The Ten-year Experience
Edited by Lucjan T. Orlowski
Chapter 10: Reforming welfare states in post-communist countries
171 important implications: benefits were universal, since no selectivity by income level was needed; for similar reasons, there was generally no personal income tax (its absence being regarded as one of the victories of socialism); and the state’s administrative capacity was weak, both because no sophisticated targeting was needed and because most benefits were delivered by the enterprise. The Effects of Transition This was the state of play in the late 1980s. Of the many effects of transition, for present purposes three stand out. 1. The distribution of income and earnings widened. This outcome represents progress to the extent that it results from competitive market forces, for example rising wages for skills, which are in demand. It is adverse to the extent that it results from criminal activity or the exploitation of a monopoly position. If we wave a magic wand to remove all the adverse reasons, the remaining increase in the dispersion of pre-transfer income is, in many ways, a sign of success – it shows that the market is generating incentives which are essential for economic growth – and as such is a permanent feature of transition and post-transition economies. 2. Output fell, leading to a disproportionate decline in tax revenues. Though growth has resumed in most of the reforming countries, output generally remains below its 1989 level, often considerably so. Output in the Commonwealth of Independent States4 (CIS) as a whole (Table 10.1) is not much more than half of its 1989 level. In only four countries, Hungary, Slovakia,...
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