This chapter examines adjustment, stabilization, and liberalization in the economies of transition since the late 1980s and early 1990s, especially China, Russia, and other states in the former Soviet Union and Eastern Europe. They are of interest to any treatise on developing countries because virtually all (except high-income Slovenia and Hong Kong) are middle-income economies. The experience of transitional economies demonstrates in starkest fashion some of the prospects and problems from economic liberalization and reform for the less-developed countries (LDCs) of Africa, Asia, and Latin America, which have undergone painful institutional and structural adjustments to reform their economies. Often, however, these changes have been less abrupt and the consequences less astounding than in Russia and Eastern Europe.

In 1960, a confident Soviet Premier Nikita Khrushchev, while at a summit meeting with President Dwight D. Eisenhower in the United States, boasted that “we will bury you” and predicted that Soviets would be more prosperous than Americans by 1980. However, the Soviet Union suffered through stagnation during the 1970s and early 1980s, so that, according to Abram Bergson (1991:29–44), in 1985, when Communist Party leader Mikhail Gorbachev came to power, consumption per capita in the Soviet Union was only about 29 percent of that in the United States.