Transformation to a market economy in Eastern Europe, the former Soviet Union and Asia

The movement from a centrally administered economy to a market-based economy in Eastern Europe, the former Soviet Union (EEFSU) and Asia is commonly referred to as the ‘transition problem’. However, the word ‘transition’ – the passage from one state to another, in this case from a centrally administered to a market-based economy – does not seem appropriate; it does not explicitly capture all the complexities involved. The word ‘transition’ implies the achievement of a specific end-state; thus the attainment of the end-state completes the whole transition process. Most economists associate this end-state with the establishment of a capitalist economic system in which market relations are dominant, the majority of property is private as a result of privatisation of state enterprises, and effective property rights are respected and enforced. This again reflects the traditional, static notion of economic theory: with the dominant role of markets and private property along with property rights, the economic system naturally gravitates towards equilibrium as long as there are no impediments to reaching this position.