Transformation (Initial Conditions and Objectives)

Question 1

What was the Russian planned economy like at the end of communism (8 things)?

Answer 1

Predominance of state ownership
Hierarchical administrative structure 
Non market resource allocation 
Administered prices
Output maximisation primary goal
Weak incentives for quality and innovation 
Shortages and repressed inflation
Deepening Economic crisis

Question 2

What were the initial conditions of transformation in ex-planned economies (5 things)?

Answer 2

Political change (end of communism)
Economics problems from failed reforms 
Breakdown of trade links between CEE and USSR
Many different republics (not one country)
Need for change in property rights

Question 3

What economic problems did the USSR face (5 things)?

Answer 3

Declining output and investment
Open and repressed inflation
Trade account deficits 
Budget deficits 
Mounting debt and debt repayments

Question 4

Where could the USSR look for previous experiences of transitions?

Answer 4

Fall of fascism in Germany Japan (1930s) Spain and Portugal (1970s)
Central and Eastern Europe after fall of Hapsburg (1918)
Latin America with fall of dictatorships (1970s & 80s)

Question 5

What was the end goal of reforms?

Answer 5

Not one answer but capitalism was the main goal
-However not clear if this was liberal market economy like in Anglo-American counties or social democratic coordinated market economy in Germany Scandinavia Japan etc

Question 6

What 6 things were on the agenda for transition (in the beginning of the 90s)?

Answer 6

Stabilisation 
Liberalisation 
Privatisation 
Institution Building
Social Support
Political change

Question 7

What is stabilisation?

Answer 7

Securing macroeconomic balance as quickly as possible
- Removing inflationary pressure from the economy
Changes to monetary and fiscal policy
- new taxes, spending cuts, currency stabilisation

Question 8

What is Liberalisation?

Answer 8

Happened both domestically and externally
Removing administrative price constraints to allow markets to function, freeing most prices
Foreign trade liberalisation
Customs duties
Move towards currency convertibility
The Washington Consensus

Question 9

What is privatisation?

Answer 9

Changing property rights and relations

Ending state dominance

Question 10

What is institution building?

Answer 10

In Russia this meant the adoption of new laws to allow a market economy for example, civil and commercial codes, company laws and labour codes ect

Question 11

What is social support?

Answer 11

Protecting those negatively effected by the transition, in Russia this was mainly through unemployment benefits

Question 12

What were political changes?

Answer 12

The meant the creation of a new democratic pluralist country with civil society and the rule of law

Question 13

What was the issue of sequencing?

Answer 13

The order in which the transition should be undertaken
-This was much debated in the early years but in practice policy makers were pragmatic with policy being shaped by political circumstances

Question 14

What is shock therapy?

Answer 14

A fast pace of transformation

Question 15

What is gradual evolutionary?

Answer 15

A slow pace of transformation

Question 16

What were the arguments made for a fast transformation

Answer 16

taking advantage of the end of communism
Building a barrier to stop the return of communism
A break from the past, feeling of someone new with momentum
Allowing less time for the growth and corruption and lobbies
More likely to receive aid from IMF

Question 17

What is the difference between transition and transformation?

Answer 17

Transition- a clear understanding of a starting point with a direct path to reach an end goal
Transformation - open ended as to a goal and no clear stated path

Question 18

How was transformation achieved in reality?

Answer 18

Each aspect had its own time frame
Stabilisation can happen quickly
Institutional change takes longer
Also the political climate effects what issues is undertaken

Question 19

Who coined the term “Washington Consensus”?

Answer 19

John Williamson, Institute of international Economics, 1989

Question 20

How did the Washington consensus think the transition should happen?

Answer 20

Rapidly

Question 21

What were the 4 main features of the Washington Consensus?

Answer 21

1 Liberalisation and stabilisation in accordance with standard methods from the IMF (used in Latin American Countries)
2 Privatisation seen as an essential factor in functioning markets and economic efficiency
3 focus on deregulation, open trade, fiscal balance, low inflation
4 belief that institutions arise from market forces

Question 22

Who challenged the Washington consensus and what was his approach?

Answer 22

Peter Murrell, university of Maryland

Believed in a evolutionary change in the economy based on the view of the Austrian school (von Mises, Hayek, Schumpeter)

Question 23

What was one of the main problems with the Washington consensus?

Answer 23

It was formed to deal with the Latin American debt crisis and not a manual for rebuilding capitalism in post communist countries

Question 24

What is an example of an alternative path?

Answer 24

China - gradual change but with still the communist party in charge, arguably more successful than Russia in building capitalism

Question 25

How did the view of transformation change in the 1990s?

Answer 25

Moved away from fast changed advocated by the Washington consensus
IMPORTANTLY A FOCUS ON INSTITUTIONS