How Did Eastern Europe Transition to a Market Economy After the Fall of the Berlin Wall?

Why Are Populism and Protectionism Threatening Democracy 35 Years After the Cold War?

Read Marek Dabrowski’s analysis of Europe since the Berlin Wall fell. Discover how Eastern Europe transitioned to capitalism and why democracy faces new threats.

Read the full article to understand the complex economic history of Eastern Europe and discover how current geopolitical trends impact global security.

The Berlin Wall fell on 9 November 1989, triggering huge political and economic change; the question now is whether the gains can be safeguarded

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Since 1989, the world has seen the fall of autocracies in Eastern Europe and the rise of globalization, as former centrally planned economies transitioned to capitalism. Yet the present state of affairs would suggest that an uncertain future looms, as growing protectionism and populism threaten democracy. Scholar and former statesman Marek Dabrowski looks into why some of the former Soviet states and satellite countries have fared better than others. Dabrowski warns against a reversion to autocracy and protectionism that could undo the gains made.

Take-Aways

• Eastern Europe endured economic decline and political oppression in the years prior to the fall of the Berlin Wall in 1989.
• The region went through a difficult adjustment in transitioning to a market economy.
• The current precarity of geopolitics will mean an uncertain future.

Summary

Eastern Europe endured economic decline and political oppression in the years prior to the fall of the Berlin Wall in 1989.

Prior to the collapse of the Iron Curtain and the Soviet regime, Eastern Europe existed in a repressive surveillance state that seeped into every aspect of people’s lives. State-owned enterprises and central planning led to perverse outcomes in the form of constant shortages and economic stagnation, at a cost to humanity and the environment. The lack of basic freedoms and proscriptions on foreign travel worsened an already sclerotic politics.

“Soviet-style communism meant not only lack of democracy and political pluralism as in ‘traditional’ autocratic regimes: the ruling communist parties of Eastern Europe sought to apply the Marxist-Leninist ideology to almost every aspect of social and economic life. They drastically limited civil liberties and freedom of choice in daily life.”

Several factors came to a head in Eastern Europe in the 1980s, all of which contributed to its downfall: the region’s faltering economic systems; its failure to achieve military primacy; the Chernobyl nuclear facility’s meltdown and its perilous aftermath; and the costs of Russia’s failed incursion into Afghanistan.

The region went through a difficult adjustment in transitioning to a market economy.

Economic hardship led to foreign policy changes that featured a conciliatory posture toward the West. A domino effect ensued, as Eastern bloc countries took on political and economic liberalization. Demonstrations in East Germany led to the fall of the Berlin Wall and eventual reunification with its Western counterpart. The Soviet Union’s adoption of glasnost, or “openness,” and perestroika, or “reconstruction,” was the beginning of its undoing.

“The election of Mikhail Gorbachev as General Secretary of the Communist Party of the Soviet Union (CPSU) in March 1985 was the turning point in the history of the Soviet Union and the entire Soviet bloc. The relatively young leader replaced the gerontocracy of the Brezhnev and post-Brezhnev era.”

The region’s shift to a market economy was fraught with challenges. Individual economies’ degree of success in making this adjustment was a function of their inherent economic structures. The states within the former Soviet Union endured severe recessions, while those behind the Iron Curtain — Soviet satellites like Poland, Hungary, and Romania — suffered less economic pain. Countries that implemented rapid, far-reaching, and consistent reforms experienced a faster transition with less plutocratic capture and corruption. Additionally, those nations that experienced foreign and domestic conflict underwent a more difficult recovery due to the postponed implementation of reforms. Eventual membership in the European Union furthered institutional change and established the rule of law in those nations that joined. Those that did not continued to experience state graft and crony capitalism.

The current precarity of geopolitics will mean an uncertain future.

Most of the countries formerly under the Soviet yoke have prospered economically, notwithstanding the Global Financial Recession and COVID-19 pandemic. Nonetheless, the present geopolitical environment appears downbeat. The 21st century has experienced a decline in democracy in many quarters.

“Sadly, 35 years after the fall of the Berlin Wall and Iron Curtain, the political and security picture looks gloomy.”

Populism and xenophobia have increased, and Russia’s incursion into Ukraine imperils global security. Political violence in the Middle East and Africa is on the rise. Relations between China and the United States have worsened, and protectionism threatens global trade.

About the Author

Marek Dabrowski is a non-resident scholar at Bruegel. He was First Deputy Minister of Finance of Poland (1989-1990) and a former member of Poland’s Parliament.