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in Russia. As a result, the Russian economy developed an acute imbalance between its capital stock and technological potential, on the one hand, and the available institutional environment on the other (Rapaczynski, 1996).


All the post-communist economies were characterized by profound structural distortions at the beginning of their reform processes. Since allocation decisions under central planning were based largely on the political preferences of the ruling communist elites, cost structures, output mixes, and inter-sectoral proportions were divorced from market demand, rendering them unsustainable in the new economic environment.

Few analysts were surprised that institutional restructuring featured prominently on reform agendas across the former Soviet Bloc. What was not always properly appreciated, however, was the degree of variation in the depth of these structural distortions from one country to another. While structural (dis)proportions are usually listed among the relevant "initial conditions" affecting the progress of reform (see, e.g., Balcerowicz, 1994), macroeconomic indicators, such as monetary and fiscal imbalances and foreign debt, received most of the attention in cross-country comparative studies. It was not generally recognized that policies (or the lack thereof) targeted at the micro level of the economy, particularly those designed to reallocate economic resources in order to compensate for or correct inherited mismatches, would underpin the success or provoke the failure of macroeconomic stabilization, and thereby the entire reform effort.

The extent and nature of prereform structural distortions in the post-communist countries depended on a number of factors, including the duration of centralized control over the economy, the political and economic role of the country in the former Soviet Bloc, and the scope of the tolerated nonstate sector. In Poland, agriculture and many services remained private throughout the period of communist control, and the economic system remained relatively less centralized than those of its neighbors. A substantial degree of decentralization was also characteristic of the Hungarian economy, which had been drifting away from communist economic orthodoxy and experimenting with reform for 20 years. The Czech Republic entered its period of communist rule with an advanced industrialized economy, shaped by market forces, already in place. The industrial structure of that economy displayed a great deal of inertia and was more or less preserved under the facade of central planning.

It is also important to recognize that within the framework of Comecon, all three of these countries specialized in the production of consumer goods. This meant that although none of the three completely escaped the structural "birthmarks" of central planning (e.g., an outsized heavy industrial sector, an

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