Countries That Transitioned Rapidly From Communism to Capitalism Fare Better

Former Soviet bloc countries that transitioned slowly now lag behind.


Last week, I published, along with two coauthors, a study assessing the outcomes of economic reforms in ex-communist countries since the fall of the Berlin Wall. In order to understand the transition from communism to capitalism, it is important to note that by the late 1980s, the economic harm to communist economies was already done. These countries fell behind the rest of the world in terms of productivity. They subsidized hundreds of thousands of firms that were losing money and producing goods that no customer in the free world would buy.

Restructuring was, therefore, necessary and the only relevant questions were "when" and "how" to do it. The "big-bangers" wanted to make the process as swift as possible, while the "gradualists" wanted more time. The former argued that speed was necessary in order to minimize the power of special interests and rent-seeking. The latter argued that in the absence of institutional reform, chaos and corruption would ensue.

True enough, "big-bang" reforms were often chaotic and led to an increase in corruption. But, after 25 years, it is obvious that countries, which adopted extensive reforms early on, performed much better than countries that adopted a more gradual approach. The former grew richer and more democratic, while, at the same time, experiencing less impoverishment and a smaller increase in income inequality.

The latter performed worse in all relevant measures of economic, social and democratic performance. That is because post-communist governments were captured by special interests that were interested in rent-seeking, not economic and political reforms. These findings are crucial, because of the continued misperception that rapid transition from communism to capitalism has caused untold human suffering in ex-communist countries. They might also be of benefit to future reformers in countries from Cuba and Venezuela to Zimbabwe and North Korea.

In order to make my points succinctly, I will look at a number of measures of human wellbeing from the perspective of three countries: the Czech Republic, which adopted reforms early on and sustained them over time; Russia, which adopted some reforms early on, then abandoned and even reversed some of them; and Ukraine, which has been struggling to introduce reforms gradually over the last 25 years.

1. Economic Freedom

2. Income per capita adjusted for inflation and purchasing power parity

3. Income inequality

4. Life expectancy

5. Political Freedom (a lower value denotes a higher level of political freedom)

6. Rule of law (please note the late starting period, i.e. 1996)

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  1. They might also be of benefit to future reformers in countries from Cuba and Venezuela to Zimbabwe and North Korea.

    A lot of blood will likely have to be spilled before they get any chance. It seems easier to transition from free markets than to them.

    1. I met an Australian couple last week and they asked about Cuba. I said we can travel there now, but I haven’t been. They voiced concern that Cuba will lose its “Charm” now that they can trade with America. I wanted to tell them that they were evil for wanting a country to stay poor for their amusement, but instead I told them open relations with Australia hasn’t seemed to improve the lives of Cuban people, so I doubt the news status with the US will change anything.

      1. But, but, but poverty is so romantic!

      2. Was their last name Hapsburg?

        1. No idea. But the wife was afraid of insects and a cricket jumped on her neck during dinner and she almost stabbed herself in the throat with a butter knife knocking it off. It was pretty hard not to laugh.

          1. An Australian afraid of insects? *bewildered look*

            Unless she thinks every insect is poisonous, which, in Australia, is a reasonable belief.

            1. It made me proud of my wife. She doesn’t like bugs, but she looked like a hard ass next to that chick.

              1. My wife got over her fear of bugs by buying some pet tarantulas.

                1. wife got over her fear of bugs by buying some pet tarantulas.

                  We saw two while in Peru. They had creepy little babies with them.

                  1. +1 Flamethrower

            2. She has stupid views on Cuba, so her views on the risk offered by insects are not surprising. I decline to recognise her as a fellow Australian.

              1. She is originally from Scotland, but emigrated 12 years ago. Her husband was pretty cool. Insurance underwriter and semi-pro cricket player.

              2. They’re from Sydney, I don’t know if that means anything to you.

                1. Sadly the stereotypes of Sydneysiders is that we’re shallow and flashy.

                  Fun fact: if it was in the States, it would be your second biggest city


                    1. You’ll always have that.

                    2. I don’t understand this comment because LA is our second biggest city, not Chicago.


                    3. AND BETTER HOCKEY. YOU TELL ‘ER!

                  2. Fun fact: if it was in the States, it would be your second biggest city

                    People Huddling together for mutual protection?

                  3. Fun fact: if it was in the States, it would be your second biggest city

                    True, but we have a lot of retarded “Metropolitan Statistical Areas” in the US that are, for all intents and purposes, single cities. Dallas proper, for example, is about 1.2 million people, but the combined Dallas-Fort Worth metroplex is like 7 million. Las Vegas proper is like 650k, but the metro area – which includes a couple of really tiny bedroom communities, but mostly unincorporated areas that, while technically not part of the city, still address their mail as “Las Vegas” – is 2 million.

                    1. It seems that fully 20% of Australia’s population lives in Sydney. I guess they all want to avoid the drop bears and such that will kill you if you venture into the suburbs.

          2. the wife was afraid of insects and a cricket jumped on her neck during dinner and she almost stabbed herself in the throat with a butter knife knocking it off.

            “Harden the fuck up!”

      3. Didn’t someone at Vox say the same thing last year? “Go visit Cuba now before America ruins it with their capitalism and McDonalds.” Of course leave it to limousine liberals to view socialist poverty as some sort of tourist attraction. They probably write it off as getting back to Mother Gaia or some bullshit.

        1. They were also proudly telling me about their high minimum wage and complaining about their high cost of living. Some people just can’t connect dots.

        2. Cuban prostitutes, especially those under 14 years of age, will be more expensive. Limousine Liberals are sad.

        3. It’s worse than that; that poverty is how they expect all “working class” people to live. That’s what their PLAN is.

        4. You’re all wrong. Cuba has the material at hand to build a Communism Theme Park for tourists, where they can experience a simulation of life under a variety of Communist regimes. Not just police spies, old cars and salsa (Cuba), but other varieties as well. Storm the Winter Palace, fight with Trotsky, spend a weekend in the gulag, battle the Nazis, stand on line for day-old bread, etc. etc. etc. Meanwhile the Cubans can make Havana look just like Miami, except above water. Ho-hum.

          However, I have to complain about this article. Comparing the Czech Republic with Russia and Ukraine is to compare three different countries with totally different starting conditions and cultures. The Czech Republic is so Western in its history that it was part of the Holy Roman Empire, while Russia was fighting Mongols and Turks and Ukraine didn’t even exist yet!

    2. My co-worker’s step-sister made $14200 the previous week. she gets paid on the laptop and moved in a $557000 condo. All she did was get blessed and apply the guide leaked on this web site.. Go Here….

  2. So,free markets and property rights work? Somebody should tell Hillary,Bernie and Warren.

    1. You can’t wake the brain-dead.

      1. Don’t know abut Bernie and Warren. Hillary knows. She does’t CARE, but she knows. She views general prosperity as a Bad Thing, because prosperous people are more likely to tell her to go climb a tree.

    2. They support the free market. Except for certain things too important to be left to the whims of market forces. Medical care, education, housing, energy, transportation. For those, you need smart people to make the right choices for the rest of us.

  3. But rich people are making profits! Not fair!

  4. I think it is often overlooked that in ex communist countries the only people left with any working capital are those people who engage in Black Market activity. With a faster transition to capitalism market forces would force these guys to go legit. A slower transition allows these actors to use that capital to buy off politicians, and crush any new completion.

    1. Interesting point

  5. Naomi Klein has a sad.

    1. *snorts*

      Thanks… I needed that one

    2. Good.

  6. You know who else tried to quickly transition a country away from communism…

    1. Every useful idiot who ever found themselves up against a wall?

  7. I checked out the original study and wanted to make clear, the author and her co-researchers looked at all the central/eastern European and former-Soviet countries in their study, not just Russia, Ukraine, and Czechia.

    Maybe no one else cares, but I was concerned from this article that she had just cherry-picked those three countries. Not the case, she just picked those three out for illustrative purposes. Her conclusions hold across the whole set of countries.

    1. I wondered about that as well, but not enough to actually follow a link. I thought I was doing the authors a pretty big courtesy just reading the article.

    2. How did Poland do?

  8. I believe there was a study done showing that US recessions tended to be of much shorter duration in the absence of government intervention. Probably for similar reasons.

    1. Psst… The 1919-1921 Great Depression nobody remembers now because it was over so quickly. Thank Warren Harding and Calvin Coolidge.

      Go ahead! Thank them! There hasn’t been anyone to thank since!

      1. For which Coolidge has been thanked by being utterly shit on by historians. Even among the right and in libertarian circles he’s fairly underappreciated, I think.

        1. At least among the conservative intelligentsia he’s not as appreciated because he wasn’t pro-war.

        2. Best GOP president ever.

          I think libertarians treat him fairly well.

          He wasn’t perfect, but I would vote for Zombie Coolidge as often as I could.

  9. Jeez, I remember in community college my commie professor had us reading this Marxist nut named Parenti. His book written in the early 2000s seriously claimed that the people of Eastern Europe were longing for socialism because they’ve discovered the hard way that privatization and capitalism has lead to inequality, higher prices and poorer living standards.

    Regrettably 18 year old me was not yet intellectually mature enough to call out that bullshit for what it was.

    1. Ha! Eternal optimist. You think you’re intellectually mature now.

    2. That would be stunning denial of reality if it weren’t so common.

      I remember seeing interviews with Russians/Eastern Europeans after the fall of the USSR and its satellites where many were describing the unbelievable poverty they had suffered in the years leading up to the fall.

      One man had been a worker in a nuclear facility. After not being paid for months all of the workers just walked off and left the place abandoned so they could roam the countryside looking for wild plants and critters to feed their families with. The same thing happened with much of the military. Warehouses full of weaponry and even facilities storing nuclear bombs were just abandoned.

      Petty thuggery, prostitution, alcoholism and drug abuse were rampant.

      It reminded me of the accounts I had heard about the Holomodor. The claims from survivors were tearful accounts of how only the worst kinds of people survived it because the good people were unwilling to do the awful shit that everyone else was engaging in to survive.

      Contemporary accounts I hear from Slovakia and the photos I see from there show mostly happy people, well dressed and well fed. I am not sure how widespread that is in the region.

      1. “Petty thuggery, prostitution, alcoholism and drug abuse were rampant.”

        But no MacDonalds !

  10. “big-bang” reforms were often chaotic

    Top Men would have managed an orderly transition.

    post-communist governments were captured by special interests that were interested in rent-seeking,

    Those were the wrong Top Men.

    Seriously, how many times do we have to run these real world experiments proving that free enterprise works better than collectivism ?

  11. “Capitalism breeds income inequality and that is bad.” For Marxians, this is part of their catechism, so even if they conceded that freer economies have grown much faster than those hobbled by socialist policies, they will never concede freedom and capitalism are moral.

    1. That is because their definition of “moral” is “Everybody doing what I tell them”.

  12. I’ve wondered about that sort of thing with other firms of economic liberalization such as globalization and slashing government budgets and so on. Obviously you’re better off never introducing tariffs or other forms of protectionism and not going down the road of big government to begin with. But once you’ve created the monsters with all of their dependencies, are you better off reversing that over time or just getting it all over with asap. Not that we have that to worry about.

    1. Forms

  13. The German “Economic Miracle” would be a proto-example. West Germany transitioned rapidly from National Socialism to capitalism and did well. East Germany got Soviet-style communism instead, and did badly. The UK tried to continue with heavy government control of the economy “Because government controls and rationing worked so well during the war. So it should work even better when the U-boats aren’t sinking our merchant ships!” Um, no.

    1. The UK tried to continue with heavy government control of the economy because the British Liberal/Progressives thought they could get away with it. And they did, for a long time. They’re still hanging on like grim death, too. My wish for the British People is that they wake up to the broad uselessness of such people, sooner rather than later.

      1. It depends on whether you see the British Liberals/Progressives as fools or knaves. The ones holding on like grim death today are knaves, but immediately post-WWII it is reasonable (and charitable) to see them as fools, instead.

  14. Couldn’t it just be that countries that transition rapidly want it more? So they do better?

    1. And/or are in a better position for whatever reasons and so transition more quickly.

      It would be better if all parties involved in the study and article were clearer and more vocal about the questions of cause and effect.

  15. We too need a faster transition from MarxistSocialism to Freedom & Liberty; but, what do we do with all the Progressives – you can’t even bury them in the desert anymore.

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