Journal Issue

Book Summary: Divergent Paths in Post-Communist Transformation: Capitalism for All or Capitalism for the Few?

International Monetary Fund. Research Dept.
Published Date:
June 2006
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By Oleh Havrylyshyn

Palgrave Macmillan, April 2006, 400 pp., $100.00 (clothbound)

This book reviews the experience of post-communist transformation since 1989 in 27 non-Asian countries. Although the focus is on economic dimensions, political and social phenomena are found to be too tightly intertwined to ignore altogether. The analysis has three objectives: first, to describe what happened, how much progress there has been toward a market economy, and how the transition may have differed across countries; second, to explain the differences among countries in evolution and outcome; and third, to ask what is coming next. It argues that one need not tell 27 different stories, though, of course, each country has some interesting particularity. There are five groups of countries with considerable internal homogeneity, and they can be ranked, by the degree of their progress in achieving transition, approximately as follows: Central Europe; the Baltics; Southeastern Europe; the Commonwealth of Independent States (CIS) countries that have made significant, but still incomplete progress toward a market economy; and the CIS countries that have completed only very limited reform of the regimes they inherited. This ranking is shown to be strongly maintained when various criteria of performance are used: recovery of output, financial stabilization, minimization of social costs of adjustment, institutional development, and achievement of democratic liberalism. The differences in outcome are analyzed using a simplified framework consisting of three key factors: the rapidity of or delay in the initial start, the proclivity to fall prey to rent seeking and eventual state capture by vested interests, and the impact of having access to institutional safe havens such as European Union (EU) membership.

The logic of the framework is best understood by analyzing a simplified vicious-circle case in which the greater the delay in reforms, the more opportunities there are for rent seeking, and for building up new capitalist wealth and concentrating it by means of insider privileges. Some countries may have a greater proclivity to engage in such behavior because of prior conditions, limited change in political elites, and greater opportunities afforded by a large resource sector. A counter to these tendencies is the discipline of reforms and institutional change required by membership in international organizations such as the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), and especially the EU. Finally, the prospects for further successful transformation are best for countries that have moved fast enough and far enough to minimize the rent-seeking effects; not coincidentally, these are generally the same countries that have either become or are on the way to becoming EU members. For those countries where vested interests have become entrenched, there is a likelihood of transition being frozen half-way to an open and competitive market economy and, again not coincidentally, democratic liberalization being slowed or even reversed.

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