ToȈ sovsk ´ y reviews lessons learned from transition, indicates process is still incomplete

• Pages: 337-338

Page 337

On September 24 at the Annual Meetings in Prague, Josef ToȈsovsk ´ y, Governor of the Czech National Bank, delivered the 2000 Per Jacobsson address, “Ten Years On: Some Lessons from the Transition.” His remarks are summarized here; the full text is available on www. perjacobsson.org.

Beginning with the premise that the transition process is still incomplete, ToȈsovsk ´y said that most of the failures and continuing difficulties that transition economies have encountered are rooted in the past—the legacy left by 40 years of central planning.

Ten years ago, ToȈsovsk ´ y said, the transition economies of central and eastern Europe were mostly or completely nationalized. As a result of this near-total nationalization, a mass privatization program was needed to move quickly to a market economy. At the same time, these transitional economies needed to create an adequate institutional framework to support the newly emerging private sector. This second task, ToȈsovsk ´y noted, turned out to be far more demanding.

Distortions in the real economy

Among the legacies of the old regime were the “deformations and distortions” in the real economy, including the exclusive geographic orientation toward eastern markets, aggravated by a policy of economic self-sufficiency.

The true extent of the distortions inherent in centrally planned economies, asPage 338 well as the true magnitude of implicit, hidden indebtedness, came to light only with the political changes that took place in 1989. According to ToȈsovsk ´y, the growth of internal debt was a major problem. To avoid social unrest, ruling communist parties sought to provide an acceptable living standard. But since the productive capacities of the communist economies were eroded by inherent inefficiencies, the only way to achieve a decent living standard was to mortgage the future—that is, by living on hidden debt. The consequences of this long-standing allocation of resources based on political priorities rather than profitability continued to haunt reformers during the 1990s, as massive amounts of bad loans began to surface.

Human factors also accounted for many of the transition problems, ToȈsovsk ´y suggested. For one thing, the structure of education and the mix of skills in a command economy do not match the needs of a market economy. In addition, living under socialism...