Poland and the Russian Federation—a comparative study of growth and poverty

In the former Soviet Union and Central and Eastern Europe, output declined steeply with the abandonment of communist economic practices. Largely, however, the scale of structural and institutional distortions inherited from the command economy determined the decline.
Adjustment triggered by liberalization of domestic and external markets caused significant shifts in demand. Export markets organized on the basis of central planning collapsed, particularly the Council for Mutual Economic Assistance (CMEA) (1990ñ91) and the Soviet inter-republican market (1992ñ93). New import opportunities decreased demand for some domestic products before new export opportunities spurred production of other goods. Other microeconomic factors contributing to output decline were dramatic changes in costs following price liberalization and elimination of multiple exchange rates, various explicit and implicit subsidies, and special price arrangements inside the CMEA and the former Soviet Union. A third group of factors involved such issues as (i) collapse of the mobilization role of the central plan and administrative incentives connected with a totalitarian regime, (ii) expectations and incentives created by the privatization process, (iii) expectations of massive bailouts of state enterprises by the government based on past reform experience under communism, and (iv) lack of skills for working under market conditions. Apart from these factors, the severity and longevity of the decline depended on the transition strategy the country adopted, particularly the speed of reforms and their consistency. Countries that reformed rapidly, such as Poland, suffered smaller declines and enjoyed quicker recoveries than countries that implemented gradual reforms, such as Russia. The similarities and differences in Polandís and Russiaís experience with market reform in the 1990s provide an interesting study of the dynamics of transition from a command economy. Poland was the pioneer of postcommunist political and economic transition, having begun the process in 1989. In Russia the process began two years later, when the Soviet Union collapsed. In the first stage of its transition Poland represented a classic case of rapid reformósometimes known as shock therapy. Russiaís attempt to follow the same pattern failed for domestic political reasons, leading it down a much slower and less thorough reform path. From the early 1990s Poland enjoyed a geopolitical chance to participate in the process of European integration, which will come to fruition with the accession of eight former communist countries to the European Union (EU) in May 2004.

• http://info.worldbank.org/etools/docs/reducingpoverty/case/26/fullcase/Poland%20and%20Russia%20Full%20Case.pdf