Newsflash: post-communist countries are experiencing severe economic problems!

Something which has been pretty mystifying to me is the rash of articles that appeared earlier this year claiming that Russia’s 2008-09 recession proved that the Putin model had “failed.” These articles were mystifying not only because the world financial crisis causes recessions almost everywhere except India and China (2009 witnesses the first net decline in global economic activity since the end of the Second World War) but because it was never clear to me that the Putin economic “model,” to that it differs from crony capitalism as practiced anywhere else in the world, had performed significantly worse than the models of many post-communist countries in Eastern Europe.

I’ve raised this issue before, highlighting the poor, indeed historically awful, economic performance of the Baltics over the past few years, but wanted  to update things by taking a fresh look at a few additional post-Communist countries. First off, for comparison’s sake, Russia is rapidly rebounding from its sharp contraction in 2009: its economy grew by by 1.2% in April, if oil stays above $70 the 2010 budget deficit could be as little as 3% of GDP, and, according to a prediction by Bank of America Merrill Lynch, it is set for “the biggest bounce in the world.” Total 2010 GDP growth is still anyone’s guess, but the government’s (notoriously conservative) estimate is now 4%.

Contrast this situation to that in Romania, a democracy and a member of the EU, and NATO. What is happening there? Well after declining by 7.1% in 2009 (for comparison Russia’s economy shrank by 7.9%), the Romanian economy is set to shrink by an additional 0.5% in 2010 before growing “as much as 3.6% in 2011.” In the meantime deficits have ballooned, 7.2% in 2009 and almost 7% for 2010, and, in order to continue receiving funding from the IMF, the country is implementing a savage austerity plan consisting of 25% wage reductions for public employees and 15% reductions in pensions and unemployment benefits. Romania is thus going to experience a longer economic contraction than Russia, experience slower growth when it finally emerges from recession, be saddled with a much heavier debt load, and, on top of all of that, be in the world’s most dangerous and potentially lethal situation: owing the IMF a large amount of money. Sounds fun, doesn’t it?

What about Bulgaria, another post-communist democracy which has membership in the EU and NATO, how is it faring? Well after contracting by 5.1% in 2009 it’s economy is probably going to be stagnant in 2010, and there is the exceedingly small matter that bankrupt, dysfunctional,Greece owns almost a third of its banks and absorbs nearly 10% of its exports. Like Romania, Bulgaria is implementing a savage austerity program including a 20% budget cut in the public sector. So Bulgaria, while not shrinking as rapidly as Russia in 2009, is experiencing a longer period of economic stagnation and, when it starts growing, is expected to grow more slowly.

And how about the  Baltics, any news from them? Latvia, which experienced the EU’s deepest recession of 18% in 2009, will probably shrink the most again this year, contracting by roughly 3.5%.  while Lithuania will probably shrink by 0.6% in 2010 and grow by 3.1% in 2011 after shrinking by almost 15% in 2009. Estonia has performed somewhat better,contracting by 14.1% in 2009, growing by 1% in 2010, and on track for 4% growth in 2011.

What is the point of all of this, besides demonstrating my sick Googling skillz? I have laboriously assembled that mind-numbing series of basic statistics because I hope it clearly demonstrates the that although Russia’s economic performance looks pitiful when compared to the Chinas and Indias of the world, when compared to other post-Communist countries in Europe (i.e. the countries it should always be compared to) it’s actually pretty decent. Not mind-numbingly spectacular, but “decent.” Yes, it is clearly true that some countries such as Poland and Slovakia have performed significantly better than Russia, and those countries’ economic policymakers ought to be heartily congratulated for their effective stewardship. But while it is clear that some countries have performed better than Russia, just as clearly many others have not. Indeed many countries that were previously lauded as success stories, and which dutifully followed the Western playbook, have in fact performed much worse than Putin’s populist authoritarianism.

I don’t have enough time at present, something tells me my bosses wouldn’t be particularly happy with me if I spent all day trolling national statical office websites, but I think it will be really interesting to do an analysis of the social consequences of the sharp budget cuts now being implemented in many East European countries. Russia’s experience during the 1998 debt default amply demonstrates that cutting healthcare budgets and pensions in the midst of an economic catastrophe causes a lot of excess deaths among vulnerable sectors of the population, and while I hope that there isn’t a similar mortality explosion in places like Romania, Bulgaria, and the Baltics it wouldn’t exactly shock me if it occurred. I’ll also admit that it is darkly humorous to see the “inhuman,” “cruel,” and yes, “indifferent,” Kremlin boosting health budgets and sharply increasing pensions at a time when many democratic countries in New Europe are slashing them by historically significant amounts.

What is the point of this post? Simple: when you siphon away all of the vacuous political and moralizing rhetoric which frequently accompanies coverage of Russia, the country isn’t nearly as much of an economic outlier as you would expect. Indeed, when compared to other countries which have had to struggle with the deleterious effects of state socialism, Russia is somewhere in the  middle of the pack (hardly a propaganda slogan, that). So if you base your analysis on the assumption that Putinism has “died,” that Russia is experiencing a uniquely awful economic contraction, and that it citizens are suffering more than any other country in Europe, your analysis is going to be fatally flawed because Putinism has not died, Russia is not experiencing a uniquely awful economic contraction, and its citizens have seen their welfare improve. Many countries in Eastern Europe are still mired in recession while Russia has already resumed fairly brisk growth (albeit from a lower base) and are scrapping large sections of their welfare states while Russia is significantly expanding its own. I don’t think it’s being pro-Putin to admit reality, and although Russia has some very serious problems, corruption, a dysfunctional legal system, it is in many ways much better positioned for the future than other countries in Eastern Europe since it has such a minimal debt load and such sound state finances. The future is anyone’s guess, as recent events have shown professional forecasters don’t have spotless track records, but when analyzing the past few years it’s clear that Russia’s performance was neither apocalyptic nor brilliant: it was middling.