The East 25 Years After Communism

by on October 30, 2014 at 1:48 am in Current Affairs, Economics, History, Political Science | Permalink

That is the new Foreign Affairs piece by Andrei Shleifer and Daniel Treisman, and they argue that matters have gone strikingly well and are relatively normal.  Here is one excerpt:

Newspapers overflowed with accounts of soaring mortality amid the stress of transition. On average, however, life expectancy rose from 69 years in 1990 to 73 years in 2012. The speed of improvement was two thirds faster than in the communist 1980s. Russia’s life expectancy today, at 70.5, is higher than it has ever been. Infant mortality, already low, fell faster in percentage terms than in any other world region.

Eastern Europe is infamous for unhealthy binge drinking. However, average alcohol consumption fell between 1990 and 2010 from 7.9 to 7.6 liters of pure alcohol a year per resident aged over 14. There were exceptions — drinking rose in Russia and the Baltic states but even in Russia recorded consumption in 2010, 11.1 liters, was lower than that in Germany, France, Ireland, or Austria. (Of course, more drinking might escape the statisticians in the Slavic region.) Smoking among adult males was high – 42 percent on average but about the same as in Asia. In short almost all statistics suggest a dramatic improvement in the quality of life.

In short, almost all statistics suggest a dramatic improvement in the quality of life since 1989 for citizens of the average postcommunist country — an improvement that rivals and often exceeds those in other parts of the world.

You will note that the published version in Foreign Affairs has slightly different wording and organization.

1 Steve Sailer October 30, 2014 at 1:51 am

“That is the new Foreign Affairs piece by Andrei Shleifer and Daniel Treisman, and they argue that matters have gone strikingly well and are relatively normal.”

From David Warsh’s “Economic Principals,” July 4, 2004:

Judge Finds Against Shleifer, Hay and Harvard

The US government’s long-running wrangle with economist Andrei Shleifer and Harvard University over Harvard’s ill-fated Russia Project in the 1990s was resolved last week, in the government’s favor.

A Federal judge ruled that, by quietly investing on their own accounts while advising the Russian government, Harvard professor Shleifer and his Moscow-based assistant Jonathan Hay had conspired to defraud the US Agency for International Development (USAID), which had been paying their salary.

Hay was faulted for violating three counts of the False Claims Act, Shleifer for one, with two other counts against him pending a possible jury trial on what it means to have been “assigned” to Russia under the contract’s terms. (Shleifer asserts that the conflict-of-interest rules didn’t apply to him since, though directing the project, he had continued to reside outside of Russia, in Newton, Mass.)

http://www.economicprincipals.com/issues/2004.07.04/103.html

2 Ray Lopez October 30, 2014 at 2:57 am

This 2008 piece says Shleifer and family are probably worth about a billion USD, based on typical hedge fund metrics. Pretty good for a Harvard professor, though I suspect the 2008 recession probably cut a good 30-50% of that sum.

As for the study cited by TC, note the R-squared coefficient is low, so the data are all over the place and not that strong to make any really firm conclusions.

3 Ray Lopez October 30, 2014 at 2:58 am
4 Steve Sailer October 30, 2014 at 6:52 am

Wow, Dr. and Mrs. Shleifer made approaching a billion dollars out of the Rape of Russia by 2008? That’s just, prima facie, an ethical nightmare. Have any professional organizations of economists looked into stripping Shleifer of his professional honors?

5 dearieme October 30, 2014 at 7:43 am

Wasn’t Shleifer metaphorically in bed with Summers, the latter lavishing Harvard money to protect his chum?

6 Barkley Rosser October 30, 2014 at 3:56 pm

Ray,

Glad to see that yoy followed through on my recommendations from the sighing thread and checked out David Warsh’s work on Shleifer et al. And, yes, Steve, there is clearly an ethical problem. Curiously enough the economics profession has decided essentially to ignore it. He is one of the most published and cited economists in the world, very prolific and very inovative, whatever one thinks of his ethics. He also served as editor of the Quarterly Journal of Economics and later of the Journal of Economic Perspectives, both leading journals in economics.

The only place where there was an attempt to punish him was at Harvard itself, as I pointed out previously and as reported by Warsh. He lost his professorial chair, and the faculty did not want any special favors done for him, although he maintained his tenured full professorship in the department of economics. Again, what did Larry Summers in at Harvard was that he did some special favors for Shleifer and then lied about it to the faculty. Shleifer had previously been both a student and coauthor with Summers, and just to really put the pinch on it, Shleifer received the AID grant to play in Russia from which those funds came while Summers was technically over AID at Treadury under Clinton, if not its immediate director. Needless to say, it was their awareness of all this that made the Harvard faculty suspicious and demanding in the first place regarding how Summers would treat Shleifer after Shleifer’s “shenanigans” cost Harvard $26.5 million, which Harvard paid, and with if Shleifer paying it not hurting his bottom line all that much.

7 Steve Sailer October 30, 2014 at 4:07 pm

The Shleifer and Summers families went on vacations together every summer.

8 Ray Lopez October 30, 2014 at 3:00 am

Something wrong with TC’s blog at the moment, I am getting two stores, one in bold type , mixed together…

9 Steve Sailer October 30, 2014 at 1:57 am

“In short, almost all statistics suggest a dramatic improvement in the quality since 1989 for citizens of the average postcommunist country”

Sure, but what were the statistics in Russia like over the decade or so when they listening to the advice of Andrei Shleifer?

10 Marian Kechlibar October 30, 2014 at 6:26 am

Steve, I spent my childhood in communist Czechoslovakia. I think you do not have an idea how seriously do 40+ years of communism screw up a country. When literally everything is a paper farce combined with cancerous nepotism and no one ever is paid for the real quality of their work, the economy disintegrates into such a state that even bread and butter are scarce.

In case of Russia, it was 70 years. During such a long period, the generation change will wipe out all traces of decency from the earlier eras.

It is wrong to attribute the slump of the 90s to Andrei Shleifer or whomever. The former Soviet empire simply lost its ability to expropriate the necessary resources and goods from the satellite states and the inability of the devastated society to provide basic services was laid bare.

11 Steve Sailer October 30, 2014 at 6:48 am

Harvard and MIT economists like Shleifer and Stanley Fischer worked mostly with the big one, Russia, and skimped on small fry like the Czech Republic and Poland. And yet there seems to be a distinct inverse correlation between the celebrity of the American economists advising the government and the smoothness of the transition.

Thus you see Shleifer saying, in effect, well, things were pretty dire after us Harvard guys worked our magic, but nothing so bad that 15 years of Putinism couldn’t finally fix.

12 Axa October 30, 2014 at 7:29 am

Steve, obviously you hate that Harvard people but you can’t blame them for the mess in Russia instead of the corruption that thrived under the umbrella of “comunism”.

13 Marian Kechlibar October 30, 2014 at 7:44 am

Steve, you can find a correlation between the average winter snow cover of the post-Communist country and the smoothness of the transition as well. Validity of such observation is low, though. You really do seem to have a pet peeve regarding those two.

I think you overestimate the ability of economic advisers to steer a country, much less a thoroughly devastated country. Communist devastation was of the worst sort – not just the infrastructure, but the social capital was destroyed. There were times when everyone who did not toe to the line, or was just “suspect” ended up in Gulag. But these are precisely those mental types that build a backbone of market economy. The régime massacred them and cultivated either people totally indiferent to their own work or the apparatchik types whose only ability was to plot against other apparatchiks. With population learned to function like that, even Devil itself could not make Hell work. Much less a theoretical Harvard guy.

The situation in Poland and Czechia was better. The contact with the West was livelier and the older generations still remembered how the society worked before the Communist coups; also, the regimes of the 50s, even though criminal, did not massacre nearly as many people as Stalin did, so there was some reservoir of talent.

14 The Devil's Dictionary October 30, 2014 at 8:33 am

Czechia is a Western country. A hundred years ago it was on par with the more advanced parts of Austria. BTW, Hayek is a Czech name.

http://eprints.lse.ac.uk/22311/

15 Ian October 30, 2014 at 10:43 am

@The Devils Dictionary
A hundred years ago, it WAS the most advanced part of Austria 😉

Hayek wouldn’t be a real Viennese without at least some Slavic blood

16 Marian Kechlibar October 30, 2014 at 11:11 am

I am a Czech and yes, Hayek is Germanized version of Hájek, a common Czech surname.

That said, the communists did their best to drag us out of the West and they partly succeeded.

17 Steve Sailer October 30, 2014 at 4:10 pm

Obviously, what I’m interested in is accountability. Shleifer appears to have been a crook in Russia on the American taxpayer’s dime, but the economics profession hasn’t sanctioned him. Stanley Fischer gave advice for eight years that turned out disastrous, but was recently made the #2 person at the Federal Reserve. And so forth and so on.

18 athEIst October 30, 2014 at 12:25 pm

Everything worked, maybe not well, but worked, until Saudi Arabia retook control of OPEC(at a cost of 2 or trillion $) by “opening the spigots” as they had been threatening. The price of oil stayed low for 10 yrs but it took only 5 to topple the USSR once its main product couldn’t bring home the bacon. The Saudis. if they thought about it at all, probably regarded the fall of the USSR as a useful by-product to their goal.
There wasn’t enough “resources and goods” in the satellite states to be expropriated.

19 Agra Brum October 30, 2014 at 3:17 pm

Well, on the flip of that, OPEC dramatically increasing the prices in the 70s also buoyed the USSR and kept its economy artificially afloat even longer (or perhaps just enabled the slow decline under Brezhnev, rather than a more significant type of reform – of a better Khrushchev or earlier Gorbachev). What OPEC giveth, OPEC taketh away…

20 prior_approval October 30, 2014 at 2:35 am

This is not exactly coherent – ‘Shedding the Moscow-imposed model, they have yielded to the pull of a new geographical gravity, converging not with the West but with their non-communist neighbors. Central Europe has become more European, Central Asia more Asian.’

Since when is Europe not part of the West? And since when are those Central Asian states not influenced by the still officially communist Chinese?

21 Yancey Ward October 30, 2014 at 8:30 am

The First Horseman of the Apocalypse seems to have arrived- this PA comment makes sense.

22 Adrian Turcu October 30, 2014 at 11:07 am

Eastern and Central Europe have not, traditionally, been part of the West. They were under ottoman and Russian occupation for a long period. The autocratic model did not give way as soon as in western Europe. Religious reform was almost non existent. Serfdom was eliminated much latter then in the West. All of this meant the economy was still mostly rural, with most land owned by the Church and local aristocracy, with poor peasants working as tenants in unfavorable conditions.
This is not to say western culture did not penetrate and had an influence, but it was mostly a model for a part of the elite, not a part of Eastern Europe. It is a struggle going on to this day. Look at Hungary. Look at this week’s election in Romania. The issue is still go forward (Europe, west) or back (tradition, nation, safety).

23 prior_approval October 30, 2014 at 1:30 pm

‘Eastern and Central Europe have not, traditionally, been part of the West’

Well, I’m pretty sure a lot of Czechs and Poles would disagree – unless one thinks that the West excludes Europe, of course.

‘Religious reform was almost non existent.’

Again, the Czechs would like to take a moment to explain their history. http://en.wikipedia.org/wiki/Jan_Hus

‘All of this meant the economy was still mostly rural, with most land owned by the Church and local aristocracy, with poor peasants working as tenants in unfavorable conditions.’

Well, OK, now that you have described France in 1789, what makes Eastern and Central Europe different?

‘but it was mostly a model for a part of the elite, not a part of Eastern Europe’

And we are now back to my point – Mitteleuropa is part of the West, but when you go far enough, Eastern Europe becomes something else. The author seems to have a hard time making a distinction, happily tossing around Ulan Bator and Central Europe as if they share any connection, apart from a Soviet one.

24 Marian Kechlibar October 30, 2014 at 3:29 pm

He has some point, though. The defunct Hapsburg empire was far from homogeneous in this regard, and spanned multiple civilizations. Silesia (lost to Prussia 1740) was industrially developed, and indeed that was why it was annexed to Prussia in the first place. When Silesia was lost, the rest of the Czech lands was industrialized to alleviate the situation. But the Hungarian part remained almost entirely agrarian up to the beginning of the 20th century, and some of the rural regions annexed from Poland or Turkey were sort-of stuck in the middle ages.

25 prior_approval October 31, 2014 at 4:51 am

‘He has some point, though.’

He does, to be fair. But then, describing Portugal or Spain in such terms would also be completely fair. Europe is just as easily divided into north and south as east and west, after all.

26 Ian October 30, 2014 at 8:45 pm

This is one of the more ignorant comments here. I’ll answer only because Americans (probably the majority of readers here) often take annoyingly Brito-centric view of Europe. Hopefully, this will help to educate some.

I’ll be talking about Central Europe because I am more familiar with it. Check http://en.wikipedia.org/wiki/Central_Europe to make sure we are using the same definition of the region. I am not sure where you’d include Germany and Austria but but Berlin is only slightly west of Prague and Vienna is well east of Prague. That should give you a hint.

One thing I should notice is that the whole region was historically under influence of western Christianity. That is another hint.

Only part of Hungary was long term occupied by Ottomans 1526-1699. The part of Poland that was occupied by Russia isn’t part of modern Poland anymore and it is generally not considered “Central Europe” (sucks for them). It is simply not true that Central Europe was occupied by Ottomans or Rusians for “long periods”.

The religious reform _started_ in Central Europe. PA already mentioned Jan Hus. The Kingdom of Bohemia was protestant until forced catholization after 1621. Where do you think Martin Luther wrote his theses? A map might be useful http://en.wikipedia.org/wiki/Wittenberg

You are mostly right about serfdom (but the dates when in officially ended do not differ that much for most of the Europe http://en.wikipedia.org/wiki/Serfdom#Dates_of_emancipation_from_serfdom_in_various_countries, Britain is a significant exception). Essentially whole Europe was ruled by feudals util industrial revolution.

Speaking about the industry, Marian already mentioned Silesia and Bohemia (currently part of Czechia) that were both industrial power-houses. First steam rail-road opened in Austria-Hungary in 1837 (11 years after Stephenson’s “Locomotion” and two years after the first continental railroad in Belgium). Also Budapest had the first electrified subway. Electric trams operated in Prague since 1891 (10 years after St. Petersburg and 3 years after US).

Again, this was about Central Europe but you mentioned it (an Hungary) explicitly. Also, as PA says the whole point of the paper was that after the collapse of Soviet bloc the individual countries gravitated towards their historical, geographical and cultural peers.

27 Adrian Turcu October 31, 2014 at 9:24 am

” I am not sure where you’d include Germany and Austria but but Berlin is only slightly west of Prague and Vienna is well east of Prague. That should give you a hint.” What hint is that? Membership to the Western tradition is strictly geographically delineated?

Bohemia and Silesia were indeed more developed in economic and religious reform, but they do not define the whole of EE. The same is true of various individual technical accomplishments. You would not call the Chinese mag-lev train network definitive proof of Chinese adherence to democracy, tolerance and free market, would you?

The essence of the West, whatever it may be, is less diluted once you go west and north geographically in Europe.
Austria was a world between, far less advanced in reform then the West and quite corrupt, as the war with Prussia painfully revealed.
The integration of Eastern countries into the Soviet Empire was murderous and illegal, but it worked quickly and did not take an immense amount of effort, in part because western ideas in these countries were not that advanced. To this day countries in the east struggle to brake with tradition and fully adopt western institutions.
By every statistic, the East is behind. What is less known is that it has been so for centuries, and quite probably for lack of development. I’m not breaking any news here.

28 Adrian Turcu October 31, 2014 at 9:37 am

The dates for Wallachia and Moldova (the only ones I can now check) are not correct. The 1848 revolution in both regions explicitly called for an end to serfdom. The edicts of 1746 and 49 had no practical effect. My resource is ”
Romania si Europa. Acumularea decalajelor economice (1500-2010)” by Bodgan Murgescu, in Romanian.

29 RoyL October 30, 2014 at 2:42 am

One thing about alcohol consumption is that it gendered, in France and Germany not that much, in the east a lot more, especially Russia, I have met a lot of Russian women who are basically teetotalers. So how much the average drinker is consuming can be a lot different.

Another point is that what you drink makes a big difference in how you drink. Most Germans and French drink something every day but it is mostly wine or beer. In Russia beer is a soft drink. Having some experience in working in mining and oil towns the men who drink hard liquor don’t drink that much more than the men who don’t but they tend to be all the alcoholics.

30 Steve Sailer October 30, 2014 at 2:54 am

When I went to Moscow in 2001 to cover a scientific conference, I noticed that the drunks lying in the street were clutching vodka bottles, but the students attending the conference sipped beer in the evenings. I was reminded of Hogarth’s propaganda engravings from the 18th Century “Gin Alley” and “Beer Lane.”

31 Vanya October 30, 2014 at 3:18 am

Alcohol consumption in Eastern Europe has acquired a class dimension that was less pronounced under Communism. When I first started working in Russia and Poland, everyone in the business world drank, they drank a lot, and they drank vodka. Today, in provincial Russia managers might still drink vodka after work but less often. Younger executives and professionals in Moscow might just drink a glass of wine with dinner. In Poland younger executives often don’t drink at all and they often seem to be in training for bike races or marathons.

Austrians drink a surprising amount, and they drink all the time. I have seen wine served to parents at school functions. OTOH, Austrians tend to be much better drunks than Slavs or Northern Europeans – less belligerent and less out of control.

32 RoyL October 30, 2014 at 4:27 am

You are completely correct about the class divide in drinking, but that exists in every western society, the US and Canada show the same divide, the difference is that all Americans drink differently than they used to from Manhattan to Battle Mountain, NV.

Austrians are excellent drunks, both do to training and the typical Austrian fear of not keeping up appearences. Basically they are too uptight to give in to drunkeness.

33 dearieme October 30, 2014 at 7:47 am

“I have seen wine served to parents at school functions. ” So I should bloody well hope. It speaks of a healthy attitude to booze.

34 Push October 30, 2014 at 9:07 am

I am sure its the weather!!!!!!

35 The Devil's Dictionary October 30, 2014 at 11:25 am

BTW, my favourite subject: investing in beer countries. I’m tempted to launch an open-ended fund themed as Beer-loving Countries Equity.
http://www.devilsdictionaries.com/blog/should-you-invest-in-beer-countries

36 Jay October 30, 2014 at 12:37 pm

How reliable are statistics coming out of 80’s to 90’s USSR or the satellite states? They couldn’t handle distribution of bread and butter but we think their estimate for amount of alcohol consumed or infant mortality are not skewed by incompetence or politics?

37 Barkley Rosser October 30, 2014 at 3:56 pm

BTW, a cynic might say that this article has a subtext of “Whatever I did or did not do in Russia, it did not hurt them toooooo much!” So, get off my case!

38 Steve Sailer October 30, 2014 at 4:13 pm

Right.

And don’t even think about asking any questions about how I made a billion bucks in Russia.

39 Barkley Rosser October 30, 2014 at 10:21 pm

While I am at it, let me add a more substantive comment on this article by Shleifer and Treisman. Why they are able to observe improved means for many quality of life variables throughout so much of Eastern Europe while so many view the region as mostly a mess, with a few exceptions such as Poland and Estonia, the latter admitted by the authors, is that, again with a few exceptions including Poland and the now two parts of the former Czechoslovakia, there has been a massive increase in income inequality in most of the region, especially in Russia. Gini coefficients have soared from the low to mid 20s up into the 40s.

So, as in some western nations as well recently, these gains have tended to be concentrated among smaller well-off groups. Many of these are important, uban, young, better educated, these are better off, and in some locations like Moscow, a lot better off than 25 years ago. But in many rural areas, life has not changed all that much, with it even being still worse off in some areas. After all, throughout the region there was a major collapse of real incomes in the early 90s, with the subsequent rebound not at all being universal.

Needless to say, given his own personal history, Shleifer’s failure to note this point is certainly appropriate and ironic.

40 Marian Kechlibar October 31, 2014 at 6:11 am

The massive increase in income inequality in Russia is probably related to the fact that the most important Russian exports are oil and gas. Most resource-rich countries of the world have this characteristics; Norway being a significant outlier.

Measuring the development of income inequality and treating it as an indicator development of real inequality makes sense in market economy, where money can buy things and services. Indeed, the principle that money can buy things is so natural to Western people that hardly anyone stops to think about that.

But in the former Communist bloc before 1989, local currency wasn’t worth that much. It was not hard enough to be convertible to Western currencies, and the local markets were chronically blighted by shortages. The goods were either unavailable, or of very inferior quality. An example: I remember books (Czechoslovakia in the 1980s) which could not hold together because of the lack of glue; after two or three readings, pages would fly out en masse.

So even if you had a decent wage, you could not buy that much. What counted were connections to the ruling elite. If you had those, you could access the scarce reserves of Western currency and buy things in special elite stores, where Western goods were imported (such as Tuzex in former Czechoslovakia) and where the local currency could not be used. Goods from such stores were highly prized and a significant status symbol; people would stoop to illegal activities (such as smuggling currency from abroad) in order to gain at least some access to these stores.

And that is why the local communist boss, even though his nominal wage was not that much higher than average, had much greater buying power than average.

41 srp October 31, 2014 at 7:02 pm

There’s this tendency of many “sophisticated” observers to insinuate that the end of communism in Europe wasn’t a good thing. No one will come out and say it that way, but there is a tendency to harp on things that really didn’t get worse but simply got measured and reported post-communism and to ignore all the horrible stuff that got eliminated. Even in the places where things haven’t turned out as well, such as Russia, the picture is still a lot brighter than in, say, Brezhnev’s heyday.

And for those like Sailer who like to demonize the economists who gave advice (Stan Fischer?) because these basket cases didn’t immediately jump to their feet and turn into Norways, you would have to give (ugh) Jeff Sachs credit for Poland’s relative success to be consistent. In reality, I don’t think the outcomes in each counrtry had much to do with the quality of the advice given, but if you want to play that game you have to play it straight.

42 Larry Siegel November 1, 2014 at 4:12 am

I tend to agree with srp. The end of communism meant the emergence of mostly capitalist, mostly free societies in countries where that was either a dream (Russia) or a half-forgotten historical fact (Poland, Czechia).

Making $1 billion and running afoul of the law does not mean Shleifer did not create value. How many trillions of GDP did Russia produce since 1991 that it could not have produced under communism? What is Shleifer’s take, calculated in basis points? Did he help or hurt? Isn’t corruption sometimes a way to circumvent bad laws and get things done? Shleifer’s involvement in Russia is not a moral catastrophe but a very gray area, one with a mostly happy ending if Putin doesn’t screw up Russia’s international reputation to the point where nobody will trade with them.

43 Barkley Rosser November 1, 2014 at 11:42 am

Let me note that it is easy to overstate the scale of those unreported in-kind nomenklatura perks of the old days and also note that a lot of the new money is also not reported, much of it coming from Shleifer style corruption and ending up in foreign bank accounts.

There are real differences between these countries, and a not widely reported fact is that some of those that did bettter, such as Poland, Czech Republic, Slovakia, and so on, did not dismantle their old social safety nets and still have Gini coefficients in the upper 20s or low 30s rather than the 40s where Russia and some others are. They maintained their levels of equality to a much greater extent.

Since Jeff Sachs has been mentioned, I must note that I remember hearing him whining in a speech at the 1994 AEA meetings about the supposedly ungrateful Poles, who had just voted out a government that was proposing to cut back pensions and other social safety net elements. I think he might say something different now. In any case, I would note that maintaining the social safety net was part of what made palatable the other parts of the reforms that freed up the economy and made it do well.

Think of it this way, Poland and a few others did do a better job of trying to become Norway than others, much better jobs. And they are the ones that are clearly doing better, without having to worry about the poor rural uneducated elderly left behind as in Russia and elsewhere.

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