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Transition

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					 Slovak Transition from
Communism to Capitalism
         Jan Pokrivcak
      SAU Nitra, Slovakia
    jan.pokrivcak@uniag.sk
The Slovak Experience


       Slovak Republic
Area: 49 036 km2
Population: 5.4 million
Pop. density: 109 per sq km
Pol. system: parl. democracy
Ethnicity of the population:
Slovak (86%)
Hungarian (10%),
Romany (2%), Czech (1%),
Rusyn, Ukrainian, Russian,
German, Polish and others(1%)
GNI per capita (2005):
US$ 7,600
GDP growth (2007): 8.7%
               Contents

• General Overview of Communist
  Economic System
• Transition to Capitalism
• The Case of Slovakia and other Central
  European Countries
General Overview of Communist Economic System


• Communist economic system = central
  planning + state ownership of production
  factors
• Communist economic system applied in
  countries with one third of the world population,
  covering Russia and Mongolia, Central Europe,
  Balkan, Baltic Countries, and China, Vietnam
  and other offshoots.
• It started in relatively backward agrarian
  countries like Russia in 1917.
General Overview of Communist Economic System

             Behind Iron Curtain




                    Source: DeLong: Macroeconomics
General Overview of Communist Economic System




• At the beginning it was not clear which system
  (communist or capitalist) more efficient
• Many economists in the West advocated
  socialism
• It turned out that communist economic system
  is less efficient than free market system
General Overview of Communist Economic System
       Planned Economy vs. Market




                    Source: DeLong: Macroeconomics
General Overview of Communist Economic System

There were still some positive
outcomes of communist economies
   •   equitable distribution of incomes,
   •   general access to education, health care,
   •   job security,
   •   industrialization (from agrarian countries)
   •   growth of production (in early years)
General Overview of Communist Economic System


But negative outcomes prevailed
• shortages or surpluses,
• slow economic growth in later periods
• technological backwardness because of slow
  innovation
• environmental damage by heavy industry
• stagnating social indicators, health, life expectancy,…
• intrusive government due to lack of private incentives
• governments NOT maximizing social welfare but
  seeking own advantages (principal-agent problem)
• lack of freedom – dictatorship
General Overview of Communist Economic System


 Why communist economies poorer
     than market economies?
      – Initial conditions (communist countries were
        poorer in the first place)
      – Communist economies generated lower
        rates of economic growth
General Overview of Central Planning
  Economic growth in communist period
          (% per capita p.a. )
   Period                      EAST     WEST
   1950s                         4.5      3.7
   1960s                         3.6      4.5
   1970s                         2.8      2.8
   1980s                         0.8      2.0


Communist economy good at mobilizing resources in
short term, not able to sustain growth in long term.
General Overview of Central Planning

What caused poor performance of
communist economies?
• Central planning

• Property rights
General Overview of Central Planning


Problems with central planning
  Imbalances NOT eliminated by price adjustments and
  prices do not send signals what is scarce or
  prospective and what abundant and useles.

  Quantities set directly by central planners. The whole
  economy is managed like a single firm (monopoly).

  But central planners unable to manage such a huge
  firm (ECONOMY): poor info and incentives.

  PRICE MECHANISM PERFORMS BETTER THAN
  CENTRAL PLANNING.
General Overview of Central Planning


Problems with central planning
  Central planning is the story of huge government
  failure stemming from:
       - inability to collect relevant information on
  preferences of consumers, availability of production
  methods and technology
       - inability to set long-term sustainable goals

  Free market economy often faces MARKET FAILURE

  Government failure bigger than market failure
General Overview of Central Planning

             P
                                                       S
                                K                      L
        PA




                 P*                      E



                      N                            M
        PB


                                                           D


                                    Q*

                          QDA                QSA               Q
General Overview of Central Planning

Problems with property rights
• Rights to use assets and enjoy income from the
  use of assets
• In communism all assets owned by the state
• Prices and profits irrelevant.
• Managers not motivated to make profit but to
  fulfill quantitative plans.
• Inability to motivate people to work hard
• Punishment for increasing efficiency and
  innovation.
Transition

Collapse of communist experiment
and transition
• Communist system failed and was followed by TRANSITION
  from central planning to market economy

• During TRANSITION all “rules of the game” (constitution, laws,
  codes of behavior, habits, property rights) changed.
      i.e., Market economy based on profit seeking
      entrepreneurial behavior while entrepreneurship in
      communism is considered to be speculation and
      trying to avoid hard work and therefore illegal.
Transition


Speed of Transition
•    Two options
    1. Big Bang or Shock Therapy
    2. Gradual reforms
•    Scope of reforms
    –   Economic reforms: Liberalization, stabilization,
        dismantling communist institutions (CMEA) and subsidies,
        privatization, banking system, safety net
    –   Institutional reforms: large-scale privatization, market
        oriented legal system and institutions, financial, labor,
        retirement regulations (in summary laws, regulations,
        institutions)
Transition

             Speed of transition
• CEEC and FSU big bang in economic reforms
  and variability in institutional reforms.
  Havel: “Cannot cross a chasm in two leaps”

• CHINA gradual reforms only.
  Deng Xiaoping: “feeling stones to cross the
  river”
Transition


             Speed of transition
• China vs. CEEC and FSU

   – China dictatorship while CEEC and FSU became
     democracies, in China reforms conducted by communists in
     CEEC by democrats.

   – Chinese approach not used in CEEC as reformers (former
     dissidents) worried of Russia and return of communists in
     their own countries used WINDOW OF OPPORTUNITY to
     make reforms irreversible.
Transition


  Outcome of transition depends on
• Initial conditions
      Some countries remembered pre-communist
      period and had market skills
      Some countries implemented institutions from the
      scratch (Slovakia)
      Some countries started transition with stable
      economy while others from macroeconomic
      imbalances
Transition


  Outcome of transition depends on
• Liberalization and stabilization policies
   – In general the stronger the liberalization the faster recovery
     of production
   – Stabilization macroeconomic policies crucial
   – Important to establish hard budget constraint
Transition


  Outcome of transition depends on
• Privatization and regulation
     Private firms more efficient than state owned
     Methods of privatization
     Financial regulation, labor code, regulation of
     pension system, taxation
     Enforcement of contracts
     Functioning of legal system
Transition


  Outcome of transition depends on
• Political system
     Avoidance of government failure
     Elimination of redundant redistribution and rent
     seeking
     Economic and legal predictability
     Sequencing of reforms
     EU accession
The Slovak Experience



                    Short history

•   1918 -1992 Slovakia part of Czechoslovakia.
•   1948 -1989 - communist country.
•   1993 - Independent Slovakia in 1993.
•   2004 - a member of the European Union.
The Slovak Experience


   Short economic history – communist
                 years

   • Most of Slovakia agrarian before 1948
   • 1950s – 1960s – industrialization and
     economic growth
   • 1970s – 1980s – economic stagnation
   • 1990s – transition to market system and
     democracy
The Slovak Experience


   Short Economic History – Transition
                Years
   • Initial decline of output caused (1990 – 1992)
          - Creative destruction
   • Economic recovery (1993 – 97)
          - Fruits of economic reforms
   • Slowing down and fiscal problems (1999 – 01)
          - Lack of institutional reforms and bad politics
   • Strong economic growth (2002 – current time)
          - Institutional market reforms and EU accession
The Slovak Experience


                   Adoption of EURO

                            ERMII Euro adoption        Final   SKK
                   ERMII
                            parity        date*   conv.rate*   rate*


  Slovakia –
                    2006       38         2009         35.0
  consensus
  Czech Republic
                    2008   30.4-31    2010-2014        28.5    1.23
  – cons.
  Poland –
                    2008     3.85*    2009-2012          3.7    9.5
  consensus
  Hungary –
                    2008 255-260      2012-2014         255    13.7
  consensus
The Slovak Experience

       Current economic performance
   • Currently, Slovakia is a fast growing economy
     with GDP growth of about 10 % in 2007
   • Unemployment rate remains high but declining
     (about 10 % in 2009).
   • Regional differences: rich Western Slovakia,
     poor Eastern Slovakia.
The Slovak Experience

                             GDP Growth in Slovakia
         15


         10


          5


          0
               1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008

          -5
     %




         -10


         -15


         -20


         -25


         -30
The Slovak Experience

                    Economic growth
    6.0
                                                                                          5.2
    5.0                                                                                 3.6
                                                                                    3.9
                                                                                      4.0
    4.0

    3.0

    2.0

    1.0

    0.0
          2001   2002       2003     2004    2005      2006f      2007f     2008f   average

                        Czech Republic   Hungary    Poland     Slovak Republic
The Slovak Experience


                   Unemployment rate

   20%
   19%
   18%
   17%
   16%
   15%
   14%
   13%
   12%
   11%
   10%
         93   94   95   96   97     98    99    00     01      02    03   04   05

                         Core Unemployment (average)        LT average
The Slovak Experience

                                Material distress
    14.0%                                                                                                            700

    12.0%                                                                                                            600

    10.0%                                                                                                            500

      8.0%                                                                                                           400

      6.0%                                                                                                           300

      4.0%                                                                                                           200

      2.0%                                                                                                           100

      0.0%                                                                                                           0
               1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

                                           number (ths)             % of total population


  Note: People in material distress include unemployed as well as people on social benefits that qualify. Material distress is
  defined as income below life minimum. However, the number of the poor is greater as the data does not include low income
  people (such as pensioners, etc). Some estimates put the poor at 10% instead of 7% in 2005. Source: Ministry of Labour
The Slovak Experience

                Structure of Economy

                                Agriculture
                                    3,5       Industry;
                                                29,4



                    Services;
                      67,1
The Slovak Experience


   • In the world perspective, SLOVAKIA is an
     upper middle income country with a Gross
     National Income per capita of US$ 7,600
     in 2005.
   • In European perspective, Slovakia
     achieves about 55% of average income of
     25 countries of the EU
                         GDP per capita




               0
                   20
                        40
                             60
                                  80
                                          100
                                                120
    Ireland                                           140
Netherlands

    Austria

       UK

   Sweden

   Germany

     France

       Italy

      EU25

      Spain

    Greece

   Slovenia

   Czech R,

   Portugal

   Hungary

    Estonia

   Slovakia

   Lithuenia

     Poland

     Latvia
                                                            GDP per capita in 2005 in PPS EU25=100%
The Slovak Experience


                           Size of the market
                                                 Relative to                           Relative to
                      GDP (EURbn)                  German             Populat.(m)        German
                                                    market                             population
US (1)                           10,119                      513               265.6          324

Germany (4)                        1,973                     100                81.9          100

Poland (22)                           403                   20.4                38.7           47
Czech
                                      170                     8.6               10.3           13
Republic (40)
Hungary (44)                          139                     7.0               10.1           12
Slovak
                                        62                    3.1                5.4            7
Republic (50)


  Note: GDP adjusted by Purchasing Power Parity, 2004 data. Source: EUROSTAT
The Slovak Experience


            Productivity comparison
          GDP per hour worked Germany = 100
                   US               108
                   Germany          100
                   Austria           99
                   UK                94

                   Hungary           52
                   Slovakia          49
                   Czech Republic    45
                   Poland            41

                   Mexico            32

    Source: OECD
The Slovak Experience



                    Working habits
                   Hours worked per year
                        # of hours   OECD Rank Germany=100%

  Czech Republic            1 972            2        136%
  Poland                    1 956            3        135%
  Slovakia                  1 814            7        125%
  USA                       1 792           12        124%
  UK                        1 673           16        116%
  Italy                     1 591           18        110%
  Austria                   1 550           21        107%
  Germany                   1 446           24        100%
  France                    1 431           25         99%
  Netherlands               1 354           26         94%
    Source: OECD
The Slovak Experience

                                Education
 % of population 25-64 having completed at least
           upper secondary education
                                Percentage   Rank

  Czech Republic                      87.8      1
  Slovakia                            85.8      3
  Germany                             83.0      5
  UK                                  81.7      7
  Poland                              80.8      9
  Austria                             78.2     11
  Hungary                             71.4     14
  Netherlands                         67.6     15
  France                              64.1     17
  Source: Eurostat, 2002 data
 The Slovak Experience


                               Economic freedom
                            Czech Republic
                                 (21)



                              Slo vakia (34)                              big impro vement in 2004



                               Hungary (40)



                                P o land (41)



                                                2     2.2       2.4        2.6        2.8       3


                                                         2003 2004 2005 2006
Source: The Heritage Foundation and Wall Street Journal, Index of Economic Freedom.



   The lower the value, the greater the economic freedom.
The Slovak Experience


                                Doing business
           140
           120
           100
            80
            60
            40
            20
            0
         Ease of Doing      Starting a     Dealing w ith   Hiring and   Registering   Getting Credit
           Business         Business        Licenses          Firing     Property

                 Slovakia           Czech republic         Hungary         Poland         Germany


The smaller the number, the better

       Source: World Bank, Doing Business 2006
The Slovak Experience

                            Labor market
                   Difficulty Rigidity of   Difficulty Rigidity of     Firing
                   of hiring      hours      of firing employme        costs
                       index       index        index    nt index    (weeks)

  CE average                18         55          28          34         24
  Czech
                            33         20          20          24         22
  Republic
  Hungary                   11         80          20          37         34
  Poland                    11         60          30          34         25
  Slovakia                  17         60          40          39         13


  Germany                   44         80          40          55         67


  The smaller the number, the better
The Slovak Experience


                Informal economy
                             % of GNI
                                  Informal economy
                                       (% GNI, 2003)

                Slovakia                       18.9
                Czech Republic                 19.1
                Hungary                        25.1
                Poland                         27.6
                CE average                       23


                Germany                        16.3
      R




                     0.0
                           1.0
                                 2.0
                                       3.0
                                             4.0
                                                   5.0
                                                         6.0
          us
             sia
     M
        ex
            ic
Th              o
    ai
      la
         nd                                                    % of GDP
              (*
                 )
       Br
M          az
                                                                                       The Slovak Experience




 al             il
     ay
        si
          a(
               *)
       C
         hi
              na
    Sp
        ai
           n(
Po             *)
    rtu
        ga
 G           l(*
   re            )
      ec
          e(
               *)
                                                                          FDI inflow




      Po
          la
              nd
   H
     un
         ga
              ry
   Sl
       ov
         ak
               ia
   C
     ze
         ch
  Ire          R
      la
        nd
              (*
                 )
                                                               12
The Slovak Experience



        FDI inflow: CE comparison
                    Slo vakia



                     P o land



                    Hungary



              Czech Republic


                            -1,000   1,000      3,000      5,000    7,000
                                                                   US$
                                         1989-1999   2000-2008
The Slovak Experience


       Most attractive sectors in CE in the future
         according an Ernst&Young Survey
                 Car industry                                               28%
               Mass consum                                                  28%
              Heavy industry                                              27%
         Telecommunication                                    19%
                   Transport                            16%
            Tourism&leisure                     12%
                     Telecom                    12%
            Hi-tech services                  11%
                   Chemicals                  11%
          Hi-tech equipment                 10%
    Real estate/construction               9%
           Financial industry              9%
                   Pharmacy           7%

                            0%   5%        10%    15%         20%   25%     30%
The Slovak Experience


             Hourly labor costs in EUR
                                           % of CE
                  1996    2004E   Feb-06           % of EU15
                                               avg
  Czech
                    2.6     5.5      6.5     116.3      24.6
  Republic
  Hungary           2.7     5.2      5.7     101.0      21.3
  Poland            2.7     4.2      5.1      91.4      19.3
  Slovakia          2.3     4.4      5.1      91.3      19.3

  CE Average        2.6     4.8      5.6     100.0      21.1
  EU Average        20     25.9     26.6               100.0

  Germany          25.3    30.4     31.0               116.4
The Slovak Experience


           Corporate profit taxation
                         2004 Corp    2006 effective         Tax on
                        tax rate(%)      tax rate(%)   dividends(%)
 Hungary(*)                   17.6             18.1            20.0
 Slovakia                       19             16.7             0.0
 Poland                         19             18.0            20.0
 Czech Republic                 28             21.1            15.0
 Germany(**)                 39.35             36.0            23.5
 Netherlands                  34.5
 France                       34.3
 Austria                        34
 EU15 average                 31.3
The Slovak Experience


                 Personal tax rate
                                 2004 marginal
                                       tax rate


                Slovakia                    19

                Czech Republic              32

                Hungary                     38

                Poland                      40
The Slovak Experience



    Government’s role in the economy
                          revenues as % of GDP
    55

    50

    45

    40

    35

    30
         Czech Republic      Hungary                 Poland   Slovakia

                                       1998   2003
The Slovak Experience
    Government’s role in the economy
                 revenues as % of GDP
                 Conclusions
• Communist experience taught us that:
  – Government failure bigger problem than market
    failure
  – Governments lack information and incentives to
    manage economy appropriately
  – Property rights play an important role, common
    property invites shirking, hinders activity
                  Conclusions
• Transition taught us that:
  – Free market mechanism indispensable
  – Soft budget constraint invites irresponsible behavior
  – Private property rights important
  – Institutions “rules of the game” that reward
    productivity rather than redistribution of income are
    crucial, “people respond to incentives”
  – Good legal system “enforcing contracts” decisive
  – Transparent politics promotes economic growth
AGRICULTURAL TRANSITION
2nd part of presentation
                    Introduction

• In communist countries (before 1989) all economic
  activities directly regulated by state, the whole
  economy like a single firm.
• Central planners set:
  – What firms have to produce
  – Trade flows among companies
  – Allocation of resources among companies
• Prices set centrally and did not send right signals to
  producers and consumers.
                 Introduction cont.

• Agriculture centrally regulated too.
• Land and farms (cooperatives) de facto owned by
  state. Decisions made centrally.
• Land concentrated into large cooperatives.
• Average farm size 1 457 ha in Poland 124 770 ha in
  Turkmenistan.
• Farm size in market economies (USA, EU, …) much
  smaller.
                 Average farm size   Workers per 1000 ha   Tractors per 1000   Workers/Tractors per
                                                                  ha             1000 ha (B/C)
Albania               1 907                 628                   20                   32
Bulgaria              19 464                156                   10                   15
Czechoslovakia        2 988                 156                   24                    6
Hungary               3 559                 158                   10                   16
Poland                1 157                 259                   29                    9
Romania               2 696                 209                   15                   14
Estonia               4 490                  92                   16                    6
Latvia                4 041                 102                   15                    7
Lithuania             3 094                 109                   15                    7
Armenia               1 621                 167                   10                   16
Azerbaijan            2 765                 164                   10                   17
Belarus               3 417                 125                   14                    9
Georgia               2 148                 209                   10                   21
Kazakhstan            75 555                 9                    1                     7
Kyrgyzstan            21 626                 41                   3                    14
Moldova               2 519                 279                   25                   11
Russia                8 473                  50                   7                     7
Tajikistan            8 352                 114                   9                    12
Turkmenistan         124 770                 7                    1                    10
Ukraine               3 930                 145                   11                   13
Uzbekistan            13 637                 77                   7                    11
             Farm size during communism

                    Average                    Average
                   farm size                  farm size
                      (ha)                        (ha)
Albania              1 907     Armenia           1 621
Bulgaria            19 464     Azerbaijan        2 765
Czechoslovakia       2 988     Belarus           3 417
Hungary              3 559     Georgia           2 148
Poland               1 157     Kazakhstan       75 555
Romania              2 696     Kyrgyzstan       21 626
Estonia              4 490     Russia            8 473
Latvia               4 041     Tajikistan        8 352
Lithuania            3 094     Turkmenistan    124 770
                               Ukraine           3 930
                               Uzbekistan       13 637
        Farm size in market economies


                         Average farm size (ha)

Japan                            1.24
EU-15                             18
USA                              197
                  Introduction cont.
• 1989 – The Fall of Berlin Wall – collapse of
  communist regimes in CEE and FSU
• Transition from centrally planned economy to market
  economy.
• Transition involves institutional change (change of
  rules of the game in the form of laws, regulations,
  property rights, norms, …).
• Institutions constrain behavior of individuals and
  through this have impact on productivity of the
  economy.

• Market institutions support private incentives.
  Communist institutions hinder private incentives.
                          Introduction: cont.

•    Transition of agriculture involves:
    1.   Privatization
    2.   Farm restructuring
    3.   Price liberalization
    4.   Formation of market institutions
                      Privatization
• During communism land and cooperatives
  owned by state. State ownership inefficient.
  Incentives to work higher in the case of private
  ownership of resources.
• To increase efficiency property rights transferred
  from state to private hands – privatization.
• Privatization in agriculture:
  – Privatization of land
  – Privatization of assets of cooperatives and state farms
                          Privatization cont.

• Privatization of land in FSU and CEE:
   – Restitution to former owners
   – Distribution to farm workers
   – Combination of restitution and distribution
• Restitution to former owners:
   – Land restituted to owners from before nationalization and
     collectivization. Historical injustice caused by communism
     undone.
   – Restitution took place in CEE (except Albania) and in Baltic
     States.
   – Restitution      feasible   because      nationalization and
     collectivization took place in recent past (after WWII),
     documentation exists and former owners or their children
     still alive.
                       Privatization cont.
• Distribution of land among farm workers :
   – Land distributed among farm workers in order to create
     equitable land ownership.
   – Applied in FSU and Albania.
   – Restitution infeasible in FSU because of search costs, missing
     documentation. Communist regime introduced in FSU after
     WWI.
   – Combination of distribution and restitution :
   – Some land restituted to former owners and some land
     distributed among farm workers.
   – Applied in Hungary and Romania.

• In some countries (Byelorussia,                   Kazakhstan,
  Turkmenistan) privatization very limited.
               Distribution       Restitution         Distribution and
                                                           restitution
Albania            
Bulgaria                              
Czech R.                              
Hungary                                                     
Slovakia                              
Romania                                                     
Estonia                               
Latvia                                
Lithuania                             
Armenia            
Azerbaijan         
Georgia            
Kyrgyzstan         
Russia             
Ukraine            
Belarus                       Limited privatization
Kazakhstan                    Limited privatization
Turkmenistan                  Limited privatization
                       Privatization cont.



• Privatization of farm assets :
   – Privatized by restitution and distribution.
   – Restitution served to undo former injustice while distribution
     compensated workers for their contribution to farm surpluses
     created and invested back into cooperatives.
                Farm restructuring
• During communism cooperatives and state farms
  centrally managed. Farms had to fulfill central plan.
• Restructuring aim was to transform farms such that
  they would react to market signals (prices and
  competition).
• Two approaches to restructuring:
   – New owners could withdraw land from cooperatives
     (cooperatives could be dissolved) and establish family farm,
     these are the farms prevalent in developed market economies.
   – Remaining       cooperatives     transformed.       Communist
     cooperatives changed into cooperatives of owners of
     property, joint stock companies or limited liability companies.
              Farm restructuring cont.

• During restructuring process the average farm
  size declined.

• In Slovakia, Czech Republic and in most FSU
  countries there are transformed cooperatives
  after restructuring.
• In Albania, Baltic States family farms are
  dominant.
• Both types of farms present in other countries.
                         Family farms                      Transformed coops
               Share on land      Farm size (ha)   Share on land (%)   Farm size (ha)
                      (%)
Albania            96                                     4
Bulgaria           44                  1                  55               861
Czech R.           28                  20                 72               937
Hungary            59                  4                  41               312
Poland             87                  8                  13
Romania            55                  2                  45                274
Slovakia           12                  42                 88               1185
Slovenia           94                                     6
Estonia            63                  2                  37               327
Latvia             90                  12                 10               297
Armenia            32                                     68
Azerbaijan          9                                     91
Belarus            16                                     84
Georgia            24                                     76
Kazakhstan         20                                     80
Russia             11                                     89              6 100
Tajikistan          7                                     93
Turkmenistan       0.3                                   99.7
Uzbekistan          4                                     96
Ukraine            17                                     83              2 100
              Price liberalization
• Prices are important in market economy. Prices provide
  signals to market participants how scarce commodities
  are.
• High price may signal high demand. Profit maximizing
  firms therefore increase production. Firms allocate
  resources to goods with the highest demand which
  results in efficient allocation of resources.
• In communism prices regulated by the state. Prices
  actually used only as an accounting tool to monitor
  state owned firms. Communist regimes therefore
  created surpluses of some goods and shortages of other
  goods.
                  Price liberalization cont.



• Price liberalization was an integral part of reforms.

• Generally price liberalization lead to increase of price
  level.

• The highest increase of prices observed for agricultural
  inputs while prices of agricultural outputs increased
  less. The reason was shortage of inputs and surplus of
  outputs prior to liberalization.
Development of prices in Slovakia
Development of prices in Hungary
Development of prices in Russia
    Formation of market institutions
• Former communist countries had to create institutions
  supporting market system.

• They include the creation of safe private ownership
  rights, regulations supporting competition and contract
  enforcement.

• Many countries, especially FSU, adopted laws
  preventing sales and renting of land which laead to
  inefficient allocation of resources.
           Formation of market institutions cont.
• Some countries lacked full definition of ownership
  rights.

• For example, in FSU new owners received shares of
  cooperatives not entitlement to a particular parcel.
  Direct relationship between land and individual was not
  created.

• Better informed managers could constrain rights of less
  informed owners.

• There was less of the problem in CEE.
       Formation of market institutions cont.




• In overall, in CEE and Baltic States ownership rights
  and law enforcement was stronger than in FSU.
       The impact of transformation on
           agricultural production

• All transition countries experienced the fall of
  agricultural production in the first years of transition.
• After 4 years of transition agricultural production
  decreased by 40% in Baltic States, 30% in FSU, and by
  20% in CEE.
• The initial fall reflected the destruction of the old
  system of exchange of commodities while the new
  system was just being implemented.
• After the initial fall stabilization ensued. Production in
  many countries started to rise. The biggest increase
  occurred in Albania, Slovenia and Romania.
      The impact of transformation on
       agricultural production cont.
• Agricultural production reached pre 1989 level only in
  Albania, Slovenia, and Romania.

• In FSU decline of production was bigger than in CEE
  and the subsequent rise smaller. The reason is that
  property rights were better defined and law
  enforcement was stronger in CEE. Agricultural
  resources were therefore more efficiently used in CEE
  than in FSU.
    Development of agricultural production in transitive countries



                                                                                         Kazakhstan

                                                                                         Russia
        100
                                                                                         BRSZ

                                                                                         Albania

                                                                                         Czech R.
Index




                                                                                         Poland

                                                                                         Romania

                                                                                         KVSE

                                                                                         Estonia

                                                                                         Baltic States

                                  Počet rokov od začiatku transformačného obdobia
         30
              0   1   2   3   4      5      6      7      8      9     10     11    12
  Growth of GAO in Transition Countries (index equals
              100 in first year of reform)
Country          Years after start GAO index in     GAO index after GAO index after
                 reform with       year of lowest   5 years of      10 years of
                 lowest GAO        GAO              reform          reform
Czech Republic          5                75               75               77
Hungary                 6                69               70               73
Poland                  5                77               77               85
Slovakia               10                68               77               68
Albania                 2                77              100              113
Bulgaria                7                57               63               62
Romania                 3                75               93               93
Slovenia                3                65               81               79
Estonia                 8                41               55               55
Latvia                  9                37               50               50
Lithuania               9                64               69               69
Belarus                 9                57               61               61
Moldova                 9                42               66               66
Russia                  8                58               64               64
Ukraine                 9                51               69               69
Growth of ALP (Output per Farm Worker) (index equals
             100 in first year of reform)
Country          Year with    ALP index in     ALP index after   ALP index after
                 lowest ALP   year of lowest   5 years of        8 years of
                              ALP              reform            reform
Czech Republic         1             99              126               177
Hungary                1             99              175               220
Poland                 3             96               99               144
Slovakia               0            100              110               132
Albania                2             77              108               104
Bulgaria               9             60               69                63
Romania                9             59               67                63
Slovenia               3             61               85               Na
Estonia                1             76              139               163
Latvia                 8             49               54                65
Lithuania              5             62               62                77
Belarus                4             69               71                87
Moldova                8             41               58                41
Russia                 5             63               63                65
Ukraine                8             52               65                52
Growth of Input Use Indexes in Transition Countries (index
               is 100 in first year of reform)
Country       Fertilizers    Tractors       Land            Labor       Animal Stock
              5       10     5     10   5          10   5           8    5      10
 Czech Rep.   29      24    58     82   103    103       54      44      69     53
  Hungary     15      18    72     61    94     95       43      37      59     51
   Poland     35      38    114   113    99     98       89      97      81     69
  Slovakia    17      15    89     77   100    100       71      60      65     46
   Albania    19      14    74     68   101    102       92     107     121    107
  Bulgaria    25      14    69     51    98     98       92      99      47     42
  Romania     27      17    106   110   100    100      118     110      63     50
  Slovenia    56      52    56    118    91     83       95      87      86     82
   Estonia    17      20    106   109   107    106       40      35      50     32
    Latvia    21      53    82     89    99     97       79      77      38      6
  Lithuania   10      16    118   137   100    100      113     103      52     41
   Belarus    25      40    92     62    98     97        8      73      79     64
  Moldova     42      2     93     78   102    102      114     111      64     32
   Russia     11      9     82     61    98     98      100      92      74     47
   Ukraine    24      11    92     68   100     99      106     102      75     41
Growth of Index of Agricultural Yields in Transition
      Countries (100 in first year of reform)
  Country       Average agricultural yield    Average agricultural yield
                after 5 years of transition   after 10 years of transition
 Czech Rep.                 96.3                          115.3
  Hungary                    79.7                          98.0
   Poland                    87.3                         100.0
  Slovakia                  92.3                          107.3
   Albania                  94.0                          100.0
  Bulgaria                   68.7                          75.7
  Romania                   100.7                         102.7
  Slovenia                    Na                            Na
   Estonia                  86.0                          100.3
    Latvia                   82.7                         103.7
  Lithuania                  80.7                          91.3
   Belarus                  72.3                           75.3
  Moldova                     Na                            Na
   Russia                   72.3                           74.7
   Ukraine                  78.3                           71.0
Thank you for your attention

				
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