The Transition from Socialism in Eastern Europe: Domestic Restructuring and Foreign Trade

The transition from socialism to a market economy in Eastern Europe encompasses a variety of economic, political, and social dimensions. Transformation in some of these dimensions, once under way, is easier to achieve than in others. Political change — a prerequisite for economic change — once seemed difficult, if not impossible. Yet once circumstances permitted political change, the political transformation in East European countries was relatively swift. Democratic institutions were introduced to replace those established by the Communist party, free elections took place, and new parliaments and presidents were chosen. There were some differences among countries, but the main components of political change — a multi-party system, representative democracy, and a free press — were readily instituted.

Economic transformation is, on the other hand, more complex. A modern functioning market economy is not only difficult to achieve: it is also often not clear what is meant by ‘market economy. Everybody agrees that a market economy should somehow lead to a greater availability of goods and services, but there is disagreement as to how this is to be achieved. For some, the idea of a market economy implies job protection and a broad social welfare system. For others, the concept of the market economy implies a competitive environment and unbridled free enterprise. For a third group, the state would aid the market by identifying enterprises with the greatest potential for success and steering the targeted enterprises toward the most profitable activities. Adherents to each of these positions can point to an actual market economy that, at least superficially,embodies the principles they espouse: in the first case, Sweden; in the second case, the United States; and in the third case the Republic of Korea.

Link: The Transition from Socialism in Eastern Europe: Domestic Restructuring and Foreign Trade (PDF—full book)