The Eastern bloc‘s attempts to rival the West in IT were doomed to failure and already collapsing before the Berlin Wall fell 30 years ago on November 9, 1989. Little was left of the hardware companies such as East Germany’s Robotron within a few years as Western PC imports flowed in, but the emphasis on technical education and programming skills in general has proved a valuable legacy.
East Germany was not just the front line for the Warsaw Pact, but also for the Eastern bloc’s attempt to stay abreast of Western computer technology. In its final years the country threw massive amounts of limited resources into setting up a world-class microprocessor industry, but it remained an also-ran several years behind the West.
Most countries in the Eastern bloc had a role to play in the computer economy. Moscow dealt out specific roles to the Communist countries over which it lorded economically through the Comecon organisation. Bulgaria, for instance, was an important player and exporter of mainframe computers to other Socialist countries.
US Banned Export of High-Performance PCs to East
The Communist push in computers was the reaction to US-led regulations, known as the Cocom rules, which limited what level of technology could be exported to the Communist world — no 32-bit devices could be shipped East. That meant a lot of the push was to copy what the West already had.
By the late 1980s the computer industry in the USSR and across Eastern Europe was geared up to manufacture reverse-engineered models of popular mainframe computers produced by IBM and Digital Equipment Corporation. There were factories manufacturing IBM XT–compatible personal computers based on Soviet-made components.
But the industry never kept pace; the Communist economies were lumbered by obsolete equipment, especially in terms of integrated circuits. This was a time of meaningful jokes, such as the “Russian boast” — “in our country we have the world’s fastest watches and the world’s largest microprocessors.”
Already Collapsing in 1989
By the late 1980s the Cocom regulations were already being widely skirted. By 1989, the whole Eastern industry was on its way down. When the Berlin Wall fell in November that year, the epitaph for the industry was close to being written; before long the Central European markets were swamped by imports of cheap Asian-made PCs.
The explosion in demand for personal computers as a replacement for its ageing mainframes largely destroyed the Soviet-era industry.
In Russia, computer hardware is known colloquially as “zhelezo” — ironwork — to distinguish it from software. This was a particularly appropriate term for what most old Eastern bloc computers had become — old iron, very rusty, and mostly soon just junk.
IDC was reporting on and compiling reports on this transition as it happened, though of course they did not get sent out rapidly on the internet, as its widespread use was still several years away.
Talking to a couple of my colleagues, both now senior in the IDC organisation, on how they researched into this rapidly changing world, brought a sparkle to their eyes, as they thought back to a remarkable time and one less pressured in many ways than today’s.
Western Distributors Moved East Fast
Component supply switched almost immediately to Western suppliers and often Asian production. Intel very soon became the dominant supplier of PC microprocessors and “Intel inside” its widely recognised trademark.
For a relatively brief period local companies filled the demand for distributing these products in Poland, Hungary and the Czech Republic. But that changed quickly too; already by 1990 Western European IT distribution companies were fanning out across all the newly accessible markets.
It was not long before they came to dominate all of these markets thanks to the sheer power of their bank balances.
Local Players Found a Temporary Niche
Some local players, some old, some new, established a key role in desktop markets through the 1990s as assemblers of imported components. The difference in price between a US-branded product and one assembled from components sourced from Singapore let some companies build substantial businesses.
By 2010, however, with the price of laptops falling, those local assemblers had gone into retreat. Today the PC products on sale within Central Europe vary little from those in Western Europe and the distribution networks are closely integrated.
Few Survivors From the Old Eastern Bloc Hardware Manufacturers
From the hardware makers, there have been few survivors. The computer industry in East Germany was relatively lucky, in that in the unification years it had some help from the Treuhandanstalt, set up by the federal government to try to find a future for the obsolete industrial enterprises of the former East.
Some parts of these old enterprises form part of “Silicon Saxony,” the IT hub developing around Dresden in the former East Germany. In many other CEE countries the old players have just disappeared.
Exodus Benefitted Silicon Valley
A lot of the most talented IT people in Central and Eastern Europe left in the early 1990s. That accentuated an earlier trend; the father of modern computing, John von Neumann, was Hungarian, and Sergei Brin, a Russian, and one of the founders of Google, was part of an earlier emigration.
The new wave of emigrants provided a big boost to Silicon Valley, and also to Israel’s strong IT sector, which would not be what it is today without the influx of IT talent from the Eastern bloc.
The software industry in CEE has been held back by the legacy of just copying software and not respecting intellectual copyright, an attitude which it has taken years to reverse. Eastern European programming skills meanwhile have often been exploited at home for the darker arts of hacking.
A New Focus on Security and Training
But the awareness of the vulnerability of lots of software has also spawned a list of companies specialising in IT security, most of which are focused on export markets, and one of which, Russia’s Kaspersky, is a global player.
Many Central and Eastern European countries have continuing strong traditions in computer and IT education. And our own company is a good example of the numerous Western corporates that have centred back-office and IT development functions in Central Europe largely through the availability of well-qualified staff.