The failure of former socialist economies of Eastern & Central Europe to compete with the west could be attributed to the absence of economic decentralization. The term”decentralization” embraces political, economic, and administrative reform to transfer authority and responsibility for public functions from central government control to local and regional governments.
The concept of decentralization aims to tackle central government interference in economic development. Constant technological innovation and competition have changed the dynamics of industry buildout. Western Markets are pressured to outsource labor from the low-cost working force of emerging economies in order to satisfy the everchanging consumer needs.
These semantics have formed a fast-paced economy with detail-orientated production cycles. In the present conditions, entrepreneurship backed by growing innovation has proven to be a winning strategy in the microeconomic sense.
Modern investment flows are more focused on regional demographics than national particularities. This has resulted in Western governments pushing back on central government regulation as well as bureaucracy.
Western government adaptation to a changing economy
Countries such as the United States, the United Kingdom, South Korea, Japan, and the western European countries have the highest index of decentralization in all forms. This deregulatory approach is seen as an important contributor to economic development.
Such policies have enabled regional governments to establish more efficient and rewarding relationships with private entities. This has resulted in the development of regional fiscal policies which have led to improving compliance with regional market specifics and capabilities. The distancing from central government bureaucracy and national politics has led to increased fair economic competition between regions.
The defeated economic theory of the East
On the other side of the spectrum is Eastern and Central Europe. With its unconvincing post-soviet transition local governments have failed to eliminate internal influence from former communist circles.
The national governments have limited individual freedoms to produce and actively participate in the economy. Centralization has led to the nationalization of industries, political influence in economic productivity as well as using public institutions as an instrument to wage internal disputes with opposition.
In the aspect of international relations, centralization has established a nation-state type of competition between Eastern & Central EU members, instead of free-market competition by individuals or other private organizations. This form of national competition has led to political division and rivalry instead of innovation and productive competition.
The corrupt post-communist political will
Despite access to colossal funding and economic stimulus, Eastern Europe has failed to limit central government control. Its EU member states face numerous financial penalties due to its resistance to establish economic decentralization in accordance with EU objectives.
The European Union is not able to directly intervene through its financial institutions. The absence of economic and political decentralization has established solid grounds for corruption and bureaucracy to spread. Where there is no political incentive for public sectors to reform, the private sector will find an economic motive to act in the name of reform sooner or later, hopefully.
Author: Zlatin Kurshumov, published in Chicago Illinois.