Economics of Transition: Some Gaps and Illusions
The formerly communist-ruled countries of Eastern Europe differ widely among themselves in resources, in population, in level of development, in the degree to which market-type reforms had already been introduced before 1989, and in the political and economic measures taken after that date. In this chapter I explore those differences and their consequences for policy outcomes. I adopt what Beverly Crawford has referred to as the "gradualist" approach, arguing that those countries that have been overly hasty in pursuing reform have found that markets cannot be created overnight. I will leave out of account here those ex-Soviet republics that devote most of their energies to fighting--for example, Armenia, Azerbaijan, Georgia, and Moldova. The others, despite the differences already mentioned, have in common the high priority that they all give to the creation of a market economy--to a transition from what was called socialism to some variety of capitalism. They also share in common a steep decline, in 1990-1992, in gross national product (GNP), in industrial production, in real wages, in investment, and the use of a "shock therapy" to make the transition from socialism to a market-based economy.
It is true that the scale of the decline may be incorrectly measured or wrongly interpreted. Thus Wienecki has pointed out 1 that (1) there is considerable private activity that is unrecorded; (2) that citizens do now have a wider choice and do not have to stand in line; and (3) useless, unsalable production ought to have ceased to be produced anyway. There is evidence for each of these propositions. However, the fact of decline is surely not in dispute. I will now list its causes, while bearing in mind that the relative weight of the causes varies between countries. I will then consider to what extent the decline was unavoidable (or even desirable), given the chosen "transition" strategy, and also the relevance (or otherwise) of