Date Published: 3:36:10 PM Thursday, 23-January-2020
The pre-transition industrial structure in Eastern Europe and the former Soviet Union was primarily driven by a raw material base, influenced by central planning decisions and rarely based on comparative advantage considerations. In the Soviet Union in particular, enterprises were highly integrated into an industrial network and thus were largely dependent on supplies of raw materials from other parts of the region. Following the collapse of the socialist system and the resolution of CMEA, the trade and supply links broke up virtually overnight and what might have been an economically viable production network - a very strong assumption to make concerning soviet-era industrial giants - turned out to be making huge losses on public accounts. Industrial enterprises which were almost never involved in marketing and distribution of their products suddenly found themselves in an environment where they had to make their own production decisions and adjust to new economic conditions. These developments coupled with deteriorating macroeconomic conditions drastically changed the enabling environment for industrial sector enterprises.