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This semester, I am participating in a reading group with undergraduate students that focuses on the history and perspectives of capitalism and socialism. Lately we read Joseph Stiglitz, who has long asserted that China transition to a market economy fared much better than the former Soviet Union. Gradual transition is superior to “shock therapy,” according to Stiglitz.

It is true to some extent. If we just look at economic growth rates since, say, 1995, China has clearly overtaken Russia.

Source: Our world in data

It’s hard to know exactly which year to start, as the GDP figures of former centrally planned economies immediately after the transition are unreliable, but the start date is generally irrelevant to anything I’ll say here (please play with the start year in the graphs to see if I select the years). 1995 seems a reasonable enough year to start as a reliable post-transition starting point.

As we see above, while Russia has had an approximate doubling of GDP per capita since 1995 (respectable, and yes, everything is inflation-adjusted!), China has soared almost 600%. Wow! But this is something of a cheat. Despite all this growth, the average income in China is still lower than Russia: only about 60% of Russia in 2020. China started from a much lower level, which means that faster growth, although not guaranteed, is at least easier to achieve. In fact, if we go back to 1978, when the first Chinese reforms began, the GDP per capita of the former USSR was about 6 times higher than that of China (according to the latest Maddison Project estimates, which will always be speculative for non-market economies, but which are the best we have).

Moreover, Russia has not really transitioned to democracy either. China clearly did not, but no one doubts that. But despite the outward symbols of democracy (elections, legislature, etc.), Russia still scores low on most indices of democracy and civil liberties. For example, liberty house marks them at 19/100, a little better than China (9/100), but nothing to do with Western Europe.

So, has the rapid transition to market economies failed? Not so fast. Although he failed in Russia, in most of Eastern Europe and in the eastern part of the former USSR, it seems to have been a great success. Take a look at this chart, which shows the former Soviet republics in and near Europe (I’m excluding Central Asian RSFs).

Source: Our world in data

Russia, along with Ukraine (hello, news), have been by far the worst economic performers since 1995. Although no one has quite matched China (note: none were as bad as the China in 1995), the performance was far superior to Russia.

The South Caucasus countries (Armenia, Azerbaijan and Georgia), with the lowest starting incomes, experienced growth rates of between 300 and 400% (again, these are adjusted for inflation ). Not quite China standards, but not bad!

The Baltic countries (Estonia, Latvia and Lithuania) started from the highest income levels, like Russia in 1995. But they have grown dramatically and are now much richer than Russia. In fact, according to the latest IMF estimates, in 2021 Estonia and Lithuania now exceed $40,000 per person, putting them on par with Spain and approaching Japan and Italy.

And speaking of the Baltic States, they also illustrate that the simultaneous transition to democracy is also possible. Look again at the liberty house menu. They have scores of around 90/100, similar to France and Germany, and even beating the United States! The transition to democracy has obviously not worked everywhere (Belarus and Azerbaijan, in addition to Russia), but it is not clear that a rapid transition cannot work. I think anyone today would choose Estonia over China. They are also all now full member states of the EU and NATO. Clearly a success story in the Baltic countries.

Finally, there are attempts to measure how market-oriented an economy is. It’s a tricky thing to do, but I think the Fraser Institute does a very good job. What do they find? Among the 20 most market-oriented economies in the world, five are former Soviet republics! The Baltic States, plus Georgia and Armenia (Heritage’s competitor index does not rank Armenia as high but agrees on the Baltic countries). Of course, other former Soviet republics rank much lower, with Ukraine near the bottom. Obviously, the transition to a market economy can also go wrong (although Ukraine has made decent progress on democratic transition).

Now, at the end of the day, Russia matters. It was the central nation of the former USSR, as well as the largest in terms of population and land area. We cannot ignore Russia. But Russia’s transition to some sort of market economy (Fraser ranks them 100th), for all its failures, doesn’t seem to make the case more broadly that a rapid transition to socialism is necessarily a bad idea.