I find the comments on extractive elites to be very plausible and they would form an interesting complement to viewing them in terms of Mancur Olson’s roving vs. stationary bandits theory, which is the main prism through which I view the differential development of institutions in the post-Soviet space.

Ages ago, I read Jeff Sach’s The End of Poverty, which had a long section on the history of Polish vs. Russian reform. That comports with PP’s account.

Poland had several key advantages:

Poland already had its crisis in the 1980s; There was much greater social consensus for reform, which also rested on a geopolitical base (embedding itself within the Western system ASAP), so the Balcerowicz Plan passed smoothly and quickly; The Polish economy was nowhere near as structurally distorted as the Soviet-Russian one; No old elites scuttling reform, forcing the Yeltsin regime to push them through in the most hack-handed and retrogressive ways (e.g. giving away the crown jewels of the Russian economy to oligarchs to prevent the commies from coming to power in 1996); As I recall, but not 100% sure, Poland had something like 10x the aid per capita from the West.

Anyhow, here is Polish Perspective’s comment in full:

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Yes, serfdom had a very depressing effect on economic development. Van Zanden (one of the main people running the Maddison Project these days, and a prominent Dutch economist) collaborated with a Polish development economist to produce an interesting paper on Poland’s place in the so-called “Little Divergence”, i.e. the initial divergence within Europe as NW Europe pulled ahead from both Southern and even more so Eastern Europe before the colonial empires started to form.

What Van Zanden found was that income equality was in fact greater in Poland than in Holland. The difference lay in the extraction rate, i.e. Poland had high rates of serfdom so this income equality didn’t do much. The urban-rural divide was also far stronger in Poland, due to the effects of the demesne economy which in turn was based on serfdom as well. There were few incentives to work hard as almost all that you earned was confiscated by an extractive elite through the serfdom system.

There’s a parallel here to modern economics. Economists differentiate between market income and post-tranfer income. Market income is what you get before taxes or any re-distributional effects kick in. Many relatively egalitarian countries in fact have very high market income inequality, such as Norway or Denmark. They would be no less unequal than Russia unless there were specific policies in place, which is shaped social norms and a broad societal consensus (i.e. the ‘Nordic model’). While there are high taxes, the people also get a lot back. That wasn’t the case with serfdom.

Serfdom was then social choice made by the elites in Poland, Russia and much of Eastern Europe. This is what political scientists refer to as extractive institutions. When elites don’t care about the welfare about the people at large, they can get rich in the short-term (i.e. the duration for their lives) but there will be long-term stagnation as a cost to such policies.

How can extractive institutions can be broken? Marcin Piatkowski has a recent book out on the Polish transformation in the post-89 period which tackles this question. He notes that the post-89 period was remarkable not just in terms of growth rates but also howthat growth was achieved.

Inequality was contained and has in fact been falling in recent years. There are no Polish oligarchs. Incomes have been rising faster for bottom half than for the upper half since 1989. Growth was not just rapid, it has also been inclusive.

What allowed Poland to develop along lines which had never happened before in its history, due to the norious “nobles” who instituted serfdom for so long and did everything in their power to block any reform?

He essentially makes the point that extractive elites are extremely hard to dislodge through peaceful means and essentially need to be violently purged either through a civil war or a foreign invasion that is very thorough in its destruction and essentially liquidates the old extractive elite comprehensively.

If you think about China, this happened in rapid succession. First the Japanese invasion and then the bloody civil war on top. Mao purged all and everything in his path. Had he gone in 1950, then China could well be on South Korean or Japanese levels today. Marcin’s point was that by the time Deng came to power, all the old elites had been swept away and it was much easier to form a social consensus.

In Poland, WWII had the same effect as in China and communism had the same effect as Mao. This is where it becomes somewhat controversial, because while communism was a bad system it did do what previous Polish elites failed: to educate the people properly and evenly. It also purged previous elites completely by dismantling the last vestiges of the “nobles”, which is their offspring who ran much of the country in the interwar period.

By the time the system collapsed, Poland had excellent human capital to start with, no extractive elites left (plus you had the ’68 purge of jews, but Marcin naturally wouldn’t touch that). Ukraine also had some of this, but the key difference was the internal divide between elites about whether to orient themselves to Russia or to the EU, this led to paralysis and made them easy to exploit for outsiders. Polish elites were unanimous about their direction. We had 17 prime ministers since 1989 yet virtually everyone basically held onto the same basic consensus, which has given us policy stability.

Another interesting book on this topic is Jeff Sachs’ book in his memoirs in Poland and Russia, given that he was deeply involved in both. Once again the striking thing that jumps out at you is how consistent Polish elites were in their consensus whereas there were much more internal divides in Russia. Sachs doesn’t speculate as to why this was the case, but I have my guess.

Poland was essentially bankrupt by 1989. It had defaulted in the early 1980s and couldn’t pay its interest. It was basically the Greece of the 1980s except much more poor and without a bailout piggy bank to draw funds from. Therefore, Poland basically had no real choice but to do rapid reform. Russia, on the other hand, was in a bad position but definitely not in default. Russia was also much richer in per capita income in 1990 than Poland was, so there was far more latitude being taken among various elites about the right path to take. In Poland, events had essentially forced our hand. We were poorer than both Ukraine and Bulgaria in the late 80s and in a state of ruin.

Why did Poland go bankrupt in the early 1980s? Bierut tried to import a lot of modern machinery in the 1970s without changing the basic system. The idea was alluringly simple: just modernise the factories without changing much of the rest. The modern machinery will increase production and exports and pay for themselves. It didn’t work, because pricing was still irrational. Polish exports didn’t increase much but all this expensive machinery had to be paid with something, so they borrowed. This reached the end of the road in the early 1980s and Poland defaulted on its sovereign debt. Gorbachev tried a similar tactic in the mid-80s in Russia. In a sense, Russia was a decade behind Poland in failed economic experiments. By the time the late 80s came about, we were under no delusions that you had to have rapid changes. In Russia, that realisation didn’t come about so naturally nearly as early and even when it did, it wasn’t anchored among elites as deeply. Had Gorbachev learned from the Polish 70s experience, it could very well have meant that Russia would perhaps at worst stagnated during the 1990s before the 2000s oil boom instead of seeing a rapid collapse. Another reason to be skeptical of Western praise for the man and remember Deng’s acidic remark about him being an idiot.