As most Americans continue to grimace at the mere mention of the words ‘economic crisis’ and ‘current job market’, looking abroad may provide solace for some. Eighteen years ago the Soviet Union fell, transforming Eastern Europe into a playground for the world’s most daring capitalists. The recent global economic crisis, however, has intensified an already tumultuous situation by highlighting glaring weaknesses in the policies of many of Eastern Europe’s most powerful governments.
At the forefront of challenges for many Eastern European countries has been the development of small and medium sized enterprise (SME). In Russia, with the exception of its financial crisis in 1998, the 1990’s and early 2000’s proved to be a relatively successful transitional period from Communism. The prosperity in Russia, however, was not fueled by exceptional leadership or insightful policies, but rather piggy-backed on a surging global economy thoroughly dependant on oil and natural gas. Russia’s government, rather than fully developing its SMEs, benefited from the incredible success of Russian companies like Gazprom, the world’s largest extractor of natural gas. The Russian government also happens to be the majority shareholder in Gazprom.
By year’s end, the European Bank for Reconstruction and Development estimates that the GDPs of Latvia, Ukraine, and Russia will have shrunk by 16%, 14%, and 8.5% respectively. According to the United Nations’ World Economic Situation and Prospects 2009, the United States GDP is expected to contrast by 3.5% in 2009. This decline of 3.5% will occur in a country that has proven itself financially resilient, thriving on capitalistic policies since its inception. By contrast, Eastern European countries, which have had less than two decades to develop sound, market oriented policies, are experiencing double digit declines in GDP.
While economists and laymen alike generally agree that the market in the United States is set to rebound sometime in the near future, such cannot be said with certainty in Russia and many other Eastern European countries. Even during the years of relative economic prosperity and growth, these countries relied on massive natural resource reserves and dated economic policies. If drastic changes are not made soon, including the promotion and support of SMEs, this economic crisis could prove to be more than just a hiccup for many of Eastern Europe’s most powerful players.