Dec 27, 2021Liked by Noah Smith

Seems like a priority for the EU should be to push back against anti-liberal politics in Poland and Hungary, and reward good leaders in Ukraine and Moldova with membership. Then down the line expand to Belarus/Georgia/Armenia and even Russia when Putin & Lukashenko eventually lose power or die. Despite the animosity that’s played up these days, it seems to me that all these European countries should converge economically, no?

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Czhech Republic and Poland felt first world, Hungary felt second world. Just from my brief visits there in early 2020

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One similar-ish post-communist country I would like to hear more about is Mongolia, home to incredibly good popular music. It seems to be doing pretty well in terms of institutions (Freedom House rates it as free), despite bordering only Russia and China and historically having been meddled in or occupied by both over the past few centuries. I've heard about substantial urbanization and changing ways of life there, but I don't know how it's doing economically against other resource-based economies, or much about its current geopolitics. The contrast in terms of transition out of communism between it and say Kazakhstan or Turkmenistan would be really interesting to read about.

but, for real, the music is so good

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Nice post. I'm looking forward to your post on the Baltic countries. I have mad a few posts on post-soviet economies myself. On why (I think) the EU really matters here: https://gubbdjavel.com/2019/06/08/why-the-eu-really-matters/. Perhaps I made a mistake to put Belarus in the aggregate FSUNF (Former Soviet Union Non Fuel countries) since this this post https://gubbdjavel.com/2020/08/27/belarus-would-have-done-better-in-the-eu/ indicates that it should be in the FSUF aggregate. I've also made a post comparing Poland to Ukraine where I tried to show what the long shadows of the Soviet Union meant for Ukraine. https://gubbdjavel.com/2019/08/15/poland-and-ukraine-so-close-and-yet-so-far-apart/

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I know the tendency is to group the Central Asian countries together – the Soviet administrators practically considered them interchangable as well – but the resource exporters (Kazakhstan, Uzbekistan, Turkmenistan) are really different from Kyrgyzstan and Tajikistan, which are very poor, mountainous countries that in many ways have more in common with Afghanistan than the other Central Asian republics. One could argue that Azerbaijan is better grouped with the resource-exporting stans as well.

Tajikistan is one of the most beautiful places I've been though!

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Using ~60 years of GDP per capita data (with questionable baselines) to answer "Communism Vs. Capitalism?" is the sort of lazy and insanely annoying thing that Noah does. He throws in his college freshman ideas on history and politics to put the countries in buckets that only a management consultant would care about and then conclude that everything bad that has happened was Russia's fault (Ukraine, etc). A more advanced analysis would also consider that the explosion of kleptocracies in the Eastern Bloc was due largely to the shock doctrine pushed by western and western-inspired economists. Milanovic talks about multiple lost generations along more dimensions than just GDP. Life expectancies fell and are still lower in some places than under communism. Populations have fallen or stagnated. Reactionary politics are thriving. A few years ago I read that Bulgaria was a "mafia state," which seemed a bit extreme, so I asked my Bulgarian friend. Her response was something like, “Oh, absolutely!”

Survey data show satisfaction with current arrangements in general, but there are some ambiguous areas, and it is hardly the slam dunk that Cold Warriors expected.

A much better analysis would also look at what people living under communism expected in 1990, and what they were promised by the victorious Cold Warriors from the West: prosperity and democracy. If Noah was writing at the time, he probably would have agreed with the econobrain consensus that a golden age was dawning in the East of Europe, History was Ending. HOWEVER, many of the political problems we see today are not just because of Russian revanchism, but largely because of generations of disillusion with the hype of liberalization and the hypocrisy and emptiness of US/EU policy toward the region and throughout the world. Financial crises rocked East Europe in 2007-08, but then were quickly overshadowed by Lehman Bros and the eurozone crisis.

Why not compare to China, where living standards rocketed by orders of magnitude since 1990? Isabella Weber's recent book covers the different paths of shock therapy in East Europe and gradualism in China. One thing for that occurred to me from that book is the ways in which post-Cold War triumphalism completely ignore the human toll and dislocation of the fall of communism, and the failure to account for bad policy decisions and actual outcomes.

If the goal of the shock therapists was to lift the old eastern bloc out of communist malaise into prosperous democracies, they failed!-- in the short-, medium- and probably long-term. So maybe the primary goal was simply to humiliate and defeat the USSR, and if the whole shock therapy thing worked, then all the better. Similar to IMF-imposed structural adjustment policies in debt burdened countries, post-communist Europe found itself the subject of free market experiments that were too extreme for Margaret Thatcher to get away with in the UK. There was little reckoning of the events and decisions that dismantled the Soviet system, certainly not among the natsec and policy elites. Regime change was successful, but there is no reliable strategy for economic development in the break-neck liberalization that new leaders pursued. (The market zealots were undeterred though: in 2003 one of the first things the Bush administration wanted to do in Baghdad was get the stock exchange back up and running. The idea was that once they got the price setting system up and running, everything else would fall into place.)

An honest assessment under a thoughtful liberal interventionist framework (not my brand, but let's take these people at their word) will paint a complex and ambiguous picture, but the actual policy decisions made in the historically contingent years of 1989-91 (and completely ignored in this post) matter. Essentializing 30+ years of pivotal history to country-level GDP time series data is not an honest assessment.

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"With the benefit of seven more years of hindsight, we see that Milanovic’s verdict was prematurely pessimistic"

Your own conclusion is itself premature as long as you ignore the countries of former Yugoslavia; of those 7 countries Milanović's analysis included the most populous 5, and he found 4 to be "clear failures" or "relative failures"!

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I'm a bit suprised by Lithuania catching up to Estonia(slightly exceeding it in one of the data sets), hopefullly your post on the baltics will talk about why that is the case. But interestingly if you measure it using actual individual consumption instead of gdp per capita, the gap has existed for quite a while(https://datawrapper.dwcdn.net/eqg2S/1/), and has only increased over time(estonia grew by 40% between 2008-2019 averaging about 3.6% a year, and lithuania has grown by 51%, an average of 4.6% a year). Both are higher than the EU average though(which is about 20%, or slightly below 2% a year). Also there are a few more interesting datapoints, including germany now being the same in actual individual consumption as switzerland.

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GDP was initially developed as a war-time measure. Simon Kuznets, the economist that created the national income accounts which inspired the current GDP measurement, warned the US congress about using this as the measurement.

__“The [people’s] welfare can therefore scarcely be inferred from a measurement of national income as defined above.”__

Meaning, there is no determination of social progress or human welfare that can be derived from this metric. So why do we continue to use it?

I suggest people like Noah to actually spend a few months in a developing country, understand the suffering. You are so out of touch, it is not even funny anymore. %60 of the world's populations who live on less than $5 a day are sick of this GDP nonsense.

We’re plundering the earth... Capital is programmed to replicate itself – everything it touches turns into more capital. Exactly like a virus that colonises the host to produce more of itself. Expansionary economic systems are organised around appropriation, plunder, and extrication.

It’s time we changed this system rather than using their crooked metrics such as GDP.

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I know these countries too well to like a superficial generalist overview. Some tips:

- Ditch PPP. PPP is a muddle not an improvement, especially on the matter of how developed an economy is. PPP is like a contrast-reduction filter, mainly adjusting upward the GDPs of countries with cheaper labor and land. This is exactly what you don't want to do to compare countries' levels of development. PPP also adds a large practically random noise component, e.g. the Baltics are better off relative to Central Europe than your numbers show.

- Remember that Communist countries had a completely different method of calculating GDP, counting administratively priced production as opposed to Western-style market-priced consumption plus net exports. This is especially important when looking at the final two years of the Soviet Union, when factories continued to produce or report production of goods that weren't selling as perestroika opened the gates to consumer imports. Also it was already from '88 that commodities began to be diverted from local production to export markets (exacerbating weak commodity prices) and income began to be diverted from production units to private offshore accounts. The economic crisis began earlier than is reflected in Soviet GDP numbers and has much to do with the coup and breakup.

- Commodities prices rather than economic development started to become the dominant driver of Soviet well-being already in the '70s. Since the Soviet collapse commodities exports have been the overwhelmingly dominant driver of Russian and most post-Soviet countries' well-being and power. The numerous large swings in global commodity prices since the '70s do show up in real GDP and look to us dramatic. But the real GDP swings are actually very muted compared to the violent swings in living standards and state power. Russians are far more aware of commodity price trends than they are of real GDP trends, and this has much to do with the lack of popular support for reform.

You're very right though that Russian destabilization is the main obstacle to growth in Georgia, Ukraine and Moldova.

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We know the helicopter view that allows to look at the big picture, not being swamped in multiple details but identifying the most important of them. Your post gives a satellite view of 30 years of economic transformation of the former Eastern block. This approach allows to compare the successes and failures of a couple dozens of countries on a macro level and does not pretend to analyze all details of economic policies. Your conclusions are evident and cannot be questioned - the only way to the prosperity for the former socialist countries is a consistent development of a democratic society and market economy. It is not surprising that all countries that joined the EU have demonstrated significant economic growth, unlike the bulk of the ex-Soviet republics that opted for their unique path.

Being supportive of your general conclusions, I would like to make some individual comments that may help to see what was hidden by clouds when your satellite made pictures.

1. I am very skeptical about pre-1990 statistical data and the measurement of economic decline at the beginning of the 1990s, mainly in the former USSR. While in Eastern European countries, private business and free prices were allowed, though, to a limited extent, all prices in the Soviet Union were fixed by the government and didn’t reflect any market forces. To measure the GDP correctly and to compare results with the market economies is mission impossible. Non-questioning the magnitude of the economic decline in Russia at the beginning of the 90-s, I need to mention that the halt caused a big portion of it in military production. E.g., in the end-80s, the USSR produced more tanks than the rest of the world combined. All tank production was stopped, and the GDP declined because of that.

2. I would not concentrate on the causes of the USSR's failure to the “greater and greater dependence on fossil fuels." Funny, but today Russia is much more dependent on fossil fuels in the balance of payments and the budgetary revenues than the Soviet Union. You rightly emphasize the "dysfunctional” character of the Soviet economy, but we should not forget the vast imbalances that emerged because of Chernobyl and the political mistakes of Gorbachev's government.

3. You call all central Asian countries "natural resources exporters," though I would not use this description to Kyrgyzstan and Tajikistan.

4. Kazakhstan is a fascinating case – this country, amid the long-term strategic policy of the former president Nazarbayev, this country has been able to promote a pragmatic economic policy with a welcome approach to foreign investment. Kazakhstan has provided the rule of law in the economy and property rights protection despite the lack of political freedoms. As a result, being initially less developed than Russia and lacking Russia's scientific and technological potential, Kazakhstan reached faster growth and has outstripped Russia in GDP per capita.

5. Turkmenistan is another special case – the country is enormously rich in natural gas, which is why its statistically astonishing results. But, of course, its GDP per capita doesn't transform into the household's living standards.

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Dec 27, 2021·edited Dec 27, 2021

Hey, Noah, just wondering why you're pushing RW, astroturfed VC BS on Twitter? Michelle Tandler is literally a VC puppet who they have pushed on Twitter to fake outrage, and you're pushing her like it's real It kind of shades your analysis of anything else at this point, how much VC money you taking, bro?

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The absence of the countries making up the former Yugoslavia is striking. Was that on purpose or accidental?

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Great post. I have just a few comments. One is that the dramatic collapse in per capita GDP somewhat overstates the economic collapse of the USSR. The Soviets were never very straightforward with how much they spent on its military and state security, but Western estimates suggest 15-25% of their economy was devoted to those things. A big part of the fall in national income was just them scrapping a huge portion of their navy, air force, ground force, nuclear stockpile, and bioweapons cache all of which were the largest in the world.

The 2nd part is the capital/output ratio. Of the major economies of the world the USSR had the worst growth rates after WW2 when you adjust for the rate of investment. The amount of waste was enormous and productivity was awful. Finally there was the hyperinflation. Soviet citizens could afford things because everything was price controlled. Once those prices were lifted there was an enormous adjustment phase.

The people of the Soviet Union had a weird standard of living. Real wages were very low and so was per capita consumption. You could still get most of your basic needs because of the price controls and subsidies. Public transport, healthcare, housing, and education were all "free" but the quality of healthcare, most apartments, and public transportation were horrible. Per capita income was ok, but mostly as a function of its huge military and high rate of investment. The people had a reasonably high life expectancy, although for Slavic males this fell a lot before 1991. Food and clothing was available, but mostly the basics in bulk and with little style or pizazz. Consumer durables were more abundant than in the 3rd world but people still had very little compared to Americans or Canadians. Quality was also low and people had a hard time fixing anything if it broke because of a lack of repair shops or spare parts in stores.

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I think Noah may be overstating the importance of Russian intervention in Ukraine and Georgia. Judging from the charts, both countries went through unusually severe collapses right after 1991. For what it's worth, I visited Belarus at the end of 1993 and although the place felt very stodgy and "Soviet", people were grateful to have heat and power that winter at a time when Ukraine didn't.

I've heard Georgia had massive electricity outages as well. So what exactly happened in those two countries?

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