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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 6: Conclusions

Diverse Paths from Central Planning in Asia and Europe

Richard Pomfret


A decade or so after the momentous events which began in June 1989, what have we, as economists, learned from the experiences of transforming centrally planned economies into market-based economies? First of all, the greatest experiment of the twentieth century, replacing the market by Stalinist central planning, failed. Whatever the proximate causes of the end of Communism, economic failure was a major driving force. This was not self-evident in advance, nor for the first half-century after the 1917 Revolution. The USSR was militarily successful in the 1941–45 war, in contrast to Russia’s failure in 1914–17.1 In providing education, health care, housing and satisfying other basic needs, Communist countries were far ahead of other countries with similar income levels. The USSR also made technological breakthroughs in launching sputnik and putting the first man in space, and in other areas. In the 1950s a case could be made that East Germany and North Korea were outperforming West Germany and South Korea. By the 1980s, however, all of the centrally planned systems were in economic tatters. China had already gone its own way in 1978–79.2 Poland was deeply in debt and facing mass discontent, when martial law was imposed in 1982. The Soviet leadership turned in desperation to Mikhail Gorbachev as its saviour in 1985, but it was too little too late. Nevertheless, even if the flaws of central planning were apparent, no economist predicted the sudden collapse. After the revolutions of 1989–91, the economic situation turned out to...

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