The Two Transitions in Central and Eastern Europe
Authors:   Asia-Europe Perspective Association, Park Yeong-Soo 
Published: June 2018

The increasing gap between the formerly socialist countries of Central and Eastern Europe(CE and EE) with regard to both their economic and political performance cannot be explained by their different starting conditions after the breakdown of the Soviet Union alone. Rather, it is due to cultural and historical circumstances that shape the particular tradition and societal environment. Indeed, the experience of transition has led to a growing awareness of the role of informal institutions in the process of institutional change in institutional and evolutionary economics. Although a lot of work has been done on this problem, we still do not have a satisfying explanation of the role that informal constraints of human behavior play in institutional change. When institutional and evolutionary economics the idea of historical and cultural dependency is applied to the problem of CE and EE transition, it is often overlooked that the European nations did never only develop according to the tracks determined by a cultural heritage. This is not to say, however, that the idea of historical and cultural path dependency has to be rejected. For whenever formal institutions are taken over from abroad, in the course of their implementation they mingle with the soil of the prevailing informal constraints of human behavior and thought, which are determined by the legacies of the past. This phenomenon can be described as a transplantation of institutions. The decisive issue then is, how the informal institutional settiings in the different countries interacted with the imported formal settings. The often made assumption that informal institutions react inertly to changes in the formal institutional settings must be modified. If seen as a tranplantation of institutional arrangements, the reaction rate of informal institutions depends on their compatibility with imported formal institutions. Central thesis of this treatise is that the ‘reaction rate’ of informal institutions depends on their compatibility with imported formal institutions. The transition process in CE and EE can tell us much about the relation between path dependence and politically implemented institutional change. During the 20th century the countries of CE and EE twice went through rapid institutional change. For centuries they had acculturated to Western Europe, but as a result of the October Revolution Eastern patterns were imposed upon them. Since the german unification at October 3, 1990 and the breakdown of the Soviet Union in the early 1990 they have returned to Europe, by establishing democracy and capitalism. In our opinion, to understand the difference in performance between the transition countries, it is necessary to interpret both transitions as processes of institutional transplantation and ask how the informal institutional settings in the different countries interacted with the imported formal institutions.
The paper is organized in six sections. After the introduction, the second section will give an dverview of hoa institutional economists deal with the problems mentioned above and indicate how a cultural theory of economics could contribute to their solution. In section three we sill specify a theoretical approach that tries to explain the mutual relations between formal and informal institutions. This general theoretical framework is purely structural in the sense that it does not include historical and cultural factors. These factors are included into our analysis in section four, where we apply our framework to the transition processes in Central and Eastern Europe. In section five we wiöö briefly outline some conclusions for economic policy-making. We will finish our paper with a short outlook on the political and theoretical problems before us.