Foreign Direct Investment and Privatization

After decades of socialism, in which huge state-owned firms produced in accordance with central planning, the countries of central and eastern Europe aim to reestablish a market economy. Systemic transition creates a host of supply-side problems since a long history of central planning and near-autarchy within the Council for Mutual Economic Assistance (CMEA) have to be overcome. The countries of the ex-CMEA area have to open up towards the world economy (which renders a considerable part of the capital stock obsolete), microeconomic adjustments at the level of individual firms have to be achieved, whole industries have to be restructured and the long-neglected service sector has to be expanded.