Restitution Of Property In Eastern Europe Is An Important Indicator Of Future Trends

Restitution Of Property In Eastern Europe Is An Important Indicator Of Future Trends

The political and economic upheaval throughout Central and Eastern Europe since 1989 has brought a magnitude of changes, which were virtually unforeseen and unpredictable only a few years ago. And property rights disputes are no exception.

"Each system is deciding what to do about the restitution of prior property claims. This is important for us to monitor because each country's attitude toward restitution serves as a signal for their likely treatment of private property in the future," says Austin J. Jaffe, director of the Institute for Real Estate Studies in Penn State's Smeal College of Business Administration.

Jaffe and Lynn M. Fisher, a doctoral student in Smeal College, recently completed a survey, "Restitution in Transition Countries," which appeared in the Journal of Housing and the Built Environment .

Restitution, Jaffe explains, is an act of honoring prior interests of property ownership against current, competing claims. In effect, it is the legal procedure of transferring property rights from current owners to former owners because of the injustices of the current situations.

To date, Czechoslovakia (now as the Czech Republic and Slovakia), Hungary, the former German Democratic Republic, Bulgaria, Romania, Estonia, Latvia, and Lithuania (to a limited extent) have invoked some form of restitution. Poland has recently done the same. None of the members of the Commonwealth of Independent States have employed restitution, and neither has Albania or the former members of Yugoslavia, save Slovenia.

"Those countries with liberal and democratic conditions are likely to be more sensitive to restitution cases than state-dominated regimes," says Jaffe.

While restitution was a legislative issue in almost every transition country (except Lithuania), the laws, decrees, and rulings tended to vary by country.

"Generally, our research has shown that those countries which have had a sympathetic tradition toward private ownership either before or during the former regimes tend to treat restitution as a high priority," says Jaffe. Those countries include Bulgaria, the Czech Republic, and Estonia. Other countries such as GDR, Latvia, Lithuania, Poland and Slovakia tended to implement limited or very restrictive restitution programs, while Hungary and Slovenia are somewhere in between.

"Restitution is a particularly delicate matter due to the inter-generational nature of many claims and the special importance assigned to property rights in land in most societies," says Jaffe.

He notes that the collapse of socialist systems in 1989 was not an instant and complete watershed of socio-economic and political beliefs.

"The changing social patterns in Eastern and Central Europe have opened up debates whether assets should be privatized and if so, how they should be privatized," says Jaffe. "Defining what property means is a complex and controversial task, and it is important to move ahead carefully since property rights form the foundation of how and why economies function."

Jaffe notes that socialist ideology after World War II believed that one could reduce the emphasis on private property and still do as well as the West.

"Turns out they were grossly wrong," says Jaffe. The consequences of the command-style economic system include distorted urban landscapes, inadequate and neglected housing, over-industrialized land use, low agricultural production, and low-income policies for households, which forced families to rely upon inefficient government allocation mechanisms.

"However, that doesn't mean that countries will merely pick up where they left off prior to World War II," says Jaffe.

Societies that under-invested in private property or thought it wasn't important for economic growth fell way behind. When these transitional countries went to market economies, they didn't have protections in place to replicate the Western experience.

"The task of rebuilding societies after socialism has been daunting, and nations are dependent upon historical institutions in order to develop modern ones. The transitional countries in Central and Eastern Europe had to reinvent what private property means to them," says Jaffe. "One trend we've noticed is that these transitional countries have been very hesitant to create private ownership claims in land, perhaps because of the ideological hostility to owning land in many countries."

He notes that the land is still not privatized in the former Soviet Union. The apartments (much like condominiums) where people live in throughout Russia and elsewhere, are viewed as their own but little else around them is given the same status.

"No one takes care of the hallways. The residents have private claims to their apartments but not to anything else. The common areas belong to all," says Jaffe. "An old saying holds that if property belongs to everyone, it belongs to no one."