Transition economies have an initial condition of high human capital relative to living standards. I explore the possible implications of this key fact by surveying and adapting literature on growth and inequality. I focus especially on the long run and policy options.

We model growth in dictatorships facing each period an endogenous probability of ``political catastrophe'' that would extinguish the regime's wealth extraction ability. Domestic capital exhibits a bifurcation point determining economic growth or shrinkage. With low initial domestic capital the...