If you look at GDP, their GDPs have exploded starting in around the year 2000. Economies that are 300-500% bigger (some like Kazakhstan are 10x bigger) are not uncommon and countries that were 5k per capita income in 2000 might be closer to 20k now.
So how did it happen? It can’t be natural resources can it? That might explain Russia (whose economy went from 1700 per capita to about 14k now) but I don’t think places like Estonia or Latvia have natural resources.
What was behind this trend, and why did it only seem to start around the year 2000, which was 10 years after the fall of communism? Most ex-USSR states seemed to stagnate or decline in the 90s, then when the year 2000 hit their economies exploded.
Did Russia’s recovery lift all the nearby countries? Did trade with Europe improve? What was behind it?
Because the Russians left behind a well-established infrastructure. They left behind a nearly 100% literacy rate, with schools and universities in place. They left behind a health care system that was designed to provide universal care with adequate facilities and well-trained medical personnel. Also important, they left behind a sense of egalitarianism, so their social economies are not following a get-rich-quick scheme for the few most talented and aggressive, leaving the rest behind in squalor.
Last year, I visited Moldova, Ukraine, Georgia, Armenia, Kazakhstan and Kyrgyzstan, and I was amazed that they all had the general appearance of nations with PPP’s at least double what their third-world statistics would have suggested.
There is a period of looting those economies that causes a blip in GDP. GDP includes a lot of purely financial transactions that do not really contribute positively to an economy, but look good on the books. For a little while. It is best to also look at debt figures. Personal and for the state. Also various standards of living. There is a period of personal and business euphoria and speculation, that is too often overblown or downright predatory. The long term results are often poor.
I suspect the timing reflects that it took a decade to recover from the loss of Russian subsidies and trade, and to reform or eliminate the various communist inefficiencies, like state firms and collective agriculture. Also, significant inflation would have dragged economic performance down in the '90s, as prices had to adjust to the levels of the outside world. Their economic performance has shot up since then partly because it was ground down to such a low base.
The central Asian countries tend to be weighted toward extraction. Kazakhstan’s economy rises or falls with the price of oil, Kyrgyzstan depends on mining, Tajikistan cotton and aluminum, and Uzbekistan gold.
The Baltics were educated and western-looking, and they managed to turn themselves into service economies quickly. The downside of that is that they were hit hard by the financial crisis like the rest of the West.
In general Communist bloc countries were very poor and you should expect poor countries to grow much faster than rich countries when you remove what made those countries poor. For the most part after the fall of Communism it took several years for most of those countries to build an economy from almost scratch but after they did they grew very quickly due to catch up growth. This is called convergence and can be explained that it is well known how to grow from a poor economy to a rich economy since every rich country has already done it. However, rich countries do not know how to get richer then we are now since no one has done that before.
Interesting answers, however there are things I’m still confused by.
Looking into it, all 15 ex Soviet states did the exact same thing, their economic growth exploded around the year 2000. It didn’t matter if they were going from $600 to $4000 or from $5000 to $20000. They all grew. There are tons of nations on earth that are low or middle income that did not grow as fast during the same period.
India is a bric country, their per capita gdp only grew by 300% during that period, which is low compared to the ex soviet states. Pakistans economy barely doubled during this period. It can’t just be because of a low base, because then all nations would’ve had the same thing happen.
Also why a decade of stagnation, the an explosion at the turn of the century?
This is an interesting answer. As an American I am never exposed to any opinions that paint communism in a positive light so I never considered this. Perhaps the ussr laid the groundwork for healthy economic growth, but also got in the way of it too. Once planned economic models were gone but you still had the investments then growth took off.
How did the cities differ from what you’d expect based on gdp? I’ve seen photos of the Ukraine and it doesn’t look like a country that had a per capita of 1k just a few years ago, it looks wealthier than that. As an example, I just looked it up and despite the vastly smaller economy, the Ukraine has about the same number of. Physicians per capita as France or the UK. It appears to be the same with other ex soviet states, at least regarding Physicians per capita. It is as high as Western nations despite far smaller economies.
On another note, is it possible that these countries are just catching up to where they were in the 80s? That could play a role too, countries that were middle income then dropped too low income climbed back up to middle income again.
Of course (though I highly doubt a “sense of egalitarianism” had anything to do with it). But they didn’t have free markets to direct all those handy things.
These things take time. While the former Soviet satellites had well-educated people and relatively well-established public institutions, they didn’t have lots of things that we take for granted in a market economy.
If you’re an economist, and you have spent your whole career studying command economies, and looking at markets only in a macro sense for academic or comparative purposes, it’s going to be a while before you can offer useful advice to anyone.
If you’re a factory manager, and you’ve spent your whole career overseeing workers who can’t leave for a competitor, learning how to retain the best employees takes time (as does deciding what to produce all by yourself, and so on).
There was also a substantial brain drain between 1990 and 1993 or so, given that millions of highly qualified people were able to leave for the first time. So even those who sort of knew what they were doing were suddenly in positions of greater authority.
Once things started to turn around, you got a very rapid increase because the satellites became attractive to foreign investment.
India shifted very gradually from a democratic socialist-ish system between the 1970s and 1990s, so you wouldn’t see the same sort of rapid growth over a few years.
I didn’t see much of Ukraine,except a few days in Odessa, which is a very hip and dapper city, and in terms of apparent affluence, reminded me of a city in Mexico, at least. Other travelers told me Kiev is even nicer.
I left on that trip on short notice, and never even bothered to look up the per-caps until after I got home, and I was dumbstruck with what I saw. Kygyzstan’s per-cap is in the Ghana/Sudan neighborhood, yet moving about in the country, one would have guessed a standard at least as high as Mexico. I divided three weeks between Bishkek and Karakol, and rode public transport in between, and I saw a country that I’d love to live in (except for its Siberian winters). With a 4-fold difference between the per-caps of Kyrgyz and Kazakh, it’s hard to detect much difference between them, urban or rural.
Sometimes when traveling you can get the most accurate impression if you have no pre-arrival expectations. By the way, do not take my earlier remarks as an endorsement of the Soviet system. The ancestors of present-day CIS countries paid dearly for the legacy they are now receiving as a dividend.
It seems that the world has decided communism doesn’t work and even the currently communist countries are really only communist in name. Having said that, if communist nations truly cared About concepts like women and minority rights, infrastructure, healthcare, education, etc I can see why that would lead to economic growth. It is my understanding that something as simple as women’s rights will help lift Africa out of poverty.
As I said, in the US we are never told anything good about the ussr so it is interesting.
That’s a bit much. The UK and US (to use two examples) were wealthy countries long before women enjoyed substantial rights or access to education. Sure won’t hurt, though.
At the risk of somewhat stating the obvious, one simple answer is that it’s not that difficult to get huge GDP percentage gains if your GDP is really low to begin with.
What’s really remarkable about the post-Soviet states wasn’t their level of economic growth in the 2000’s; it’s that these otherwise functional countries with plenty of resources and infrastructure had such incredibly dysfunctional economies during the 90’s. To their credit, the leftover Soviet institutions and attitudes undoubtedly helped hold off the full-blown humanitarian crises that would normally accompany such economic disasters, but they were also largely responsible for them.
Also, and contrary to the narrative jtur88 is giving in his or her first post, GDP growth comes from building stuff like infrastructure and housing…it’s one of the ways China has pumped up its GDP in fact. I suspect that a lot of GDP growth in the former Soviet satellite countries comes from replacing crap infrastructure and housing with newer, more modern infrastructure, and the lag was, as mentioned up thread, getting the crap Communist administrations cleared somewhat out of the system and allowing some sort of market forces to take effect. This wouldn’t be an instant shift and would take time, so there would be a substantial lag between Soviet foot coming off neck (and crappy Soviet puppet local governments controlling stuff) and real economic and social growth happening. Also, many of those countries formed stronger ties to the west, which gave them new markets and opportunities as well as the ability to draw on wider and deeper resources for loans and capital injections.
In the late 60s, when I spent quite a bit of time in Eastern Europe, there was nothing wrong with the infrastructure. Roads and railways were up to western Europe standards, there were good public water systems and reliable power grids. Schools and hospitals were there to furnish universal education and health care. With these already in place, it was not necessary for the former Soviet republics to divert their new-found resources to constructing them – emphasis can be directed elsewhere. It is the lack of these kinds of infrastructures that have been obstructing development in Africa and Latin America, because the free market systems long on those continents never deemed it profitable to build them, and still don’t.
Again, why did all 15 ex-Soviet states see rapid growth, and why did it start around 2000? Does it really take 10 years to recover from the damage of communism? China started growing extremely rapidly after the reforms of 1978, it did not take a 10 year waiting period.
Also the argument that ‘they were starting from a lower basement’ isn’t really that persuasive. Small economies like the Ukraine went from $600 to $4000. But larger economies like Slovakia and the Czech republic went from $5000 to $20,000 per capita GDP. Many other economies grew, but not at the rate of ex soviet states, some of which saw their economies grow by 1000% from 2000-present. How many other middle income nations rose to high income status in that time period? Multiple ex-USSR states did, in fact 7-8 ex-Soviet states are now high income according to the world bank.
Mexico, by comparison, went from about 6k to 10k at the same time places like Slovakia and Czech were going from about 5k to 18-20k.
Maybe it took ten years to get their feet under them after the chaos and uncertainty surrounding the complete collapse of their former governing system? Eventually the comparative advantages they had over other developing countries started to assert themselves, like a better-educated populace and better infrastructure.
After the USSR collapsed, the economy went into freefall. It was a complete economic disaster, caused by “shock-doctrine” policies which looted the economy coupled with economic mismanagement as well as following crappy economic advice. Their approach to switching over to a capitalist system was vastly different than what China has been doing. There were points were large parts of the former USSR’s economy were reduced to barter because the currency had become worthless.
Add to that an immense amount of violence and civillian displacement. For example, at one point, it looked like we were going to get a genocide in Azerbaijan. Many of the new governments in the former USSR were weak and unstable. There was just a period after the collapse where everything was a mess.
And then, the violence largely died down (with a few exceptions like Chechnya). Most of the former USSR governments achieved some level of stability. And the economic chaos caused by the shock-doctrines had worked their way through the system.
So, once all of that settled down, the economies were free to grow. It helped that they are near Europe, so it’s easier to trade with Europe. It helped that they had left-over infrastructure, as mentioned above. It helped that many of these countries have significant natural resources (also, mentioned above). And perhaps, as mentioned above, it did take some time for people to get up to speed on how to make money in the new economies.
If some random poor country suddenly got a stable government and Soviet-level infrastructure, and was also sitting on top of a bunch of exportable natural resources, it would probably grow pretty rapidly as well.
A friend of mine worked in Ukraine for a year for USAID–this would have been in maybe 1995. His job was to make television programs explaining how small businesses worked. I’m sure there was some small private enterprise before the collapse, but there were also many people who wanted to be entrepreneurs but didn’t know how.
The “shock doctrine” probably didn’t help either. Some period of transition from state control would have been wiser. Instead, we got mass privatization, resulting in a few connected apparatchiks gaining control over lucrative enterprises, resulting in oligarchs who became incredibly wealthy, whose holdings were then stolen away and brought back under state control. That worked well!