In 1989, when the communist system began to crumble in the Soviet Union and eastern Europe, many people encouraged by rash statements by politicians, believed that the abolition of central planning and the adoption of the free market and democracy would rapidly stimulate economic change.
Seven years on, optimism has been tempered by realism. As the communist tide receded, major problems surfaced, such as pollution, structural imbalances in industry, outdated equipment, deficient infrastructures and questions of ownership. What is startling in retrospect, is the extent to which the failure of the state system had been underestimated.
Yet material factors alone do not account for the extraordinary differences in performance in the 24 states which draw funds and advice from the European Bank for Reconstruction and Development. Some, favoured by geography and history, have done extremely well, like Poland, Hungary, the Czech Republic and Estonia. Others, more remote and historically disadvantaged, have done abysmally, like Turkmenistan and Kazakstan.
The annual report of the European Bank suggests that changes in legislation to encourage new investment are only relative in bringing about economic transformation. It points out that greater efficiency in the use of existing machines and buildings, and the available skilled labour, could increase output significantly, even without a major injection of capital from abroad. Energy efficiency is an area in which savings must be made. In the former communist states, between two and seven times as much energy is used per unit of GDP compared to the OECD average.
More than anything, a statistic of this kind illustrates the slow change in human psychology that underlies the dragging pace of economic development. Altering the price of energy to the consumer to reflect its true cost has been one of the most sensitive decisions for post communist governments because of the social implications; but increasingly, price restructuring has been introduced, raising the pressure on personal incomes. Where governments dominated by former communists, now describing themselves as democratic socialists, have come to power, there has been greater reluctance to reach such decisions. But experience has shown that in countries like Estonia or Poland, where the shock system of economic therapy has been sustained, the result is a solid base for expansion.
Economic factors apart, other obstacles have helped to delay reform. Old bureaucracies still have their ingrained procedures, and the regaining of national independence has created a suspicion of any form of foreign intrusion. How the clash between official and popular attitudes works in practice is shown in Bulgaria, where less than 20 per cent of state owned business has been privatised but 45 per cent of GDP is generated in the private sector. But the large number of one man and small local businesses that this figure implies, is no substitute for a change in official culture to stimulate growth.