by Norman S. Fieleke
March/April 1991

Few events can match the opening of the Berlin Wall as an historic symbol. Among the many things promised by that opening was the liberalization of trade that had been closely controlled for many years by the communist governments of Eastern Europe. This promise has virtually been realized in East Germany as that nation has unified with its neighbor to the West. Progress in other East European countries (including the Soviet Union) is uneven, however, because of concern over the costs of adjusting to freer trade.

This article examines the nature, motivation, and consequences of state-directed trading as it has been practiced in the centrally planned economies of Eastern Europe. Attention is then given to the issues involved in liberalization. Current experience is demonstrating that the transition from a centrally planned to a relatively free market economy is far from costless. However, the cost represents an investment that should yield immense returns in the longer run. Crucial to a rapid transition is the adoption of relatively liberal foreign trade and payments arrangements, including a high degree of currency convertibility.

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