Poverty and Wealth in Transition Economies

At a recent Kennan Institute talk, Alexei Izyumov, Associate Professor of Economics and Director, Center for Emerging Market Economies, University of Louisville, spoke about the problem of poverty in formerly Communist states. He noted that the states of Central and Eastern Europe and the CIS are unique because they constitute the only part of the world where the percentage of the population living in poverty increased during the 1990s. Transition economies also deserve special consideration, according to Izyumov, because citizens in these societies have a greater feeling of deprivation than do citizens of non-transitional states with comparable income levels.

Levels of poverty are not the same for all transition economies. According to Izyumov, a much greater percentage of the population lives in poverty in the successor states to the Soviet Union than in the states of Central and Eastern Europe. Poverty levels are highest in areas—such as the Caucasus, Tajikistan, and the former Yugoslavia—where there were wars during the 1990s. He noted that poverty levels also vary within states, by geographic region, by type of industry, and by ethnic group. Nevertheless, Izyumov maintained that there are several causes of poverty that are common to all transition economies: the overall decline in output following the collapse of the Communist system, increasing inequality in the distribution of wealth, and high rates of inflation that wiped out people's savings.

Izyumov explained that poverty can be divided into two types: transitory and persistent. He argued that the higher poverty rates in CIS relative to Central and Eastern Europe are an function of higher rates of transitory poverty in the CIS. As the economies of Russia and other CIS states grow, rates of transitory poverty are decreasing.

Formerly Communist states have used different strategies to address the problem of poverty. In Izyumov's view, citizens of Central and East European states were much more active in organizations such as trade unions and more vocal in making demands of their governments than were citizens in the CIS. This civic activism influenced governments in Central and Eastern Europe to develop fairly effective social safety nets, while CIS governments did little to protect their citizens from poverty.

In the absence of support from the state, people in the CIS had to develop their own means of coping with poverty, according to Izyumov. Many people turned to the shadow economy to find work or supplement the income from their "official" jobs. He noted also that people relied on their family networks for help—small, family-owned garden plots became a major source of food for citizens of the CIS. Poverty and deprivation, in Izyumov's view, are also causes of large-scale migration in the region and negative phenomena such as declining birth rates and extremely high rates of crime and suicide. He concluded that the psychological traumas from poverty will take longer to heal than it will take to defeat the poverty itself.
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