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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.
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Chapter 8: Are the Czechs Capitalist Superstars?

Transitions and Growth in Post-Soviet Europe

Patricia Dillon and Frank C. Wykoff


* [M]icroeconomic, institutional, structural and social rigidities … impose a substantial constraint for the future, as they are likely to develop and disseminate disequilibrating tendencies in the course of the transition process itself. (Miroslav Hrncir, Chief Executive Director, Czech National Bank, 1992)1 We are listed among emerging markets. Forget it … We have already emerged. (Karel Dyba, Czech Economy Minister, 1994)2 The Czechs underestimated the importance of the legal framework from the beginning. (Jan Svejnar, Executive Director of the William Davidson Institute, University of Michigan School of Business, 1999)3 The Czech Republic has existed as a sovereign state only since January 1993; before that time it was joined with Slovakia as Czechoslovakia. It was a single republic, a democratic market-based system between the World Wars. During the Second World War the Nazis took control but were eventually thrown out by the Soviets. Communists won political power in 1948 and retained it until the Velvet Revolution in 1989. Czechoslovakia became a federal state in 1989, comprising the Czech and Slovak Republics, until it separated into two independent republics in 1993. The Slovaks and the Czechs developed over centuries within different traditions; Czech culture was from early days influenced by the Austrians and the Germans, while the Slovaks languished as a neglected part of the Hungarian empire. The Czech Lands were industrializing before the turn of the twentieth century. They had for decades experienced more balanced industrialization than the Slovaks and were following a Western European development path until 1939,...

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