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World Bank Reports On Economic Transition

Prague, June 27 (RFE/RL) -- The World Bank says there is only a small chance that any of the nations currently undergoing a transition from the command economy to the market one will revert to central planning.

But the bank also warns that inconsistent or unpopular transition policies create dangers of long-term stagnation and poverty. It says that "transition reforms will not bear fruit unless they are underpinned by a broad political and social consensus." It calls finding that consensus "the highest priority of all."

The bank today issued it's annual World Development Report. It is devoted to the nations in transition. It focuses on the study of transition processes in the countries of East and Central Europe as well as in the former Soviet republics, Mongolia, China and Vietnam.

The bank says the study shows that transition unleashes "complex processes of creation, adaptation, and destruction" everywhere. The outcome depends on an interplay between circumstances, such as history and geography, and choices determined by political will and administrative capacity.

Writing in a foreword to the report, the bank's president James Wolfensohn says there are some basic lessons to be learned from the transition process.

First, Wolfensohn says, is that there is an urgent need to "both liberalize economies through opening trade and market opportunities and stabilize them through reducing inflation and practicing fiscal discipline."

Second, he says, "in the long run, clear property rights and widespread private ownership are needed for markets to perform efficiently and equitably."

Finally, Wolfensohn adds that the process of transition, which now affects about one-third of the world's population, "has been unavoidable" because other approaches to economic organization weren't working.

The report touches on several "truths" discovered during the transition processes.

One is that transition facilitates social differentiation. The report notes, for instance, that transition produces winners -- "the young, the dynamic, the mobile, the connected" -- but it also "imposes cost on visible and vulnerable groups," such as older or untrained workers.

It gives an example of former East Germany, where, it says, the changes have "relegated an entire generation to the economic sidelines." This particularly concerns workers who are unable, or unprepared, to compete for new jobs in private firms.

The report also finds that "radical economic reform has proved easier when political change has been rapid and fundamental," as in much of Central Europe and in the Baltic states.

It says that China has so far been more successful with its very different transition than Russia, primarily because China started as a "very poor and largely rural" nation, with a less-centrally planned economy and an agricultural sector which could not only absorb the waves of unemployed but benefited from the influx.

Russia, on the other hand, was heavily industrialized. It had an elaborate and costly system of cross-subsidies that propped up huge state enterprises and agricultural collectives. Subsidies to energy production sector alone accounted for over 11 percent of Russia's GDP (Gross Domestic Product) and one quarter of the economy served the military alone.

The reports says that policies which consistently combine liberalization of markets with maintaining reasonable price stability are likely to achieve considerable economic effects.

The report puts a great deal of emphasis on effects of privatization for the success of the transition process as a whole. But it says that in privatizing economy, countries need to be aware of possible "dead-ends in the evolution of ownership." It gives an example of closed joint-stock corporations in Ukraine that, the report says, threaten to become "obstacles to reorganization."

In the end, the bank says, "a country's transition will be judged by whether its citizens live better than they did before."