A Note on Economic Growth in Eastern Europe

Article excerpt

The economic problems and relatively lower income per capita of Eastern Europe compared to Western Europe and the United States have frequently been blamed on the communist past of these countries [Pipes 1993]. For instance, even well-cited and well-regarded textbooks routinely make erroneous statements, such as "it is not clear if the current Russian president can reverse the decades of deterioration that preceded the collapse of the Soviet Union" [Eiteman, Stonehill, and Moffett 1998]. One cause of this misperception is the fact that Gorbachev himself (and his leading advisors and academicians) often criticized the efficiency of communism and even referred to the 1970s and 1980s as being periods of "stagnation and decline in the economy" [Marcy 1990].

The truth of the matter is, however, that the countries of Eastern Europe had historically always been economically backward relative to the rest of the world even before communism.(1) In particular, Eastern Europe before communism had much lower economic output per capita than Western Europe and was sometimes called the Latin America of Europe [Mead 1994]. For instance, the gross national product (GNP) per capita of Russia was one-tenth that of the United States during peacetime before communism in 1913 [Gregory 1982], one-twelfth that of the per capita GNP of the United States at the time of the communist revolution in 1917, and one-twenty-fifth that of the United States after the end of the very destructive interventionist civil war in 1921 [Hutchings 1982].(2)

Once communism had been established in Eastern Europe, GNP per capita grew significantly faster than the GNP per capita of capitalist countries. For instance, GNP per capita of the Soviet Union grew from one-twelfth that of the United States in 1917 to one-third that of the United States by 1991 [United Nations 1994]. That performance occurred despite numerous brutal civil wars initiated by foreign capitalist powers [Pipes 1993], despite a very destructive Nazi invasion that reduced real Soviet output by more than 20 percent between 1941 and 1945 [Maddison 1969], despite a perceived need to spend a substantial amount on the military to defend against various cold war threats [Campbell 1974], and despite a technology embargo by richer capitalist countries that made technological advances much more costly than elsewhere [Parrott 1985]. Even in each of the final two decades before its break up, the economy of the Soviet Union, and Eastern Europe in general, grew faster than the United States in real terms [International Monetary Fund 1992].(3) Although the rate of growth was slower in the 1970s and 1980s than it had been in prior decades, the Eastern European economies first really collapsed following the removal of communism in the early 1990s, at which time real GNP per capita fell by about 50 percent [International Monetary Fund 1997].

The overall experience in Eastern Europe indicates that communism narrowed the income gap between the poor Eastern European countries and the richest Western countries. Analysts need to take these historical facts into consideration when evaluating economic policy and making forecasts. …