Today I will elaborate only on two of them, which I consider important from my own experience. They are: a) rent-seeking behavior, and b) lack of broad political support for reforms (which I partly discussed before). a)  Rent-seeking  If private returns on predation are larger than private returns on production, this will send “wrong” incentives to people and society will not develop in the desired direction. Therefore we have to make every effort to “get the incentives right”. This is not an easy exercise. Socialism and, sometimes even more, early transition, have created vested interests and it is understandable that every socio-economic 4  In no way am I trying to imply that the main cause of the banking crisis is inadequate supervision and regulation. But, they can certainly deepen banking problems. BIS Review 43/2000  6  group will fight either to preserve their status quo or try to “grab” even more. The problem is especially exacerbated if the prevailing mentality in a society as a whole is the “take it” and not “make it” philosophy. Every change is a redistribution, redistribution of power and relative wealth. Transition by definition is a change. People on average resist change. I have called this the Newtonian Law of Transition, namely: “Every action creates a reaction.” (Škreb, 1998). This resistance to reform (changes) is probably “time-dependent” and positively correlated with the time spent in transition. In the early stages reforms are more general (macroeconomic stabilization) and there is much more support for them.
The literature on growth has been expanding lately, but most work on transition agrees that macroeconomic stability linked with structural reforms is essential to growth (Wyplosz, 1999; Fischer and Sahay, 2000). And it is equally true that most transition economies have responded positively to the combination of the two and after a sharp decline in GDP today have positive growth. We have learned as well that the growth process is much more complex than was anticipated at one time. We know that the future success of reforms depends very much on elements like: institution building, contract enforcement, rule of law, etc. To explain the complexity of growth in transition a little bit I will use two concepts: a) human capital and b) social capital. a)  Human capital  Let me immediately start by quoting Lucas (1993) on what causes growth: “The main engine of growth is the accumulation of human capital - of knowledge - and the main source of difference in living standards among nations is difference in human capital” (p.270). So, if we want sustained growth we must promote the accumulation of human capital in transition economies. The next question is: How does the accumulation of human capital happen? Obviously, there are many ways in which human capital is accumulated but, to mention just a few: it happens in schools, in other forms of training, particularly on-the-job, in research institutes, etc.