“Soviet Power Plus Electrification: what is the long-run legacy of communism?”

That is a newly published paper by Wendy Carlin, Mark Schaffer, and Paul Seabright, and here is the abstract:

Two decades after the end of central planning, we investigate the extent to which the advantages bequeathed by planning in terms of high investment in physical infrastructure and human capital compensated for the costs in allocative inefficiency and weak incentives for innovation.  We assemble and analyse three separate types of evidence.  First, we find that countries that were initially relatively poor prior to planning benefited more, as measured by long-run GDP per capita levels, from infrastructure and human capital than they suffered from weak market incentives. For initially relatively rich countries the opposite is true. Second, using various measures of physical stocks of infrastructure and human capital we show that at the end of planning, formerly planned countries had substantially different endowments from their contemporaneous market economy counterparts. However, these differences were much more important for poor than for rich countries. Finally, we use firm-level data to measure the cost of a wide range of constraints on firm performance, and we show that after more than a decade of transition in 2002-05, poor ex-planned economies differ much more from their market counterparts, in respect to both good and bad aspects of the planning legacy, than do relatively rich ones.  However, the persistent beneficial legacy effects disappeared under the pressure of strong growth in the formerly planned economies in the run-up to the global financial crisis.

This paper is a very good place to start for trying to seriously figure out what communism did and did not do.  It accounts for the relatively disastrous performance of East relative to West Germany, while helping to explain why Russia is in some regards a better place to live than Mexico.  It is also a very strong testament to the extreme importance of human capital and good formal education.

They also cite a recent Broadberry and Klein piece, “When and Why did Eastern European Economies Begin to Fail?, Lessons from a Czechoslovak/UK Productivity Comparison, 1921-1991,” available in an earlier form here (pdf); in this case I worry more about the quality of the statistics, plus legacy effects can sustain a formerly successful economy for some while.


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