The Central Role of Entrepreneurs in Transition Economies

By John McMillan and Christopher Woodruff.

The authors summarize entrepreneurial patterns in the transition economies, particularly Russia, China, Poland and Vietnam. Markets developed spontaneously in every transition country, but they were built at varying speeds. Some governments impeded the entrepreneurs' self-help by creating conditions that made it hard for informal contracting to work; others created an environment that was conducive to self-help.

The spontaneous emergence of markets, furthermore, has its limits. As firms' activities became more complex, they came to need formal institutions. Some governments fostered entrepreneurship by building market-supporting infrastructure; others did not. The authors argue that the success or failure of a transition economy can be traced in large part to the performance of its entrepreneurs.