A Post-Keynesian Approach to the Transition Process

The historical experience of the successful postwar reconstruction of Western Europe, which was based upon Keynesian principles, totally contradicts the policies implemented in transition economies. Those countries that opted for price level adjustments during postwar reconstruction faced major hyperinflations. Although the economic conditions of transition economies could be argued to approximate the postwar reconstruction of Western Europe, during the period of reconstruction of Western Europe, price ceilings and subsidies were maintained and economic planning was implemented. Monetary and fiscal reforms and policies were adopted and the European Payments Union was established with the aim of restoring trade among countries. Exchange rates were controlled and capital flows restricted, and the US provided financial and technical support under the Marshall Plan. Lastly, markets were influenced and guided by an active state with the aim of supporting the initiatives of firms. The state was able to implement these policies only under a consensus process, which encouraged cooperation rather than conflict.