Курсовая: Creating Market Economy in Eastern Europe

Курсовая: Creating Market Economy in Eastern Europe

Annual Paper

of “World Economies”

“Creating Market Economy in Eastern Europe”

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The Summary

Introduction

1. Meaning of market Economy and Tasks of the Transitions.

2. The Emergence of Market Economy in European countries.

2.1 . The Transition to a Market Economy.

2.2. Poland and Hungary as the best example of transition in the East Europe.

3. Moldova’s way to an open economy.

Conclusion.

Introduction

This paper is oriented toward the problems of transition and creating in

countries of Eastern Europe, namely Poland, Hungary, all of which are

attempting to make the transition under a democratic, parliamentary form of

government.

The last new years have witnessed truly extraordinary events in the formally

communist societies. Under newly established conditions of free speech and

freedom of organization, communist principles of political and economic

control have been widely repudiated, and communist governments have been

swept aside, replaced by governments committed to democratic principles and a

market economy. While in some countries and parts of countries former

communist have not been decisively dislodged, in almost all cases communism

has lost whatever remaining legitimacy it possessed, and it most of these

societies the crucial economic issue has suddenly changed from reforming the

socialist planning system by the introduction of market-like elements to

moving to a market-economy with private ownership of most of society's

assets.

There are several reasons why the task of designing this transition is

fascinating, especially to economists.

First, the problem in new: no country prior to 1989 had ever abandoned the

communist political and economic system.

Second, the experience to date indicates that countries attempting transition

face a number of common problems and difficulties. While there are important

differences in the inherited situations and the choices made by governments

of these countries, the similarities in the problems they face and the

difficulties they are encountering suggest that there is logic to the

transition process.

Third, the absence of any close historical parallels and the limited

experience economics in transition offer an opportunity and a challenge for

development of normative transition scenarios. This turn out, however to be

extraordinarily difficult to construct.

Finally, the problems are not waiting for annalists' solutions; decisions

currently being made may lead to an evolution with irreversible consequences.

1. Meaning of Market Economy and the Tasks of the Transitions.

That economic system which brings together natural resources, labour supply

and technology and which is principally privately owned and were government

has to some extent always been involved in regulating and guiding the

economy, has been referred to as "Market Economy". Yet, despite this history

of government intervention, individuals in that country have always been able

to choose for whom they will work and what they will buy.

Now 3 groups make decisions and it is their dynamic interaction that makes

the economy operate. Consumers, producers and government make economic

decisions on a daily basis, the primary force being between producers and

consumers; hence, the market economy designation.

Consumers look for the best values for what they spend while producers seek

the best price and profit from what they have to sell.

Government, at state and local levels, seeks to promote the public safety,

provides social safety-net, ensures fair competition and also provides a

range of services believed to be better performed by public rather include

education, health service, the postal service road and railway system, social

statistical reporting and, of course, national defense.

In this market economy system, economic forces are unfettered, supply and

demands build up the price of goods and services. Entrepreneurs are free to

develop their business unless they can provide goods or services of a quality

and price to complete with others; they are driven from the market.

By and large, there are three kinds of business:

1) those started and managed personally by single

entrepreneurs;

2) the partnership where two or more people share the risks

and rewards of a business;

3) the corporation, there stock holders as owners can by or

sell their shares at any time on the open market; this latter structure

permits the amassing of large sums of money by combining investment, making

possible large-scale enterprise.

Innovations in economic theory in the last two decades undoubtedly affect the

way economists look at the transition problem and have probably made them

more pessimistic about the ease with which it can be accomplished.

Developments in transaction cost economics, the economics of information, the

new institutional economics, and evolutionary approaches to economics have

sensitized economists to the vital role that institutions play in economic

process. One way of thinking about a successful market economy is that it is

a set of convergent expectations in the population about how other people

will behave; these expectations support an extremely elaborate division of

labour or a high degree of specialization among individuals, organizations,

and geographic areas.

In recent decades many economists have returned to the Schumpeterian view

that the advantage of the market economy (relative to its alternatives) lies

more in its facilitation of innovative activity than in its allocative

efficiency.

The system of central planning is surely deficient in both respects but it is

shortcomings seem to be much greater in the area of innovation than in

allocative efficiency.

Another development in economics that has reduced the affractiveness of the

large conception of market socialism is the increased attention paid to the

motivation of government officials, both legislators and bureaucrats.

In the 1950's and 1960's, much of economic analysis was focused on market

failures and government action to remedy these failures, under the implicit

assumption that government officials would follow the rules laid down by the

authorities. The analysis of the logic of collective action and the formation

of interest groups the theory of rent-seeking behavior, and the study of the

evolution of cooperation and norms have emphasized that government failure as

well as market failure must be taken into consideration in designing

institutions.

A vivid analogy stated by Vladimir Benachek of Charles University is that the

socialist economics are at the top of a small hill (the planned economy), and

they want to get to the top of a larger hill (the market economy). But in

between the two hills is a valley, which may be both wide and deep. The

analogy illustrates the point that the centrally planned economics did have a

coherent economic system (i.e. they were at the top of their hill). One might

add that the smaller hill was being eroded by the strengthening of special

interest groups and was perhaps, settling due to the seismic rumblings that

shattered the communist authority. The band of travelers must settle their

differences, agree on a route, and avoid the pitfalls and chasms along the

way.

Perhaps economic analysis can facilitate the journey by designing a bridge

between the two hills. Given the absence of close historical parallels and

the severe limitations of economic models of society it is clearly beyond the

capacity of social engineers to draw up very precise plans for the bridge.

The Tasks of the Transitions

The list of activities which governments which governments must undertake in

creating a new set of rules:

1. Setting up the legal infrastructure for the private sector:

Commercial and contract low, antitrust and labour low, environmental and

health regulations; rules regarding foreign partnerships and wholly foreign-

owned companies; courts to settle disputes and enforce the laws.

2. Devising a system of taxation of the new private sector:

Defining accounting rules for taxation purposes, organizing an Internal

Revenue Service to collect taxes from the private sector.

3. Devising the rules for the new financial sector:

Defining accounting rules for reporting business results to banks and

investors; setting up a system of bank regulation.

4. Determining ownership rights to existing real property:

Devising laws relating to the transfer of property, and laws affecting

landlord tenant relations; resolving the vexatious issue of restitution of

property confiscated by communist governments.

5. Foreign exchange:

a) setting the rules under which private firms and

individuals may esquire and sell foreign exchange and foreign goods;

b) setting the rules in the same area for the not-yet-

privatized enterprises.

Next there are some tasks related to managing the:

6. Reforming prices:

Enterprises that have been privatized will presumably be largely free to set

their own prices, but early on in the process, the demands of the government

budget will require raising prices on many consumer goods that have been

provided at prices for below cost.

7. Creating a safety net:

Setting up an emergency unemployment compensation scheme; targeting aid in

kind or in cash to those threatened with severe hard ship by the reforms.

8. Stabilizing the macroeconomic:

Managing the government budget to avoid an excessive fiscal deficit and

managing the total credit provided by the banking system.

Finally there are tasks related to privatization:

9. Small-scale privatization:

Releasing to the private sector trucks and buses, retail shops, restaurants,

repair shops, warehouses, and other building space for economic activities;

establishing the private right to purchase services from railroads, ports,

and other enterprises which may remain in the public sector.

10. Large-scale privatization:

Transferring medium and large-scale enterprises to the private sector;

managing the enterprises that have not yet been privatized.

An abstract Model of the Transition consist of three main phases:

Phase 1: The cabinet-level negative phase

In this phase members of the central government interact with nationally

representative interest groups. The tasks are organized into two categories:

they will determine the general institutional structure of society and set

guidelines that will be used in phase 2 to assign each enterprise to one of

many alternative "transition regimes".

Phase 2: The assigned phase

In this phase state-owned enterprises are matched with transition regimes.

One can assume that each state-owned enterprise is completely described by

some vector of attributes. These attributes specify such diverse aspects of

the enterprise as:

a) the nature of the products produced by the enterprise, a description

of its plant and equipment, and technology it utilized;

b) a description of its financial states;

c) the place of the enterprise within its industry, including its market

share and the nature of its competition;

d) some indication of the risk profile of the firm;

e) the distribution of information within the enterprise;

f) the nature of "measurement errors" in monitoring the performance of

the enterprise;

g) the relationship between the enterprise and the state bureaucracy;

h) the "distance" between the enterprise and founding ministry;

i) any potential synergies between the enterprise and some prospective

foreign investor.

Phase 3: The enterprise-level negotiation phase

In this phase participants at the participants at the level of each

enterprise play an MB game (multilateral bargaining). For each enterprise the

structural parameters of the game are included in the characterization of the

transition regime to which the enterprise is assigned.

2. The Emergence of Market Economy in European Countries.

2.1. The Transition to a Market Economy

1) The Successes and Failures of Central Planning.

Before considering the transition to a market economy, we must consider the

need for such a transition. Today the need is clear: socialist and communist

systems have failed to deliver (in a liberal sense) anything like the

standard of material advance so often promised.

But more recent rasy assessments of central planning abound. Even as late as

1979 the World Bank published a long and detailed study of Romania – the most

Stalinist of the eastern block. The Bank found that from 1950 to 1975 the

Romanian economy had grown faster than any other country in the world (9,8

percent per annum). The Bank attributed this startling performance to the

fact that government, through its system of central planning, had control of

all resources. The Bank forecast a rasy future for Romania – growing at 8,7

percent per capita to 1990. Nor was Romania an aberration. The Bank published

in that same year of 1979 a most rasy history of, and prognostication for

Yugoslavia. Studies up to 1984 continued to show that central planning,

albeit somewhat modified in places, delivered the goods.

This review is not intended to score paints, but simply to remind us of the

long addiction of economists to planning and regulation.

2) Transitions

The transition to a market economy always and at all times involves a

familiar list of policies.

First is financial stabilization reducing the budget deficit and the monetary

emissions of the central bank. This stabilization may involve many complex

policies – almost certainly a fax reform and expenditure controls,

particularly in the reduction of subsidies. There is no consensus on pegged

versus free exchange rates.

Second is deregulation, elimination a myriad of government controls and

establishing the framework for free contractual relationships. This priority

involves the recognition of property rights and the development of a legal

system suitable for a market economy. It also implies a diminished role for

the central planners as more room is provided for private initiative and

enterprise. But oddly enough it is widely recognized that there is a need for

more restraint on industry, particularly the heavy state owned firms, to

reduce pollution. Other areas of deregulation include trade reform and

currency convertibility.

Third is the reform and privatization of state- owned concerns to this list

should be added the reduction in monopoly power not only of industry but also

of trade unions, and in particular the reform of labour laws. The reform of

the banking system and the development of commercial rather than planning

criteria in banking it also of the utmost important.

3) The Political Economy of Transition in Eastern Europe:

Packing Enterprises for Privatization.

An abstract model of the transition from a centralized command economy to a

market economy focusing on privatization is a novel orientation for this

chapter. In much of the literature on privatization in central and Eastern

Europe, either a case is argued for a particular transition proposal or

specific aspects of the privatization problem are isolated and considered in

detail.

The model focuses on the way in which government policies and enterprise-

level decisions are made and relatively less on the specific content of these

policies and decisions.

The conceptual model has been designed with five basic premises in mind:

multilateral bargaining, political economy, heterogeneity, decentralization,

and pluralism.

4) Multilateral bargaining

In a world in which economic rights are ill designed, a bargaining problem

naturally arises. Throughout Central and Eastern Europe, this problem can be

conceptualized as a multifaceted conflict between multiple interests

representing workers, management, claimants to property rights based prior

ownership, foreign investors, representatives of different group in the

distribution chain, etc.

It is useful to distinguish two different kinds of bargaining problems. There

are issues that must be negotiated at the level of central government: for

example, what will be the nature the regulatory and legal infrastructure

within which these privatized enterprises will operate? Other issues concern

the disposition of individual state-owned enterprises and must be negotiated

on a case-by-case basis. In particular what will be the precise nature of

each corporate entity that is being packaged for sale to private buyers? Who

will control it? How will it be structured? What kind of compensation schemes

will be in place for management and workers?

What special provisions will be in place that affect the relationship between

the privatized entity and other firms, including established and new

competitors, firms that are up and down stream in the distribution chain,

etc.? In the discussion that follows, the focus will be on bargaining

problems of the latter kind. One presumes that, because of the complexity and

diversity of the issues during the transition, the state is not in a position

to resolve them by fiat rather, over the transition, the state is presumed to

be one negotiator among many.

Bargaining problems of this kind can be resolved in a variety of ways. At one

extreme, an explicit institutional structure may be established by the state

to facilitate an orderly negotiation of the issues. This institution would

specify:

a) the interests that should be represented in the bargaining process;

b) the space of issues over which these interests can negotiate;

c) what degree of consensus is sufficient to conclude negotiations;

d) who will represent "the state" the founding ministry are some agency

established specially to deal with privatization;

e) what will happen if negotiations break down?

At the other extreme the state may provide no procedural guidelines whatever

as to how the issues should be resolved in this procedural vacuum, the

economic rights in question may simply be expropriated by whichever party -

typically the current management - is strategically located to do so.

Relative to the general trend that appears to be emerging in Central and

Eastern Europe, there should be made opportunities for decentralized

negotiation.

Our process-oriented perspective does suggest an indirect, "hand off" way to

exercise some control over this phase of the process, the government can

introduce some checks and balances into the negotiations. For example, of the

three "primary" parties at the bargaining table-management, employees of the

enterprise, and the state agency responsible for privatization - the first

two parties have every incentive to design privatization plans that inhibit

competitive pressures, while the third will inevitably be more concerned this

effecting a successful sale of the enterprise than with issues such as the

competitiveness of the resulting market structure. From the standpoint of the

public interest then the outcome of multilateral bargaining is bound to be

sub-optimal, provided that participation in the process is restricted to the

three primary parties. Moreover, the directions in which these outcomes will

deviate from the optimal are more or less predictable.

The Multilateral Bargaining model provides a useful analytical tool for

investigating the effectiveness of this approach to policy making.

In other contexts, the multilateral Bargaining model has been used

descriptively to explain how during the process of multilateral negotiation,

coalitions are formed, deals are struck, and compromises are reached.

5) Political economy.

A second basic premise is that any policy recommendations must be both

economically and politically consistent. This consistency requires a

specification of the relationship between short-term economic developments

and longer-term political ramifications. Obviously, economic policy

objectives cannot be pursued in isolation, since the prevailing political

configuration will constrain the set of options available to planners of the

transition process. On the other hand, economic post-privatization economy

develops, new interests will acquire economic power and new institutions will

emerge to strengthen the power of groups that wish to defend these

institutions. The dynamic interaction between these economic and political

facets of massive privatization programs must be taken into account. Indeed,

one can expect that models, which ignore political economic feedback effects,

will have a natural tendency to overestimate the prospects for a successful

transition.

The following example illustrates the kind of political-economic interaction

that could adversely affect the reform process. Policy makers in Central and

Eastern Europe appear to be overly complacent in their reliance of foreign

competition as the main disciplinary device that will force monopolists to

operate efficiently. Indeed, Polish officials cite their country’s liberal

tradition in the area of trade policy when questioned about the viability of

this approach to antimonopoly policy. Our dynamic political-economic

perspective leads to skepticism about this heavy dependence on competition

from abroad.

If a seems very likely, the post-privatization industrial structure turns out

to be highly over-concentrated and inefficient, then the main effect of

threatening foreign competition will be to unleash a powerful confluence of

political forces in favor of protectionism. Owners of the domestic

enterprises will lobby to defend their rents, managers will lobby to defend

privileges, and workers will lobby to defend their jobs. Because the problem

of unemployment never really arose under communism, the potent tension

between introducing free trade and maintaining employment levels never became

apparent.

2.2. Poland and Hungary as the best example of transition in the East Europe

Economic Reform in Eastern Europe: The Background

The background of economic reform in Eastern Europe is not unlike that in the

Soviet Union, even though, as I have emphasized, the setting is rather

different. The brief political thaw following the death of Stalin in the

early 1950s did permit a freer discussion of ideas, which, along with growing

problems of economic performance, led to limited attempts to develop and

implement economic reform. Initially, these changes were modest in scope, and

they typically followed the Soviet reform pattern: Try to improve decision

making while preserving socialist objectives and the essence of the planning

system. This was the focus of the New Economic System in the GDR and of the

New Economic Mechanism introduced in Hungary in 1968. The potential for

genuine economic reform was certainly limited by Soviet influence. Indeed in

some cases (such as Czechoslovakia in 1968), reform was abruptly forestalled

by Soviet intervention. In other cases, such as Hungary, reform attempts

dating from the late 1960s were sustained on a limited basis, to become the

background for more serious reform in the present era. There were, then,

numerous attempts at reform in Eastern Europe. What were the major forces

promoting these efforts?

First, as was the case in the Soviet Union, rates of economic growth in

Eastern Europe have undergone a long-term secular decline. The magnitude of

this decline (see Table 1) has varied from case to case, but overall it has

been pervasive. Moreover, these countries had taken pride in being high-

growth economies, even if the costs, such as little growth of consumer well-

being, were also high. At the same time, growth in productivity slackened,

especially in the late 1970s and 1980s. And inflation quickened, though it

was most serious in Poland and Yugoslavia. Repressed inflation, though

difficult to measure, grew in importance in the 1980s.

Second, East European countries relied heavily on foreign trade as a means of

stimulating economic growth in the 1970s. Their strategy was to promote

exports in Western markets so that the imports required both to stimulate

technological change in industry and to enhance consumer well-being could be

obtained without the growth of hard-currency debt. Unfortunately, this

strategy was not successful. The energy crisis led to a significant

slackening of Western markets at the very time when East European nations

were becoming more aggressive in these markets. East European imports were

sustained, but largely by means of building a substantial hard-currency debt.

The magnitude of debt repayment subsequently led to considerable internal

belt-tightening for these countries in the 1980s — precisely the opposite of

what had been intended.

Third, one could argue that in Eastern Europe, the possibilities for

eco­nomic growth through extensive means had initially been less promising

than in the Soviet case and had been exhausted more quickly. In light of the

level of economic development in Eastern Europe compared to that in the

Soviet Union, it is not surprising that the imperative for reform was strong

and that developments of the Gorbachev era quickly spilled over into Eastern

Europe. In the absence of Soviet backing, interest in the administrative

command model faded fast.

Table 1. Economic Growth and Performance in Eastern Europe:

The Background to Reform

	1961-70	1971-80	1981-85	1985	1986
Eastern Europe	3.4	2.4	1.0	.2	2.2
Bulgaria	5.0	2.3	.1	-3.2	4.7
Czechoslovakia	2.4	2.3	1.0	.4	1.9
East Germany	3.2	3.5	1.7	3.3	1.6
Hungary	3.1	2.5	.6	-2.3	2.4
Poland	3.3	3.0	1.0	.2	2.1
Romania	4.2	3.5	-.6	-1.4	3.1

East European Reform Programs: Similarities and Differences

In this chapter we pay special attention to Poland and Hungary. We do so

because these countries are both examples of aggressive reform but have

employed different strategies. However, before we consider these cases in

greater detail, it is useful to summarize the East European reform

experience, noting important similarities and differences among the various

cases. To do so will entail some repetition of basic themes.

First, economic reform in Eastern Europe (at least in Poland, Hungary, and

Czechoslovakia) is generally described as a transition in that these

countries seek to replace the planned economy with a market economy rather

than attempting merely to modify the former.

Second, transition programs have varied in speed and intensity. Some

coun­tries have pursued reform on a "gradual" basis, whereas others, like

Poland, have pursued what is often termed a "big bang," or rapid, approach to

reform. However, we must remember that even in those countries not pursuing a

"big bang" or "shock therapy" approach, the process of transition in Eastern

Europe has been relatively rapid, especially when compared to reforms of the

past - and notably so when compared to the recent Soviet record. It is

important, therefore, to be aware of the basic issues associated with

transition and of the extent to which the attempted speed of transition

alters the overall reform experience.

Third, although it is possible to examine and understand the basic elements

of economic reform and even of transition from one system to another, we

really do not have a general theory of change in economic systems. In some

cases — for example, during such a period of rapid change as the 1990s — it

is difficult even to develop a way to classify the issues involved in

transition.

Fourth, important differences exist from one country to another. Our view of

the socialist transition process is heavily influenced by our image of the

best-known and most advanced reforms, such as those of Poland, Hungary, and

Czechoslovakia. We know much less about, and tend to pay less attention to

developments where reforms are proceeding at a slower pace, as in Romania and

Bulgaria. Figure 1 offers a simple, stylized view of contemporary political

and eco­nomic reform (transition) in Eastern Europe.

Figure 1. Reform in Eastern Europe

POLAND: FROM PLAN TO MARKET VIA SHOCK THERAPY

Until Solidarity won the parliamentary elections in Poland in the summer of

1989, the Polish economy had been, since the end of World War II, a rather

typical planned socialist economic system. State ownership predominated, and

though economic reform was attempted in varying degrees at different times,

little real systemic change had taken place. Moreover, as Table 1 shows, the

rate of economic growth continued to decline, and the period saw recurring

shortages, increasing inflation, and an understandably declining work ethic.

Beginning in 1990, Poland took decisive steps toward a market economy. This

"shock therapy" approach was to be sudden, and in this it differed

signifi­cantly from the gradualist approach being discussed in other

socialist systems. In addition to treeing prices, Poland implemented monetary

controls, the zloty was made convertible into hard currencies, and steps were

taken to control wage increases.

As we shall see, the "shock therapy" approach has not been without critics.

Moreover, although the Polish case quickly attracted the interest of those

who study the problems of socialist transition, it was viewed as unique. Thus

it was argued that. for a variety of reasons that were discussed earlier,

reform was much more likely to succeed in Poland than in a case like the

Soviet Union. But before we examine the Polish reform experience in greater

detail, we must review what brought the Polish economy to the reform phase

and how, at that point, it might be different from other socialist countries.

I begin our discussion of Poland with a brief examination of the setting.

Then I discuss the Polish command system, considering the extent to which

this system led to distortions in the Polish economic structure. Finally, I

turn to the issue of transition and examine the mechanisms utilized and the

results achieved thus far.

1) Poland: The Setting

By European standards, Poland is a relatively large country. With a land area

of just over 300,000 square kilometers, it is just over half the size of

France. Moreover, with a population that approached 38 million in 1990,

Poland is some 68 percent of the size of France in terms of population.

Poland is frequently viewed as having a homo­geneous society, a factor that

facilitates economic reform. Although social homogeneity is difficult to

measure and may well be overstated in the Polish case and in other cases (for

example, there are regional differentials, urban-rural differentials, and the

like), the basic statistical evidence is strong. In terms of religion, 95

percent of the Polish population is Roman Catholic. From a stannic

standpoint, 98.7 percent of the population is Polish, and only a few minority

groups occur.

Urbanization and industrialization have changed the nature of Polish life and

customs, but the church, family, and folk ties that have sustained Poland for

a long time remain strong. Thus, although Poland must deal with problems of

modernization, it also has valued traditions and a clear identity. These

quali­ties make implementing change more manageable here than in many other

countries.

In terms of natural resources, Poland is a country of considerable regional

diversity, though major portions of the land area are not especially fertile.

Poland's main energy resource is coal; basic minerals and some deposits of

oil and natural gas also exist. Both basic data and methods of computing

economic aggregates of socialist systems are currently under scrutiny. New

evidence that will make it possible to do different kinds of computations may

well lead to important adjustments. With these reservations in mind, however,

we note that Poland was reported to have a per capita gross national product

of approximately $4500 measured in 1989 U.S. dollars. This figure places it

between the high-income countries of the region (Hungary and Czechoslovakia)

and the low-income countries (Bulgaria, Romania, Yugoslavia) and at one-

quarter that of the United States. Prior to the onset of major economic

reform, the bulk of Polish industry was state-owned and planned. Agriculture

(representing roughly one-fifth of total Polish output) was a mixed system

wherein the private sector produced about three-quarters of the total

agricultural product. Foreign trade turnover — that is, exports plus imports

— represents roughly one-third of Polish product, again using U.S. dollar

measures.

2) Poland: The Command Economy

The organizational arrangements of the Polish command economy were

estab­lished immediately after World War II and closely resembled those

prevailing in the Soviet Union. There was widespread nationalization of

property, central planning mechanisms were established, and agriculture was

socialized. In addi­tion to organizational arrangements, Polish economic

policies of the era, such as those on investment, sectoral development, and

the like, closely mirrored the Soviet model.

Although Poland attempted modification of the command system as early as 1956

when collectivization was abandoned, little actually changed. Over time,

private agriculture was neglected by the state, and continuing political

protests, especially in the early 1970s, signaled both political and economic

difficulties.

The 1970s was a difficult decade for many countries, especially those that

rely on imported oil. The Polish strategy in the 1970s and later was to

stimulate the domestic economy through the importation of foreign technology.

This was not an unreasonable strategy in theory, but Western economies were

themselves in the midst of the energy crisis and the recession it caused.

Poland's effort to expand exports failed, hard-currency debt accumulated, and

the projected impact of Western technology on the Polish economy was minimal.

As the 1970s came to an end, it was evident that domestic retrenchment would

be essential — a difficult path in light of the continuing unrest among

Polish workers. The 1980s began with roughly three years of martial law and

an attempt to achieve economic stabilization.

After half-hearted economic reforms in the early 1980s, the rise of

Solidarity (which had been outlawed in 1982) proved that major systemic and

structural reform was necessary. Even so, and despite the fact that Polish

economic performance was deteriorating badly, serious economic reform did not

begin until the late 1980s.

3) The Polish Transition: The "Big Bang" in Practice

The Polish transition from plan to market has been watched closely by a

variety of interested observers. Although many of the policy and systemic

changes introduced in Poland are familiar hallmarks of the general reform

scene, the speed of implementation in the Polish case is unique.

There had been attempts to decentralize decision making in large state-owned

Polish enterprises in the 1980s, but these reforms failed to change outcomes

(a possible exception is their contribution to the wage explosion that took

place toward the end of the decade). Moreover, on the eve of reform in Poland

(the reform program began officially on January 1, 1990), macroeco-nomic

conditions there were in a state of severe disequilibrium. Although the exact

nature of monetary overhang in Poland (as elsewhere) has been the sub­ject of

debate, there was a significant budget deficit, wage increases were out of

control, and hyperinflation had resulted. Poland's hard-currency debt

posi­tion was better than that of Hungary, but the debt that had been

accumulated did little to stimulate the Polish economy, the zioty was

overvalued, and no debt relief from external sources was in sight.

In the fall of 1989, most price controls were lifted (on both producer and

consumer goods), public spending was reduced, and the zioty was devalued. In

the second stage of major reform, begun in 1990, the budget deficit was

sharply cut, largely through a reduction of subsidies to state enterprises. A

positive real rate of interest was to be implemented, and the market was to

be used to signal changes in the value of the zloty. The latter was a

critical measure, because foreign trade and the impact of this trade on the

Polish industrial structure was to be a key component of the overall reform

strategy. In January of 1990, the government set the exchange rate of the

zloty at 9500 to the dollar (this repre­sented a devaluation from 1989), a

rate roughly approximating its value on the black market, and it established

convertibility of the zloty for international trade. Many trade restrictions

were eliminated, and internal exchanges were set up to handle the buying and

selling of hard currencies. Although these changes resulted in domestic

inflation, the initial increases proved to be short-term and the exchange

rate of the zloty has proved to be realistic.

Finally, wage increases were to be controlled partly through wage indexation

and partly through a new tax on wage increases that exceeded established

guidelines.

Privatization is a major element of the Polish strategy of transition. In

1990 the Polish government passed a law creating a Ministry of Ownership

Change, a mechanism to supervise the process of privatization. Privatization

has pro­ceeded rapidly, though it has been achieved mainly for small

enterprises in the trade and service sectors. Industrial output in the

private sector grew by 8.5 percent in 1990 and is reported to represent

roughly 17 percent of total Polish industrial output

Though privatization has been very successful for small-scale enterprises,

the picture for large state enterprises is quite different. For reasons we

noted earlier, privatization of these enterprises has proceeded very slowly.

In addition, the economic position of these enterprises worsened as the state

took decisive measures to introduce a hard-budget constraint. In addition to

price changes and wage limitations, subsidies have been ended and protection

from foreign competition has been sharply reduced. This new setting has

encouraged enter­prise managers to reduce costs by restricting unnecessary

output and reducing the labor force. However, the strong commitment to rapid

privatization was reinforced in June of 1991, when it was announced that a

major portion of state industry would be privatized through creation of stock

funds, with the population receiving vouchers.

Beyond these changes in the state sector, new guidelines have been

intro­duced to monitor enterprise performance. Furthermore, a new Industrial

Restructuring Agency will consider how remaining state enterprises should be

handled, to what extent privatization is possible, and what restructuring

should take place for those enterprises that are not viable in the new

setting. These new arrangements are designed to ensure a rapid transformation

of the Polish industrial structure, to make it similar to and competitive

with market eco­nomic systems, and to achieve this result quickly and as

openly as possible.

Note that these comprehensive reforms in Poland cover all the critical areas

discussed in Chapter 4 and earlier in this chapter. Moreover, beginning from

very precarious economic circumstance in 1989, these changes were introduced

simultaneously and rapidly. We will now do our best to assess the early

results.

4) The Polish Economy in the 1990s

It is clear that economic reform in Poland has been radical and has moved

sharply and swiftly away from the plan toward the market. In addition to the

expanded influence of market mechanisms, decision making has been

decentral­ized, private property introduced, and incentive arrangements

changed. By most standards, the initial results have been encouraging.

First, stabilization measures cut the rate of inflation sharply from a

reported 40-50 percent per month at the end of 1989 to roughly 4-5 percent

per month in 1990. At the same time output fell, though supplies of consumer

goods in stores increased. Employment in industry declined by 20 percent

during 1989 and 1990, although it is reported that only a relatively small

portion of this reduction in the labor force was caused by forced layoffs.

The unemployment rate was reported to be 6.5 percent at the end of 1990.

Another major positive facet of the Polish reform experience has been the

foreign trade sector. There has been a significant expansion of exports,

espe­cially to hard-currency markets. This expansion resulted in part from

the deval­uation of the zloty to market-clearing levels and in part from the

reorientation of trade away from the Soviet Union and other East European

trading partners. At the same time, as a result of restrictive policy

measures and the higher domestic cost of these imports, import demand

declined.

A third qualified success has been privatization. Although the initial pace

of privatization was rapid, this early privatization was largely that of

small-scale enterprises in the area of trade and services. Although Polish

reformers take seriously the need to pursue privatization of major state

enterprises, bringing this about will remain a critical task for the next

several years.

Can these achievements be sustained in the coming years? We discuss this

issue more generally in the next section, but the Polish case deserves

specific comment. Quite clearly, the continued success of the Polish

transition will depend on the continuing implementation of appropriate

stabilization meas­ures. Although this may seem relatively straightforward,

it requires cohesion and commitment among policy makers and willingness among

the populace to pay the costs of the transition. Pressures for wage increases

must be resisted, and the process of privatization must proceed. To the

extent that the latter can be achieved, the contours of new market

arrangements can be defined. Finally, although uncertainty in foreign markets

remains, relief of hard-currency debt will unquestionably add a measure of

flexibility.

Another issue is the extent to which the Polish "success" (if we can call it

that) was promoted by Western assistance. In light of the Polish leadership's

commitment to rapid transition, the West has provided considerable assistance

in the form of exchange-rate stabilization funds, debt restructuring, and

govern­ment guarantees.

HUNGARY: THE NEW ECONOMIC MECHANISM AND PRIVATIZATION

Early works in comparative economic systems devoted little attention to the

Hungarian economy. Over the last twenty years, however. Western economists

have begun to pay more attention to Hungary.

As one prominent observer of Hungary and other East European systems has

noted, "The Hungarian reform experience says as much about central planning

as it does about Hungary, and therefore an understanding of that experience

is important for those interested in the prospects for reform in all of

Eastern Europe, and indeed, in the Soviet Union. In other words, Hungary is a

prototype of economic reform for the former planned socialist eco­nomic

systems of Eastern Europe, and presumably elsewhere. These thoughts,

expressed some ten years ago, remain relevant in the 1990s as Hungary, like

other socialist systems, pursues a transition to the market. However, the

background of reform in Hungary is important to a proper analysis of

contem­porary problems and prospects.

Prior to 1968, Hungary applied the Soviet model of centrally planned

social­ism in a typical fashion. But then, in 1968, Hungary began to

introduce by far the most radical economic reform attempted in Eastern Europe

(with the exception of Yugoslavia). In the words of one early observer of

this reform, it clearly represents the most radical postwar change, in the

economic system of any Comecon country, which has been maintained over a

period of years and gives promise of continuity.

Although the reform program in Hungary met with only partial success, the

problems that have arisen (conflicts of objectives, for example, and

difficulty in persuading participants to change their ways) are fundamental

to the reform experience of planned socialist systems.

Hungary shares many features with other Eastern and Southeastern Euro­pean

countries, such as Yugoslavia. It provides a refreshing contrast to the

Soviet Union, which in some important respects is atypical. Hungary is a

small country heavily dependent on foreign trade. The Hungarian experience

with reforming foreign trade, and in particular its efforts to become

integrated into the world economy both East and West, is prototypical. The

difficulties of reforming the foreign trade mechanism arc crucial to the

Hungarian economy as well as to the economies of many other systems of

Eastern Europe.

1) Hungary: The Setting

Hungary is located in central Europe. Its land area of approximately 36,000

square miles makes it roughly the same size as the state of Indiana. Its

popula­tion of about 11 million is comparable to that of the population of

Illinois. Although Hungary is not self-sufficient in energy, it docs have

supplies of coat, oil, and a number of minerals, including important bauxite

deposits.

Although it has some rolling hills and low mountains, Hungary is basically a

flat country with good agricultural land and a favorable climate. As in other

East European countries, the period since World War II has seen the

popula­tion flow from rural to urban areas and a changing balance of

industrial and agricultural activity. Today, approximately half the

population lives in urban areas.

Hungary is not particularly prosperous. Most estimates of its gross national

product or per capita gross national product place Hungary in the middle of

the East European countries. It is generally wealthier than Bulgaria and

Yugoslavia and certainly wealthier than Albania; it ranks behind East Germany

and Czechoslovakia. Hungary's per capita income appears to be close to that

of Greece. In this sense, economic development remains a key issue in

Hun­gary. By the standards of Western Europe, Hungary remains relatively

poor; by the standards of the Third World, Hungary ranks among the more

affluent countries.

2) The Hungarian Economy: Prereform

The postwar reconstruction of the Hungarian economy began quite modestly in

1945. Before the implementation of a three-year plan in 1947 (1947-1949), the

main policies included stabilization of the currency, changes in the nature

of rural landholdings, and the beginnings of nationalization. The first

three-year plan was designed primarily to bring the economy up to prewar

levels of eco­nomic activity. During

this time, a planning mechanism was created and the share of national income

going to investment increased sharply. The changes were not radical, however,

and balanced development was envisioned.

The era of balanced development came to an end with the introduction of a

five-year plan in 1950. The share of national income devoted to investment

was increased substantially, and the bulk of new investment was directed

toward heavy industry. This policy was partially reversed toward the end of

the plan period, but it was reaffirmed in 1955-1956.

A number of economic trouble spots cried out for attention. There was an

observed need to improve industrial labor productivity, especially through

the development of a better incentive system to offset the declining supply

of labor from rural areas. Supply-demand imbalances were growing increasingly

severe. Waste and imbalance in the material-technical supply system created

the need for a substantially modified coordinating mechanism among

enterprises.

In addition, excess demand for investment led to substantial amounts of

unfinished new construction and to the neglect of old facilities. Some

mechan­isms for the more rational allocation of capital investment had to be

found. The adoption and diffusion of technological advances were seen as

inadequate. Technological improvement was considered crucial for continued

development of the economy.

This background seems familiar: a small country, the Soviet (Stalinist) model

of industrialization, overcentralization, emphasis on extensive growth,

rigidities of the plan mechanism, incentive problems, and the resulting

difficulties. Against this background, the New Economic Mechanism first

promulgated in a party resolution in 1966 was put into, practice in 1968.

Over twenty years later, it remains one of the most important reform programs

of planned social­ist systems.

3) Intent of the New Economic Mechanism

There is disagreement about the importance and effect of the Hungarian reform

program. The New Economic Mechanism (NEM) has generally been interpreted as

leaving the power to control the main lines of economic activity (volume and

direction of investment, consumption shares) with the central authorities,

while relying on the market to execute the routine activities of the system.

The NEM called for substantial decentralization of decision-making authority

and responsibility from upper-level administrative agencies to the enterprise

level. In a general way, NEM bears a close resemblance to the Lange model.

Let us consider the original blueprint of NEM.

The objective of NEM was to combine the central manipulation of key variables

with local responsibility for the remaining decisions. The first change was a

significant reduction in the number and complexity of the directives firms;

for large state-owned firms, the traditional problems remain. Valuation is

difficult, especially in loss-making enterprises. Moreover, it is hard to

find buyers for these types of enterprises, let alone to arbitrate the

potential rights of past owners. And just as elsewhere, privatization in

Hungary is likely to become slower and more difficult as the focus shifts to

the less attractive, large enterprises.

In addition to privatization per se, Hungary has addressed the creation of

infrastructure (for example, a stock market) and new rules designed to change

the guidance of enterprises. Accounting procedures have been refined and

bankruptcy laws strengthened so that state subsidies can be curtailed and

hard budgets introduced into large state-owned enterprises.

Hungary has also pursued a variety of stabilization measures and has

liber­alized policies in the sphere of foreign trade, though to a lesser

degree and certainly more gradually than Poland. Domestic price controls have

been substantially removed, and enterprises are permitted to enter into and

benefit from foreign trade transactions. Although there are limits on the

holding of foreign exchange, the Hungarian forint is substantially

convertible for business purposes. However, the Bank of Hungary has

maintained controls such that it has access to foreign exchange earnings to

serve as repayment of the Hungarian hard-currency debt. (Hungary has a per

capita hard-currency debt roughly twice that of Poland). Hungary has followed

a tight monetary policy designed to create a balanced budget and also to

exert financial pressure on enterprises.

Hungary has very liberal laws regarding foreign investment, including the

possibility of full foreign ownership with permission. Moreover, repatriation

laws are liberal. Not surprisingly, Hungary has been considered a leader in

the quest to attract foreign investment, though the magnitude of this

investment and its overall impact on the Hungarian economy probably remain

modest.

The initial results of the transition process in Hungary have generally been

positive when judged against the sorts of expectations that we discussed

earlier. At the same time, it is proving difficult to sustain popular support

as the inevitable costs of the transition process take their toll.

4) The Hungarian Economy in the 1990s

In spite of a tendency to compare the processes of economic reform in Poland

and Hungary, there are important differences between the two systems, and

especially in the degree to which prior reform had taken place. Although some

would argue that the New Economic Mechanism was quite limited compared to

contemporary reforms, nevertheless the reform process has a significant

history in Hungary. The differences between the Hungarian and Polish cases

are important.

Inflation has been much less serious in Hungary than in Poland. The annual

rate of inflation for 1989 has been estimated at roughly 17 percent. Although

the inflation rate increased to about 29 percent in 1990, this performance

has been viewed as positive. In addition, wage increases have generally been

controlled. Largely because of a shift away from trade with former CMEA

trading partners, the volume of Hungarian trade has declined. At the same

time, the Hungarians have experienced growth in exports to Western markets

and a generally weak domestic demand for imports — both important

developments for the overall trade balance. The good news on the exports

side, however, tends to be sector-specific. Hard-currency debt remains a

serious problem, and the movement toward a convertible currency has been much

slower than in the Polish case. Finally, the Hungarian budget deficit has

increased.

The Hungarian economy was projected to shrink by approximately 3 percent in

1991, and associated declines in consumption and investment were

antici­pated. The state property agency is moving ahead with privatization.

The overall relatively slow pace of reform in Hungary may well dictate less

sharp downturns and less severe fluctuations during the periods of downturn

but, at the same time, rather slower recoveries and a longer time in which to

achieve normalization. As with Poland, the effectiveness of the macroeconomic

policies being implemented, world market conditions (such as the price of

oil), and domestic structural change through privatization will all affect

both short-term and longer-term outcomes.

EASTERN EUROPE: THE REFORM SCENE

The transition from plan to market in Eastern Europe is important, not only

for those who live with and implement the transition, but also for those

inter­ested in the subject of comparative economic systems. For a variety of

reasons, if the transition cannot succeed in countries such as Poland and

Hungary, it is unlikely to succeed elsewhere.

Obviously, it is too early to render any definitive judgment on these cases,

let alone on the more general issues of transition. Indeed, it is difficult

to chart even basic day-to-day changes in these countries. That having been

said, let us try to assess the outcomes that have occurred so far.

Judged in terms of our earlier discussion of economic reform and projected

outcomes in the early stages of transition from plan to market, there is room

for guarded optimism as we examine the early results in Hungary and Poland.

At the same time, there remain a number of basic forces that will heavily

influence future economic trends.

First, although initial political transformations are substantially complete

in Eastern Europe (with important exceptions such as Yugoslavia), there are

cases (such as Romania) where political instability and a lack of cohesion

(derived in part from the political legacy of the communist era) make

agreement on reform very difficult. Clearly, in these cases, the path of

reform will be slower and much more difficult than in the leading cases that

we have examined.

Table 2. Political and Economic Developments in Eastern Europe: A Summary

Status of	Country
	Poland	Hungary	Czech and Slovak Federal Republic	Bulgaria	Romania	Albania	Yugoslavia
Post Economic Reform	Limited efforts in the 1980s	Important: New Economic Mechanism since 1968	Limited: ended by Soviet inter­ vention 1968	Limited	None	None	Important Worker: management and market socialism
Per Capita GNP - 1989, in U.S. S	4607	6303	7922	3610	3154	n.a.	3409
Percent Change in GNP: 1989-90	-8.9	-3.6	-3.2	-3.6	-11.3	n.a.	-6.9
Official Con­sumer Price Index in 1989, 1980 = 100	3387	276	120	363	186	n.a.	761175
Real per Capita Disposable Income in 1989, 1980 = 100	116	115	115	126	121	n.a.	114
Current Economic Reform	Aggressive pursuit of transition, privatization continues	Ambitious transition plan in progress: stabilization, privatization, and attention to trade	Transition pursued with caution; initial results not as good as in Poland but positive	Reform began in 1991; price flexibility, privatization, and trade reform	Modest reforms from 1991; price adjustment, some privatization, and foreign investment	1990-91: Limited first steps; decen­tralization, some privatization, and restructuring	Political turmoil and an economy largely without guidance

Second, the initial results of the transition have been generally as

expected. In Table2 I summarize a number of useful indicators. As

anticipated, in all cases there has been a downturn in output — occasionally

a downturn of significant magnitude. Inflation has been very uneven and in

some cases (such as Yugoslavia and pre-reform Poland) very rapid. However,

post-reform inflation rates generally leave some room for optimism,

especially in those cases where stabilization policies have been developed

and applied.

Third, we have noted that initial privatization usually proceeded rather

quickly but that, after the privatization of small firms (especially in the

service sphere), the pace of change decreased significantly. This latter

development reflects the onset of major difficulties: the private sector must

now absorb large, state-owned, loss-making, and often technologically

backward enterprises. The privatization of these firms presents serious

problems, as does a setting where valuation is fraught with difficulties,

buyers are hard to find, claims from the past must be handled, and

contemporary management skills are wanting.

Fourth, although inflation and unemployment have necessitated a growing

concern for safety-net measures of various types, there is also a sense that

the availability of consumer goods and services has improved.

All of these considerations seem to support a measure of optimism about the

eventual outcome of the transition process. At the same time, there are

important dimensions where change must be sustained if the transition is to

be successful. Stabilization policies must be maintained — a tall order in

those cases where consumer patience is lacking. Privatization must proceed,

and it must increasingly reflect the contours of new market arrangements,

including the infrastructure required for markets to function effectively.

These changes must be sustained even in the face of political dissension,

consumer dissatisfac­tion and an uncertain international economic

environment. These restraining forces will in large part dictate the pace and

ultimate success or failure of the transition process.

3. Moldova’s way to an open economy.

Moldova has faced significant and escalating economic difficulties since its

acquisition of independence in 1991. This situation is reflected in the main

macroeconomic indicator for the republic - Gross Domestic Product (GDP) -,

which has dropped by nearly 60%.

The agricultural sector has been strongly impacted by the nation’s economic

difficulties, as well as by adverse environmental conditions. In 1993

Moldova’s agricultural harvest was adequate, a considerable portion remained

uncollected and unprocessed due to lack of fuel, transportation, and

financial resources. In addition, due to early November frosts, hundreds of

thousands of tons of fruit, vegetables, and tobacco were damaged beyond use.

In the summer of 1994, a simmilar stream of natural disasters, including a

drought, followed by a hurricane, followed by a flood, caused even greater

losses than those experienced the previous year. The devasting flooding in

August 94 alone brought about losses totaling US$ = 220 million, which

exceeded the amount of Moldova’s industrial activities include: refrigerator,

television furniture, clothing, and agricultural machinery production. The

Republic’s threatens the productivity of this sector. Of the republic’s 262

production enterprises, 60% experienced production declines. Over all in

1993, many industrial enterprises operated at levels 50% lower than their

full potential.

The decline in production has negatively influenced the budgetary capacity of

the Moldovan Government to address social and other issues. In November 1994,

for example, budget areas reached a level of US$ 70 million. As a result

sizable delays exist in payments of mages, pensions, stipends and other

allocations. Natural resources within the country are few. The situation in

Moldova’s energy sector is strained, therefore, more so as nation’s capacity

to import energy continues to deteriorate. All types of fuel, including coal,

oil and natural gas, delivered from the Russian Federation, equaled US$ 250

million as of late 1994.

Nevertheless, despite the above mentioned difficulties, economic reform -

including privatization and the transition to a market economy - is being

actively pursued in Moldova current economic crisis and into a more healthy

economic state.

Building of the state and its sovereignty has allowed Moldova to accomplish

some important achievements in economic reform, i.e., financial stabilization

on a macroeconomic level and a lessening of the economic crisis and its

social impact.

The success of macroeconomic stabilization has also helped to increase the

level of confidence and trust in Moldova amongst the international community.

The reforms are being supported by foreign creditors and by technical

assistance from donors, including the United Nations, the European Union,

USA, Germany and Netherlands.

In order to further development the private sector, it is necessary to

continue reforms and to improve mechanism supports and stimulating them.

Further-more, macroeconomic stabilization will not last unless the reforms

reach all parts of the national economy.

Although the hand code contains some contradictions, new important measures

on agriculture have been taken, such as the liberalization of economic

activity and privatization of the industrial sector of the agroindustrial

complex, contributing to a relative stabilization of the market for food

products and to an increase in imports.

Success in promoting economic reforms in Moldova - privatization of the state

property, liberalization of prices in the real estate market liberalization of

intern, trade, establishment and development of the banking system and of the

financial market - allowed Moldova to be placed in the 11th position

amongst the 25 countries of Central and Eastern Europe, the Baltic states and

the Commonwealth of Independent States (CIS) in a classification made by the

European Bank for Reconstruction and Development.

We can, therefor, conclude that 1995 was the first year of transition,

following the first destructive stage of the reforms, to a better stage.

However, although macroeconomic stabilization is encouraging the continuous

evolution towards a market economy, it does not guarantee an increase in the

national economy. These problems will require a longer period to solve than

that required for achieving macroeconomic stabilization.

Economic Performance in Moldova 1989-1995:

	1989	1990	1991	1992	1993	1994	1995
Annual Output Growth	8,8	-1,5	-18,0	-29,1	-1,2	-31,2	-3,1
Annual Inflation	4,5	110,0	162,0	1276,4	788,0	329,4	30,2

Conclusion

In conclusion to all said I want to present a brief survey of the present

stage reached in the transformation process in the various countries of

Eastern Europe. As an initial, superficial impression, it can be said that

the farther west the countries a located, the more advanced the process now

is.

- The transformation process is at its most advanced in Poland,

Czechoslovakia and Hungary. All three countries now have stable parliamentary

democracies in which non-communist parties hold the majority. Although the

initial situations in the three countries were very different, they have also

all set about establishing a market economy system with considerable energy.

Since it is thus in these three countries that the most experience has now

been gathered, I have considerate my remarks on them (later on).

- In the political sense the situation in the three Baltic countries

is similar to that of Poland, Czechoslovakia and Hungary. They too have

completed the change to parliamentary democracy. However, economic

transformation is especially impeded by the fact that owing to their

histories as Soviet republics their economics are particularly closely

interwoven with thus of to rest of the former Soviet Union.

- Romania, Bulgaria and Albania have so far made less progress than

their counterparts to the north and west both in the political and the

economic transformation process. Here too, though, freely elected parliaments

have now undertaken the first legislative steps towards crating a market

economic order. However, it is still early as yet to assess the political

stability of these countries or the success of the economic reform they have

so far embarked upon.

- What path will be taken in future by the successor states to the

former soviet Union and those of former Yugoslavia is, in my opinion, still a

totally open question. Neither the geographical borders of these countries

nor their political or economic systems can be foretold with any degree of

certainty.

- Finally, the former East Germany occupies a special place, amongst

the transforming countries. On the one hand, reunification with former West

Germany has ensured that the conditions for political and economic

transformation are now absolutely secure. On the other hand, the fact that

income levels for those in employment have been rapidly catching up with

those in the west has also crated considerable growth and employment

problems. In the real world, the transformation process has proceeded very

differently in the three furthest advanced countries of Poland, Hungary and

Czechoslovakia. In Poland and Hungary, the planned economy system had

gradually been shot through with various holes during the past ten years, in

stark contrast to Czechoslovakia and East Germany.

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5. Schumpeter I.A. : The Theory of Economic Development

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Berlin 1991

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