1 
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 
-jtW rv**