Lessons from the transition process

Abstract

The illusions that market mechanism would transform former communist countries easily into welfare states were gradually replaced by disappointments. Major problems are common to all countries in transition; they all endured an unprecedented fall in measured output and rise of unemployment. Four countries: former Czechoslovakia, Hungary, Poland, and Slovenia constitute a group in which the fall was the lowest and which also have reached the bottom. While the mechanisms of depression in these countries differ basic links of the “vicious circle” seem to be similar. The transition is reflected in constitutional provisions on property rights; new constitutions depart radically from their socialist predecessors, return to the principles of French revolution, and provide more than adequate protection of private property. Equally important are legal frameworks for market activities, and privatization aimed to improve efficiency, enable fairness, and serve in the abolition of the monoparty system.