It is now almost twenty years since the Berlin Wall was torn down and Francis Fukuyama announced the End of History, a world full of democratic capitalist countries and boring Western-style normality…. So, is the former Soviet bloc there now?
In an authoritative book already mentioned in my recent posts, Anders Aslund from the Peterson Institute undertook a first systematic stocktaking of Transition in Central and Eastern Europe, Russia and Central Asia. The former Soviet bloc has known a great number of convoluted developments since then. The uncertainties surrounding Russia’s future and place in the world, as well as the controversies raised by the accession of Bulgaria and Romania to the European Union make this book a timely contribution to the debate on what went right, and what went wrong. Certainly, Aslund’s book makes a few points that will raise some controversies.
As one cannot be too long in a blog post, I will try to be short on the main conclusion drawn by Aslund on reform: the quicker and more systematic the better. The more rapid economic stabilization, privatization and reform of the political system and the state, the better the countries stand today. Gradualism, such as preached by many, has only led to prolonged and entrenched problems. Therefore the controversial “shock therapy” was more effective. Why? Simply because the in-between situation favours the development of so-called rent-seekers, or “profiteurs” that make lots of money from distorted semi-markets and then try to influence the political system in their favour. This slows down the democratic process, fosters corruption and is bad for growth and overall welfare.
We are left with “five models” of postcommunist transformation. “21 countries that were once so similar have become rather diverse”:
1. “The Baltic states: market economies with private ownership and democracy; low corruption, and high growth thanks to small governments.”
2. “Central Europe: democratic market economies but social democratic welfare traps.” Indeed according to Aslund: Poland, Hungary, the Czech Republic and Slovakia have reformed very quickly their economies and political systems, leading to a relatively quick transition to reasonable wealth and correctly functioning political systems. But in view of their accession to the EU, they adopted a social welfare system that has been strangulating economic growth in the last years. Since those countries still need a strong dose of economic growth to anchor them in Western income levels this development is truly a trap.
3. “Southeast Europe: following Central Europe or the Baltics?” Bulgaria and Romania, new EU member states “are democracies and market economies. In most regards, they are similar to the Central Europeans, but they have slightly higher inflation and less private enterprise, although more growth and less unemployment. At present (… ) they might be steering in the more liberal Baltic direction.” Indeed Romania recently adopted a flat tax system, and a purely private pensions system: more Baltic than Polish in outlook.
4. “The CIS-9: corrupt, partially free market economies with high growth thanks to low taxes. With some delay, the nine reformist CIS countries have become market economies based on private enterprise…. They are partially free or mildly authoritarian and their corruption is considerable”. In another recent book, Aslund argues that Russia as it stands might well end up becoming a full-fledged democratic market economy.
5. The CIS-3: Soviet-type tyrannies. Belarus, Turkmenistan and Uzbekistan. They are “harsh dictatorships with no market economies”.