People respond to incentives. Poor and desperate people respond to incentives in a more urgent manner. Survival behavioral patterns differ much from behavior of middle class people in a stable society in terms of abiding by law, following moral principle and enhancing informal human institutions. Generally, transitional economies are relatively poor. Their governments try to copy the basic European pattern of welfare state hence they overregulate, overtax and overspend. Bureaucrats use various sophisticated econometric modes to boast their omniscience and ability to define the “optimal distribution pattern” and determine “strategic sectors” and “national champions of economic growth”. They increase the risk of making investment mistakes and hence the danger of structural imbalances.



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