The Political Economy of Transition: Coming to Grips with History and Methodology

The essential features of the state-socialist economy and its ideological backdrop underwent various modifications over time, right up to the transition’s eve. I discuss the most important generic administrative reforms. Once that is accomplished, I draw a summary of the starting conditions for transition and the difficulties ahead with swift economic transformation. Of course, the outcome of transformation in any economy is conditioned by much more than the economic and political environment. Indeed the behavior of the individual economic agent when suddenly entrusted with more encompassing responsibilities than under state socialism must be taken into account. But I cannot provide a philosophical or sociological discourse on these societies.

There are various ways in which one can legitimately proceed. I first look at the reforms pursued over nearly thirty years in most state-socialist economies in an attempt to improve efficiency. From that discussion, as well as the prevailing features of policies mainly during the second half of the 1980s, I draw next the economic-policy dilemmas and macroeconomic imbalances on the transition’s eve. These form an essential backdrop to grasping the starting conditions of the transition inaugurated in one country after another, beginning with mid-1989, as well as to the formulation, adoption, implementation, assessment, and fine-tuning of the transformation agenda. Thereafter I engage in a brief discourse on the reasons for the collapse of state socialism. This is followed with an examination of four dimensions of the transition’s starting conditions: the “institutions” in place; the ideology that is being expunged, but in some countries only perfunctorily; the legacy of the policies recently pursued with their objectives spelled out; and an evaluation of the realization of these projections. In the course of this exploration I emphasize the specific circumstances analysts should watch out for when identifying the conditions prevailing in any one economy about to embark on sweeping restructuring. Country detail I can of course provide only by way of examples that impart a flavor of the complexity of the most relevant features of systemic transformation policies.

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