[Former socialist countries] Due to the inefficiency of the economies of former socialist countries, inflation, shortages, food queues and lack of consumer products were commonplace occurrences. The inefficiency was due to poor organization, with few incentives for high productivity or free enterprise In addition, statistics are often confused and difficult to interpret, thus discouraging Western trade.
The effects on the natural environment of poorly designed public finance policies are illustrated by the energy sector. In most developing countries energy prices have until recently failed to reflect opportunity costs. At the same time low prices have reduced returns on investments in energy conservation, perpetuated inefficient fuel use, and in turn caused environmental problems. For example, in countries where coal is an important fuel, prices have often been below economic costs, so that mines operate at a loss and require government subsidies. Yet each step in using coal also involves potential damage to land, water, and air quality. Similarly subsidized electricity prices intended to promote industrialization in many developing countries have led to uneconomic growth in electricity demand and inefficient levels of public investment in power-generating capacity. This in turn has led to excessive or premature development of hydro resources and unnecessary pollution from coal or oil-fired plants.
2. The stabilization policies (concentrating on inflation control and currency devaluation) advocated by the West caused much of the very large and persistent fall in output in Central European countries during 1991-92, and did not lead to any fundamental, and constructive, restructuring. There is a good case that those devising policies and forecasting their outcomes simply got their policies wrong. Crucial institutional and infrastructure reform was sacrificed to macroeconomic goals, even when there was no serious macro imbalance at the outset. An exaggerated concern about the amount of untapped demand in the economies, the monetary overhang and the desirability of "free-market" exchange rate, meant that policy advisers pushed for large-scale devaluations. These, in turn, caused unnecessary inflationary shocks, which required excessively deflationary policies which hit the small, emerging private sector just when they needed support.