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. As this paper shows, they are also the countries that have had the healthiest public finances, the smallest unofficial economies, and the best records of growth. The politicization of economic life can usefully be thought of as the exercise by politicians of control rights over business. ' Such rights may include regulatory powers over privatized and private firms, the ability to regulate and restrict entry, control over the use of land and real estate that private businesses occupy, the determination and collection of taxes