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Southeastern Europe: 20 years later

It used to be a place of stagnation, but in the last 20 years no other region on Earth has grown as fast as Southeastern Europe. Yet people there remain surprisingly pessimistic

Which part of the world grew the most since 1990? The Far East? Wrong. Believe it or not, it was Southeastern Europe. According to IMF figures, the ten transitional economies of Southeastern Europe increased their combined GDP by no less than 681 percent – more than Developing Asia (544%) or the transitional economies of Central Europe (561%).

Of course, one can argue that these figures are distorted by the abnormally low levels of GDP measured in the late eighties and early nineties. But no matter how we crunch the figures, we can’t deny that the region underwent enormous changes, and not just in economic but also of course in political and social terms.

For a foreigner sipping a cappuccino nowadays in one of Southeastern Europe’s cozy bars, it can be hard to imagine what life in this part of the world was like just 20 years ago. It was a decidedly backward place: underdeveloped, poor, run by whacky dictators and terrorized by the secret police. In many ways life in Southeastern Europe resembled North Korea more than the rest of the continent. Romanian dictator Nikolae Ceausescu destroyed hundreds of villages and towns and forced their inhabitants to live in grim concrete apartment complexes, a chance to exhibit a “collective spirit.” While he built one of the three largest buildings on the planet as a palace for his family, the population froze and starved. Albanians under Enver Hoxha constantly built concrete bunkers to face an invasion that never came. Living conditions in Albania were closer to the Middle Ages than the modern world. Yugoslavia may have once been the most democratic, market-oriented state in the region, but by the late eighties it was apparent that it was living in an illusion. As the economic system began to crumble, the idea of “brotherhood and unity” quickly faded. The country fell apart and its political crisis resulted in the only European war of the second half of the 20th century.

The scars of the past are deep and still visible throughout Southeastern Europe. Yet change is obvious. Its most striking external sign is the advance of Western-style consumerism with its ubiquitous billboards, large shopping malls and fancy boutiques. Modern cars have all but replaced the rusty old Dacias and Zastavas. But that's just the superficial part.

The economies of the 10 SEE nations are much different than they used to be. These countries have largely moved from agricultural to industrial and service-oriented economies. The share of agriculture in their GDP’s have dropped below 10 percent in all countries with the exception of highly agricultural Moldova. The importance of heavy industry is also lower, while the share of services has shot up. In Albania, for example, the share of services in the GDP went up from 16 to 59 percent since 1990 and in Romania from 34 to 61 percent.

ECONOMY: ALMOST A MIRACLE

These systemic and structural changes brought growth. No matter which indicator we use, it’s obvious that the 10 SEE nations have much increased their wealth in the last 20 years. The gap between the world's richest nations and Southeastern Europe is still huge, yet it’s closing. In 1990 Romania's per capita GDP reached 15 percent of the US. Now it is slightly below 20 percent of the gross domestic product per US citizen. While the gap is still enormous, progress has been made in all the countries in the region with no exceptions.

As elsewhere, the extra fast growth of the region in the last decade was to a certain extent inflated. Still, it reflected changes on the political and administrative levels. The nineties was a decade of political turmoil: the transition here was in many aspects much more difficult than in the economies of Central Europe and its results much less predictable. In countries affected by war (like Bosnia and Moldova) or by political insecurity (like Albania and Romania) the first years of the transition actually led to less wealth. The net result of the two decades since 1990 is nevertheless extremely positive.

In political terms all these countries enjoy true democracy – with the only exception to some extent being Moldova. While their institutions may not run as smoothly as those in the old western democracies, they are still democratic institutions. The possibility that these countries could ever return to undemocratic populist regimes is ever more remote. The latest economic crisis may have resulted in significant shifts in voter preferences – yet democracy itself will very likely remain stable.

The silent machinery behind these democratic institutions and the free market – the legal system and administrative procedures – also significantly improved. According to a recent World Bank Doing Business study, bold reformers are constantly improving business related legislation and administrative practices in the SEE nations. In most of these elements the 10 SEE nations still lag behind west European standards. Yet improvements are constant and measurable.

NEVER ENDING WINTER OF DISCONTENT

It seems that there's only one aspect which hasn't dramatically improved in the last two decades: survey data reveals that the people of the region are mostly no happier than they used to be. Often they’re even gloomier than in socialist times, when despite the all-pervasive propaganda a bright future was nowhere in sight.

Despite the hard evidence, many people in the region think they are worse off than they used to be. “My father fiercely opposed the communist regime,” said one Bucharest intellectual. “Now he often stresses we used to live better then.” From Skopje taxi drivers to Sarajevo professors, it's the same story: the crimes and injustices of prior regimes are largely forgotten and socialism is remembered with bittersweet nostalgia. Last November's Gallup Balkan Monitor was the largest public opinion survey ever carried out in the region. It showed that most of citizens of Western Balkan countries are dissatisfied both with their politics and their standard of living. An astonishing 84 percent of Croatians are convinced that their country is going in a bad direction. The Croats are “unhappy and bitter on all fronts,” according to the Gallup report.

Clearly, money doesn’t buy happiness. The Croatian per capita GDP shot from $2,500 in 1992 to $15,633 in 2008. This reflects the same level of wealth as that of Estonia or Hungary, and is above that of Poland. Only the Slovenians are better off than the Croat in Southeastern Europe. Despite this, 57 percent of Croats are dissatisfied with their standard of living, which is 16 percent more than in 2006. Compare this to the 67 percent of Kosovars who feel that they live well. According to the hard data, Kosovo is the second poorest part of Europe – only the Moldovans are poorer. Albanians, only marginally better off, are also optimistic and satisfied with their lives. So what’s the reason behind Croatia’s bitterness? The long wait at the EU’s still closed doors? Unhealed war wounds? Whatever the reason, it’s clear that we can’t jump to easy conclusions when interpreting the Balkan Monitor’s data.

The Gallup survey covers only the Western Balkans – countries still outside the European Union. Eurobarometer, the EU’s semi-official public opinion survey, poses similar questions to the EU citizens and also some candidate countries. Again the survey shows less satisfaction with life in Southeastern European countries than in the rest of EU. The Bulgarians as the least satisfied of all. Only 28 percent think that their standard of living is satisfactory compared to the EU27 average of 75 percent. Interestingly, however, the Eurobarometer data shows much more optimism and satisfaction among Croatians than the Gallup survey.

And although when it comes to Slovenia Eurobarometer surveys show a relatively high level of satisfaction among the population, dissent and nostalgia are almost as present in this peaceful and prosperous Alpine republic as anywhere else in the region. This dissatisfaction led to massive strikes in late 2009 and early 2010, in which trade unions demanded that the government raised the minimum wage from 600 to 855 Euros – a whopping 42 percent increase. Employers responded by saying that economic conditions are hard enough as it is, with Slovenian industry hit particularly hard by the recession. Further, no jump in productivity, they said, allows for such an increase. While the situation hasn’t been resolved yet, the trade union claims seem based on the assumptions that only the rich – company managers and owners – have profited from two decades of steady economic growth. This idea is widespread throughout Southeastern Europe: the only result of economic growth is supposedly that the rich are richer and the poor poorer.

WAS LIFE IN SOCIALISM TRULY BETTER?

It’s clear that the GDP as such is a very limited tool to measure the successful development of nations and mankind in general. There is no universal developmental measure. The closest effort to create a universal meter which could cover the essential aspects of human life is the Human Development Index (HDI) created by Indian economist and 1998 Nobel prize winner Amartya Sen. This index has been used by the United Nations since 1990 and combines economic indicators with measurements related to life expectancy and education. The HDI is based on hard data and includes a wide set of measurements, including those of gender equality and poverty.

The latest Human Development Report from October 2009 clearly indicates that life in Southeastern Europe has improved in all measured aspects in the last 20 years. While it’s true that growth in the quality of life lags behind GDP growth, it is very probable that life in Southeastern Europe is better now than it was at any time in history.

The average HDI index for SEE countries is higher than the overall index for Eastern Europe (including the ex-Soviet Union). Most of these countries belong to the group of nations with High Development. Both life expectancy and education indices show levels of development comparable to the rest of Europe. The share of the various governments’ budgets directed to health and education is similar to those in the developed industrial nations. So in general life in the region isn’t bad. It’s mostly the level of economic wealth that prevents SEE countries from being completely comparable to the developed nations.

What about the claim that most people in the region don’t profit from economic growth and that the differences between the poor and the rich has grown beyond any reasonable proportion? In fact the poorest 10 percent control between 3 and 4 percent of the total income in most SEE countries – typical values for Europe and much better than in the rest of the world. The richest 10 percent control on average 26 percent of the wealth. Both figures are close to that in egalitarian Scandinavia. In “socialist” Venezuela the poor control 1.9 and the rich 32.7 percent of the income. The shares in nominally communist China are 2.4 versus 31.4 percent.

Another technique often used in measuring inequality is the Gini coefficient, a statistical measure of dispersion. Again, the Gini coefficients for the Southeastern European nations are among the lowest in the world – far below the double digit figures typical for countries outside Europe, including the US, Russia and China. Yes, the occasional shiny black SUV owned by this or that tycoon may stand out and provoke lots of attention. But hard data simply doesn’t confirm the idea that the inequality is truly a problem in Southeastern Europe.

And the general level of poverty? Yes, in the poorest countries, for example Moldova and Albania, poverty is a serious problem. The natural poverty line in Moldova lies at 48.5 percent – meaning that almost half the population is considered poor. 28.9 percent of Moldovans live with less than $2 per day and 8.1 percent live with less than $1.25, that is below the border line of absolute poverty in global terms.

Apart from Moldova it would be a gross exaggeration to claim that poverty is widespread throughout the region. In most of the SEE countries the number of the people living in absolute poverty is very low. Or to put it in other way, there’s less poverty in most of these countries than in ultra competitive Singapore.

True, life in Southeastern Europe isn’t easy: it never has been. Despite the tremendous progress made in the last 20 years, many issues remain unresolved. The governments aren’t among the most stable, the level of governance leaves much to be desired, administrations and legal authorities could be more efficient, and corruption is still widespread. And the region’s economies still lag behind the rest of Europe. It can’t be denied that Southeastern Europe is still the poorest part of the continent.

Yet the nations in the region are closing the gap and closing it fast. The improvements made in the last decade are simply outstanding. Even if we relativize the fast economic growth, these nations have improved in practically all of life’s measurable elements. As for the idea that life in socialism was better – that the standard of living was higher, and poverty lower – the HDI and Gini coefficient data make it a definitively busted myth.