Investment in Post-communist Economies. Real Facts and Keynesian Myths

Introduction

If official statistics are to be believed, the fall in output in the transition economies of Central and Eastern Europe has probably been the largest anywhere in peacetime in modern history (failed harvests could cause even larger falls in agricultural societies, and such effects were felt on a national level as late as 1854 in Ireland). This fall in output was certainly noticeably larger than that which occurred during the Great Depression of the 1930s (compare Tables 7 and 8-10), although it was smaller than that during World War II in countries which served as battlegrounds (France in 1944, Germany and Japan in 1945). It is therefore important to know what the cause of the post-Communist depressions was. Two main explanations have been put forward, the first posits a sharp reduction in the level of aggregate demand as the cause, the second suggests a dramatic change in the structure of demand, to which supply was unable to respond sufficiently rapidly.