The article looks from an institutional perspective at the process of catching up by poorer countries with the level of development already achieved by the richer ones. The author stresses that resources are of secondary importance, relative to the institutional framework conducive to or discouraging economic development. It is from such a perspective that the present writer approaches post-communist transition, noting the existence of leaders and laggards in the process. Differences in outcomes are ascribed, unsurprisingly, to differences in institution-building (both general and specific rules) and, even more importantly, to differences in what the author calls “civilisational fundamentals” of liberty, law and order, and trust. The main thesis is that the fundamentals in question are the heritage of pre-communist past. Therefore, it is the pre-communist heritage, the presence or absence of the fundamentals in question, which largely determine the transition's success or failure.
In this article the author tries consider a question important for economic development: what happens when formal rules and informal rules of economic behaviour are in conflict. Under such circumstances even the best, wealth creation-enhancing rules must bring about different outcomes if introduced in the different political, economic, and socio-cultural environments. These considerations begin with the overview of possible balances and imbalances in the relationships between formal and informal rules and potential conflicts that may arise in the latter cases. The next step is the selection of institutional characteristics that facilitate the explanation and prediction of outcomes of formal rules&informal rules interactions. The third, and final, step considered in the article concerns the adjustment of rules (formal, informal, or both) over time and possible patterns of adjustment.
The central theme of this paper is the role of the new, entrepreneurial private sector, established after the fall of communism, in output recovery, and, more generally, in economic expansion of post-communist economies. This role is considered specifically in the context of the successes in Poland, the Czech Republic, and Hungary. The author notes a substantial difference between the performance of the new private sector and the privatized sector in the short to medium run (3-7 years) from the start of privatization.New private firms typically enter the economic game with well-established de jure and de facto property rights and with industrial relations based on market economy rules. Unlike the public sector or privatized firms, the labor force of these firms is not demoralized by the change to market-economy rules. As a result, they often perform better and are quick to increasing their share of aggregate output. This also helps the economy as a whole emerge earlier from transitional recession.The author discusses two hypothetical paths of recovery and expansion; one with and one without a dynamic new private sector. The determinants for establishing and growth of new private firms are considered. In addition to the specific rules and general framework of transition, the study concludes that broad institutional fundamentals of political liberty, law and order, and trust contribute to the successful emergence of this new entrepreneurial sector.
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