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JOURNAL OF ECONOMIC ISSUES Vol. XL No. 4 December 2006 Institutions, Recessions and Recovery in the Transitional Economies Geoffrey M. Hodgson In the early 1990s, after the collapse of the Berlin Wall and the break-up of the Soviet Union, many economists argued that the post-communist countries could rapidly develop a capitalist and market system.1 Some held the market order would rapidly germinate and grow once the old state bureaucracies were swept away. As the influential Western advisor Jeffrey Sachs (1993, xxi) contended: “markets spring up as soon as central planning bureaucrats vacate the field.” In fact, markets did not spring up spontaneously; capital markets, in particular, were slow to develop. As Ronald Coase (1992, 718) observed: “The ex- communist countries are advised to move to a market economy . . . but without the appropriate institutions, no market of any significance is possible.” From an institutionalist perspective, markets are not the universal physical ether of economic existence, but social institutions that depend upon the evolution of detailed rules and norms (Hodgson 1988; 2001; Vanberg 2001). In the former communist countries, the requisite commercial rules, norms and institutions were scarce (Clague 1997; Kozul- Wright and Rayment 1997; Grabher and Stark 1997). More than a decade and a half after the fall of the Berlin Wall, there is now plentiful evidence to consider in explaining the differences in performance in the transitional or post-communist countries of the former Soviet Bloc. All these countries experienced severe or extreme recess