The sudden contact between two separate worlds

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: The sudden contact between two separate worlds: Draft

Author:: Steindl, Josef

Scope:: Typoskript, 2 Blätter, 3 Seiten

Publication date:: 1990

Note:: Untertitel fingiert. - Das Paper wurde verfasst anlässlich der sog. Ost-West-Konferenz: New Economic Relations beween East and West - Conference of the Kreisky Commission and the Swedish Embassy in Vienna, May 17-18, 1990. (Unveröffentlichtes Werk)

Topic:: Economic policy

Subject:: Osteuropa Wirtschaftsreform Wirtschaftssystem Transformation Ost-West Beziehungen

JEL Classification:: P26 [Socialist Systems and Transitional Economies: Political Economy, Property Rights] P27 [Socialist Systems and Transitional Economies: Performance and Prospects]

Shelfmark:: S/M.35.23

Access:: Free access

Full text

THE SUDDEN CONTACT BETWEEN TWO SEPARATE WORLDS 
The problem of the transformation of the socialist economies into a different 
system is in its historical reality mixed up with a different problem which 
arises when two very different worlds touch after they have been separated for a 
long time. The two problems are certainly very closely linked - you may say that 
the transformation is achieved not the least by means of the contact yet the 
problems have to be separated when we analyse them.The difference of the two 
worlds - call them East Country and West Country - concerns many things but we 
shall in the first place consider the large gap in productivity and in real 
wages. 
Let us consider two scenarios. 
First. If there is scarcity of labour (or at least of skilled labour) in the 
"West" then the industry there will have an incentive to move production - 
additional production at any rate - to the East. The western firms may have 
other motives too: thus they will probably engage in a race , each wants to be 
the first even if it is only to prevent the others to be there and not so much 
to engage himself. I do not mention the motive of low wages because it is by no 
means clear whether the efficiency wage is or will be in the near future, a low 
one. 
The firms moving in from the West will bring with them better management and 
organisation and better technology (partly embodied in equipment) and they will 
tend to drive up wages somewhat in relation to the autochtonous industries. In 
the course of a fairly long series of years productivity and real wages may 
gradually approach the level of the West.In this scenario the East bears a 
certain qualified ressemblance to the NICs (newly industrial countries). 
Second. This scenario is dominated by the fact that industry in the East is not 
able unprotected to withstand the competition from the West and that it will 
therefore for the greater part close its doors and dismiss its employees. 
Production, in a word, will be shifted from the East to the West (especially 
easily if the skilled labour moves with it, and thus completes the ruin in the 
East). With mass unemployment and low demand the East will not be attractive to 
foreign investors and will therefore be condemned to stagnation. This must also 
destroy the long term chances which the Western industry might have had under 
different conditions, i.e. with prosperity and full employment in the East. 
This scenario may be called Colonisation of the East. We have to think of 
historical comparisons such as the Italian Unity created in the 19th century 
which left Italy split into two regions with a vast economic difference which 
has not disappeared to this day with all its appalling consequences. 
Which of the two scenarios is more applicable or relevant to the prospective 
development of the various socialist economies I shall not try to guess. I

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