Whether by Visible or Invisible Hand: The Intractable Problem of Russian and East European Catch up

Abstract

Can a strong convergence process be set in motion which will give hope that transition countries begin to catch up with the Western world? The collapse of Soviet control in Eastern Europe in 1989, and the subsequent disintegration of the Soviet Union in 1991, led everywhere to a re-evaluation of the past and a more optimistic appreciation of the pre-1945 potential of this part of the European economy. Specifically, what has been suggested is that before 1945 the countries of Central and Eastern Europe were already well into the process of modern economic growth and towards convergence with the advanced West, and that the subsequent imposition of centralised planning did long term harm to the region's prospects. Envious comparisons have been made with near neighbours such as Austria or more distant examples such as Spain and Italy. This historical revisionism has been used to support the view that, once they were freed from state control in the 1990s, these new market economies would have bright prospects. Nowhere, however, have these high hopes been borne out. This paper argues that a precondition for the explanation of this failure has to be a recognition that this optimistic view of the past is false, and that these economies have been and continue to be the victims of much longer run inequalities in the world economy.

The Development Gap Between the CIS and EU

“…The strongest convergence was observed among the countries that subsequently joined the EU in 2004 (Czech Republic, Estonia, Hungary, Poland, and Slovenia) and in the group of countries -original members of CEFTA (the Czech Republic, Slovakia, Hungary, Poland, and Slovenia). Haynes and Husan (2002a) analyzed the development of the former Eastern bloc countries in comparison with three Western countries (Italy, Spain and Austria) throughout the 20 th century and demonstrated that there was a long-term development problem with the Eastern Europe countries and Russia dating back to 17-18 th centuries. In addition to this, series of shifts from market to state and back to market in CEE countries imposed huge costs on the population.…”