Jaromír Šindel ECES Introduction into the Transformation Puzzles The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

About the Course Syllabus Exam Midterm and Final. Presentation. Presentation 20 % of grade, abstract for colleagues, talk min., questions for discussion, parallel between selected topic and experience in your country. Readings Reading will be announced on Wednesday and will be discussed next week during Tuesday’s and Wednesday’s lectures. Why Puzzles? Heterogeneity of the economic policies. What it is C&EE? CEE4 also Vysegrad’s countries; CEE8 = EE4+Baltic and Slovenia; CEE10 = CEE8 + Romania, Bulgaria Analyse with EU and USA Form of Lecture Lectures (1,5 hour) are twice a week. Introducing into topic. News related to topic from CEE region.Intuitive visit in related economic theory. Presentation. Lecture. The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Topics CEEC? Introduction into the Economic Policy –Impossible trinity (capital, interest and inflation differentials), … From Communism to Capitalism Why Transformation Puzzles –Initial conditions, methods of solutions, differences in transition process, … –Gradual vs. rapid liberalization and deregulation, privatisation, transformation slowndown, law and transformation, monetary or exhchange rate based stabilization programmes, financial and bank crisis, foreign direct investment, structural changes, labor market, welfare state, … The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source:

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. GDP per capita in 1997

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. Clusters of Region in 1996

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. Employment Structure 1998

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. Unemployment Ratio in 1998

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. Youth Unemployment Ratio 1998

CEEC? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Weise C, et al. (2000) The Impact of Enlargement on Cohesion. Female Unemployment Ratio 1998

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown.

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. President Edvard Beneš approves Prime Minister Klement Gottwald’s reorganized government on February 25, (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. May Day parade on Wenceslas Square, (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. While it lasted, the largest monument to Stalin in the Soviet Bloc stood in Prague,photographed May 4, (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Alexander Dubček’s reception among the workers at the ČKD factory in 1968 reflected his genuine popularity among Czechoslovak citizens. (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Soviet soldiers listen to Czech protests on Prague’s streets, August 21, 1968.(ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Leading normalizers at an NF meeting on January 27, 1971: from left to right, Gustav Husák, Ludvík Svoboda, and Lubomír Štrougal. (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Students and riot police face off on National Avenue, November 17, (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Václav Havel addressing the crowds on Wenceslas Square with the news of the first non-communist government since 1948, December 10, (ČTK photo)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Economic Indicators in Czechoslovakia, 1990–1992 (ANNUAL % CHANGE)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Agnew - The Czechs and the Lands of the Bohemian Crown. Czech and Slovak Opinion on the Preffered Form of State (in %)

From Communism to Capitalism The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Key questions Why did growth slow down so dramatically in the communist countries in the 1970s and 1980s? In what sense were the communist economic systems ‘unreformable’?

Theoretical concepts of transformation –no coherent theoretical concept of transformation (see above) -the neoclassical economics -the Austrian School (Mises, Hayek); -the Freiburg´ School – Ordoliberalism (Eucken); -the Chicago´ monetarist (Friedman, Stigler); -the Public Choice (Tullock, Buchanan); -the School of Ownership Rights (Coase); -the New Institutionalism (Olson). The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Gradual vs. rapid liberalization and deregulation The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Privatisation The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Privatisation and Foreign Direct Investment - comparison PeriodCzech Rep.Hungary The share of privatisation revenue in foreign currency in the total of privat. revenue The share of privatisation revenue in foreign currency in the total FDI inflow Source: Hunya (2000), from Schejbal, J. (2002)

Transformation Slowdown Note: P – Poland, C – Czech R., S – Slovakia, H – Hungary, B - Bulgaria Source: Blanchard, O.: The Economics of Post-Communist Transition The Evolution of GDP (value in the year before transition = 1.00, year 0 means the year of trasformation beginning) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Law and Transformation Source: CERGE: Czech Republic 2005: Year After. Duration of Bankruptcy Proceedings The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Monetary or Exchange Rate Based Stabilization Programme Inflation differentials, nominal and real ER of the CEE countries The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Frait, Komárek (1998)

Where is Dolar´s origin? –Jaochimsthaler was silver currency from the Jáchymov –In 1519 was established new stronger silver currency Tolar –Jaochimsthaler –> Thaler –> tolar –> dolar The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Financial and Bank Crisis Overdue loans in Hungary and Czech rep., (% of all loans) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Note: Maďarsko = Hungary, ČR = Czech Republic. Source: Polouček (1999) and Srholec, M. (2001), from Schejbal, J. (2002) Share of foreigners on equity in Czech Rep. and Hungary, (in % at the end of year)

Foreign Direct Investment FDI in Czech Republic, Hungary, Poland in What is behind? (USD) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Newton. Country Report. October

Structural Changes Technological Levels of Manufacturing Production (constant prices, %) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Newton. Country Report, January

Labour Market Source: UNECE. Economic Survey of Europe, 2000 No. 2/3. Unemployment and employment rates in the CEECs, 1996 and 1998 (Percentages) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

Welfare State Gini Coefficient The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Kornai, J., 2005.