9 I h. (0 I.. h.d I ,tllltllIl\ Transition Shock: Can the East Get There From Here? Steven Rosefielde D. Quinn Mills "We may have buried communism, but we haven't yet seen what's really coming afterwards. I would like to see a little more of the shape of things to come before putting money into it. It is an exciting development, but one has to make sure one understands it." Ranier Emil Gut Chairman of Credit Suisse (Wall Street Journal. February 20, 1990, p. A24) A fter sudden political liberalization, Eastern Europe and the Soviet Union seem poised to abandon administrative- command planning and embrace market socialism. However, using the Soviet Union as a case in point, careful analysis of all plausible transition paths from the current system to Western- style markets suggests that prospects for success are dim. Just as the funda- mental limitations of the current system have frustrated previous efforts to enhance economic performance, they are likely to block the more radical transition to the market socialism. It follows that the revolution of rising expectations in the Soviet Union and Eastern Europe sparked by Gorbachev's program of political liberaliza- tion is on a collision course with the immediate possibilities for fundamental economic change. Hence, the East is likely to be politically unstable for a long period. Nor can the West alter this situation with massive foreign assis- tance because the Eastern nations cannot utilize the credits effectively even if, as the Yugoslav experience suggests, they implement partial market reforms.' The Western business and policy communities therefore must be very constrained in their expectations about progress in the East and should approach the issues of private investment and governmental aid accordingly. Copyright © 2001 All Rights Reserved