The main aim of economic policy is to enhance economic welfare. Economic growth is vital, but it makes little sense if the fruits of labor are being wasted. Postcommunist economic transformation is often presented as a social catastrophe. However, this is not generally true and the social trauma is greatly exaggerated.

In Chapter 4, we have dismissed as a myth the sharp decline in registered output that was apparent after communism. Although statistical real incomes plummeted even more than recorded output, there are reasons to believe that they diminished less if at all, while it is true that income differentiation and poverty have increased in many countries.

The most disturbing social development under transition is that life expectancy has fallen significantly in some countries, while the differences between countries are palpable. This has led to the belief that the region is experiencing a serious health crisis, but infant mortality has on the contrary fallen, and health budgets have increased, though systemic reform in health care has lagged.

Another common view is that the education system is collapsing, but the opposite is true. The whole region has seen an extraordinary expansion of higher education during transition. However, the growth is concentrated to undergraduate teaching and the education system faces serious structural problems.

One of the greatest surprises of transition has been very limited unemployment. Curiously both registered and real unemployment has increased slowly in countries with the largest decline in output, reflecting tardy structural change. The main labor market problem has been too timid labor.

When the transition to capitalism was initiated, social suffering was anticipated. The natural response to such worries was to raise social expenditure.