"Shock therapy" worked for the economies of the post-communist countries.

• Author: Aslund, Anders
• Position: Economy - Essay

Anders Aslund, a leading specialist on the Soviet Union and its satellites, gave a talk last fall about the massive changes in Russia and the new post-communist countries in Eastern Europe and Central Asia in the 1990s after the collapse of communism. His conclusions were incontrovertible--and they were stark. Economically, the process provided successful transitions to capitalism because most countries understood how to move to free markets and did so quickly. Economists, both in these countries and the West, have mastered the principles for this transition and they worked in practice. In contrast, political transformation has been disappointing in these nations--a failure that Aslund blames on the lack of blueprints for action that should have been developed over the years by political scientists.

Aslund's work provides an important historical answer to the debate in policy-making and academic circles about how to proceed in replacing the command economies from the Soviet era. An expert on the communist system imposed by Russia, Aslund had predicted the collapse of the Soviet Union under Mikhail Gorbachev. When it happened, he was a leading advocate of rapid change--"shock therapy," as this controversial approach was called. Opponents argued that a gradual transition from Soviet-style ways would provide a better path for these countries in a world ruled by free-market economies. The argument has sputtered on among economists in the former Soviet bloc, Europe and the United States.

But now the answer is in. Aslund's magisterial work, built on thorough research, vindicates his predictions--and, incidentally, adds substantially to our understanding of development--this book, the first of three on the subject, analyzes the economic performance (and the corresponding political evolution) of 21 ex-communist countries. It is the first-ever such sweeping survey.

In this monumental new book, How Capitalism was Built, Aslund documents sustained economic take-offs in almost all of the 21 countries that once comprised the Soviet bloc: Russia, the countries in East-Central Europe and those of the Commonwealth of Independent States, including some in Central Asia. His findings were consistent: all but three of the 21 embraced sound economic policies, with similar mixes of market reform with deregulation, macroeconomic stabilization, privatization and the creation of a new social safety net. This economic recipe has led to accelerating growth.

In the process of documenting this extraordinary historical transformation, Aslund debunks the main charges spread by critics of his approach. A widespread charge has been that "shock therapy" only benefited rent-seeking oligarchs in these ex-communist countries. Marshalling the economic data from across the region, he demonstrates convincingly that the economic achievements have been a success for whole societies, not just a corrupt elite. While critics contended that these countries were being looted by "the oligarchs," Aslund shows that this pattern was, at worst, temporary. Historically, it proved part of a process that has led not only to general economic improvement but also helped pave the way to more democratic politics. Tellingly, only three countries of the 21 did not embrace the reforms needed to become successful market-based economies: this trio--Belarus, Turkmenistan and Uzbekistan--remain effectively dictatorships with State-dominated economies.

As Aslund underscores, free markets are integral to the formation of democracy and rule of law. But, as he also shows, there is no basis for the long-prevailing assumption among economists that market economies automatically foster democracy. They may lay an indispensable groundwork. But relative failure of political reconstruction in many of these 21 ex-communist countries...