The system changes were massive, painful and unpredictable. The world had never witnessed such widespread economic system restructuring from an extremely regulated planned economy to a market economy. The reforms were to change the systems from a command type of model to a model that incorporated the market mechanism with substantial privatization of economic resources, promotion of market competition and allowance for private investment. The system transformation did not have any precedent or established theories to rely upon. Thus, some countries opted for a “shock therapy” approach, that is, a massive overnight restructuring, while most opted for the “gradual therapy” approach to economic transformation. Poland’s Minister of Finance, Leszek Balcerowicz chose the former. Two decades later, Poland and some of the other Eastern European countries have successfully become relatively stable economic partners of the European Union with significant improvements in their economies and overall quality of life.
Since World War II, Greece has been a heavily regulated market type of economy with a significant public sector, in production and distribution of economic goods and services.
A substantial percentage of the labor force has been employed in the public sector fitting the model of “mixed” democratic socialism. Thus, the parallel between Greece and that of Eastern Europe is very limited in the spectrum of market versus planned economies. However, the actions that were taken in 1991 by Mr. Leszek Balcerowicz and some of the actions that Greece has taken since 2009 to restructure the Greek economy and Government apparatus - as demanded by the IMF and the European Union for providing debt repayment loans - have some similarities.
Given the outcomes, over the past two decades regarding the economic transformation of Poland and the “eastern bloc” countries, can we draw some conclusions as to the short term and long term impact on the Greek economy and the Greek people? We believe we can. The results are expected to be significantly different in the short-term, with unbearable economic and social pain imposed on most of the population, than the long term. In the long-term, the economy is expected to be more competitive, more productive, with higher growth in real incomes and less external dependency.
This paper reviews and analyzes the impact of the unprecedented economic transformation of Eastern Europe - twenty years after its historic transformation -- using statistical/econometric methods. The paper further discusses the lessons that can be learned from such policy actions and their relevance to Greece’s current economic and public sector restructuring.