The Unofficial Economy in Transition

The economies of eastern Europe and the former Soviet Union (FSU) escaped communism with a heavy burden. When central planning collapsed, they continued to suffer from widespread political control of economic activity. Such politicization had to be reduced significantly for small business formation and growth to begin. In recent years, some of these countries have succeeded much better than others in replacing political control with functioning market institutions. It is shown that they are also the countries that have had the healthiest public finances, the smallest unofficial economies, and the best records of growth. Comments and discussion are presented.