Investment in people and the reform process

In its recent overview of the countries in transition, the World Bank observes that although the centrally planned economies tended to have impressive levels of basic literacy and numeracy as compared with countries with similar incomes in the West, continuation of investment in education and health is nevertheless an extremely important part of the transition process. It cites two main reasons for this: that the allocation of resources to both health and education under central planning was inefficient in that the system (a) failed to be responsive to changes in the labour market, (b) tended to be poorly coordinated with a duplication of facilities in different ministries, and (c) failed to give teachers and administrators incentives not to waste resources; that the inherited system is not designed to support the reform process and the successful functioning of a market system in which responsiveness to changing economic conditions is a key feature.