Transition, The First Ten Years : Analysis and Lessons for Eastern Europe and the Former Soviet Union

This study looks at lessons to be drawn from the ten-year experience of the transition countries in Eastern Europe and the former Soviet Union in the period 1991 to 2000. The World's Bank "world Development Report 1996: From Plan to Market" focused on the transition process during the first half of this period. It recognized that while initial conditions are critical, decisive and sustained reforms are important for recovery of growth and should be accompanied by social policies designed to protect the most vulnerable groups until growth takes hold. Many of the prescriptions of the 1996 World Development Report continue to be valid today. The present study confirms that while initial conditions were critical for explaining the output decline at the start of transition, the intensity of reform policies explains the variability in the recovery of output thereafter. Beyond this, important new lessons highlight some key tradeoffs facing countries in transition that can be translated into priorities for policy. First, this study highlights the key role of the entry and growth of new firms in generating economic growth and in creating employment. A second lesson concerns the need to develop or strengthen legal and regulatory institutions to oversee the management and governance of both private and state enterprises. A third lesson involves recognizing that winners from the early stages of reform may oppose subsequent reforms when these reduce their initially substantial benefits.