East-Europe’s economic triumphs and territorial worries over Ukraine

Soldiers without insignia on march in Perevalne, Crimea. Vladimir Putin conceded in April that they were Russian troops.

Soldiers without insignia on march in Perevalne, Crimea. Vladimir Putin conceded in April that they were Russian troops.

The implosion of the Soviet Union after December 1991 brought freedom to almost 20 restored or new democracies of Central and Eastern Europe. Europeans were reunited, independent and free after almost half a century of oppression under an earlier version of Homo Sovieticus.
Russian leaders Mikhail Gorbachev and Boris Yeltsin supported national self-determination and democracy. The European Union added 10 east-central European countries in 2004 and 2007 and almost 80 million European citizens to its union of democratic nations that followed the rule of law.

Economic transitions
The transition from totalitarianism and command economies to democracy and market-based ones brought many changes to all these nations. Liberalisation required markets rather than central planners to set prices. Trade barriers were removed to allow free movement of goods and services; many state-owned enterprises and resources were privatised; financial services were created. The economic performances of Poland, the Czech Republic, the Baltic States, Hungary and a number of other such nations over the more than two decades since, have been strong despite serious adjustment problems.

Problems inherited from communism, including poor growth and low incomes, led Poland to adopt a strategy for transition to a market economy in 1990. The government of Lech Walesa removed price controls, privatised state-owned enterprises, eliminated subsidies and imposed spending restraints. The reforms eventually functioned well. Before the world economic crisis of 2008, Poland enjoyed an annual real growth rate of more than 3 percent. Its real economic growth rate was 3.9 percent in 2010 and 4.5 percent in 2011 — two of the best results in Europe.

Czech Republic
The disappearance of despotism from Czechoslovakia after 1989, with Vaclav Havel moving, in only months, from prison to presidency, afforded an opportunity to carry out major political and economic reforms. The new government also maintained strict fiscal policies and created a good climate for investment. The country enjoyed flourishing exports and rising direct foreign investment. The global recession brought down its growth rate, but it has rebounded since 2010.

Baltic States
The Baltic States (Latvia, Lithuania and Estonia) have a combined population of only 6.32 million, but all are determined and resilient. Following the collapse of the Soviet Union, each wasted no time in declaring independence and aggressively pursuing economic reforms and integration with the rest of Europe. In the 2009 global recession, all three made major budget cuts and their initiatives succeeded. Between 2000 and 2007, the Baltic States had the highest real growth rate in Europe, ranging from 6 to 12 percent. Austerity measures helped each to weather the subsequent recession; from 2011 on, they have enjoyed the fastest economic recoveries anywhere in the EU.

Hungary made the transition to a market economy after 1990, despite significant losses in markets for exports and in subsidies from the former Soviet Union. In 1995, it privatised state-owned enterprises, cut the current account deficit and shrank public spending. Many Hungarians suffered great hardship during the transition, but their economy grew about 4 percent in real terms between 2000 and 2006 and rebounded after 2010.
In short, the national transitions were difficult, but in virtually all east-central European countries, life appears to be significantly better now than in 1989. Despite its current serious problems, the EU, with 28 member countries and already a population of 503 million and prospect of further enlargement, continues to be a beacon for democracy, human rights, economic prosperity and stability for many across the world.

Is ‘then’ now back?
An ailing Boris Yeltsin resigned his presidency in 2000 to former KGB lieutenant colonel Vladimir Putin, who would later assert that the “collapse of the Soviet Union was a major geopolitical disaster of the century.” Mr. Putin’s clear aim is to destabilise the interim Ukrainian government in Kiev as much as is feasible.
Somehow, Mr. Putin must be persuaded by German Chancellor Angela Merkel and other leaders, through “smart sanctions” and whichever Russian oligarchs he listens to, that a collaborative engagement with the larger European community is necessary in today’s world lest Russia be isolated internationally. One much-discussed option is for Ukraine to follow the example of now-prosperous Finland and not join NATO, but trade and be on good terms with all neighbours.
Vladimir Sorokin of Russia, writing in the May 8 issue of The New York Review of Books, compares today’s post-Soviet bear to the Soviet one:
…the only thing they have in common is the imperial roar. However, the post-Soviet bear is teeming with corrupt parasites that infected it during the 1990s, and have multiplied exponentially in the last decade. They are consuming the bear from within…There are no muscles, the bear’s teeth have worn down and its brain is buffeted by the firing of contradictory neurological impulses: “Get rich!” “Modernize!” “Steal!” “Pray!” “Build Great Mother Russia!” “Resurrect the USSR!” “Beware of the West!” “Invest in Western real estate!” “Keep your savings in dollars and euros!”…”Be patriotic!” “Search and destroy the enemies within!”
In fact, prosperity continues to elude most Russians. The Organization for Economic Co-operation and Development (OECD) says the average household net-adjusted disposable income for a Russian family in 2013 was $15,286, ranking number 30 of the 36 OECD developed-economy nations.
Russia is now a petro-state, sustained mostly by the insatiable need of foreigners for oil for their vehicles and gas for homes and businesses. Since 2000, the economic and political focus of Mr. Putin and about 140 oligarchs has been the oil and gas industry. Keeping Europe dependent on Russian imports in a period of growing international oil and gas abundance has proven to be a good strategy. Now that the Crimea crisis is reported to have precipitated a flight of capital from Russia in the first quarter of 2014 as large as $70 billion, Mr. Putin and his supporters might accept that European harmony is necessary if the Russian economy is to improve the lives of its citizens.

In Ukraine and Russia, ousted president Viktor Yanukovych and Vladimir Putin continue to misrepresent the democratic uprising in Ukraine. No one has cut through the propaganda in Russian state media more effectively than Timothy Snyder, history professor at Yale and author of Bloodlands: Europe Between Hitler and Stalin.
“Ukraine (under Yanukovych) was governed by probably the most financially corrupt regime … which by the end of its rule was not only physically oppressing, but finally killing its citizens … (for) exercising their rights to speech and assembly.
“In all of these ways”, the writer continues, “the ‘decadent’ West, as Russia’s foreign minister put it, was present …The Russian press presented the protest as part of a larger gay conspiracy. The (Yanukovych) regime instructed its riot police that the opposition was led by a larger Jewish conspiracy. Meanwhile, both regimes informed the outside world    that the protesters were Nazis. Almost nobody in the West seemed to notice this contradiction.”
Given the long-simmering divisions within Ukraine that Mr. Putin is now exploiting, newly elected president Petro Poroshenko from central Ukraine must try to win support at home by reaching out to Ukraine’s 24 oblasts with their differing ethnic and economic needs. It is not too late to begin a real dialogue with the regions and start talking about a Ukraine that respects diversity, assuring them that their rights and interests will be safeguarded within a federal system. Key leaders from the eastern provinces could be invited to have a say in the formation of a new Ukraine.
Ukrainians understand what western support can and cannot accomplish. It can provide useful moral, political and military leverage and much-needed financial support. However, western support by itself cannot resolve Ukraine’s problems.
Given Ukraine’s position and its political and economic structure, its leaders must recognise that peace can only come through some accommodation with Moscow. Mr. Poroshenko should consider flying to Moscow to talk directly with Mr. Putin. It is both futile and counterproductive to threaten the Russian president. Instead Mr. Poroshenko should seek to reduce Russian concerns that Ukraine will not be exclusively pro-western and anti-Russian.

Kasparov: “Banks, not tanks”
The former world/Russian chess champion and democracy advocate Garry Kasparov observed in the Wall Street Journal:
Vladimir Putin has twice during six years sent Russian troops across internationally recognised borders to snap off pieces of neighbouring countries, first in Georgia (South Ossetia and Abkhazia) and now in Ukraine (Crimea), thereby joining an exclusive club with Saddam Hussein and Slobodan Milosevic….
Trying to seek a deep strategy in Putin’s actions is a waste of time. “There are only personal interests, the interests of those close to him who keep him in power, and how best to consolidate that power.” If the West punishes Russia with sanctions and a trade war, “it would be cruel to 140 million Russians, so instead sanction the 140 oligarchs who would dump Mr. Putin … if he cannot protect their assets abroad. Target their visas, their mansions and IPOs in London, their yachts and Swiss bank accounts. Use banks, not tanks.”
Mr. Kasparov, already a proven master of logic and strategy, makes a lot of sense.

Dr. Peter Lin was a senior economist at Statistics Canada in 1995 and a professor, director and dean at various universities in Taiwan. David Kilgour is a former MP and was secretary of state for the Asia-Pacific, Latin America and Africa.

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Dr. Peter Lin was a senior economist at Statistics Canada in 1995 and a professor, director and dean at various universities in Taiwan. David Kilgour is a former MP and was secretary of state for the Asia-Pacific, Latin America and Africa.

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