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Transforming Post-Communist Political Economies
living and massive unemployment, were widely believed to argue against a rapid transition. A common argument was that a swift transition would lead to greater adjustment costs than would a more gradual transition, and would therefore lead to social or political upheaval that could derail the whole transition process (see also Nelson, in this volume). Many believed that the population would accept only a certain level of social costs and that this absolute limit must not be reached. A wide range of possible disasters was invoked, including starvation; social unrest because of excessive poverty, price increases, and income differentials; and labor unrest because of low wages and mass unemployment.
Today we have the record, and it is very clear. In general, there is a distinct positive correlation: the more radical the reform—in terms of deregulation, stabilization, and privatization—the smaller the total decline in output. The differences in the decline in output are stunning. Officially, GDP in Poland fell by 18 percent as compared with 86 percent in Georgia (Åslund et al., 1996). Official statistics generally overstate the decline in output, but the real decline has been reassessed at 7 percent in Poland and about 50 percent in Georgia, which is still a stark contrast.
Statistics for income differentiation exist for only a few countries, but there appears to be a sharp divide between Central Europe, with more radical reforms, and the New Independent States, with slower reforms. In Central Europe, the least radical reformer, Bulgaria, displays the greatest income differentiation in the region (World Bank, 1996:68-69). Previously, the Soviet Union had greater income differentials than Central Europe, but the differences were of much smaller magnitude.
Unemployment is perplexing because there is no correlation between it and decline in output or the nature of reform. On the whole, unemployment is greater in Central Europe than in the New Independent States, but within Central Europe the radical Czech Republic maintains a very low unemployment rate of around 3 percent of GDP (Åslund et al., 1996:237-243; Stockholm Institute of East European Economies, 1997).
Although social suffering has been great, it is remarkable that these widely expected problems did not result in social upheaval although ethnic strife has erupted in several countries. Today few remember that the EU sent food aid to Poland in the winter of 1989-1990 because of fears of starvation. The same fear was stronger in Russia in the winter of 1991-1992, but starvation did not occur. Communist governments had long argued that they could not raise consumer prices because of the danger of social unrest. When the Soviet government raised meat prices in 1962, it faced substantial riots, notably in Novorossiisk. The Polish government fell because of workers' unrest when it tried to raise food prices in December 1970, and it suffered serious unrest again in 1976 for the same reason. Yet none of the post-communist governments has experienced any serious popular unrest because of price liberaliza-