The main aim of economic policy is to enhance economic welfare. When transition to capitalism began, however, everybody anticipated social suffering, and in its early stages, postcommunist economic transformation was often presented as a social catastrophe. There was certainly trauma, and results have varied greatly among transition countries, but the initial perception of social disaster was exaggerated.

Chapter 3 concluded that the decline in registered output was highly exaggerated. Although we know even less about real incomes, they must have fallen less than output. Initially, real incomes plummeted, but they have surged with economic recovery. Income differentials have increased everywhere, but much more in the east and the south than in the west. Countries pursuing more radical initial reform, which generated less rent seeking, saw a smaller increase in inequality. Poverty ballooned in the poorer CIS countries, but much poverty was shallow and has shrunk with economic recovery, as I discuss in the first section.

The most disturbing social development, considered in section two, was declining life expectancy among Eastern Slavic and Baltic men, who found it difficult to adjust to the change of system. Infant mortality, by contrast, has fallen sharply in most of the region, except in six of the least reformist CIS countries. This suggests that health care has improved in most countries, but it is still in poor shape because of lagging systemic reform.