Four years have now passed since the implosion of the communist state in Poland set in train a process that led to the collapse of the other Central European communist states. Two years have now passed since the implosion of the Soviet system itself, following five years of agonizing "perestroika." It is, therefore, not too early to try to draw some lessons from the subsequent attempts to create, on the ruins of the communist systems, politically viable and economically successful democracies.

That on-going transformation poses intellectually challenging questions. When it began, there was no model, no guiding concept, with which to approach the task. Economic theory at least claimed some understanding of the allegedly inevitable transformation of capitalism into socialism. But there was no theoretical body of knowledge pertaining to the transformation of the statist systems into pluralistic democracies based on the free market. In addition to being daunting intellectually, the issue was and remains taxing politically, because the West, surprised by the rapid disintegration of communism, was not properly prepared for participation in the complex task of transforming the former Soviet-type systems. Consequently, it has had to improvise very hastily over the last several years.

It is in this context that I intend to address four important questions. First, what should we have learned by now regarding the processes of post-communist political and economic transformation? Second, what should we have learned regarding Western policies meant to aid and promote that transformation? Third, and in the light of the preceding two, what results can we expect to flow in the foreseeable future--over the next decade or so--from the ongoing efforts at the transformation? Fourth, and more specifically, what else should the United States now be doing in that context?

The Transformation Process

Regarding the broad lessons of the transformation process, the first is that expectations on both sides--in the old communist states and in the West--were much too high, and rather naive. The liberated peoples of the former communist countries had truly exaggerated and simplistic notions of the kind of help that they would receive from the West. There was a generalized anticipation of manna from heaven, of some new "Marshall Plan" being applied on a vast scale, notwithstanding the actual historical and intellectual irrelevance to former communist countries of the Marshall Plan experience. And in the West, there was a general underestimation of the systemic complexity of the changes required, of the resistance of established and still-pervasive nomenklaturas, and of the duration of the process itself.

A striking example of the above is that the American aid programs which were initiated immediately after 1989-90 for Poland, and then for the other Central European countries, were based on the assumption that the transition process would last for about five years. We now know that it will be much longer than that--ten years at a minimum for the Central European countries, probably in the range of fifteen to twenty years for the other countries--before it will be possible to say that the transformation has been completed. (One may also add, parenthetically, that the West was also rather overoptimistic as well as simplistic in its assessment of Gorbachev--of his intentions, as well as of his program--and that to some extent we currently display a similar tendency in our reactions to Yeltsin.)

A second and more complicated lesson is that the transformation process itself is not a continuum, but a sequence of distinct phases. Moreover, not all of the former communist states are in the same phase of the process of transformation, nor are they traversing the respective stages at the same pace. It is also noteworthy that the rapidity of the shift from phase to phase is heavily conditioned by what transpired politically and economically during the final (pre-implosion but also gestating) stage of the former communist systems.

The above requires some elaboration. The first critical phase, following immediately upon the fall of the communist system, involves a combined effort to achieve both the political transformation of the top structures of political power and the initial stabilization of the economy. The former typically means the imposition of top-down democracy; the latter typically requires stabilization of the currency while undertaking the initial unfreezing of economic controls. This initial stage is extremely difficult because it involves a fundamental change in established political and economic processes. It calls for boldness and toughness, being essentially a plunge into the unknown.

The first phase is also the critical one because its success is the necessary launch pad for the second stage, one in which the quest for broader political stabilization has to be combined with efforts at more pervasive economic transformation. The adoption of a new constitution, of a new electoral system, and the penetration of society by democratic processes are designed to institutionalize a functioning democracy. At the same time a broader economic transformation has to be launched, involving, for example, the establishment of a banking sector, de-monopolization, as well as small and middle-scale privatization based on legally defined property rights.

Only when and if that phase has been successfully completed can the next--and third--phase be undertaken, in which comprehensive democratic institutions and processes truly begin to take hold in an enduring fashion, while economic growth becomes sustained as a consequence of the comprehensive unleashing of private initiative. A democratic political culture and an entrepreneurial tradition gradually become reality. This third phase can be described as involving political consolidation and sustained economic take-off. To make all this more concrete, one might hazard the judgment that Poland, the Czech Republic, and Hungary are now on the brink of entering that third phase. (See the attached chart on p.4 for a schematic representation of the phases).

It is also important to note that the ability to embark on, and to traverse, particularly the first critical phase--the most important stage of decision--is heavily conditioned by the degree to which a particular fallen communist regime permitted both political relaxation and economic liberalization in its last years. The important fact to note is that, in effect, the final agony of communism also served simultaneously--at least, in several cases--as a period of political and economic gestation for the emergence of post-communism. The consequences of that gestation in the cases of Hungary (the Kadar regime in the 1970s and 1980s) and of Poland (the Gierek regime of the 1970s and the last 5 years of Jaruzelski in the second half of the 1980s) are self-evident.

The third lesson to be deduced from what we have seen of the transformation process involves the primacy of political reform as the basis for effective economic reform. A democratic political consensus and effective political processes are essential for the successful initiation and consummation of the first critical stage of change. One could theoretically postulate the need for an authoritarian system of discipline at this stage, because a great deal of social sacrifice is required--and generated--during its implementation. China obviously comes to mind here. However, in the wake of the collapse of the communist regimes in Central Europe and in the Soviet Union, an authoritarian approach does not seem feasible or desirable.

On the contrary, democratic consensus is imperative. But it must be organized and institutionalized. Initially, that typically calls for the presence of an effective, indeed of a charismatic popular leader--a Havel, Walesa, or perhaps Yeltsin--who can command popular support. It also requires the presence or rapid organization of a political movement that supports the leader in an institutionalized fashion, and is capable of sustaining popular support in the face of the social dislocations and deprivations that typically occur in this phase. But, above all, the initial phase, with its often euphoric postcommunist enthusiasm, must be exploited promptly to build the foundations for legitimate and formal democratic procedures within which longer-term economic reforms are pursued. By the time the second phase is reached, public euphoria tends to have waned while disappointment with the transformation tends to escalate; thus much depends on the resilience and viability of the new democratic processes. Much of Russia's difficulties stem from Gorbachev's and then Yeltsin's failure to focus on the need for comprehensive political reform as an urgent priority.

The foregoing leads to a fourth lesson, which flows from the previous three: the rapid and comprehensive transformation--the shock therapy of the so-called "big bang" approach--is only possible if both the necessary subjective and objective conditions exist. The Polish case is a good example of the combination of the two. It involved the existence of a nation-wide counter-political elite, namely the Solidarity movement, which permeated society, was not crushed during the decade of the martial law, and could promptly serve as an effective counter-political elite on the national scale (rather than, as in some other cases, being confined to a few dissidents suddenly installed at the top of the national power hierarchy). That elite, moreover, was buttressed by the presence of a moral authority able to nourish the social will to sacrifice, namely the Catholic Church. In addition, a charismatic leader, who enjoyed special authority within the class likely to suffer the most from the social sacrifices, was able to personalize the political change. A free peasant class and a large underground economy provided economic responsiveness to the workings of the law of supply and demand, upon the lifting of price controls and the termination of subsidies. Finally, Poland benefitted from the support given to its surfacing entrepreneurial culture by an engaged diaspora comprised of some ten million Poles who live abroad.

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