Explains why economic transition policies have failed and why the state must take a more active role in the reindustrialization of Eastern Europe. Examines the macroeconomics of the transition, describing how it was derailed by poor policy design and structural barriers. Considers whether the free market approach to enterprise restructuring was the appropriate one in light of the actual problems state-owned enterprises were encountering. Discusses the limitations of the market mechanism in semi-industrialized countries, focusing on the apparent insufficiency of import liberalization, real wage reductions, relative price changes, and antimonopoly legislation to generate robust capitalist developments in these countries. Critically examines the World Bank's approach to the transition. Reviews structuralist and mainstream ideas about how state- and privately-owned enterprises may evolve and influence each other. Considers the challenges now faced by the postsocialist states and the extent to which they are understood by the intellectual and political elites of Eastern Europe. Examines the problem of state capacity; the various pressures to which the state is subject; and the state's ability to take an active role in reindustrialization in Eastern Europe. Amsden is at the Massachusetts Institute of Technology. Kochanowicz is at the University of Warsaw. Taylor is at the New School for Social Research. Index.