Transition from Plan to Market: An Overview

This paper gives an overview over how far transition has proceeded and what is still lacking in the process. The barriers for transition are identified. This includes an analysis of the different factors behind the steep fall in production in the first years of transition. It is shown that countries implementing a tough stabilization and a comprehensive and consequent liberalization have been most successful in the process. A fast and comprehensive privatization, on the other hand, has not been sufficient for the necessary restructuring of enterprises. Decisive for success in transition has been transformation of the state as a crucial part of the development of new market institutions implementing well functioning, clear and stable rules of the game for private enterprises. The institutional development has been important for the attractiveness of foreign investments and these FDI have been important for restructuring enterprises as part of a positive circle for the transition process.