The Former Soviet Republics: A Recapitulation (Part One)

Communism Schmommunism

Not all former Soviet countries were created equal. In fact, some of those nations experienced their own post-Soviet versions of communism, which later on, after getting rid of the humiliating subjugation they suffered under the communist regime, once that deplorable government system collapsed at the beginning of the 90s, it allowed them to flourish and prosper with relative ease, sprinting themselves above and beyond their former subjugators, in the social and economic sense.

When analyzing how the former communist countries have been performing in recent years –including Russia–, after the collapse of the USSR, there are some remarkable stories of countries that went through a relatively quick and successful adaptation to a market economy and to a democratic system. Granted, none of those countries have done a complete conversion yet, it is a work in progress. Judging by the results, however, some of those successful countries are much closer to their destination point (becoming a fully developed nation), than to their parting point (the big mess from which they started when abandoning the state-controlled economic model).

As we can see in the table below, the most outstanding performance cases, in descending order, are: Slovenia, the Czech Republic, Slovakia, Estonia, Poland, Lithuania, Hungary, Croatia, and Latvia. The first six of these countries already enjoy a significantly higher output per capita than Russia’s, their former ruler, double digits superiority (Slovenia has a whopping 58% advantage, while Poland has a 18% favorable difference). It is important to keep in mind that Russia has an output per capita of a mediumlydeveloped nation, like Argentina, Chile, and Malaysia.

Former USSR Countries

To simplify and make more sense of the comparative analysis, let’s group the nine mentioned countries in four subgroups:

  • Subgroup One, Slovenia and Croatia. These countries (along with five more) were part of the former Yugoslavia, which was dissolved starting in June 25, 1991 and ending in 1998 —when the last Serb-held enclave in eastern Slovenia was returned to Croatia, under UN supervision..
  • Subgroup Two, the Czech Republic and Slovakia. Both republics were part of Czechoslovakia, before a peaceful, negotiated dissolution of that former nation in January 1, 1993.
  • Subgroup Three, the three Baltic Republics: Lithuania, Estonia, and Latvia.
  • Subgroup Four, the two remaining nations: Poland and Hungary.

There rarely are any accidents in social sciences. The relative overperformance of the nine countries of the four subgroups clearly adheres to a most rigorous cause/effect analysis. Let’s see why.

As previously stated, Slovenia, along with six more nations (Croatia, Montenegro, Serbia, Macedonia, Bosnia and Herzegovina and Kosovo –in descending order of  current economic output per inhabitant) were part of Yugoslavia. Yugoslavia is a fascinating subject for study.

In a nutshell, Yugoslavia, having been occupied by the Axis forces, emerged from WWII with Marshall Tito’s (Josip Broz) ruling, under the USSR’s umbrella.  Thus, Yugoslavia was initially part of the Soviet system at the end of WWII, even being considered very loyal to the Soviets the first few years after the war. However, Tito had a very clear spirit of independence, never showing any real submission to the Kremlin, just the standard respect and cooperation attitude as equals, and a little bit of deference to a larger, presumably more consolidated nation. That spirit of independence proved to be unbearable to Stalin, who as history clearly shows, preferred to view the satellite Soviet republics as subjects, not equals. Tito was the only government leader within the USSR to successfully challenge Stalin, getting away with it. On June 28, 1948, Yugoslavia was formally expelled from the Communist Information Bureau (Kominform), a de facto official withdrawal from the Soviet sphere.

Hence, thanks to Tito’s stern spirit of independence, all present republics that were part of Yugoslavia had a significantly better head-start when the USSR collapsed and Eastern Europe began to re-encounter the path of free markets and democracy.

Upon Tito’s death in 1980, and with the fall of communism throughout eastern Europe, the Yugoslav federation began to unravel, once the demands for independence among the different ethnic groups intensified.

On June 25th, 1991, Slovenia declared its independence from Yugoslavia, based on a landslide –88% of the vote– referendum for independence held on December 23, the prior year. Unlike Croatia, Serbia, and Bosnia and Herzegovina, Slovenia was able to secede from Yugoslavia with relatively little violence. For the rest of the republics, seceding from Yugoslavia and becoming independent turned out to be a bloody and long civil war. That explains most of the lagardness of those republics; of course, there are also other factors that explain why they are currently so behind the rest of the pack.

As for the second subgroup, the Czech Republic and Slovakia, there are three major positive factors that have greatly contributed towards their relative outperformance in relation to the former USSR countries:

a) Czechoslovakia was the industrial bastion of the Habsburg Empire in the XIX century. Hence, there was sort of like a historic memory imbued in society’s subconsciousness, in such a way that when circumstances required it, in the new found independence, it was relatively less difficult for them to make a successful transition towards a market economy and a democratic system.

b) Both, the Czech Republic and Slovakia have always considered themselves to be fully Europeans. Geography, in turn, also has heavily contributed in that direction, given their proximity to Austria, Germany, and Poland.

c) Although not necessarily at the same level than Yugoslavia’s, the spirit of independence of Czechoslovakian society has also been very marked. During the spring of 1968, Alexander Dubcek, the then newly appointed head of the communist party, initiated a liberation movement, the Prague Spring, which adopted the motto “socialism with a human face”, for their cause. Undoubtedly, in no small measure, Dubcek’s attempt to liberalize Czechoslovakian society was inspired and encouraged by Yugoslavia’s example. Although Dubcek affirmed his loyalty to communism and the Warsaw Pact, that proved too hard to stomach for the USSR, who seven months later, on August 21, ended that experiment by sending Warsaw Pact troops to Czechoslovakia and removing Dubcek from his post, sending him to an obscure forest supervising position in a remote area in his native Slovakia, where he was not allowed to talk to anyone besides his family.

The third subgroup’s history is a truly fascinating and encouraging one. These three relatively tiny nations have been invaded and submitted time and time again throughout history, mainly by the Russian Empire.

The way the Baltic republics have taken advantage of their relatively new independence has been remarkable, a genuine role model for the rest of mankind.

Despite lacking critical mass given their relatively small population size (only in that respect), they have shown the whole world what a determined society eager to improve their standard of living can accomplish in just a couple of decades, and counting.

The great success of the Baltic states must be particularly painful to digest for an autocrat like Putin. It is very interesting to observe how the income gap between these tiny nations and their former ruler is getting bigger by the day. An unquestionable testimony of the evident superiority of the Baltic Republics’ socio-economic system versus Russia’s.

Finally, the fourth subgroup is also very interesting: Poland and Hungary. Both nations are medium sized, both in population and in territorial extension. Poland is in a class by itself, since its break with the forced communist past has been wholeheartedly, very frank, open and consistent. Hungary’s conversion to a market economy and a free democratic system has been a very hesitant process, particularly under the present government. Even so, the initial impetus Hungary received in foreign investment and technology transfer was sufficient to achieve its current level of development, despite its many drawbacks, challenges and threats.

This brief recount of historic events clearly explains a great deal about the relative performance of most of the overachievers among the former Soviet republics; the cause/effect relationship is quite evident. There is no price too high to pay for a free, orderly society, under the rule of law. The results speak for themselves.

Continue reading in the next post of this two-part series.

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About Martin Marmolejo

Global Investment Manager | Founder & Managing Director at MMA Global Investment Management | Proud husband and father | Follow me @globalmarmolejo.

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