Comparing two Great Depressions: 1929–33 to 1989–93

Abstract

If official statistics are to be believed, the fall in output in the transition economies of Central and Eastern Europe has probably been the largest anywhere in peacetime in modern history. This fall in output was certainly noticeably larger than that which occurred during the Great Depression of the 1930s (compare Tables 1 and 2–4), although it was smaller than that during the second World War in countries which served as battlegrounds (France in 1944, Germany and Japan in 1945). In spite of this, during the early transition, investment fell by far less relative to GDP than during the Great Depression, and certain categories of investment in some countries actually increased in absolute terms (e.g. in Poland gross fixed investment in machinery and equipment in industry — Table 3). This is the central paradox of the Great Transition Depression of 1989–93. Our conclusion is that the behaviour of investment shows that in a number of countries the output depression was the result of profound restructuring of the economy, following on shifts in demand resulting from price and trade liberalisation, rather than the result of a reduction in aggregate demand.