A fundamental but poorly understood issue of postcommunist economic transformation is what actually happened to output. There is no agreement on the fundamental facts, and the statistical uncertainties are too great for any consensus to emerge any time soon. Throughout the region, transition started with huge recorded falls in output. Some argued that a unique devastation was taking place; others saw a combination of measurement problems and “creative destruction” in Joseph Schumpeter's (1943/1976) sense.

The universal output slump after communism has been greatly exaggerated. A substantial part of the big recorded decline, probably about half, was not real but can be explained with mismeasurement, an expansion of the unregistered economy, and the elimination of value detraction. In addition, many countries lost substantial subsidies as well as implicit trade subsidies. Output did fall in almost all countries, but not nearly as much as officially recorded. The main real problem was the long delay in economic recovery in many countries, not the initial slump.

The initial development of output was closely correlated with reform policies. Radical reformers soon returned to growth, whereas partial and nonreformers experienced a long period of contraction. The duration of the output decline varied greatly. A strong early supply effect occurred in the radical reform countries, especially Poland, which returned to growth in its third year of transition; Ukraine, by comparison, was a very gradual reformer, and experienced ten years of economic decline. The output fall lasted much longer and was steeper in the former Soviet Union.