Government and Markets: An Introduction

After the breakdown of the socialist regimes in Central and Eastern Europe and, somewhat later, the former Soviet Union these countries indicated that they were going to introduce as quickly as possible a market economy based on a democratic constitutional order. Initially, there was great enthusiasm and optimism in both East and West, and the general expectation was that the problems connected with such a transformation could be solved fairly smoothly and rapidly. However, the transformation from a planned socialist system into a civil market economy turned out to be a process fraught with many unexpected difficulties (Blommestein 1993a). The ultimate objective is clear: the introduction of a competitive market system with a much smaller and efficient public sector. The starting-point, however, appeared to be less clear in the sense that most reformers underestimated the problems associated with large inefficient bureaucracies and economies dominated by a noncompetitive industrial sector and an underdeveloped service sector.