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social costs purportedly associated with rapid reform. Yet in the countries that have pursued rapid reform and been able to implement it fully—Poland, Czechoslovakia, Estonia, Latvia, and Albania—inflation has been reduced quickly, and growth has begun to recover, which will have consequent effects on poverty reduction (Åslund et al., 1996).7 In large part reflecting the extent to which production under central planning failed to reflect genuine consumer demand, output declined markedly in the initial reform stages in these countries. Gradual reformers have merely postponed these inevitable declines, and now lag far behind the faster reformers in terms of recovering growth. In addition, contrary to common assumptions, gradualists have not fared better in the political arena: more of them have been voted out of office than have their radical counterparts (Åslund et al., 1996).8

In few countries has the debate focused on social-sector reform. And even in the strongest-performing radical reformers—Poland and Czechoslovakia for example—attempts at social-sector reforms, such as pension reform, have stalled because of political opposition. Only Estonia, which for several years had the most promarket government of the transition economies, has moved ahead with pension reform. Yet progress in this arena is critical. No other region has experienced a deterioration of basic social welfare indicators, such as infant mortality and life expectancy, like that experienced by the transition economies. In addition, as a result of demographic as well as economic changes, existing systems are simply not sustainable from a fiscal standpoint. Pension systems in particular, which account for the bulk of social expenditures in most transition economies, are likely to present the most immediate financial crises in the absence of social security reform. Pension spending as a percentage of gross domestic product (GDP) ranges from 5 to 6 percent in Russia and the Baltics to 12 percent in Poland and Hungary (The Economist, 1994). 9

The debate over social-sector reforms in the transition economies resembles the stalled debates over social welfare reform in the OECD countries. Yet the social welfare and financial situations in the transition economies are far more fragile. And a Catch-22 type of scenario is also at play: the maintenance of current social welfare systems in many countries is part of the explanation for stalled reforms. Under the enterprise-based social benefit system,

7  

Russia attempted radical reform, but the reformers were ousted from the government before the reforms could take hold.

8  

Radical reformers have lost elections primarily in situations where proreform forces have been less united than the former communists. And even where this has been the case, as in Poland and Estonia, reforms have not been reversed.

9  

These figures are for 1992. The implicit debt of Ukraine's pension system, for example, is 214 percent of GDP. Among Organization for Economic Cooperation and Development (OECD) countries, only Italy's debt, at 242 percent, is higher. Hungary's is 172 percent, Japan's is 144 percent, and the United States' is 89 percent (see Kane, 1995).



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