There's little doubt that 1989 will go down as a watershed in world history. Although it hardly had much of an impact on the lives of most Americans, the fall of the Berlin Wall marked an important turning point in my own life. When I first heard that the Berlin Wall had fallen, I was playing hooky from law school, sitting in a Russian language lab in Harvard Yard. I was directing my energies toward studying Russian in a desperate attempt to overcome the relentless and intellectually disorienting onslaught of the politically correct groupthink of my classmates at Harvard Law. For the tens of millions of people stranded behind the Iron Curtain, the fall of the Berlin Wall meant a life of freedom. For me, it was a selfish, professional escape hatch from the drudgery of a career in corporate law. I ended up writing my thesis at Harvard about privatization of state-owned enterprises in socialist economies. That allowed me to escape my fate as an overpaid slave at a New York law firm and I happily went off to Eastern Europe to pursue my idealistic mission of "dismantling centrally planned economies."




The early 1990s were heady times in Eastern Europe. A small army of idealistic Americans flocked to the former Communist countries to set up accounting firms, law firms, venture capital firms, and even English language newspapers. The first floor of the international law firm where I worked in Budapest was still occupied by a "Leninist community organization" of retirees who would gather for tea every afternoon. They had little idea that the world's largest law firm was upstairs, setting up joint ventures for icons of capitalism like GM, GE and Ford. There were only 118 international telephone lines going out of Budapest. I would spend hours each afternoon trying to get a phone line out to try to speak with the attorneys in London. Within six months of my arrival, I had worked on setting up the very first investment fund in Eastern Europe. I had literally picked up the law on the steps of the Hungarian parliament within minutes after it was passed. It was the perfect "big fish in a small pond" experience -- and a lot more fun than being handcuffed to a big law firm's copying machine on Wall Street.




The Fall of the Berlin Wall: The Future Isn't What It Used to Be...



When they were all lumped together under a shroud of the "Evil Empire," it was easy to think of the Soviet Union and Eastern Europe as a uniform monolith. Yes, "goulash communism" had put the Hungarians ahead of the economic curve, while Lech Walesa and the Poles were the noisiest political reformers. But it was only after the fall of the Berlin Wall that the true national character of the countries emerged. The Czechs turned out to be quite Germanic, cities clean and graffiti free, as Prague quickly supplanted Barcelona as Europe's travel destination of choice. The Poles showed themselves to be surprisingly mobile, with 600,000 "polish plumbers" bringing a very welcome, superior work ethic to the United Kingdom. If Hungary was at the cutting edge of Central Europe economically under Communism, short-sighted policies, close-mindedness, and a collective sense of entitlement meant that the country quickly lost its edge.



Communism also provided a convenient scapegoat for things gone wrong. For the first decade after Communism, a collective social groan of "But 40 years!" in Hungary was a convenient excuse for poor service, shoddy workmanship, and missed deadlines. But 20 years later, that excuse has worn thin. Just as the British were appalled to find that the Irish overtook the United Kingdom in per capita GDP terms by the late 1990s, Hungarians found it tough to swallow that the dour Czechs and peasant Slovaks did the same with Hungary a few years later. Public policy clearly matters. Hungary's taxes are among the highest and most convoluted in the world -- rivaled on both counts only by the United States. Russia's are among the lowest, with a flat 13% tax rate. The result? Moscow's per capita GDP of $41,000 is within spitting distance of the U.S. average of $47,000. By the time President Obama ends his term in 2012, the average Muscovite is likely to be wealthier than the average American.



The Fall of the Berlin Wall: Germany's Unproclaimed Success



Of course, no country was affected more by the collapse of the Berlin Wall than Germany itself. When I was a graduate student, I recall being assigned an economic study that seriously debated whether East Germany or West Germany was economically more prosperous. (This was in the same class where the professor argued that the socialized medicine in Romania in the mid-1980s was superior to that of the United States.) Needless to say, the reality turned out to be quite different. East German GDP was only about 40% of the West's. And although I don't have data on Romanian health care, men and women live an average of about six years longer in Eastern Germany than before 1989.



Germans love to wring their hands about the failure of unification. After all, Helmut Kohl, then the chancellor of West Germany, had promised to turn East German towns and villages into "blossoming landscapes" by unifying the two countries. Euphoria gave way to disappointment, as a botched currency conversion put the Eastern German economy out of business overnight. But 20 years and $1.8 trillion later, East Germany has spanking-new infrastructure -- and a per capita GDP that is 70% of the West. The fall of the Berlin Wall did help German companies expand into Eastern Europe and turn the unified Germany into the world's largest exporter -- yes, bigger than either China or the United States, according to the World Trade Organization. Nor has the German stock market done poorly. Bloomberg points out that the German DAX has advanced 268% during the past two decades, while the MSCI World Index climbed 109%.



As 29 leaders of the world's nations -- including former Soviet Union President Gorbachev and Russian President Medvedev -- gathered in Berlin yesterday to celebrate the fall of the Berlin Wall, there is little doubt that 1989 will go down as one of the most important dates in history. However, you can't help but think that one of my politically correct Harvard classmates cared all that much. U.S. President Barrack Obama simply sent Hillary Clinton and a video.

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