Global Insights and Explanations
Edited by Gary McMahon, Hadi Salehi Esfahani and Lyn Squire
Chapter 7: Growth Experience and Prospects of Central and Eastern European Countries: A Synthesis
Jan Fidrmuc, Mark Chandler and Julius Horvath Economic policy rarely enters uncharted territory, but that was the situation with the reform programs in post-communist countries. While many countries, developed and developing alike, have attempted and often successfully undertaken economic reforms before, few of them were as far from the ideal notion of a functioning market economy as the socialist economies in Central and Eastern Europe and the former Soviet Union. Yet, most analysts agreed that the potential for improvement was significant. The socialist economies were underdeveloped, repressed and mismanaged. Surely any reform – whether far-reaching or partial, cold-turkey or gradual – was bound to bring about improvement. Provided that the basic ingredients of stabilization, liberalization and privatization were present in some reasonable magnitudes, the result would be a J-curved adjustment: temporary decline followed by a rapid and sustained recovery, bringing the formerly communist countries on a new and much steeper growth path. The fabled J-curve, however, proved elusive. Instead, the initial contraction turned out to be deeper and longer than envisaged, inflation got out of control and unemployment, previously unknown in most socialist countries, quickly reached double-digit levels. While some countries did manage to stabilize their economies and reverse the economic decline, in others things turned nasty. The communist ideology was sometimes replaced by nationalism, and phrases such as ‘ethnic cleansing’ and ‘concentration camp’ became a regular part of the vocabulary of news anchors. Even in countries which did not descend into military conflicts, corruption blossomed, crime exploded and life expectancy dropped...
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