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Constructing a Market Economy

Diverse Paths from Central Planning in Asia and Europe

Richard Pomfret

During the 1990s over two dozen countries in Europe and Asia underwent a transition from centrally planned to more market-oriented economies. In Constructing a Market Economy, Richard Pomfret reviews their diverse experiences and assesses the outcome of transition in each case. The book includes an extensive review of empirical evidence and, uniquely, aims to cover all the transition economies in a comparative fashion rather than focusing on any particular country.
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Chapter 5: Creating a Market Economy

Diverse Paths from Central Planning in Asia and Europe

Richard Pomfret


It is often pointed out that the best single determinant of successful economic performance among transition economies is distance from the western European economic heartland. Distance itself may matter, but the ‘distance to Düsseldorf’ variable also captures the length of time since a country had a market economy, as well as attitudes and goals. The central and eastern European countries, including the three Baltic countries, are all, to a greater or lesser degree, aiming to create a market economy on the western European model and in most cases aiming explicitly at the political goal of accession to the European Union. For the other 12 former Soviet republics and Mongolia the goals are less clear-cut. Some share the Chinese and Vietnamese goal of political ‘stability’ combined with better economic performance than the USSR achieved in its final phase. This certainly applies to the central Asian countries (Kazakhstan, the Kyrgyz Republic, Turkmenistan and Uzbekistan), where Mikhail Gorbachev’s appointees as First Secretary continue to rule as Presidents, to Georgia, and to Azerbaijan, whose President was in Brezhnev’s Politburo. These leaders have curbed inflation and aim to provide efficient, albeit corrupt, economic management, but are reluctant to relax their grip on any economic levers which might undermine their political power. Elsewhere, there have been changes of leadership but the political process and economic progress have been undermined by civil or regional wars, as in the Caucasus, Moldova and Tajikistan. The three Slav republics are an intermediate case, with ongoing battles between reformers and...

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