83

Lessons From the Economic Transition: Central and Eastern Europe in the 1990s,Zecchini, Salvatore, ed., Kluwer, 1997, 590 pp. + xxix, ISBN: 0792398572, $59.95.

This book consists of twenty-two analytical articles which examine the main is-sues and policy controversies of the transition experience and offer suggestionsfor improvements in current transition strategies and their implementation. Theauthors are major experts and policy-makers from reforming countries and theOECD. They have focused primarily on the Visegrad countries, Bulgaria, Romania,and Russia, but their comments and those of the twenty-seven other commen-tators apply to the transition in all post-communist countries. More than just acollection of (a May 1996) colloquium proceedings, this book is a comprehensive,coherent presentation of the analyses and views expressed by prominent expertsabout the main shortcomings and pitfalls in transition policies. Each of four partsfocus on a particular theme: the overall framework of the transition strategy, therestructuring and development of the enterprise sector, the unemployment problemand social policies, and the integration of Central and Eastern European Coun-tries (CEECs) into the world economy. Each theme is addressed from differentangles and through such a range of viewpoints as to put the issues into perspectivewhile avoiding an unqualified acceptance of simplistic explanations for solutionsto complex socio-economic problems.

Part I deals with the main successes and failures of the overall strategy. It beginswith two critical overviews of transition approaches and their results. SalvatoreZecchini identifies the similarities and differences in the building blocks of thetransition strategies applied in Russia and six CEECs, while Nicholas Stern broad-ens the scope of the overview to all transition economies and assesses their progressin reform. Martha de Melo and Alan Gelb find that reforms help achieve inflationcontrol and growth recovery. Stanley Fischer, Ratna Sahay, and Carlos A. Veghshow that lower fiscal deficits and a pegged exchange rate have positive effectson inflation and growth. Kazimierz Laski and Amit Bhaduri find support for anactive industrial policy, especially to prepare viable firms for privatization. In acase study focusing on Hungary, Janos Kornai shows the risks of macroeconomicmanagement and the benefits of a carefully balanced approach. The part concludeswith two discussions of the political constraints faced by governments in reformingthe economic system. Leszek Balcerowicz categorizes the attitudes of voters andpoliticians in CEECs with respect to economic change before and after the polit-ical breakthrough, while Gerard Roland highlights a link between the choice of agradualist or big bang approach and the government’s perception of the probabilityof re-election.

Part II is primarily concerned with how far restructuring has progressed and howit can be further advanced. The behavior of fixed investment in a number of CEECsis explored by Jacek Rostowski and the effects of changes in ownership patternson corporate governance is examined by Philippe Aghion and Wendy Carlin. Next,the contribution of foreign investors to enterprise restructuring is surveyed by Ro-

BR82.tex; 8/06/1999; 14:57; p.3

84

man Frydman and Andrzej Rapaczynski, who are concerned that insider controlmight prevent the elimination of rent-seeking by newly privatized firms and mightalso bolster political opposition to reforms. Gabor Hunya finds that the process ofreorganization has been much more rapid in foreign- than in domestically-ownedfirms.

Octavian V. Carare and Enrico Perotti discovered that banks in Romania tend togive preference to the larger and less profitable firms and thus substitute bank creditfor discontinued public subsidies to state-owned enterprises; they recommend free-ing bank management from political interference to improve bank efficiency.

The complex nature of the unemployment problem in CEEC economies andsome solutions to it are analyzed from various angles in Part III. Simon Comman-der and Andrei Tolstopiatenko examine the labor market impact of public transferpayments to both the unemployed and enterprises, while Michael Ellman scruti-nizes the characteristics and causes of the demographic crisis that has compoundedsocial strains. Richard Jackman and Catalin Pauna look at labor market policy andthe reallocation of labor across sectors while Marek Gora seeks to explain interna-tional differences in unemployment rates within the Visegrad countries. David M.Newbery concludes this part by analyzing social benefits in Hungary in connec-tion with the tax system, from the perspective of the economic viability and costeffectiveness of these systems

The subject of Part IV is the external policy choices made by CEECs, espe-cially with regard to trade liberalization and exchange rates. Richard N. Cooperpraises the CEECs which moved rapidly to current account convertibility, findingthe negative effects of such transition to be more than offset by positive ones.Dariusz Rosati examines the selection of an optimal exchange rate regime dur-ing the transition and suggests an initial fixed rate followed by a gradual moveto greater flexibility. Edward E. Leamer analyzes the long-term trends in foreigntrade, and sees a premium in working toward fast labor productivity growth andimproving access to the developed West European markets. Andras Inotai stressesaccession to the European Union as paying far higher dividends than sub-regionaltrade cooperation. Hans-Peter Lankes and A.J. Venables present the results from asurvey of investors in the CEECs which found that tax incentives were of minorimportance when compared to the inducement of low unit labor costs and a stabletax regime.

In this reviewer’s opinion, the major policy conclusions of this book are asfollows.

1. Governments should increase their efforts to measure the new economic real-ity by upgrading their statistical systems.

2. Low inflation, low fiscal deficits, and sustainable current-account deficits areall necessary conditions to spur private fixed investment, productivity gains,and economic recovery.

BR82.tex; 8/06/1999; 14:57; p.4

85

3. Governments should invest more in enhancing human capital and strengthen-ing the physical infrastructure.

4. Political constraints on privatization and ownership restructuring should beeased.

5. Hardening of the budget constraint on enterprises is the best incentive torestructure and to improve investment quality.

6. Enterprise insiders should not be preferred over outsiders in privatizationschemes.

7. Enterprise restructuring cannot advance if the restructuring of the bankingsystem lags behind.

8. Policies aimed at promoting the multiplication and development of private en-terprises should be a top priority for the purpose of reducing unemployment.

9. Unemployment benefits should be linked with incentives to work.10. Social policies need to be better coordinated with labor market policies in

order to minimize both disincentives to work and costs for the public budget.11. An active labor market policy should replace sterile subsidization of employ-

ment in non-viable firms.12. No reform has had farther reaching effects on the transition than the liber-

alization of foreign trade together with its corollaries of external currencyconvertibility and exchange rate adjustment.

Byron BrownSouthern Oregon University

Ashland, Oregon

Enterprise Culture in a Transition Economy: Poland 1889–1994,Ryszard Ra-packi, ed., Warsaw School of Economics (under the auspices of the United NationsDevelopment Project), 1996, 194 pp., ISBN: 8386689 358.

Organizational culture is one of the least understood and under-researched organi-zational dimensions of the transformation in Central and Eastern Europe. RyszardRapacki’s edited volumeEnterprise culture in transition economy: Poland 1989-1994 therefore addresses an important question. Managerial and organizationaltheory needs to be continuously tested and refined in new contexts, and Central andEastern Europe’s unprecedented and multidimensional transition certainly providessuch a context. Nowhere else in the world are political, economic, organizational,and socio-psychological strands of change so closely interwoven and rapid. Thecomplexity and the speed of change also offer a unique chance to study patterns oflocal adaptation to extreme circumstances. Indeed, Central and Eastern Europe’srapid transformation provides a nearly clinical laboratory for the study of changes

BR82.tex; 8/06/1999; 14:57; p.5