EAST EUROPEAN TURNABOUT HITS AVERAGE CITIZEN HARD

EAST EUROPEAN TURNABOUT HITS AVERAGE CITIZEN HARD

The enormous job Eastern Europe faces in its bid to develop a market economy is perhaps best understood through a series of Western comparisons.

Eastern Europe now faces a gut-wrenching transformation that is hitting the average citizen where he or she eats, lives, works and deposits his life savings.In an effort to shed the communist economic system, Eastern European nations are moving to end subsidies for food, clothing, housing and basic industry and to spur privatization. The result has been unrest, inflation and unemployment in a region with no social safety net in place.

To better appreciate the difficulties, consider the issue of consumer subsidies, said Ray Converse, deputy director of the Commerce Department's Eastern Europe office. The American public howls whenever Congress even thinks about withdrawing interest deductibility on home mortgages, which is a subsidy, he said. Yet in Hungary, rents are heading toward market rates of $700 a month from a subsidized rate of $20.

In East Germany, the price of electricity has not changed since 1939, said Robert Heller, former governor with the Federal Reserve and now executive vice president with Visa International.

The idea of privatizing companies has been equally dormant, Mr. Converse said in San Francisco Wednesday, at a trade conference sponsored by the San Francisco Chamber of Commerce. "Margaret Thatcher takes years to privatize a few companies. How do you privatize an entire economy?" His answer as an economist: "As quickly as possible."

There also are other human costs. Unemployment must rise as inefficient firms are weeded out of the economy, yet there is no unemployment or welfare system to fall back on in a communist society where everyone was guaranteed a job.

East European nations have approached this painful transition to capitalism in different ways:

* POLAND has taken perhaps the most courageous route, and in the process pressured other countries to move more quickly. "Poland decided to go with shock therapy, or shock treatment, or the big bang, or whatever you want to call it," said Piotr Kozerski, commercial counselor with the Polish Embassy.

Almost overnight, the country devalued the national currency, freed prices, initiated a break-up of the agricultural monopolies and started making its currency internally convertible.

* HUNGARY, which was further along toward market reforms to begin with, has approached change at a slower pace. But the country still faces massive debt and obsolete infrastructure. "The economic situation will get worse before it gets better," said Ferenc Furulyas, commercial counselor in the Hungarian embassy.

* CZECHOSLOVAKIA has tried to build the legal framework before it decides whether to take a radical path like the Poles, or a more gradual program like the Hungarians. The nation has low debt levels and a strong labor force but is very tightly integrated with the Soviet economy and has very outdated infrastructure.

* EAST GERMANY is basically having a "going out of business sale," Mr. Converse said. The amazing thing is that East Germany almost made a command economy work.

East Germany will be helped greatly by the vast resources of the West German economy. "It is in our interest to help create the framework and the infrastructure needed for successful reforms," said Kurt Steves, member of the executive board of the West German Federation of German Industries.

* BULGARIA holds elections next month. While it has been working on some market reforms, political reform is its first challenge.

* ROMANIA has a different set of problems because it has no political opposition to draw on - most were killed under the Ceausescu regime. This left recycled Communist Party officials with some government experience or untainted neophytes with no experience. The last election appears to show the electorate choosing experience over ideals.

"Unlike martial law, which can be introduced in one night, market economies and democracy take time," Hungary's Mr. Furulyas said.