Transition

Which Method of Transition is More Effective?

by Eve Dmochowska

In view of the many changes that have been occurring in the economies of Eastern European countries, can we now say which method of transition is more effective, and which has been successful? I think not, for two reasons: Firstly, there shouldn't be a MORE effective method - simply because the success of transition is very much dependent on the situation in a country prior to the fall of communism. We will never know for sure if Poland's Big Bang could have worked in Hungary, because the two countries were in such very different positions in 1989. Secondly, five years is not nearly long enough for economists to sum up the transition period. The Eastern European countries are changing and adapting every day, and only decades from now will we be able to get the full picture.

Nevertheless, numerous statistics and facts are available that introduce the general reaction to the transition. Many of these bring forth mixed views. For instance, in Hungary, more than 50% of the population works in private businesses, small manufacturers are able to compete with state enterprises, private banks have opened and the stock market is attracting investors. Yet, the people are much worse off (an effect that was to be highly avoided by gradualism), and the society has been divided into two distinct classes of wealth. The Vienna Institute for Comparative Economic Studies concluded in July, that only in the next decade can Eastern Europe hope to match the Western market. In fact, only by the year 2010 will Czech equal Spain's per capita gross domestic product. Poland will match it only by one half, and Hungary by two third. And Romania will only be able to privatize state enterprises by 2035!

Poland underwent a drastic and fast transition period. It was also the first country to show growth. But by the end of this year it will produce only 90% of the pre 1989 gross domestic product. In Hungary, with its "safe", gradual transition, the economy shrunk by 18 % in the last five years and the buying power of wages dropped by 16%. People's attitudes have to also change: they have to cease to rely on the state and should become more independent. This can cause new problems: the University of Budapest had to introduce a new course this year - 'Business Ethics' as a result of a poll that estimated that nearly 80% of the population felt one had to cheat to get ahead in business! The people themselves have mixed views. About 47% of Hungary's population believe that their economic situation will improve in the next five years. Poland shows similar results. Over 30% of Hungarians feel that their family's economic situation will improve in the next five years, compared to 34% in Poland. But only 15% of Hungarians believe they might become self-employed in the near future. In Poland the number is a much higher 42%.

What do all these facts tell us? Certainly that the transition process in every country has been more difficult that ever anticipated. However, one should not skim over the positive effects. Most important, of course, is the fact that progress of some sort is being made. Nobody should have expected a smooth transition, and those countries that are having a particularly difficult time should not only look towards current economic policies for blame, but also towards the past communist system that was so effective in squeezing the life out of any hope for market survival.

REFERENCES:

  • 1. HARE, P and REVESZ,T (1991) "Hungary's transition to the market: the case agains a 'big-bang'", Economic Policy, ed 14 April 1992. Cambridge University Press.

  • 2. NEW YORK TIMES, Oct 7 1994 ed. Section A12.

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons