Chapter 4 concluded that transition as a sui generis problem is over in Central Europe. This does not mean, however, that all transition economies are already in a state of bliss. In some, particularly the successor states of the FSU and in South-East Europe, a lot of work still needs to be done to make them prosperous.

In this chapter we do not discuss problems specific to one or a few countries. We focus on one issue that, to varying degrees, applies to all: the task of institution building. Although economists were certainly aware of the need to create markets, laws and regulations and to reform public administration, they underestimated the difficulty of implementing the advice offered. If virtually all firms are bankrupt, a bankruptcy law is unhelpful; if property rights are not clearly defined or are not enforceable, banks will not lend. It is, therefore, not surprising that unfinished business mainly concerns those activities where institutional requirements are particularly demanding. The most visible shortcomings of institution building are in the political domain, conditioning shortcomings in the economic domain. Democracy and state institutions have not progressed significantly in many countries. As two insiders of Russian reforms observe (Braguinsky and Yavlinsky 2000): ‘… the economy was not freed from old Soviet-type monopolies; rather these monopolies were freed to pursue their own goals at the expense of the large society, almost without any restraint! Thus, the controls of the planned economy are diminished, but the accountability, legal framework and supremacy of a democratic society have not been established.’