Approaches for small post-socialist economies from slipping in between the North and South

The 1990s grabbed, shook, and dropped to the ground the small post-socialist economies of Europe, Caucasus, and Central Asia leaving them forgotten in the dust of the higher stake debates on economic development strategy, technological change, and economic policy direction. This can be explained by a combination of commentators’ preferences for simple generalizations, a focus on geopolitical narratives, or limited knowledge of the region. Yet for the millions of people living in those mostly landlocked economies, there is a critical and urgent need to attend to the evolving unique development models for these countries.

There are three popular ways to speak about the small economies that have gone through the 1990s market transition reforms in the former socialist Europe, Caucasus, and Central Asia.

The first approach is to suggest that these countries have transitioned from their “decadent” past and, are now “done” with their macroeconomic adjustment– a view which believes that what remains are institutional and governance inefficiencies. As such, there is nothing special about these countries’ development, aside from occasional spurs of idiosyncratic news, such as the recent surge in their European imports and exports to Russia.

The second popular view is more politicized and defined by a commentator’s priorities rather than an objective understanding of a given economy’s circumstances. It usually appears within the framework of a geopolitical hot stew, where the already mentioned evolving patterns in international trade become the key ingredients.

The third take on the situation is more straightforward and honest in its unawareness of the region. It can be summed up in a question—what are these small post-socialist countries?

Lack of research and policy consideration

Indeed, compared to other parts of the post-socialist realm, there is a lack of research – both academic and policy-oriented – on the macroeconomic conditions of these often-overlooked economies. Geographically tucked away – and sometimes land-locked – these countries are often the smallest in terms of territory, economic size, and political relevance. As such, Armenia, Georgia, Kyrgyzstan, Moldova, Serbia, and Tajikistan (and perhaps Bulgaria) rarely feature in high-level discussions about emerging models of economic development, even with the most pluralistic and seemingly inclusive policy and research circles.

And why would they? The World Bank ranks these countries as either low or upper-middle-income economies. While this does not place them among the developed economies of the Global North, the classification does fulfill all conditions for the above-mentioned first approach to be adopted.

At the same time, these countries (with an exception of the poorest, Tajikistan) are also excluded from seemingly progressive initiatives aimed at supporting research on the Global South. This omission feeds into the third perspective: an acknowledgement of the widespread lack of knowledge about these economies. The attention of academic and development economists to the fate of these small economies is appallingly inadequate. As a result, they are left to navigate the aftermath of the post-1990s collapse– further compounded by the crises of 2008, COVID-19, and more recent localized military confrontations– largely on their own.

Missed by economic and poverty measures

Even the international poverty benchmarks fail to draw attention to this group of nations. Once again, Tajikistan is the exception, with the highest poverty rate among them– 6.11% at the $2.15 threshold, measured in 2017 purchasing power parity US dollars. Georgia ranks second, with 4.27% of its population classified as poor in 2022. The other countries are at or below 1%, with Moldova reporting a remarkable 0% of its population considered poor in 2021 at the international poverty line.

Similarly, when considering a comprehensive Multidimensional Poverty Index, no dramatic figures emerge. Except for Tajikistan at 7% and Georgia at 4.3%, these countries report near-zero levels of multidimensional poverty. This can be partially explained by the lingering effects of the socialist legacy—such as access to existing housing, general living conditions, basic education, and healthcare services—though the latter appears to be rapidly entering an era of commercialization.

Neither of these two poverty measures is enough to compel global attention toward these small economies. However, when examined through national poverty benchmarks, which adjust for each country’s standards of living, the situation is dire. Poverty rates range from 15.6% in Georgia to 33.3% in Kyrgyzstan, with the others falling somewhere between, typically around 20–25% of the population. Allowing for statistical adjustments and data limitations, the actual scale of poverty is likely even greater.

Increased migration of skilled professionals

The sad reality is that the struggle for a sustainable macroeconomic development model is ongoing while these countries are being depleted of their most precious resource due to migration: skilled professionals of working age. Trends in outward migration since the 1990s have had strong adverse effects on the social fabric holding these countries together and their economic development.

Today, the abandonment of rural areas — either due to economic inadequacies or in the hope of avoiding a war zone (as in Armenia which recently took over 100,000 ethnic Armenian refugees from the Nagorno-Karabakh Republic)— comes on top of three decades of layered migration from more urbanized areas. Remittances—small sums of monetary transfers sent by emigrants to their families—continue to play a vital role in helping those left behind manage poverty and economic pressure, accounting for as much as 50% of the gross domestic product (as in Tajikistan) and being as low as 8.9% in Serbia.

Added to this is the persistence of macrostructural challenges typical of underdevelopment that are reflected in limited integration into global value chains, decaying infrastructure, speculative real estate bubbles, and rising personal debt that fuels consumer spending. All of this is unfolding against a backdrop of stagnant real wage growth, deepening social polarization and widening economic inequality. Much of this inequality stems from the growing divide between economic outcomes in rural and urban areas, with capital cities concentrating up to 60% or more of national economic activity. For instance, in 2022, Yerevan generated over 62% share of Armenia’s GDP; Chisinau in Moldova, nearly 63%, and Tbilisi in Georgia, up to 53%.

There is also a sectoral imbalance, with one or two industries, such as the high-tech sector, outpacing others in output and wage growth, while capturing minor proportions of the entire economy and employing an insignificant share of the country’s labour force. In a small country, with regionally concentrated economic activity, this trend has had disproportionately negative macroeconomic effects, including rising consumer prices and speculative housing market growth. But most of the high-growth sector’s earnings are directed towards expenditure abroad. By bypassing the domestic economy, such export-oriented activity contributes little to national development—exacerbating already low living standards. In fact, for many in the high-tech sector, a successful business run at home may serve as a stepping stone to opportunities abroad, leaving domestic firms without the skilled specialists they need.

Falling in the gap between Global North and Global South

Consequently, the socio-economic reality has remained stalled in its post-1990s inertia. A new dimension of macroeconomic uncertainty, instability, and social anxiety emerges; one that differs from what is typical to a developing economy elsewhere. This makes the discussion of small post-socialist economies an uncomfortable addendum to the deep periphery of the major macroeconomic debates in today’s economic research and policy circles. They are neither part of the Global North nor the Global South, and the suffering of several million people, in what seems to be a perpetual cycle of suspense and desperation, is simply overlooked.

This prompts one practical way for these countries to elevate their issues into today’s newsfeeds, which is the second approach– solely political. Yet, the politicization of economic development, despite its ease in application, does little to truly address the complex array of macroeconomic challenges these nations face. Beyond being inaccurate, the politicized perspective is also not a constructive stance that economic researchers or policymakers can support while still maintaining their professional integrity.

An alternative, fourth view would be a historically grounded, informed, and country-specific approach that explores the development trajectories of the small, open, post-socialist economies. This perspective operates on a broader scale, tightly interlinking sustainable macroeconomic development with historical and geographic realities, while also accounting for the financial and political risks that these countries face.
Here, the challenge for the economic development community is dual. The first step requires setting aside inherent prejudices, which can only be done through direct and unbiased immersion within the region. The second is to overcome the entrenched stereotypes of macroeconomic development models by embracing a variety of alternatives and attending to the human element, recognizing that each country, despite a shared political past, is unique. By taking this multifaceted approach and placing these small post-socialist countries at the centre of discussion, the hope is to offer a framework that can supersede any other explorations.

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