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January 19, 2006

Comments

Randy McDonald

As someone pointed out at A Fistful of Euros when this topic was raised, Czech wealth exists only on the basis of PPP, not on international exchange rates. The Portuguese still have more money in their pockets.

As for Mediterranean Europe, it's not at all evident that Portugal has been doing badly. The country _has_ climbed from a GDP per capita one-quarter of French GDP per capita in the 1950s to three-quarters now. Similarly, Spain has managed to combine high GDP growth with fairly massive waves of immigration from Latin America, eastern Europe, and elsewhere. Greece and southern Italy are different, I grant you. Then again, at two-thirds of EU-15 GDP per capita, Sicily and Sardinia aren't doing badly.

As for central Europe, what's going on in the old Hapsburg lands, at least, is simple convergence. The Austrian lands apart from Austria were basically as modern as the Austrian Republic, simply misadministered. Once the misadministration stopped, the current boom was inevitable. Estonia, in the Baltic States, is a special case, with closeness with Sweden and especially Finland propelling an economic boom that's taking the country into central and Mediterranean European income levels.

odocoileus

You realize this is genetic, right? Southern Euros are genetically incapable of developing first rate economies. Their skins are swarthier, their food has a lot more garlic. They make great cooks and great lovers, but they're hopeless when it comes to cool headed, Nordic rationality. ;)

Abiola

"Czech wealth exists only on the basis of PPP, not on international exchange rates. The Portuguese still have more money in their pockets."

This is pure nonsense: what more sensible unit can there be for measuring wealth other than in terms of what it can buy?

"As for Mediterranean Europe, it's not at all evident that Portugal has been doing badly. The country _has_ climbed from a GDP per capita one-quarter of French GDP per capita in the 1950s to three-quarters now."

The question isn't whether it has grown but how quickly, and how well Portugal's record stands by comparison with other European countries, let alone much of Asia, and on this point the verdict is indisputable: Portugal's growth record has been utterly mediocre.

"Similarly, Spain has managed to combine high GDP growth with fairly massive waves of immigration from Latin America, eastern Europe, and elsewhere."

So what? It's hardly unique in that regard, especially by comparison with places like Hong Kong or any Anglophone country. All else being equal, even "massive waves" of immigration should make no difference to *per capita* income growth.

"Then again, at two-thirds of EU-15 GDP per capita, Sicily and Sardinia aren't doing badly."

Yet another red herring: the point at issue is whether all the massive subsidies they've gotten have made a difference to their growth performance, and the answer is clearly NO - they have been surpassed by countries which have been given virtually nothing in terms of funding.

"As for central Europe, what's going on in the old Hapsburg lands, at least, is simple convergence. "

One might almost think this was a meaningful statement if one didn't know better: "simple" convergence to *what*, exactly? Do you even realize that Austria-Hungary was the poorest of Europe's great powers on the eve of World War I?

"The Austrian lands apart from Austria were basically as modern as the Austrian Republic, simply misadministered. Once the misadministration stopped, the current boom was inevitable."

Yes, it was "inevitable" that good government and a love of free markets would somehow jump the long years of communism in between. Why do you think Austria-Hungary used to be called "Kakania" if it was such a model of governmental efficiency as you imagine, and what makes you think infrastructure that was "modern" in 1939 would be worth even scrap metal today, especially after 45 years of communist maladministration? By your logic of "inevitability", the former East Germany ought to be booming as well, shouldn't it?

"Estonia, in the Baltic States, is a special case, with closeness with Sweden and especially Finland propelling an economic boom that's taking the country into central and Mediterranean European income levels."

I suppose a similar closeness to Germany and the Nordic countries explains Poland's booming economy - no wait ...

I'll be frank: your explanations for what is going on in Europe, are superficial in the extreme, and betray a less than solid grasp of the underlying economics. To be even more direct, the flimsy rationalizations you give tell me that you don't really know what you're talking about.

Abiola

"Southern Euros are genetically incapable of developing first rate economies. Their skins are swarthier, their food has a lot more garlic. They make great cooks and great lovers, but they're hopeless when it comes to cool headed, Nordic rationality. ;)"

Ah, yes, of course, that *must* be it! If only this damned political correctness didn't keep getting in the way of obvious scientific facts!

Andrew

"The Austrian lands apart from Austria were basically as modern as the Austrian Republic, simply misadministered."

This is not right, even without Abiola's counterarguments. There has been a persistent gradient of underdevelopment in Europe that goes northwest to southeast that started centuries ago, probably having to do with the adoption of new agricultural techniques that increased productivity. Just look at the 2 Eastern European countries that have done the best - Czech Republic and Slovenia - they're the ones closest to Austria. Take a look at the work of Andrew Janos for more - I don't have it handy, but if you look at things like grain yields per acre (and other statistics) on the eve of WWI, there's a steady decline as you move from Bohemia to Slovakia to Serbia to Romania.

Randy McDonald

"This is pure nonsense: what more sensible unit can there be for measuring wealth other than in terms of what it can buy?"

Inside the country, yes, but outside? PPP is clearly relevant to living standards, but it isn't so relevant when it comes to international economics and trade. Visiting Paris or London, your average Portuguese would still have more money in his pocket to spend than your average Czech.

"The question isn't whether it has grown but how quickly, and how well Portugal's record stands by comparison with other European countries, let alone much of Asia, and on this point the verdict is indisputable: Portugal's growth record has been utterly mediocre."

Um, no.

Pardon me for pointing to Wikipedia , but Portugal's record of strong economic growth since the mid-1980s is common knowledge. I'll quote:

"Portugal has made significant progress in raising its standard of living to that of its EU partners. GDP per capita on a purchasing power parity basis rose from 51% of the EU average in 1985 to 78% in early 2002. Unemployment stood at 4.1% at the end of 2001, which is low compared to the EU average. Real wages are flexible, but high social costs and severance packages raise fixed labour costs and make new job creation difficult."

I don't disagree with you that Portugal has serious economic problems, most related to levels of productivity which aren't justified by current wage packages. That said, the past two decades have been a good one in which to be Portuguese.

"So what? It's hardly unique in that regard, especially by comparison with places like Hong Kong or any Anglophone country."

This is true, if I was talking about Hong Kong or any Anglophone country. I wasn't, as it happens; I was talking, instead, about Spain in a broader European context. Are you really saying that the Spanish economy hasn't prospered over the past two decades, save for the early 1990s recession, that Spain hasn't closed the gap? The 2004 Eurostat figures on PPP-adjusted GDP per capita in Europe suggest that Spain is now almost as wealthy as Italy, and closing on France and Germany.

Saying that Spain isn't closing the gap sounds rather ahistorical, if you don't mind my saying so.

"Yet another red herring: the point at issue is whether all the massive subsidies they've gotten have made a difference to their growth performance, and the answer is clearly NO - they have been surpassed by countries which have been given virtually nothing in terms of funding."

I actually agree with you about southern Italy, which--most unlike Spain and Portugal--has been losing ground since the Second World War.

"One might almost think this was a meaningful statement if one didn't know better: "simple" convergence to *what*, exactly? Do you even realize that Austria-Hungary was the poorest of Europe's great powers on the eve of World War I?"

Even Russia?

Yes, Austria-Hungary was the poorest. According to these statistics (among others), Austria was as poor as Canada or Denmark, while Hungary ranked alongside Finland and Italy. Hungarian levels of poverty were significant, as evidenced by the waves of emigration. Austria was not, though, while the industrial prosperity of Bohemia-Moravia is--again--common knowledge and Hungary was still advanced enough to make Budapest one of the first cities with a subway system.

"Why do you think Austria-Hungary used to be called "Kakania" if it was such a model of governmental efficiency as you imagine, and what makes you think infrastructure that was "modern" in 1939 would be worth even scrap metal today, especially after 45 years of communist maladministration?"

You might note that I said nothing about the "infrastructure." I should have specified and talked about the skill bases of the population, the favourable economic geography of central Europe if stable peacetime conditions could be imposed, et cetera.

On the (irrelevant) subject of Kakania's government, I'll just note that it survived four years of a multifront great-power war despite massive misadministration.

"By your logic of "inevitability", the former East Germany ought to be booming as well, shouldn't it?"

All I'll say here is that I've commented elsewhere about the ways in which Germany reunification was mishandled, and say that for all of its troubles East Germany's is still the richest of the post-Communist economies.

"I suppose a similar closeness to Germany and the Nordic countries explains Poland's booming economy - no wait ..."

Estonia's proximity to Norden was a necessary prerequisite for economic growth, but not sufficient in and of itself. Should I have specified this for you?

"To be even more direct, the flimsy rationalizations you give tell me that you don't really know what you're talking about."

I'm sorry that I didn't provide enough detail for you in my initial post. I hope that this followup remedies this lack and lets you understand my points.

Randy McDonald

Andrew:

"The Austrian lands apart from Austria were basically as modern as the Austrian Republic, simply misadministered."

Point. I should have specified Cisleithenia in my initial comment. The Kingdom of Hungary was altogether different.

Andrew

"Point. I should have specified Cisleithenia in my initial comment. The Kingdom of Hungary was altogether different."

No, I think that's still not right (though thank you for introducing me to the term Cisleithenia!). According to Wikipedia, Cisleithenia extended as far east as what appears to be part of modern Romania, and as far south as Bosnia. My point was that the gradient of underdevelopment marches fairly evenly geographically across continental Europe. Romania, eastern Galicia, and Bosnia were almost certainly more economically backward than Hungary in the early 1900s.

Randy McDonald

OK, this is embarrassing. "The Austrian lands not part of the Kingdom of Hungary," that is, modern Austria, Slovenia and Bohemia-Moravia, was my intent. Galicia is the singular exception to this.

I think that my central point--that Austria-Hungary, while taken as a whole significantly below the levels of economic development enjoyed elsewhere in western Europe, had core areas as advanced as anywhere else in western Europe and peripheries not much poorer than other countries now solidly part of the First World--still holds. Or does it?

Andrew

Yes, I suppose the first part of your point is fair. Actually, it might be the case that what are now Slovenia and the Czech Republic were historically (ie pre-WWII) more advanced economically than Portugal. This has limited relevance to the issue at hand, but it may well be that we are in fact seeing a case of economic "catch up" to what would historically have been expected (if you go along with Janos's theory that, basically, "the more things change, the more they stay the same," i.e. the historical gradient of underdevelopment is persistent).

As for A-H peripheries though... I guess it all depends how you parse the phrase "not much poorer" and what the other countries are that you're comparing them too. Galicia was pretty damn poor...

I had a post about Janos's theory last year if you are interested:
http://universalacid.blogspot.com/2005/01/political-economy-of-underdevelopment.html

Randy McDonald

Thanks for the link to that post. It does make sense, FWIW.

Anyway, it does seem to me that the most rapid and substantial convergence in post-Communist Europe is in those countries which had the highest levels of per capita economic output beforehand, with the Czech lands and Slovenia roughly on par with Austria and Estonia on par with Finland, followed by the wealthier and/or better positioned areas of the former Kingdom of Hungary (Croatia, Slovakia, Hungary), then by Poland, Lithuania, and Latvia, then the remaining lands. The sharp depression of GDP in most of the former Yugoslavia creates the singular exception to this trend.

I suppose that the big question is whether convergence can be more general, if (say) more of the former Kingdom of Hungary and modern Poland can catch up to Czech/Slovenian/East German levels of income on the Iberian model. This remains to be seen.

radek

There's a student here at UC Davis - a good friend and my competitor on the job market this year - who's looked at the effects of the subsidies on convergence and growth for her dissertation. Basic finding is - moderate impact of the subsidies on growth for "old" EU countries, but likely a very small impact for "new" countries. Consequently fund allocation does not explain much of the convergence observed. Also the funds don't get dividied up strictly by some welfare-maximizing criteria, classical Utilitarian or Rawlsian or whatever (ie to those who most need it/can do most with it), but instead as one would expect there' a bunch of the usual pork-barellin' goin' on. Here's the paper (I think it's okay to link to it):
http://www.econ.ucdavis.edu/candidate_docs/32/JobMarketPaper.pdf

Oh yeah, as far as Poland's Law and Justice party. Economically they're hopeless. Hell, some of the ex-communists are more reformist and economically literate then PiS. Their draw lies in the fact that they're a relatively "clean" party with few scandals to their name and that one of the twins cleaned up Warsaw - they're basically an anti-corruption, tough-on-crime party (and some of the Polish criminal code is patently absurd. You can get more jail time for "defemation" then for aggrevated assault (ok that's anecdotal)). The Economist article's a bit off target with regards to the anti-EU populism and nationalistic Catholicism - they're sort of second order, if that, for PiS, though they might have been making more such noises lately as they've been looking to form a coalition with Self-Defense (left wing populism, think Huey Long but worse) and League of Polish Families (right wing populism, think Dick Gephard's economics combined with American Religious Right fanaticism).
On the other hand the best alternative, the Citizen's Platform (PO) really is arrogrant, high handed, elitist and incompetant (at least in terms of running a political campaign, not necessarily in terms of adminstering policy). So most Poles regard the whole thing as a clown show and happily go to work in Britain.

Ronald McDonald

odocoileus: you fascist!!. I suppose your surname is "Goebbels"
still chasing jews?

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