The transistion of the "Old Communist" countries of East and Central Europe has been disappointingly slow given the amount of physical and human capital available at the start of the transition. We argue that this slowness is caused by the lack of social capital, which is an important factor of production. The Communist system replaced it with an official organization of society. Further, the communist system needed a set of grey/black networks of "fixers" to give it the necessaty flexibility. These networks were tolerated, but controlled. When the Communist regime ceased the official organizations collapsed and so did most of the control systems. This allowed a flourishing of the grey/black networks, which can be harmful to the operations of a market economy. The available data are still scanty, but they confirm the argument.
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Paper provided by Aarhus School of Business - Department of Economics in its series Papers with number
00-5.
Length: 20 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:aascbu:00-5
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Find related papers by JEL classification: A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
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