Table Of ContentLESSONS FROM THE
ECONOMIC TRANSITION
Central and Eastern Europe in the 1 9905
SALVATORE
ZECCHINI
Editor
LESSONS FROM THE
ECONOMIC TRANSITION
Central and Eastern Europe in the 1990s
..
"~. OECD
Springer-Science+Business Media, LLC OCDE
Library of Congress Cataloging-in-Publication Data
Lessons from the economic transition : Central and Eastem Europe in
the 1990s / Salvatore Zecchini, editor.
p. cm.
ISBN 978-0-7923-9857-8 ISBN 978-94-011-5368-3 (eBook)
DOI 10.1007/978-94-011-5368-3
1. Europe, Central--Economic policy. 2. Europe, Eastem--Economic
policy--1989- 3. Europe, Central--Economic conditions. 4. Europe,
Eastem--Economic conditions--1989- 1. Zecchini, Salvatore.
HC244.IA55 1997
338.943--dc21 96-49917
CIP
Copyright 1997 by Springer Science+Business Media New York
@
Originally published by Kluwer Academic Publishers in 1997
Softcover reprint of the hardcover 1 st edition 1997
AlI rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Springer-Science+Business Media, LLC.
Printed on acid-free paper.
v
Contents
Preface ix
Contributors xii
Abbreviations XVI
Introduction XIX
Part /-Main successes and failures in the transition strategy
1. Salvatore Zecchini -Transition approaches in retrospect 1
2. Nicholas Stern -The transition in Eastern Europ.e and the
former Soviet Union: some strategic lessons from the
experience of 25 countries over six years 35
3. Martha de Melo and Alan Gelb -Transition to date: a
comparative overview 59
4. Stanley Fischer, Ratna Sahay and Carlos A. Vegh -From
transition to market: evidence and growth prospects 79
5. Kazimierz Laski and Amit Bhaduri -Lessons to be drawn
from main mistakes in the transition strategy 103
6. Janos Kornai -Adjustment without recession: a case
study of Hungarian stabilization 123
7. Leszek Balcerowicz -The interplay between economic
and political transition 153
8. Gerard Roland -Political constraints and the transition
experience 169
9. Comments
Vincent Koen 189
Stanislaw Gomulka 192
Silvana Malle 194
Georg Winckler 197
Heinrich Vogel 200
Laszlo Csaba 202
Misu Negritoiu 211
10. General discussion 215
11. Policy conclusions 219
vi
Part /I - Enterprise restructuring and private sector development
l. Jacek Rostowski -Comparing two Great Depressions:
1929-33 to 1989-93 225
2. Philippe Aghion and Wendy Carlin -Restructuring
outcomes and the evolution of ownership patterns in
Central and Eastern Europe 241
3. Roman Frydman and Andrzej Rapaczynski -Corporate
governance and the political effects ofp rivatisation 263
4. Gabor Hnnya -Large privatisation. restructuring and foreign
direct investment 275
5. Octavian V. Ciirare and Enrico Perotti -The evolution of
bank credit quality in Romania since 1991 301
6. Comments
Stanislaw Gomnlka 315
JozefBrhel 316
Rnmen Dobrinsky 319
John Litwack 321
Miroslav Hrncir 323
7. General discussion 325
8. Policy conclusions 327
Part 11/ - Unemployment and the reform of social policies
l. Simon Commander and Andrei Toistopiatenko -
Unemployment. restructuring and the pace of transition 331
2. Michael Ellman -Transformation as a demographic
crisis 351
3. Richard Jackman and Catalin Panna -Labour market
policy and the reallocation of labour across sectors 373
4. Marek Gora -Central and Eastern European labour
markets in transition 393
5. David M. Newbery -Reforming tax and benefit systems
in Central Europe: lessons from Hungary 413
Vll
6. Comments
Tito Boeri 445
Randall Filer 447
Fabrizio Coricelli 448
Jan Svejnar 450
Stefano Scarpetta 451
Krzysztof Ners 454
7. General discussion 455
8. Policy conclusions 459
Part IV - External policies
1. Richard N. Cooper -Currency convertibility in transforming
economies: was it a mistake? 463
2. Dariusz Rosati -Exchange rate policies in post-communist economies 481
3. Edward E. Leamer -Access to Western markets, and Eastern
effort levels 503
4. Andras Inotai -Interrelations between subregional
co-operation and EU enlargement 527
5. Hans-Peter Lankes and A.J. Venables -Foreign direct
investment in Eastern Europe and the former Soviet Union:
results from a survey of investors 555
6. Comments
Peter Havlik 567
Daniel Gros 569
Eduard Hochreiter 571
Daniel Daianu 573
Jim Rollo 575
Joaquim Oliveira Martins 578
Zdenek Drabek 579
Janos Gacs 583
Hans-Peter Lankes 585
7. General discussion 587
8. Policy conclusions 589
ix
Preface
An attentive reader embarking on this book might wonder what "the" economic
transition to which the title refers might be. In this century almost all countries have
gone through periods of economic transition; but which period of economic history
can claim to embody the notion or to represent the era of "the" transition?
Definitely, no country or group of countries has experienced anything comparable to
the economic upheavals that the fall of communism has brought about in a large
portion of the world in just three years (1989 to 1991). No other "transition" to date
has prompted more interest and more studies among economists, academics and
policy-makers than has the transformation of centrally planned economies into
market-based systems. It is this transformation that has come to define "the"
transition.
Early in the transformation process (in November 1990), with the support of the
Centre for Co-operation with the Economies in Transition (CCET), I launched a
conference to examine the challenges faced by these countries. About six years
have gone by and a new economic landscape has emerged in that part of the world.
The difficulties in transforming these economies have exceeded all expectations, and
economic performances have varied considerably across countries. The time has
come, therefore, to make a first evaluation of progress and problems, with a view to
extracting useful policy lessons to guide policy-makers in successfully completing
the transition in the near future.
To this end, a number of major experts, policy-makers and academics, from
reforming countries and from the OECD area, were recently invited to examine the
main issues and policy controversies, and, from this basis, to suggest improvements
to current transition strategies and their implementation. Not all the invitees
accepted, which came as no surprise, since the task is very challenging, demanding
painstaking analysis of an economic reality still in a state of flux. Eventually,
twenty-two analytical contributions were prepared, addressing a large range of
problematic aspects of the transition experience to date, bringing to light new
evidence and evaluating the validity of information now available on the transition
economies. Whereas the subject of the book is the transition in all post-communist
countries, the focus of the contributions is primarily on the Vise grad countries,
Bulgaria, Romania and Russia. These contributions constituted the basis for the
debate over a wider range of transition issues which took place in a colloquium held
in May 1996 in the framework of the CCET programme. The debate involved a
larger number of experts than the original contributors, which added evidence and
provided a broader perspective in assessing the findings of the studies and in
evaluating both viability and feasibility of proposed policy improvements.
This book is not, however, a collection of proceedings of the colloquium.
Rather, it is a coherent presentation of the analyses and views expressed by
prominent experts about the main shortcomings and pitfalls in transition policies
applied so far, as well as being an attempt to point the way forward to push the
transition through. It is a merit of this book to highlight the complex interrelation
x
between the requirements of the economics of the transition and the social and
political constraints faced by the Central and Eastern European countries (CEECs).
As regards the book's structure, the list of all contributors is followed by an
introduction that serves to explain the interconnections between the different
contributions and to highlight the most policy-relevant findings. In essence, the
introduction guides the reader in approaching the long series of complex issues, and
in focusing on the main points of interest. From a substantive point of view, the true
introduction to the issues is contained in the opening contribution of the book. The
book is organised following what is considered an order of urgency of the problems
to be addressed by CEECs' policy-makers in the current stage of the transition. The
various inputs are arranged in such a manner as to complement each other, or to
bring out contrasting analyses or viewpoints.
A number of comments are also included. These relate more to the thematic
issues than to the specific features of the contributions in the various chapters. In
many respects, the comments are an important addition to understanding the policy
challenges. In the same light, the reports on the debates do not summarise all the
interventions but aim at giving a balanced presentation of conflicting views on
central policy questions. Following such a diversity of issues and points of view, the
policy conclusions neither represent a summary of the findings, nor seek to reach a
consensus on policy recommendations. Rather, they reflect the editor's own reading
of contributions, comments and debates, and, it is hoped, provide a succinct set of
policy suggestions that could receive wide support among experts. Instead of
looking backward to list successes and failures of past or on-going policies, the
conclusions are forward-looking, to help policy-makers to extract, from that
diversity of views, a few clear messages about the direction in which policies for the
next stage of the transition should be oriented. To experts and researchers, the book
also offers many insights and hints on new areas and approaches to be explored for
policy analysis and policy development.
All contributions have required some editorial intervention prior to their
publication. In the case of authors' contributions, editing was very limited, and
confined to points of accuracy, though a few, for reasons of clarity, necessitated
more extensive interventions to improve the linguistic presentation. The comments
had, however, to be extensively edited, in order to maintain the focus on the specific
issues presented in each Part, and to fit them in the limited space available.
An editor's role is not to pass judgement on the essays and views he includes in
his book. In accordance with this principle, it is left to the reader of this book to
form his or her own view about the threads of analysis or conclusion to be followed
or rejected. The editor's overriding concern has been to present as varied a range of
evidence, analysis and opinion from all sides (West and East) as necessary to bear
testimony to the gaps or shortcomings in transition policies, as well as to the
"cultural" differences still remaining in evaluating them and the transition as a
whole. This is not to imply that the transition is a divisive issue. On the contrary, it
is notable in the CEECs that even the staunchest opponents of the reforms of the
1990s no longer advocate a return to the past regime but argue for improvements in
the new regime.
xi
It would not have been possible to prepare this book without the assistance of a
team of highly skilled and dedicated collaborators. I am deeply indebted to them
and grateful for their unstinting support of my endeavour to complete this book in
just three months. A special word of appreciation must go to Nils Bjorksten, with
whom I have discussed several parts of the book, and who assisted me in preparing
reports on the debates, in revising some of the texts, and in reviewing corrections.
I am also grateful to C. Marshall Mills for helping me in organising the work,
improving the presentation of the book, reviewing the amended texts, and
co-ordinating the preparation of the text for printing. For the latter task, I also
wish to thank Catherine Findlay and Jane Hamilton for their patient and attentive
contribution to the publication of the book. Other members of the team helped me
to revise the texts from a language point of view, to type and to collate them. To
all, I wish to express my appreciation for their valuable inputs.
Notwithstanding all this support, the responsibility for any remaining mistakes,
as well as for the overall editorial work, remains with me. Each author or
discussant evidently takes responsibility for the contents of his contribution.
Accordingly, this book does not express the views of the OECD or any other
institution with which the contributors might be affiliated.
Salvatore Zecchini
Paris, September 1996
