Transition of the visegrad economies of Eastern Europe

Essay by RennesUniversity, Bachelor's October 2006

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The command economy legacy had left little infrastructure compatible with a market economy. The 'Visegrad' countries; Poland, Czechoslovakia (later to split into the Czech Republic and Slovakia) and Hungary chose either the 'shock therapy' or 'gradualist' approach to economic reform. Economic policy was later shaped by their desire to join the European Union, thus creating the systems and stability that would attract overseas investment.

The gradualist movement was committed to long-term government intervention, incrementally working towards a market economy underpinned by a democratic political structure. This was only possible by taking "the longest road" . The shock therapists intended acting rapidly in isolation of political pressures. However close inspection of the policies employed by both persuasions shows more convergence than divergence, more rhetoric than reality. They shared the same goals and sometimes the same methods. The key differential being their transitional starting points.

Common policy objectives of transitional staes moving toward a market economy:

- Macroeconomic stability

- Price deregulation and liberalisation

- Privatisation

- Increased international trade

- New legal and financial systems to facilitate market economy

- Improved social welfare structure

First to introduce shock therapy "Poland's goal is to establish the economic, legal and institutional basis for a private-sector market economy in just one year' .

The key feature of this approach is that both micro and macro reforms are run concurrently. "The idea that there is choice between doing one radical measure or another is simply wrong. There is no trade-off " . Czechoslovakia's shock therapists had a 'minimal plan' in 1990. However President Vaclav Klaus soon dropped it, preferring close government control of economic developments. Both Poland and the Czechoslavaia were to adopt gradualist polices following social disquiet and democratic rejection of of its advocates.

Hungary had already begun internal reform before 1990 and was...