Transformation (Initial Conditions and Objectives) Flashcards
What was the Russian planned economy like at the end of communism (8 things)?
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
What were the initial conditions of transformation in ex-planned economies (5 things)?
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
What economic problems did the USSR face (5 things)?
Declining output and investment Open and repressed inflation Trade account deficits Budget deficits Mounting debt and debt repayments
Where could the USSR look for previous experiences of transitions?
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)
What was the end goal of reforms?
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
What 6 things were on the agenda for transition (in the beginning of the 90s)?
Stabilisation Liberalisation Privatisation Institution Building Social Support Political change
What is stabilisation?
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
What is Liberalisation?
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
What is privatisation?
Changing property rights and relations
Ending state dominance
What is institution building?
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
What is social support?
Protecting those negatively effected by the transition, in Russia this was mainly through unemployment benefits
What were political changes?
The meant the creation of a new democratic pluralist country with civil society and the rule of law
What was the issue of sequencing?
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
What is shock therapy?
A fast pace of transformation
What is gradual evolutionary?
A slow pace of transformation
What were the arguments made for a fast transformation
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
What is the difference between transition and transformation?
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
How was transformation achieved in reality?
Each aspect had its own time frame
Stabilisation can happen quickly
Institutional change takes longer
Also the political climate effects what issues is undertaken
Who coined the term “Washington Consensus”?
John Williamson, Institute of international Economics, 1989
How did the Washington consensus think the transition should happen?
Rapidly
What were the 4 main features of the Washington Consensus?
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
Who challenged the Washington consensus and what was his approach?
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)
What was one of the main problems with the Washington consensus?
It was formed to deal with the Latin American debt crisis and not a manual for rebuilding capitalism in post communist countries
What is an example of an alternative path?
China - gradual change but with still the communist party in charge, arguably more successful than Russia in building capitalism
How did the view of transformation change in the 1990s?
Moved away from fast changed advocated by the Washington consensus
IMPORTANTLY A FOCUS ON INSTITUTIONS
