BPEA | 1997 No. 2

The Unofficial Economy in Transition

Andrei Shleifer, Daniel Kaufmann, and Simon Johnson
Simon Johnson
Simon Johnson Professor - MIT Sloan School of Management, Faculty Co-Director - MIT Shaping the Future of Work Initiative

1997, No. 2

THE ECONOMIES of eastern Europe and the former Soviet Union (FSU)
escaped communism with a heavy burden. When central planning collapsed,
they continued to suffer from widespread political control of
economic activity. Such politicization had to be reduced significantly
for small business formation and growth to begin. In recent years, some
of these countries have succeeded much better than others in replacing
political control with functioning market institutions. As this paper
shows, they are also the countries that have had the healthiest public
finances, the smallest unofficial economies, and the best records of