The tunes of economic change or why ‘transformation’ and not ‘transition’ in the post-socialist transition economies

by Aleksandr V. Gevorkyan

The aim by itself is a lifeless universal . . .; and the bare result is the corpse which has left the
guiding tendency behind it.
Georg Wilhelm Friedrich Hegel, Phenomenology of Spirit

The 2009 film, How The Beatles Rocked the Kremlin, documented forbidden music’s cultural influence across Eastern Europe (EE) and former Soviet Union (FSU) through 1970-1980s. By early 1990s what captured the minds was the Scorpions’ ballad, Wind of Change.

This “wind” was that of hopeful future, push for national independence, and promise of economic prosperity. By 1992, the disintegration of the socialist economy system brought chaos across newly independent nation-states in Europe, the Caucasus, and Central Asia.

Ironically, the most onerous economic plan was the EE’s & FSU’s transition from planned economy to romanticized free market. Yet, despite the independence premium in national policy and evidence suggesting recent strong economic growth, post-socialist societies are still to achieve the ideals of those reforms.

The EE and FSU collectively represented up to 15 percent of the world’s economy in the 1980s. By 2016, they represented 6 percent of the global economy. Russia, the largest in the group, averaged 3 percent, with the  remainder going to the smaller FSU and EE economies (according to The Conference Board’s Total Economy Database).

Post-World War II societies in the EE saw massive industrial growth. Their relatively loose controls, trade links with Western Europe, and sustained private agriculture was distinct from the FSU-like socialism. By the early 1980s the socialist economic model began to show signs of structural weakness as productivity declined worsening the competitiveness of the EE’s semi-open economies. Tamás Vonyo (2017) offers new empirical evidence suggesting that by then the declining investment, despite tapping international capital markets, in industrial and technological upgrades, largely caused the inefficiency.

By the early 1990s more tangible changes replaced political announcements. Social costs were deemed to be collaterally minor as opposed to a greater goal of market prosperity (an odd parallel to the spirit of the socialist past). Those EE & FSU economies with significant dependence on the socialist common market, the Council for Mutual Economic Assistance, suffered the worst macroeconomic and social impacts in the “transition.”

Through mid 1990s life expectancy dropped, the system of state-provided basic healthcare services, education, and other social support collapsed as unemployment skyrocketed with state-funded enterprises shutting down and hyperinflation pushing some into barter, income and wealth inequalities climbed up. In his 2009 book From the Soviet Bloc to the European Union, Ivan Berend voiced reservations over the haste to declare absolute victory [of “transition”], citing population displacement and emerging social pressures, unintentionally masked by the economic growth often dependent on the integration within EU’s supply chain.

What has emerged out of the ruins of the formerly socialist system is often termed as “varieties of capitalism.” Echoes of the dreadful privatization have shaped modern institutional structures across the region. Recent data suggest that only a handful of countries reached the 1989 per capita income levels as of 2000. Income inequality, social polarization, as measured in World Bank data, has become far too pronounced. Questions about transparent governance, sustainable spending, rise of populist movements, inconsistencies in judicial reform and, in the EE’s deviations from the European Union’s general principles, and other examples seem to be at odds with the melody of change some three decades ago.

The smaller is the country the greater is the challenge of sustaining broader economic activity, attracting competitive foreign direct investment, avoiding underdevelopment, and securing social inclusion; all without falling into dependence on the earlier mentioned expatriate remittances or debt pile-up. This has been highlighted in recent studies on transitional periphery, as those smaller economies are often identified in literature.

Objectively, today, the post-socialist societies are deeply transformed culturally, politically, and in economic terms and continue to evolve. Yet this transformation and its eventual outcomes are firmly connected with the legacies of the socialist era and intensity of the 1990s turbulent variants of the reforms.

Perhaps, a more evolutionary approach to macroeconomic and public policy of the 1990s may have proven to be more prudent.

We will never know.

However, how the ‘transition economies’ learn and interpret this complex collective history in their present conditions will shape their individual future. That is, also, why there is a need to objectively accept the past and pragmatically seek balance in the present.

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Dr. Aleksandr V. Gevorkyan is the author of Transition Economies: Transformation, Development, and Society in Eastern Europe and the Former Soviet Union  and Associate Professor of Economics at the Department of Economics and Finance of the Peter J. Tobin College of Business at St. John’s University.

 

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