Transition of Eastern Europe

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GEOMETR.IT  4liberty.eu

 

*  The second issue of The Visio Journal, which offers several papers analyzing the degree to which the public policies and political institutions of former socialist economies have been supportive of economic freedom following the collapse of communism.

 In doing that, the papers utilize data generated and published in credible sources, like the World Economic Forum, Fraser Institute’s Economic Freedom of the World Report, Freedom House’sFreedom of the WorldPolity IV, Transparency International’s Corruption Perception IndexWorld Values SurveyMaddison Project Database, UNCTAD, Eurostat, and World Bank’s World Development IndicatorsDoing Business, and World Development Indicators.

In their opening essay, James Gwartney and Hugo Montesinos take an in-depth look at 25 former socialist economies (Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, the Slovak Republic, Slovenia, Tajikistan, and Ukraine) following the collapse of communism, demonstrating that, in many ways, the transition from socialism to markets has gone well.

Trade liberalization, more stable monetary regimes, lower marginal tax rates, and deregulation have all contributed to the movement of the former socialist economies toward economic freedom. Further, they have grown rapidly, achieved large increases in international trade, attracted substantial foreign investment, and made progress against poverty. Furthermore, these countries have closed the income gap relative to the high-income countries of Europe and the world.

Moreover, with only a few exceptions, these countries are now functioning democracies and government corruption has declined. However, these countries also have a major shortcoming: their legal systems are weak and little progress has been made in this area.

 

  • Following arefive country-based papers analyzing the degree to which the policies and institutions of Poland, Czech Republic, Slovakia, Slovenia, and Bulgaria have been supportive of economic freedom following the collapse of communism. Aleksander Łaszek illustrates how changes in the ownership structure of companies in Poland affected productivity and GDP growth.
  • With Polish corporate sector experiencing outstanding output growth during the past 25 years, more than 2/3 of this growth can be attributed to rapid growth of private companies, which resulted from both vibrant incentives for private owners and the opening of the Polish economy.
  • Despite the visible success, there is still room for improvement in the Polish economy, as a stock of less productive, protected, state-owned enterprises remains sizeable.

Kryštof Kruliš examines specific features that have influenced the Czech Republics performance during this transition and what could determine Czechia´s economic growth in the upcoming technological revolution. Being at almost full employment, the growth paradigm of low wage economy has ended for the Czech Republic. The economy cannot grow further only by adding new production in newly built manufacturing plants. For the first time in the history of its transition, the Czech Republic can now focus only on attracting investments with higher added value and higher productivity.

In his paper, Martin Vlachynský argues that sound reforms mean a continuous process, not a one-time occurrence. After a Tatra Tiger introduced banking, tax, pension, labor code, healthcare, and other reforms in the 1998-2006 period, it attracted several prominent foreign investors and kick-started the sleeping economy. Following was a period of Slovakia’s abandonment of reform efforts by putting on a halt necessary reforms in the pension, social, and healthcare systems. At this point, it seems the decision makers in Slovakia are postponing the reforms until they will become inevitable.

Jure Stojan discusses the partial regressing of Slovenia along several dimensions of economic freedom, while notes that Slovenia was a noticeably freer country overall in 2015 than it was in 1995. Further, the paper compares the Slovene experience with that of other former Yugoslav countries.

Finally, the paper reviews the major explanations put forward for the worsening performance of the rule of law in Slovenia. With several explanations being put forward, the old theory of the soft budget constraint offers new avenues of inquiry. It not only explains why it should have been the financial crisis that exposed backpedaling in the transition process but also provides a link between policy outcomes and public expectations.

In his paper, Adrian Nikolov explores the history, structure, and economic consequences of the currency board in Bulgaria, which was introduced as an emergency measure to combat the late-nineties economic crisis, though has stayed in place ever since.

The paper explores the currency board introduced to remedy the economic crisis during the Videnov government, as well as its consequences for the reshuffling of the institutional setting and the stabilization of Bulgaria’s economy, in terms of inflation, gross domestic product, investment, public debt and stability of the banking system. Finally, the paper joins the present debate on whether the Bulgarian currency board should be abolished, arguing that it should not be reformed as the trade-off between economic and fiscal stability and freedom of monetary policy has been beneficial to Bulgaria.

Much can be learned from the transition from socialism to markets in Eastern Europe. One of the most vital lessons will be the role of government in a free society, especially the rule of law in protecting the rights of the people.

The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at: 4liberty.eu

 

GEOMETR.IT

7 Comments

  1. Poverty often increased in the early transition, along with income inequality. But in
    recent years both the poverty rate and the Gini coefficient were significantly lower in the
    postcommunist countries than in others at comparable income levels. Although
    available statistics may miss part of the picture on inequality, the stereotype of oligarchs
    and beggars appears off target.

  2. After the popular revolutions of 1989-91, the average shot up to 68 in 1993 and 76 in
    2013. Democracy was surging worldwide in these years. But in the postcommunist
    countries, it surged faster. Today, the average postcommunist country is exactly as
    democratic as its income level would predict. Of 29 postcommunist countries, 22 are
    rated 80 or higher, the threshold to be considered democratic, and six have perfect scores
    of 100.

  3. Twenty-five years ago, the countries of the Soviet Bloc represented an alternative model,
    even civilization. To imagine them quickly converging with the global mainstream
    required a certain chutzpah. Yet that is exactly what they have done.

  4. As Nobel laureate Joseph Stiglitz put it: “gradualist policies lead to less pain in the short
    run, greater social and political stability, and faster growth in the long [run]. In the race
    between the tortoise and the hare, it appears that the tortoise has won again.”

  5. One should not put too much trust in data collected during an economic revolution. Still,
    there is no evidence that a slower approach to reform reduced the pain of transition. All
    signs point in the opposite direction. It was the hares, not the tortoises, that won. Many of
    the tortoises eventually caught up, but after a more painful trek.

  6. The postcommunist transition does not reveal the inadequacy of liberal capitalism or the
    dysfunctions of democracy: it reveals the superiority of both over all attempted alternatives. These are the lessons that future historians will draw. We should recognize them now.

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