Reform in Eastern Europe

How can the new governments of Eastern Europe succeed in moving from centrally planned to free-market economies? This report identifies the major policy choices to be made and discusses what will work and what will not. "Reform in Eastern Europe" provides a statement of reform policy that stands in the mainstream of modern Western economics. Based on their experience with stabilization polices in other countries, the authors show how Eastern Europe can reduce unemployment during the painful adjustment process, create effective and socially acceptable mechanisms to subject enterprises to market discipline, and replace barter trade under CMEA with market-based international trade.

Although conditions vary from country to country in Eastern Europe, the authors argue that all countries must seek stabilization and price liberalization, privatization, and then economic restructuring. It describes and evaluates the alternatives available to eliminate fiscal deficits, control money creation, and decontrol prices while blunting the immediate painful effects of lower wages, unemployment, and other disruptions. The authors propose a plan for privatizing state-owned enterprises without placing them in the hands of those who accumulated wealth under the communist regimes.

They recommend and detail methods for achieving orderly restructuring - in effect, closing most of the existing production structures and creating a whole new economy - covering issues of national saving, the creation of a financial intermediation system, the role of direct investment, labour allocation and unemployment.