Growth, Poverty and Inequality: Eastern Europe and the Former Soviet Union
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The logic of the argument, in a nutshell, is presented in the scheme below. The rise of capitalism began in the 16th Century after traditional societies started to dismantle community institutions in Britain the enclosure policy intensified during the Tudor-period, This led to the increase in income inequality, which pushed up savings rates, investment and productivity growth, but at the price of the impoverishment of the masses and growing social tensions. Until the 20th Century though, capitalism was competitive because gains from productivity growth outweighed losses from rising inequalities and social polarisation.
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But growing social tensions finally resulted in the Russian revolution that gave birth to socialist society, which proved able to lower inequalities and mobilise domestic savings for catch up development. The existence of the USSR had a moderating effect on world capitalism — it started to acquire a human face by expanding social programs and lowering inequalities, especially after World War Two and the emergence of the world socialist system.
It finally led to the loss of economic and social dynamism, to the collapse of socialism in the USSR and Eastern Europe, and to the gradual transformation of socialism into capitalism in China and Vietnam.
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Left to themselves, without government regulations and checks and balances, competitive markets tend to increase inequality endlessly and this is exactly what began happening after in most capitalist countries. Chances are that this growing polarisation will result in a democratic transition to a new mode of social organisation which will be more competitive than capitalism due to its ability to maintain high savings and investment rates without high inequalities.
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Inequality and growth in the very long run: Inferring inequality from data on social groups. Discussion Papers No. Statistics Norway Research Department, February Piketty , Thomas Capital in the Twenty-First Century. In reality the domestic and international environment left little or no leeway for countries to choose between alternatives. Also disregarded by pundits was the diversity of the capitalist system, which was to serve as a model. The one projected for the transition was more or less a textbook-capitalism, a liberal, free-market system.
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It was anticipated by many experts, politicians and members of the public in the early s that reintegration into global markets and the transformation process would open historic opportunities for the former socialist countries to accelerate their economic modernization, with positive welfare effects. It was generally believed that the richer world, along with the institutions and processes of forms of global cooperation from which they had been excluded or in which they had been marginalized, would help the transition countries to fulfil those expectations. It is not easy to gauge what actually happened.
The new problems and sources of risk and instability brought about by the transformation have to be weighed against positive aspects of the changes. The qualitative and quantitative aspects of the process and the differences between countries impede such judgements.
Social Policy, Poverty, and Inequality in Central and Eastern Europe and the Former Soviet Union
There are some common characteristics however, related the theme of this paper: in the first decade of the transformation little or no attention was paid to the social implications of the process. At the same time, the social consequences of the transformation recession have been dramatic, particulaarly in the territory of the former Soviet Union. At this stage, at the early parts of the 21st century it is more or less an academic question whether the countries had a real choice at the beginning of the changes, to introduce a model, facilitating a more equitable market system?
It is also an academic issue whether the transformation crisis, the radical increase of poverty, deprivation, deterioration of health, exclusion and inequalities could have been avoided? This paper is not a comprehensive analysis of the social changes. It is dealing with certain aspects of them, which have a major influence on the human dimension of the transformation process in the Eastern European region and in the CIS, countries on the east of the frontiers of the European Union.
This is a large region, which is partly Europe, partly Asia. While the economic performance of these countries has been quite uneven uring the past 14 years both in time an spece, it has been generally recognized that that in certain areas much has been accomplished in the process of transformation, also in these countries.
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Macroeconomic stability has improved, though varying degree, there has been fiscal consolidation, and most of the countries introduced important liberalization measures in their domestic economy and international economic relations. Most of the currencies in the region are convertible. The new institutions, indispensable for a market economy, though functioning with varying efficiency, are in place.
Growth has been resumed in most countries. The countries became capitalist, or market economies. Many of them resemble more to the systemic hybrids of the developing countries than to the developed models of the modern market systems. There are important differences in the ownership patterns, particularly in three areas: the size of public ownership the leftovers of the socialist era the character of private ownership institutional, personal, small or large scale and the proportion and character of foreign ownership of the main assets, firms, bank, etc.
The development of the legal framework of the markets, the character of the existing institutions is also quite different. This Page in:. Eastern Europe and the Former Soviet Union - Growth, poverty, and inequality : overview English Abstract This study examines the impact of growth on poverty and inequality in Eastern Europe and the Former Soviet Union during Washington, DC: World Bank.
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