Life in Communist times: was it so much poorer than now?

I did not grow up in a Communist country: to me life behind the Iron Curtain was the stuff of fairy tales happening in some mysterious and dark places. As far as I was concerned there was no life there and I was barely 7 years old when the Berlin Wall collapsed. I will never know how life was in the Soviet Union or in Poland in 1980. I have talked to people who have lived there, I have read books and I watched movies, but I will never know how people lived in this system. The only thing I am left with is to look at the raw numbers measuring economic activity over many year. Without the possibility to travel in time, I am attempting to do an exercise of pure economic history here. I will compare the GDP per capita of Western European countries between 1980 and now.

The Berlin Wall collapsed 28 years ago. As probably you all know very well, this moment started a transformation in practically all the countries of the former Soviet bloc, from Poland to Hungary, from the Baltics and Ukraine to Russia itself. Communism is certainly not the most efficient economic system: it takes a gigantic bureaucratic effort when the allocation of resources and the production quotas are established by a central authority for every sort of thing that is produced in the economy, from socks to bread and butter. Now most of these countries whose economy was centrally planned, from Romania to Czesh Republic, have been formally enjoying the virtues of free enterprise capitalism for almost 30 years. How have their fortunes improved and how much better off they are now?

1980 – 35 years of Communism

Communism years are often recalled as years of oppressive, poverty and stagnation in Central and Eastern Europe. This view seems to be confirmed when we look at the raw data. For example, the 1980, GDP per capita in Germany (then the 18th wealthiest country in the world in this respect) was $ 11,070 or almost seven times the nominal GDP per capita of Poland (then the 67th wealthiest country in the world), which lag at $ 1,592. In the same year, the nominal GDP per capita of France and that of the United States was $ 13,112 and $12,576 respectively, comparable to the standard of living of Germany and both much larger that the GDP of Poland (source IMF). The richest country of the Soviet bloc, except for the Soviet Union (for which the data is unfornately not provided by the IMF), is Bulgaria, with a GDP per capita of $ 2,818. This made Bulgaria the 45th wealthiest country in the world, still behind pretty much every other Western country.

Nominal GDP versus Purchasing Power Parity

It arguably makes little sense however to compare countries by the nominal GDP, since the same goods or comparable commom goods, like bread, cars or a home, often had very different prices in different countries, especially considered how little were the economic systems of the Western and the Eastern bloc integrated. Hence I am comparing the countries’s GDP per capita at PPP (purchasing power parity), believing it to be a closer indicator of a country’s standard of living

14th Germany $ 11,274

49th Poland $ 4,753

Now the gap between the two countries is significantly reduced, instead of 7 times richer the average German now is earning only two and a half times more than the average Pole.

imf 1980 ppp

The wealthiest countries in the Soviet bloc, except for the Soviet Union (and Czechoslovakia), for which the IMF does not provide data, is Hungary, which comes 39th, still behind pretty much every Western country (except Portugal), but at $ 6,322 only roughly two times less rich than your averageWestern country. Still poorer, but utter misery is something else. Other data put the Soviet Union, which had an immensely vast territory and huge differences in living standards, from the rich Baltics to the poor Stans of Central Asia, at $ 5,800 per capita, which would make the average Soviet citizen only two times less better off than the average American.

imf 1980 ppp soviet

GDP per capita in 2016

Now let’s compare the same figures for 2016. How much better off are the Poles, the Hungarians and the Russians, after almost 30 years of economic liberalisation, compared to their Western counterparts?

13th United States $ 57,608

20th Germany $ 48,449

40th Czech Republic $ 33,529

47th Poland $ 27,690

48th Hungary $ 27,475

51st Russia $ 26,926

65th Bulgaria $ 20,355

As we had seen above, in 1980, the period of “High Communism”, on average Poland was two and a half times less rich than Germany, in GDP per capita terms (PPP). 36 years later and after more than 25 years of transformation towards the implementation of capitalism, Poland, which has arguably been experiencing one of the most successful economic periods of its history, is still roughly 2 times poorer than Germany. Russia, which inherited the bulk of the Soviet economy, was in PPP terms also two times poorer than the average Western country in 1980, and looking at the raw numbers, its position does not seem to have improved significantly, making it with a GDP per capita (at PPP) of $ 26,926 more than twice less off than the US. The comparatible wealth of Hungary has also not improved much, and for a country like Bulgaria it seems to have gone slightly down, even if Bulgaria has been a market economy since 1990 and since 2007 enjoys the perks of belonging to the European Union.

This article is not intended to explore the reasons of the shortcomings of the transition to capitalism. These reasons are many and certainly each country has its own ones, with some countries having being slightly more successful than others. But as this cursury look at the data demonstrates, the transition period was for the countries of the old Soviet bloc, even the most successful ones, like the Czech Republic or Poland, hardly a story of “from rags to riches”. Life in Poland in 2016 certainly feels much happier and wealthier than in 1980, especially after at least 10 years of a strong economic boom. But it was no so terrible and miserable in 1980 either.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s