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Economics

Capitalism is booming in eastern Europe

Prague, Czech Republic. Sean Gallup/Getty Images

Once feted as the “cradle of new democracies” after the fall of the Soviet Union, eastern Europe is now widely panned as an “incubator of reactionary populism”, says Ruchir Sharma in the Financial Times. But the political backsliding makes its economic progress all the more intriguing. Of the last 10 countries to be classed as “advanced” economies, six are ex-communist countries in the Eastern Bloc, including the Czech Republic and Lithuania. Poland, Hungary and Romania are likely next in line.

The secret is that these Soviet satellites left the USSR with a highly educated and skilled workforce. And today’s eastern Europe shares with east Asia the one proven key to long-term growth: manufacturing prowess. Unlike countries that rely on exporting oil or other commodities, “which tend to whipsaw in price and destabilise economies”, manufacturing is a “self-sustaining growth engine”. Regular export income can be reinvested in more factories and roads. Being close to rich western Europe helps too: many high-end German cars are made in Hungary or Romania. Poland churns out everything from car parts to video displays, not to mention “world-class companies” in fintech, gaming and other digital industries. Whenever they formally join the elite ranks of “advanced economies”, the ex-communist states of eastern Europe are already the greatest economic success story since the east Asian miracles.