Post socialist transformation in east central europe
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Post-socialist transformation in East Central Europe
By Olga Danyukova, Maya Humbatova
Economies in Transition
“The complicity of the challenges facing the so-called transition economies is often described as ‘systemic transformation’, a term that captures the restructuring of the entire social system”. (Bradshaw, Stenning 2)
According to the IMF economy transition steps include:◦ liberalizing economic activity, prices, and market
operations, along with reallocating resources to their most efficient use;
◦ developing indirect, market-oriented instruments for macroeconomic stabilization;
◦ achieving effective enterprise management and economic efficiency, usually through privatization;
◦ imposing hard budget constraints, which provides incentives to improve efficiency;
◦ establishing an institutional and legal framework to secure property rights, the rule of law, and transparent market-entry regulations.
Major steps of economic transformation
CEE Economic Transformation In the countries of Central Europe and the Baltics,
commitment to macroeconomic stabilization came sooner and implementation of structural reforms was firmer. These countries have re-joined the ranks of middle-income countries and can claim to have transitioned.
Why Czech Republic, Hungary, and Poland adapted quicker to the market economy comparing to other CEE countries?
Because of the exposure to capitalism and democracy prior to the WWII and before the eventual breakdown from the communists
Joined NATO and EU which accelerated the economic transition
Case Study: Czech RepublicReplacement of the communist legacy Replacing Central Planning to Free Market
◦ CP officially canceled in autumn 1990◦ Creation of democratic institutions lead to
corruption and mechanism problems before the EU standards were adopted
◦ Legislations and amendments to promote private business in 1990 (amendment to the Economic Code)
◦ Legal framework: Commercial Code, Competition Law, tax laws, Law on Accounting, Bankruptcy Law, and law governing capital markets and securities in 1991-1992
Privatization Types of privatizations done in CR:
◦ Restitution Return of property to those who owned it before the
confiscation or nationalization by communistic power
◦ Small-scale privatization Shops, restaurants, services
◦ Large-scale privatization Nonincorporated enterprises
Auctions, tenders, direct sale, free transfer of property, Incorporated enterprises
Vouchers, public offers and tenders, direct sales, unpaid transfer to the municipalities, restitution funds
Banking Reforms were easier than in
Hungary and Poland because low foreign debt and government deficit <1%
January 1990 the Czechoslovak Monobank transferred into: Comercni Banka, Investicni Banka, Vseibecna Uverova Banka
Banking Act, State Bank Act Privatization of Banks
strategy failed Created new monetary
system that was monitored by the State Bank of CR
Average 1980-1989
2.5
1990 -0.4
1991 -15.9
1992* -8.5
1993 0.6
1994 2.7
1995 6.4
1996 3.9
1997 1.0
1998 -1.5
1999 (estimated)
1.0
GDP per capita of CR *before the split of Czechoslovakia Source IMF, World Economic Outlook 1998
Results Privatization of CR suffered from lingering state
control, delayed privatization of banks Positive Growth happened because:
◦ Favorable development of FDI (Foreign Direct Investment) Good Geographic position Human Capital, Workers Long traditions of manufacturing
The main actors of an economy in transition are:
◦ State sector workers. Face significant loses unlikely to realize any gains.
◦ Potential new entrants. Face initial loses from discipline but are likely to see gains.
◦ Insiders and oligarchs. Benefit immediately from linearization and privatization, as discipline is imposed for further competition, gains are lowered.
Winners/Losers
Public Opinion The poll of 14,760 Eastern Europeans was
conducted in August and September in eight countries: Bulgaria, the Czech Republic, Hungary, Lithuania, Poland, Russia, Slovakia and Ukraine.
According to the poll, one-half of Eastern Europeans say they’re worse off today than they were under communism. Only one-third say they’re better off.
The Globescan poll found that a clear majority of the world’s population favors policies traditionally associated with socialism, including public ownership of major industries, redistribution of wealth, and an active role for governments in regulating businesses.
Works Cited Gowns, Stephen. “Polls show a spectre is haunting Europe…and much of the rest
of the world”.Communism,Socialism.Nov.15,2009.<http://gowans.wordpress.com/2009/11/15/polls-show-a-spectre-is-haunting-europe%E2%80%A6and-much-of-the-rest-of-the-world/>.
Havrylyshyn Oleh,Wolf Thomas.Determinants of Growth in Transition Countries.IMF. June1999.<http://www.imf.org/external/pubs/ft/fandd/1999/06/havrylys.htm>.
Transition, The First Ten Years. The World Bank. 2002.<http://lnweb90.worldbank.org/ECA/eca.nsf/Attachments/Transition1/$File/complete.pdf>.
Shafiqul Islam, Michael Mandelbaum. Making markets. Council on Foreign Relations Press. Googlebooks database. 1993. <http://books.google.com/books?id=hv0VON3aResC&printsec=frontcover#v=onepage&q=&f=false>.
Schnitzer, Martin. Comparative Economic Systems. 8th edition, Sout Western College Pub. 1999. Hanousek, Kocenda, Lizal (eds.). Tale of the Czech Transition: Understanding the Challenges Ahead. Praha 2004.