“The Transition Problem: The Unhampered State as an Obstacle to Democratic and Market Reforms”

Major systemic transformations in the post-Soviet states are over. Yet the outcome in most cases is not a full-fledged democratic market economy but rather an unsatisfactory compromise between socialism and free markets. Transition countries by and large focused their energies on creating a “social market economy” à la Western European welfare states. Thus, socialism as a system of completely centralized decision-making has been replaced by interventionism, a system with various degrees of state involvement in economic affairs. This “third way”-ism took the place of Marxism as an ideological pillar of the new post-communist world; however, it failed to produce a viable alternative to how the goal of greater social well-being can be accomplished.

In this Feature Service article, Jaroslav Romanchuk, Executive Director of the Analytical Center “Strategy” in Minsk, Belarus, talks about the persistence of the old redistributive, state-focused, and government-inspired way of thinking about achieving prosperity in most post-communist countries. Romanchuk criticizes insufficient attention paid to the uniqueness of country conditions and the consequences of the communist legacy in the design of transition reforms. He says, “Development strategies for many emerging economies often uncritically incorporated Western laws into domestic legislation regardless of the fact that these laws were crafted in different cultural and historical environments. As a result, transition governments faced many unintended consequences that increased the economic and social costs of transition.”

But it is not too late for transition countries to refocus on the essence of prosperity-generating reforms: economic freedom. It is economic freedom that delivers better social outcomes such as job creation, income growth, access to basic social infrastructure, education, and healthcare. Coupled with strong democratic institutions, values of hard work, and achievement, economic freedom is the best known vehicle for achieving robust economic growth and improved social well-being.

Article at a Glance

  • Transition governments in post-communist countries have been held back by a failure to understand and implement the essentials of democratic and market institutions.
  • The sudden shift from socialist to market systems exposed the weaknesses of many policy prescriptions indiscriminately adopted from the West.
  • State interventionism, which failed to generate greater social well-being, can no longer be an alternative to full-fledged democracy and free markets in the region.

One Response to “The Transition Problem: The Unhampered State as an Obstacle to Democratic and Market Reforms”

  1. Brooke Millis

    So, I just got a chance to read this article, but I wanted to come back and comment on one particular chunk of it – the section headed “The Trap of a Good Law.” Essentially, Mr. Romanchuk describes the indiscriminate adoption of Western laws by post-Communist governments, without taking into account local operating environments, and the subsequent failure to implement those laws, because they wretoo costly or just didn’t make sense.

    Today, I think something we see often is the creation of indigenous laws that don’t make sense for the country and a lack of implementation. One example is in Bangladesh. The central bank, which operates a credit, lending and banking program in its branches throughout the country, passed a circular in 2007 that guaranteed that 10% of all loans given to SMEs would be reserved for women-owned businesses. This policy was put into place as a result of the adocacy work of the Bangladesh Women Chamber of Commerce and Industry, a CIPE partner. However, the central bank neglected to inform its branches of this new policy. Nearly two years later, BWCCI continues to hear from bankers that they have never heard of such a policy, and they are astonished when handed a copy of the circular on Bangladesh Bank letterhead.

    A crucial reform is only as good as its implementation!