The Transition 20 Years On: The Reckoning

It is now nearly 20 years since market reformers began liberalizing the economies of Eastern Europe, or as some smart-ass put it, trying to revive the fish in the centrally planned fish stews. These stews, cooked to diverse recipes from goulash socialism to Soviet “structural militarization“, were subjected to a wide spectrum of overlapping treatments ranging neoliberalism (the Baltics), market socialism (Belarus), and mercantile corporatism (Russia). Other fish stews just stagnated in anarchic stasis (Ukraine). Twenty years on, it is time to observe the oft-surprising results.

I used Angus Maddison’s historical statistics, CIA figures for 2009 growth except where available the results from national statistical services (Belarus & Russia), and the IMF projections for 2010 (adjusted upwards for non-Baltic nations with sharp recent falls in GDP to account for their stronger-than-expected recoveries) to create GDP (PPP) per capita indices for post-Soviet nations and Poland (generally representative of Visegrad) where the output levels of 1989 – the year of peak Soviet GDP – are set to 100.

So which national ponds look like they’ve been subjected to grenade fishing, and which ones have the liveliest fish? Drumroll…

Belarus! At least amongst the industrialized nations, this market socialist economy – mocked and despised by proponents of the Washington consensus – is now substantially more productive than it was in 1989, beating out all its peer competitors. Furthermore, unlike the Baltics or Russia, it remains one of the most equal societies on Earth. Belarus suffered less of the “catabolic collapse” observed in neighboring Russia and Ukraine in the 1990′s, and strong growth resumed earlier. This included growth in manufacturing – Belarus did not suffer from the widespread deindustrialization from which Russia has only recently, and just barely, recovered from in 2007 (and then lost again in 2009!) – and the country even developed a competitive micro-electronics industry. Interestingly, Belarus is also the only CIS nations with whom Russia had a negative migration balance (until 2005). It seems that the stability and benefits offered by Bat’ka outweighed his collective-farm-boss chique.

That said, Belarus’ relative success – shocking as it would be to neoliberal ideologues – should not be overstated. First, in 1989 it was one of the poorer members of the “industrialized nations”, and in standard macroeconomic theory, faster economic growth is, ceteris paribus, easier when you are further behind. Second, whereas Belarus is great for ordinary workers and pensioners, the more talented find it unpromising, even oppressive. Intertwined with an authoritarian political structure, the economic system is largely closed to those who don’t like toeing the party line.

Despite its economic depression from 2007, Estonia seems to have performed very well too. Enfused with post-independence optimism, it carried out its liberal reforms earlier and more completely than any other post-Soviet nation. As a result, it enjoyed a fast revival of growth from 1993, giving it a 2-year head start over Belarus and a 5-year one over Russia. Estonia is far richer and more transparent than Belarus, has a vibrant hi-tech sector, and more political freedoms (with the important exception of disenfranchised Russophones). Latvia has been somewhat less of a miracle economy. After the recent economic collapse, its economic output is now little bigger than the Soviet-era peak, and is much less equitably distributed.

In the bubbly days of 2006-2007 (and by bubbly, I do mean bubble), these economies became known as Baltic Tigers. Their liberal economic policies, balanced budgets, favorable geography, and low-wage skilled labor attracted huge credit inflows. This enabled a debt-fueled consumerist orgy, resulting in awning current account deficits. As the 2008 global credit crisis unfolded, investors took fright and capital inflows turned into capital flight. The house of cards fell down. The Baltics embarked on brutal wage deflation and budget cuts, especially in the worst-hit Latvia, to maintain their currency pegs against the Euro, acquire much-needed IMF financing, and reattain competitiveness. This is projected to take years – and that’s discounting both further shocks to the global financial system and political discontinuities (e.g. after the last Great Depression the Baltic nations became soft dictatorships).

The Balts cannot rely on a renewal of the old bubble, rising foreign protectionism precludes an export-led recovery, and the prospects for strong domestic consumption are dim because of the huge rise in debt levels. The IMF now forecasts prolonged below-trend growth, with GDP per capita only approaching their 2007 peaks by 2014 for all three Baltic nations (the same projections show Russia and Belarus converging to or overtaking the Baltic economies by that date). Just as for the old chasm between Marxism and “actually existing socialism”, whatever the merits of neoliberalism as a theoretical construct – its proponents will have to answer for its real-world disappointments.

Now we come to Russia, which has the region’s biggest and most important economy by far. It’s post-transition history is also highly complex. First, it cannot be stressed enough that the USSR did not collapse economically because of its inherent internal contradictions. It collapsed because Gorbachev aborted central planning, or more accurately ditched the coercive mechanisms that made central planning work (though granted the observable evidence of worker unrest and economic stagnation may have tipped his hand). In the absence of evolved market mechanisms, the “dictator’s surrender” only led to ruinous insider plunder, asset stripping and managerial misappropriation, all under the slogan of “liberalization” (true liberalizing reforms were far less wide-raging and generally implemented much later than in the Baltics). Output plummetted as barter arrangements replaced late Soviet scientific socialism.

As a result, Russia’s new capitalism developed in the most anarchic and perverse ways; indeed, it arguably had a greater resemblance to old Muscovite patrimonialism. A weak Tsar (President Yeltsin) bestowed rent-gathering rights unto his new boyars (the oligarchs) in exchange for their political support – a compromise he was driven to by the combination of 1) state weakness and 2) the perceived need to prevent the Communists coming to power at all costs. Putin’s cardinal achievement in his first term was to decisively shift the balance of power between Tsar and boyars back to the former, a fact confirmed by the arbitrary arrest and imprisonment of Khodorkovsky – the power-hungry robber baron who didn’t realize that the days of oligarch rule had passed. The economic crisis of 2008 led to the further reassertion of Kremlin power over the oligarchs – bailed out by a Russian state grown cash-rich from foreign energy sales, many are now little more than its glorified, well-compensated servants.

In the past decade, Russia has been in flux, metamorphosing from the chaotic, boyar-dominated, “appanage” atmosphere of the 1990′s, to the brave new world of Kremlin modernization dreams that are opening up the 2010′s. Three trends are now becoming dominant: 1) the state is becoming much more central in pushing Russia’s modernization through mercantilism (e.g. industrial tariffs), industrial policy (e.g. economic zones), and targeted investments in strategic and “sunrise” economic sectors (e.g. nanotechnology), 2) there is a concurrent, measured economic liberalization – from the 2001 flat tax reform to the raising of internal energy prices, and 3) there is a renewed attempt at social mobilization to fulfill the state’s development plans. In sum, a latter-day replay of the Petrine “revolution from above” (albeit one altered with the benefit of hindsight – Putin is careful to emphasize, even exaggerate, his Russian cultural patriotism, so as to avoid recreating the social divisions and unrest that tends to occur when a ruler is popularly seen as being in thrall to foreigners).

Russia’s post-1990 performance was far from stellar, though it should be noted that in overall per capita welfare it is still comparable to Belarus and only slightly behind Latvia (possibly ahead now) – not that much changed from the late Soviet period. Russia essentially lost two decades, like Latvia or Lithuania – and performed worse than Belarus, Estonia, and Poland (included in the graph for comparison).

This is not too surprising, since 1) Russia spent much of the 1990′s in “anarchic stasis”, a semi-failed state that had trouble maintaining any meaningful monopoly on violence, tax collection, and monetary emissions (the three vital functions of a state), 2) like the Baltics, Russia started from a relatively high base (it was already an industrialized nation), so it could hardly expect particularly rapid growth, and 3) the Kremlin only really began to focus on modernization as a priority in the mid-2000′s, as before it had been too preoccupied with consolidating the Russian state.

As I wrote in an earlier post on the Russian economy at the dawn of its late-2008 crisis (which was basically correct with the exception of the far too optimistic 2009 GDP forecast), Russia’s greatest weakness during the credit crunch was that its major corporations, the vast majority of them state or quasi-state, had come to rely on Western intermediation for accessing cheap credit. When the global credit wheel ground to a halt in late 2008, the first countries to be cut off were the emerging markets. (Having access to deep indigenous credit systems, nations like Brazil and China weathered the storm far better than Russian corporations and consumers who were suddenly cut off from cheap credit). Though the initial economic collapse was steep, Russia does not possess the long-term ailments of the Baltic states – debt has nowhere near the same level of penetration, the state remains incredibly cash-rich, and its strategic depth makes it largely invulnerable to any further retreat of globalization. Many forecasts now say that Russia will grow by 4% to 6% in 2010. In the longer-term, it has a comprehensive development plan and arguably good prospects for effecting an economic catch-up to the West.

Finally, far and away the worst post-Soviet performer amongst the industrialized nations is Ukraine. It never managed to reattain its Soviet-era level of per capita output, and that goal is now further away than ever. Comparable in its level of economic development to Belarus, Poland, and Russia in the late 1980′s, it is now far behind all three. Why? True, Russia had the gas reserves, but until the mid-2000′s Ukraine received vastly subsidized gas anyway. Furthermore, unlike Russia, Ukraine was nowhere near as burdened by “structural militarization” at the time of the collapse of the Soviet Union, nor did it retain prodigally expensive military forces or Great Power ambitions. It was also closer to Europe, directly bordering Poland. And besides, Belarus was in a similar position to Ukraine, but landlocked and shunned by the West to boot; but it nonetheless managed to do incomparably better.

I think the only good explanation for this retrogression is that Ukraine simply never left its 1990′s conditions of anarchic stasis. Its Tsar (or Hetman?) was always weak, Ukraine’s cultural cleft between Russian Orthodox East and Uniate West putting a glass ceiling to any ruler’s level of popular support at around 50% of the population. This constant problem with political legitimacy, experienced by both pro-Western and pro-Russian Presidents, stymied reform efforts and attempts to reign in oligarch power. Ukraine lagged well behind Russia, not to even mention the Baltics, in its economic liberalization, and its politicians remain representatives of oligarchic clans, not their puppet-masters as in Russia. Any sustained state-backed modernization scheme (e.g. on Putin’s Russia model) is doomed from the outset, while private investors and entrepreneurs are scared off by the unending political instability and lack of liberalization (in this respect, if Russia or Belarus is purgatory, Ukraine is hell). Long-term development is thus impossible under Ukraine’s conditions of anarchic stasis.

Below is a graph plotting the economic fortunes of the USSR’s less-developed nations (again per capita).

Azerbaijan‘s success is almost entirely tied up with the massive expansion of its oil production, especially from the mid-2000′s. Azerbaijan’s oil output rose from 0.2mn barrels a day between 1992 and 1998, to 0.4mn in 2005, and skyrocketed to 1.0mn by 2009, and as shown in the graph, the years of rapid increase were accompanied by amazingly high rates of GDP growth (up to 20-30% in a couple of years). A similar explanation would probably hold for why Kazakhstan‘s post-Soviet performance was substantially better than Russia’s, despite the many similarities between their economic systems – Kazakh oil production was 0.4mn barrels from 1992-95, 0.6mn in 1999, and 1.5mn by 2008.

(Russia produced only 22.6% more fuel energy in 2008 than in 1992. Its oil production went from an all-time peak of 11.5mn barrels in 1988, to 7.9mn in 1992, 6.0-6.5mn during 1994-99, 9.3mn in 2004, and 9.8mn by 2008 – i.e., correlated with general growth trends in its real GDP. Whereas the recovery in oil production accounted for a very substantial share of its GDP growth / recovery from 1999 to 2004, these effects became small after increases in oil production flattened out post-2004 due to geological factors (i.e. peak oil) and the political factors (the YUKOS affair); from the mid-2000′s, the main drivers of growth became retail, construction, transportation, manufacturing, and finance.)

Summation – Russia was recovering lost ground in oil production; Kazakhstan and Azerbaijan were gaining massive new ground. Translated into GDP growth over the entire transition period, Kazakh and Azeri growth appears much more impressive, even though it was much more narrowly based on increasing resource extraction.

Armenia showed impressive growth, despite that it has no such resource windfall and is a mountanous, landlocked nation bordered by unfriendly Turks to the west, the hostile Azeris to the east who are closely related to Turks (with whom it fought a war in the early 1990′s), a Georgia up north that dislikes its alliance with Russia, and with Iran to the south, which is friendly, but is an international pariah. How the Armenians managed this I don’t know, but kudos to them!

Despite the pro-Saakashvili rhetoric, Georgia is not that impressive on objective terms. The average, post-Rose Revolution 2004-2008 growth was 8%, which although ostensibly impressive was not exceptional by regional standards. Furthermore, it doesn’t mean very much for a nation 1) starting from a low economic base and 2) recovering from a massive prior GDP collapse. True, somewhat better than trainwreck Moldova, but left in the dust by its Caucasian neighbor Armenia (likewise wracked by blockade and the occasional war), and only slightly better than Russia – a nation that has a GDP per capita that is three times bigger than Georgia’s.

According to an alternate, non-rosy view, The Georgian Economy Under Saakashvili (Irakli Rukhadze and Mark Hauf), much of Georgia’s recent growth was one-off, being based on state asset sales and government lay-offs. This was accompanied by accelerating deindustrialization, continued emigration and poverty, and the destruction of all remaining safety nets. The authors say the government acquired the habit of pressuring independent businesses to provide “voluntary contributions” in return for not bankrupting them under corruption prosecutions. This is not to singularly condemn Georgia’s weak rule of law. After all, politicized interference in the economy, widespread corruption, and corporate raiding are the rule rather than the exception throughout the former USSR. The only thing that’s special about the Georgian economy is the chasm between the gushing, star-speckled rhetoric emanating from Saakashvili and his neocon cheerleaders – and the actually existing reality.

Finally, we can note that Uzbekistan saw much better growth than Tajikistan. Uzbekistan is an unreformed economy, as well as land-locked, poor, and truly authoritarian (i.e. an extreme version of Belarus). But starting from a low base really helps, I guess. On the other hand, Tajikistan saw a devastating civil war between Communists and Islamists that killed 100,00 people during the early 1990′s, and it is the post-Soviet republic that is least advanced in the demographic transition (capital diverted to sustain new mouths and remember that we are measuring GDP per capita in this post). Growth performance in Kyzgyzstan was in between Uzbekistan and Tajikistan, whereas Turkmenistan’s was as good as Uzbekistan’s.

What to Expect?

Russia has a comprehensive modernization plan, the human, administrative, and financial resources needed to implement it, and the Kremlin’s siege mentality should give it the impetus to force it through. Thus, I am reasonably confident that Russia, Belarus, and Kazakhstan will continue to see relatively fast growth. These countries have relatively high human capital (a necessary prerequisite for economic catch-up), and their recent customs union will enable bigger economies of scale. As I said before, there are many reasons to suppose that Ukraine will (re)join this Eurasian space within the next few years, at which point its anarchic stasis will finally end.

As I observed above, economic openness and transparency are not as important to economic catch-up as they are sometimes made out to be (this is NOT to imply they’re bad, however – obviously, imitating North Korea’s Juche principle or Equatorial Guinea’s kleptocracy is not the way forwards). However, they shouldn’t be treated as the be all and end all of things either. Moderate levels of corruption are nothing more than an additional tax, and it is even possible to think of situations where it can be positive (for instance, nations with impossible, idiotic regulations). Meanwhile, excessive economic openness can leave one too open to the vagaries of global casino capitalism – observe Latvia today, or Argentina 2001, for good examples. Furthermore, the next decade will likely see the retreat of globalization in tandem with peak oil and the waning of Pax Americana. In this new environment of “scarcity industrialism“, states that carve out self-sufficient dominions will fare best. Russia is aware of this, and has begun to regather its former Empire, and so is China with its fevered buyout of mines, land, and political elites around the world.

The Baltics may slowly recover under business-as-usual, though in the more globally pessimistic scenarios favored by S/O the general pattern will be stagnation, political unrest, and authoritarian reaction (especially possible in the most vulnerable member, Latvia). Central Asia does not really have the capacity for generating its own sustainable development. Far from potential markets and tyrannized by extreme climes and distances, the region is doomed to perpetual backwardness, except in so far as outside Powers like Russia or China find it in their interests to subsidize their development. In the Caucasus, the threat of instability and violence hangs permanently in the air, making any attempts at prediction even more of a futile endeavor.

Comments

  1. I dunno; personally I’d go for Poland over Belarus because it shows the least volatility. But then, I’m a wimp.

    • I too would go for Poland if I had to choose between the two. I don’t see how there’s anything wimpish about favoring a relatively prosperous liberal democracy over a somewhat less prosperous soft authoritarianism.

      My intention in (qualifiedly) praising Belarus was to provide an antidote to the far more prevalent negative views of its economic development path. Not because I love it or anything.

      PS. Belarus’ early volatility was because during the early 1990′s it underwent the same kind of catabolic collapse / resource demobilization as post-Soviet Russia or Ukraine (i.e. what I call anarchic stasis); it was not a feature of the market socialist system implemented after Lukashenko came to power in 1994, as proved by Belarus’ relative resilience during the recent crisis.

      • Yah, I’ve never had a big issue with Belarus, either. Being me, I tend to look for the flattest lines when deciding my best interest, is all.

        I actually had several classes during my MA days with a girl from Belarus – her attitude is something that stuck with me in my perspective about post-communist civil society, and about politics in general, ever since (paraphrasing – it’s been 10 years):

        “It’s not the same as the US, but a lot of ‘freedoms’ Americans say they need aren’t something that a lot of people ever think about anyway. It’s my home.”

      • “a relatively prosperous liberal democracy

        Either you’re naive, bordering on dumb, ignorant or completely delusional.

        Whatever the case, it’s hard to take you seriously after statements like that.

        • Indeed, what?! You do realize that your view that Poland is not a liberal democracy is the non-conventional one?

          PS. Further spammy ad homs will be deleted.

        • John Freegman says:

          My guess is that this person thinks by calling Poland a liberal democracy, which it is, you’re implying it’s a socially liberal country. If that’s the case, it’s pretty clear who the ignorant one is.

  2. Latvia and Ukraine might be similar in terms of the effects of cultural divisions on their internal politics. The conflict in Latvia is, mainly, between ethnic Latvians and non-ethnic Latvian Russophones; the conflict in Ukraine is, mainly, between Ukrainophone Ukrainians and Russophone Ukrainians. In Lithuania and even Estonia, the whatever cultural conflict exists is sufficiently localized to avoid dominating the country’s politics and encouraging a polarization of the electorate on cultural lines to the neglect of economics and whatnot. Not so Latvia and Ukraine?

  3. solar sun says:

    This is a good article and video highlighted by LPAC about the Greece crisis by Ambrose Evans-Pritchard for the London Daily Telegraph entitled “ECB prepares legal grounds for euro rupture as Greece festers” which was pull from the web and reposted on gata.org.

    “Fears of a euro breakup have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.

    “Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled “Withdrawal and Expulsion from the EU and EMU: Some Reflections.”

    The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.

    Those who suspect that the European Court has the power pretensions of the medieval papacy will find plenty to validate their fears in this astonishing text.

    Crucially, the author argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

    This is a warning shot for Greece, Portugal, Ireland, and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.”

    http://www.gata.org/node/8246

    With Belarus being “soft authoritarian” it might be because the so called “democratic” opposition is not very democratic heavily supported and financed by Soros, NED, British Foreign Office and EU which include UNA-UNSO a Ukrainian Neo-Nazi paramilitary group which I first became aware of when fighting in Chechnya when highlighted by the Jamestown Foundation.

    http://belarus.110mb.com/analysis.html#mozTocId578645

    http://belarus.110mb.com/analysis.html#mozTocId657052

    http://belarus.110mb.com/analysis.html#mozTocId9643

    I don’t know why Russia does not create an Asian alliance between China, Japan and South Korea to develop the natural resources of Siberia.

  4. georgesdelatour says:

    How big is the Ukrainian migrant worker phenomenon in Poland? It would make sense for many Ukrainians from the west to go and work in Poland. But since Ukraine is not in the EU the Polish-Ukrainian border is, technically, a “real” border. So it ought to be harder to cross from Lviv to Krakow than from Krakow to Dublin. Anyone know what’s happening in reality?

    I agree with Anatoly that Ukraine is now unlikely to wind up a member of the EU. Maybe there was a chance in the early days of the Orange Revolution if the EU had got its act together. Maybe the EU could have offered Ukraine express membership of the EU backed up with generous subsidies. Maybe future historians will see this as a massive missed opportunity. Or maybe it was never realistic. I still think Ukraine would have been much easier to absorb into the EU than Turkey.

    • I did some research on this a couple years ago. Over 40% of Ukrainian migrants go to Russia, with another 40% or so winding up in Poland and the Czech Republic. That number is about equally split between the 2 countries.

      I used to live in Prague (2001-02) and there were plenty of Ukrainians there. In fact, the word “Ukrainian” in Czech was starting to take on the subsidiary meaning of “Gastarbeiter” (“I’m planning to hire a couple of Ukrainians to fix up my kitchen”).

  5. “How big is the Ukrainian migrant worker phenomenon in Poland? It would make sense for many Ukrainians from the west to go and work in Poland. But since Ukraine is not in the EU the Polish-Ukrainian border is, technically, a “real” border. So it ought to be harder to cross from Lviv to Krakow than from Krakow to Dublin. Anyone know what’s happening in reality?”

    What Scowspi said, mainly. I did an undergraduate paper this time last decade that suggested that the Ukrainians were concentrated in western Poland, curiously where there may have been family ties with Ukrainians displaced by Operation Wisla.

    A “European perspective” for Ukraine is about as much as could reasonably be expected; expecting a Ukraine that’s still quite poor and illiberal by minimum EU standards to get fast-tracked into the EU’s unrealistic, especially given the precedents of the former Yugoslavia and Turkey.

    Why suppose that Ukraine’s blocked off all chances of joining the European Union, though? I’m not sure why some of the commenters here think that Yanukovich is any more likely to take Ukraine (a Ukraine’s that’s quite internally divided) into an irrevocable bond with Russia than Lukashenko has been with Belarus.

  6. dparkins3 says:

    Transit fees paid to Estonia for oil transported via Rail will soon cease as Russia opens its own terminal at Ust-Luga. This will have a substantial impact on Estonia’s fiscal budget.

  7. dparkins3 says:

    Exactly oil transit fees account for up to 8% of Estonian budget revenues:

    http://rt.com/Business/2010-02-12/estonia-braces-change-russian.html

    Quite an expensive monument relocation.

  8. “How the Armenians managed this I don’t know, but kudos to them!”

    In declining order:

    1) In terms of education levels and worker productivity, 1990 Armenia resembled a Baltic state more than a Caucasus one.

    2) The diaspora — capital infusions, commercial links, skills transfer, smuggling, more or less in that order.

    3) Sense of national crisis engendered by the 1990s war led to national mobilization and (relative) political emasculation of oligarchs — Armenian oligarchs were allowed to get rich but not to interfere in matters of national policy.

    4) One-time demographic hit from declining dependency ratios; after 1990, old people started dying a lot younger, while young people pretty much stopped having kids. So, for a single generation, Armenia had an anomalously high proportion of the population be working-age adults. The bill for that is about to come due.

    5) Extremely high labor mobility. Armenians bounce in and out of Russia, and to a lesser extent the EU, with startling ease. Yerevan is full of thirtysomethings who got a graduate degree in Paris and then spent five years in Moscow.

    6) Iran. To simplify, Iranians go to Azerbaijan for booze and whores, but they go to Armenia to hide their money. Armenia is Iran’s only neighbor that is friendly, politically stable, and discreet. So Yerevan is full of large buildings constructed by wealthy Iranians who are avoiding the attention of their government.

    Doug M.

  9. A small note:

    The trend in the WORLD economy since the late 18th century is divergence, not convergence, and Maddison’ figures confirmed this when summarized by regional groupings; Imperialism has something to do with this, as well as its new incarnations since the beginning of the cold war in the form of neocolonialism (ie. formal independence but with basic structure of the economy systematically dependent on imperial trade and investment patterns).

    But there is a far more important physical reason for this: If you have an income of 15000$/capita, it is relatively easy to set aside 20% (1500$) for investment purposes. You are still left with 13500 per person to vastly satisfy basic needs. However, when you have an income per capita of 1000$, setting aside 20% is extremely difficult. Hence the basic idea: Those with more wealth can afford to invest a large portion of it, while those with little need nearly all of it simply to survive. Hence, Europe can grow quite fast simply because it can set aside much more income for investment; And indeed, this was made much easier by imperial conquests in the early industrial era.

    And the interesting part of this kind of idea is that it can be used to explain many of the different economic fates: That western Europe after the war, including the poorest regions, gained an influx of American capital, a fairly liberal technological transfer environment and a coherent government development plan. This is mirrored by the East Asian tigers as well (which were not burdened by high natural resources and hence drew little colonial attention, except in the beneficial form of military protection by the U.S. against the commie threat). The USSR on the other hand was more autarkic, with little to no capital flowing in from the west, however there was some technology transfer, and more importantly, being a huge country with many people, it had large aggregate income that it could draw on for investment in strategic sectors. On the other hand, most of the third world, while many government expressed explicit support for development plans, had poor ability to attract foreign investment and technology transfer (in some sense the colonial structure of the economy remained), but were also very small states, and hence could draw very little aggregate funds for investment (and in fact, they resorted to debt, which was unsustainable when many of their primary commodity prices fell in the 70s).

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