1 In the aftermath of the collapse of the Soviet Union, reformers began to transform centrally planned economies into something new. Calls for democracy and for private markets were widespread, but political resistance to restructuring and contradictions inherent in democratic capitalism continue to be evident. Transforming an economy from socialism into a market democracy is a “public good,” something that the private sector will not adequately produce on its own. Success depends on the political system properly setting the stage by passing and enforcing viable private property laws; by creating decentralized, regulated and solvent new ﬁnancial institutions; and by disengaging itself from ownership and micromanagement of industry. Disengagement requires an unnatural political act – the bureaucracy must self-reform and must voluntarily relinquish many powers while creating and performing unfamiliar new tasks. Needed reforms impose short-term losses before gains begin to appear and citizens, weary from decades of false promises, balk at such losses. All of this makes reform more difﬁcult. Socialism is alive in Central and Eastern Europe. While some countries have set their sights on US-style democratic capitalism, others prefer a middle path in which private enterprise remains heavily regulated. Whether this middle road is viable remains to be seen. Russia’s leaders vacillate between socialism and capitalism, with citizens fully committed to neither one. NEW POLITICAL AND ECONOMIC CHALLENGES After the collapse of the Soviet Union, new political entities began to emerge and the evolution away from authoritarian socialism got under way. While Western-style democratic free markets quickly became...
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