In chapter 1, we introduced the idea of a “Soviet-type” economy, so named because it was first installed in the Soviet Union by Stalin in 1928. After World War II, it was extended to Eastern Europe, as well as to China and North Korea, and came to prevail in countries comprising a third of the world’s population. This economic system turned out to be inefficient, and today most of these nations have become transition economies in the sense that they are converting to market systems. Even in China and Vietnam, where the Communist Party continues to rule, there appears to be little enthusiasm for turning back the clock. However, all transition economies confront serious challenges that are in large measure the legacy of the Soviet-type economy. In order to understand the problems faced by transition economies, we must first invest some time in understanding the nature of the system that was left behind. As Soviet-type economies were also planned economies, our journey begins with a description of this feature. In what follows, the terms Soviet-type, command, and state-managed will be used interchangeably. Each refers to the state-managed economy outlined in Table 1.1.