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pressure to resolve them is a driver of economic policy. These pressures are likely to push countries in similar directions. However, policy issues alone do not determine the course of reform. Another consideration is the political framework—what ideas are predominant, or what schools of thought compete on the policy-making stage, and what ideas and interests the politicians represent. Finally, the purpose of this chapter is to assess how these considerations affect the kinds of states the former communist countries are becoming and what future developments appear likely. Thus, the last section suggests four plausible future models, commenting on the probability of each and what factors may influence them positively or negatively.


The aim of post-communist economic transition can be described broadly as to build capitalism—to depoliticize the economy, to activate markets, and to institute private ownership of the means of production (Kornai, 1992:360365). An underlying belief supported by the new institutional economic history is that the economic institutions of capitalism can generate economic growth (North, 1981). A number of recent econometric studies covering a large number of countries support this view (Sachs and Warner, 1995; Gwartney et al., 1996).

A number of the 22 countries of interest here appear already to have entered a period of sustained economic growth under a new economic system. As of 1995, 4 of the countries—Poland, Slovakia, Romania, and Albaniahad reached growth rates of 7 percent (Stockholm Institute of Eastern European Economies, 1997). Yet only Poland, having recorded several years of considerable growth, appears to have entered a stage of sustained growth. However, in most cases it takes a long time before substantial growth can be expected. What other criteria can be used to measure the attainment of capitalism?

We have settled for a qualitative target—capitalism—and its attainment should be measured by qualities. Three obvious criteria are financial stabilization, liberalization, and private-sector development: financial stabilization means that money is stable enough to function as a reliable means of exchange, liberalization is necessary so that market allocation can substitute for vertical state commands, and a dominant private sector is required to render ownership apolitical and pluralist. Each of these three criteria can be quantified, and the question is at what point we can say that a market economy has been reached.

In practice, the most obvious success indicator has been low inflation. The control of inflation and the return of economic growth are closely related. No post-communist country has restored growth without limiting inflation to 40 percent per annum or less, while all the countries that have contained

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