Since institutions include not only governmental and civic organizations and  regulations, but also social customs and behavior, the post-transition development can not be analyzed  or understood without the heritage of the past. All-encompassing  state-ownership, monopolization and elimination of all kinds  of competition reached unprecedented  proportions in the Soviet-type economies, creating oligarchic  organizations, mentalities, and behavioral patterns. The ruling  communist elite enjoyed extreme privileges; citizens became  much more alienated from the state than in democratic societies. 

Experiences of the fastest growing countries proved that by  reforming the institutional system and the policy-regime the  growth potential of an economy can be much better exploited  and catching-up with the more developed countries can be  faster. Because of the "velvet" character of transition in East  Central Europe, many of the old special interest organizations were not destroyed, thus creating obstacles to faster  growth and structural change. In the catch-up process much depends  on the openness of an economy, however its performance  is basically determined endogenously, by the allocation of  resources and their efficient use depending on the institutional structure. 

The lack or weakness of the rule of the law is one of the  main obstacles to the economic catching-up of the East Central European societies and their accession to the European Union.  The share of the shadow economy in the transition  countries increased very substantially and is about  twice as big as in developed market economies. Increased criminal  activities and large-scale tax-avoidance is closely related to  corruption and is very damaging for the lawful and secure  environment of growth. Corruption is strongly negatively associated  with the investment rate, and through this it lowers the  rate of growth. Clientelistic networks evolved around the  political parties, creating a social network where political loyalty  prevails against market relations, democratic decision making,  and professionalism in public administration. In the political  struggles, the question was not only which political group would  govern the country, but also who would privatize the vast  quantity of state assets, and to whom. In clientelist regimes  corruption, favoritism, partiality, give-and-take, and nepotism  abound, and thus democratic morale and the logic of the market is destroyed. 

The analysis shows that the institutions in place in most  of the East Central European countries are suitable to achieve a  faster growth rate than the EU average, thus catching-up  in the not too distant future seems probable after accession.  However, the deficiencies in the rule of law are seriously  hindering the full utilization of the growth potential of these economies.