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The risks and challenges of economic transition

Since 1989, post-communist countries have undergone considerable changes in their political, economic, and social structures and institutions as they have transitioned to market economies. Many people have migrated from the region to other countries (e.g. the UK), to live and work, whilst those left behind have found themselves facing severe political unrest and economic uncertainty—characterized by rising levels of inequality, increased rates of unemployment and greater job informality, plus a mortality crisis and a significant drop in GDP and life satisfaction. While the economies are recovering, the “human costs” of transition (e.g. increased rates of alcoholism and a so-called “iron curtain of unhappiness”) persist.

  • Can diversity encourage entrepreneurship in transition economies?

    Harnessing the benefits of diversity is essential for encouraging entrepreneurship in the transition region

    Elena Nikolova, May 2017
    Entrepreneurship is an important lever for spurring transition in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing diversity, in terms of religion or gender, can positively affect entrepreneurial development. Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally diverse localities should rank high on the policy agenda. Prompting women to start a business, along with female-friendly measures (including targeted legislation), can positively affect entrepreneurial behaviour and the performance of existing enterprises.
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  • The happiness gap between transition and non-transition countries

    Economic progress coupled with political and institutional stability is needed to reduce unhappiness

    Ekaterina Skoglund, May 2017
    Since 1989, post-communist countries have undergone profound changes in their political, economic, and social structures and institutions. Across a range of development outcomes—in terms of the speed and success of reforms—transition is an “unhappy process.” The “happiness gap,” i.e. the difference in average happiness levels between the populations of transition and non-transition economies, is closing, but at a slower pace than the process of economic convergence. Economic growth, as the determinant of a country’s collective well-being, has been superseded by measurements of institutional quality and social development.
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  • Female poverty and intrahousehold inequality in transition economies

    An unequal distribution of resources within the family is a special concern for female poverty

    Luca Piccoli, March 2017
    Transition to a market economy is accompanied by a period of greater economic uncertainty. Women are likely to suffer substantial disadvantages from this uncertainty compared to men as they are, for example, more likely to lose their job. This not only implies a monetary loss for the entire family, but also degrades female bargaining power within the household, possibly further aggravating their well-being. When intra-household inequality—an unequal distribution of resources among family members—exists, female poverty might be significantly larger than what can be deduced using standard household based poverty measures.
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  • Upgrading technology in Central and Eastern European economies

    Existing policies in Eastern Europe will not sufficiently promote technological innovation

    Slavo Radosevic, February 2017
    The future growth of Central and Eastern Europe (CEE) depends on upgrading technology, exporting and coupling domestic technology efforts while improving their position in global value chains. Current policies in the region are not geared to these tasks, despite the availability of huge financial opportunities in the form of EU structural funds. Existing policies are overly focused on research and development (R&D) and neglect sources of productivity growth, such as management practices, skills, quality, and engineering. The challenge is how to design industrial and innovation policies so that they promote modernization and drive structural change.
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  • Foreign direct investment and employment in transition economies

    Has FDI into transition countries had the expected economic effects?

    Saul Estrin, January 2017
    Foreign direct investment (FDI) has been argued to improve company performance and stimulate growth and employment. Transition economies of Central and Eastern Europe (CEE) faced a desperate need to join the global economy, to improve their competitiveness and to create jobs through FDI. So, did the FDI come, and did it deliver what was expected? FDI levels were high for CEE, and for some resource-rich transition countries (e.g. Russia and some of Central Asia), but primarily delivered significant benefits (e.g. employment) for the former. FDI arrived much later to other transition countries (e.g. the former Soviet republics and the Balkans) and had much less impact.
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  • The mortality crisis in transition economies

    Social disruption, acute psychosocial stress, and excessive alcohol consumption raise mortality rates during transition to a market economy

    Giovanni Andrea Cornia, October 2016
    Large and sudden economic and political changes, even if potentially positive, often entail enormous social and health costs. Such transitory costs are generally underestimated or neglected by incumbent governments. The mortality crisis experienced by the former communist countries of Europe—which caused ten million excess deaths from 1990 to 2000—is a good example of how the transition from a low to a high socio-economic level can generate huge social costs if it is not actively, effectively, and equitably managed from a public policy perspective.
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