Varieties of Capitalism, Varieties of Vulnerabilities: Financial Crisis and its Impact on Welfare States in Eastern Europe and the Commonwealth of Independent States

Abstract

This paper investigates the implications of the 2008 financial crisis on welfare states and the capitalist diversity in the post-communist world, including Eastern Europe and the Commonwealth of Independent States. It analyzes three political-economic varieties in the region: those of capitalism, welfare, and vulnerabilities to the crisis. The three varieties are linked, but there is also a considerable variation given the importance of political and policy factors. Economic growth models created different political and economic constraints on policies of adjustment to the crisis. In particular, currency substitution was associated with strong political preferences for defending exchange rates, with adjustment through reductions in public spending and wages. A variety of welfare models was associated with different political constituencies for welfare provision. The interplay of these constraints and political factors together with intervention of international institutions shapes the nature of welfare state adjustments. Early developments indicate also some unexpected outcomes.

Keywords: financial crisis, welfare state, varieties of capitalism, Eastern Europe, Russia; Commonwealth of Independent States