Creating Capitalism

Creating Capitalism

Transitions and Growth in Post-Soviet Europe

Patricia Dillon and Frank C. Wykoff

Employing historical analysis and building on growth theory and modern political economy, Dillon and Wykoff explain Soviet disintegration and analyze efforts to create capitalism in newly independent states. They show how five fundamental economic reforms generate growth, and use an original model to test the connections between reforms, elections and economic performance. The authors examine the progress of six countries (Bulgaria, Czech Republic, Estonia, Hungary, Russia and Slovakia) in terms of each country’s history and its successful application of the five reforms. Anyone interested in how capitalism works and why pro-market reforms encounter resistance in spite of their potential for generating higher living standards will find this book essential reading.

Introduction

Patricia Dillon and Frank C. Wykoff

Extract

to Part II Part I emphasized the connections between economic reform measures, growth prospects and political decisions. Chapters 7 to 12 use the conceptual connections built in Part I to analyze the economic performance and prospects of six countries: Bulgaria, the Czech Republic, Estonia, Hungary, Russia and the Slovak Republic. Chapter 13 summarizes Parts I and II. The countries vary greatly with respect to their historical experiences, political backgrounds and economic development. Estonia and Russia were republics of the USSR (Estonia by military conquest), and Russia was the political and economic control center of the Soviet empire. The others were satellite states. Bulgaria and Slovakia were poor and underdeveloped before the Soviets, whereas the Czech Lands were relatively rich and compared favorably with the wealthier states of Western Europe. Hungary was literally taken apart between the World Wars, losing over half its territory. The choices these countries have made and the determination with which each has pursued democratic capitalism reflect their unique histories. We argue that a country’s economic transition goals are influenced by citizens’ notions of their “golden era,” the key period that shaped their hopes for the future and their vision for themselves. This means that one must look at their histories before Soviet domination to understand their behavior today. In the framework of growth models, consumers act according to their tastes. Their national histories tell how those tastes have been formed. Consumers’ tastes in turn determine whether individuals will behave in ways that promote growth....