The transition process – it’s all about people, isn’t it?

The transition process – it’s all about people, isn’t it?

What is the transition process all about?

EBRD Ninth Annual Meeting, Riga, Latvia, 21 May 2000.

Numerous researchers have analysed in depth the transition process in terms of speed of reforms, their sequencing, results and possible outcomes, but rarely do we ask ourselves the simple questions like: Why has transition started and why are we involved in it?

Numerous researchers have analysed in depth the transition process in terms of speed of reforms, their sequencing, results and possible outcomes, but rarely do we ask ourselves the simple questions like: Why has transition started and why are we involved in it? Without elaborating the answer in detail, let me offer just one possible answer. Socialism (as defined in Kornai, 2000), the predominant system in countries where EBRD operates today, has imploded, has collapsed.

This system was not able to meet the growing demands of the population for a better life, that is to say: raising living standards, and the development of a civil society and political freedoms. In a globalized world, information on living standards and developments of civil society and political freedoms from the neighbouring West could not be hidden any more from most transition economies, and discontent grew. The political conditions for change are symbolized in the fall of the Berlin Wall. This created huge expectations among people in the countries of formerly socialist economies. The expectations of the population at that time were that there would be a rapid catch-up with the western standard of living (including political freedoms as well). With regard to the speed of catching up in terms of economic wellbeing, this turned out to be a naïve view.

The main goal of any economic policy should be to increase the welfare of the population, which includes a sustained and high growth of GDP and a desirable distribution of income. In other words, we want welfare to increase; we want people to be better off. Not many people should have trouble agreeing with that statement. Today, indeed, there is evidence that the dual goals of growth and equality of income distribution are mutually compatible (Wolf, 2000).

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