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Twenty-five years after the fall of the Berlin Wall: are transitioning countries better off?

1989, Fall of the Berlin Wall

By Dimitrije Tasic

November 9th, 2014 marked twenty-five years since the fall of the Berlin Wall, an event that symbolized the end of communism in Europe. Post-communist societies have hoped for better living standards and democracy. After a quarter of a century, it would be interesting to evaluate how (un)successful they were in this endeavor.

Firstly, how to measure standard of living? I decided to use GDP per capita as a measure, although I am aware of its caveats. In particular, strictly speaking, GDP per capita is not a measurement of the standard of living but of total national economic activity. Nevertheless, it is often used as such an indicator, based on the rationale that everyone benefits from their country’s increased economic production. Also, GDP per capita has a major advantage over other measures of standard of living in that it is measured frequently, widely, and consistently. Finally, GDP per capita is used as a standard-of-living proxy because living standards tend to move with per capita GDP, so that changes in living standards are readily detected through changes in GDP.

I decided to label as “unsuccessful” those countries that have yet to reach the level of GDP per capita from 1990. As “relatively unsuccessful” I labeled countries that have grown slower than the average rich countries, such as members of the Organization for Economic Cooperation and Development (OECD), in the last 25 years. This threshold is everything less than 1.7% GDP per capita annual growth. They are labeled as such because they do not approach the level of GDP per capita growth found in rich countries, and therefore do not satisfy hopes of people about the economic convergence with the richest countries. The third group consists of countries that have a GDP per capita growth rate similar to that of OECD countries – between 1.7 and 2% in the last 25 years. Finally, “successful” countries are those that grew at least 2%, on average, in the last 25 years.

Seven countries, with a total population of nearly 80 million people, or 20 percent of the population of all transition countries, make up the first group. These are Tajikistan, Moldova, Ukraine, Kyrgyzstan, Georgia, Bosnia and Herzegovina, and Serbia. All of them have gone through civil war or international conflict. It does not seem likely that any of them will reach the level of growth in 1990 anytime soon. In fact, with the current growth rate, it may take them 50 or 60 years, which is longer than they spent under communism, to return to the level of GDP per capita that they had when communism fell.

The relatively unsuccessful countries are Macedonia, Croatia, Russia and Hungary. Their average GDP per capita growth rate in the last 25 years is about 1% per capita.

Countries that are not falling behind the rich capitalist world are the Czech Republic, Slovenia, Turkmenistan, Lithuania, and Romania. Their growth rate is between 1.7 and 1.9 percent.

Finally, “successful” countries, those that are keeping up with the rich capitalist world are: Uzbekistan, Latvia, Bulgaria, Slovakia, Kazakhstan, Azerbaijan, Estonia, Mongolia, Armenia, Belarus, Poland, and Albania. The success for several of them (Azerbaijan, Kazakhstan, Uzbekistan) can be attributed more to the exploitation of natural resources than to transitioning policies, which is why I would not put them in this group. The real capitalist success countries left then are Albania, Poland, Belarus, Armenia, Estonia, Latvia, Bulgaria, Slovakia, and Mongolia. But, if we add democracy as a criteria for success, then we can definitely leave Belarus and Armenia out of this group, which leaves us with only seven countries.

The expectation of most people on November 9th, 1989 was that the transition to capitalism would result in economic convergence with the rest of the rich world. The other goal was democracy. Such dreams are mostly fulfilled in Poland, which has about 40 million people, or about 10 percent of the population of the former communist countries.

Therefore, ultimately, what is the overall balance of transition? For only seven countries can it be said that they are on the way to becoming developed capitalist democracies. As can be seen, many are underdeveloped, and in many, the situation is even harder than it was when the Wall fell. In the end, it seems like the Wall has fallen only for some.

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