ONE OF THE INTERNATIONALLY MOST ACCLAIMED GERMAN ECONOMISTS, Hans-Jürgen Wagener, in his latest volume, takes the long view on systemic change in Central and Eastern Europe. He asks the most pertinent and most intriguing questions about how general economic theory has benefitted from the transition experience. And vice versa, how those theories were able or unable to assist the wholesale restructuring of political and economic order in the East.

Confronted with its limits, economic theory may well ask what the study of non-market systems over many decades, as well as two decades of transition experience, has contributed to the advancement of theory in the broadest sense. This has long been a subject of debate in the field by academics such as myself, Ellman, Speechler and Kornai. Joining this broad controversy, the author addresses the non-trivial and avoids the numerous platitudes of the field. He asks what the historically conditioned nature of change implies, why so many people have become disillusioned and why the strategy based on the rollback of the state has called for good governance and coordination by a disembedded and strong?rather than the oft-invoked minimal?government.

While calling attention to the need for solid institutions and emphasising the contextuality of each individual economic proposition, Wagener does not stop at a mere rehash of the traditional claims typical of institutionalist approaches. Authors such as North, Eucken, Aoki or Putnam have long stressed the roles of path dependence and the rules of the game for actual outcomes. However their work offered little, if any, guidance when it came to the historic task of recreating market institutions on the ruins of the Soviet Empire. Likewise Stiglitz and his followers were quite right in pointing out the high probability of market failure, if state failure is a given, as was the case following the collapse of the socialist order. However they offered little in terms of positive suggestions, either in terms of policy or theory, when market failure has not just followed state failure, but ensued from the latter, as in the case of the New Independent States.

Wagener is particularly interesting when he comes to East?West comparisons, as in the chapters on corporate governance and on social policies and in analysing the formative role played by the EU in orchestrating successful transformations in the new member states of Central Europe. However, with the detailed analysis of the East German Sonderweg in Chapter 11 he also warns us that the institutional set-up is unlikely to be a jack of all trades. Moreover with the benefit of hindsight it seems that actual outcomes may be explained by factors usually outside the scope of mainstream economic analysis, such as conditions set by the global business cycle, the impact of the dominant ideology and the ensuing ability to cooperate or not cooperate on the social scale, as well as the quality of political leadership, and even luck, translating into more or less successful interactions among social actors. In this case, the same institutional framework of the social market economy, which produced the West German economic miracle in the 1950s and 1960s, positively failed in East Germany in the two decades following reunification. Virtuous circles and synergies characterised the Adenauer?Erhard era, whereas during the 1990s and 2000s the new Länder were characterised by disenchantment, state dependence, alienation and a lack of endogenous growth and entrepreneurship.

All in all, this is a refreshing book, with a lot of food for thought, definitely not only for the specialist audience.