The End of Communism – a New Era
Several decades ago, Eastern Europe was covered by communism. Until suddenly, communism ended. Factories, mines and land, formerly owned by the state, were sold to those with the closest ties to power. Of course there was corruption, it was not a smooth transition. It probably never is a smooth transition from communism to a free market.
The point here is that their economies were in shambles. For decades, entrepreneurship did not exist. The institutions supporting a free market did not exist. Nonetheless, in due time the economy will grow and it will change. However…
In Comes the European Union
Just over a decade after the fall of Communism, the countries of Eastern Europe start joining the European Union. The EU (and NATO) are seen as a move away from Russia. A move away from Russia is equal to a move to safety, in their views. The EU promises money; they will give subsidies to farmers and build new highways.
It sounds like a great deal, and in some ways it is. The free trade opened up new markets, but for whose benefit?
Western Europe had highly developed companies, they are competitive and innovative. Eastern Europe at the same time was just recovering from communism. So what happens when there is free trade? Western banks and other companies invaded the markets of Eastern Europe. How could the small Eastern companies compete with that? They lacked the funds and know-how. The infant industries, which was nearly every industry after communism, were killed off. To make matters worse, EU regulations made it difficult for small Eastern European companies to comply, putting even more pressure on them.
Go to Eastern Europe and you will see Western banks, Western supermarkets, Western everything. And the few local companies that did not die? Often they were simply bought out. The shareholders of these Eastern companies are Western Europeans.
The winners were Germany, France, Austria, the Netherlands, and so on. They were able to beat the competition in the East. The companies from the Eastern part did not expand into new German markets, or only rarely. There is a large similarity to the English colonies around the world. These colonies were used to increase the amount of consumers for English companies. The profits went to England.
Who benefits? The Western corporations that can see their revenue grow by expanding eastwards. But also East European consumers that can get better quality goods for less money. Who loses? Eastern European companies and the long-term growth of the East.
Not only the markets for goods were opened up, also the movement of people was allowed. Which direction did the people move? From East to West. From relatively poor, to relatively rich. And from low wages, to high wages. This is not very surprising, and perfectly understandable. If you can make 2 euro per hour in your home country, and 10 euro per hour for the same job in the United Kingdom, then why should you not move to the United Kingdom?
For the individual this allows them to see their wages increase, that is without a doubt great for them. But what impact does it have on a country? The East has seen its young and educated masses move abroad. While their home country paid for, or subsidized, their education, they will now work and pay taxes abroad. They will consume abroad, they will have children abroad, and many will remain abroad.
With its young participating in a modern-day exodus, it is hardly shocking to see the low fertility rates of Eastern Europe. It is exactly those in child-bearing age that are moving abroad to work; not the children, and not the elderly!
Who benefits? Well first of all the Eastern Europeans that make the move and obtain a higher wage. But secondly the Western governments and corporations that can keep their wages in the West low due to this influx of newcomers, and addition to their working tax-base. Who loses? The governments in the East, that see their core demographic leave the country.
The EU brain drains the East. It’s young and bright people are pulled out of the country, moving westwards. Moreover, it killed the infant industry and replaced it with the established Western European corporations.
It’s not all bad… Wages are growing as companies are moving offices and services to Eastern Europe, benefiting from relatively low wages compared to the West. Their GDP’s are growing as well and of course there are Eastern European companies that are performing very well. Some areas have vibrant tourism sectors. But all of these things could also have developed without the EU. And maybe even faster than they have now, plus keeping ownership of the Eastern European companies in Eastern European hands. After all, people go on holiday to Turkey just as easily as to Croatia. Regardless of one being in the EU and the other not.
Yes, the EU has paid for some highways in the East, but overall, has the EU really been that great for the former Soviet states?