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The Industrial History and Identity of Central and South Eastern Europe

Since the 18th century, the enclosure of fields and the dislocation of rural dwellers was a major step in the Industrial Revolution in Western Europe. Displaced peasants became factory workers in the enterprise financed by wealthy landlords. In the long run, Western European standards of living rose. Based on a productive and wealthy agricultural system, and on many creative inventions, the United Kingdom dictated the rhythm of progress to the rest of Europe from 1750 onwards for the next century.

Until the end of World War I in 1918, in the Central and South Eastern / Balkan European area, the industrial development was shaped mainly by Austrian Habsburg Empire (since 1867 Austro Hungarian Empire), and respectively the Ottoman (Turkish) Empire which disputed their supremacy in the region. In the interwar period, the states continued to develop. After the World War II in 1945, this region, with the exception of Greece and Austria, fell under the Iron Curtain, in the Soviet influence zone. The ruling communist regimes imposed a forced industrialization which created a profound economic and social disequilibrium. After the 1989 revolutions, through a more or less successful transition, these countries adopted a market economy. Each had their own particularities given by their historic background, well reflected in their present industry, heritage, and broader identity. These we are unveiling to you, our public, by the means of industrial tourism: from researching the attractions in each of the countries by clicking on the country name in the directory below, to taking a tour with us, and, where possible, even creative participation.








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The Austro-Hungarian Empire

In 1918, at the end of World War I, Hungary and Austria were Austro Hungary's successors de jure, while the independence of the West Slavs (the Czechs and the Slovaks) and of the South Slavs (the Slovenes and the Croats) of the Empire, created Czechoslovakia and Yugoslavia, which were also recognized by the victorious powers. Other territories became parts of the neighbouring states: Transylvania and Banat became part of Romania, Sylezia of Poland, Galicia of Poland and Ukraine, and Trieste became part of Italy. The rest of the Balkan peninsula (South Romania, Serbia, Bulgaria, Albania, Macedonia and Greece) was formally in the Ottoman Empire's influence area and during that period less connected to the western development.

In Central Europe, the Austro-Hungarian economy developed intensely during the Dual Monarchy. The capitalist way of production and the technological change accelerated industrialization and urbanization. The gross national product per capita grew roughly 1.76% per year from 1870 to 1913. That level of growth was compared very favourably to that of other European nations such as Britain (1%), France (1.06%) and Germany (1.51%). However, in a comparison with Germany and Britain, the Austro-Hungarian economy as a whole still lagged considerably, as sustained modernization had begun later.

Starting with disparities between the western (more developed) and the eastern parts of the empire, the economic growth was centered on Vienna and Budapest, the Austrian lands (areas of modern Austria), the Alpine region and the Bohemian lands. Then it spread to the central Hungarian plain and to the Carpathian lands. Hungary became the world's second largest flour exporter after the United States and to the end of the 19th century had a better position in the industries of the second industrial revolution (electrification, rail roads, steel, machinery). Meanwhile, the western areas, concentrated mainly around Prague and Vienna, excelled in various manufacturing industries. This division of labour between the east and the west, besides the existing economic and monetary union, led to an even more rapid economic growth. Before World War I the empire was the 4th biggest machine manufacturer in the world.

The Ottoman Empire

In the neighbouring Balkans, belonging to the Ottoman Empire, the spread of capitalist agriculture did not lead to an industrial revolution. This was due to other aspects of the socio-economic changes that took place in the 1800s. In the early modern period, manufacturing in the Ottoman Balkans was in the hands of the guilds. Each guild governed a trade such as iron-working, shoe-making, tanning, silk-weaving and so on (typical of Ottoman associations, the guilds also had roles in local government, the tax system and religious rituals). Goods made using Western factory techniques costed less than traditional hand-made goods, and this put some guilds out of business. Western values and fashions also played a role in the decline of the Ottoman industry.

The Ottoman industry was also transformed. It produced only raw goods, which were exported to the West for advanced processing before the final product was reimported. Ownership of the expensive new mills was in foreign hands. The workforce also was substantially different. The traditional weavers were heads of households, worked at home and acted as officers in a guild that fulfilled important roles in the society: training apprentices, ensuring quality of goods, performing rituals and collecting taxes. Mill workers filled none of these autonomous, socially important roles. The work was hard and unpleasant; there was no opportunity to advance, certainly not to own one's own business. Former weavers refused to enter the mills, so the workers were drawn from low-status groups: at first, migratory factory workers from Greece or Armenia, later women and girls drawn from the poor countryside nearby. These workers lived in dormitories and contributed little to the local city economy. They left after short careers, often to marry; their mill experience was a merely temporary interaction with a modern economy.

By the 1830s, Western European capitalists were investing in factories and other enterprises in the Ottoman Empire. After 1850, Western investors began to make loans to the Turkish government itself. The Ottoman state borrowed foreign money for the first time in 1854, to offset the high costs of the Crimean War. This set the pattern for state borrowing in the Balkans: the Turkish government (and later the successor states) tended to borrow in times of crisis, and used the money to pay for the state apparatus itself (especially military forces) and not for investments like factories that would later produce income. When the loans came due, there were no new sources of revenue to pay them off: in many cases new loans were taken out simply to pay off old loans.

As a result of this bankruptcy, state finance came to share in the problems of private industrial development. In both cases, decisions about modernization were made by foreigners who were interested in profits, not development. In both cases, future investment followed channels not necessarily to the best advantage of the local people, and the fruits of the investment tended to leave the countries.

In the new Balkan states, events followed rather similar paths despite their success in replacing the Ottoman administration with national regimes. Most of the industrial development in the new Balkan states took place later than the 1870s; much of it extended into the twentieth century, and will be dealt with later.

The Communist Industrialization

The most important fact to understand about the economics of communism is that communist revolutions triumphed only in heavily agricultural societies. Agricultural production had been drastically reduced, and the peasants driven off by the millions to death and exile, with those who stayed reduced, in their own view, to serfs. But the State now controlled grain production, however reduced in quantity. And collective farming had prevailed.

In the capitalist West, industrialization was a by-product of rising agricultural productivity. As output per farmer increased, fewer farmers were needed to feed the population. Those no longer needed in agriculture moved to cities and became industrial workers. Modernization and rising food production went hand in hand. Under communism, in contrast, industrialization accompanied falling agricultural productivity. The government used the food it wrenched from the peasants to feed industrial workers and pay for exports. The new industrial workers were, of course, former peasants who had fled the wretched conditions of the collective farms.

Contrary to the declared goals of the regime, it was the opposite of a system of production to create abundance for the eventual satisfaction of the needs of the population; it was a system of general squeeze of the population to produce capital goods for the creation of industrial power, in order to produce ever more capital goods with which to produce still further industrial might, and ultimately to produce armaments. The other distinctive feature of Soviet industrialization was that few manufactured products ever reached consumers. The emphasis was on "heavy industry" such as steel and coal. What happened in the Soviet Union during the 1930s was not industrialization, but militarization, an arms build-up greater than that by any other nation in the world, including Nazi Germany. Soon after the World War II, this approach was copied by the puppet regimes in the occupied countries. However, after Stalin's death in 1953, the economic policies of the Soviet Union and its European satellites moderated. Most slave workers were released, and the camps became prisons for dissidents instead of enterprises for the cheap harvest of remote resources. Communist regimes put more emphasis on consumer goods and food production, and less on the military. But their economic pedigree remained obvious. Military strength was the priority, and consumer goods and food were an afterthought.

When Mikhail Gorbachev assumed power, popular support had not materialized even in the USSR, much less in its European satellites. Gorbachev dismantled the apparatus of terror with blinding speed, undoing seven decades of intimidation in a few years. The result was the rapid end of communism in the satellites in 1989, followed by the disintegration of the Soviet Union in 1991.

Post Communist Reforms

"The worst thing about communism, is what comes after." (a reflection of the anticommunist Polish dissident Adam Michnik)

Generally, countries that took the risk to reform the most ("shock therapy" to slash government spending and/or sell state assets), have seen the greatest rise in their standard of living, and those that resist change continue to do poorly. Critics lament large measured declines in output, but much of the "lost output" consists in products for which there was little or no consumer demand.

Average standards of living registered a catastrophic fall in the early 1990s in many parts of the former Comecon — most notably in the former Soviet Union — and began to rise again only toward the end of the decade. Some populations are still poorer today than they were in 1989 (e.g., Ukraine, Moldova, Serbia). Others have bounced back considerably beyond that threshold however (e.g., Romania, Hungary, Czech Republic), and some, such as Poland, Slovakia, underwent an economic boom although all have suffered from the 2009 recession.

In the classic communist industries (metallurgy, mining, heavy machinery, armament), millions of people lost their jobs, and maybe thousands of factories were closed. The further failed attempts to privatize these (former) industrial spaces has left entire cities in ruin and despair.

1. Steven W. Sowards - Twenty-Five Lectures on Modern Balkan History
2. Wikipedia - Austria-Hungary
3. European Route of Industrial Heritage - Industrial History | Europe
4. Bryan Caplan - Library of Economics and Liberty - Communism
5. Wikipedia - Post-communism