Last Friday marked the 30th anniversary of the fall of the Berlin Wall. When I ask people born from the mid-1980s onwards whether the Berlin Wall means anything to them, very often I get a blank face, denoting no understanding at all. This probably shows how much we have taken the event for granted. Those of us who lived through it probably still remember what they were doing when they heard the news.
The fall of the Berlin Wall took place on a single day – November 9, 1989 – but it was one of a series of events that led to the end of the Soviet Union (former name of Russia, for the benefit of millennials and subsequent generations) and the whole Soviet system.
Just to add to the complication, I can also mention the so-called Iron Curtain, a phrase coined by Winston Churchill, former UK Prime Minister, which represented the political, military and ideological barrier between Eastern and Western Europe.
The event may be seen purely from a political perspective. However, it must also be seen from an economic perspective. I strongly believe that the cause of the disintegration of the Soviet Union and the system it created has its foundations in the economy. Irrespective of any propaganda from the side of the West about its superiority, it was the economic weakness of Eastern European countries and the former Soviet Union that caused the centrally planned economic system to fail.
The global economy went through a dramatic transformation since 1989
Housing and buildings in general were in a state of disrepair. Cars and domestic appliances were old-fashioned and unreliable. The general population was not enjoying any benefits from technological developments. The standard of living was a fraction of what it was in Western Europe and what were considered as basic items in Western Europe, like toiletries, were often luxuries in Eastern Europe.
The centrally planned economies of the Soviet bloc produced little actual wealth, and as their governments absorbed more and more of what little wealth was being produced, the people became poorer and poorer, until it was no longer possible to hold back the change.
The immediate economic effect was that the governments all over the world, with just a few exceptions, ditched the socialist economic model (not the political or the social model) and veered to economic liberalism in various shapes and forms and to different extents. Twenty years later the model of economic liberalism was also discredited since it was seen as a major cause of the 2007 international financial crisis and the subsequent economic recession. Three decades after the fall of the Berlin Wall we are still seeking the appropriate model for the management of a national economy, a model that incorporates both robust economic growth and a dose of social justice. There may be disagreement on the required dose of social justice, but in any case it needs to be there.
There are three other economic considerations which need to be made regarding the fall of the Berlin Wall. First, it opened up new markets for both consumer and capital products as well as services. Western European economies obtained access to markets that were previously closed to them. Moreover Eastern European countries became potential locations for investments in a number of areas.
Second, the Eastern European economies have also developed since 1989. Markets opened up for them as well as much they did for the Western economies. Taking the example of Poland, this country’s gross domestic product per capita was about one fourth of that of the US in 1989. Nowadays, it is around one-third.
The third consideration is that the fall of the Berlin Wall paved way to the enlargement of the European Union. This created the largest economic bloc in the world, which other countries are so envious about, that they wish it would break up. The EU model, with all its defects has served the economy of each member state very well.
The global economy went through a dramatic transformation since 1989. Part of this transformation was due to the fall of the Berlin Wall. The political considerations of this event still remain very important. However, they remain important because of the positive economic impact on Europe as a whole of this event.