Transitional Economies

Transitional Economies
The transition of the former command or communist economies of China, the Soviet bloc, and elsewhere to democratic, market-based societies is one of the most important issues of the post–Cold War era. I use the term “transition” advisedly. As Stephen Holmes has pointed out, transition suggests that these economies are on a known and predictable trajectory from communism to democratic capitalism. The truth is that no one really knows what economic, political, and other factors led to the overthrow of communism, and even less is known about the forces at work in these “postcommunist societies” or about the direction in which economic and political forces are propelling them. Theories and speculations of various kinds abound as scholars, intellectuals, and public officials attempt to provide an overall explanation of this extraordinary and historically unprecedented situation. Yet, as Holmes suggests, no guidelines can help us to determine where these unfortunate postcommunist societies are heading: democracy, fascism, or even a return to communism. Nevertheless, despite its misleading implications, I shall follow convention and use the term “transitional societies.” The mere size of the transition problem is overwhelming. The magnitude and diversity of the swath of countries from the Baltic to the Balkans and from Eastern Europe across the steppes of central Asia to the Pacific Ocean defy comprehension. The twenty-seven or more countries involved (excludingChina) contain more than 400 million people. Many of these countries are mired in economic and political chaos with decliningeconomies and corrupt governments. The end of communism has taken many different forms, and each different form strongly influences the path of the transition. Also, consideration of the transition issue is greatly compounded by the fact that individual countries are in very different economic and political situations. At one end of the spectrum is Russia, which has sought to create simultaneously both a democratic and a market economy. At the other end is China, where an effort is beingmade to combine a highly authoritarian political regime with a market-type economy. In between these extremes are numerous unfortunate countries with a host of social, economic, and political problems. There is no historical experience on which one can draw for insights, nor are there economic, political, or other social theories on which one may rely for guidance, and economics has failed miserably as a guide. The transition problem is novel in the sense that the world has never before experienced the transition from one type of highly industrialized economy to a different type of highly industrialized economy. Although the rise of capitalism in the modern period provides some lessons, such as the need for an entrepreneurial class and a nonoppressive state, the implications of these lessons for a developed economy in transition are not clear. The former communist countries must first tear down corrupt and inefficient structures before they can begin to build new, effective, and publicly responsible economic and political institutions. Therefore, this discussion of the transitional economies must be sketchy as well as tentative.