Dynamics of economical reforms: The role of informal economy in 'transition' countries

For both academic and political reasons, the 1990s transformation of former communist states in Eastern Europe has attracted massive attention of scholars. Drawing on the experience of Latin American countries, which underwent a more or less similar 'dual transition' or simultaneous democratization and transformation into open market economies, many experts predicted turbulent times for Eastern Europe, warning against the destabilizing effect that supposedly originates in the inherent conflict between these two processes. Consequently, both analysts and advisors set out advocating some form of 'insulation' of the executive power from the popular will, 'de-politicization of reforms', or implementation of radical economic programmes that excluded the option of reversibility. Today, with plummeting rates of voter turnout and rising frequency of sporadic outbursts of violent protests on the part of extremist and marginal groups, the concerns have shifted into the opposite direction. Paradoxically, the greatest puzzle nowadays in the region is: why did nobody protest, and why this may not be such a good thing after all? This article seeks the reason of this unusual patience on the part of the post-socialist populations in the role and development of informal economy, and argues that this phenomenon constitutes a mechanism that simultaneously contributes to the stability of reforms and to consolidation of a 'low level equilibrium' between democracy and market economy.