The overlooked: small open post-socialist economies in between the Global North and Global South

[originally published in Prose on the Rocks]

by Aleksandr V. Gevorkyan

These days there are three popular ways to speak of the small economies that have gone through the1990s market transition reforms in the former socialist Europe, Caucasus, and Central Asia.

The first approach is to politely suggest that those countries have long since transitioned from their “decadent” past and, for all practical purposes, are “now done” with their macroeconomic adjustment. What remains are just institutional and governance inefficiencies. As such there is nothing special about those countries’ development other than the occasional spurs of some idiosyncratic news, such as recent surge in their European imports and exports to Russia.

That suggests a second popular view. And that is by far more politicized, defined more by a commentator’s priors than objective familiarity with a given economy’s circumstances. This view usually appears in a framework of geopolitical hot stew, where the already mentioned international trade character becomes the key ingredient.

The third take is by far more straightforward and honest in its unawareness about the region. It can be summed up in a question—what are they?

Indeed, relative to other parts of the post-socialist realm there is incredibly limited research effort, both academic and policy-wise, into the macroeconomic circumstances of these overlooked economies. Geographically tucked away, some are land-locked, and being the smallest in territory, economic size, and political relevance Armenia, Georgia, Kyrgyzstan, Moldova, Serbia, and Tajikistan (and maybe Bulgaria) rarely come up in high-level conversations on emerging models of economic development.

And why would they? The World Bank ranks them as either low- or upper-middle income economies. While that does not qualify them as part of the developed economies, the Global North, such ranking should satisfy all conditions for the first approach mentioned above.

At the same time, these countries (with exception for the poorest, Tajikistan) are also entirely omitted from seemingly progressive takes on the Global South. That omission then feeds into the third view from above, that of absence of knowledge about these economies. Attention of academic researchers and development economists to the fate of these small economies is appallingly inadequate and limited. These overlooked economies are left to be on their own in the rubble of the post-1990s destruction topped by the crises of 2008, COVID, and latest localized devastating military confrontations.

Even the international poverty benchmarks do not help draw attention to this group. Again, Tajikistan is the exception here with its, highest in the group, 6.11% poverty rate at the $2.15 threshold measured in 2017 purchasing power parity US dollars. Georgia ranks second with its 4.27% poor as a share of the total population in 2022. Others are at or below 1%, with Moldova reporting a stunning 0% share of poor in 2021 at the international poverty line!

Similarly, there is nothing dramatic at a comprehensive multidimensional poverty index level. With exception of Tajikistan at 7% and Georgia at 4.3%, these economies rank near 0% share of poor population. These results can be explained by the remaining operational legacy of the socialist base in terms of existing housing, general living conditions, basic education and healthcare service, albeit the latter seem to be rapidly entering the age of commercialization.

Neither of the above two poverty measures would necessitate the world’s closest attention to these small economies. However, when viewed from a perspective of the national poverty benchmarks, the situation with poverty is dire, ranging from 15.6% of population in Georgia to 33.3% in Kyrgyzstan, leaving others in between and around 20-25% of the population. If we allow for statistical adjustments and data imperfections, the true magnitude of poverty becomes larger.

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

These days, the emptying out of the rural areas either due to economic inadequacies or in hopes of avoiding being in a war zone (as in Armenia for example, that has recently taken over 100,000 ethnic Armenian refugees from the Nagorno-Karabakh Republic) comes on top of the past three decades layered migration from more urbanized areas. Remittances—small sums of monetary transfers sent by emigrants back home to their families—continue to play a key role in helping recipients deal with poverty and economic pressures, adding up to up to 50% of gross domestic product (as in Tajikistan) and being as low as 8.9% in Serbia.

Added to the above is the persistence of the macrostructure challenges of typical underdevelopment. This is manifested in limited global value chains integration, decaying infrastructure, rise of speculative real estate bubbles, increasing personal debts driving consumer spending, in the background of stagnant real wage growth, worsening social polarization and gaping economic inequality. Much of the latter is driven by the existing and widening divide between the economic outcomes of rural and urban areas, where the central role is mainly played by the capital cities drawing up to 70% of national economic activity.

There is also a sectoral imbalance with one or two industries (e.g., the high-tech sector) outpacing others in output and wage growth, while employing an insignificant share of country’s labor force. This trend has led to outsized negative effects on macroeconomy with consumer price increases, housing market overheating, while most of the sector’s earnings directed towards expenditure abroad. Bypassing domestic economy, such export-oriented activity results in negligible positive feedback to development exacerbating already low living standards at home.

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

That leaves one practical way for these countries to elevate in today’s newsfeed: that is the second option from above—solely political. But the politization of development, despite its ease in application, does not even begin to truly address the vast array of macroeconomic problems these countries are facing. In addition to being an inaccurate perspective, the politicized option is also not a constructive stance that economic researcher or policymaker could opt for maintaining their professional integrity.

An alternative, fourth view, would be a historically founded, informed, and context specific approach in discussing the trajectories of the small open post-socialist economies’ development. That should supersede any other explorations.

November 24, 2024