The eastern and western half of Europe have a huge gap in the socio-economic sphere. East European countries are plagued by the lack of a social security contract leading to high social inequalities, strong social disintegration, egotistic individualism and extensive destitution and poverty. There has been minuscule progress in addressing these problems since the early 1990s.
Talking of political culture, people in Eastern Europe are still characterized as having less personal autonomy, less responsibility as citizens and members of a global community. In some cases, people also struggle with seriously disturbing national and social identities.
Source: PEW FORUM
As far as economic efficiency is concerned, east European countries have made remarkable progress in the past years, but this progress isn’t enough. The differences in per capita income, productivity and efficiency, output, capitalization, savings, investment, integration into global networks are still huge.
Trading and Colonisation
One historical factor in the development of west European nations is the influx of wealth associated with its sea trade and exploration. Their favourable locations on the Atlantic and Mediterranean gave them advantages in trade and exploration through the sea route with minimal cost. The colonization of lands in America, Africa, Asia and Oceania by several Western European countries brought a huge influx of wealth and resources, which stimulated the economies of these countries. These resources made them global superpowers as early as the 16th century. The effects of colonisation are still being felt in these countries.
Division of Germany
In the aftermath of World War II, defeated Germany was divided into four zones by the allied powers. The Soviet Union occupied the east, while the rest of Germany was divided amongst the United States, Britain and France. With hundreds of thousands of wealthy American soldiers posted in West Germany and spending their American currency, the area flourished. The Deutsche Mark was introduced in 1948 which added to the region’s growth. In the 1950s and 1960s, West Germany experienced industrial growth and low inflation contributing to their prosperity. The security of private property rights and reliance on the price mechanism also contributed to the success of these economies.
Much of the European side of the Second World War happened in Eastern Europe, in today’s Poland, Ukraine, Belarus, the Baltic countries, the Balkans and Russia. These countries were utterly ravaged. Russia and Germany stole many assets. The Soviets literally dismantled many factories and took many industrial machines East. In addition to this, East Germany inherited highly specialised industrial districts, which were cut off from their major suppliers of inputs as well as their market which was in western Germany. This caused a departure of skilled labour and a number of small and medium-sized firms.
Communism
East Germany, under the authoritarian rule of the Soviets, saw much worse conditions than its Western counterpart. When the rest of the world experienced strong economic growth after World War II, the nations of eastern Europe suffered due to socialism which caused shortage of resources, a highly politicised system and a regressive attitude to progress. Soviets neglected the economy and focused on military power causing an economic crisis. Western Europe, not being the vassal state of the USSR for 40 years probably made a difference.
To start with, Eastern European nations weren’t that developed as they have mostly been the borderlands between various empires. Apart from some exceptions like Hungary, they were Russian hinterlands, not real centres of development, industrial or otherwise.
Communism was ultimately very inefficient. There was no incentive for work as individuals knew that the reward will be the same. Accumulating wealth was not really possible. It led to stagnation in economy, technology and culture. It was the mix of the intense poverty, injustice and the presence of absolute anarchy that crippled these economies.
Marshall Plan
America supported western European countries with aid to stop communism from spreading during the years of the cold war. Dollar aid enabled recipient nations to eliminate raw material shortages in exchange for trade liberalisation. The resource funds allowed governments to finance public projects without the need to cut back on welfare spending.
The U.S. provided $13.3 billion in assistance between 1948 and 1951 to 16 Western European countries through the Economic Cooperation Authority. The Marshall Plan helped in reviving the western economies by controlling inflation, reviving trade, restoring production and rebuilding infrastructure. The Soviet Union rejected the aid on behalf of eastern Germany.
When the Marshall Plan ended in 1951, industrial production, trade and exports had increased far above pre-war level. Employment and standard of living were rising. Politically, communist parties lost influence everywhere.
It encouraged the economic integration that led to the creation of the European Coal and Steel Community among six nations in 1950. It took a leap into a more integrated European Economic Community (EEC) after eight years. It finally became what is called the European Union today. This integration helped the nations to revive their economies through trade.
Demographic Dynamic
The population density in the 19th century was much more in Western Europe more than Eastern. In addition to that, across Western Europe, the casualties of war were offset by natural population growth and post-war mass migration. The impacts of the war and the post-war settlement were different for the eastern and western regions. The population growth was scanty in Eastern Europe which deprived it of flexible labour supply that has been recognised as an imperative factor in western reconstruction and development.
In the Eastern Front, millions fled west, running from the advancing Soviet troops. The effect of war casualties combined with the post-war settlement was devastating. The populations of Hungary, Romania, and Yugoslavia stagnated in the 1940s. Czechoslovakia, Poland, and the Soviet Union faced a population decline over the same period. The shortage of skilled labour proved to be detrimental. The province of Prussia was temporarily depopulated resulting in its industrial districts losing their pre-war labour force level.
The war left a distorted demographic structure with a shortage of able-bodied young men. Conventionally, they were the one who constituted the backbone of the industrial workforce. It all brought the region an excess of industrial and commercial enterprises without their original owners, the necessary skills and managerial know-how required to operate them.
The Fall of the Berlin Wall
The Berlin Wall was a concrete barrier that cut across and divided the city of Berlin from 1961 to 1989 and was constructed in the aftermath of World War 2. The fall of the Berlin Wall symbolised the fall of the ‘Iron Curtain’ that divided the Eastern countries from Western Europe during the Cold War.
East Germany was provided with aid of around €1.6 trillion by the government and private German businesses to bring it at par with the West. The dismantling of the wall had a profound impact on the neighbouring economies as well. Hungry and Czechoslovakia opened up their borders and allowed East Germans to take refuge in Austria. The influx of people meant the economies of neighbouring countries took a hit.
Shortly after the collapse of the Wall, the German Democratic Republic (GDR), the party which was in power in the East also came to an end. Unemployment escalated to extremely high level and the economy was thrown into uncertainty. Those who had government jobs found themselves suddenly out of work. The GDR economy also faced bankruptcy due to the change of currency. Before the reunification of the two regions, 1 Deutsche Mark was the equivalent of 4.5 GDR Marks.
When eastern countries joined the EU, it made it easier for the Western companies to buy up assets in the east. Some also took advantage of the cheap labour market and started companies. Eastern European companies found it challenging to compete with gigantic Western corporations who could afford to undercut prices. In certain industries, prices were set for a certain amount of time so that Eastern European companies could not undercut Western companies which took away their advantage and eventually many Eastern European companies went bankrupt.
Agrarian Economy and Raw Material Exporter
When Western Europe started on the path of capitalist development, the Eastern part of the continent was transformed into an exporter of raw material for the West and an importer of finished goods. The result was a never-ending loop that strengthened Western industries and system that promoted capitalism. Specifically, as the West became more urban, there was a growing demand for agricultural goods, animals and other raw goods. East European people satisfied this need by transforming their domains into farms that exported for the Western market. With the exception of what became the Czech Republic, most of Eastern Europe became more agrarian and therefore poorer than much of Western Europe.
