Three key factors govern the progress of central Europe: the unbundling of a cumbersome and inefficient state-enterprise system, the bringing to market of privatized companies and the endowment of that market with a sufficient degree of transparency and liquidity to attract western capital.
Nearly half of the new democracies can each boast a private sector which accounts for more than 50% of GDP. Some countries have mapped out highly ambitious privatization plans. Hungary, for example, wants to boost the level of privately-owned enterprise to 75% of GDP from a present 56% within the next two years.
But investors complain that all too often the ghosts of the old regimes make their presence felt in a slow-moving and often suspicious and corrupt bureaucracy. As a result, living standards languish at about one-third the level of those in western Europe. The European Bank for Reconstruction and Development (EBRD) points out that for the next 25 years central Europe will need a growth rate of 3% above that of western Europe to bring living standards to two-thirds of those enjoyed in the west. That can only be achieved by attracting foreign investment.
Western capital will play a dominant role in central Europe's fledgling markets.