiscal and debt convergence criteria shaped their governments’ responses to crises. As small, open market economies, moreover, each state was tightly integrated in and dependent on international financial markets. These material constraints are indeed significant in shaping public debates and policy responses, but they do not determine them. Lütz and Kranke (Reference Lütz and Kranke2013) show in the case of loan conditionality to CEE states, for example, that international actors, namely EU and imf officials, did not necessarily agree on responses to crisis, with the EU pushing more radical austerity measures than the imf. In sum, the global financial crisis triggered the most sustained debate over neo-liberalism in decades, leaving domestic actors room for maneuver in shaping their responses to crisis.
Estonia in crisis: politics as usual?
In 2004, on the eve of its accession to the EU, the Heritage Foundation ranked Estonia the fourth freest economy in the world, and the freest in the newly enlarged EU. Estonia was heralded as a “Baltic Tiger” by domestic and foreign observers alike (Jansen Reference Jansen2008). Upon entering the EU, Estonia joined with like-minded member states, like the UK, to push for more market liberalization and less supranational harmonization. In 2003, for example, Estonian Prime Minister Juhan Parts and British Prime Minister Tony Blair co-authored an editorial in the Financial Times arguing against EU proposals to harmonize tax and social policy. After praising Estonia for its “remarkable and speedy” economic reform “often involving painful sacrifices” the authors go on to declare: “Estonia and Britain, from very different backgrounds, have come to similar conclusions on many of the issues currently facing the EU. We both believe that the highest priority for Europe now is enhancing its competitiveness” (Parts and Blair Reference Parts and Blair2003). Arguing that any transfer of authority to Brussels over taxation and social policy would be a threat to national sovereignty, they concluded: “The new member states did not shrug off the Soviet yoke for that.”
Between joining the EU in 2004 and until the 2007 crisis, Estonia, led by a right-leaning coalition, enjoyed annual double-digit rates of growth. This came with growing inequality, prompting some to speak of “two Estonias.” The economic hardships faced by the “second Estonia” were partly offset, however, by a steady flow of cheap mortgages from Swedish banks which fueled a housing boom (Bohle Reference Bohle2014). The 2007 global financial crisis hit Estonia hard. Experiencing a 14 percent drop in gdp between 2008 and 2009, only Latvia fared worst amongst the EU-27. The steady flow of cheap credit during the boom years now dried up. By the end of 2008 Estonians had witnessed a dramatic 23 percent fall in housing prices. Estonia’s already weak industrial sector also suffered from a drastic reduction in domestic demand and shrinking export markets. By 2009 industrial production dropped 34 percent, the most dramatic decline in the EU (Baltic Business News 2009). At the same time Estonia’s unemployment rate soared to 15.5 percent by the last quarter of 2009. By 2010, over 50 percent of Estonians reported that they were coping with some or great difficulty.
At the start of the crisis, the Estonian government sought to deflect responsibility for its banking crisis by arguing that Estonia was an innocent bystander caught up in larger events. Estonian Finance Minister Jurgen Ligi remarked in a radio interview, for instance: “What happened in Estonia was not a financial crisis, but a local bubble and its international impact” (Hõbemägi 2010). The “international impact” was namely Swedish banks exposed to a rapidly growing number of non-performing loans in Estonia and other Baltic States. With Swedish parent banks now forced to absorb the losses, the Swedish Central Bank took out a precautionary loan of three billion euros from the European Central Bank to cover any potential bailout of its banks. That Estonian banks were almost completely foreign-owned and thus shielded the Estonian public sector from having to take on private financial sector liabilities, a fate that befell other states such as Iceland, the UK, and later Slovenia (Thorhallsson and Kattel Reference Thorhallsson and Kattel2013: 86).
The Estonian government’s main response to the growing fiscal crisis was a series of austerity packages centered on drastic cuts in public expenditure. Numerous external experts advocated the possibility of Estonia floating its currency, which had been pegged to the euro since 2001 (Hugh 2009). But this option received little serious consideration within Estonia. The government’s steadfast commitment to fiscal retrenchment, combined with a refusal to consider devaluing its currency, made it a “curious outlier” amongst developed states, most of which were pursuing expansionist fiscal policies to mitigate the effects of the crisis (Kattel and Raudla Reference Kattel and Raudla2013: 430). When the Deputy Governor of the Bank of Estonia, Märten Ross, was asked about possible stimulus measures, he replied simply: “The economy needs to adjust”. Similarly, when the Minister of Economic Affairs, Juhan Parts, was queried on whether Estonia would “betray” the “laissez-faire philosophy of Milton Friedman” that had guided its transition to date, he replied: “We will stay a laissez-faire economy” (Dougherty Reference Dougherty2008).
With most states, including the UK, pursuing counter-cyclical policies to steer their economies out of crisis, the Estonian government’s intransigence is quite puzzling. Thorhallsson and Kattel (2013: 86) suggest that while Estonian elites rejected interventionist measures out of principle, they were also ill-prepared to pursue alternatives. Digression from neo-liberal orthodoxy remained “alien” in Estonia, where two decades of staying the neo-liberal course had “hallowed out the political and bureaucratic arena of both ideas and competencies”. The government’s radical austerity program encountered some resistance from below, however. For example, in 2009, unions organized a series of strikes and a public demonstration in front of the Estonian parliament (or Riigikogu). Union leader Harri Taliga remarked that, “The Government’s policy is clearly an attack against the weakest, so we are expecting everyone from students to pensioners” (The Baltic Course 2009). Almost 1,800 workers from 15 enterprises took part in the strike, including 600 members of the Federation of Manufacturing Workers who picketed two factories on the Russian border. Lithuanian trade unions organized a solidarity action at the Estonian embassy in Vilnius in support of the Estonian trade unions.
Opposition parties also mobilized against the government’s radical austerity measures. Edgar Savisaar of the Center Party remarked when running for Tallinn city council: “[The government] imagines that the market regulates everything and there is no need for any economic policy […] We are patching budget holes, not investing in the future” (Tere Reference Tere2009). Later he went on to declare that the “only economic policy argument left to that government is that ‘it is even worse in Latvia’” (Baltic News Service 2009b). Savisaar pursued an active campaign strategy, in which the candidates took to the street. In one campaign event, Savisaar handed out potatoes and firewood to people in need. In September 2009 a Center Party-sponsored demonstration attracted over 1,000 people, demonstrators holding placards with phrases such as “No to unemployment—yes to new jobs” and “please do not cut pensions”. Counter-protesters also appeared, albeit in far fewer numbers. Evoking the common perception that the Center Party represents the interests of the Russian minority, one counter-protester carried a placard reading “Edgar for mayor of Moscow” (Baltic News Service 2009a).
The mobilization of trade unions and the center-left against the government’s austerity agenda is significant insofar as it marked one of the first visible public challenges to the prevailing neoliberal consensus. Yet on the whole the opposition was unable to capitalize on the deep social crisis and offer “coherent alternatives” to the government’s austerity program (Thorhallson and Kattel Reference Thorhallsson and Kattel2013: 95). The government’s march to join the euro marginalized critics further. Despite facing a severe economic crisis, the Estonian government only redoubled its efforts to meet the Maastricht criteria for joining the euro by 2011. In the midst of the 2010 Greek crisis, and with growing fears of contagion, many observers called for a moratorium on all new entrants to the euro for several years. Yet with a debt to gdp ratio of just 9.6 per cent and a budget deficit of 2.4 percent of gdp in 2010, Estonia not only met the accession criteria; it largely exceeded them. Instead of being viewed as a liability to the euro, many observers championed Estonia as a model for other states to follow. The chief economist for emerging market currencies at Barclays Capital, for example, remarked: “Estonia seems pretty much a model of the fiscal discipline that the EU now wants to bring to the entire euro area” (Tere Reference Tere2010). Prime Minister Ansip reinforced this image in foreign news outlets, commenting: “We believe in conservative fiscal policy here in Estonia […] despite all those painful budgetary cuts and tax increases”.
The euro was far from overwhelmingly popular at home. Notably, however, this opposition did not focus on the social repercussions of euro membership, but on the potential threats to national sovereignty and national identity. For example, a logistics worker from Tallinn, Peeter Proos, collected over 4,000 signatures in on online petition objecting to the abandonment of the koon. He explained his motivation: “Joining the euro zone would be a grave threat to the economic independence of Estonia and will pull us back to the times of the Soviet Union, while we have all the preconditions to be an independent European country like Switzerland” (Tere Reference Tere2010). In a press release, another campaigner, lawyer and historian Anti Poolamets, made a case for Estonia not joining the euro: “For years, Estonia has conducted a principled fiscal policy––do not live beyond your means. As a result our country has the lowest government debt in Europe. Bailout projects in the Eurozone make Estonia’s no-debt policy absurd––Estonians will have to pay the bills of banking machinations in other countries”. He went on to remark:
I think that national currencies work better for the welfare of European countries because they better reflect the economic realities and differences therein. The “one-size-fits all” ideology of the Eurozone is more of a reflection of the dreams of the European bureaucracy for a federal Europe than based on economic reasons […] this is like the fulfillment of the dreams of the former Soviet hyper-centralist bureaucracy (Proos Reference Proos2010).
On the eve of adopting the euro, as part of the “Save the Estonian Kroon” campaign, candles were lit across the county. Posters distributed to accompany the light display included one picturing the Titanic emitting clouds of smoke signifying Greece, Ireland, Portugal and Spain, and featuring the declaration: “Estonia! Welcome to the Titanic!” (Proos Reference Proos2010). The press release also cited public opinion surveys reporting that 53 per cent of respondents did not support the transition from the Estonian kroon to the euro.
In January 2011 Estonia became the third new member state, after Slovenia and Slovakia, to adopt the common currency. Having led Estonia into and through the crisis, the incumbent government led by Andrus Ansip and the Reform Party went on to win the 2011 elections. Portraying itself as a source of stability and continuity in uncertain times, the party campaigned on the slogan “You can be sure” (EurActive 2011). Far from being punished for its austerity measures, the government saw its support increase. The European Parliament’s European People’s Party group chairman, Joseph Daul, praised the outcome: “Estonia’s rigorous reforms, budgetary balance and small debts during the recent economic crisis show an excellent example for the rest of Europe”. He went on to single out junior coalition members, such as Mart Laar, who had been instrumental in setting Estonia on a radical neo-liberal course. “After gaining independence”, Dahl stated, “Estonia has developed into a role model for several European countries. Pro Patria and Res Public Union and its chairman Mart Laar have played a significant role in the process” (Euractiv 2011).
While Estonia’s austerity policies were praised in certain transnational policy circles, they also attracted rebuke in others. Paul Krugman serves as one notable example. In a post on his The New York Times blog “The Conscience of a Liberal” he wrote a short critical piece entitled “Estonian Rhapsody” (Krugman Reference Krugman2012). He first cites Estonia’s newfound status as “a poster child for austerity defenders”, mocking their boosterism: “They’re on the Euro and they’re booming!” He then goes on to provide GDP figures showing a “terrible slump, followed by an incomplete recovery”. He concludes his post with the riposte “this is what passes for economic triumph?” Estonian President Toomas Hendrik Ilves responded with a vitriolic Twitter post, accusing Krugman of being “smug, overbearing and patronizing” towards East Europeans who choose to “reelect governments that are responsible” (Keating Reference Keating2012).
Slovenia in crisis: the end of Slovenian exceptionalism?
Soon after Slovenia became an EU member in 2004, a new right-leaning coalition came to power, ending the nearly uninterrupted twelve year reign of left-leaning coalitions that had set Slovenia on its more gradualist course. Upon taking office, the new government launched an ambitious, radical reform agenda. In January 2005, Slovenian Prime Minister Janez Janša traveled to Estonia where he acknowledged that although Slovenia and Estonia had taken very different development paths, they now shared the same views. Slovenia, Janša suggested, was now “facing the second wave of reforms, which Estonia has already implemented” (RTV 2005). The new right-leaning government sought to enter the race among CEE states as to who could offer the lowest corporate tax rates. George W. Bush notoriously confused Slovenia with Slovakia in 1999 when he remarked, “The only thing I know about Slovakia is what I learned first-hand from your foreign minister, who came to Texas” (he had actually met the Prime Minister of Slovenia), prompting a public uproar over the slight. Now the new government seemed quite happy for Slovenia to be associated with a country that offered the lowest rates of tax in the enlarged EU.
The new government’s ambitious reform agenda proved to be short-lived. One of the team of neo-liberal reformers, university economist Jože Damijan, resigned in protest as head of the newly created Office for Development and Growth after just three months. Damijan reflected on the failed economic reforms, arguing that as the government and the public are “socialist in mindset, to really change this mentality and liberalize the economy will take decades” (personal interview 2006). Meanwhile one of the key architects of Slovenia’s unique gradualist path, Jože Mencinger, reflected on the failed reforms. He argued that the government’s reform proposals, like the EU’s Lisbon Agenda on which they were based, with its “abundance of empty words, newly invented phraseology and concepts, action plans and priorities, and similar claptraps” will go into the dustbin of history as a “worthless and harmless document” (personal interview 2006). By 2008 a new left-leaning coalition came to power, led by the former Yugoslav socialist party. The “Slovenian way” had undergone some significant changes since entering the EU, namely with respect to employment policy, but many of its core principles, such as state-ownership, remained intact (Crowley and Stanojević Reference Crowley and Stanojević2011).
Meanwhile, during the global economic boom years, Slovenia, like Estonia, enjoyed steady access to cheap credit. Global investors were looking for returns and the new EU states, with Brussels as an implicit guarantor, looked like a safe bet (Epstein Reference Epstein2013). Whereas in Estonia much of this credit went to individuals and households in the form of Swedish bank mortgages, in Slovenia much of this credit was absorbed by its state-owned banks. According to the chief executive of Slovenia’s largest state owned bank, this steady stream of credit flowing through Europe prior to the 2008 crisis encouraged banks to essentially give money away “for free” (Bilesky 2013). Much of this capital, as in other states, went towards funding a real-estate, construction and stock market boom. But in Slovenia it also went towards financing what Slovenians came to call “tycoon loans”. In short, state-owned banks lent money under very favorable terms to Slovenian business insiders who, in turn, used the money to consolidate their ownership of firms. They also used this steady flow of credit to finance expansion into former-Yugoslav markets. The owners of Laško brewery, for example––a firm that declared on its website, in the midst of fighting off the foreign buyer of a rival brewery in the early 2000s, “This is not a factory like those built with foreign capital, which came to engulf our land in slavery and misery”––now rushed to buy up majority stakes in Serbian and Bosnian breweries, as well as to expand Laško’s market share across the former-Yugoslavia.
As in Estonia, the global financial bust following the collapse of Lehman Brothers hit Slovenia hard. Between 2008 and 2009 Slovenia experienced a dramatic eight per cent fall in gdp (Statistical Office of the Republic of Slovenia 2014). The housing and construction bubbles burst. Slovenian firms also experienced a sharp decline in exports to Western Europe and the Balkans. State-owned banks and firms that had enjoyed steady flows of cheap credit in the boom years after joining the EU and the Eurozone now turned to the state for capital injections when that credit dried up. Government outflows towards recapitalization and increased social expenditure placed significant pressure on the budget. Slovenia had a public debt of 22 per cent of gdp in 2008, one of the lowest in the Eurozone. By 2013 it had increased to nearly 63 percent, although it was still below the 93 per cent EU average (Eurostat 2014). Yet the banking crisis worsened. By 2012 observers predicted that Slovenia would be the next Eurozone country to seek an emergency bailout, the first post-socialist Eurozone member to do so. From being heralded as one of the strongest new EU and Eurozone member states it was now being considered as one of its biggest problems. Slovenia has experienced a significant fall from grace.
The question arises to what extent the crisis has undermined the continuity and national consensus underpinning the Slovenian model. In the early stages of the crisis, the left-leaning government proposed a three-year so-called “exit strategy”, a series of longer-term measures and reforms to increase economic growth and competitiveness. The reforms were modest in comparison to Estonia’s radical austerity program. They included a pledge to reduce public debt, cut public sector expenditures by one percent a year, and sell shares in some state-owned enterprises (Slovenian Press Agency 2010). The prospective privatization deal that garnered the most attention was, consistent with previous episodes in Slovenia’s transition, the sale of Slovenia’s largest state-owned bank, Nova Ljubljanska Bank (nlb). Previous efforts to sell the bank to foreign owners had prompted heated public debate and public opposition (Lindstrom and Piroska Reference Lindstrom and Piroska2007). When the government pledged to release a list of strategic assets that should remain state owned, the NLB was the first among those discussed. As in previous episodes, debates raised competing ideas of what constituted “national interests” (Bandelj Reference Bandel2008). Finance Minister Franc Križanič publicly opposed the sale of the bank. In an interview with the business daily, Finance, the Prime Minister conceded that, “Križanič deems state ownership of NLB to be in the national interest” (Sovdat and Urbas Reference Sovdat and Urbas2010). Meanwhile, Development and European Affairs Minister Mitja Gaspari, who drew up the proposals, remarked that “In this case, we should not talk about national interests, but about economic interests of our country, which are the only ones that matter now” (Štor Reference Štor2010).
Unions mobilized to thwart the reform agenda. The head of the largest trade union confederation Dušan Semolič, for example, warned: “If the politicians go too far, we will stop them, with a referendum if necessary” (Štor Reference Štor2010). Semolič’s threats were backed up by mass mobilizations of union members and supporters. In addition to a wave of spontaneous strikes across Slovenia, massive rallies were organized outside of the parliament (Stanojević and Klarić Reference Stanojević and Klarič2013: 223). A protest of 15,000 students, union members, and others opposed to reforms in 2010 ended up in violent confrontations between protesters and the police. When protests did not deter the government, the unions and student groups resorted to public referenda. A referendum to stop the elimination of student jobs, a key source of employment, passed by large margins. A referendum blocking a rise in the retirement age also passed with 72 percent in favor (Bryant Reference Bryant2011). The imf had weighed in on the referendum, warning that Slovenia’s “pension expenditure poses a challenge to its fiscal sustainability” and that postponing pension and labor market reforms would “lead to further deterioration in competitiveness and potential output growth” (Bryant 2012). The oecd also criticized the use of referenda in general: “boosting potential growth requires structural reforms, but the political economy of reform remains difficult, notably because it has been easy to use a referendum to veto a law” (oecd 2013: 13). But opponents of change used these instruments successfully to block unilateral reforms. As Stanjojević and Klarič (2013: 225) argue, “all attempts at replacing social dialogue structures with unilateral ‘emergency’ policies were basically unsuccessful”.
The crisis and the unpopular reform agenda ultimately took its toll on the left-leaning coalition, which fell in September 2011. This gave rise to the appearance of a host of new political parties on the Slovenian scene and a period of dramatic electoral instability. This signified a remarkable departure from largely stable electoral politics since Slovenia gained independence (Guardiancich 2012). With a new right-leaning coalition coming to power, Janša set out again to continue the structural reforms that had been thwarted in 2004. Protests grew even larger. At a protest of over 40,000 people in Ljubljana, demonstrators shouted, “We will not pay for your crisis” and hurled a large banner saying “Enough!” over the castle walls above the old town in Ljubljana. Activists organized a sit in at the large state-owned Slovenian bank, declaring it public property and chanting, “no one represents us!” (Razsa and Kurnik Reference Razsa and Kurnik2012). Dozens of smaller protests followed across the country. A December 2012 protest in Maribor turned violent as police helicopters fired tear gas to disperse over 10,000 protesters who demanded the resignation of the political elite, including the mayor of Maribor charged with corruption (Cain Reference Cain2012).
A notable feature of the protests is that they demanded more than a change of regime, but argued for “the replacement of the entire political elite” (Koks et. al., 2013). In an open letter, in English, distributed across the internet, organizers of the protest wrote:
Protesters blame this new recession on the autocratic, neoliberal, corrupt and incompetent policies of the current government […] The dysfunctional legal system, privatization of public funds and hasty and extreme austerity measures has only aggravated the economic crisis, starving and destroying whole sectors of Slovenia’s once healthy economy. To the dismay of its citizens, Slovenia is looking more and more like an autocratic neo-liberal banana state (ibid. 2013).
The letter cites recent polls to suggest that such demands have wide public support: 16 percent of the population taking part in demonstrations, 67 per cent supporting them, and 85 per cent expecting the demonstrations to continue.
The Janša government responded to the protests with force, as well as rhetoric, with members of his cabinet referring to protesters as “extremist left zombies” and “radical neo-socialists” in the media. Janša also targeted elites opposed to his reforms. Condemning them as “uncles behind the scenes” (or “strici iz ozadja”), Janša argued that elites closely tied to the old regime were determined to obstruct change. Janša’s reference to “uncles” included elites in the media, higher education, culture and some of the public sector. In response to the protesters’ letter, the Slovenian Council of the Republic, a group of prominent right-leaning public figures, circulated a letter in English of their own. After citing how its reform agenda has won external support from the European Commission and other organizations, it concludes: “The fundamental thesis remains: the process of Slovenian transition will have to be finished. This means de-monopolizing the state which is still largely owned by the old lobbies and rejecting the old undemocratic Communist beliefs and practices” (Slovenian Council 2013). Ultimately Janša was indicted, and later convicted, of bribery, leading to the fall of his government after only one year.
The new government, headed by a newcomer to the political scene, 42-year old Alenka Bratušek, faced a crisis that was now making front page news across Europe. Following on the heels of the bailout of Cyprus, observers feared that Slovenia would become the sixth Eurozone country to seek a bailout. The threat of a bailout reinvigorated advocates of radical reform measures. Bank privatization again topped the list. The imf concluded its 2013 staff visit to Slovenia stating: “Misconceived defense of ‘national interests’, including the reluctance to sell assets to foreigners, burdens the budget and unduly prolongs the corporate and financial sector distress. A prominent privatization could convey a powerful signal to international investors” (imf 2013: 2). Bratušek’s government followed many of the imf’s recommendations, including the creation of a so-called “bad bank” and the privatization of state-owned companies, two policies that remained highly unpopular at home. Opponents of the bad bank measure easily garnered enough signatures to make a referendum obligatory. Yet this time the Slovenian constitutional court ruled the referendum unconstitutional. The constitutional court’s decision pleased outside observers like the oecd who had been critical of referenda used to block reforms. Slavoj Žižek, writing about the case in The Guardian, argued that the Court’s decision demonstrated that the crisis was becoming more a crisis of democracy than a financial crisis (Žižek Reference Žižek2013).
Bratušek’s government fell after one year, replaced by a newcomer to the political scene, Miro Cerar, and his self-named Miro Cerar Party. A constitutional lawyer, and son of a famous Slovenian Olympic gymnast, Cerar entered the race running on his novelty. “I’m entering politics”, Cerar explained, “because I know that the situation in Slovenia is so bad that […] we need new people, new ideas, new practices” (Novak Reference Novak2014). Cerar’s clearest policy position was to come out against the government’s privatization process. “Strategic firms, their infrastructure, should remain in the hands of the state”, Cerar explained. Cerar prevailed and formed a new left-leaning government. Meanwhile Janša continued his battle against the “uncles behind the scenes” this time from prison. After Bratušek was nominated to a vice presidential post in Juncker’s new European Commission cabinet, Janša tweeted, “For Bratušek […] Europe is a gang of thieves”. The accompanying YouTube link shows Bratušek, along with most other prominent center-left elites, at the concert of Yugoslav and other songs celebrating the Slovenian Partisan resistance. The reference to Europe being a “gang of thieves” was a song performed by a Slovenian folk duo, which included the more prominent refrain, “We ourselves are to blame” (Vičič Reference Vičič2014).
Concluding remarks
The global financial crisis and fiscal crises that followed have posed the most significant challenge to post-socialist welfare capitalist states since they gained independence over two decades ago. These post-socialist pathways have been shaped and structured by different sets of ideas, or societal-wide assumptions about the ideal relationship between the state, economy and society. In some cases, such as Estonia and Slovenia, we have witnessed extraordinary continuity and consensus around core assumptions of their economic models: neo-liberal in the former and neo-corporatist in the latter. The financial crisis prompted the most significant challenge to these dominant ideas in each state, opening a window of opportunity for domestic critics to push for change. The paper finds that the economic crisis ultimately reinforced the neo-liberal ideas underlying the Estonian model, with international financial institutions and some economists praising Estonia’s radical austerity measures. In the case of Slovenia, on the other hand, some of these same external actors joined internal actors in pushing to roll back the state.
We can draw two larger conclusions from this analysis. The first concerns change, in particular when and how collective ideas underlying welfare capitalist models shift. Most institutionalist accounts point to exogenous shocks as the main source for change, with events such as global economic crises altering the domestic equilibrium (see Schmidt Reference Schmidt2010: 5). Yet these approaches are less equipped to understand why we can observe continuity in cases like Estonia which, by most measures, was amongst the hardest hit by the latest economic crisis. An economic culture approach is well-suited to accounting for this continuity. When prevailing ideas are so deeply embedded amongst domestic elites, and to a lesser extent the public, alternatives gain little traction, despite severe economy hardship (Sommers and Woolfson Reference Sommers and Woolson2014). Moreover, we can observe how elites drew on ideas in the transnational sphere to legitimate the prevailing consensus, with internal and external actors alike championing Estonia as a model of “fiscal responsibility” in the face of crisis (Blyth Reference Blyth2013: 54). The analysis suggests that while actors make meaning of external pressures like crises within particular national public spheres, they are not confined within national borders, particularly in small, open, and dependent economies on Europe’s periphery.
The second conclusion concerns varieties of welfare capitalism and crisis. An impetus of much of the post-socialist varieties of capitalism literature, like their West European counterparts, is to demonstrate that alternative economic models are possible despite common globalizing and Europeanizing pressures. While Estonia has come to represent a paradigmatic case of a radical neo-liberal variety of welfare capitalism, Slovenia’s more gradualist, neo-corporatist path serves as an example that alternatives are possible. Some observers refer to changes in the Slovenian model post-crisis to argue for the end or “uncertain future” of “Slovenian exceptionalism” (Crowley and Stanojević Reference Crowley and Stanojević2011; Guardiancich 2012; Feldman 2014). Yet others observe more continuity than change. Adam and Tomšič (Reference Adam and Tomšič2012), for example, cite “prevailing cultural patterns” underlying Slovenia’s particular variety of capitalism as blocking significant reforms. With mass public protest directed at governing elites, but not necessarily the Slovenian model as a whole, we may indeed see more gradual than radical change in the ideas underlying the Slovenian model. Yet democratic capitalism in Slovenia, like in other states across the EU, has been seriously challenged by the crisis, with public referenda blocked and public protest forcefully suppressed. Governing elites now find themselves struggling to “protect what may still remain of their democratic legitimacy”, while citizens look for other means of organizing above and below the state (Streeck Reference Streeck2011).
