Competition, Entrepreneurship and Institutional Change in Transition

“I believe that dangers await only those who do not react to life. Anyone who seizes the impulses and realities of life, and forms his policies accordingly, should fear no difficulties.” When he uttered these famous words shortly before the fall of the Iron Curtain, Mikhail Gorbachev had finally realized that political decisions should not be imposed upon a society, but correspond to its inner developments. Surely not before his visit to East Berlin in October 1989, but also not afterwards this understanding has unconditionally been translated into action. On the contrary, twice during the 20th century, the fate of Eastern Europe has been determined by the belief that a society could be transformed in any manner policy makers desire: during the - mostly - forceful introduction of the socialist system in the first half of the 20th century and during the transition from socialism to democracy and market economy in the 1990s. But can a market economy be designed on a drawing board? What determines whether competition and entrepreneurship unfold? Why have the institutions and habits inherited from socialism been dismantled with different pace in different societies? Reviewing the transition processes in the Baltic countries and the post-Yugoslav countries Croatia, Bosnia and Herzegovina, and Serbia, this book answers these questions. The theoretical fundament of the study is provided by the Austrian School of Economics and in particular the theory of spontaneous orders by Friedrich August von Hayek who assumes that constructivist changes are doomed to fail while successful reforms originate spontaneously, mirroring a society’s tradition and culture. To examine if tradition and culture have supported transition, political and economic history as well as cultural imprints of the six countries are analyzed in detail. Further emphasis is given to the implications of the Soviet and Yugoslav economic system. The insights of this socioeconomic journey back in time help to understand the different developments of competition and entrepreneurship in the six countries, shed light on the question why the Baltic countries have managed a much smoother economic transition than the post-Yugoslav countries and lend new weight to the insights of fall 1989 which were forgotten all too soon.