1 - Introduction

Summary

The historical endeavor of the transformation from a statist-controlled economy to new institutional arrangements of a free market economy is a unique undertaking. Ongoing transition in the former centrally planned economies of Eastern Europe (EE) and the former Soviet Union (FSU) is an indispensable part of globalization. Without this transition globalization would fall short of its full dimension, comprehensiveness and dynamism. Leaving aside the political and ideological concerns, the main argument in favor of transition to a market system has been a wide conviction that the introduction of a market economy should improve competitiveness and efficiency. Hence—after some short period of transitional contraction—the new system is supposed to lead to recovery and, later, to fast growth. However, for a number of reasons it has not occurred. Transitional recession lasted much longer than expected, contraction was deeper than assumed earlier, and the recovery was not—and in several cases still is not—as smooth as envisaged both by the relevant governments and the international organizations. Actually, instead of a rapid recovery and robust growth, the lasting recession rather turned into the Great Transitional Depression, continuing in some countries over the whole decade of the 1990s. Moreover, it is important that such a great depression happened to its full extent in the two biggest transition economies, Russia and Ukraine, with a population of about 200 million, or about a half of all the people in the countries in transition to a market system.

While after the first decade of transition, i.e. 1990–99, the index of average (weighted) gross domestic product (GDP) for the twenty-five countries of EE and CIS stands at around 65 percent of pre-transition output, it is as low as around 54 percent for the CIS economies and still below the level from 1989—around 95 percent—in the case of the EE economies (Figure 1). By all means that was not expected at the onset of transition. Furthermore, the surprise stemming from these unforeseen developments causes significant differences vis-à-vis the interpretations of occurring events. It is true both for the explanations of the causes of such a long-lasting contraction and, later, the sources of fast growth (in those countries where it has indeed happened) are concerned. Thus it is worth looking for the patterns underlying these processes in transition economies, especially from the viewpoint of policy options for the future and their political and technical constraints.