Post socialist transformation in east central europe

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Information about Post socialist transformation in east central europe
Economy & Finance

Published on May 8, 2014

Author: miyahum

Source: slideshare.net

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The transformation of Czech Republic into a capitalist state with implications

By Olga Danyukova, Maya Humbatova

“The complicity of the challenges facing the so-called transition economies is often described as „systemic transformation‟, a term that captures the restructuring of the entire social system”. (Bradshaw, Stenning 2)

 According to the IMF economy transition steps include: ◦ liberalizing economic activity, prices, and market operations, along with reallocating resources to their most efficient use; ◦ developing indirect, market-oriented instruments for macroeconomic stabilization; ◦ achieving effective enterprise management and economic efficiency, usually through privatization; ◦ imposing hard budget constraints, which provides incentives to improve efficiency; ◦ establishing an institutional and legal framework to secure property rights, the rule of law, and transparent market- entry regulations.

 In the countries of Central Europe and the Baltics, commitment to macroeconomic stabilization came sooner and implementation of structural reforms was firmer. These countries have re-joined the ranks of middle-income countries and can claim to have transitioned.  Why Czech Republic, Hungary, and Poland adapted quicker to the market economy comparing to other CEE countries?  Because of the exposure to capitalism and democracy prior to the WWII and before the eventual breakdown from the communists  Joined NATO and EU which accelerated the economic transition

 Replacing Central Planning to Free Market ◦ CP officially canceled in autumn 1990 ◦ Creation of democratic institutions lead to corruption and mechanism problems before the EU standards were adopted ◦ Legislations and amendments to promote private business in 1990 (amendment to the Economic Code) ◦ Legal framework: Commercial Code, Competition Law, tax laws, Law on Accounting, Bankruptcy Law, and law governing capital markets and securities in 1991-1992

 Types of privatizations done in CR: ◦ Restitution  Return of property to those who owned it before the confiscation or nationalization by communistic power ◦ Small-scale privatization  Shops, restaurants, services ◦ Large-scale privatization  Nonincorporated enterprises  Auctions, tenders, direct sale, free transfer of property, Incorporated enterprises  Vouchers, public offers and tenders, direct sales, unpaid transfer to the municipalities, restitution funds

 Reforms were easier than in Hungary and Poland because low foreign debt and government deficit <1%  January 1990 the Czechoslovak Monobank transferred into: Comercni Banka, Investicni Banka, Vseibecna Uverova Banka  Banking Act, State Bank Act  Privatization of Banks strategy failed  Created new monetary system that was monitored by the State Bank of CR Average 1980- 1989 2.5 1990 -0.4 1991 -15.9 1992* -8.5 1993 0.6 1994 2.7 1995 6.4 1996 3.9 1997 1.0 1998 -1.5 1999 (estimated) 1.0 GDP per capita of CR *before the split of Czechoslovakia Source IMF, World Economic Outlook 1998

 Privatization of CR suffered from lingering state control, delayed privatization of banks  Positive Growth happened because: ◦ Favorable development of FDI (Foreign Direct Investment)  Good Geographic position  Human Capital, Workers  Long traditions of manufacturing

 The main actors of an economy in transition are: ◦ State sector workers. Face significant loses unlikely to realize any gains. ◦ Potential new entrants. Face initial loses from discipline but are likely to see gains. ◦ Insiders and oligarchs. Benefit immediately from linearization and privatization, as discipline is imposed for further competition, gains are lowered.

 The poll of 14,760 Eastern Europeans was conducted in August and September in eight countries: Bulgaria, the Czech Republic, Hungary, Lithuania, Poland, Russia, Slovakia and Ukraine.  According to the poll, one-half of Eastern Europeans say they’re worse off today than they were under communism. Only one-third say they’re better off.  The Globescan poll found that a clear majority of the world’s population favors policies traditionally associated with socialism, including public ownership of major industries, redistribution of wealth, and an active role for governments in regulating businesses.

 Gowns, Stephen. “Polls show a spectre is haunting Europe…and much of the rest of the world”.Communism,Socialism.Nov.15,2009.<http://gowans.wordpress.com/20 09/11/15/polls-show-a-spectre-is-haunting-europe%E2%80%A6and-much-of-the- rest-of-the-world/>.  Havrylyshyn Oleh,Wolf Thomas.Determinants of Growth in Transition Countries.IMF. June1999.<http://www.imf.org/external/pubs/ft/fandd/1999/06/havrylys.htm>.  Transition, The First Ten Years. The World Bank. 2002.<http://lnweb90.worldbank.org/ECA/eca.nsf/Attachments/Transition1/$File/ complete.pdf>.  Shafiqul Islam, Michael Mandelbaum. Making markets. Council on Foreign Relations Press. Googlebooks database. 1993. <http://books.google.com/books?id=hv0VON3aResC&printsec=frontcover#v=one page&q=&f=false>.  Schnitzer, Martin. Comparative Economic Systems. 8th edition, Sout Western College Pub. 1999. Hanousek, Kocenda, Lizal (eds.). Tale of the Czech Transition: Understanding the Challenges Ahead. Praha 2004.

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