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Urban Poverty in Eastern Europe and Central Asia - 2003-10-17

During the 1990's, much of Eastern Europe and Central Asia began the arduous process of political, economic and social transformation. In the first five years of transition, when unprofitable industries were closed and the vast social sector reduced, most of these new economies experienced a sharp decline in production and trade along with rising unemployment and loss of income.

Ellen Hamilton, an urban specialist at the World Bank, says studies show that countries where the gross domestic product has fallen sharply also experienced a sharp increase in urban poverty: “The hardest hit countries were Azerbaijan, Georgia, Tajikistan, Ukraine, Serbia and Montenegro and Moldova and sort of followed by not quite as hard hit but still very hard hit countries Kyrgyzstan, Kazakhstan, Turkmenistan, Armenia, Russia, Bulgaria Macedonia, Romania, Croatia, Lithuania and Latvia.”

Branko Milanovic, a specialist on poverty and globalization at the World Bank, says joblessness is largely responsible: "The rate of unemployment shot up from almost zero. That was the rate before transition when everybody had some job badly paid, but it was still a job to about 15 to 20 %. So immediately, you have a large contingent of about 20 % of the people who became almost over night- I'm talking about two or three years immediately poor."

At the same time, economic activity in rural areas also slowed, causing people to migrate to cities in search of employment. Lisa Henley, an associate of the comparative-urban-studies project at the Woodrow Wilson Center in Washington, says the population movement contributed to urban poverty:

"The government is not accustomed to such a large influx of people. They are not prepared to provide services necessary for the influx of people. So you are starting to see large incidences of poverty and 'slumification' and 'marginalization' that are not necessarily customary to this region of the world and would be customary in Latin America or in Asia, where this sort of pattern has been very common."

Lisa Henley says poverty is growing faster in smaller, regional cities of Eastern Europe and Central Asia than in the large state capitals: "When people move, they don't usually move to a capital city. They move to a regional city. It seems to be the first step in migration patterns. And so you have these small towns, or what were once small towns, now turning into small cities, what I am referring to as secondary cities."

The World Bank's Branko Milanovic says regional cities became poorer because most new economic development occurs in large cities. Foreign investors, especially multi-national corporations, have focused on state capitals where they can find an educated work force - thanks to all the universities there - and large markets for their goods and services:

"Let me give you one stark example. Compare Moscow and St. Petersburg. We are talking about two big cities, one with eight million people and the other with five. About 70 % of foreign investment in Russia is in Moscow and only maybe 10 % in Saint Petersburg and 20 % elsewhere. So basically, there was a huge disproportion that most of the foreign investment went into the major cities."

Studies also show that deterioration of housing, infrastructure and social and municipal services, common in the post-communist countries, is worse in secondary cities.

Again Branko Milanovic: "What was happening, for instance in the Soviet Union, is in order to maintain a fairly expensive infrastructure, like for instance district heating, you had to have huge subsidies from Moscow. What is happening now in Kyrgyzstan, Kazakhstan and other succession countries, is they simply don't have money to maintain this very expensive infrastructure of district heat. So essentially, that infrastructure is collapsing. Even the maintenance costs are out of the realm of possible."

Of some 20 transitional countries in the region, only five are now doing better than before 1990: Poland, Czech Republic, Hungary, Slovenia and Slovakia.

Mr. Milanovic says these countries are physically and culturally closer to Western Europe and were able to recover much more quickly from initial decline: "Because the structure of their system was much closer to Western Europe. There was much more foreign investment. The level of education of the labor force was higher. Institutions did not collapse as much as elsewhere. So they started growing again. They started rehiring people. Foreigners came in. New factories were open. New services appeared. So people got new jobs. And then poverty, which of course did not disappear immediately, was lessened."

Despite the progress, urban poverty has not bypassed the five countries that will soon be part of the European Union. And though capital cities have fared better than regional cities, signs of poverty have appeared there as well;for example, homelessness.

Urban analysts warn that the spread of poverty in the cities of Eastern Europe and Central Asia must be curbed before it starts passing from generation to generation, as it has in India, Peru, Bolivia and many other developing nations.

Branko Milanovic says the number of children dropping out of school in post-communist countries, which used to have very high enrollment rates, as well as the re-occurrence of certain diseases, are serious warning signs for the next generation: "Education is extremely important compulsory education and free education. And then also free health care and then greater investments for different types of infrastructure, you know, bringing in water, sanitation, not allowing diseases like tuberculosis, which have now reappeared, to become really entrenched. It is really these essential services that are crucial."

World Bank's Branko Milanovic says an improved social sector that would secure these essential services is as important as the liberalization of the economy in the countries of Eastern Europe and Central Asia.