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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 10: A Taste of Hungarian Goulash

Transitions and Growth in Post-Soviet Europe

Patricia Dillon and Frank C. Wykoff


* Now the basic question is whether we can create a genuine socialist market economy based on the dominance of the market in the competitive sector and establish planning based on and harmonized with the wide-ranging impact of the market. (Laszlo Antal, L. Bokros, I. Csillag, L. Lengyel and G. Matolcsy, 1987. In Bernard Chavance, 1994) In some countries, England, Hong Kong and Wales for instance, people drive on the left side of the street. In other countries, the United States, Germany and France for instance, people drive on the right side of the street. Either side works as long as you choose one side and stick to it. In Hungary you are trying to drive on both sides of the street. This is not working too well … Hungarians will have to choose between the left (socialism) and the right (capitalism). Until you choose one side or the other, you are going to continue to have lots of accidents. (Paul Heyne speaking to Hungarian schoolteachers in Budapest, 1990)1 Hungary was the most successful of the Soviet satellite states. If there was a place that provided an ideological and economic bridge between the two Great Powers during the Cold War, Hungary was that place. More than any other country under Soviet control, it maintained some trade and tourism ties to the West. This can be explained in part by Hungary’s particular relationship to the Soviet authorities. Hungary’s experience since the collapse of Soviet power supports our hypothesis about a country’s history...

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