According to the World Bank, most of the countries of the former Soviet Union have seen nothing but decline and deterioration since the transition began 10 years ago.
World Bank Senior Vice President and Chief Economist Joseph Stiglitz says the bank's annual World Development report shows that despite significant gains in development around the world, the gap between rich and poor is widening and in many countries income distributions are worsening, increasing the social pain of economic failure:
Stiglitz told a Washington press conference last week that "nowhere are these problems more evident than in the states of the former Soviet Union, where the numbers living in poverty increased from 14 million in 1989 to 147 million by the middle of the decade, a ten-fold increase."
The reason was not just because Russia experienced a crisis last year, according to Stiglitz. "More broadly, a decade after the beginning of the transition to a market economy, most of the countries of the former Soviet Union have a lower per capita income, worse social conditions, and higher levels of poverty than they did a decade ago."
So does this mean the transition to market economies has failed? The World Bank official admits it's a question that his institution is now pondering a lot.
"Most economists said the problem in the former Soviet Union was that they had central planning, no property rights and therefore inefficiencies and distorted prices," he argued. "You were going to change all that and it was supposed to release a burst of energy of entrepreneurship and output was supposed to increase. Instead output has fallen markedly and poverty has increased markedly and I think the lesson we've learned is that market economies are far more complicated than text book models often describe them. And that issues of governance, issues of legal infrastructures, issues of institutions are absolutely central."
The leader of the team that assembled the development report, World Bank senior economist Eric Swanson, said one interesting anomaly in Russia is that private personal consumption has remained quite strong.
"What's really disappeared is investment and public consumption, government consumption," he said. "I guess if you're not collecting taxes, it keeps down your public consumption as well. Essentially we see an economy that's in chaos right now and it's very hard to measure what's going on there."
The bank's chief economist, Stiglitz, says another strange occurrence in Russia is that the inequality of incomes has increased while economic growth has decreased: "In a sense, the economies in transition have repealed a standard law on economics, which says there is a trade-off between inequality and growth. What they showed is that you have negative growth and increasing inequality, so they've gotten the worst of both worlds. And that is one of the things we'll have to ponder as we go forward."
The bank's report warns that if present trends persist, there is a danger that the poor may become a permanent underclass far less able to respond to opportunities when things do turn around.
People are obviously feeling the pressure, too, said the bank, noting that stress reveals itself in declining life expectancy and sharply worsening adult mortality. It noted that the probability of a 15-year-old Ukrainian male surviving until his 60th birthday is a mere 65 percent, down from 72 percent in 1980.
The bank's report shows that while the former Soviet countries have been sinking for a decade, another former Communist giant--China -- is moving strongly ahead in a transition that is working. "One of the remarkable contrasts is the success of [China's] transition as measured by most indicators including increases in GDP, living standards, and reductions in poverty, Stiglitz noted. "The contrast between that and what has happened in the former Soviet Union [is] the result of quite different economic policies being pursued."
The key to economic success, according to Stiglitz, is adopting the reforms and policies necessary for a functioning market-based economy, including strong social safety nets to protect the most vulnerable. In the end, he said, it is not international institutions such as the World Bank and the IMF that will save these countries but their own determination.
UZBEK, UKRAINIAN NATIONAL AIRLINES FORM ALLIANCE. In order to improve cooperation in the airline industry, the national carriers of Uzbekistan and Ukraine on 29 April signed an agreement in Tashkent on forming a new "CIS-Alliance" air system, Interfax reported. PG