Abstract

Debates about the transition from socialist planned economies to market-based systems have traditionally focused on privatization of state-owned enterprises, liberalization of markets, and macroeconomic stabilization. Yet the historical experience of post-socialist transformation suggests that such approaches are insufficient to produce sustained endogenous growth. This paper argues that the central issue in transition is not merely the transfer of state assets into private hands but the institutional constitution of an ownership society.

Drawing on the theoretical framework of Property or Ownership Economics developed by Gunnar Heinsohn and Otto Steiger, the paper proposes a reinterpretation of transition processes through the distinction between possession-based and property-based societies. In possession-based systems such as socialism, the state monopolizes control over resources without establishing legally enforceable property titles that allow individuals to encumber assets, obtain credit, and generate money through debtor–creditor relations. Consequently, genuine monetary economies cannot emerge.

Successful economic transformation therefore requires more than privatizing industrial assets; it requires the widespread creation of enforceable property titles among the population. The paper revisits the transformation of East Germany after 1990, highlighting the achievements of the Treuhandanstalt in restructuring industrial enterprises while arguing that the absence of a broad distribution of residential property titles limited endogenous economic dynamics. Comparative cases such as Slovenia demonstrate how the mass creation of housing property titles can generate collateralizable assets and stimulate investment from below.

Applying these insights to Cuba, the paper argues that a future transition must prioritize the generalization of property rights—especially in residential real estate—to enable Cuban citizens themselves to become economic actors capable of initiating debtor–creditor relations. Only such a property-centered approach can create a self-sustaining ownership economy capable of producing lasting wealth.

1 Introduction

The collapse of socialist economic systems in Eastern Europe at the end of the twentieth century triggered one of the most extensive institutional transformations in modern economic history. Governments and international organizations developed comprehensive policy frameworks aimed at guiding the transition from centrally planned economies toward market-based systems. These frameworks emphasized privatization of state enterprises, market liberalization, macroeconomic stabilization, and the creation of regulatory institutions compatible with capitalist economies.

While these policies were widely implemented across the former socialist world, the long-term results have proven uneven. Several transition economies succeeded in integrating into the global economic system and achieved significant growth. Others remain structurally dependent on external capital inflows and have struggled to develop endogenous investment dynamics.

This raises a fundamental theoretical question: why did the transition policies that were widely recommended in the 1990s produce such divergent outcomes?

Most transition strategies were based on the assumption that socialist economies represented distorted versions of market economies that could gradually evolve toward functioning market systems once distortions were removed. Privatization of state enterprises was therefore seen as the central mechanism through which the transition would occur.

However, this perspective overlooked a deeper institutional distinction. Socialist systems were not merely inefficient market economies. Rather, they represented possession-based systems fundamentally different from property-based economies.

In possession-based systems, resources are controlled through political authority rather than legally enforceable property rights. Although individuals may possess or use certain resources, they cannot legally encumber them or use them as collateral for credit. As a result, debtor–creditor relations cannot develop in the same manner as in property-based societies.

Without such relations, a genuine monetary economy cannot emerge.

This insight lies at the center of the Property Economics paradigm developed by Gunnar Heinsohn and Otto Steiger. According to this approach, the existence of enforceable property rights constitutes the institutional foundation of modern economic systems. Markets, credit, and money arise only after this foundation has been established.

The transformation from socialism to capitalism must therefore be understood as a civilizational transition from possession to property.

The central argument of this paper is that successful economic transformation requires two distinct processes:

1. The privatization and restructuring of productive assets previously controlled by the state.

2. The widespread creation of property titles among the population that allow individuals to participate in debtor–creditor relations.

The first process restructures the industrial economy. The second creates the social and financial infrastructure necessary for endogenous economic activity.

Without the latter, privatization risks producing an economy dominated by foreign capital and external investment while leaving the domestic population largely excluded from the processes of capital formation.

The Cuban case provides an instructive context in which to examine these issues. Cuba remains one of the few socialist systems still in existence, yet its institutional history differs significantly from that of Eastern Europe. The country retains legal traditions related to property law that originated in the Spanish legal system and survived partially through the socialist period.

These institutional remnants may offer a foundation upon which a future property-based system could be constructed.

2 Possession-Based and Property-Based Societies

A key analytical distinction within Property Economics is the difference between possession and property.

Possession refers to the physical control or use of resources. Such control may be governed by social norms, political authority, or administrative rules. Possession-based systems have historically existed in tribal societies, feudal orders, and socialist planned economies.

Property, by contrast, represents a legal relationship rather than a physical one. Property rights grant individuals enforceable claims over assets that allow them to:

• transfer ownership

• divide property

• encumber assets with debt

• sell or mortgage assets

• use property as collateral in credit contracts

This distinction has profound economic implications.

In possession-based societies, resources are allocated through administrative decisions or customary rules. However, because assets cannot be legally encumbered, they cannot serve as collateral for credit.

Without collateralizable property, credit cannot be created.

Without credit creation, genuine money cannot emerge.

In property-based societies, individuals can use their assets as security for loans. The lender accepts the borrower’s asset as collateral and issues credit. The borrower obtains liquidity and can initiate economic activity.

The lender accepts the risk of losing the collateralized asset if the borrower defaults, while the borrower obtains liquidity through the loan. The interest rate represents compensation for this risk.

This process lies at the origin of money creation in modern economies.

Money therefore does not originate primarily from the accumulation of savings but from credit contracts secured by property titles.

3 Transition Economics Reconsidered

The dominant frameworks of transition economics in the 1990s emphasized three core policy pillars:

1. Privatization of state enterprises

2. Market liberalization

3. Macroeconomic stabilization

These policies were often implemented simultaneously in so-called “shock therapy” programs.

However, the focus on privatization often obscured a deeper institutional problem. Privatization was typically understood as the transfer of state enterprises into private ownership. Yet this transfer did not necessarily create a broad ownership society.

In many transition economies, privatization concentrated assets in the hands of a relatively small number of investors while leaving the majority of the population without collateralizable assets.

As a result, domestic entrepreneurship remained limited.

Economic growth therefore depended heavily on external capital inflows rather than endogenous investment.

This outcome can be understood as the result of incomplete institutional transformation. Without widespread property ownership among the population, the mechanisms that generate autonomous economic dynamics remain weak.

4 The East German Transformation

The transformation of East Germany following German reunification represents one of the most comprehensive institutional transitions ever implemented.

The Treuhandanstalt was established to manage the privatization and restructuring of the former socialist economy.

At its peak the agency controlled approximately 8,500 enterprises with more than four million employees.

The Treuhandanstalt undertook the complex task of dismantling large socialist conglomerates (Kombinate) and reorganizing them into viable market-oriented enterprises.

Despite intense political controversy, the Treuhandanstalt successfully privatized most East German enterprises within a relatively short period.

However, the broader economic results were more ambiguous.

Although the industrial infrastructure of East Germany was modernized rapidly, economic development remained heavily dependent on financial transfers from West Germany.

One important reason for this outcome was the limited distribution of property assets among the population.

Residential housing was largely transferred to municipalities rather than privatized to residents. Consequently, East German households did not receive a substantial stock of assets that could serve as collateral for credit.

This limited the ability of the population to initiate economic activities independently.

5 The Slovenian Example

The experience of Slovenia provides an important counterexample.

Following independence in the early 1990s, Slovenia implemented a large-scale program to privatize residential housing.

Approximately 100,000 housing units were transferred into private ownership within a short period.

This process created billions of euros in collateralizable assets that households could use to finance investment and entrepreneurial activity.

The Slovenian experience demonstrates how the mass creation of property titles can itself generate capital formation.

Assets that previously existed only as administrative possessions become economically operative once they are legally recognized as property.

6 Property and Transition in Cuba

Cuba remains characterized by a predominance of state-controlled assets and limited private ownership.

However, several institutional features distinguish Cuba from other socialist systems.

Notably, the country retains elements of the Spanish legal tradition, including property registries and mortgage law frameworks that could potentially be reactivated.

A future transition in Cuba would therefore require several institutional reforms:

• restitution and clarification of property claims
• establishment of reliable land registries
• introduction of transferable housing titles
• development of mortgage law
• creation of bankruptcy and foreclosure procedures

Housing represents the most important potential asset base for Cuban citizens.

Transforming residential housing into legally transferable property would allow households to use these assets as collateral for credit.

This could stimulate the development of small businesses and entrepreneurial activities across the economy.

7 Foreign Investment and Domestic Participation

Foreign investment will likely play an important role in any Cuban transition.

However, foreign investors possess an inherent advantage: they already have access to financing secured by property assets in their home countries.

If Cuban citizens lack comparable assets, economic power may become concentrated in foreign hands.

A broad distribution of property titles among the population is therefore essential to ensure that Cuban citizens themselves participate in the emerging ownership economy.

8 Social Policy and Ownership Economies

The emergence of a property-based society also requires a complementary social policy framework.

Ownership economies generate prosperity but also entail risks. When borrowers default on loans, collateral must be enforced.

Without social policy mechanisms to protect individuals from extreme hardship, the transition to a property-based system could produce social instability.

Historically, this challenge was addressed through the development of welfare states.

The emergence of modern social security systems in the late nineteenth century can be understood as a response to the social consequences of the transition from feudal possession systems to capitalist property societies.

9 Conclusion

The experience of post-socialist transformation demonstrates that privatization alone cannot produce a functioning market economy.

Economic systems based on property require more than the transfer of state enterprises into private hands.

They require the widespread creation of legally enforceable property rights that enable individuals to participate in debtor–creditor relations.

The Cuban transition debate should therefore focus not only on privatization of industrial assets but also on the creation of an ownership society in which citizens themselves possess the assets necessary to participate in economic life.

By emphasizing the distinction between possession and property, the framework of Property Economics provides a powerful analytical tool for understanding this challenge.

If Cuba succeeds in establishing a broad property base among its population, it may achieve a transition that produces not only market institutions but also genuine and sustainable wealth.

Note: Based on my contribution to “POLITICAL ECONOMY OF CHANGE IN CUBA”, presented at the international symposium “Cuba Futures: Past and Present,” organized by the The Cuba Project Bildner Center for Western Hemisphere Studies, The Graduate Center/CUNY, March 31–April 2, 2011, as Chapter 11 of: https://cubaproject.org/wp-content/uploads/2014/08/Political-Economy-of-Change-in-Cuba.pdf