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20 years after the collapse of communism in Central Eastern European countries and 30 years after the start of market-oriented reforms in China, this book provides a framework for understanding the differing emphasis and sequencing of two reforms and explores in-depth these issues in the demise of communism and the triumph of the market economy.





This introduction offers the reader a brief summary of the main arguments in the following chapters and gives in advance a bird’s-eye view of the comparative studies of two historic experiences of transition from socialist planned economies to capitalist market economies in the Central and Eastern European countries (CEECs) and East Asia.
Shinichi Ichimura, Tsuneaki Sato

General Framework of Comparison


1. Convergence and Divergence in Transformation: Comparison of Experiences of CEECs and China

Up until the end of the 1980s, the prevailing view in Central and Eastern Europe was that no serious reform of the socialist economic system was possible without radical changes in the political system, that is, without abolishing the dominant one-party rule. This was true even in Hungary in the 1980s, when the so-called third wave of economic reform was developing. Reform-minded economists, while acknowledging willingly the need for pluralization of the political system, remained pessimistic about the feasibility of this: their discussions always noted the barriers posed by the existing political system.
Sato Tsuneaki

2. China’s Transition to a Market Economy: How Far Across the River?

We view China’s reform as an evolutionary process in two stages. The first stage spans about fifteen years from 1978 to 1993, and the second begins in 1994. There is a clear division between the two. The watershed is the historic November 1993 “Decision on Issues Concerning the Establishment of a Socialist Market Economic Structure” adopted by the Third Plenum of the Fourteenth Congress of the Communist Party of China (CPC). The review in Section 2.2 below of the nature of the first-stage reform will allow better understanding of the significance of the decision. First, the reform started step by step to expand the market incentives for resource allocation, while keeping the basic institutional framework of central planning almost intact. It achieved a great success outside the state sector and dramatically improved people’s living standards, eliminating the shortages common to all planned economies.
Wu Jinglian

3. Two Reforms under Mono-Party Political System: The Hungarian NEM in the 1960s–70s and the Chinese Reform

Does the transition of an economy from socialist to market require a prior or simultaneous change of political regime as happened in the Soviet Union and Eastern Europe or might it grow out of successive economic reforms with no substantial change in political institutions as was the case in China? No a priori answer can be given to this question, but some clues may be found in the recent history of reforms of Soviet-type economies.
Szamuely László

Ownership Reform and Privatization


4. SOE Reform and Privatization in Transition: China in Comparative Perspective

Reforming state-owned enterprise (SOEs) is one of the most important issues in any economy in transition. The Chinese economy has been widely recognized as a successful case of gradualist transition, but unexceptionally was faced with poor management and low efficiency in many SOEs. Advocates of shock therapy have criticized the gradualist approach, maintaining that it makes comprehensive SOE reform ineffective (Sachs and Woo 1994). Nevertheless, even in the former Soviet Union (FSU), particularly the Commonwealth of Independent States (CIS) countries, and the Central and Eastern European countries (CEECs) that took the shock therapy adv ice follow ing the Washington consensus, the same SOE issues have persisted and some remain intractable.
Nakagane Katsuji

5. Vietnamese Gradualism in the Reform of State-Owned Enterprises: The First Phase of Doi Moi

In any planned economy the state owned enterprises (SOEs) are a major factor in stagnant growth and macroeconomic instability.1 Reforming them is extremely difficult because of the social burdens normally imposed upon them. They provide the employees with social welfare for expensive items like medical care, pension benefits, etc. and guarantee employment. The SOE workers regard themselves under a kind of lifetime employment system. Since social safety nets, social welfare, and employment opportunities elsewhere are lacking, they resist very strongly reform programs that may lay them off.
Tran Van Tho

6. From Public to Private Savings: Decline of State Ownership in the Chinese Corporate Sector

At the outset of the reform in 1978, state-owned enterprises (SOEs) completely dominated the corporate sector in China and accounted for nearly 80 percent of the gross value of industrial output. By 1998 this figure had dropped to 28 percent (NBS 1999, 423). In September 1999, the Communist Party of China (CPC) made further strategic decisions in the Fourth Plenum of the Central Committee on state ownership to withdraw the state from most industries and enterprises except for a few of strategic significance. This chapter provides an account of this decline in state ownership, adopting corporate finance as an analytical framework. Before the reform, the SOEs were financed by public savings, but market-oriented reform combined with the part privatization of agriculture shifted their reliance from public to private savings. Reform efforts forced the state to withdraw from the corporate sector. The liabilities that the government incurred in financing the SOEs would drive the reform toward further transformation of ownership.
Zhang Chunlin

The Role of the State and Market in Transition


7. The Social Safety Net in China

The Chinese GDP growth rate was 9.2 percent in 1991; above 10 percent in 1992–95 and after a slight decline in 1996–2001, again above 10 percent from 2002–07. But along with such high growth rates, unusually its unemployment rate rose steadily until 2003. Unemployment has been the most serious issue in China in the second half of 1990s and the early twenty-first century. This problem includes the issue of laid-off workers,1 because the number is as large as that of unemployed workers. An examination of both issues shows that the unemployment rate is very high in the age groups below 25 years, that in the age groups of 25 years and above has increased, and that of female workers is higher than that of male workers. University graduates have had difficulties in finding new jobs in recent years. Among laid-off workers, female workers of age 30 and above face more difficulties than male workers of comparable age. The rates of unemployment and laid-off workers differ from one region to another.2
Ito Shoichi

8. The State and the Transformation of Economic Systems

Most Central and Eastern European countries (CEECs) did not properly recognize the role of the state in the transformation process, and so the conditions needed to realize an orderly and productive transformation were missing. They could not undertake political reform of the state before economic transformation. Their policies mostly disregarded the differences in political, social, and economic conditions, institutions, and their respective perspectives. This chapter purports to offer a classification of these differences and suggest how the role of the state should be adapted to these differences. Although it is desirable that the proper reform of the state precedes privatization and stabilization, the cases of some countries that confronted the economic transformation without the preceding political reform are also discussed.
Dallago Bruno

9. Can the Japan Inc. Model Be a Middle Course for Transition?: Industrial Policy and Postwar Economic Development of Japan

Throughout the 1990s the regular consulting meetings were held between the Japanese Economic Planning Agency and the Soviet Ministry of Economy. In particular in the middle part of the 1990s—I was a member in 1996—the Russian officials asked the Japanese officials and economists what kinds of programs would be effective to restore the Russian economy, and if we could offer a new approach different from the one recommended thus far by the IMF and American economists. They were asked if the Japanese model might be a promising choice for transitional economies. The Russian authorities believed that the Japanese model was an intermediate regime between a planned economy and a free market economy, and might have been trying to formulate a gradualist program in which the Japanese model could be used as a first step in the early stage of transition.
Okita Yoichi

10. Market and Political Justice in Postsocialist Poland

This chapter is focused on distributive justice, which is a neglected aspect of the postsocialist transformation in Poland. The transformed system has established many new institutions like the free market, but all to often they neither function effectively nor much care about social justice. An important problem is how the Poles assess the performance of such institutions as the free market and the democratic state. Unless they appreciate them as being better than the old regime, their legitimacy can not be established. This chapter examines first how the new system answers the questions of what and how political and economic goods are distributed, by whom, for whom, and when. Then, it tries to evaluate the new system from the viewpoint of social justice in distribution.
Morawski Witold

Lessons Beyond the First Decade of Transformation


11. Facts and Lessons of Ten Years of Transformation in Central Europe

The two words depict two different ways of observing movement or change. Transition suggests a movement from one state to another, whereas transformation implies a shift from one system to another. Since the contemporary events in the former socialist countries in Central Europe have been such a fundamental change in the social system, I use transformation rather than transition.
Morita Tsuneo

12. Czech Republic 1990–2000: Lessons from the Economic and Political Transformation

Until the 1989 velvet revolution Czechoslovakia was one of the most conservative socialist countries. Even compared to other former socialist countries in Central Europe its economy was exceptional as regards privatization with only 4 percent of GDP produced by the private sector and 10 percent produced by the cooperative sector in 1989. No experiments with liberalization of economic and political systems had been attempted in the 1970s and 1980s. The rigid party form had to live with the legacy of post-1968 normalization and ran the country. At that time, more liberal segments of the communist party and the Czechoslovak political and intellectual establishments were eliminated or expelled from the country. They were isolated or persecuted for as long as two decades.
Turnovec František


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