The Quest for Growth: Promoting Discipline and Encouragement xv --
The Flipside: Protection and Discouragement xvii --
Shading the Classification xvii --
New Enterprises Spur Economic Growth xviii --
When Is Transition Over? xix --
Do Central Europe and the Baltics Point the Way Forward? xix --
Can We Have It Both Ways: Encouragement without Discipline? xx --
Learning from China? xxi --
Institutions Are Important, but So Are Policies xxi --
The Political Economy of Discipline and Encouragement xxii --
Shifting Policy Priorities to Account for Experience and New Conditions xxiv --
Annex 1. Discipline and Encouragement: The Reform Agenda xxix --
Part 1. The First Decade in Transition 1 --
1. How Did Transition Economies Perform? 3 --
Private Enterprises Overtook the State Sector 6 --
Moving Toward Industrial Countries
Poverty Increased Sharply 6 --
2. Explaining Variation in Output Performance 11 --
Did Initial Conditions Affect Performance? 11 --
External Economic Shocks Delayed Recovery 13 --
What Initial Conditions Matter and When Do They Matter? 15 --
What If Policies Themselves Are Endogenous? 16 --
Does the Speed of Reform Matter? 16 --
Annex 2.1. Summary of Cross-Country Empirical Literature on Growth in Transition Economies 16 --
Annex 2.2. Additional Empirical Analysis 19 --
Part 2. Policy and Institutional Challenges Ahead 21 --
3. The Quest for Growth 23 --
A Tale of Two Approaches 26 --
The Associated Fiscal Adjustment 29 --
... And the Role of Labor Markets 30 --
4. Discipline and Encouragement 33 --
New Enterprises Drive the Transition 39 --
A Small Number of High-Productivity Small Enterprises Is Not Enough 41 --
Can We Have It Both Ways, That Is, Protecting Old Inherited Enterprises and Encouraging New Enterprises? 45 --
Annex 4.1. Assumptions for Small and New Enterprises 48 --
Annex 4.2. Implications of the Higher Productivity of SMEs 50 --
5. Imposing Discipline 53 --
Soft Budget Constraints Can Create Macroeconomic Crises 53 --
Nonpayments Weaken the Incentives for Efficiency and Restructuring 54 --
Implement Now, Revise Later
Competition Is Linked to Innovation and Growth 56 --
6. Extending Encouragement 59 --
Corruption and Anticompetitive Practices Mar the Investment Climate 59 --
Enterprises Lack Confidence in Legal and Judicial Institutions 61 --
Financial Deepening Is Slow but Progressing 62 --
Privatization Attracts Foreign Direct Investment, and Positive Spillovers Follow 67 --
Tax Reform: Broadening the Base and Lowering Rates 67 --
Intergovernmental Fiscal Relations Supporting Discipline and Encouragement 68 --
7. Privatization: Lessons and Agenda for the Future 71 --
Traditional Privatization or Rapid Privatization? 73 --
Why Countries Did What They Did 73 --
Were Vouchers a Mistake and Other "What Ifs" 78 --
Summarizing Lessons 79 --
8. Supportive Social Policies 81 --
Reforming Pension Systems 81 --
Social Assistance Should Protect Children and the Most Destitute, Adding More as Budgets Allow 83 --
Severe Cuts Have Compromised the Quality of Education 84 --
Containing Costs Will Make Health Care Affordable for Those Who Need It Most 86 --
Part 3. The Political Economy of Discipline and Encouragement 89 --
9. The Winners and Losers from Discipline and Encouragement 91 --
Who Wins and Who Loses? 92 --
The Government Must Be Credible and Able to Constrain Oligarchs and Insiders 94 --
10. Classifying Political Systems in Transition 97 --
Competitive Democracies Have High Political Contestability 99 --
... and High Government Turnover 101 --
11. Political Systems Influence the Choice of Economic Reforms 103 --
Political Systems Create Rent-Seeking Opportunities 105 --
How Do Political Systems Affect Economic Reform? 107 --
12. Confronting the Political Challenge 111 --
For Concentrated Political Regimes, Mobilizing Potential Winners 112 --
For War-Torn Political Systems, Restoring Stability and Reducing Uncertainty 114 --
For Noncompetitive Political Systems, Taking Advantage of State Capacity 115 --
For Competitive Democracies, Using Momentum to Build Coalitions for Reform 115 --
Selected Bibliographic Guide to the Political Economy of Transition 117 --
1 Increased Inequality xiv --
1.1 Limits of GDP Statistics for Transition Economies 8 --
2.1 The Regional Impact of the Global Financial Crisis and Recovery 13 --
3.1 The Business Environment and Enterprise Performance Survey 24 --
3.2 The Problem of Tunneling 27 --
4.1 Can the CIS Learn from China's Reform Experience? 35 --
4.2 The German Experience 37 --
5.1 External Debt and Fiscal Sustainability in the Low-Income CIS Countries 55 --
6.1 Reducing the Cost of Entry and Doing Business in Armenia 60 --
7.1 Historical Counterfactuals: Mass Privatization in Russia 76 --
1 Winners and Losers from Reform xxii --
1.1 Changes in Real Output, 1990-2001 4 --
1.2 Output Growth Rates, 1990-2001 4 --
2.1 Progress in Policy Reform, 1990s 14 --
3.1 Productivity Distribution of Old, Restructured, and New Enterprises 24 --
3.2 Performance of Old and New Enterprises, 1996-99 26 --
4.1 Private Sector Share in GDP, 1999 40 --
4.2 Share of Employment in Small Enterprises, 1989-98 41 --
4.3 Share of Value Added in Small Enterprises, 1989-98 41 --
4.4 Value Added per Employee in Small Enterprises, 1998 42 --
4.5 Index of GDP and Shares of Value Added and Employment Accounted for by Small Enterprises, 1989-98 43 --
4.6 Employment and GDP, 1990-98 44 --
4.7 Soft Budget Constraints and Employment in Small Enterprises, 2000 48 --
A4.1 Factor Price Frontier: SMEs and the Rest of the Economy 50 --
A4.2 Efficiency Gain from 10 Percent Factor Reallocation to the SME Sector 51 --
6.1 Insecurity of Property Rights in Transition Economies, 1999 61 --
6.2 Quality of Legal Drafting in Transition Economies, 1999 62 --
6.3 Quality of Judiciary in Transition Economies 63 --
6.4 Domestic Credit by Deposit Money Banks to the Private Sector, 1998 64 --
6.5 Stock Market Capitalization and Per Capita Income, 1998 65 --
6.6 Operating Costs to Total Assets in the Banking Sector, 1997 65 --
6.7 Interest Rate Spreads, 1998 66 --
6.8 Cumulative Foreign Direct Investment Per Capita and Employment in Small Enterprises, 1998 68 --
8.1 Public Expenditures on Education in Transition Economies, 1998 85 --
8.2 Health Expenditures, 1998 86 --
9.1 Winners and Losers from Reform 93 --
10.1 Classifying Political Systems in Transition Economies, 1990-99 98 --
10.2 Veto Points Index, 1989-99 100 --
10.3 Main Political Executive Turnovers, 1989-99 102 --
11.1 Political Systems and Economic Reform Outcomes, 2000 104 --
11.2 State Capture Index, 1999 106 --
1.1 The Transition Recession --
1.2 Composition of Output, 1990-91 and 1997-98 --
1.3 Private Sector Growth, 1990s --
1.4 Export Growth and Destination, 1990s --
1.5 Main Recipients of Foreign Direct Investment, 1992-99 --
1.6 Average Poverty Rates, 1990 and 1998 --
1.7 Changes in Inequality during the Transition, Various Years --
A2.1 Regression of Average Growth on Initial Conditions, 1990-99 --
A2.2 Regression of Annual Output Growth on Policies and Initial Conditions Allowing for Differential Effects Early in Transition, 1990-99 --
4.1 SMEs Have Higher Labor Productivity, 1998 --
A4.1 Differences between New Enterprises and Small Enterprises, 1995 and 1998 --
7.1 Methods of Privatization of Medium-Sized and Large Enterprises --
8.1 Reform Options for Social Protection Programs --
8.2 Student-Teacher Ratios in Basic Education, 1990 and 1997.
